<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21176
WALL DATA INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
WASHINGTON 91-1189299
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
11332 N.E. 122ND WAY, KIRKLAND, WASHINGTON 98034-6931
(Address of principal executive offices) (Zip code)
(206) 814-9255
(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:
<TABLE>
<S> <C>
Name of each exchange
Class on which registered
----- -------------------
Common Stock Nasdaq National Market
Preferred Stock Purchase Rights Nasdaq National Market
</TABLE>
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the 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.
------
The aggregate market value of the voting stock held by nonaffiliates
of the registrant at March 1, 1997 was approximately $133,801,673.
The number of shares of the registrant's Common Stock outstanding at
March 1, 1997 was 9,178,711.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement for its annual meeting of
shareholders on May 29, 1997, which will be filed with the Securities and
Exchange Commission within 120 days after the close of the fiscal year, is
incorporated by reference in Part III hereof.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Wall Data Incorporated ("Wall Data" or the "Company") develops,
markets and supports Windows-based software products and associated application
tools. The Company's software provides personal computer ("PC") users in
business organizations with easy access to and use of computer applications and
data residing on multiple host mainframes, minicomputers, and servers in
enterprise-wide information system networks and public information networks.
Wall Data's products present these enterprise applications and data to PC users
in a familiar Windows environment, which allows them to use and interact with
enterprise applications and data in the same manner as with Windows
applications such as spreadsheets and word processors.
Wall Data's products and services consist of RUMBA(R) software
products, which provide business users with immediate and easy access to
information, irrespective of where it resides in the enterprise or public
network; ARPEGGIO(TM) software products, which allow corporations to publish
enterprise data and applications to business users throughout an organization;
R&R Report Writer(R) software products, which provide users with report writing
tools for desktop and client/server databases; SALSA(R) software products,
which allow business users and developers to create, use, share and distribute
multi-user Windows applications on their intranets; and ONESTEP(R) Services,
which provide customers with responsive, expert product support and product
upgrades.
The Company was incorporated in 1982 and specialized in the
development of data communication hardware and protocol conversion software.
In late 1988 and early 1989, the Company strengthened its management team and
redirected its strategy and resources to focus on the emerging market for
Windows-based PC-to-host connectivity software. The Company's current strategy
is to provide industry-leading products and related services that simplify the
use of and access to information and applications wherever they reside. The
Company intends to continue to introduce products for additional PC operating
systems, host platforms and connection types with broad acceptance in major
business organizations, particularly for the now widely established base of
corporate intranets.
When used in this discussion, the words "believes", "anticipates" and
"intends" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected. See
"--Important Factors Regarding Forward-Looking Statements." Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation
to publicly release the result of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
"WALL DATA", "RUMBA", "ONESTEP" and "SALSA" are registered trademarks,
and "ARPEGGIO" is a trademark, of the Company. "R&R Report Writer" is a
registered trademark
<PAGE> 3
of Concentric Data Systems, Inc., a wholly owned subsidiary of the Company.
This Report also contains trademarks of other companies.
INDUSTRY BACKGROUND
Beginning in the 1990s, business organizations began to shift their
enterprise information systems to the client/server model, in which the
computing workload is split between desktop PCs and one or more enterprise
servers. The benefits of client/server computing include increased flexibility
to adapt existing computing systems to create more responsive business
processes and enhanced employee productivity. However, the need to integrate
multiple platforms, operating systems, network protocols and hardware
configurations all contribute to the complexity of developing and maintaining
these new client/server systems.
As computing and networking technologies continue to broaden their
reach to include the business and home user, companies are exploring ways to
provide applications and information to new classes of users, including their
customers, vendors, remote employees and prospects. With the proliferation of
the Internet and corporate intranets, corporate information technology
departments need to make their applications and information available using
these new technologies. The Internet's broad acceptance and familiarity makes
it an ideal choice for companies to reach these new constituencies, while
intranets allow them to leverage the innovative and cost-reducing technologies
developed for the Internet.
The Company believes that the foregoing trends, together with the
continued proliferation of more powerful PCs and the continued growth of
information system networks, will stimulate increasing demand for PC
interaction with enterprise information systems. The Company believes that its
customers demand software products that improve the cost-effectiveness of their
information systems and increase user productivity by providing PC users with:
o the ability to access, create and publish information and
applications wherever they reside in the organization;
o easy access to and use of the organization's multiple computing
resources and public information networks;
o the advantages of working in a graphical environment; and
o connectivity across a wide array of network and communication
system configurations.
STRATEGY
Wall Data's strategy is to provide industry-leading products and
related services that simplify the use of and access to information and
applications throughout enterprise-wide information system networks and public
information networks. Key elements of the Company's business strategy include
the following:
-2-
<PAGE> 4
PRODUCT LEADERSHIP. A principal aspect of the Company's strategy is
to develop, market and support industry-leading software products that achieve
maximum customer satisfaction. As part of this strategy, the Company has
designed its products, based on substantial input from business customers, to
address the opportunities afforded by the increased capabilities and market
penetration of Microsoft Corporation ("Microsoft") Windows, Windows 95 and
Windows NT, and networks such as LANs, intranets and the Internet. The Company
actively solicits customer feedback on such topics as ease of use, completeness
of solution, reliability, and integration with existing enterprise information
systems. The Company intends to continue to address evolving market
requirements for industry leading products.
EXPAND PRODUCT BASE. The Company intends to continue to introduce
products that provide access to additional host platforms, connection types and
PC operating systems with broad acceptance in major business organizations.
Since the introduction of RUMBA for the Mainframe, Windows Version, in 1989,
the Company has continued to expand the capabilities and features of its RUMBA
product family by developing software for additional hosts and operating
environments. In addition, the Company introduced SALSA software products in
the first quarter of 1996, ARPEGGIO software products in the second quarter of
1996 and R&R Report Writer software products in 1995. See "--Products and
Services." Priorities for the development of new products are based on the
size of individual markets and ease of market penetration.
PRODUCT SUPPORT AND SERVICE. As a complement to the Company's
strategy of delivering industry-leading products, the Company strives to
provide the support and service necessary to ensure customer satisfaction at
the user, administrator and management information systems ("MIS") levels of
customers' organizations. In 1994, the Company introduced its ONESTEP family
of support services, which includes options for telephone support, electronic
services and software maintenance to the Company's service subscribers. In
addition, the Company provides support to its resellers and distributors in
meeting the needs of the Company's end-user customers.
MULTIPLE DISTRIBUTION CHANNELS. The Company uses multiple
distribution channels to reach and maintain relations with its targeted
customers and to provide the levels of support, training and education required
by these customers. The Company's customers vary in size, complexity and
purchasing-decision structures and, consequently, require multiple sales
strategies and distribution channels. To address the range of such
opportunities, Wall Data uses a combination of direct sales, telesales,
indirect distribution and original equipment manufacturer ("OEM") arrangements.
The Company's direct sales force focuses primarily on large national and
multinational business organizations. The Company also has established
indirect distribution channels consisting primarily of resellers and
distributors, including system integrators and value-added resellers.
INTERNATIONAL FOCUS. The Company's strategy is to address the
requirements of business organizations that may have computing resources
located worldwide. The architecture of RUMBA products, in connection with the
Company's National Language Support technology,
-3-
<PAGE> 5
facilitates the Company's ability to translate RUMBA text into different
languages, including those with complex character sets. To take advantage of
market opportunities in Europe, the Company established a European headquarters
in the United Kingdom in early 1991 and sales and service operations in France
in late 1992 and in Germany in early 1994. To take advantage of market
opportunities in Japan and Asia, the Company established a development, sales
and service operation in Japan in 1994. Approximately 29% of the Company's net
revenues in 1996 were attributable to sales made to customers outside North
America.
PRODUCTS AND SERVICES
Wall Data's products and services consist of RUMBA software products,
which provide business users with immediate and easy access to information,
irrespective of where it resides in the enterprise or public network; ARPEGGIO
software products, which allow corporations to publish enterprise-wide data and
applications to business users throughout an organization; R&R Report Writer
software products, which provide users with report writing tools for desktop
and client/server databases; SALSA software products, which allow business
users and developers to create, use, share and distribute multi-user Windows
applications on their intranets; and ONESTEP Services, which provide customers
with responsive, expert product support and product upgrades.
RUMBA SOFTWARE
The Company's principal product line is the RUMBA family of PC-based
connectivity software products, which operate in the Microsoft Windows, Windows
95 and Windows NT environments. RUMBA products support the exchange of
information between PC applications and host applications operating on IBM and
IBM-compatible mainframe computers, IBM AS/400 midrange computers, Digital
Equipment Corporation ("Digital") VAX computers, UNIX computers, Hewlett
Packard Company ("HP") 3000 and 9000 computers, and a variety of client-server
and desktop databases. RUMBA products implement PC-to-enterprise connections
using a wide array of network and communication system configurations,
including several types of direct and local area network ("LAN") communication
hardware, multiple LAN operating systems and a broad range of communications
servers and gateways. RUMBA software is designed to be implemented
enterprise-wide and to leverage customers' existing investments in host
computers, applications, PCs and networking infrastructure, including
investments in corporate intranets and the Internet.
Several attributes of RUMBA software products simplify the
implementation, use and support of the Company's products across a large number
of business PC users of varying proficiency. The RUMBA product family
incorporates a consistent graphical look-and-feel for PC users independent of
the host system, PC operating environment and applications being used. RUMBA
products are designed to be easy to install and use and allow users to automate
information and application access procedures or build custom operational
sequences to further simplify the utilization of enterprise information. RUMBA
client software is delivered without printed user documentation, and reference
information is available through on-screen, context-
-4-
<PAGE> 6
sensitive help. The Company believes that these attributes of RUMBA software
enable the Company's customers to achieve increased user productivity, as
corporate information and host applications are made available to the PC user
in the same manner as PC applications and data.
In response to customer demand for accessing applications and
information across the Internet and corporate intranets, the RUMBA product
family supports TCP/IP connectivity (the basic protocol of intranets and the
Internet) and provides end-users with a variety of functions that make them
more productive in these new environments. These capabilities allow users to
interact with existing applications, databases and Internet/intranet servers
through an easy, consistent user interface, thereby simplifying the business
users' jobs. The Company believes the complexities of interacting with an
ever-increasing array of applications and systems will continue to drive the
need for products that simplify this interaction.
The Company's RUMBA software products fall into two categories: RUMBA
client software products and RUMBA tool products. In 1989, Wall Data
introduced RUMBA for the Mainframe, Windows Version, which allowed PC users to
access and use host information and applications on IBM and IBM-compatible
mainframes. Since then, the Company has introduced new client software
products and features that allow PC users to access and use host applications
and data in various enterprise-wide networks, public information networks and
mail and messaging systems. RUMBA tool products allow advanced users,
developers and administrators to create custom applications to suit user needs.
The Company's modular software architecture supports the use of
multiple graphical user interfaces and network and host operating system
technologies. In addition, the Company's software architecture facilitates the
efficient incremental expansion of product features and enhancements and, in
combination with RUMBA application products and tools, provides customers with
the ability to customize RUMBA software to meet particular user needs.
The Company has derived a substantial majority of its net revenues to
date from sales of its RUMBA client software products, which accounted for 86%,
88% and 96% of net revenues in 1996, 1995 and 1994, respectively. The RUMBA
product line and related enhancements are expected to continue to account for a
majority of the Company's net revenues for the foreseeable future. A decline
in demand for RUMBA products as a result of competition, technological changes
or otherwise would have a material adverse effect on the Company's results of
operations. See "--Important Factors Regarding Forward-Looking Statements."
RUMBA CLIENT SOFTWARE PRODUCTS. RUMBA client software products allow
business users running the Microsoft Windows, Windows 95 and Windows NT
operating systems easy access to character-based and client/server applications
and data residing on IBM and IBM-compatible mainframe computers, IBM AS/400
midrange computers, Digital VAX computers, UNIX computers, HP 3000 and 9000
computers, and a variety of client-server and desktop databases. The
Company's client software products operate on PCs. These products implement
PC-to-host connections using a wide array of network and communication system
configurations and are designed to be implemented enterprise-wide. The modular
architecture of RUMBA
-5-
<PAGE> 7
products has allowed the Company to deliver individual products to specific
markets in accordance with the demands of that market. Generally, these
products are licensed on a per-user basis and may be available pursuant to
enterprise-wide or site licenses. See "--Agreement/License Terms."
RUMBA OFFICE products offer a suite of solutions for users needing to
access enterprise server or host systems by providing access to a vast range of
character-based and client/server applications on business-critical systems
such as IBM mainframe, IBM AS/400, Digital VAX, UNIX and HP systems. The
modular architecture of RUMBA OFFICE integrates file and print management,
database access, mail and messaging, and Internet features into a single
universal client. In addition, features such as QuickAssist, which eliminates
repetitive keystrokes, and Hotspots and QuickStep, which allow host
applications to be operated by a mouse instead of the keyboard, help to provide
customers with productivity-enhanced business tools.
The Company recently introduced RUMBA Mail featuring 3M's Software
Post-it Notes, which allows easy access to a variety of electronic mail systems
by employing the familiar Post-it Note metaphor to the task of sending and
receiving messages.
RUMBA TOOL PRODUCTS. The Company's RUMBA software tools operate on
client PCs and network servers to enable software developers and advanced users
to customize or develop PC applications making use of host information in
conjunction with RUMBA software. By implementing industry-standard
architectures for custom solution development, including Microsoft's ActiveX
component architecture, RUMBA tool products give developers the ability to
produce custom software solutions that meet specific user needs without having
to create the enterprise information access technology themselves.
RUMBA tools deliver a range of capabilities for enhancing the
presentation of enterprise information on PCs and are designed for users and
developers of varying proficiency: (i) advanced Windows application users can
use RUMBA application tools to present enterprise information in the formats of
familiar Windows applications, such as Excel or Lotus 1-2-3 spreadsheets; (ii)
advanced users or Windows developers can use RUMBA application tools to
customize or develop specific Windows applications designed to incorporate
enterprise information; and (iii) more sophisticated developers can use RUMBA
application tools in connection with industry-standard application programming
interfaces and computer-aided software engineering tools to develop
sophisticated PC applications and transaction programs interfacing with host
applications. These products are licensed on a per-unit basis and may be
available pursuant to enterprise-wide or site licenses. See
"--Agreement/License Terms."
ARPEGGIO INFORMATION PUBLISHING SOFTWARE
Wall Data's ARPEGGIO product family was introduced in 1996 with the
ARPEGGIO Viewer, ARPEGGIO for the Desktop, and ARPEGGIO for the Developer
products. These products allow organizations to electronically publish both
applications and information from a
-6-
<PAGE> 8
variety of client-server and desktop databases to a broad range of business
users. ARPEGGIO products provide users with simple access to the enterprise
information network, without needing to understand complex desktop software or
be experts in the systems they are accessing. Additionally, ARPEGGIO products
allow organizations to make information and applications available to both
employees and people outside their companies, without the need to distribute
software to them or provide them with a proprietary network connection. These
products are available for users of Microsoft Windows 95 and Windows NT.
The ARPEGGIO Viewer allows business users to easily view on their PC
information published by others without any need to know database or
application technology. ARPEGGIO for the Desktop allows the proficient PC user
to generate information documents and electronically publish them to other
ARPEGGIO users. ARPEGGIO for the Developer allows applications developers to
embed ARPEGGIO information publishing capabilities in custom applications for
use by others.
In early 1997, the Company intends to ship a new product, ARPEGGIO
Live!, which extends the basic ARPEGGIO publishing capability to the Internet
and corporate intranets. With ARPEGGIO Live!, organizations can make both
database information and existing applications on IBM mainframe and AS/400
midrange computers selectively available to any user with a Web browser and a
standard Internet or intranet connection.
R&R REPORT WRITER SOFTWARE
Wall Data's report writing line of software, R&R Report Writer, was
introduced in 1995 with the acquisition of Concentric Data Systems, Inc. The
R&R Report Writer family of data access and reporting tools includes Windows-
and DOS-based versions that support over 25 of the leading database formats.
R&R Report Writer products include an interactive report designer for creating
and modifying reports, and a royalty-free run-time version for seamless
integration into business applications. Wall Data currently markets its R&R
Report Writer products as additional client/server functionality contained in
RUMBA client software products, such as RUMBA OFFICE, and also separately to
users either directly from the Company or Concentric Data Systems, Inc. or
through its distribution channels.
SALSA SOFTWARE
In February 1996, Wall Data launched its SALSA software product line,
based on a patented data modeling technology called semantic object modeling.
SALSA software allows corporate users and developers to create, use, share and
distribute multi-user Windows applications on their intranets. All SALSA
software products leverage the intranet's unique ability to provide instant
access to enterprise-wide information, allowing employees to fully utilize all
of an organization's resources to meet individual, departmental and corporate
data management needs.
The Company is currently shipping three categories of SALSA software
products:
-7-
<PAGE> 9
SALSA INTRANET APPLICATIONS. SALSA Intranet Applications are
ready-to-run applications built for specific corporate data management needs;
SALSA FOR THE DESKTOP. SALSA for the Desktop creates and changes
custom SALSA intranet applications. Using predefined drag and drop templates,
users describe their business application needs through a simple process of
creating a model. The user pushes a button and SALSA for the Desktop
constructs a complete custom database application based on that model. As the
application needs change, the user simply modifies the model and SALSA for the
Desktop automatically migrates the existing application and data to reflect the
change; and
SALSA APPLICATION VIEWER. SALSA Application Viewer finds and runs any
SALSA applications, with or without SALSA for the Desktop.
ONESTEP SERVICES
Wall Data's ONESTEP Services provide responsive, expert product
support and product upgrades for the Company's software products. This
flexible annual program provides responsive, priority product support at
predictable costs, augments customers' support staff and maximizes user
productivity. Customers can select the support options that best fit the size,
structure and service requirements of their organization. Separate service
offerings are available for various Wall Data products. Individual program
options include: priority telephone access to Wall Data senior support
engineers; ONESTEP Live! electronic services on the World Wide Web that provide
on-line case entry, privileged access to Wall Data's online information base,
and the ability to download current product updates and fixes; and upgrade
subscription, which keeps the customer's software current with the latest
upgrades and updates.
SALES, MARKETING AND DISTRIBUTION
The Company markets its products primarily to national and
multinational business organizations and governmental entities with installed
enterprise computer systems and PCs using Microsoft Windows, Windows 95 and
Windows NT. These organizations vary in size, complexity and
purchasing-decision structures. To address these ranges of sales and marketing
opportunities, Wall Data uses a combination of direct sales, telesales,
indirect distribution and OEM arrangements.
The direct sales force focuses on large business organizations and
markets to several levels within these organizations, including the executive,
MIS, department/division and user levels. The Company also sells its products
through indirect channels, primarily consisting of distributors and national
and regional resellers addressing the business market. The Company supports
its resellers and distributors with experienced sales, marketing, systems
engineering and technical support staffs. In addition, the Company relies on
resellers and distributors to market and support its products in certain
markets. There can be no assurance, however, that such resellers and
distributors will be able to market the Company's products effectively or be
qualified to provide timely and cost-effective customer support or service.
-8-
<PAGE> 10
Wall Data sells its RUMBA product line through national distributors
such as Ingram Micro, Inc., Merisel, Inc. and Tech Data Corporation, which may
in turn sell to other resellers, value-added resellers and dealers.
Additionally, the Company's resellers include Stream, Inc., Softmart, Inc.,
Software Spectrum, Inc., Shared Medical Systems and Entex Information Systems.
The Company's agreements with resellers and distributors typically are not
exclusive and may be terminated by either party without cause. Many of the
Company's resellers and distributors carry competing product lines. There can
be no assurance that any resellers or distributors will continue to represent
the Company's products or that additional resellers or distributors will agree,
or continue, to represent the Company's products. The Company's distributors
generally are permitted inventory exchange or rotation rights.
Wall Data also has entered into OEM agreements with IBM, Digital,
Olivetti, CompuServe and others pursuant to which these companies market
derivatives of RUMBA products under various names. See "--Products and
Services." The OEM agreements generally provide for nonexclusive licenses of
specific versions of RUMBA software and allow the OEMs to combine the specific
version of RUMBA software with their product-specific software and to
distribute and market the derivative of the RUMBA software product under their
own names. The Company generally receives a license fee or royalty based on
the number of copies of products or derivatives of RUMBA distributed to end
users or used internally. The Company's OEM agreements with IBM, Digital,
Olivetti and CompuServe expire in 2001, 1997, 2001, and 1997, respectively.
Such agreements may be terminated by either party upon breach by the other
party, and the agreement with IBM is terminable by IBM upon 90 days' notice.
The Company intends to pursue OEM agreements with additional companies. Sales
pursuant to OEM agreements accounted for approximately 10% of the Company's net
revenues in 1996.
The Company's marketing programs are designed to create user awareness
and generate sales opportunities for its direct sales force and telesales, as
well as its resellers, distributors and OEMs. These programs include press
releases, press and industry analyst relations, advertising in trade and
business publications, direct mail advertising, participation in regional
conferences, seminars, trade shows and industry conferences and provision of
ongoing customer communication programs. In addition, the Company provides
demonstration disks and trial versions of the software to promote the products
and provide product information. Additional sales support is provided to
resellers through product literature and promotional programs. The Company
also assists the marketing efforts of certain of its resellers and distributors
by providing funds for promotional and educational purposes.
Approximately 29% and 28% of the Company's net revenues in 1996 and
1995, respectively, were attributable to sales made to customers outside North
America. The Company expects that international sales will continue to
be a significant portion of its business. The Company's international sales
efforts are focused primarily on large business organizations that may have
computing resources located throughout the world. The Company has sales and/or
marketing staff located in Argentina, Australia, Brazil, Canada, England,
France, Germany, Italy, Japan, Mexico, Singapore, Spain and the United States.
Currently, the Company's sales in Europe are made primarily through local
resellers and distributors. Agreements with local
-9-
<PAGE> 11
resellers and distributors generally provide the resellers nonexclusive rights
to sell the Company's products in a specified geographic area. Resellers
typically are required to pay license fees for all products shipped to them and
agree to market the products. Generally, the agreement may be terminated by
the Company if the reseller breaches the agreement or fails to reach
agreed-upon sales quotas and, after one year, may be terminated by either party
with three months' notice. See Note 11 of Notes to Consolidated Financial
Statements for more information regarding foreign operations and export sales.
The Company faces certain risks inherent in international business
operations, including unexpected changes in regulatory requirements, tariffs
and other trade barriers, fluctuations in foreign currency exchange rates,
longer accounts receivable payment cycles, difficulties in staffing and
managing international operations, potentially adverse tax consequences,
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. There can be no assurance that such factors will not have an
adverse effect on the Company's future international sales and, consequently,
on the Company's results of operations. See "--Important Factors Regarding
Forward-Looking Statements."
AGREEMENT/LICENSE TERMS
Generally, the Company's products are licensed on a per-user basis.
For certain major customers, the Company makes available enterprise-wide
licenses. Under the terms of these enterprise-wide licenses, the customer
acquires a master copy of the software and the right to make and distribute to
its users multiple copies of the software. In addition, multiple copies of
RUMBA software products may be acquired by organizations on preferred terms
under volume procurement agreements. For example, volume licensees of RUMBA
software may pay a lower per- user price based on volume. The terms of any
volume procurement agreement are negotiated between the Company and the
licensee at the time of the agreement. Generally, the Company provides a
90-day warranty against defects on the disks containing software.
CUSTOMERS AND CUSTOMER SERVICE AND SUPPORT
The Company estimates that over 4,900,000 copies of its software
products have been licensed to over 11,850 organizations worldwide. These
organizations generally range from medium-sized businesses and professional
organizations to large multinational business organizations.
The Company's software products are designed to be easy to install and
use and include support features such as on-screen documentation,
context-sensitive help and diagnostic tools. Customers may also telephone the
Company's technical support staff for additional assistance. A complementary
service period is included in the initial product license fee and extended
periods of service are offered as ONESTEP Services. The Company provides field
service and support through a staff of systems engineers located worldwide and
technical support centers located in Kirkland, Washington, Westborough,
Massachusetts, Paris, London and Munich. The Company's
-10-
<PAGE> 12
field systems engineers provide assistance in diagnosing problems and work
closely with customers to assist them in increasing the efficiency and
productivity of their systems.
The Company's support staff also trains resellers and distributors to
provide a first level of technical support to the Company's customers and
actively supports them in this effort. The technical support staff is
available by telephone in the Company's operations centers in Kirkland,
Washington, Westborough, Massachusetts, London, Paris, Munich and Tokyo. The
Company intends to expand its support staff and global service capabilities to
continue to provide a high level of customer satisfaction.
BACKLOG
The Company typically ships its products as orders are received and,
consequently, substantially all of the Company's net revenues in any quarter
result from orders received in that quarter. Accordingly, generally the
Company does not have any significant backlog and believes that its backlog at
any given point in time is not a reliable indicator of future sales or
earnings. The seasonal purchasing patterns of many of the Company's customers
and the absence of significant backlog may contribute to variations in the
Company's quarterly results of operations.
PRODUCT DEVELOPMENT
The Company intends to enhance and expand its product lines in
connection with evolving customer requirements and industry standards and other
technological changes. The Company believes its future success will depend on
its ability to do so and any failure by the Company to anticipate or respond
adequately to changes in technology and customer preferences, or any
significant delay in product development or introduction, could have a material
adverse effect on the Company's results of operations. The Company employs
engineers to develop new products and product enhancements. Historically, the
Company generally has developed new products internally but, from time to time,
has acquired or licensed technologies from third parties. Although there can
be no guarantee that product development efforts will result in commercially
viable products, Wall Data intends to continue to make substantial investments
in product development. See "--Important Factors Regarding Forward-Looking
Statements." Wall Data's product development expenses totaled $22.9 million,
$19.8 million and $13.7 million in 1996, 1995 and 1994, respectively.
COMPETITION
The connectivity market within the computer industry is intensely
competitive and subject to rapidly changing technology and evolving standards
incorporated into PCs, networks, host computers and enterprise servers. The
Company competes with providers of PC-to-host connectivity products, including,
without limitation, IBM, Attachmate Corporation and Netsoft Corporation. In
addition, the Company competes with providers of software products for TCP/IP
networks such as Novell, Inc. ("Novell"), FTP Software, Inc., NetManage, Inc.
and Sun Microsystems, Inc. The Company also may compete with Host-to-HTML
converter and other Internet/corporate intranet information publishing
products, which allow PCs to access
-11-
<PAGE> 13
information from enterprise servers or host systems using Internet browsers.
These products may cause customers to re-evaluate their information and
application access strategy in ways that reduce the need for the Company's
client products. In general, customers and prospective customers of the
Company's products have competitors' connectivity products installed, and the
Company competes with these vendors for customer orders. The Company derives a
substantial portion of its net revenues from sales of its RUMBA products for
IBM and IBM-compatible mainframe computers and IBM AS/400 midrange computers.
IBM sells products that compete with those of the Company and can exercise
significant customer influence and technology control in the IBM PC-to-host
connectivity market. The Company also competes with providers of LAN systems
and software products that can provide PC-to-host connectivity. Microsoft
currently incorporates limited PC-to-host connectivity technology in Windows.
The Company expects that Microsoft will continue to include and expand this
technology in its future products and product enhancements. The introduction
by Microsoft of a client software connectivity product or formation of a
significant relationship with a competitor of the Company could adversely
affect sales of the Company's products. Also, the introduction of Internet and
corporate intranet technology by the Company's traditional competitors or by
any other company in the Internet/intranet technology market may reduce the
demand for the Company's products. Many of the Company's competitors have
substantially greater financial, technical, sales and marketing and other
resources, as well as greater name recognition and a larger installed base,
than the Company. The Company believes that competition will increase in the
future.
The market for the Company's products is also characterized by
significant price competition, and the Company expects it will face increasing
pricing pressures. There can be no assurance that the Company will be able to
maintain its historic prices, and an inability to do so may adversely affect
the Company's results of operations.
The principal competitive factors affecting the market for the
Company's products include product functionality, ease of use, price, quality,
performance and reliability; quality of customer service and support; product
availability; vendor credibility; and ability to keep pace with technological
change. There can be no assurance that the Company will continue to compete
successfully in the face of increasing competition from new products and
enhancements introduced by existing competitors and new companies entering the
market.
PROPRIETARY RIGHTS
The Company regards its software as proprietary and relies on a
combination of patent, trademark and copyright laws, trade secrets,
confidentiality procedures and contractual provisions, including employee and
third-party nondisclosure and proprietary rights agreements, to protect its
proprietary rights. The Company has registered and filed applications to
register its trademarks "WALL DATA", "RUMBA", "ONESTEP" and "SALSA" and their
associated logos in the United States and other countries and has pending
trademark applications in the United States and other countries for "ARPEGGIO".
The laws of some foreign countries may not protect the Company's proprietary
rights to the same extent as do the laws of the United States.
-12-
<PAGE> 14
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or
to obtain and use information the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, it expects software piracy to be a persistent problem.
The Company typically distributes its products to users under
nonexclusive, nontransferable licenses, which restrict use of the product
solely for the customer's internal operations. In selling some of its
products, the Company relies on "shrink wrap" licenses that are not signed by
licensees and, therefore, may be unenforceable. In other circumstances, the
Company makes available enterprise-wide licenses, which permit use and copying
of the product for internal purposes only and typically are for limited terms.
In addition, the Company has entered into certain agreements pursuant to which
it has licensed object code for specific products and, in certain cases, has
entered into source code escrow agreements. Pursuant to these escrow
agreements, the Company deposits the source code for the licensed product and
related materials with an escrow agent or trustee who must maintain the
confidentiality of the source code and may release the source code and
materials to the licensee only in the event of insolvency or dissolution of, or
reasonably certain nonperformance by, the Company. Upon such release, the
licensee may use the released source code and materials only in accordance with
the restrictions under the terms of its license or OEM agreement with the
Company.
While the Company's competitive position may be affected by its
ability to protect its proprietary information, the Company believes that
because of the rapid pace of technological change in the industry, factors such
as the technical expertise, knowledge and innovative skill of the Company's
management and technical personnel, name recognition, the timeliness and
quality of support services provided by the Company and its ability to rapidly
develop, produce, enhance and market software products may be more significant
in maintaining the Company's competitive position.
No material claims have been made against the Company for infringement
of proprietary rights of third parties. There can be no assurance, however,
that third parties will not assert infringement claims against the Company in
the future.
As the number of software products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software programs will become increasingly subject to infringement claims. The
cost of responding to any such assertion may be material, whether or not the
assertion is valid.
SEASONALITY
The Company's business is seasonal. A substantial portion of the
Company's annual net revenues and operating income typically occur in the
fourth quarter, and in each of the last five years, the first quarter revenues
have been down sequentially compared with the immediately preceding fourth
quarter. In addition, the third quarter of each year typically is
characterized by
-13-
<PAGE> 15
more difficult sales cycles, particularly in Europe, as customers tend to
procure more slowly during the summer months.
EMPLOYEES
As of December 31, 1996, the Company's headcount totaled 745 persons,
including employees and contractors. The Company believes that its future
success continues to depend, in part, on its ability to continue to attract and
retain skilled technical, marketing and management personnel. Competition for
such personnel in the computer industry is intense. The Company believes its
relations with its employees are good.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The following important factors, among others, could cause Wall Data's
actual results to differ materially from those expressed in Wall Data's
forward-looking statements in this Report and presented elsewhere by management
from time to time.
FLUCTUATIONS IN QUARTERLY PERFORMANCE. The Company's results of
operations historically have varied substantially from quarter to quarter, and
the Company expects that they will continue to do so. The timing and amount of
the Company's quarterly net revenues are dependent on a number of factors, such
as the size and timing of customer orders or license agreements, the timing of
the introduction and customer acceptance of new products or product
enhancements by the Company or its competitors, changes in computer operating
systems introduced by Microsoft, IBM or other companies, changes in pricing
policies by the Company or its competitors, product returns or rotations,
fluctuations in foreign exchange rates and changes in general economic
conditions. Products generally are shipped as orders are received.
Accordingly, the Company historically has operated with little or no backlog.
In addition, the Company's operating expenses are relatively fixed in the short
term, and a significant portion of the revenues for each quarter typically is
received near the end of the quarter. As a result, variations in timing of
revenues can cause significant variations in quarterly results of operations.
The Company does not generally take measures that are specifically designed to
limit fluctuations in the Company's quarterly results of operations. There can
be no assurance that the Company will be profitable on a quarter-to-quarter
basis in the future.
The growth in net revenues and operating income experienced by the
Company during the past five years is not necessarily indicative of future
results. In view of the significant growth of the Company's operations in
recent years, the Company believes that period-to-period comparisons of its
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance.
The Company's business is seasonal, with a substantial percentage of
its annual net revenues and operating income typically occurring in the fourth
quarter of the year. See "--Seasonality."
-14-
<PAGE> 16
COMPETITION. The connectivity market within the computer industry is
intensely competitive and subject to rapidly changing technology and evolving
standards incorporated into PCs, networks, host computers and enterprise
servers. In general, customers and prospective customers of the Company's
products also have competitors' connectivity products installed, and the
Company competes with these vendors for customer orders. The introduction by
Microsoft of a client software connectivity product or formation of a
significant relationship with a competitor of the Company could adversely
affect sales of the Company's products. Also, the introduction of Internet and
corporate intranet technology by the Company's traditional competitors or by
any other company in the Internet/intranet technology market may reduce the
demand for the Company's products. Many of the Company's competitors have
substantially greater financial, technical, sales and marketing and other
resources, as well as greater name recognition and a larger installed base,
than the Company. The Company believes that competition will increase in the
future. The market for the Company's products is also characterized by
significant price competition, and the Company expects that it will face
increasing pricing pressures. There can be no assurance that the Company will
be able to maintain its historic prices, and an inability to do so may
adversely affect the Company's results of operations. There further can be no
assurance that the Company will continue to compete successfully in the face of
increasing competition from new products and enhancements introduced by
existing competitors and new companies entering the market. See
"--Competition."
DEPENDENCE ON A SINGLE PRODUCT LINE. The Company has derived a
substantial portion of its net revenues to date from sales of its RUMBA client
software connectivity products, and the RUMBA product line and related
enhancements are expected to continue to account for a substantial portion of
the Company's net revenues for the foreseeable future. A decline in demand for
RUMBA products as a result of competition, technological change or otherwise
would have a material adverse effect on the Company's results of operations.
See "--Products and Services" and "--Competition."
DEPENDENCE ON HOST COMPUTERS. The Company's products are designed for
use with IBM and IBM-compatible mainframe computers, IBM AS/400 midrange
computers and Digital VAX computers. If business organizations were to reduce
their use of these host computers, the market for the Company's products would
be adversely affected. In addition, because the Company's products operate in
conjunction with IBM and Digital system software, the Company must adapt its
products to technological changes by IBM and Digital. Any failure by the
Company to do so in a timely manner would adversely affect the Company's
results of operations. See "--Products and Services" and "--Competition."
DEPENDENCE ON MICROSOFT WINDOWS. Substantially all of the Company's
net revenues are derived from the sales of products designed to achieve host
connectivity within a Microsoft Windows environment and are marketed primarily
to Windows users. As a result, sales of the Company's products could be
materially adversely affected by market developments adverse to Windows. In
addition, the Company's strategy of developing products using the Windows
environment is substantially dependent on its ability to gain access to, and to
develop expertise
-15-
<PAGE> 17
in, current and future Windows developments by Microsoft in a timely fashion.
See "--Products and Services" and "--Competition."
NEW PRODUCTS AND TECHNOLOGICAL CHANGE. The market for the Company's
products is characterized by rapidly changing technology, evolving industry
standards, changes in customer needs and frequent new product introductions.
The Company's future success will depend on its ability to enhance its current
products, to develop new products on a timely and cost-effective basis that
meet changing customer needs and to respond to emerging industry standards and
other technological changes. In particular, the Company must be able to modify
its products to maintain compatibility with IBM and IBM-compatible mainframe
computers, IBM AS/400 midrange computers, Digital VAX computers, Novell LAN
operating systems, Microsoft Windows, and industry-standard PCs, hosts and
communications interfaces. Likewise, the Company must adapt its current
products, and potentially develop new ones, to address the rapidly evolving
Internet and corporate intranet market. Any failure by the Company to
anticipate or respond adequately to changes in technology and customer
preferences or industry standards, or any significant delays in product
development or introduction, would have a material adverse effect on the
Company's results of operations. There can be no assurance that the Company
will be successful in developing new products or enhancing its existing
products on a timely basis, or that such new products or product enhancements
will achieve market acceptance. See "--Product Development" and
"--Competition."
Software products as complex as those offered by the Company may
contain undetected errors or failures when first introduced or as new versions
are released. There can be no assurance that, despite significant testing by
the Company and by current and potential customers, errors will not be found in
new products after commencement of commercial shipments, resulting in loss of
or delay in market acceptance. Furthermore, from time to time the Company and
others may announce new products, capabilities or technologies that have the
potential to replace or shorten the life cycles of the Company's existing
products. There can be no assurance that announcements of currently planned or
other new products will not cause customers to defer purchasing existing
Company products or cause distributors to return products to the Company.
Delays or difficulties associated with new product introductions or product
enhancements could have a material adverse effect on the Company's results of
operations.
RELIANCE ON RESELLERS AND DISTRIBUTORS. Although the Company intends
to continue to expand its own sales and marketing staff to sell products
directly to its customers, in the future, the Company expects to continue to
rely on resellers and distributors for sales of its products. There can be no
assurance, however, that such resellers and distributors will be able to market
the Company's products effectively. The Company's agreements with resellers
and distributors are not exclusive and may be terminated by either party
without cause. Many of the Company's resellers and distributors carry
competing product lines. There can be no assurance that any reseller or
distributor will continue to represent the Company's products. In addition,
the Company will be increasingly dependent on the continued viability and
financial stability of resellers and distributors, which, in turn, are
substantially dependent on the PC industry. The
-16-
<PAGE> 18
inability to recruit, or the loss of, important resellers or distributors could
adversely affect the Company's results of operations. See "--Sales, Marketing
and Distribution."
The Company also expects to rely increasingly on resellers and
distributors to support its products. There can be no assurance, however, that
the Company will be able to attract resellers and distributors qualified to
provide timely and cost-effective customer support or service. Any
deficiencies in the service or support provided by such entities could have a
material adverse effect on the Company's results of operations. See "--Sales,
Marketing and Distribution" and "--Customers and Customer Service and Support."
INTERNATIONAL OPERATIONS. The Company expects that international
sales will continue to account for a significant portion of its business. An
increase in the value of the U.S. dollar relative to foreign currencies could
make the Company's products less competitive in those markets in which the
Company's products are sold. The Company does not currently engage in foreign
currency hedging transactions, although it may implement such transactions in
the future. Operating expenses relating to foreign offices also are subject to
the effects of fluctuations of foreign currency exchange rates. The Company
faces certain risks inherent in international business operations, including
unexpected changes in regulatory requirements, tariffs and other trade
barriers, longer accounts receivable payment cycles, difficulties in staffing
and managing international operations, potentially adverse tax consequences,
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. There can be no assurance that such factors will not have a
material adverse effect on the Company's future international sales and,
consequently, on the Company's results of operations.
DEPENDENCE ON KEY PERSONNEL; MANAGEMENT OF GROWTH. The Company's
success depends to a significant extent on a number of senior management
personnel, including the Company's Chairman of the Board and Chief Executive
Officer, James Simpson, and its founder and President, John R. Wall. The loss
of the services of these key persons would have a material adverse effect on
the Company. The Company has no employment agreement with Mr. Simpson or Mr.
Wall. The Company's success also depends in part on its ability to attract and
retain qualified professional, technical, managerial and marketing personnel.
Competition for such personnel in the software industry is intense. There can
be no assurance that the Company will be successful in attracting and retaining
the personnel it requires to develop new and enhanced products and to conduct
its operations successfully. The ability of the Company to sustain growth will
depend in part on the ability of its officers and key personnel to manage
growth successfully through implementation of appropriate management systems
and controls. The Company's results of operations could be materially
adversely affected if the Company were unable to attract, hire, assimilate,
train and manage these personnel, or if revenues failed to increase at a rate
sufficient to absorb the resulting increase in expenses. See "--Sales,
Marketing and Distribution" and "--Employees."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that
the Company regards as proprietary. Policing
-17-
<PAGE> 19
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, it expects software piracy to be a persistent problem. In selling some
of its products, the Company relies on "shrink wrap" licenses that are not
signed by licensees and, therefore, may be unenforceable. In addition, the
laws of some foreign countries may not protect the Company's proprietary rights
to the same extent as do the laws of the United States. There can be no
assurance that these protections will be adequate or that the Company's
competitors will not independently develop similar technology. There can be no
assurance that third parties will not assert infringement claims against the
Company in the future. As the number of software products in the industry
increases and the functionality of these products further overlaps, the Company
believes that software programs will become increasingly subject to
infringement claims. The cost of responding to any such assertion may be
material, whether or not the assertion is valid. See "--Proprietary Rights."
EXECUTIVE OFFICERS AT DECEMBER 31, 1996
James Simpson 59 Chief Executive Officer of
the Company since 1988; Director
since 1988 and Chairman of the
Board of Directors since
December 1992; President of the
Company from 1988 to May 1996;
consultant to the Company from
1988 to October 1990; President
and Chief Executive Officer of
Qume Corporation, a computer
peripherals company, from 1985
to 1988; Chief Executive Officer
of Durango Systems, Inc., a
computer systems company, from
1982 to 1985; various management
positions with Memorex
Corporation, a computer
peripherals and media products
company, in the United States,
the United Kingdom and Belgium
from 1971 to 1982, including
President of the Storage Systems
Group, the largest business unit
at that time of Memorex
Corporation, from 1979 to 1981.
John R. Wall 39 President of the Company
since May 1996 and Director
since May 1994; Executive Vice
President of the Company from
June 1991 to May 1996; Secretary
from January 1993 to May 1994;
Director from inception to May
1991 and Chairman of the Board
of Directors from 1985 to 1991;
President from 1982 to 1985;
Vice President, Research and
Development, from 1985 to 1991;
Chairman of the Washington
Software Association from
January 1994 to December 1995;
Founding Trustee of the
Washington Software Foundation.
-18-
<PAGE> 20
Kevin Vitale 39 Executive Vice President
since April 1996; Vice
President, Operations and
Services of the Company from
July 1993 to April 1996; Vice
President, Corporate Quality and
Customer Service of NetFRAME
Systems Incorporated from July
1989 to July 1993.
Alexandra A. 42 Vice President, General
Counsel and Secretary of the
Company since April
Brookshire 1994; lawyer with Perkins
Coie law firm from 1985 to April
1994, becoming a partner in
1989; lawyer with Dewey
Ballantine law firm from 1981 to
1985.
Richard Van Hoesen 41 Vice President Finance,
Chief Financial Officer and
Treasurer since May 1996; Vice
President Finance and Chief
Financial Officer of Consilium,
Inc. from October 1994 to May
1996; Director, Investor
Relations of Sun Microsystems,
Inc. from April 1992 to October
1994.
BOARD OF DIRECTORS AT DECEMBER 31, 1996
James Simpson 59 Chairman of the Board and
Chief Executive Officer of
Wall Data Incorporated
Robert Frankenberg 50 Former President and Chief
Executive Officer of Novell Inc.
Jeffrey Heimbuck 49 Former President and Chief
Executive Officer of Inmac
Corporation
Henry Lewis 58 Managing Director and
Principal of Computer Ventures
Group Limited
David Millet 52 President of Chatham Venture
Corporation; Chairman and Chief
Executive Officer of
Holographix, Inc.
Steve Sarich, Jr. 76 President of 321 Investment
Company
Bettie A. Steiger 63 Principal, Market and
Technology Innovation of Xerox
Corporation
John R. Wall 39 President of Wall Data
Incorporated
ITEM 2. PROPERTIES
The Company's operations headquarters is located in Kirkland,
Washington, where it leases approximately 65,000 square feet for
administrative, sales and marketing, customer service and product development
activities. The Company's offices in Palo Alto, California
-19-
<PAGE> 21
consist of approximately 23,750 square feet used for administrative and sales
and marketing activities. The Company also leases approximately 12,500 square
feet of office space in London, England and leases space for its other national
and international offices.
ITEM 3. LEGAL PROCEEDINGS
In April 1995, four individuals who had allegedly purchased Wall Data
Common Stock filed proposed shareholders' class action lawsuits against Wall
Data and certain of the Company's officers and directors in the U.S. District
Court, Western District of Washington. A consolidated complaint amending the
four actions was filed by one of the individuals in June 1995. The complaint
alleges misrepresentations and omissions with respect to the Company's
business, including its actual and expected financial results and success of
and demand for the Company's products, in violation of federal securities laws
and state laws, during the period from January 26, 1995 through April 5, 1995.
On September 13, 1995, the court granted the Company's motion to dismiss the
complaint, with leave to amend the complaint. The court also dismissed all
claims against one of the Company's directors with prejudice. On January 12,
1996, the plaintiffs filed a second amended complaint, containing the same
alleged violations of law and class period as the previous complaint. The
complaint seeks unspecified damages. In June 1996, the court granted in part
and denied in part the Company's motion to dismiss the second amended
complaint. Trial has been scheduled for November 1997. The Company believes
the allegations in the second amended complaint are without merit and intends
to continue to vigorously defend the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market
(symbol "WALL"). The number of shareholders of record of the Company's Common
Stock at January 31, 1997 was 349.
The Company has never declared or paid any cash dividends on its
Common Stock. The Company currently anticipates that it will retain all future
earnings for use in the expansion and operations of its business and does not
anticipate paying cash dividends in the foreseeable future. The Company is
restricted by its credit agreements from paying cash dividends in excess of 15%
of the prior year's net income after tax (excluding gains or losses on
dispositions of investments and assets not in the ordinary course and any
related tax gains or deductions) and is also restricted from making any other
cash distribution with respect to its shares of capital stock.
-20-
<PAGE> 22
High and low stock prices for the Company's Common Stock for each
quarter in 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
YEAR STOCK PRICE
- ---- -----------
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter ................................ $55.50 $34.75
Second Quarter ............................... 46.50 15.00
Third Quarter ................................ 23.25 15.00
Fourth Quarter ............................... 18.75 14.50
1996
First Quarter ................................ 17.25 13.00
Second Quarter ............................... 23.75 14.75
Third Quarter ................................ 27.50 16.25
Fourth Quarter ............................... 24.75 12.25
</TABLE>
-21-
<PAGE> 23
WALL DATA INCORPORATED
SELECTED FIVE-YEAR FINANCIAL DATA
(In thousands, except per share amounts and ratios)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net revenues $139,364 $110,741 $101,240 $64,641 $31,785
Gross margin 108,412 86,522 85,754 55,097 27,176
Operating expenses 103,351 91,737 64,726 40,613 19,857
Income (loss) from operations 5,061 (5,215) 21,028 14,484 7,319
Income before extraordinary items 4,193 7,251 14,184 9,545 4,386
Extraordinary items -- -- -- -- 1,842
Net income 4,193 7,251 14,184 9,545 6,228
Income per share:
Income before extraordinary items 0.44 0.74 1.40 1.00 0.58
Net income 0.44 0.74 1.40 1.00 0.83
Pro forma net income* 6,145 2,766 16,664 11,529 6,228
Pro forma net income per share:
Income before extraordinary items* 0.65 0.28 1.65 1.21 0.58
Net income* 0.65 0.28 1.65 1.21 0.83
Average shares outstanding 9,525 9,851 10,124 9,520 7,507
BALANCE SHEET
Cash and short-term investments $62,483 $51,969 $48,927 $50,308 $4,577
Working capital 71,798 60,720 56,308 55,333 8,057
Total assets 127,154 109,339 105,626 74,431 16,056
Long-term obligations, net of current
portion -- -- -- 127 1,010
Shareholders' equity 90,803 83,702 81,206 62,333 8,983
KEY RATIOS
Current ratio 3.0 3.3 3.3 5.6 2.3
Pro forma return on net revenues* 4.4% 2.5% 16.5% 17.8% 19.6%
Pro forma return on average total assets* 5.2% 2.6% 18.5% 25.5% 54.3%
Pro forma return on average stockholders'
equity* 7.0% 3.4% 23.2% 32.3% 106.9%
</TABLE>
- ------------------
* Excludes nonrecurring gain in 1995 of $14.0 million ($8.7 million, or $0.88
per share, after income taxes) and nonrecurring charges in 1996, 1995 and
1994 of $3.1 million ($2.0 million, or $0.21 per share, after income
taxes), $6.8 million ($4.2 million, or $0.42 per share, after income
taxes), and $4.0 million ($2.5 million, or $0.25 per share, after income
taxes), respectively. See Note 6 of Notes to Consolidated Financial
Statements.
-22-
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company's results of operations have historically varied
substantially from quarter to quarter, and the Company expects that they will
continue to do so. The timing and amount of the Company's quarterly net
revenues are dependent on a number of factors, such as the size and timing of
customer orders or license agreements, the timing of the introduction and
customer acceptance of new products or product enhancements by the Company or
its competitors, changes in PC operating systems introduced by Microsoft or
other companies, changes in pricing policies by the Company or its competitors,
product returns or rotations, fluctuations in foreign exchange rates and
changes in general economic conditions. Products generally are shipped as
orders are received and, accordingly, the Company historically has operated
with little or no backlog. In addition, the Company's operating expenses are
relatively fixed in the short term. As a result, variations in timing of
revenues can cause significant variations in quarterly results of operations.
The growth in net revenues and operating income experienced by the
Company during the past five years is not necessarily indicative of future
results. In view of the significant growth of the Company's operations in
recent years, the Company believes that period-to-period comparisons of its
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance.
The Company's business is seasonal, with a substantial percentage of
its annual net revenues and operating income typically occurring in the fourth
quarter of the year. Since 1991, the Company has frequently incurred higher
operating expenses in each sequential quarter primarily due to an increase in
the number of employees. The Company expects that in the first quarter of 1997
lower net revenues, as compared to the fourth quarter of 1996, will result in
significantly lower net income.
REVENUES
<TABLE>
<CAPTION>
1996 CHANGE 1995 CHANGE 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET REVENUES $139,364 26% $110,741 9% $101,240
(dollar amounts in thousands)
</TABLE>
Net revenues increased 26% in 1996 primarily due to increases in
revenues from the Windows version of RUMBA OFFICE, the Company's multi-host
product, and ONESTEP customer support contracts, partially offset by reductions
in sales of certain single host products, principally RUMBA for the Mainframe.
In March 1996, the Company released commercial versions of a number of RUMBA
software products, incorporating the ActiveX component architecture designed
for the Windows 95 and Windows NT 32-bit operating systems.
-23-
<PAGE> 25
Approximately 29% and 61% of net revenues in 1996 related to products
containing the 32-bit technology and 16-bit technology, respectively. In 1995,
approximately 89% of net revenues resulted from 16-bit products. The Company
expects that 32-bit products will continue to increase as a percentage of total
net revenues compared to 16-bit products. Net revenues from the SALSA product
family, which the Company introduced in March 1996, were not significant.
Net revenues increased 9% in 1995 primarily due to increases in
revenues from ONESTEP customer support contracts, OEM products and the Windows
version of RUMBA OFFICE, partially offset by reductions in sales of certain
single host products, principally RUMBA for Netware Systems and RUMBA for
OS/2(R). ONESTEP revenues increased in 1995 due to customer support marketing
programs implemented in late 1994. OEM revenues increased to 13% of net
revenues in 1995 primarily due to higher revenues from IBM; revenues from IBM
accounted for approximately 10% of consolidated net revenues in 1995.
The Company has derived a substantial majority of its net revenues to
date from sales of its RUMBA client software products, which accounted for 86%,
88% and 96% of net revenues in 1996, 1995 and 1994, respectively. The RUMBA
product line and related enhancements are expected to account for a majority of
the Company's net revenues for the foreseeable future. A decline in demand
for RUMBA products as a result of competition, technological changes or
otherwise would have a material adverse effect on the Company's results of
operations.
Net revenues related to sales of the Company's products outside North
America represented $40.0 million, or 29% of net revenues, in 1996 compared to
$30.6 million, or 28% of net revenues, in 1995 and $23.7 million, or 23% of net
revenues, in 1994. The increases in international net revenues in 1996 and
1995 were primarily due to increased acceptance of RUMBA products and increased
sales and marketing activities in Europe, particularly in the United Kingdom
and Germany, and in Japan and Latin America. Most of the Company's
international revenues in 1996, 1995 and 1994 were generated through its
indirect distribution channels. The Company's international sales are
denominated in U.S. and local currencies. Operating expenses incurred in local
currencies relating to the Company's offices in Europe, Japan, Australia and
Latin America are also subject to the effects of fluctuations of foreign
currency exchange rates. Foreign currency exchange rate changes did not have a
significant effect on net revenues in 1996, 1995 and 1994, but exchange rate
fluctuations could have an adverse effect on future net revenues. The Company
has experienced limited difficulties in hiring, training and retaining
management-level staff abroad and in selecting international resellers with
technological and sales expertise to distribute the Company's products.
Additional risks inherent in the Company's international business activities,
which have not materially affected the Company's business to date, generally
include unexpected changes in regulatory requirements, tariffs and other trade
barriers, longer accounts receivable payment cycles, difficulties in managing
international operations, potentially adverse tax consequences, repatriation of
earnings and the burdens of complying with a wide variety of foreign laws.
-24-
<PAGE> 26
GROSS MARGIN AND COST OF REVENUE
<TABLE>
<CAPTION>
1996 CHANGE 1995 CHANGE 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GROSS MARGIN $108,412 25% $86,522 1% $85,754
Percentage of net revenues 78% 78% 85%
(dollar amounts in thousands)
</TABLE>
Cost of revenues consists of software publishing costs, which include
labor, product media, packaging and documentation, publishing, engineering,
technical support and product quality assurance costs, royalties and licensing
costs, amortization of product localization costs and provisions for obsolete
inventory, doubtful accounts, and reseller rebates. Gross margin, as a
percentage of net revenues, in 1996 approximated the percentage in 1995. The
gross margin percentage in 1995 decreased from 1994 primarily due to higher
staffing levels, principally in the product quality assurance and technical
support departments, increased expenses for royalties and amortization of
prepaid licenses resulting from the increased use of third-party technology in
the Company's products, and higher provisions for obsolete inventory and
reseller rebates. Expenses for royalties and amortization of prepaid licenses
may increase in the future if the Company introduces more products
incorporating software licensed from third parties, and amortization of product
localization costs will increase as the Company expands into new international
markets.
OPERATING EXPENSES
<TABLE>
<CAPTION>
1996 CHANGE 1995 CHANGE 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
Product development $22,859 16% $19,765 45% $13,652
Percentage of net revenues 16% 18% 13%
(dollar amounts in thousands)
</TABLE>
All internal software development expenses since 1991 have been
expensed as incurred. Product development expenses are primarily associated
with the enhancement of existing products and the development of new software
products, such as RUMBA 95/NT, SALSA and ARPEGGIO in 1995 and 1996, all of
which were introduced in the first half of 1996, and the NT Version of RUMBA
for the Mainframe and RUMBA for Data Base Access in 1994. Product development
expenses increased in 1996 due to increases in labor costs, due in part to a
small increase in average staffing levels, support costs for third-party
technology, and depreciation. Development expenses increased in 1995 primarily
due to higher staffing levels and increased occupancy costs, and the
acquisition of Concentric Data Systems, Inc. in April 1995. (See Note 6 of
Notes to Consolidated Financial Statements.) Development expenses as a
percentage of net revenues decreased in 1996 compared to 1995 due to the
completion of the two major development projects, RUMBA 95/NT and SALSA,
together with the higher revenue growth rate in 1996; the percentage increased
in 1995 compared to 1994 due to these development projects, coupled with the
lower revenue growth rate in 1995.
-25-
<PAGE> 27
<TABLE>
<CAPTION>
1996 CHANGE 1995 CHANGE 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
Sales and marketing $63,639 17% $54,615 39% $39,192
Percentage of net revenues 46% 49% 39%
(dollar amounts in thousands)
</TABLE>
During 1994 through 1996, the Company expanded its sales and marketing
operations by increasing staffing levels coupled with increases in the amount
and breadth of its cooperative advertising programs with resellers and
distributors, other marketing programs and trade show activity. The number of
sales offices maintained by the Company totaled 57, 54 and 48 at the end of
1996, 1995 and 1994, respectively, including, at the end of 1996, six offices
in Europe, two offices in both Canada and Latin America and one office each in
Australia and Japan. The increase in expenses in 1996 was also a result of
higher incentive compensation resulting from increased net revenues and product
launch expenses relating to the introduction of the RUMBA 95/NT, SALSA and
ARPEGGIO product families. Sales and marketing expenses as a percentage of net
revenues decreased in 1996 compared to 1995 primarily due to the higher revenue
growth rate in 1996; the percentage increased in 1995 compared to 1994
primarily due to the lower revenue growth rate in 1995 and preliminary
marketing activities relating to the SALSA product family.
<TABLE>
<CAPTION>
1996 CHANGE 1995 CHANGE 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
General and administrative $13,705 30% $10,552 34% $7,882
Percentage of net revenues 10% 10% 8%
(dollar amounts in thousands)
</TABLE>
General and administrative expenses include general administrative,
finance and accounting, and legal expenses and costs for the MIS and human
resources departments. The increases in general and administrative expenses in
1996 and 1995 resulted primarily from increased staffing and associated
expenses necessary to manage and support the Company's growth, and also from
higher legal fees as a result of the shareholders' class action lawsuit. (See
Note 10 of Notes to Consolidated Financial Statements.) The Company intends to
continue to maintain its general and administrative expenses as necessary to
support its operations. The Company expects legal fees in connection with the
class action lawsuit to remain high.
<TABLE>
<CAPTION>
1996 CHANGE 1995 CHANGE 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
Nonrecurring charges $3,148 (54)% $6,805 70% $4,000
Percentage of net revenues 2% 6% 4%
(dollar amounts in thousands)
</TABLE>
During the fourth quarter of 1996, the Company determined to
streamline its business operations and recorded nonrecurring charges totaling
$3.1 million ($2.0 million, or $0.21 per
-26-
<PAGE> 28
share, after tax) primarily relating to the write-off of technology investments
and prepaid royalties no longer relevant to the Company's ongoing product
offerings and programs. In 1995, the Company recorded nonrecurring charges
totaling $6.8 million ($4.2 million, or $0.42 per share, after tax) primarily
for the write-off of in-process research and development resulting from the
acquisition of Concentric Data Systems, Inc. in April 1995 and the write-off of
the remaining goodwill from another acquisition. In 1994, the Company recorded
a nonrecurring charge of $4.0 million ($2.5 million, or $0.25 per share, after
tax) for the write-off of in-process research and development resulting from an
agreement to license developed and in-process technology from Apple Computer,
Inc. (See Note 6 of Notes to Consolidated Financial Statements.)
OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
1996 CHANGE 1995 CHANGE 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER INCOME (EXPENSE)
Gain on sale of equity
investment --- --- $14,040 --- ---
Percentage of net revenues --- 13% ---
Interest income $2,934 (8)% $ 3,191 66% $ 1,923
Percentage of net revenues 2% 3% 2%
Other income (expense), net $(748) $(324) 75% $(185)
Percentage of net revenues (1)% --- ---
(dollar amounts in thousands)
</TABLE>
Interest income decreased in 1996 compared to 1995 due to lower
average interest rates; interest income increased in 1995 compared to 1994 due
to higher average interest rates and higher investment balances. Other income,
net of other expenses, includes interest expense, foreign currency transaction
gains and losses and miscellaneous income and expenses. Foreign currency
transactions resulted in net exchange losses of $0.6 million in 1996 and $0.5
million in 1995; amounts in 1994 were not material. To date, the Company has
not engaged in currency hedging transactions against sales denominated in
currencies other than U.S. dollars. In April 1995, the Company sold its equity
investment in SPRY, Inc. for a gain of $14.0 million. (See Note 6 of Notes to
Consolidated Financial Statements.)
INCOME TAXES
<TABLE>
<CAPTION>
1996 CHANGE 1995 CHANGE 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PROVISION FOR INCOME TAXES $3,054 (31)% $4,441 (48)% $8,582
Percentage of net revenues 2% 4% 8%
Effective tax rate 42% 38% 38%
(dollar amounts in thousands)
</TABLE>
The provision for income taxes includes U.S. federal, state and
international taxes currently payable and deferred taxes arising from temporary
differences in determining income for financial statement and tax purposes.
The increase in the Company's effective tax rate in
-27-
<PAGE> 29
1996 was due to higher profits in certain international subsidiaries which are
subject to higher tax rates coupled with certain nondeductible expenses in the
fourth quarter. The Company anticipates that the effective tax rate will
decrease to historic levels in 1997.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash, cash equivalents, and short term investments $62,483 $51,969 $48,927
Working capital $71,798 $60,720 $56,308
Net cash flow provided by operating activities $18,143 $ 5,736 $10,635
(dollar amounts in thousands)
</TABLE>
The Company's cash, cash equivalents and short-term investments
totaled $62.5 million, or 49% of total assets, at December 31, 1996, compared
to $52.0 million, or 48% of total assets, at December 31, 1995.
The Company's expenditures for property and equipment for the years
ended December 31, 1996, 1995 and 1994 totaled $5.1 million, $7.1 million and
$10.1 million, respectively. The decrease in expenditures in 1996 compared to
1995 primarily resulted from reduced growth in average staffing levels. The
reduction in expenditures in 1995 compared to 1994 primarily related to the
relocation in 1994 of the Company's headquarters from Redmond, Washington to
Kirkland, Washington. Although the Company does not currently have any
specific commitments with regard to capital expenditures, it expects to
continue to acquire new capital equipment and make other capital expenditures.
Purchases of prepaid software technology totaled $1.3 million, $3.2 million and
$3.6 million in 1996, 1995 and 1994, respectively. Capitalized external
localization costs totaled $3.0 million in 1996; such costs were not material
in 1995 or 1994. The increase in capitalized localization costs in 1996
resulted from the significant increase in the volume of new product
introductions in 1996 compared to 1995 and 1994 and the expansion of sales
operations into new international markets.
In April 1995, the Board of Directors authorized a stock repurchase
program of up to $10.0 million. Through December 31, 1995, the Company had
repurchased 488,200 shares with a total cost of $8.5 million. No shares were
repurchased in 1996.
In April 1995, the Company acquired Concentric Data Systems, Inc. for
approximately $7.8 million. In September 1994, the Company acquired a minority
equity interest in SPRY, Inc. for a total consideration of approximately $6.0
million; the investment was sold in 1995. In January 1994, the Company entered
into an agreement to license developed and in-process technology from Apple
Computer, Inc. (See Note 6 of Notes to Consolidated Financial Statements.)
The Company will consider, from time to time, joint ventures, additional
acquisitions or investments in other businesses or third-party technology. The
Company believes that existing cash, cash equivalents and short-term
investments, together with funds from operations, will provide the Company with
sufficient funds to finance its operations through 1997.
-28-
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and supplementary data
are included beginning on page F-1 of this Report:
F-1 Consolidated Income Statements--years ended December 31, 1996,
1995 and 1994.
F-2 Consolidated Balance Sheets--December 31, 1996 and 1995.
F-3 Consolidated Statements of Shareholders' Equity--years ended
December 31, 1996, 1995 and 1994.
F-4 Consolidated Statements of Cash Flow--years ended December 31,
1996, 1995 and 1994.
F-5 Notes to Consolidated Financial Statements
F-13 Report of Ernst & Young LLP, Independent Auditors.
F-14 Selected Consolidated Quarterly Financial Data and Market
Information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Part III is incorporated herein by reference from the Company's
definitive proxy statement issued in connection with the Company's 1997 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission within 120 days after the close of the Company's 1996 fiscal year.
Certain information regarding the executive officers and directors of the
Company is set forth in Part I of this Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM
8-K
(a) Documents filed as part of this Report:
(1) Financial Statements--all consolidated financial
statements of the Company as set forth under Item 8
of this Report.
(2) Financial statement schedules--Schedule II Valuation
and Qualifying Accounts
-29-
<PAGE> 31
The independent auditors' report with respect to the
financial statement schedules appears on page F-13 of
this Report. All other financial statements and
schedules not listed are omitted because either they
are not applicable or not required, or the required
information is included in the consolidated financial
statements.
(3) Exhibits
EXHIBIT NO. DESCRIPTION
3.1 Restated Articles of Incorporation of Wall Data Incorporated
(Incorporated by reference to Registration Statement No.
33-57816)
3.2 Restated Bylaws of Wall Data Incorporated (Incorporated by
reference to Registration Statement No. 33-57816)
10.1 Amended and Restated 1983 Stock Option Plan (Incorporated by
reference to Registration Statement No. 33-57816)+
*10.2 Restated 1993 Stock Option Plan+
*10.3 Restated 1993 Stock Option Plan for Non-Employee Directors+
*10.4 Restated Employee Stock Purchase Plan+
10.5 Lease between Page Mill Partners I as Lessor and Wall Data
Incorporated as Lessee dated June 1, 1993 and Consent to
Sublease among Leland Stanford University, Page Mill Partners
I and Wall Data Incorporated dated June 1, 1993 (Incorporated
by reference to the Company's Form 10-K dated March 30, 1995,
File No. 0-21176)
10.7 Revolving Credit Loan Agreement dated June 6, 1994 between
Comerica Bank- California and Wall Data Incorporated together
with First Amendment to Revolving Credit Loan Agreement dated
August 18, 1995 (Incorporated by reference to the Company's
Form 10-K dated March 31, 1996, File No. 0- 21176)
10.8 Form of Indemnification Agreement for Directors and Officers
(Incorporated by reference to Registration Statement No.
33-57816)+
10.9 Lease between Totem Skyline Associates III as Landlord and
Wall Data Incorporated as Tenant dated as of December 2, 1993
and Sublease between Wall Data Incorporated as Landlord and
Totem Skyline Associates III as Tenant dated as of December
2, 1993 (Incorporated by reference to the Company's Form 10-K
dated March 30, 1995, File No. 0-21176)
10.10 Employment Agreement dated as of November 4, 1994 between
John Wall and Wall Data Incorporated (Incorporated by
reference to the Company's Form 10-K dated March 30, 1995,
File No. 0-21176)+
10.11 Rights Agreement dated as of July 19, 1995 between Wall Data
Incorporated and First Interstate Bank of Washington, N.A.,
as rights agent (Incorporated by reference to the Company's
Form 8-A dated July 19, 1995, File No. 0-21176)
10.12 Lease between SI Palo Alto, Inc. as Lessor and Wall Data
Incorporated as Lessee dated December 29, 1995 (Incorporated
by reference to the Company's Form 10-K dated March 31, 1996,
File No. 0-21176)
*11.1 Computation of Earnings Per Share
*21.1 Subsidiaries of Wall Data Incorporated
*23.1 Consent of Ernst & Young LLP
*27.1 Financial Data Schedule
- ----------------
+ Management contract or compensatory plan
* Included herewith
(b) Reports on Form 8-K: None.
-30-
<PAGE> 32
WALL DATA INCORPORATED
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net revenues $139,364 $110,741 $101,240
Cost of revenue 30,952 24,219 15,486
-------- -------- --------
Gross margin 108,412 86,522 85,754
Operating expenses:
Product development 22,859 19,765 13,652
Sales and marketing 63,639 54,615 39,192
General and administrative 13,705 10,552 7,882
Non-recurring charges 3,148 6,805 4,000
-------- -------- --------
Total operating expenses 103,351 91,737 64,726
-------- -------- --------
Operating income (loss) 5,061 (5,215) 21,028
Other income (expense):
Gain on sale of equity investment -- 14,040 --
Interest income 2,934 3,191 1,923
Other, net (748) (324) (185)
-------- -------- --------
Total other income, net 2,186 16,907 1,738
-------- -------- --------
Income before income taxes 7,247 11,692 22,766
Provision for income taxes 3,054 4,441 8,582
-------- -------- --------
Net income $4,193 $7,251 $14,184
======== ======== ========
Net income per share $0.44 $0.74 $1.40
===== ===== =====
Weighted average common and common
equivalent shares outstanding 9,525 9,851 10,124
===== ===== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-1
<PAGE> 33
WALL DATA INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $62,483 $51,969
Accounts receivable, net of allowances
of $3,740 and $3,180 38,694 27,597
Inventories 733 900
Deferred income taxes 3,977 2,843
Prepaid expenses and other current assets 2,262 3,048
-------- -------
Total current assets 108,149 86,357
Fixed assets, net 12,735 13,893
Deferred income taxes 155 2,017
Other assets 6,115 7,072
-------- -------
$127,154 $109,339
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,774 $6,038
Accrued compensation 7,989 6,126
Other accrued liabilities 5,676 3,756
Income taxes payable 4,722 1,913
Deferred revenues 11,190 7,804
-------- -------
Total current liabilities 36,351 25,637
-------- -------
Shareholders' equity:
Preferred Stock--Series A Junior
Participating--500,000 shares
authorized; none issued and outstanding -- --
Common Stock, no par value--authorized
45,000,000 shares; issued and outstanding
9,132,980 shares (8,959,108 in 1995) 54,357 52,295
Retained earnings 35,791 31,510
Cumulative translation adjustment 655 (103)
-------- -------
Total shareholders' equity 90,803 83,702
-------- -------
$127,154 $109,339
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 34
WALL DATA INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock
-------------------- Retained Translation
Shares Amount Earnings Adjustment Total
--------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 8,755,059 $52,194 $10,075 $ 64 $62,333
Issuance of Common Stock to acquire
interest in minority-owned company 14,926 500 -- -- 500
Exercise of Common Stock options 351,561 860 -- -- 860
Stock issued under stock purchase plan 7,146 258 -- -- 258
Income tax benefit from exercise
of Common Stock options -- 3,050 -- -- 3,050
Net income for the year -- -- 14,184 -- 14,184
Translation adjustment -- -- -- 21 21
--------- ------- ------- ----- -------
Balance at December 31, 1994 9,128,692 56,862 24,259 85 81,206
Issuance of Common Stock in payment of
note payable and related accrued interest 29,321 1,571 -- -- 1,571
Repurchases of Common Stock (488,200) (8,539) -- -- (8,539)
Exercise of Common Stock options 271,610 853 -- -- 853
Stock issued under stock purchase plan 17,685 398 -- -- 398
Income tax benefit from exercise
of Common Stock options -- 1,150 -- -- 1,150
Net income for the year -- -- 7,251 -- 7,251
Translation adjustment -- -- -- (188) (188)
--------- ------- ------- ----- -------
Balance at December 31, 1995 8,959,108 52,295 31,510 (103) 83,702
Exercise of Common Stock options 134,475 1,101 -- -- 1,101
Stock issued under stock purchase plan 39,397 473 -- -- 473
Income tax benefit from exercise
of Common Stock options -- 375 -- -- 375
Stock option compensation -- 113 -- -- 113
Unrealized gain on investment -- -- 88 -- 88
Net income for the year -- -- 4,193 -- 4,193
Translation adjustment -- -- -- 758 758
--------- ------- ------- ----- -------
Balance at December 31, 1996 9,132,980 $54,357 $35,791 $655 $90,803
========= ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 35
WALL DATA INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 3l
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $4,193 $7,251 $14,184
Adjustments to reconcile net income to net cash
provided by operations:
Deferred income taxes 684 (2,164) (2,109)
Revenue from non-monetary exchange - - (1,750)
Provision for doubtful accounts 455 425 648
Depreciation and amortization 10,149 7,024 3,628
Non-recurring charges 3,148 6,805 -
Gain on sale of equity investment - (14,040) -
Other, net 168 129 (155)
Decrease (increase) in operating assets:
Accounts receivable (10,794) (578) (13,300)
Inventories 321 (31) (271)
Other current assets 549 (919) (1,146)
Increase (decrease) in operating liabilities:
Accounts payable (302) (387) 2,870
Accrued liabilities 4,149 775 2,033
Income taxes payable 2,130 (3,337) 3,864
Deferred revenues 3,293 4,783 2,139
------- ------- -------
Net cash provided by operating activities 18,143 5,736 10,635
------- ------- -------
INVESTING ACTIVITIES
Purchases of short-term investments - - (107,320)
Sales of short-term investments - 22,000 107,640
Proceeds from sale of equity investment - 20,000 -
Acquisition of Concentric Data Systems, Inc, net of cash acquired - (4,948) -
Investment in minority-owned company - - (2,250)
Purchases of fixed assets (5,056) (7,133) (10,133)
Purchases of prepaid software technology (1,337) (3,223) (3,630)
Capitalized localization costs (3,019) - -
Other (618) (1,166) (132)
------- ------- -------
Net cash used by investing activities (10,030) 25,530 (15,825)
------- ------- -------
FINANCING ACTIVITIES
Payments pursuant to repurchase and retirement of stock (8,539) -
Tax benefit from stock options exercised 375 1,150 3,050
Proceeds from issuances under stock plans 1,574 1,251 1,118
------- ------- -------
Net cash provided by financing activities 1,949 (6,138) 4,168
------- ------- -------
Net increase (decrease) in cash and cash equivalents 10,062 25,128 (1,022)
Effect of exchange rate changes on cash 452 (86) (39)
Cash and cash equivalents at beginning of year 51,969 26,927 27,988
------- ------- -------
Cash and cash equivalents at end of year $62,483 $51,969 $26,927
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 36
WALL DATA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Business
Wall Data Incorporated (the "Company") is primarily engaged in the
development and marketing of software products and related support services for
users of personal computers in business organizations. The Company's RUMBA(R)
software products provide personal computer users easy access to and use of
computer applications and data residing on personal computers, servers,
multiple-host mainframes, and minicomputers in enterprise-wide information
systems. SALSA(TM) software allows users to create custom business
applications using drag and drop templates. ARPEGGIO(TM) software lets users
publish enterprise-wide information via corporate networks, intranets or over
the Internet. ONESTEP(R) service programs provide a set of service offerings
including technical support, online resources, software upgrade insurance and
training.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
and balances are eliminated in consolidation.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated to
U.S. dollars at the exchange rate on the balance sheet date. Revenues, costs
and expenses are translated at the average rates of exchange prevailing during
the year. Translation adjustments resulting from this process are shown
separately in shareholders' equity.
Revenue Recognition
Revenue from sales of software and hardware products to end-users,
distributors and dealers is recognized when the products are shipped. The
Company's agreements with certain distributors and resellers permit them to
exchange products under certain circumstances and permit returns from certain
resellers subject to specific limitations; an accrual is recognized for
estimated sales returns and exchanges. Revenue from software products licensed
to original equipment manufacturers is recognized as earned. Revenue from
service fees is deferred and recognized on a straight-line basis over the term
of the related agreements. The Company's revenue recognition policies conform
to Statement of Position 91-1, "Software Revenue Recognition," promulgated by
the American Institute of Certified Public Accountants.
Income Taxes
The provision for income taxes includes U.S. federal, state and
international taxes currently payable and deferred taxes arising from temporary
differences between income tax and financial reporting.
Cash and Short-Term Investments
For purposes of the consolidated financial statements, the Company
considers all highly liquid instruments purchased with a maturity of three
months or less at the date of purchase to be cash equivalents. Cost
approximates market value for all cash and cash equivalents. All cash
equivalents and short-term investments are classified as available-for-sale.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
F-5
<PAGE> 37
WALL DATA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed by the
straight-line method over estimated useful lives ranging from two to ten years
for financial reporting purposes and by different methods approved for income
tax purposes.
Accounting for Long-Lived Assets
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
impairment losses to be recorded on certain long- lived assets used in
operations or expected to be disposed of. The adoption of SFAS No. 121 did not
have a material effect on the Company's financial position or results of
operations.
Prepaid Software Technology Fees
Prepaid software technology license fees are amortized to cost of revenue
using the shorter of the straight-line method over periods not to exceed 24
months or fees based on actual product shipments.
Product Development Costs
A Financial Accounting Standards Board statement requires the
capitalization of certain internal software development costs. Such costs are
not material. Internal product development costs are expensed as incurred.
External costs incurred to localize software products into local market
languages are capitalized and amortized to cost of revenue using the
straight-line method over periods not to exceed 24 months.
Stock-Based Compensation
During 1996, the Company adopted the disclosure provisions under SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but
does not require companies to record compensation expense for stock-based
employee compensation based on a prescribed method for determining fair value.
The Company has elected to continue to account for stock option grants to
employees in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and, accordingly, recognizes compensation expense for stock
options only when the exercise price is less than the quoted market price at
the date of grant.
Income per Share
Income per share is based on the weighted average number of shares of
Common Stock outstanding and dilutive common equivalent shares from stock
options, using the treasury stock method.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Accordingly, actual results may differ from
those estimates.
Reclassifications
Certain reclassifications have been made to prior year financial
statements to conform to the current year presentation.
2. MARKETABLE SECURITIES
Marketable securities consist primarily of investment-grade commercial
paper and are classified as available for sale. Marketable debt securities
with maturity dates less than three months at December 31, 1996 and 1995 total
$48 million and $23 million, respectively, at cost, and are included in cash
and cash equivalents. The estimated fair value of the commercial paper
approximates cost. Marketable equity securities, which are not material, are
included in other assets.
F-6
<PAGE> 38
WALL DATA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Equipment $21,834 $17,834
Furniture and fixtures 5,685 5,760
------- -------
27,519 23,594
Less -- accumulated depreciation and amortization 14,784 9,701
------- -------
$12,735 $13,893
======= =======
</TABLE>
4. OTHER ASSETS
Other assets primarily consists of prepaid software technology license fees,
external product localization costs and goodwill resulting from the acquisition
of Concentric Data Systems, Inc. ("Concentric") in 1995. As of December 31,
1996 and 1995, prepaid software technology license fees total $1.2 million and
$3.4 million, net of accumulated amortization of $1.5 million and $2.4 million,
respectively. Royalties and amortization of prepaid licenses totaled $4.1
million, $2.7 million and $0.4 million in 1996, 1995 and 1994, respectively,
and are included in cost of revenues. As of December 31, 1996, external
product localization costs total $2.7 million, net of accumulated amortization
of $0.6 million, and are included in other assets. External localization costs
at December 31, 1995 are not material. Goodwill totals $1.4 million and $1.8
million at December 31, 1996 and 1995, respectively, net of accumulated
amortization of $0.4 million in 1996. Amortization in 1995 was not
significant.
Other assets are regularly reviewed for possible impairment and are written
off if, in the opinion of management, their value has been impaired.
5. LEASES
The Company rents office facilities under operating lease agreements.
Future minimum lease payments under non-cancelable operating leases with terms
in excess of one year are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 2,688
1998 2,368
1999 2,048
2000 1,989
2001 1,829
Thereafter 5,077
-------
Total minimum lease payments $15,999
=======
</TABLE>
Rental expenses under operating leases amounted to approximately $5.4
million, $4.2 million and $2.3 million in 1996, 1995 and 1994, respectively.
6. INVESTMENTS, DISPOSITIONS AND OTHER NON-RECURRING ITEMS
During the fourth quarter of 1996, the Company recorded non-recurring
charges totaling $3.1 million ($2.0 million, or $0.21 per share, after income
taxes) resulting from decisions to streamline operations and improve operating
efficiencies. The charges primarily related to the write-off of technology
investments and prepaid royalties no longer relevant to the Company's ongoing
product offerings and programs.
In April 1995, the Company acquired all of the outstanding shares of
Concentric, a privately held developer of Windows and DOS-based data access and
reporting tools, for $7.8 million cash. The acquisition has been
F-7
<PAGE> 39
WALL DATA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accounted for under the purchase method of accounting. As a result of this
transaction, the Company recorded non-recurring charges of approximately $5.5
million ($3.4 million, or $0.35 per share, after income taxes), for the
write-off of in-process research and development and the write-off of existing
Wall Data prepaid licenses for technology, which was supplanted by the
Concentric technology. Approximately $1.8 million of the purchase price was
allocated to goodwill, which is being amortized over five years. Pro forma
information relating to the acquisition of Concentric has not been presented
due to immateriality. Non-recurring charges in 1995 also included a $1.0
million write-off of the remaining unamortized goodwill from a prior
acquisition.
In September 1994, the Company acquired a minority equity interest in
SPRY, Inc. ("SPRY"), a developer of Internet access software, for $6.0 million.
The consideration consisted of $2.25 million of cash, Common Stock valued at
$500,000, a one-year $1.5 million note payable in cash or Common Stock and a
license of certain Company software valued at $1.75 million, which the Company
recorded as revenue in the quarter. The investment was accounted for under the
equity method of accounting. In April 1995, the Company sold its equity
interest in SPRY for $20.0 million in cash and recorded a gain of $14.0 million
($8.7 million, or $0.88 per share, after income taxes), which is included in
other income.
In January 1994, the Company and Apple Computer, Inc. ("Apple") entered
into an agreement under which Apple licensed its SNA-ps connectivity product
family and technology, including in-process technology, to the Company. As a
result of this agreement, the Company recorded a non-recurring charge in
January 1994 of $4.0 million ($2.5 million, or $0.25 per share, after income
taxes) for the write-off of in- process research and development. During
1996, the Company decided to discontinue development of new products for the
Macintosh operating system, but will continue to market, license and support
existing products.
7. INCOME TAXES
Income before income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. $2,775 $ 9,375 $22,570
International $4,472 $ 2,317 196
------ ------- -------
Total income before income taxes $7,247 $11,692 $22,766
====== ======= =======
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
U.S. federal $ 125 $ 5,130 $9,095
State 52 626 1,110
International 2,203 849 477
------ ------- -------
Total current provision 2,380 6,605 10,682
Deferred tax expense (benefit):
U.S. federal 700 (1,903) (1,711)
State 87 (253) (197)
International (113) (8) (192)
------ ------- -------
Total deferred provision (benefit) 674 (2,164) (2,100)
------ ------- -------
Total provision for income taxes $3,054 $ 4,441 $ 8,582
====== ======= =======
</TABLE>
F-8
<PAGE> 40
WALL DATA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effective rate differs from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision at statutory rate $2,463 $4,092 $7,968
International losses producing no current tax benefit 312 366 193
Utilization of international operating loss carryforward -- (234) --
Tax credits (100) (300) (125)
State taxes, net 68 255 589
Foreign Sales Corporation (215) (315) (198)
Nondeductible expenses 246 200 175
Other, net 280 377 (20)
------ ------ ------
$3,054 $4,441 $8,582
====== ====== ======
</TABLE>
The Company received compensation deductions in 1996, 1995 and 1994 for
income tax purposes of $1.0 million, $3.0 million and $8.0 million,
respectively, resulting from the exercise of nonqualified stock options and
from disqualifying dispositions of Common Stock received through exercise of
incentive stock options. As required by generally accepted accounting
principles, the resulting tax benefits of $0.4 million, $1.1 million, and $3.0
million, respectively, are reported as additions to shareholders' equity rather
than as a reduction of income tax expense.
Deferred income tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
(IN THOUSANDS)
1996 1995
------ ------
<S> <C> <C>
Write-off of in-process research and development $ -- $1,952
Accrued compensation and benefits 943 692
Other accrued expenses 701 23
Reserves for sales returns and doubtful accounts 1,217 1,052
Cooperative advertising reserves 428 247
Depreciation and amortization 155 659
Intercompany profit elimination 553 356
Net operating losses of international subsidiaries 723 411
Other, net 135 (121)
------ ------
4,855 5,271
Valuation allowance (723) (411)
------ ------
Net deferred tax assets $4,132 $4,860
====== ======
</TABLE>
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets that may not be realized due to the expiration of
net operating losses of certain international subsidiaries. The increase in
the valuation allowance in 1996 results from additional net operating losses of
these subsidiaries. As of December 31, 1996, the Company's international
subsidiaries have unused net operating loss carryforwards, for income tax
purposes, of $2.0 million, which expire primarily in 2001.
Income taxes paid in 1995 and 1994 totaled $8.2 million and $3.6 million,
respectively. In 1996, the Company received net refunds of $0.5 million.
F-9
<PAGE> 41
WALL DATA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDERS' EQUITY
In April 1995, the Board of Directors authorized the repurchase of the
Company's Common Stock up to an aggregate purchase price of $10 million. As of
December 31, 1995, the Company had repurchased 488,200 shares of Common Stock
for approximately $8.5 million. The Company did not repurchase any shares in
1996.
In July 1995, the Board of Directors adopted a shareholder rights
agreement, designed to protect shareholders from coercive takeover tactics, and
declared a dividend of one preferred share purchase right for each outstanding
share of the Company's Common Stock to shareholders of record as of July 31,
1995. The rights entitle the holder (a) to purchase one one-hundredth of a
share of Series A Junior Participating Preferred Stock, no par value per share,
of the Company at a price of $110, subject to adjustment to prevent dilution,
upon the occurrence of triggering events, or (b), in certain circumstances, to
purchase Wall Data Common Stock (or stock of the acquiring entity, as the case
may be) at a 50% discount from its then current market value. Such events
would include the acquisition of Wall Data shares through open market purchases
or a tender offer that, in the aggregate, equals or exceeds 20% of outstanding
shares. At the option of the Board of Directors, the rights may be exchanged
for one share of Wall Data Common Stock for each right. Such rights do not
extend to any holder whose action triggered the rights. The rights expire in
August 2005 and may be redeemed prior to that time at the option of the Board
of Directors for nominal consideration. Until a triggering event occurs, the
rights will not trade separately from the related Wall Data Common Stock.
The Company has several stock-based compensation plans that are described
below. The Company has elected to continue to apply APB Opinion No. 25 in
accounting for its plans and, accordingly, recognizes compensation expense for
employee stock options only when the exercise price is less than the quoted
market price at the date of grant; stock compensation expense was not material
in 1996, 1995 and 1994. Had stock-based compensation been determined based on
the prescribed method for estimating fair value under SFAS No. 123, the
Company's pro forma net income and earnings per share in 1996 and 1995 would
have been $2.7 million, or $0.28 per share, and $6.6 million or $0.67 per
share, respectively. The pro forma effects on net income for 1996 and 1995 are
not indicative of the pro forma effects in future years because SFAS No. 123
does not apply to grants prior to 1995 and additional grants in future years
are anticipated. The pro forma amounts have been determined using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.5%
and 6.3%; volatility factors of 74% and 77%; expected life of five years and a
zero dividend yield for both years.
The Company has stock option plans that provide for nonqualified and
incentive stock options for officers, employees and consultants. A committee
of the Board of Directors determines the terms and conditions of options
granted under the plans, including the exercise price; however, the exercise
price for incentive stock options shall not be less than the fair market value
at the date of grant. Options granted under the plans generally become
exercisable, cumulatively, at a rate of 25% per year from the date of grant,
and expire 10 years from the date of grant. The Company also has a stock
option plan for non-employee directors providing for grants of nonqualified
options at an exercise price that is not less than the fair market value at the
date of grant.
In July 1995 and January 1996, the Compensation Committee of the Board of
Directors authorized the exchange of new options for certain previously granted
stock options. Approximately 818,000 shares, ranging in price from $17.00 to
$54.25 per share, were exchanged for new options with an exercise price ranging
from $15.32 to $18.75 per share.
F-10
<PAGE> 42
WALL DATA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock option activity and option price information for all option plans is
as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------
NUMBER WEIGHTED
OF OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Balance at January 1, 1994 1,623,804 $ 6.32
Granted 574,500 35.70
Exercised (351,561) 2.45
Canceled (129,373) 18.45
----------
Balance at December 31, 1994 1,717,370 16.02
Granted 1,301,500 17.63
Exercised (271,610) 3.29
Canceled (1,031,479) 29.14
----------
Balance at December 31, 1995 1,715,781 11.38
Granted 775,750 16.32
Exercised (134,475) 8.19
Canceled (378,143) 18.33
----------
Balance at December 31, 1996 1,978,913 $12.12
==========
</TABLE>
The weighted average fair value of options granted in 1996, as determined
under the method prescribed in SFAS No. 123, is $11.10. Approximately 473,000
shares were available for future grants as of December 31, 1996. At December
31, 1995 options for the purchase of approximately 753,000 shares were
exercisable at a weighted average exercise price of $4.10 per share, and
574,000 shares were available for future grant. At December 31, 1994 options for
the purchase of approximately 828,018 shares were exercisable at a weighted
average exercise price of $3.56 per share, and 359,228 shares were available
for future grant. Additional information concerning outstanding stock options
and exercisable stock options as of December 31, 1996 is set forth below:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
------------------------------------------ -----------------------------------
WEIGHTED AVERAGE
REMAINING WEIGHTED WEIGHTED AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Less than $2.00 543,217 4.62 $ 0.24 534,217 $ 0.23
$2.00 to $15.00 225,526 9.41 13.47 11,417 7.86
$15.00 to $20.00 987,071 8.78 16.17 233,100 16.66
Greater than $20.00 223,099 8.78 21.71 48,020 23.64
--------- -------
1,978,913 7.71 12.12 826,754 6.33
========= =======
</TABLE>
The Company has an employee stock purchase plan for all eligible
employees. Under the plan, employees may purchase shares of Common Stock
having a total value not exceeding 10% of gross compensation, at a price per
share equal to 85% of the lower of fair market value of the Common Stock on the
first or last business day of each six-month offering period. As of December
31, 1996, approximately 64,200 shares had been issued under the plan, and
85,800 shares are reserved for future issuance.
9. EMPLOYEE BENEFITS
The Company has a Retirement Savings Plan to provide for voluntary salary
deferral contributions on a pretax basis in accordance with Section 401(k) of
the Internal Revenue Code of 1986, as amended. To date, the Company has made
no contributions to the plan.
10. LITIGATION
In April 1995, four individuals who allegedly had purchased Wall Data
Common Stock filed proposed shareholders' class action lawsuits against Wall
Data and certain of the Company's officers and directors in the U.S. District
Court, Western District of Washington (the "Court"). A consolidated complaint
amending the four actions was filed by one of the individuals in June 1995.
On September 13, 1995, the Court granted the Company's motion
F-11
<PAGE> 43
WALL DATA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
to dismiss the complaint, with leave to amend the complaint. The Court also
dismissed all claims against one of the Company's directors with prejudice. On
January 12, 1996, the plaintiffs filed a second amended complaint, containing
the same alleged violations of law and class period as the previous complaint.
The complaint seeks unspecified damages. In June 1996, the Court denied in
part and granted in part the Company's motion to dismiss the second amended
complaint. Trial has been scheduled for November 1997. The Company believes
the allegations in the second amended complaint are without merit and intends
to continue to vigorously defending against the action.
11. BUSINESS SEGMENT AND CONCENTRATION OF CREDIT RISK
The Company operates in one business segment: software products and
related services for users of personal computers. Net revenue from ONESTEP
service programs totaled 10.3% of total net revenues in 1996; net revenues from
services did not exceed 10% of the total in prior years. The Company
distributes its products through direct sales to end-users and on an indirect
basis through resellers, distributors and OEMs. The Company performs ongoing
credit evaluations of its customers' financial condition and generally requires
no collateral.
Sales to one unaffiliated customer, an OEM customer, accounted for 10% of
net revenues in 1995. Sales to any one customer did not exceed 10% of net
revenues in 1996 or 1994.
Information regarding the Company's operations in different geographic
areas in 1996, 1995 and 1994 is set forth below. Amounts presented for North
America include revenues from customers in North America and certain
international revenues, primarily Japan and Latin America; such international
revenues equaled 4%, 5% and 2% of consolidated net revenues in 1996, 1995 and
1994, respectively. Total international revenues equaled 29%, 28% and 23% of
consolidated net revenues in 1996, 1995 and 1994, respectively. Foreign
currency exchange transactions, which are included in other income (expense),
resulted in net exchange losses of $0.6 million and $0.5 million in 1996 and
1995, respectively; amounts in 1994 were not material. International sales are
denominated in both U.S. and local currencies. The Company has not engaged in
currency hedging transactions against sales denominated in foreign currencies;
however, it may do so in the future.
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
NET REVENUES
North America $121,657 $ 99,174 $ 93,124
Europe 35,140 25,387 21,885
Eliminations (17,433) (13,820) (13,769)
----------------------------------
Total net revenues $139,364 $110,741 $101,240
==================================
OPERATING INCOME (LOSS)
North America $ 476 $ (6,383) $ 21,053
Europe 5,103 1,348 286
Eliminations (518) (180) (311)
----------------------------------
Total operating income (loss) $ 5,061 $ (5,215) $ 21,028
==================================
IDENTIFIABLE ASSETS
North America $115,252 $108,039 $103,495
Europe 18,915 8,778 6,816
Eliminations (7,013) (7,478) (4,685)
----------------------------------
Total identifiable assets $127,154 $109,339 $105,626
==================================
</TABLE>
Intercompany sales are at prices intended to provide a profit for the
selling entity after coverage of product development, marketing, support and
general and administrative expenses. The identifiable assets by geographic
area are those used in the Company's operations in each area.
F-12
<PAGE> 44
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Wall Data Incorporated
We have audited the accompanying consolidated balance sheets of Wall Data
Incorporated as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Wall
Data Incorporated at December 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statement taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Seattle, Washington
January 20, 1997
F-13
<PAGE> 45
WALL DATA INCORPORATED
SELECTED QUARTERLY FINANCIAL DATA
AND MARKET INFORMATION (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------
Mar. 31 Jun. 30 Sep. 30 Dec. 31 Year
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1996 (1)
Net revenues $29,856 $34,826 $30,827 $43,855 $139,364
Gross margin 23,128 26,647 23,578 35,059 108,412
Net income (loss) 511 1,661 (645) 2,666 4,193
Net income (loss) per share 0.05 0.17 (0.07) 0.28 0.44
Common Stock price per share:
High 17.25 23.75 27.50 24.75 27.50
Low 13.00 14.75 16.25 12.25 12.25
1995 (2)
Net revenues $22,100 $24,730 $26,155 $37,756 $110,741
Gross margin 17,513 19,087 20,203 29,719 86,522
Net income (loss) 21 4,982 (204) 2,452 7,251
Net income (loss) per share 0.00 0.49 (0.02) 0.25 0.74
Common Stock price per share:
High 55.50 46.50 23.25 18.75 55.50
Low 34.75 15.00 15.00 14.50 14.50
</TABLE>
o Wall Data's Common Stock has been traded on the Nasdaq National Market
under the symbol "WALL" since March 15, 1993, the effective date of the
Company's initial public offering.
o The market prices of a share of Common Stock reflect the high and low
trading prices, as reported by the Nasdaq National Market.
o The Company has not paid cash dividends on its Common Stock.
o As of January 31, 1997, there were 349 holders of record of the
Company's Common Stock.
- ----------------
(1) During the quarter ended December 31, 1996, the Company recorded
non-recurring charges of $3.1 million before income taxes ($2.0
million, or $0.21 per share, after income taxes), primarily for the
write-off of purchased technologies. See Note 6 of Notes to the
Consolidated Financial Statements.
(2) During the quarter ended June 30, 1995, the Company recorded
non-recurring charges of $6.8 million before income taxes ($4.2
million, or $0.42 per share, after income taxes), primarily for the
write-off of in-process research and development, resulting from an
acquisition, and recorded a non-recurring gain of $14.0 million before
income taxes ($8.7 million, or $0.88 per share, after income taxes)
for the gain on sale of an equity investment. See Note 6 of Notes to
the Consolidated Financial Statements.
F-14
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 27th day of
March, 1997.
WALL DATA INCORPORATED
By: /s/ James Simpson
----------------------------------
James Simpson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated below on the 27th day of March,
1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ James Simpson Chairman of the Board and
- ----------------------------------- Chief Executive Officer
James Simpson
/s/ Richard Van Hoesen Vice President Finance,
- ----------------------------------- Chief Financial Officer
Richard Van Hoesen and Treasurer
/s/ John R. Wall President and Director
- -----------------------------------
John R. Wall
/s/ Robert Frankenberg Director
- -----------------------------------
Robert Frankenberg
/s/ Jeffrey Heimbuck Director
- -----------------------------------
Jeffrey Heimbuck
/s/ Henry Lewis Director
- -----------------------------------
Henry Lewis
/s/ David Millet Director
- -----------------------------------
David Millet
/s/ Steve Sarich, Jr. Director
- -----------------------------------
Steve Sarich, Jr.
/s/ Bettie A. Steiger Director
- -----------------------------------
Bettie A. Steiger
</TABLE>
<PAGE> 47
INDEX TO FINANCIAL STATEMENT SCHEDULES
SCHEDULE
- --------
Schedule II Valuation and Qualifying Accounts
<PAGE> 48
SCHEDULE II --- VALUATION AND QUALIFYING ACCOUNTS
WALL DATA INCORPORATED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
---------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING OF REVENUE, COSTS ACCOUNTS DEDUCTIONS BALANCE AT END
DESCRIPTION PERIOD OR EXPENSES --DESCRIBE --DESCRIBE(A) OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Reserves and allowances deducted from asset
accounts:
Allowance for uncollectible accounts,
rebates, and sales returns $3,180,000 $3,614,000 -- $3,054,000 $3,740,000
Valuation allowance for deferred tax assets $ 411,000 $ 312,000 -- -- $ 723,000
Year Ended December 31, 1995
Reserves and allowances deducted from asset
accounts:
Allowance for uncollectible accounts,
rebates, and sales returns $2,037,000 $4,107,000 -- $2,964,000 $3,180,000
Valuation allowance for deferred tax assets $ 518,000 $ 127,000 -- $ 234,000 $ 411,000
Year Ended December 31, 1994
Reserves and allowances deducted from asset
accounts:
Allowance for uncollectible accounts,
rebates, and sales returns $1,469,000 $ 648,000 -- $ 80,000 $2,037,000
Valuation allowance for deferred tax assets $ 373,000 $ 145,000 -- -- $ 518,000
</TABLE>
- --------------------------------------------------------------------------------
(A) Deductions consist of write-offs of uncollectable accounts, reseller
rebates and product returns; and utilization of net operating loss
carryforwards by certain international subsidiaries.
<PAGE> 49
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Restated Articles of Incorporation of Wall Data Incorporated
(Incorporated by reference to Registration Statement No.
33-57816)
3.2 Restated Bylaws of Wall Data Incorporated (Incorporated by
reference to Registration Statement No. 33-57816)
10.1 Amended and Restated 1983 Stock Option Plan (Incorporated by
reference to Registration Statement No. 33-57816)+
*10.2 Restated 1993 Stock Option Plan+
*10.3 Restated 1993 Stock Option Plan for Non-Employee Directors+
*10.4 Restated Employee Stock Purchase Plan+
10.5 Lease between Page Mill Partners I as Lessor and Wall Data
Incorporated as Lessee dated June 1, 1993 and Consent to
Sublease among Leland Stanford University, Page Mill Partners
I and Wall Data Incorporated dated June 1, 1993 (Incorporated
by reference to the Company's Form 10-K dated March 30, 1995,
File No. 0-21176)
10.7 Revolving Credit Loan Agreement dated June 6, 1994 between
Comerica Bank- California and Wall Data Incorporated together
with First Amendment to Revolving Credit Loan Agreement dated
August 18, 1995 (Incorporated by reference to the Company's
Form 10-K dated March 31, 1996, File No. 0-21176)
10.8 Form of Indemnification Agreement for Directors and Officers
(Incorporated by reference to Registration Statement No.
33-57816)+
10.9 Lease between Totem Skyline Associates III as Landlord and
Wall Data Incorporated as Tenant dated as of December 2, 1993
and Sublease between Wall Data Incorporated as Landlord and
Totem Skyline Associates III as Tenant dated as of December
2, 1993 (Incorporated by reference to the Company's Form 10-K
dated March 30, 1995, File No. 0-21176)
<PAGE> 50
EXHIBIT NO. DESCRIPTION
10.10 Employment Agreement dated as of November 4, 1994 between
John Wall and Wall Data Incorporated (Incorporated by
reference to the Company's Form 10-K dated March 30, 1995,
File No. 0-21176)+
10.11 Rights Agreement dated as of July 19, 1995 between Wall Data
Incorporated and First Interstate Bank of Washington, N.A.,
as rights agent (Incorporated by reference to the Company's
Form 8-A dated July 19, 1995, File No. 0-21176)
10.12 Lease between SI Palo Alto, Inc. as Lessor and Wall Data
Incorporated as Lessee dated December 29, 1995 (Incorporated
by reference to the Company's Form 10-K dated March 31, 1996,
File No. 0-21176)
*11.1 Computation of Earnings Per Share
*21.1 Subsidiaries of Wall Data Incorporated
*23.1 Consent of Ernst & Young LLP
*27.1 Financial Data Schedule
- ----------------
+ Management contract or compensatory plan
* Included herewith
<PAGE> 1
Exhibit 10.2
WALL DATA INCORPORATED
1993 STOCK OPTION PLAN
AS AMENDED AND RESTATED ON OCTOBER 15, 1996
SECTION 1. PURPOSE
The purpose of the 1993 Restated Stock Option Plan (this "Plan") is to
provide a means whereby selected employees, directors, officers, agents,
consultants, advisors and independent contractors of Wall Data Incorporated
(the "Company"), or of any parent or subsidiary (as defined in subsection 5.8
and referred to hereinafter as "related corporations") thereof, may be granted
incentive stock options and/or nonqualified stock options to purchase the
Common Stock (as defined in Section 3) of the Company, in order to attract and
retain the services or advice of such employees, directors, officers, agents,
consultants, advisors and independent contractors and to provide added
incentive to such persons by encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the
Company (the "Board") or a committee or committees (which term includes
subcommittees) appointed by, and consisting of two or more members of, the
Board. The administrator of this Plan shall hereinafter be referred to as the
"Plan Administrator." If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Board shall consider, in selecting the Plan Administrator
and the membership of any committee acting as Plan Administrator of the Plan
with respect to any persons subject or likely to become subject to Section 16
under the Exchange Act, the provisions regarding (a) "outside directors," as
contemplated by Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), and (b) "nonemployee directors," as contemplated by Rule 16b-3
under the Exchange Act. The Board may delegate the responsibility for
administering the Plan with respect to designated classes of eligible
Participants to different committees, subject to such limitations as the Board
deems appropriate. Committee members shall serve for such term as the Board
may determine, subject to removal by the Board at any time.
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 1
1993 Stock Option Plan
<PAGE> 2
2.1 PROCEDURES
The Board shall designate one of the members of the Plan Administrator
as chairman. The Plan Administrator may hold meetings at such times and places
as it shall determine. The acts of a majority of the members of the Plan
Administrator present at meetings at which a quorum exists, or acts reduced to
or approved in writing by all Plan Administrator members, shall be valid acts
of the Plan Administrator.
2.2 RESPONSIBILITIES
Except for the terms and conditions explicitly set forth in this Plan,
the Plan Administrator shall have the authority, in its discretion, to
determine all matters relating to the options to be granted under this Plan,
including selection of the individuals to be granted options, the number of
shares to be subject to each option, the exercise price, and all other terms
and conditions of the options. Grants under this Plan need not be identical in
any respect, even when made simultaneously. The interpretation and
construction by the Plan Administrator of any terms or provisions of this Plan
or any option issued hereunder, or of any rule or regulation promulgated in
connection herewith, shall be conclusive and binding on all interested parties,
so long as such interpretation and construction with respect to incentive stock
options correspond to the requirements of Section 422 of the Code, the
regulations thereunder and any amendments thereto.
2.3 SECTION 16(B) COMPLIANCE AND BIFURCATION OF PLAN
Notwithstanding anything in this Plan to the contrary, the Board, in
its absolute discretion, may bifurcate this Plan so as to restrict, limit or
condition the use of any provision of this Plan to participants who are
officers and directors subject to Section 16 of the Exchange Act without so
restricting, limiting or conditioning this Plan with respect to other
participants.
SECTION 3. STOCK SUBJECT TO THIS PLAN
The stock subject to this Plan shall be the Company's Common Stock
(the "Common Stock") presently authorized but unissued or subsequently acquired
by the Company. Subject to adjustment as provided in Section 7, the aggregate
amount of Common Stock to be delivered upon the exercise of all options granted
under this Plan shall not exceed (a) 835,000 shares as such Common Stock was
constituted on the effective date of this Plan, as restated, plus (b) an
additional number of shares of its Common Stock equal to the number of shares
of Common Stock which are currently reserved for issuance under this
corporation's 1983 Restated Stock Option Plan and which become available at and
as of July 28, 1994 from the unexercised
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 2
1993 Stock Option Plan
<PAGE> 3
portion of cancelled or terminated or expired options outstanding under the
1983 Restated Stock Option Plan on the date hereof, up to a maximum of
1,625,000 shares of Common Stock (after giving effect to such 4:1 reverse stock
split). If any option granted under this Plan shall expire or be surrendered,
exchanged for another option, cancelled or terminated for any reason without
having been exercised in full, the unpurchased shares subject thereto shall
thereupon again be available for purposes of this Plan, including for
replacement options which may be granted in exchange for such expired,
surrendered, exchanged, cancelled or terminated options.
SECTION 4. ELIGIBILITY
An incentive stock option may be granted only to any individual who,
at the time the option is granted, is an employee of the Company or any related
corporation. A nonqualified stock option may be granted to any employee,
director, officer, agent, consultant, advisor or independent contractor of the
Company or any related corporation, whether an individual or an entity. Any
party to whom an option is granted under this Plan shall be referred to
hereinafter as an "Optionee."
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
Options granted under this Plan shall be evidenced by written
agreements which shall contain such terms, conditions, limitations and
restrictions as the Plan Administrator shall deem advisable and which are not
inconsistent with this Plan. Notwithstanding the foregoing, options shall
include or incorporate by reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE
The maximum number of shares that may be purchased pursuant to the
exercise of each option and the price per share at which such option is
exercisable (the "exercise price") shall be as established by the Plan
Administrator, provided that the Plan Administrator shall act in good faith to
establish the exercise price which shall be not less than the fair market value
per share of the Common Stock at the time the option is granted with respect to
incentive stock options, and also provided that, with respect to incentive
stock options granted to greater than 10% shareholders, the exercise price
shall be as required by subsection 6.1. Notwithstanding the foregoing, the
maximum number of shares with respect to which an option or options may be
granted to any Optionee in any one fiscal year of the Company shall not exceed
100,000 shares except that the Company may make an additional one-time grant to
newly-hired employees of up to 150,000 shares (the "Maximum Annual Optionee
Grant").
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 3
1993 Stock Option Plan
<PAGE> 4
5.2 TERM AND MATURITY
Subject to the restrictions contained in Section 6 with respect to
granting incentive stock options to greater than 10% shareholders, the term of
each incentive stock option shall be as established by the Plan Administrator
and, if not so established, shall be 10 years from the date it is granted but
in no event shall it exceed 10 years. The term of each nonqualified stock
option shall be as established by the Plan Administrator and, if not so
established, shall be 10 years. To ensure that the Company or related
corporation will achieve the purpose and receive the benefits contemplated in
this Plan, any option granted to any Optionee hereunder shall, unless the
condition of this sentence is waived or modified in the agreement evidencing
the option or by resolution adopted at any time by the Plan Administrator, be
exercisable according to the following schedule:
<TABLE>
<CAPTION>
Period of Optionee's Continuous Relationship
With the Company or Related Corporation From
the Date the Option Is Granted Portion of Total Option Which Is Exercisable
- ---------------------------------------------------------------------------------------------
<S> <C>
After one year 25%
Each completed month thereafter An additional
2.0833%
</TABLE>
5.3 EXERCISE
Subject to the vesting schedule described in subsection 5.2, each
option may be exercised in whole or in part at any time and from time to time;
provided, however, that no fewer than 100 shares (or the remaining shares then
purchasable under the option, if less than 100 shares) may be purchased upon
any exercise of option rights hereunder and that only whole shares will be
issued pursuant to the exercise of any option. During an Optionee's lifetime,
any options granted under this Plan are personal to him or her and are
exercisable solely by such Optionee. Options shall be exercised by delivery to
the Company of notice of the number of shares with respect to which the option
is exercised, together with payment of the exercise price.
5.4 PAYMENT OF EXERCISE PRICE
The exercise price for shares purchased under an option shall be paid
in full to the Company by delivery of consideration equal to the product of the
option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check, or, unless the Plan Administrator at any time
determines otherwise, a
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 4
1993 Stock Option Plan
<PAGE> 5
combination of cash and/or check and one or both of the following alternative
forms: (a) tendering Common Stock already owned by the Optionee for at least
six months (or any shorter period necessary to avoid a charge to the Company's
earnings for financial reporting purposes) having a fair market value on the
day prior to the exercise date equal to the aggregate option exercise price; or
(b) delivery of a properly executed exercise notice, together with irrevocable
instructions, to (i) a brokerage firm designated by the Company to deliver
promptly to the Company the aggregate amount of sale or loan proceeds to pay
the option exercise price and any withholding tax obligations that may arise in
connection with the exercise and (ii) the Company to deliver the certificates
for such purchased shares directly to such brokerage firm, all in accordance
with the regulations of the Federal Reserve Board.
In addition, the exercise price for shares purchased under an option
may be paid, either singly or in combination with one or more of the
alternative forms of payment authorized by this Section 5.4, by (y) delivery of
a full-recourse promissory note executed by the Optionee; provided that (i)
such note delivered in connection with an incentive stock option shall, and
such note delivered in connection with a nonqualified stock option may, in the
sole discretion of the Plan Administrator, bear interest at a rate specified by
the Plan Administrator but in no case less than the rate required to avoid
imputation of interest (taking into account any exceptions to the imputed
interest rules) for federal income tax purposes, (ii) the Plan Administrator in
its sole discretion shall specify the term and other provisions of such note at
the time an incentive stock option is granted or at any time prior to exercise
of a nonqualified stock option, (iii) the Plan Administrator may require that
the Optionee pledge to the Company for the purpose of securing the payment of
such note the shares of Common Stock to be issued to the Optionee upon exercise
of the option and may require that the certificate representing such shares be
held in escrow in order to perfect the Company's security interest, and (iv)
the Plan Administrator in its sole discretion may at any time restrict or
rescind this right upon notification to the Optionee; or (z) such other
consideration as the Plan Administrator may permit.
5.5 WITHHOLDING TAX REQUIREMENT
The Company or any related corporation may require an Optionee to pay
the Company the amount of taxes required by any government to be withheld or
otherwise deducted and paid with respect to such payment. Subject to the Plan
and applicable law and unless the Plan Administrator determines otherwise, the
Optionee may satisfy withholding obligations, in whole or in part, by paying
cash, by electing to have the Company withhold shares of Common Stock or by
transferring shares of Common Stock to the Company, in such amounts as are
equivalent to the fair market value of the withholding obligation. The Company
shall have the right to withhold from any shares of Common Stock issuable
pursuant to the exercise of an option or
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 5
1993 Stock Option Plan
<PAGE> 6
from any cash amounts otherwise due or to become due from the Company to the
Optionee an amount equal to such taxes.
5.6 HOLDING PERIODS
5.6.1 SECURITIES AND EXCHANGE ACT SECTION 16
If an individual subject to Section 16 of the Exchange Act sells
shares of Common Stock obtained upon the exercise of a stock option within six
months after the date the option was granted, such sale may result in
short-swing profit recovery under Section 16(b) of the Exchange Act.
5.6.2 TAXATION OF STOCK OPTIONS
In order to obtain certain tax benefits afforded to incentive stock
options under Section 422 of the Code, an Optionee must hold the shares issued
upon the exercise of an incentive stock option for two years after the date of
grant of the option and one year from the date of exercise. An Optionee may be
subject to the alternative minimum tax at the time of exercise of an incentive
stock option.
The Plan Administrator may require an Optionee to give the Company
prompt notice of any disposition of shares of Common Stock acquired by the
exercise of an incentive stock option prior to the expiration of such holding
periods.
Tax advice should be obtained when exercising any option and prior to
the disposition of the shares issued upon the exercise of any option.
5.7 NONTRANSFERABILITY OF OPTIONS
No option granted under the Plan may be assigned, pledged or
transferred by the Optionee other than by will or by the laws of descent and
distribution, and during the Optionee's lifetime, such options may be exercised
only by the Optionee or a permitted assignee or transferee of the Optionee (as
provided below). Notwithstanding the foregoing, and to the extent permitted by
Section 422 of the Code, the Plan Administrator, in its sole discretion, may
permit such assignment, transfer and exercisability and may permit an Optionee
to designate a beneficiary who may exercise the option after the Optionee's
death; provided, however, that any option so assigned or transferred shall be
subject to all the same terms and conditions contained in the instrument
evidencing the option.
5.8 TERMINATION OF RELATIONSHIP
If the Optionee's relationship with the Company or any related
corporation ceases for any reason other than termination for cause, death or
total disability, and
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 6
1993 Stock Option Plan
<PAGE> 7
unless by its terms the option sooner terminates or expires, then the portion
of the option which is not exercisable at the time of such cessation shall
terminate immediately upon such cessation, unless the Plan Administrator
determines otherwise, and the portion of the option which is exercisable at the
time of such cessation (i) may be exercised for a three-month period after such
cessation and (ii) shall terminate at the end of such period following
cessation as to all shares for which it has not theretofore been exercised,
unless the Plan Administrator determines otherwise. If, in the case of an
incentive stock option, an Optionee's relationship with the Company or any
related corporation changes (i.e., from employee to nonemployee, such as a
consultant), such change shall constitute a termination of an Optionee's
employment with the Company or any related corporation and the Optionee's
incentive stock option shall terminate in accordance with this subsection 5.8.
Upon the expiration of the three-month period following cessation of employment
in the case of an incentive stock option, or at any time prior to the
expiration of the option in the case of a nonqualified stock option, the Plan
Administrator shall have sole discretion in a particular circumstance to extend
the exercise period following such cessation to any date up to the termination
or expiration of the option. If, however, in the case of an incentive stock
option, the Optionee does not exercise the Optionee's option within three
months after cessation of employment, the option will no longer qualify as an
incentive stock option under the Code.
If an Optionee is terminated for cause, any option granted hereunder
shall automatically terminate as of the first discovery by the Company of any
reason for termination for cause, and such Optionee shall thereupon have no
right to purchase any shares pursuant to such option. "Termination for cause"
shall mean dismissal for dishonesty, conviction or confession of a crime
punishable by law (except minor violations), fraud, misconduct or disclosure of
confidential information. If an Optionee's relationship with the Company or
any related corporation is suspended pending an investigation of whether or not
the Optionee shall be terminated for cause, all the Optionee's rights under any
option granted hereunder likewise shall be suspended during the period of
investigation.
If an Optionee's relationship with the Company or any related
corporation ceases because of a total disability, the portion of the Optionee's
option which is exercisable at the time of such cessation shall not terminate
or, in the case of an incentive stock option, cease to be treated as an
incentive stock option until the end of the 12-month period following such
cessation (unless by its terms it sooner terminates and expires). As used in
this Plan, the term "total disability" refers to a mental or physical
impairment of the Optionee which is expected to result in death or which has
lasted or is expected to last for a continuous period of 12 months or more and
which causes the Optionee to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the Company and to be
engaged in any
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 7
1993 Stock Option Plan
<PAGE> 8
substantial gainful activity. Total disability shall be deemed to have
occurred on the first day after the Company and the two independent physicians
have furnished their opinion of total disability to the Plan Administrator.
Options granted under the Plan shall not be affected by any change of
relationship with the Company so long as the Optionee continues to be an
employee, director, officer, agent, consultant, advisor or independent
contractor of the Company or of a related corporation; however, a change in an
Optionee's status from an employee to a nonemployee (e.g., consultant or
independent contractor) shall result in the termination of an outstanding
incentive stock option held by such Optionee. The Plan Administrator, in its
absolute discretion, may determine all questions of whether particular leaves
of absence constitute a termination of services; provided, however, that with
respect to incentive stock options, such determination shall be subject to any
requirements contained in the Code. The foregoing notwithstanding, with
respect to incentive stock options, employment shall not be deemed to continue
beyond the first 90 days of such leave, unless the Optionee's reemployment
rights are guaranteed by statute or by contract.
As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in,
at the time of the granting of the option, an unbroken chain of corporations
ending with the Company, if stock possessing 50% or more of the total combined
voting power of all classes of stock of each of the corporations other than the
Company is owned by one of the other corporations in such chain. When
referring to a parent corporation, the term "related corporation" shall mean
any corporation in an unbroken chain of corporations ending with the Company
if, at the time of the granting of the option, each of the corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
5.9 DEATH OF OPTIONEE
If an Optionee dies while he or she has a relationship with the
Company or any related corporation or within the three-month period (or
12-month period in the case of totally disabled Optionees) following cessation
of such relationship, any option held by such Optionee to the extent that the
Optionee would have been entitled to exercise such option, may be exercised
within one year after his or her death by the personal representative of his or
her estate or by the person or persons to whom the Optionee's rights under the
option shall pass by will or by the applicable laws of descent and
distribution.
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 8
1993 Stock Option Plan
<PAGE> 9
5.10 NO STATUS AS SHAREHOLDER
Neither the Optionee nor any party to which the Optionee's rights and
privileges under the option may pass shall be, or have any of the rights or
privileges of, a shareholder of the Company with respect to any of the shares
issuable upon the exercise of any option granted under this Plan unless and
until such option has been exercised.
5.11 CONTINUATION OF RELATIONSHIP
Nothing in this Plan or in any option granted pursuant to this Plan
shall confer upon any Optionee any right to continue in the employ or other
relationship of the Company or of a related corporation, or to interfere in any
way with the right of the Company or of any such related corporation to
terminate his or her employment or other relationship with the Company at any
time.
5.12 MODIFICATION AND AMENDMENT OF OPTION
Subject to the requirements of Code Section 422 with respect to
incentive stock options and to the terms and conditions and within the
limitations of this Plan, the Plan Administrator may modify or amend
outstanding options granted under this Plan. The modification or amendment of
an outstanding option shall not, without the consent of the Optionee, impair or
diminish any of his or her rights or any of the obligations of the Company
under such option. Except as otherwise provided in this Plan, no outstanding
option shall be terminated without the consent of the Optionee. Unless the
Optionee agrees otherwise, any changes or adjustments made to outstanding
incentive stock options granted under this Plan shall be made in such a manner
so as not to constitute a "modification" as defined in Code Section 425(h) and
so as not to cause any incentive stock option issued hereunder to fail to
continue to qualify as an incentive stock option as defined in Code Section
422(b).
5.13 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS
As to all incentive stock options granted under the terms of this
Plan, to the extent that the aggregate fair market value of the stock
(determined at the time the incentive stock option is granted) with respect to
which incentive stock options are exercisable for the first time by the
Optionee during any calendar year (under this Plan and all other incentive
stock option plans of the Company, a related corporation or a predecessor
corporation) exceeds $100,000, such options shall be treated as nonqualified
stock options to the extent required by Section 422 of the Code.
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 9
1993 Stock Option Plan
<PAGE> 10
SECTION 6. GREATER THAN 10% SHAREHOLDERS
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS
If incentive stock options are granted under this Plan to employees
who own more than 10% of the total combined voting power of all classes of
stock of the Company or any related corporation, the term of such incentive
stock options shall not exceed five years and the exercise price shall be not
less than 110% of the fair market value of the Common Stock at the time the
incentive stock option is granted. This provision shall control
notwithstanding any contrary terms contained in an option agreement or any
other document.
6.2 ATTRIBUTION RULE
For purposes of subsection 6.1, in determining stock ownership, an
employee shall be deemed to own the stock owned, directly or indirectly, by or
for his or her brothers, sisters, spouse, ancestors and lineal descendants.
Stock owned, directly or indirectly, by or for a corporation, partnership,
estate or trust shall be deemed to be owned proportionately by or for its
shareholders, partners or beneficiaries. If an employee or a person related to
the employee owns an unexercised option or warrant to purchase stock of the
Company, the stock subject to that portion of the option or warrant which is
unexercised shall not be counted in determining stock ownership. For purposes
of this Section 6, stock owned by an employee shall include all stock actually
issued and outstanding immediately before the grant of the incentive stock
option to the employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The aggregate number and class of shares for which options may be
granted under this Plan, the Maximum Annual Optionee Grant set forth in Section
5.1, the number and class of shares covered by each outstanding option and the
exercise price per share thereof (but not the total price), shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a split-up or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
7.1 EFFECT OF LIQUIDATION OR REORGANIZATION
7.1.1 CASH, STOCK OR OTHER PROPERTY FOR STOCK
Except as provided in subsection 7.1.2, upon a merger (other than a
merger of the Company in which the holders of Common Stock immediately prior to
the merger have the same proportionate ownership of Common Stock in the
surviving corporation
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 10
1993 Stock Option Plan
<PAGE> 11
immediately after the merger), consolidation, acquisition of property or stock,
separation, reorganization (other than a mere reincorporation or the creation
of a holding company) or liquidation of the Company, as a result of which the
shareholders of the Company receive cash, stock or other property in exchange
for or in connection with their shares of Common Stock, any option granted
hereunder shall terminate, but the Optionee shall have the right immediately
prior to any such merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation to exercise such Optionee's option in
whole or in part whether or not the vesting requirements set forth in the
option agreement have been satisfied.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR STOCK EXCHANGE
If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock in
any transaction involving a merger (other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation
immediately after the merger), consolidation, acquisition of property or stock,
separation or reorganization (other than a mere reincorporation or the creation
of a holding company), all options granted hereunder shall be converted into
options to purchase shares of Exchange Stock unless the Company and the
corporation issuing the Exchange Stock, in their sole discretion, determine
that any or all such options granted hereunder shall not be converted into
options to purchase shares of Exchange Stock but instead shall terminate in
accordance with the provisions of subsection 7.1.1. The amount and price of
converted options shall be determined by adjusting the amount and price of the
options granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock receive in
such merger, consolidation, acquisition of property or stock, separation or
reorganization. The converted options shall be fully vested whether or not the
vesting requirements set forth in the option agreement have been satisfied.
Upon a merger of the Company in which the holders of the Common Stock
immediately prior to the merger have the same proportionate ownership of common
stock in the surviving corporation immediately after the merger, a mere
reincorporation or the creation of a holding company, each option outstanding
under the Plan shall be assumed or an equivalent option shall be substituted by
the successor corporation or a parent or subsidiary of such corporation, and
the vesting schedule set forth in the instrument evidencing the option shall
continue to apply to such assumed or equivalent option.
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 11
1993 Stock Option Plan
<PAGE> 12
7.2 FRACTIONAL SHARES
In the event of any adjustment in the number of shares covered by any
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL
All Section 7 adjustments shall be made by the Board, and its
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. Unless an Optionee agrees otherwise,
any change or adjustment to an incentive stock option shall be made in such a
manner so as not to constitute a "modification" as defined in Code Section
425(h) and so as not to cause his or her incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as
defined in Code Section 422(b).
SECTION 8. SECURITIES REGULATION
Shares shall not be issued with respect to an option granted under
this Plan unless the exercise of such option and the issuance and delivery of
such shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance, including the
availability of an exemption from registration for the issuance and sale of any
shares hereunder. Inability of the Company to obtain from any regulatory body
having jurisdiction, the authority deemed by the Company's counsel to be
necessary for the lawful issuance and sale of any shares hereunder or the
unavailability of an exemption from registration for the issuance and sale of
any shares hereunder shall relieve the Company of any liability in respect of
the nonissuance or sale of such shares as to which such requisite authority
shall not have been obtained.
As a condition to the exercise of an option, the Company may require
the Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order
against any shares of stock may be placed on the official stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel is provided
(concurred in by counsel for the Company) stating that
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 12
1993 Stock Option Plan
<PAGE> 13
such transfer is not in violation of any applicable law or regulation, may be
stamped on stock certificates in order to assure exemption from registration.
The Plan Administrator may also require such other action or agreement by the
Optionees as may from time to time be necessary to comply with the federal and
state securities laws. THIS PROVISION SHALL NOT OBLIGATE THE COMPANY TO
UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the
stock subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such exchange
shall be authorized by that exchange for listing thereon prior to the issuance
thereof.
SECTION 9. AMENDMENT AND TERMINATION
9.1 BOARD ACTION
The Board may at any time suspend, amend or terminate this Plan,
provided that, to the extent required for compliance with Section 422 of the
Code or by any applicable law or regulation, the Company's shareholders must
approve any amendment which will:
(a) increase the total number of shares that may be
issued under this Plan;
(b) modify the class of participants eligible for
participation in this Plan; or
(c) otherwise require shareholder approval under any
applicable law or regulation.
Such shareholder approval must be obtained within 12 months of the
adoption by the Board of such amendment.
Any amendment made to this Plan which would constitute a
"modification" to incentive stock options outstanding on the date of such
amendment, shall not be applicable to such outstanding incentive stock options,
but shall have prospective effect only, unless the Optionee agrees otherwise.
9.2 AUTOMATIC TERMINATION
Unless sooner terminated by the Board, this Plan shall terminate ten
years from the earlier of (a) the date on which this Plan is adopted by the
Board or (b) the date on which this Plan is approved by the shareholders of the
Company. No option may be granted after such termination or during any
suspension of this Plan. The amendment
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 13
1993 Stock Option Plan
<PAGE> 14
or termination of this Plan shall not, without the consent of the option
holder, impair or diminish any rights or obligations under any option
theretofore granted under this Plan.
SECTION 10. EFFECTIVENESS OF THIS PLAN
This Plan shall become effective upon adoption by the Board so long as
it is approved by a majority of stock represented by shareholders voting either
in person or by proxy at a duly held shareholders' meeting any time within 12
months before or after the adoption of this Plan.
Plan adopted by the Board of Directors on January 7, 1993 and approved by the
shareholders on January 28, 1993; Restated Plan adopted by the Board of
Directors on March 16, 1994 and approved by the shareholders on May 19, 1994.
Plan amended and restated by the Board of Directors on October 15, 1996.
- -------------------------------------------------------------------------------
Wall Data Incorporated Page 14
1993 Stock Option Plan
<PAGE> 1
Exhibit 10.3
WALL DATA INCORPORATED
1993 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
AS AMENDED AND RESTATED ON OCTOBER 15, 1996
SECTION 1. PURPOSES
The purposes of the Wall Data Incorporated 1993 Stock Option Plan for
Non-Employee Directors (the "Plan") are to attract and retain the services of
experienced and knowledgeable non-employee directors of Wall Data Incorporated
(the "Corporation") and to provide an incentive for such directors to increase
their proprietary interests in the Corporation's long-term success and
progress.
SECTION 2. SHARES SUBJECT TO THE PLAN
Subject to adjustment in accordance with Section 6 hereof, the total
number of shares of the Corporation's common stock, no par value per share (the
"Common Stock"), for which options may be granted under the Plan is one hundred
fifty thousand (150,000) (the "Shares"). The Shares shall be shares presently
authorized but unissued and shall include shares representing the unexercised
portion of any option granted under the Plan which expires or terminates
without being exercised in full.
SECTION 3. ADMINISTRATION OF THE PLAN
The administrator of the Plan (the "Plan Administrator") shall be the
Board of Directors of the Corporation (the "Board"). Subject to the terms of
the Plan, the Plan Administrator shall have the power to construe the
provisions of the Plan, to determine all questions arising thereunder and to
adopt and amend such rules and regulations for the administration of the Plan
as it may deem desirable. No member of the Plan Administrator shall
participate in any vote by the Plan Administrator on any matter materially
affecting the rights of any such member under the Plan.
SECTION 4. PARTICIPATION IN THE PLAN
Each member of the Board elected or appointed who is not otherwise an
employee of the Corporation or any parent or subsidiary corporation (an
"Eligible Director") shall automatically receive the grant of an option (the
"First Option") to purchase 2,500 shares if such director is elected as a
director at this Corporation's Annual Meeting of Shareholders on January 28,
1993. The First Option shall be automatically granted on the first day on
which the Corporation's Common Stock is publicly traded. Each Eligible
Director whose initial election or appointment to the
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 1
Stock Option Plan For Non-Employee Directors
<PAGE> 2
Board of Directors occurs on or after January 29, 1993 and before March 15,
1996, shall automatically receive the grant of an option (the "Initial Option")
to purchase 5,000 shares; each Eligible Director whose initial election or
appointment to the Board of Directors occurs on or after March 15, 1996 shall
receive an Initial Option to purchase 10,000 shares. The Initial Option shall
be automatically granted on the day such Eligible Director is so elected or
appointed.
Commencing with the Annual Meeting of Shareholders as described in the
Corporation's Bylaws (the "Annual Meeting") for 1993 through the Annual Meeting
for 1995, each Eligible Director shall automatically receive the grant of an
option (the "Annual Option") to purchase 1,250 shares, except that the Annual
Options for 1993 shall be granted on the first day on which the Corporation's
Common Stock is publicly traded; and commencing with the Annual Meeting for
1996 (May 1996) each Eligible Director shall automatically receive an Annual
Option to purchase 2,500 shares. Each Eligible Director shall be entitled to
receive an Annual Option notwithstanding the receipt of a First Option or
Initial Option in the same calendar year.
SECTION 5. OPTION TERMS
Each option granted to an Eligible Director under the Plan and the
issuance of Shares thereunder shall be subject to the following terms:
5.1 OPTION AGREEMENT
Each option granted under the Plan shall be evidenced by an option
agreement (an "Agreement") duly executed on behalf of the Corporation. Each
Agreement shall comply with and be subject to the terms and conditions of the
Plan. Any Agreement may contain such other terms, provisions and conditions
not inconsistent with the Plan as may be determined by the Plan Administrator.
5.2 OPTION EXERCISE PRICE
The option exercise price for each option granted under the Plan shall
be the fair market value of the Shares covered by the option at the time the
option is granted. For purposes of the Plan, "fair market value" shall be the
average of the high and low sales prices at which the Common Stock was sold on
such date as reported by the NASDAQ National Market System on such date or, if
no Common Stock was traded on such date, on the next preceding date on which
Common Stock was so traded.
5.3 VESTING AND EXERCISABILITY
A First Option for an Eligible Director shall vest and become
exercisable 180 days after the date of grant of the First Option.
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 2
Stock Option Plan For Non-Employee Directors
<PAGE> 3
An Initial Option to an Eligible Director shall vest and become
exercisable in accordance with the following schedule:
<TABLE>
<CAPTION>
Period of Eligible Directors' Continuous
Service as a Director With the Company From
the Date the Initial Option Portion of Total Option Which Is
is Granted Exercisable
------------------------------------------- --------------------------------
<S> <C>
upon the first anniversary date of the Initial 25%
Option grant date
each completed month after such first An additional
anniversary date 2.0833%
</TABLE>
An Annual Option to an Eligible Director shall vest and become
exercisable upon the date of the Annual Meeting next following the date of
grant of such Annual Option.
5.4 TIME AND MANNER OF EXERCISE OF OPTION
Each option may be exercised in whole or in part at any time and from
time to time; provided, however, that no fewer than 100 Shares (or the
remaining Shares then purchasable under the option, if less than 100 Shares)
may be purchased upon any exercise of option rights hereunder and that only
whole Shares will be issued pursuant to the exercise of any option.
Any option may be exercised by giving written notice, signed by the
person exercising the option, to the Corporation stating the number of Shares
with respect to which the option is being exercised, accompanied by payment in
full for such Shares, which payment may be in whole or in part (i) in cash or
by check, (ii) in shares of Common Stock already owned for at least six (6)
months by the person exercising the option, valued at fair market value at the
time of such exercise, or (iii) by delivery of a properly executed exercise
notice, together with irrevocable instructions to a broker, to properly deliver
to the corporation the amount of sale or loan proceeds to pay the exercise
price, all in accordance with the regulations of the Federal Reserve Board.
5.5 TERM OF OPTIONS
Each option shall expire five years from the date of the granting
thereof, but shall be subject to earlier termination as follows:
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 3
Stock Option Plan For Non-Employee Directors
<PAGE> 4
(a) In the event that an optionee ceases to be a director
of the Corporation for any reason other than the death or total
disability of the optionee, the unvested portion of the options
granted to such optionee shall terminate immediately and the vested
portion of the options granted to such optionee may be exercised by
him or her only within three months after the date such optionee
ceases to be a director of the Corporation.
(b) In the event of the death of an optionee, whether
during the optionee's service as a director or during the three-month
period referred to in Section 5.5(a), the unvested portion of the
options granted to such optionee shall terminate immediately and the
vested portion of the options granted to such optionee shall be
exercisable, and such options shall expire unless exercised within one
year after the date of the optionee's death, by the legal
representatives or the estate of such optionee, by any person or
persons whom the optionee shall have designated in writing on forms
prescribed by and filed with the Corporation or, if no such
designation has been made, by the person or persons to whom the
optionee's rights have passed by will or the laws of descent and
distribution.
(c) If an Eligible Director's service as a Director of
the Company ceases because of a total disability, the unvested portion
of the options granted to such optionee shall terminate immediately
and the vested portion of the Eligible Director's option shall not
terminate until the end of the 12-month period following such
cessation (unless by its terms it sooner terminates and expires). As
used in this Plan, the term "total disability" refers to a mental or
physical impairment of the Eligible Director which is expected to
result in death or which has lasted or is expected to last for a
continuous period of 12 months or more and which causes the Eligible
Director to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the Company.
Total disability shall be deemed to have occurred on the first day
after the Company and the independent physicians have furnished their
opinion of total disability to the Plan Administrator.
5.6 TRANSFERABILITY
During an optionee's lifetime, an option may be exercised only by the
optionee or a permitted assignee or transferee (as provided below). Options
granted under the Plan and the rights and privileges conferred thereby shall
not be subject to execution, attachment or similar process and may not be
transferred, assigned, pledged or hypothecated in any manner (whether by
operation of law or otherwise) other than by (a) will or the applicable laws of
descent and distribution, (b) pursuant to a qualified domestic relation order,
or (c) by gift or other transfer to either (i) a spouse or other
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 4
Stock Option Plan For Non-Employee Directors
<PAGE> 5
immediate family member or (ii) any trust, partnership or other entity in which
the optionee or such optionee's spouse or other immediate family member has a
substantial beneficial interest; provided, however, that any option so assigned
or transferred shall be subject to all the same terms and conditions contained
in the instrument evidencing the award. In addition, a recipient of an option
may designate in writing during the optionee's lifetime a beneficiary to
receive and exercise options in the event of the optionee's death (as provided
in Section 5.5(b)). Any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any option under the Plan or of any right or privilege
conferred thereby, contrary to the provisions of the Plan, or the sale or levy
or any attachment or similar process upon the rights and privileges conferred
hereby, shall be null and void.
5.7 HOLDING PERIOD
If an individual subject to Section 16 of the Exchange Act sells
shares of Common Stock obtained upon the exercise of any option granted under
the Plan within six (6) months after the date the option was granted, such sale
may result in short-swing profit liability under Section 16(b) of the Exchange
Act.
5.8 PARTICIPANT'S OR SUCCESSOR'S RIGHTS AS STOCKHOLDER
Neither the recipient of an option under the Plan nor the optionee's
successor(s) in interest shall have any rights as a stockholder of the
Corporation with respect to any Shares subject to an option granted to such
person until such person becomes a holder of record of such Shares.
5.9 LIMITATION AS TO DIRECTORSHIP
Neither the Plan, nor the granting of an option, nor any other action
taken pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that an optionee has a right to continue as
a director for any period of time or at any particular rate of compensation.
5.10 REGULATORY APPROVAL AND COMPLIANCE
The Corporation shall not be required to issue any certificate or
certificates for Shares upon the exercise of an option granted under the Plan,
or record as a holder of record of Shares the name of the individual exercising
an option under the Plan, without obtaining to the complete satisfaction of the
Plan Administrator the approval of all regulatory bodies deemed necessary by
the Plan Administrator, and without complying, to the Plan Administrator's
complete satisfaction, with all rules and regulations under federal, state or
local law deemed applicable by the Plan Administrator.
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 5
Stock Option Plan For Non-Employee Directors
<PAGE> 6
SECTION 6. CAPITAL ADJUSTMENTS
The aggregate number of Shares with respect to which options may be
granted under the Plan, as provided in Section 2, the number of Shares subject
to each outstanding option and the price per share specified in such options,
shall all be proportionately adjusted for any increase or decrease in the
number of issued shares of common stock of the Corporation resulting from a
subdivision or consolidation of shares or any other similar capital adjustment
or the payment of a stock dividend.
In the event of any adjustment in the number of Shares covered by any
option, any fractional Shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full Shares
resulting from such adjustment.
Upon a merger (other than a merger of the Corporation in which the
holders of the Corporation's common stock immediately prior to the merger have
the same proportionate ownership of sommon stock in the surviving corporation
immediately after the merger), consolidation, acquisition of property or stock,
separation, reorganization(other than a mere reincorporation or the creation of
a holding company) or liquidation of the Corporation (each a "corporate
transaction"), as a result of which the shareholders of the Corporation receive
cash, stock or other property in exchange for or in connection with their
shares of the Corporation's common stock, then the exercisability of each
option outstanding under the Plan shall be automatically accelerated so that
each such option shall, immediately prior to the specified effective date for
any such corporate transaction, become fully exercisable with respect to the
total number of Shares purchasable under such option and may be exercised for
all or any portion of such Shares. To the extent such option is not exercised,
it shall terminate, except that in the event of a corporate transaction in
which shareholders of the Corporation receive capital stock of another
corporation in exchange for their shares of the Corporation's common stock,
such unexercised option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. Any such assumed or equivalent option shall be fully
exercisable with respect to the total number of Shares purchasable under such
option.
Upon a merger of the Company in which the holders of the Corporation's
common stock immediately prior to the merger have the same proportionate
ownership of common stock in the surviving corporation immediately after the
merger, a mere reincorporation or the creation of a holding company, each
option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or subsidiary of
such corporation, and the vesting schedule set forth herein shall continue to
apply to such assumed or equivalent option.
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 6
Stock Option Plan For Non-Employee Directors
<PAGE> 7
SECTION 7. EXPENSES OF THE PLAN
All costs and expenses of the adoption and administration of the Plan
shall be borne by the Corporation; none of such expenses shall be charged to
any optionee.
SECTION 8. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon adoption by the Corporation's
shareholders. The Plan shall continue in effect until it is terminated by
action of the Board or the Corporation's shareholders, but such termination
shall not affect the then-outstanding terms of any options.
SECTION 9. COMPLIANCE WITH RULE 16B-3
It is the intention of the Corporation that the Plan comply in all
respects with the requirements for a "formula plan" within the meaning
attributed to that term for purposes of Rule 16b-3 promulgated under Section
16(b) of the Exchange Act. Therefore, if any Plan provision is later found not
to be in compliance with such requirements, that provision shall be deemed null
and void, and in all events the Plan shall be construed in favor of its meeting
such requirements.
SECTION 10. TERMINATION AND AMENDMENT OF THE PLAN
The Board may amend, terminate or suspend the Plan at any time, in its
sole and absolute discretion; provided, however, that if required to qualify
the Plan as a formula plan for purposes of Rule 16b-3 promulgated under Section
16(b) of the Exchange Act, no amendment may be made more than once every six
(6) months that would change the amount, price, timing or vesting of the
options, other than to comport with changes in the Internal Revenue Code of
1986, as amended, or the rules and regulations promulgated thereunder; and
provided, further, that no amendment that would
(a) materially increase the number of Shares that may be issued
under the Plan, or
(b) otherwise require shareholder approval under any applicable
law or regulation shall be made without the approval of the
Corporation's shareholders.
* * * * *
Adopted by the Corporation's Board of Directors on January 7, 1993 and
approved by the Corporation's shareholders on January 28, 1993.
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 7
Stock Option Plan For Non-Employee Directors
<PAGE> 8
Amendment No. 1 adopted by the Corporation's Board of Directors on
March 18, 1996 and approved by the Corporation's shareholders on May 21, 1996.
Restated to incorporate Amendment No. 1 on March 18, 1996. Amended and
Restated on October 15, 1996.
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 7
Stock Option Plan For Non-Employee Directors
<PAGE> 1
Exhibit 10.4
WALL DATA INCORPORATED
RESTATED EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Base Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.4 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Eligible Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Offering Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.8 Related Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3 ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 4 STOCK SUBJECT TO THIS PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1 Type and Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2 Limitation on Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 5 ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 6 OFFERINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 7 PARTICIPATION BY PAYROLL DEDUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 8 OPTION PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 9 GRANTING OF OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 10 EXERCISE OF OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 11 PARTICIPANT'S RIGHTS AS A SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 12 DELIVERY OF STOCK CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 13 WITHDRAWAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 14 CARRYOVER OF ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
- -------------------------------------------------------------------------------
Wall Data Incorporated i Table of Contents
Employee Stock Purchase Plan
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 15 INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 16 RIGHTS NOT TRANSFERABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 17 TERMINATION OF EMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 18 DOLLAR AMOUNT LIMITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 19 CONTINUATION OF EMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 20 WITHHOLDING TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 21 GREATER THAN FIVE PERCENT SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 22 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . 8
SECTION 23 SECURITIES REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 24 AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 25 INDEMNIFICATION OF BOARD AND PLAN ADMINISTRATOR . . . . . . . . . . . . . . . . . . . 9
SECTION 26 EFFECTIVENESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
- -------------------------------------------------------------------------------
Wall Data Incorporated ii Table of Contents
Employee Stock Purchase Plan
<PAGE> 4
WALL DATA INCORPORATED
RESTATED EMPLOYEE STOCK PURCHASE PLAN
SECTION 1 PURPOSE
The purpose of this Wall Data Incorporated Restated Employee Stock
Purchase Plan (the "Plan") is to provide a means whereby certain employees of
Wall Data Incorporated (the "Company"), or of any Related Corporation
designated by the Company, may be granted stock options to purchase the common
stock of the Company, in order to attract and retain the services or advice of
such employees and to provide added incentive to them by encouraging stock
ownership in the Company. It is the intention of the Company to have the Plan
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. The provisions of the Plan shall,
accordingly, be construed in a manner consistent with the requirements of that
Section of the Code.
SECTION 2 DEFINITIONS
2.1 ACCOUNT
"Account" shall mean the funds accumulated with respect to a Participant
as a result of deductions from his or her paycheck for the purpose of
purchasing stock under this Plan. The funds allocated to a Participant's
Account shall remain the property of the respective Participant at all times
but may be commingled with the general funds of the Company.
2.2 BASE PAY
"Base Pay" shall mean the total cash compensation (including bonuses,
overtime, and commissions) as reflected on a Participant's W-2 income tax
statement (excluding moving expenses, reimbursed employee business expenses,
and taxable fringe benefits), except that a Participant may elect on the
Participation Agreement to exclude all bonuses and commissions from Base Pay.
If a Participant so elects, he or she must exclude all bonuses and commission
but not a part thereof.
2.3 BOARD
"Board" shall mean the Board of Directors of the Company.
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 1
Employee Stock Purchase Plan
<PAGE> 5
2.4 CODE
"Code" shall mean the Internal Revenue Code of 1986, as it may be amended
from time to time.
2.5 ELIGIBLE EMPLOYEE
"Eligible Employee" shall mean any employee who is eligible to participate
in the Plan pursuant to the provisions of Section 5.
2.6 OFFERING DATE
"Offering Date" shall mean the commencement date of an offering, if such
date is a regular business day; otherwise, it shall mean the first regular
business day following such commencement date. A different date may be set by
resolution of the Board.
2.7 PARTICIPANT
"Participant" shall mean an Eligible Employee who has completed and filed
a Participation Agreement pursuant to Section 7.1.
2.8 RELATED CORPORATION
"Related Corporation," when referring to a subsidiary corporation, shall
mean any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company, if stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock of
each of the corporations other than the Company is owned by one of the other
corporations in such chain. When referring to a parent corporation, the term
"Related Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if, at the time of the granting of the
option, each of the corporations other than the Company owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
SECTION 3 ADMINISTRATION
This Plan shall be administered by the Compensation Committee of the Board
(the "Compensation Committee") or such person or persons designated by such
Compensation Committee, to whom the Compensation Committee may delegate all or
a portion of the Compensation Committee's authority under this Plan. The
Compensation Committee and any such designated person or persons shall
hereinafter be referred to as the Plan Administrator. The Plan Administrator
shall be vested with full authority to make, administer, and interpret such
rules and regulations as it deems necessary to administer the Plan, and any
determination, decision, or action of the Plan Administrator in connection with
the construction,
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 2
Employee Stock Purchase Plan
<PAGE> 6
interpretation, administration, or application of the Plan shall be final,
conclusive, and binding upon all Participants and any and all persons claiming
under or through any Participant.
SECTION 4 STOCK SUBJECT TO THIS PLAN
4.1 TYPE AND NUMBER OF SHARES
The stock subject to this Plan shall be the Company's Common Stock (the
"Common Stock"), presently authorized but unissued or subsequently acquired by
the Company. Subject to adjustment as provided in Section 22, the aggregate
amount of Common Stock to be delivered upon the exercise of all options granted
under this Plan shall not exceed four hundred thousand (400,000) shares as such
Common Stock was constituted on the effective date of this Plan and after giving
effect to the 4:1 reverse stock split authorized by the Board of Directors of
the Company on January 7, 1993. If any option granted under this Plan shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall thereupon again be available for
delivery under this Plan.
4.2 LIMITATION ON EXERCISE
If the total number of shares for which options are to be exercised on any
date in accordance with Section 10 exceeds the number of shares then available
under the Plan (after deduction of all shares for which options have been
exercised or are then outstanding), the Plan Administrator shall make a pro
rata allocation of the shares remaining available in as nearly a uniform manner
as shall be practicable and as it shall determine to be equitable. The Company
shall give written notice of such reduction to each Participant affected
thereby and shall return any unused portion of each Participant's Account to
such Participant.
SECTION 5 ELIGIBILITY
Any regular employee of the Company (or any Related Corporation designated
by the Company) who is in the employ of the Company (or any such designated
Related Corporation) on one or more Offering Dates is eligible to participate
in the Plan, except for (i) employees who have been employed less than three
months, (ii) employees whose customary employment is less than twenty (20)
hours per week, and (iii) employees whose customary employment is for not more
than five (5) months in any calendar year. If the Company permits any
employees of a Related Corporation to participate in this Plan, then all
employees of that Related Corporation who meet the requirements of this Section
5 shall also be considered Eligible Employees.
SECTION 6 OFFERINGS
There will be consecutive offerings, each approximately six months in
length, pursuant to the Plan, until the earlier of the termination of the Plan
or the date when all (except de
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 3
Employee Stock Purchase Plan
<PAGE> 7
minimis amounts) of the shares of Common Stock authorized under Section 4.1
shall have been delivered. The first offering shall commence on the first day
of the first semimonthly payroll beginning after August 16, 1993 (or a later
date designated by the Board) and subsequent offerings shall commence on the
first day of the first semimonthly payroll period beginning immediately after
each subsequent February 16 and August 16. Each offering shall terminate on
the day immediately preceding the first day of the first semimonthly payroll
period of the subsequent offering. Notwithstanding the foregoing, the Plan
Administrator may, subject to the limitations set forth in the Code from time
to time, establish (a) a different term for one or more offerings and (b)
different commencing and ending dates for offerings.
SECTION 7 PARTICIPATION BY PAYROLL DEDUCTION
7.1 An Eligible Employee may participate by completing a
Participation Agreement provided by the Plan Administrator authorizing payroll
deductions, and completing any other papers deemed necessary by the Company or
Plan Administrator and filing the Agreement and any other such papers with the
Company no later than ten (10) business days prior to the commencement date
(February 16 and August 16) of the offering in which the Eligible Employee
wishes to participate, or such later date as the Plan Administrator may
designate. Participation, in one offering under the Plan shall neither limit
nor require participation in any other offering.
7.2 Payroll deductions for a Participant shall commence on the
Offering Date, and shall end on the termination date of such offering unless
earlier terminated by the Participant as provided in Section 13.
7.3 At the time a Participant files his Participation Agreement,
the Participant shall elect to have payroll deductions made from the
Participant's Base Pay, measured by whole number percentages from one percent
(1%) up to a maximum of ten percent (10%) of Base Pay, on each pay day during
the time he or she is a Participant in an offering.
7.4 All payroll deductions made for a Participant shall be
credited to the Participant's Account under the Plan. A Participant may not
make any separate cash payment into such Account, nor may the Participant make
payment for shares other than by payroll deduction.
7.5 A Participant may discontinue his or her participation in
the Plan as provided in Section 13, but no other change can be made during an
offering and, specifically, a Participant may not alter the rate of payroll
deductions for that offering.
SECTION 8 OPTION PRICE
The purchase price per share of Common Stock during any offering shall be
the lesser of (i) 85% of the fair market value of the stock on the Offering
Date, or (ii) 85% of the fair
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 4
Employee Stock Purchase Plan
<PAGE> 8
market value of the stock on the last business day of the offering.
Notwithstanding the foregoing, the Plan Administrator may establish a different
purchase price for any offering, which shall not be less than the purchase
price set forth in the preceding sentence. Fair market value shall mean the
closing price for the Common Stock on a particular day as reported by The Wall
Street Journal.
SECTION 9 GRANTING OF OPTION
On each Offering Date, this Plan shall be deemed to have granted to the
Participant an option for as many full shares as he or she will be able to
purchase with the payroll deductions credited to his or her Account during
participation in that offering.
SECTION 10 EXERCISE OF OPTION
Each Eligible Employee who continues to be a Participant in an offering on
the last business day of that offering shall be deemed to have exercised his or
her option on such date and shall be deemed to have purchased from the Company
such number of full shares of Common Stock reserved for the purpose of the Plan
as the accumulated payroll deductions on such date will pay for at the option
price, subject to the limitations of Section 4.2.
SECTION 11 PARTICIPANT'S RIGHTS AS A SHAREHOLDER
11.1 No Participant shall have any right as a shareholder with
respect to any shares of Common Stock until the shares have been purchased in
accordance with Section 10 above.
11.2 Shares to be delivered to a Participant under the Plan will
be registered in the name of the Participant, or, if the Participant so
directs, by written notice to the Company prior to the termination date of the
pertinent offering, in the names of the Participant and one such other person
as may be designated by the Participant, as joint tenants with right of
survivorship, tenants in common or as community property, to the extent and in
the manner permitted by applicable law.
SECTION 12 DELIVERY OF STOCK CERTIFICATES
Certificates for stock issued to Participants will be delivered as soon as
practicable after the end of each offering.
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 5
Employee Stock Purchase Plan
<PAGE> 9
SECTION 13 WITHDRAWAL
13.1 A Participant may withdraw from the Plan, in whole but not
in part, at any time prior to the last business day of each offering by
delivering a Withdrawal Notice to the Company, in which event the Company will
refund the entire balance of his or her Account as soon as practicable
thereafter.
13.2 To re-enter the Plan, an Eligible Employee who has
previously withdrawn must file a new Participation Agreement in accordance with
Section 7.1. Re-entry into the Plan cannot, however, become effective before
the beginning of the next offering following withdrawal.
SECTION 14 CARRYOVER OF ACCOUNT
At the termination of each offering, the Company shall automatically
re-enroll each Participant in the next offering. Upon re-enrollment, the
balance, if any, in the Participant's Account shall be used for option
exercises in the new offering. The Participant may elect not to re-enroll in
the Plan by filing notice of such election with the Company no later than ten
(10) business days prior to the commencement date (February 16 and August 16)
of the next offering. If the Participant does not re-enroll in the Plan or the
Plan terminates, the balance, if any, of each Participant's Account shall be
refunded to him or her.
SECTION 15 INTEREST
No interest will be paid or allowed on any money in the Accounts of
Participants.
SECTION 16 RIGHTS NOT TRANSFERABLE
No Participant shall be permitted to sell, assign, transfer, pledge, or
otherwise dispose of or encumber either the payroll deductions credited to his
or her Account or any rights with regard to the exercise of an option or to
receive shares under the Plan other than by will or the laws of descent and
distribution, and such right and interest shall not be liable for, or subject
to, the debts, contracts, or liabilities of the Participant. If any such
action is taken by the Participant, or any claim is asserted by any other party
in respect of such right and interest whether by garnishment, levy, attachment
or otherwise, such action or claim will be treated as an election by the
Participant to withdraw funds in accordance with Section 13.1.
SECTION 17 TERMINATION OF EMPLOYMENT
Upon termination of employment for any reason, on or prior to the last
business day of the offering, the balance in the Account of a Participant shall
be paid to the Participant or his or her estate.
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 6
Employee Stock Purchase Plan
<PAGE> 10
SECTION 18 DOLLAR AMOUNT LIMITATION
18.1 No Eligible Employee may be granted an option under this
Plan which would permit the Eligible Employee's rights to purchase Common Stock
under all "employee stock purchase plans" of the Company, including any parent
corporation or subsidiary corporation (as the terms "parent corporation" and
"subsidiary corporation" are defined in Sections 424(e) and (f) of the Code),
to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of
fair market value of such Common Stock (determined at the Offering Date) for
each calendar year in which such option is outstanding at any time.
18.2 For purposes of this Section 18.1, (i) the right to purchase
stock under an option accrues when the option (or any portion thereof) first
becomes exercisable during the calendar year, and (ii) a right to purchase
stock which has accrued under one option granted pursuant to this Plan may not
be carried over to any other option.
SECTION 19 CONTINUATION OF EMPLOYMENT
Nothing in this Plan or in any option granted pursuant to this Plan shall
confer upon any Participant any right to continue in the employ of the Company
or of a Related Corporation, or to interfere in any way with the right of the
Company or of any Related Corporation to terminate his or her employment or
other relationship with the Company or Related Corporation at any time.
SECTION 20 WITHHOLDING TAXES
Each Participant will agree by entering the Plan, promptly to give the
Company notice of any such stock disposed of within two years after the date of
grant of the applicable option, showing the number of such shares disposed of.
As a condition to the exercise of a stock option, the Participant shall make
such arrangements as the Plan Administrator may require for the satisfaction of
any federal, state or local withholding tax obligations that may arise in
connection with the exercise of the stock option and the subsequent sale of the
stock acquired upon the exercise of the option within two years after the date
of grant of the option.
SECTION 21 GREATER THAN FIVE PERCENT SHAREHOLDERS
No Eligible Employee may be granted an option under this Plan if such
employee, immediately after the option is granted, owns stock of the Company
possessing five percent (5%) or more of the total combined voting power of all
classes of stock of the Company or of any Related Corporations. For purposes
of this Section 21, the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and stock which an
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 7
Employee Stock Purchase Plan
<PAGE> 11
employee may purchase under corresponding options (under this Plan or any other
plan or contract) shall be treated as stock owned by such employee.
SECTION 22 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
22.1 The aggregate number and class of shares for which options
may be granted under this Plan, the number and class of shares covered by each
outstanding option and the exercise price per share thereof (but not the total
price), and each such option, may all be proportionately adjusted by the Plan
Administrator as it deems appropriate, for any change in the structure of the
Common Stock of the Company resulting from a reorganization, recapitalization,
stock split, stock dividend, combination of shares, merger, consolidation, or
any other capital adjustment.
22.2 All adjustments under this Section 22 shall be made by the
Plan Administrator, and its determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive. Unless a
Participant agrees otherwise, any change or adjustment to an option shall be
made in such a manner so as not to constitute a "modification," as defined in
Section 424(h) of the Code, and so as not to cause the Participant's stock
option issued hereunder to fail to continue to qualify as a stock option
granted pursuant to an employee stock purchase plan, as defined in Section
423(b) of the Code.
SECTION 23 SECURITIES REGULATION
23.1 Shares shall not be issued with respect to an option granted
under this Plan unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, the requirements of any automated quotation system through which
shares may then be traded, and the requirements of any stock exchange upon
which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance, including
the availability of an exemption from registration for the issuance and sale of
any shares hereunder. Inability of the Company to obtain, from any regulatory
body having jurisdiction, the authority deemed by the Company's counsel to be
necessary for the lawful issuance and sale of any shares hereunder or the
unavailability of an exemption from registration for the issuance and sale of
any shares hereunder shall relieve the Company of any liability in respect of
the nonissuance or sale of such shares as to which such requisite authority
shall not have been obtained.
23.2 As a condition to the exercise of an option, the Company may
require the Participant to represent and warrant at the time of any such
exercise that the shares are being
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 8
Employee Stock Purchase Plan
<PAGE> 12
purchased only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company, such a
representation is required by any relevant provision of the aforementioned
laws. At the option of the Company, a stop-transfer order against any shares
of stock may be placed on the official stock books and records of the Company,
and a legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel is provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
ensure exemption from registration. The Plan Administrator may also require
such other action or agreement by the Participants as may from time to time be
necessary to comply with the federal and state securities laws. THIS PROVISION
SHALL NOT OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR
STOCK HEREUNDER.
SECTION 24 AMENDMENT AND TERMINATION
The Board may at any time suspend, amend or terminate this Plan; provided,
however, the Board may not amend this Plan without appropriate shareholder
approval if such approval is required by Section 423 of the Code or the
Securities and Exchange Commission Rule 16b-3 under the 1934 Act or any
successor rule or other regulatory requirement. The Compensation Committee may
also amend the Plan to comply with applicable law, to clarify the provisions of
the Plan, or to facilitate administration of the Plan; provided, however, that
the Compensation Committee may not amend the Plan in any way which would
require shareholder approval or which would materially increase the cost to the
Company of operating the Plan.
SECTION 25 INDEMNIFICATION OF BOARD AND PLAN ADMINISTRATOR
In addition to all other rights of indemnification they may have as
Directors of the Company or as members of any body serving as the Plan
Administrator, members of the Board and Plan Administrator, excluding any
members who are not Directors or employees of the Company, shall be indemnified
by the Company to the fullest extent provided by law for all reasonable
expenses and liabilities of any type and nature, including attorneys' fees,
incurred in connection with any action, suit or proceeding to which they or any
of them are a party by reason of, or in connection with, any stock option
granted hereunder, and against all amounts paid by them in settlement thereof
(if such settlement is approved by independent legal counsel selected by the
Company).
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 9
Employee Stock Purchase Plan
<PAGE> 13
SECTION 26 EFFECTIVENESS
This Plan shall become effective upon adoption by the Board so long as it
receives any required approval by the holders of a majority of the Company's
outstanding shares of voting capital stock at any time within twelve (12)
months after the adoption of this Plan.
*****
Approved by the Board of Directors on January 7, 1993 and by the Company's
shareholders on January 28, 1993, May 21, 1996 and _________. Amended and
restated by the Board of Directors on July 21, 1993, March 5, 1996 and March 6,
1997.
- --------------------------------------------------------------------------------
Wall Data Incorporated Page 10
Employee Stock Purchase Plan
<PAGE> 1
EXHIBIT 11.1
WALL DATA INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 9,058,380 9,223,949 8,983,049
Net effect of dilutive stock options based on the
treasury stock method using average market price 466,288 626,921 1,140,712
Dilutive effect of Convertible Preferred Stock -- -- --
========== ========== ===========
Total weighted average shares outstanding 9,524,668 9,850,870 10,123,761
========== ========== ===========
Net income $4,193,000 $7,251,000 $14,184,000
========== ========== ===========
Net income per share $ 0.44 $ 0.74 $ 1.40
========== ========== ===========
FULLY DILUTED
Average shares outstanding 9,058,380 9,223,949 8,983,049
Net effect of dilutive stock options based on the
treasury stock method using the period-end market
price, if higher than average market price 466,288 626,921 1,140,712
Dilutive effect of note payable -- -- 42,662
========== ========== ===========
Total weighted average shares outstanding 9,524,668 9,850,870 10,166,423
========== ========== ===========
Net income $4,193,000 $7,251,000 $14,184,000
========== ========== ===========
Net income per share $ 0.44 $ 0.74 $ 1.40
========== ========== ===========
</TABLE>
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF WALL DATA INCORPORATED
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
State of Incorporation or
Subsidiary Country in which Organized
------------------------------- --------------------------
<S> <C>
Wall Data (UK) Limited United Kingdom
Wall Data (Canada) Limited Canada
Wall Data (Barbados) Incorporated Barbados
Wall Data France s.a.r.l. France
Wall Data GmbH Germany
Wall Data Australia Pty Ltd. Australia
Wall Data Japan K.K. Japan
Concentric Data Systems, Inc. Massachusetts
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8) pertaining to the Wall Data Incorporated Amended and
Restated 1983 Stock Option Plan, Wall Data Incorporated Restated 1993 Stock
Option Plan, Wall Data Incorporated 1993 Stock Option Plan for Non-Employee
Directors, Wall Data Incorporated Employee Stock Purchase Plan, and Wall Data
Incorporated 1994 Nonofficer Stock Option Plan of our report dated January 20,
1997, with respect to the consolidated financial statements and schedule
included in this Annual Report (Form 10-K) for the year ended December 31,
1996.
/s/ ERNST & YOUNG LLP
Seattle, WA
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 62,483
<SECURITIES> 0
<RECEIVABLES> 38,694
<ALLOWANCES> 0
<INVENTORY> 733
<CURRENT-ASSETS> 108,149
<PP&E> 27,519
<DEPRECIATION> 14,784
<TOTAL-ASSETS> 127,154
<CURRENT-LIABILITIES> 36,351
<BONDS> 0
0
0
<COMMON> 54,357
<OTHER-SE> 36,446
<TOTAL-LIABILITY-AND-EQUITY> 127,154
<SALES> 139,364
<TOTAL-REVENUES> 139,364
<CGS> 30,952
<TOTAL-COSTS> 30,952
<OTHER-EXPENSES> 103,351
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,934
<INCOME-PRETAX> 7,247
<INCOME-TAX> 3,054
<INCOME-CONTINUING> 4,193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,193
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
