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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JANUARY 31, 1999
COMMISSION FILE NUMBER 0-21176
WALL DATA INCORPORATED
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1189299
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11332 N.E. 122ND WAY, KIRKLAND, WASHINGTON 98034
(Address of principal executive offices) (Zip Code)
(425) 814-9255
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stocks, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS FEBRUARY 28, 1999
----- -----------------
<S> <C>
COMMON STOCK 10,149,483
</TABLE>
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WALL DATA INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 1999
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Income Statements for the three and
nine months ended January 31, 1999 and 1998 3
Consolidated Balance Sheets as of
January 31, 1999 and April 30, 1998 4
Consolidated Statements of Cash Flows for the nine
months ended January 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Qualitative and Quantitative Disclosure about
Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WALL DATA INCORPORATED
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues
License fees $ 34,325 $ 30,515 $ 96,849 $ 82,658
Services 7,490 6,212 22,730 17,680
--------- --------- --------- ---------
Total net revenues 41,815 36,727 119,579 100,338
Cost of revenues
License fees 5,306 4,290 15,861 14,778
Services 2,921 2,242 8,880 6,082
--------- --------- --------- ---------
Total cost of revenues 8,227 6,532 24,741 20,860
--------- --------- --------- ---------
Gross margin 33,588 30,195 94,838 79,478
Operating expenses:
Product development 4,918 5,577 15,173 15,299
Sales and marketing 20,633 19,451 59,374 52,600
General and administrative 3,851 3,238 11,260 9,604
Amortization of intangibles from acquisitions 590 150 1,640 332
Restructuring charges -- -- 2,405 --
Other non-recurring charges -- 741 -- 11,488
--------- --------- --------- ---------
Total operating expenses 29,992 29,157 89,852 89,323
--------- --------- --------- ---------
Operating income (loss) 3,596 1,038 4,986 (9,845)
Other income, net 730 708 2,174 2,711
--------- --------- --------- ---------
Income (loss) before income taxes 4,326 1,746 7,160 (7,134)
Provision for income taxes 1,242 2,002 1,807 (1,392)
--------- --------- --------- ---------
Net income (loss) $ 3,084 $ (256) $ 5,353 $ (5,742)
========= ========= ========= =========
Net income:
Basic earnings (loss) per share $ 0.31 $ (0.03) $ 0.54 $ (0.62)
========= ========= ========= =========
Diluted earnings (loss) per share $ 0.30 $ (0.03) $ 0.53 $ (0.62)
========= ========= ========= =========
Shares used to calculate earnings per share:
Basic 10,010 9,390 9,956 9,333
========= ========= ========= =========
Diluted 10,321 9,390 10,102 9,333
========= ========= ========= =========
</TABLE>
See accompanying notes.
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WALL DATA INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1999 1998
------------ ---------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 64,702 $ 57,490
Accounts receivable 42,422 33,534
Inventories 195 952
Deferred income taxes 5,698 5,701
Other current assets 5,532 2,847
-------- --------
Total current assets 118,549 100,524
Fixed assets, net 10,301 10,665
Deferred income taxes 400 458
Long-term investments 2,017 2,965
Intangible assets related to acquisitions 16,116 16,551
Other assets 5,459 9,042
-------- --------
$152,842 $140,205
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 7,838 $ 8,382
Accrued expenses 17,642 17,063
Income taxes payable 4,401 3,583
Deferred revenues 18,856 15,019
-------- --------
Total current liabilities 48,737 44,047
-------- --------
Deferred income taxes 3,142 3,390
-------- --------
Shareholders' equity:
Preferred stock -- --
Common stock 61,027 58,882
Retained earnings 38,659 33,306
Accumulated other comprehensive income 1,277 580
-------- --------
Total shareholders' equity 100,963 92,768
-------- --------
$152,842 $140,205
======== ========
</TABLE>
See accompanying notes.
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WALL DATA INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 5,353 $ (5,742)
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Deferred income taxes (187) (2,529)
Depreciation and amortization of fixed assets and intangible assets 6,286 5,533
Amortization of prepaid licenses and localization costs 3,397 2,096
Non-recurring charges 1,614 741
Other, net 1,067 (10)
Decrease (increase) in operating assets:
Accounts receivable (8,888) (5,873)
Inventories 757 195
Other current assets (2,685) 515
Increase (decrease) in operating liabilities:
Accounts payable 1,456 (697)
Accrued expenses 779 319
Income taxes payable 818 (3,336)
Deferred revenues 3,837 2,299
-------- --------
Net cash provided by (used in) operating activities 13,604 (6,489)
-------- --------
INVESTING ACTIVITIES
Purchases of fixed assets (4,763) (3,466)
Purchases of prepaid software technology (2,321) (1,494)
Capitalized localization costs (1,124) (1,683)
Investments in subsidiaries (1,000) (4,542)
Other assets 540 (422)
-------- --------
Net cash used in investing activities (8,668) (11,607)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuances under stock plans 2,145 2,397
-------- --------
Net cash provided by financing activities 2,145 2,397
-------- --------
Net increase (decrease) in cash and cash equivalents 7,081 (15,699)
Effect of exchange rate changes on cash 131 (209)
Beginning cash and cash equivalents 57,490 82,384
-------- --------
Ending cash and cash equivalents $ 64,702 $ 66,476
======== ========
</TABLE>
See accompanying notes.
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WALL DATA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JANUARY 31, 1999
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated balance sheets
and related consolidated statements of income and cash flows include all
adjustments, consisting only of normal and recurring items, necessary for
their fair presentation. The results for the three and nine months ended
January 31, 1999 are not necessarily indicative of the results that may be
expected for any future periods. These financial statements and related
notes should be read in conjunction with the Company's audited consolidated
financial statements for the four month period ended April 30, 1998 which
are included in the Company's Transition Report on Form 10-K.
As previously reported, the Company's Board of Directors approved a change
in the Company's fiscal year-end from December 31 to April 30. This change
was made to improve the company's ability to manage operations in light of
seasonal customer buying patterns. The Company has recast the prior year
quarterly financial information to conform to the new fiscal periods.
2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which changed the
method for determining and reporting business segment information. The
Company currently operates in two business segments: enterprise products and
services (host connectivity) and Cyberprise products and services (web
enabled products). Based on the growing materiality of the Cyberprise
business segment, the Company will present segment information in its annual
report on Form 10K.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is required to be adopted in years
beginning after June 15, 1999. SFAS No. 133 requires all derivatives to be
recognized as either assets or liabilities in the balance sheet and be
measured at fair value. Although management of the Company has not completed
its assessment of the impact of SFAS No. 133 on its consolidated results of
operations and financial position, management believes that the impact of
SFAS No. 133 will not be material.
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3. RECONCILIATION OF EARNINGS PER SHARE
The following table presents a reconciliation of basic earnings per share to
earnings per share--assuming dilution (income and shares in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) (numerator) $ 3,084 $ (256) $ 5,353 $(5,742)
------- ------- ------- -------
Average share (denominator for basic) 10,010 9,390 9,956 9,333
Effect of dilutive stock options 311 -- 146 --
------- ------- ------- -------
Total (denominator for diluted) 10,321 9,390 10,102 9,333
------- ------- ------- -------
Earnings (loss) per share--basic $ 0.31 $ (0.03) $ 0.54 $ (0.62)
======= ======= ======= =======
Earnings (loss) per share--assuming dilution $ 0.30 $ (0.03) $ 0.53 $ (0.62)
======= ======= ======= =======
</TABLE>
4. COMPREHENSIVE INCOME
The components of the Company's total comprehensive income were:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
1999 1998 1999 1998
------- ------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss) $ 3,084 $ (256) $ 5,353 $(5,742)
------- ------- ------- -------
Other comprehensive income (loss):
Foreign currency translation adjustments, net (682) (495) 582 (209)
Unrealized gains (losses) on securities, net 133 (74) 115 (41)
------- ------- ------- -------
Other comprehensive income (549) (569) 697 (250)
------- ------- ------- -------
Comprehensive income (loss) $ 2,535 $ (825) $ 6,050 $(5,992)
======= ======= ======= =======
</TABLE>
5. RESTRUCTURING CHARGES
At the end of the second quarter of fiscal 1999, the Company recorded a $2.4
million charge to restructure its operations in the Asia-Pacific and Latin
America (APLA) markets. The adverse economic conditions in the APLA markets
and declining sales have led the Company to eliminate an administrative
layer and two of its smallest sales offices. The restructuring charge
includes $0.8 million for severance and lease terminations costs, $1.0
million for the write down of certain product localization costs and other
assets and $0.6 million for the write down of a minority investment in a
Korean distributor. These charges reduced net income for the nine months
ended January 31, 1999 by $1.9 million or $0.19 per share after income
taxes. The Company estimates that expense savings from the restructuring
charge, on a quarterly basis, to be approximately $250,000.
6. RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
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WALL DATA INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
When used in this report and elsewhere by management from time to time, the
words "believes," "anticipates" and "expects" and similar expressions are
intended to identify forward-looking statements. Certain important factors could
cause the Company's actual results to differ materially from those expressed in
the Company's forward-looking statements. These factors are detailed in the
Company's Transition Report on Form 10-K for the four month period ended April
30, 1998 and include, but are not limited to, uncertain acceptance of the
Company's new products, risks associated with new markets and longer sales
cycles, fluctuations in quarterly performance, competitive products and pricing
in a rapidly changing market place, dependence on a two product segments, buying
patterns of customers as a result of expenditures to make systems year 2000
compliant, dependence on host computing, dependence on Microsoft Windows, risks
associated with technological change, increasing reliance on resellers and
distributors, increasing reliance on the Internet, uncertainties regarding
international operations, dependence on key personnel, ability to attract and
retain qualified staff, ability to manage growth and risks associated with
intellectual property and proprietary rights. Readers are cautioned not to place
undue reliance on the forward-looking statements, which speak only as of the
date made. The Company undertakes no obligation to publicly release the results
of any revision to the forward-looking statements that may be made to reflect
subsequent events or circumstances or to reflect the occurrence of unanticipated
events.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE-MONTHS ENDED JANUARY 31, NINE-MONTHS ENDED JANUARY 31,
---------------------------------------- ------------------------------------------
1999 CHANGE 1998 1999 CHANGE 1998
- -----------------------------------------------------------------------------------------------------------------------------
(dollar amounts in thousands) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
LICENSE FEES
ENTERPRISE PRODUCTS $ 25,620 (16%) $ 30,515 $ 79,859 (3%) $ 82,658
CYBERPRISE PRODUCTS 8,705 100% -- 16,990 100% --
-------- -------- -------- --------
TOTAL LICENSE FEES 34,325 12% 30,515 96,849 17% 82,658
-------- -------- -------- --------
SERVICES
ENTERPRISE SERVICES 7,105 14% 6,212 21,968 24% 17,680
CYBERPRISE SERVICES 385 100% -- 762 100% --
-------- -------- -------- --------
TOTAL SERVICES 7,490 21% 6,212 22,730 29% 17,680
-------- -------- -------- --------
TOTAL NET REVENUES $ 41,815 14% $ 36,727 $119,579 19% $100,338
======== ======== ======== ========
</TABLE>
Revenues
Total net revenue. Net revenues increased 14% in the third quarter of fiscal
1999 to $41.8 million from $36.7 million in the same period in the prior year.
Net revenues increased 19% in the nine months ended January 31, 1999 to $119.6
million from $100.3 million in the same period in the prior year. Revenue
outside North America represented 21% of net revenues in the third quarter of
fiscal 1999 and 42% in the same quarter of the prior year and equaled 26% and
34% for the nine months ended January 31, 1999 and 1998, respectively. Foreign
currency exchange rate changes did not have a significant effect on net revenues
in the third quarter. Revenue from indirect and OEM distribution channels
equaled 62% and 58% of net revenues in
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the third quarter and first nine months of fiscal 1999, respectively, compared
to 70% and 72% of net revenues in the same periods in the prior year.
License fees. License fees increased 12% to $34.3 million in the third quarter
of fiscal 1999 from $30.5 million in the same period in the prior year. Year to
date license fees grew 17% to $96.8 million as compared to $82.7 million in the
prior year. Revenues from the Company's Cyberprise products represented $8.7
million of the third quarter and $17.0 million of the year to date. During the
third quarter and first nine months of fiscal 1999, license fees from all other
products combined decreased by 16% and 3%, respectively. In the third quarter of
the prior year, a license to one customer outside of North America represented
approximately 10% of total revenue.
Service revenue. Service revenues for third quarter of fiscal 1999 increased 21%
to $7.5 million from $6.2 million in the same period in the prior year. Year to
date service revenues totaled $22.7 million in fiscal 1999 and $17.7 million in
the same period in the prior year, representing an increase of 29%. During the
third quarter and the first nine months of fiscal 1999, the Company recorded
Cyberprise services revenues of $0.4 million and $0.8 million, respectively.
Cost of Revenue
Cost of license fees. Cost of revenues derived from license fees increased 24%
to $5.3 million in the third quarter of fiscal 1999 as compared to $4.3 million
in the same period in the prior year. Year to date cost of revenues for license
fees for fiscal 1999 was $15.9 million as compared to $14.8 million in the prior
year representing a 7% increase. The increase in cost of license fees is
due to increases in royalty fees related to Cyberprise products and other
miscelleanous items. Cost of license fee revenues as a percentage of license
fee revenues was flat at approximately 15% and 14% for the third quarter of
fiscal 1999 and the same period in the prior year, respectively. Cost of
license fee revenues as a percentage of license fee revenues declined to 16%
for the first nine months of fiscal 1999 as compared to 18% in the same period
in the prior year, respectively, due to the fixed nature of certain costs.
Cost of service revenues. Cost of service revenues consists primarily of
technical support, post-sales engineering and consulting services. Cost of
service revenues increased 30% to $2.9 million in the third quarter of fiscal
1999 from $2.2 million in the same quarter in the prior year. Cost of service
revenues increased 46% to $8.9 million for the nine months ended January 31,
1999 as compared to $6.1 million in the same period in the prior year. Costs as
a percentage of service revenues increased to 39% for both the third quarter and
first nine months of fiscal 1999 from 36% and 34% in comparable periods in the
prior year. Cost of service revenues grew primarily due to increases in staffing
levels related to technical support and consulting associated with increased
service. In addition, the Company has built additional service capabilities in
Europe.
Operating Expenses
Product development expenses decreased 12% to $4.9 million, or 12% of total net
revenues, in the third quarter of fiscal 1999, from $5.6 million, or 15% of
total net revenues, in the same period in the prior year. The decline in product
development expenses is primarily due to reduced occupancy costs as a result of
relocating some development to less expensive locations. For the first nine
months, product development declined 1% to $15.2 million, or 13% of total net
revenues, in fiscal 1999 as compared to $15.3 million, or 15% of total net
revenues, in same period in the prior year.
Sales and marketing expenses increased 6% to $20.6 million, or 49% of total net
revenues, in the third quarter of fiscal 1999 from $19.5 million, or 53% of
total net revenues, in the same period
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in the prior year. On a year to date basis, sales and marketing expenses
increased 13% to $59.4 million, or 50% of total net revenues, in fiscal 1999
from $52.6 million, or 52% of total net revenues, in the same period in the
prior year. The increase in sales and marketing expenses was principally due to
the Company's investments in the Cyberprise brand, the Cyberprise Partner
Network announced in the second quarter of fiscal 1999 and increases in
commissions and other incremental costs directly related to increased revenue.
General and administrative expenses increased 19% to $3.9 million, or 9% of
total net revenues, in the third quarter of fiscal 1999, from $3.2 million, or
9% of total net revenues, in the same period in the prior year. In the first
nine months of fiscal 1999, general and administrative expenses increased 17% to
$11.3 million, or 9% of total net revenues, in fiscal 1999 from $9.6 million, or
10% of total net revenues, in the same period in the prior year. The increase
resulted primarily from administrative expenses from Software Development Tools,
Inc. (SDTI), acquired in November 1997, and First Service Computer
Dienstleistungs-GmbH (First Service), acquired in March 1998, and legal costs
related to the defense of the Company's technologies.
Amortization of intangibles from acquisitions increased to $0.6 million in the
third quarter of fiscal 1999 from $0.2 million in the same period in the prior
year due to the amortization of intangibles related to the acquisitions of First
Service and SDTI.
At the end of the second quarter of fiscal 1999, the Company recorded a $2.4
million charge to restructure operations in Asia-Pacific and Latin America
(APLA) markets. The restructuring charge includes $0.8 million severance and
lease termination costs, $1.0 million for the write down of certain localization
costs and other assets and $0.6 million for the write down of a minority
investment in a Korean distributor. As of January 31, 1999, the Company has made
cash payments totaling $0.4 million in connection with the $0.8 million accrued
severance and lease termination costs.
During the nine months ended January 31, 1998, the Company recorded
non-recurring charges totaling $11.5 million, of which approximately $9.1
million represents the settlement of a shareholders'class action lawsuit and
related expenses. Approximately $1.0 million represents the write-off of
inventories, technology investments and severance payments resulting from the
restructuring of the SALSA business line. The Company recorded non-recurring
charges of $0.7 million for the write-off of in-process research and development
resulting from the acquisition of SDTI. The remaining $0.7 million represents a
retirement payment to the Company's former chairman and Chief Executive Officer
of Wall Data who retired July 31, 1997.
Other Income, Net
Other income, net of other expenses, was flat in the third quarter of fiscal
1999 compared with the same period in the prior year at approximately $0.7
million. Other income for the first nine months of fiscal 1999 and 1998 was $2.2
million and $2.7 million, respectively. Of the $0.5 million decrease, $0.3
million resulted from lower interest income as a result of lower average cash
and cash equivalent balances during the first quarter of fiscal 1999 as compared
to the prior year. Additional expenses in the first quarter of fiscal 1999
related to a loss on the sale of fixed assets.
Income Taxes
The Company's effective income tax rate in the third quarter of fiscal 1999
equaled 29%. The effective rate increased compared to prior quarters in fiscal
1999 due to changes in the geographic mix of operating profits. The tax rate in
the three months ended January 31, 1998 was 115% due to the change in the
Company's year-end from a calendar year to a fiscal year.
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Because of this change in year-end, the Company was unable to offset losses from
January 1998 against taxable profits in the months of November and December
1997.
The effective income tax rate for the first nine months of fiscal 1999 equaled
25% compared to 20% in the same period in the prior year. The increase in the
effective rate is due primarily to changes in the geographic mix of operating
profits.
The Company's effective tax rate for the fourth quarter may change from the
third quarter rate depending on the geographic mix of operating profits.
Net Income
Net income equaled $3.1 million in the third quarter of fiscal 1999 compared to
a net loss of $0.3 million in the same period in the prior year. On a year to
date basis, net income was $5.4 million in fiscal 1999 as compared to a net loss
of $5.7 million in the prior year. Excluding the restructuring charges and other
non-recurring expenses, net income for the first nine months of fiscal 1999 was
$7.3 million, or 6% of net revenues, as compared to $1.6 million, or 2% of net
revenues, in the same period in the prior year. Earnings per share, excluding
restructuring charges and other non-recurring expenses, were $0.72 per share for
the first nine months of fiscal 1999 and $0.17 per share for the same period in
the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $64.7 million, or 42% of total
assets, at January 31, 1999, compared to $57.5 million, or 41% of total assets,
at April 30, 1998.
Net cash provided by operating activities totaled $13.6 million in the first
nine months of fiscal 1999 compared to a use of cash of $6.5 million in the same
period in the prior year. The change was primarily due to higher net income in
the first nine months of fiscal 1999 compared to the same period in the prior
year, increased non-cash expenses, including depreciation, amortization and
restructuring charges in fiscal 1999, and changes in certain operating
liabilities. Expenditures for property and equipment totaled $4.8 million in the
first nine months of fiscal 1999 compared to $3.5 million in the prior year.
In October 1997, the Company acquired a 15% percent interest in Suntek
Information System Co. Ltd. for approximately $0.9 million. In November 1997,
the Company acquired a ten percent equity interest in DataChannel, Inc. for
approximately $1.7 million. Also in November 1997, the Company acquired SDTI for
$2.0 million. In connection with the acquisition of SDTI, the Company paid
additional contingent consideration of $1.0 million in November 1998. In March
1998, the Company acquired First Service for $11.0 million. Of the $11.0 million
cash payment, $2.0 million remains in escrow for one year to cover claims, if
any.
Stockholders' equity increased to $101.0 million at January 31, 1999, from $92.8
million at April 30, 1998. The change primarily resulted from net income and
shares issued under stock plans.
Management believes that existing cash and cash equivalents together with funds
from operations will be sufficient to finance the Company's operations over the
near term.
YEAR 2000
The Year 2000 problem arises from the common practice in software development in
the past of using two digits rather than four to designate the calendar year
(e.g., DD/MM/YY). This practice can lead to incorrect results whenever computer
systems, software or microchips perform
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arithmetic operations, comparisons or data field sorting involving years later
than 1999. The Company has been assessing the impact of the Year 2000 issues for
some time and has developed plans to address these issues related to its
products, its internal business systems and its distributors and partners.
The Company has tested its products for Year 2000 compliance and has made
modifications to certain of its products to make them Year 2000 compliant. Year
2000 compliant means that neither performance nor functionality of the products
or services is materially affected by dates prior to, during and after the year
2000. The Company believes that all of its Cyberprise products are Year 2000
compliant and that nearly all of its supported RUMBA, ARPEGGIO and R&R Report
Writer products are Year 2000 compliant as is or with available patches, except
those which are outdated and no longer supported. Because most of the work
associated with testing and modification of the Company's products has occurred
in the ordinary course of product development, the cost of Year 2000 compliance
for the Company's products has not been material.
The Company is assessing its internal systems, including financial and
operational systems, for Year 2000 compliance. The Company is currently in the
process of reviewing all affected Information Technology ("IT") processes,
applications, hardware, operating systems and databases, as well as critical
non-IT areas (such as facilities and building equipment) where Year 2000 issues
may exist. The assessment of the Company's critical internal IT systems was
completed on or before December 31, 1998. The Company continues to assess all
remaining internal systems and external relationships. The Company's goal is to
complete all assessment and mitigation tasks for all internal systems and
external relationships by September 1, 1999. The Company has incurred
approximately $160,000 in costs to date related to the assessment and mitigation
of internal system Year 2000 issues and estimates that total related costs will
approximate $500,000. These costs are primarily fees paid to third-party
consultants and contractors and exclude internal costs, which the Company does
not track separately and which the Company does not believe will be material.
The Company believes that the costs required to remedy internal Year 2000 issues
will not have a material effect on the Company's operations or financial
results.
The Company is also evaluating external relationships with distributors,
resellers, vendors and partners for Year 2000 issues. The Company is currently
in the process of surveying its external vendors and partners. None of the
Company's resellers or distributors is individually responsible for a material
amount of the Company's total revenues.
Although the Company is not aware of material operational issues or costs
associated with preparing for the Year 2000, the Company may experience serious
adverse impacts or material costs if the Company or its vendors or distributors
fail to resolve Year 2000 issues in a timely manner or if the Company's products
are used in conjunction with the software of other suppliers that have not
adequately addressed Year 2000 issues. The Company has not yet completed all
contingency plans to address problems that may result if the Company, it
vendors, or its distributors fail to achieve Year 2000 readiness. The Company's
goal is to complete all contingency plans by September 1, 1999. The Company
plans to continue to devote the necessary resources to resolve significant Year
2000 issues and develop contingency plans.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
12
<PAGE> 13
WALL DATA INCORPORATED
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In September 1998, the Company filed an action for declaratory judgment in
Federal District Court for the Western District of Washington against
OpenConnect Systems, Inc. ("OCS") of Dallas, Tex. seeking a judicial
determination that the Company does not infringe on patent No. 5754,830 (the
"830 Patent") held by OCS. Also in September 1998, OCS filed suit in Federal
District Court for the Eastern District of Texas against the Company claiming
that the Company infringes the '830 Patent. The OCS complaint seeks unspecified
damages. The Company has answered the OCS complaint by denying infringement and
asserting that the '830 patent is invalid and unenforceable. The Federal
District Court for the Western District of Washington has stayed the action for
declaratory judgement pending a ruling from the Federal District Court for the
Eastern District of Texas on a motion by the Company to transfer the action.
Because the complaint seeks unspecified damages, it is impossible to predict the
impact of a negative outcome in the litigation on the Company's operations or
financial condition. The Company intends to defend against the action
vigorously.
The Company may be subject to other legal proceedings or claims, either asserted
or unasserted, that arise in the ordinary course of business. While the outcome
of these claims cannot be predicted with certainty, management does not believe
that any such legal matters will have a material adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10.1) Employment Agreement, dated January 21, 1999, between
the Company and John R. Wall.
(10.2) Employment Agreement, dated January 21, 1999, between
the Company and Richard P. Fox.
(10.3) Employment Agreement, dated January 21, 1999, between
the Company and Kevin B. Vitale.
(10.4) Employment Agreement, dated January 21, 1999, between
the Company and Craig E. Shank.
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended January 31, 1999.
ITEMS 2, 3, 4, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Wall Data Incorporated
Date: March 16, 1999 By: /s/ RICHARD P. FOX
------------------------------------
Richard P. Fox,
Chief Financial Officer
(Duly Authorized Officer and Chief
Financial and Accounting Officer)
14
<PAGE> 15
WALL DATA INCORPORATED
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
(10.1) Employment Agreement, dated January 21, 1999, between the
Company and John R. Wall.
(10.2) Employment Agreement, dated January 21, 1999, between the
Company and Richard P. Fox.
(10.3) Employment Agreement, dated January 21, 1999, between the
Company and Kevin B. Vitale.
(10.4) Employment Agreement, dated January 21, 1999, between the
Company and Craig E. Shank.
(27) Financial Data Schedule
</TABLE>
15
<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated as of January 21,
1999, between Wall Data Incorporated, a Washington corporation ("Employer"), and
John R. Wall ("Employee");
RECITALS
WHEREAS, Employer desires to continue to employ Employee upon the terms
and conditions set forth herein; and
WHEREAS, Employee is willing to provide services to Employer upon the
terms and conditions set forth herein;
AGREEMENT
NOW, THEREFORE, for and in consideration of the foregoing premises and
for other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, Employer and Employee hereby agree as follows:
1. EMPLOYMENT
Employer will employ Employee and Employee will accept employment by
Employer as its President and Chief Executive Officer. Employee will have the
authority, subject to Employer's Articles of Incorporation and Bylaws, as may be
granted from time to time by the Board of Directors of Employer. Employee will
perform the duties customarily performed by the President and Chief Executive
Officer of a corporation which is similar to Employer and such other duties as
may be assigned from time to time by the Board of Directors of Employer, which
relate to the business of Employer, its subsidiaries, its parent corporation, or
any business ventures in which Employer, its subsidiaries or its parent
corporation may participate.
2. ATTENTION AND EFFORT
Employee will devote all his productive time, ability, attention and
effort to the business and affairs of Employer and the discharge of the
responsibilities assigned to him hereunder, and will use his reasonable best
efforts to perform faithfully and efficiently such responsibilities. It shall
not be a violation of this Agreement for Employee to (a) serve on corporate,
civic or charitable boards or committees approved in advance by Employer's Board
of Directors, (b) deliver lectures, fulfill speaking
<PAGE> 2
engagements or teach at educational institutions, (c) manage personal
investments, so long as such activities do not significantly interfere with
the performance of Employee's responsibilities in accordance with this
Agreement and (d) other activities approved in advance by Employer.
3. TERM
Unless otherwise terminated pursuant to Section 6 hereof, Employee's
term of employment under this Agreement shall expire on the second anniversary
of the date of this Agreement (the "Initial Term"). At the end of the Initial
Term and each subsequent Renewal Term (as hereinafter defined), the term of this
Agreement shall be automatically renewed and extended for a period of one year
(the "Renewal Term"), unless either party hereto delivers a written termination
notice to the other party at least 12 months prior to the end of the Initial
Term or the then-current Renewal Term (as the case may be).
4. COMPENSATION
During the term of this Agreement, Employer agrees to pay or cause to be
paid to Employee, and Employee agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
4.1. BASE SALARY
Employee's compensation shall consist, in part, of an annual base salary
of Three Hundred Twenty-Five Thousand Dollars ($325,000), before all customary
payroll deductions. Such annual base salary shall be paid in substantially equal
installments and at the same intervals as other officers of Employer are paid.
The Board of Directors of Employer, or a committee thereof, shall determine any
increases in the annual base salary in future years.
4.2. BONUS
Employee may be entitled to receive, in addition to the annual base
salary described above, an annual bonus in an amount to be determined by the
Board of Directors of Employer, or a committee thereof, in its sole discretion
and consistent with bonus plans then in effect.
5. BENEFITS
During the term of this Agreement, Employee will be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in fringe benefit programs as shall be provided from time to time
by Employer.
-2-
<PAGE> 3
6. TERMINATION
Employee's employment pursuant to this Agreement may be terminated as
follows:
6.1. BY EMPLOYER
With or without Cause (as defined below), Employer may terminate
Employee's employment at any time during the term of employment upon giving
Notice of Termination (as defined below).
6.2. BY EMPLOYEE
With or without Good Reason (as defined below), Employee may terminate
his employment at any time upon giving Notice of Termination.
6.3. AUTOMATIC TERMINATION
This Agreement and Employee's employment hereunder shall terminate
automatically upon the death or Total Disability of Employee. The term "Total
Disability" as used herein shall mean Employee's inability (with such
accommodation as may be required by law and which places no undue burden on
Employer), as determined by a physician selected by Employer and acceptable to
Employee, to perform the duties set forth in Section 1 hereof for a period or
periods aggregating 120 calendar days in any 12-month period as a result of
physical or mental illness, loss of legal capacity or any other cause beyond
Employee's control, unless Employee is granted a leave of absence by the Board
of Directors of Employer. Employee and Employer hereby acknowledge that the
duties specified in Section 1 hereof are essential to Employee's position and
that Employee's ability to perform those duties is the essence of this
Agreement.
6.4. NOTICE
The term "Notice of Termination" shall mean at least 30 days' written
notice of termination of Employee's employment, during which period Employee's
employment and performance of services will continue; provided, however, that
Employer may, upon notice to Employee and without reducing Employee's
compensation during such period, excuse Employee from any or all of his duties
during such period. The effective date of the termination of Employee's
employment hereunder shall be the date on which such 30-day period expires.
-3-
<PAGE> 4
7. TERMINATION PAYMENTS
In the event of termination of Employee's employment, all compensation
and benefits set forth in this Agreement shall terminate, except as specifically
provided in this Section 7:
7.1. TERMINATION BY EMPLOYER
If Employer terminates Employee's employment without Cause prior to the
end of the term of this Agreement, Employee shall be entitled to receive (a)
severance payments equal to (i) two times Employee's annual base salary for the
year in which such termination occurred, plus (ii) a percentage of such annual
base salary equal to the percentage paid under Employer's Executive Incentive
Plan (or any successor plan) for the prior fiscal year, (b) any unpaid annual
base salary which has accrued for services already performed as of the date
termination of Employee's employment becomes effective and any compensation
previously deferred by Employee (together with accrued interest or earnings
thereon, if any) and any accrued vacation pay which would be payable under
Employer's standard policy, in each case to the extent not theretofore paid, and
(c) for 18 months from the termination date, premiums for health insurance
benefit continuation for Employee and his family members, if applicable, which
Employer provides to Employee under the provisions of the federal Comprehensive
Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), to the extent
that Employer would have paid such premiums had Employee remained employed by
Employer. If employment is terminated by Employer for Cause, Employee shall not
be entitled to receive any of the foregoing benefits, other than those set forth
in clause (b) above.
7.2. TERMINATION BY EMPLOYEE
In the case of termination of Employee's employment for Good Reason,
Employee shall be entitled to receive those payments set forth in Sections
7.1(a), (b) and (c) hereof. In the case of the termination of Employee's
employment by Employee other than for Good Reason, Employee shall not be
entitled to any payments hereunder, other than those set forth in Section 7.1(b)
hereof.
7.3. DEATH AND TOTAL DISABILITY
In the case of a termination of Employee's employment as a result of the
Employee's death or Employee's Total Disability, Employee shall not be entitled
to receive any payments hereunder, other than those set forth in Section 7.1(b)
hereof.
-4-
<PAGE> 5
7.4. TERMINATION IN CONNECTION WITH A CHANGE OF CONTROL
Employee and Employer shall enter into a Change of Control Agreement, in
the form attached hereto as Exhibit A. Notwithstanding Sections 7.1 and 7.2
hereof and in full substitution of all payments otherwise due thereunder, if a
Change of Control (as defined in such agreement) of Employer occurs, this
Agreement shall terminate and the relationship between Employee and Employer
shall be governed in all respects by the Change of Control Agreement.
7.5. PAYMENT SCHEDULE
All payments under this Section 7 shall be made to Employee within
thirty working days of the effective date of termination except that payments
for COBRA premiums pursuant to Section 7.1(c) shall be made on a monthly basis.
7.6. CAUSE
Wherever reference is made in this Agreement to termination being with
or without Cause, "Cause" is limited to the occurrence of one or more of the
following events:
(a) Failure or refusal to carry out the lawful duties of Employee
described in Section 1 hereof or any directions of the Board of
Directors of Employer, which directions are reasonably consistent with
the duties herein set forth to be performed by Employee;
(b) Violation by Employee of a state or federal criminal law
involving the commission of a crime against Employer or any of its
subsidiaries;
(c) Deception, fraud, misrepresentation or dishonesty by
Employee; any incident materially compromising Employee's reputation or
ability to represent Employer with the public; any act or omission by
Employee which substantially impairs Employer's business, good will or
reputation; or
(d) Any other material violation of any provision of this
Agreement.
7.7. GOOD REASON
Wherever reference is made in this Agreement to termination being with
or without Good Reason, "Good Reason" is limited to the occurrence of one or
more of the following events:
(a) the reduction in Employee's annual base salary as specified
in Section 4.1 hereof or the reduction in the value of bonus payments
that Employee
-5-
<PAGE> 6
is eligible to receive under Section 4.2 hereof (provided, however, that
Good Reason shall not exist under this Section 7.7(a), in the event
Employee does not actually realize such values because of failure to
satisfy performance or other criteria applicable to such bonus payments
or equity awards);
(b) the material and substantial diminution or reduction without
his consent of Employee's title, authority, duties or responsibilities;
(c) Employer requiring Employee without his consent to be based
at any offices or locations outside of King County, Washington; or
(d) any breach by Employer of any other material provision of
this Agreement.
8. REPRESENTATIONS AND WARRANTIES
In order to induce Employer to enter into this Agreement, Employee
represents and warrants to Employer that neither the execution nor the
performance of this Agreement by Employee will violate or conflict in any way
with any other agreement by which Employee may be bound, or with any other
duties imposed upon Employee by corporate or other statutory or common law.
9. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than pursuant to the definition of Cause set forth in
Section 7.6 hereof, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least 20 days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the 20-day period.
10. CONFIDENTIALITY AGREEMENT
Employer and Employee agree that the Confidential Information,
Inventions and Nonsolicitation Agreement, dated July 25, 1991, between
Employer and Employee and attached hereto as Exhibit B shall remain in full
force and effect and survive the termination of Employee's employment.
-6-
<PAGE> 7
11. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall
specifically refer to this Agreement and shall be personally delivered or sent
by telecopy or other electronic facsimile transmission or by reputable overnight
courier, at the address set forth below or at such other address as may
hereafter be designated by notice given in compliance with the terms hereof.
Such notice shall be effective upon receipt or upon refusal of the addressee to
accept delivery.
If to Employee: John R. Wall
18807 NE 103rd St.
Redmond, WA 98052
If to Employer: Wall Data Incorporated
11332 NE 122nd Way
Kirkland, WA 98034-6931
Attn: General Counsel
Phone: (425) 814-9255
Facsimile: (425) 814-4372
Copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: L. Michelle Wilson
Phone: (206) 583-8888
Facsimile: (206) 583-8500
12. ASSIGNMENT
This Agreement is personal to Employee and shall not be assignable by
Employee. Employer may assign its rights hereunder to (a) any corporation
resulting from any merger, consolidation, spin-off or other reorganization to
which Employer is a party or (b) any corporation, partnership, association or
other person to which Employer may transfer all or substantially all the assets
and business of Employer existing at such time. All the terms and provisions of
this Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns.
13. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver
-7-
<PAGE> 8
by a party hereto of any right, title, interest or remedy in a particular
instance or circumstance shall not constitute a waiver thereof in any other
instance or circumstance. All rights and remedies shall be cumulative and not
exclusive of any other rights or remedies.
14. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by Employer
and Employee, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by Employer and Employee.
15. ARBITRATION
Any dispute arising under this Agreement shall be subject to
arbitration. The arbitration proceeding shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA Rules") then in effect, conducted by one arbitrator either mutually agreed
upon or selected in accordance with the AAA Rules, except that the parties
thereto shall have any right to discovery as would be permitted by the Federal
Rules of Civil Procedure for a period of 90 days following the commencement of
such arbitration and the arbitrator thereof shall resolve any dispute which
arises in connection with such discovery. The arbitration shall be conducted in
King County, Washington under the jurisdiction of the Seattle office of the
American Arbitration Association. The arbitrator shall have authority only to
interpret and apply the provisions of this Agreement and shall have no authority
to add to, subtract from, or otherwise modify the terms of this Agreement. Any
demand for arbitration must be made within 60 days of the event(s) giving rise
to the claim that this Agreement has been breached. The arbitrator's decision
shall be final and binding, and each party agrees to be bound by the
arbitrator's award subject, only to an appeal therefrom in accordance with the
laws of state of Washington. Either party may obtain judgment upon the
arbitrator's award in the Superior Court of King County, Washington.
-8-
<PAGE> 9
16. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
17. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, then, to the full extent
permitted by law (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
18. HEADINGS
All headings used herein are for convenience only and shall not in any
way affect the construction of, or be taken into consideration in interpreting,
this Agreement.
19. COUNTERPARTS
This Agreement, and any amendment or modification entered into pursuant
to Section 14 hereof, may be executed in any number of counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
20. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between Employer and Employee with respect to the subject matter
hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between Employer and Employee with respect to such
subject matter are hereby superseded and nullified in their entireties.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement on the date set forth above.
EMPLOYEE:
/s/ John R. Wall
----------------------------------------
John R. Wall
EMPLOYER:
WALL DATA INCORPORATED
By /s/ Robert J. Frankenberg
--------------------------------------
Robert J. Frankenberg
Chairman of the Board
-10-
<PAGE> 11
EXHIBIT A
CHANGE OF CONTROL AGREEMENT
<PAGE> 12
EXHIBIT B
CONFIDENTIAL INFORMATION, INVENTIONS AND NONSOLICITATION AGREEMENT
<PAGE> 13
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement"), dated as of January
21, 1999, is between WALL DATA INCORPORATED, a Washington corporation (the
"Company"), and JOHN R. WALL (the "Employee").
RECITAL
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to ensure that
the Company will have the continued dedication of the Employee, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined in
Section 1.1 hereof) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Employee arising from the personal
uncertainties and risks created by a pending or threatened Change of Control, to
encourage the Employee's full attention and dedication to the Company currently
and in the event of any threatened or pending Change of Control, and to provide
the Employee with reasonable compensation and benefit arrangements upon a Change
of Control.
AGREEMENT
In order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
1. DEFINITIONS
1.1 CHANGE OF CONTROL
"Change of Control" shall have the definition set forth in Appendix A to
this Agreement, which is hereby incorporated by reference.
1.2 CHANGE OF CONTROL DATE
"Change of Control Date" shall mean the first date on which a Change of
Control occurs.
1.3 EMPLOYMENT PERIOD
"Employment Period" shall mean the two-year period commencing on the
Change of Control Date and ending on the second anniversary of such date.
<PAGE> 14
2. TERM
The term of this Agreement ("Term") shall be for the Initial Term and
any Renewal Term, as such terms are defined in the Employment Agreement, dated
the date hereof, between the Company and the Employee; provided, however, that
if a Change of Control occurs during the Term, the Term shall automatically
extend for the duration of the Employment Period.
3. EMPLOYMENT
3.1 EMPLOYMENT PERIOD
During the Employment Period, the Company hereby agrees to continue the
Employee in its employ or in the employ of its affiliated companies, and the
Employee hereby agrees to remain in the employ of the Company or its affiliated
companies, in accordance with the terms and provisions of this Agreement;
provided, however, that either the Company or the Employee may terminate the
employment relationship subject to the terms of this Agreement.
3.2 POSITION AND DUTIES
During the Employment Period, the Employee's title, position, authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 90-day period immediately preceding the Change of Control Date.
3.3 LOCATION
During the Employment Period, the Employee's services shall be performed
at the Company's headquarters on the Change of Control Date or any office which
is subsequently designated as the headquarters of the Company and is located in
King County, Washington.
3.4 TERMINATION PRIOR TO CHANGE OF CONTROL
If prior to the Change of Control Date, the Employee's employment with
the Company or its affiliated companies terminates for any reason, then the
Employee shall have no further rights under this Agreement; provided, however,
that the Company may not avoid liability for any termination payments which
would have been required during the Employment Period pursuant to Section 8
hereof by terminating the Employee prior to the Employment Period where such
termination is carried out in anticipation of a Change of Control and the
principal motivating purpose is to avoid liability for such termination
payments.
-2-
<PAGE> 15
4. ATTENTION AND EFFORT
During the Employment Period, and excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee will devote all his
productive time, ability, attention and effort to the business and affairs of
the Company and the discharge of the responsibilities assigned to him hereunder,
and he will use his reasonable best efforts to perform faithfully and
efficiently such responsibilities. It shall not be a violation of this Agreement
for the Employee to (a) serve on corporate, civic or charitable boards or
committees approved in advance by the Company's Board of Directors, (b) deliver
lectures, fulfill speaking engagements or teach at educational institutions, (c)
manage personal investments, so long as such activities do not significantly
interfere with the performance of the Employee's responsibilities in accordance
with this Agreement and (d) other activities approved in advance by the Company.
It is expressly understood and agreed that to the extent any such activities
have been conducted by the Employee prior to the Employment Period, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) during the Employment Period shall not thereafter be
deemed to interfere with the performance of the Employee's responsibilities to
the Company.
5. COMPENSATION
As long as the Employee remains employed by the Company during the
Employment Period, the Company agrees to pay or cause to be paid to the
Employee, and the Employee agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
5.1 SALARY
The Employee shall receive an annual base salary (the "Annual Base
Salary") at least equal to the annual salary established by the Board or a
committee of the Board (the "Compensation Committee") for the fiscal year in
which the Change of Control Date occurs. The Annual Base Salary shall be paid in
substantially equal installments and at the same intervals as the salaries of
other employees of the Company are paid. The Board or the Compensation Committee
shall review the Annual Base Salary at least annually and shall determine in
good faith and consistent with any generally applicable Company policy any
increases for future years.
5.2 BONUS
In addition to Annual Base Salary, the Employee shall be awarded, for
each fiscal year ending during the Employment Period, an annual bonus (the
"Annual Bonus") in cash at least equal to the average annualized (for any fiscal
year consisting
-3-
<PAGE> 16
of less than 12 full months) bonus paid or payable, including by reason of any
deferral, to the Employee by the Company and its affiliated companies in respect
of the three fiscal years immediately preceding the fiscal year in which the
Change of Control Date occurs. Each such Annual Bonus shall be paid no later
than 90 days after the end of the fiscal year for which the Annual Bonus is
awarded, unless the Employee shall elect to defer the receipt of such Annual
Bonus.
6. BENEFITS
6.1 INCENTIVE, RETIREMENT AND WELFARE BENEFIT PLANS; VACATION
During the Employment Period, the Employee shall be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in such fringe benefit programs as shall be generally made
available to other employees of the Company and its affiliated companies from
time to time during the Employment Period by action of the Board (or any person
or committee appointed by the Board to determine fringe benefit programs and
other emoluments), including, without limitation, paid vacations; any stock
purchase, savings or retirement plan, practice, policy or program; and all
welfare benefit plans, practices, policies or programs (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
or programs).
6.2 EXPENSES
During the Employment Period, the Employee shall be entitled to receive
prompt reimbursement for all reasonable employment expenses incurred by him in
accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the employees of the Company and its
affiliated companies during the Employment Period.
7. TERMINATION
During the Employment Period, employment of the Employee may be
terminated as follows:
7.1 BY THE COMPANY OR THE EMPLOYEE
At any time during the Employment Period, the Company may terminate the
employment of the Employee with or without Cause (as defined below), and the
Employee may terminate his employment for Good Reason (as defined below) or for
any reason, upon giving Notice of Termination (as defined below).
-4-
<PAGE> 17
7.2 AUTOMATIC TERMINATION
This Agreement and the Employee's employment during the Employment
Period shall terminate automatically upon the death or Total Disability of the
Employee. The term "Total Disability" as used herein shall mean the Employee's
inability (with such accommodation as may be required by law and which places no
undue burden on the Company), as determined by a physician selected by the
Company and acceptable to the Employee, to perform the duties set forth in
Section 3.2 hereof for a period or periods aggregating 120 calendar days in any
12-month period as a result of physical or mental illness, loss of legal
capacity or any other cause beyond the Employee's control, unless the Employee
is granted a leave of absence by the Board. The Employee and the Company hereby
acknowledge that the duties specified in Section 3.2 hereof are essential to the
Employee's position and that Employee's ability to perform those duties is the
essence of this Agreement.
7.3 NOTICE OF TERMINATION
Any termination by the Company or by the Employee during the Employment
Period shall be communicated by Notice of Termination to the other party given
in accordance with Section 11 hereof. The term "Notice of Termination" shall
mean a written notice which (a) indicates the specific termination provision in
this Agreement relied upon and (b) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated. The
failure by the Employee or the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Employee or the Company hereunder or preclude
the Employee or the Company from asserting such fact or circumstance in
enforcing the Employee's or the Company's rights hereunder.
7.4 DATE OF TERMINATION
During the Employment Period, "Date of Termination" means (a) if the
Employee's employment is terminated by reason of death, at the end of the
calendar month in which the Employee's death occurs, (b) if the Employee's
employment is terminated by reason of Total Disability, immediately upon a
determination by the Company of the Employee's Total Disability, and (c) in all
other cases, five days after the effective date of notice pursuant to Section 11
hereof. The Employee's employment and performance of services will continue
during such five-day period; provided, however, that the Company may, upon
notice to the Employee and without
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<PAGE> 18
reducing the Employee's compensation during such period, excuse the Employee
from any or all of his duties during such period.
8. TERMINATION PAYMENTS
In the event of termination of the Employee's employment during the
Employment Period, all compensation and benefits set forth in this Agreement
shall terminate, except as specifically provided in this Section 8.
8.1 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE
EMPLOYEE FOR GOOD REASON
If during the Employment Period the Company terminates the Employee's
employment other than for Cause or the Employee terminates his employment for
Good Reason, the Employee shall be entitled to:
(a) receive payment of the following accrued obligations (the
"Accrued Obligations"):
(i) the Employee's Annual Base Salary through the Date of
Termination to the extent not theretofore paid; and
(ii) any compensation previously deferred by the Employee
(together with accrued interest or earnings thereon, if any) and any
accrued vacation pay which would be payable under the Company's standard
policy, in each case to the extent not theretofore paid;
(b) for 18 months after the Date of Termination, Employee's
premiums for health insurance benefit continuation for Employee and his family
members, if applicable, which the Company provides to the Employee under the
provisions of the federal Comprehensive Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), to the extent that the Company would have paid such
premiums had the Employee remained employed by the Company; and
(c) an amount as severance pay equal to two and one-half times
the Annual Base Salary for the fiscal year in which the Date of Termination
occurs, plus a percentage of such Annual Base Salary equal to the percentage
paid under the Company's Executive Incentive Plan (or any successor plan) for
the prior fiscal year (the "Severance Obligation").
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<PAGE> 19
8.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON
If during the Employment Period the Employee's employment shall be
terminated by the Company for Cause or by the Employee for other than Good
Reason, this Agreement shall terminate without further obligation on the part of
the Company to the Employee, other than the Company's obligation to pay the
Employee (a) his Annual Base Salary through the Date of Termination, (b) the
amount of any compensation previously deferred by the Employee, and (c) any
accrued vacation pay which would be payable under the Company's standard policy,
in each case to the extent theretofore unpaid.
8.3 EXPIRATION OF TERM
In the case of a termination of the Employee's employment as a result of
the expiration of the Term of this Agreement, this Agreement shall terminate
without further obligation on the part of the Company to the Employee, other
than the Company's obligation to pay the Employee the Accrued Obligations.
8.4 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY
If during the Employment Period the Employee's employment is terminated
by reason of the Employee's death or Total Disability, this Agreement shall
terminate automatically without further obligation on the part of the Company to
the Employee or his legal representatives under this Agreement, other than the
Company's obligation to pay the Employee the Accrued Obligations (which shall be
paid to the Employee's estate or beneficiary, as applicable in the case of the
Employee's death).
8.5 PAYMENT SCHEDULE
All payments of the Accrued Obligations and the Severance Obligation, or
any portion thereof payable pursuant to this Section 8, shall be made to the
Employee within thirty working days of the Date of Termination, except that
payments for COBRA premiums pursuant to Section 8.1(b) shall be made on a
monthly basis.
8.6 CAUSE
For purposes of this Agreement, "Cause" means cause given by the
Employee to the Company and shall be limited to the occurrence of one or more of
the following events:
(a) A clear refusal to carry out any material lawful duties of
the Employee or any directions of the Board, all reasonably consistent with the
duties
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<PAGE> 20
described in Section 3.2 hereof, provided the Employee has been given reasonable
notice and opportunity to correct any such failure;
(b) Violation by the Employee of a state or federal criminal law
involving the commission of a crime against the Company or any of its
subsidiaries;
(c) Deception, fraud, misrepresentation or dishonesty by the
Employee; any incident materially compromising the Employee's reputation or
ability to represent the Company with investors, customers or the public; or
(d) Any other material violation of any provision of this
Agreement by the Employee, subject to the notice and opportunity to cure
requirements of Section 10.
8.7 GOOD REASON
For purposes of this Agreement, "Good Reason" means
(a) The assignment to the Employee of any duties materially
inconsistent with the Employee's title, position, authority, duties or
responsibilities as contemplated by Section 3.2 hereof or any other action by
the Company which results in a material diminution in such title, position,
authority, duties or responsibilities;
(b) Any failure by the Company to comply with any of the
provisions of Section 5 or 6 hereof;
(c) The Company's requiring the Employee to be based at any
office or location other than that described in Section 3.3 hereof;
(d) Any failure by the Company to comply with and satisfy Section
12 hereof, provided that the Company's successor has received at least ten days'
prior written notice from the Company or the Employee of the requirements of
Section 12 hereof; or
(e) Any other material violation of any provision of this
Agreement by the Company.
8.8 EXCESS PARACHUTE LIMITATION
If either the Company or the Employee receives confirmation from the
Company's independent tax counsel or its certified public accounting firm, or
such other accounting firm retained as independent certified public accountants
for the Company (the "Tax Advisor"), that any payment by the Company to the
Employee
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<PAGE> 21
under this Agreement or otherwise would be considered to be an "excess parachute
payment" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended, or any successor statute then in effect (the "Code"), then the
aggregate payments by the Company pursuant to this Agreement shall be reduced to
the highest amount that may be paid to the Employee by the Company under this
Agreement without having any portion of any amount payable to the Employee by
the Company or a related entity under this Agreement or otherwise treated as
such an "excess parachute payment," and, if permitted by applicable law and
without adverse tax consequence, such reduction shall be made to the last
payment due hereunder. Any payments made by the Company to the Employee under
this Agreement which are later confirmed by the Tax Advisor to be "excess
parachute payments" shall be considered by all parties to have been a loan by
the Company to the Employee, which loan shall be repaid by the Employee upon
demand, together with interest calculated at the lowest interest rate authorized
for such loans under the Code, without a requirement that further interest be
imputed.
9. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS
In order to induce the Company to enter into this Agreement, the
Employee represents and warrants to the Company that neither the execution nor
the performance of this Agreement by the Employee will violate or conflict in
any way with any other agreement by which the Employee may be bound or with any
other duties imposed upon Employee by corporate or other statutory or common
law.
10. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than pursuant to the definition of Cause set forth in
Section 8.6 hereof, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least ten days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the ten-day period.
11. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall
specifically refer to this Agreement and shall be personally delivered or sent
by telecopy or other electronic facsimile transmission or by reputable overnight
courier, at the address set forth below or at such other address as may
hereafter be designated by notice given in
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<PAGE> 22
compliance with the terms hereof. Such notice shall be effective upon receipt or
upon refusal of the addressee to accept delivery.
If to Employee: John R. Wall
18807 NE 103rd St.
Redmond, WA 98052
If to Company: Wall Data Incorporated
11332 NE 122nd Way
Kirkland, WA 98034-6931
Attn: General Counsel
Phone: (425) 814-9255
Facsimile: (425) 814-4372
Copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: L. Michelle Wilson
Phone: (206) 583-8888
Facsimile: (206) 583-8500
12. ASSIGNMENT
This Agreement is personal to the Employee and shall not be assignable
by the Employee. The Company shall assign to and require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean Wall Data Incorporated
and any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise. All the
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns.
13. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or
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<PAGE> 23
circumstance. All rights and remedies shall be cumulative and not exclusive of
any other rights or remedies.
14. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by the Company
and the Employee, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Company and the Employee.
15. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
16. ARBITRATION
Any dispute arising under this Agreement shall be subject to
arbitration. The arbitration proceeding shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA Rules") then in effect, conducted by one arbitrator either mutually agreed
upon or selected in accordance with the AAA Rules, except that the parties
thereto shall have any right to discovery as would be permitted by the Federal
Rules of Civil Procedure for a period of 90 days following the commencement of
such arbitration and the arbitrator thereof shall resolve any dispute which
arises in connection with such discovery. The arbitration shall be conducted in
King County, Washington under the jurisdiction of the Seattle office of the
American Arbitration Association. The arbitrator shall have authority only to
interpret and apply the provisions of this Agreement and shall have no authority
to add to, subtract from, or otherwise modify the terms of this Agreement. Any
demand for arbitration must be made within 60 days of the event(s) giving rise
to the claim that this Agreement has been breached. The arbitrator's decision
shall be final and binding, and each party agrees to be bound by the
arbitrator's award subject, only to an appeal therefrom in accordance with the
laws of
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<PAGE> 24
the state of Washington. Either party may obtain judgment upon the arbitrator's
award in the Superior Court of King County, Washington.
17. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal
or unenforceable in any jurisdiction, for any reason, then, to the full
extent permitted by law, (a) all other provisions hereof shall remain in
full force and effect in such jurisdiction and shall be liberally construed
in order to carry out the intent of the parties hereto as nearly as may be
possible, (b) such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of any other provision
hereof, and (c) any court or arbitrator having jurisdiction thereover shall
have the power to reform such provision to the extent necessary for such
provision to be enforceable under applicable law.
18. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between the Company and the Employee with respect to the subject
matter hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between the Company and the Employee with respect
to such subject matter are hereby superseded and nullified in their entireties,
except that the Confidential Information, Inventions and Nonsolicitation
Agreement between the Employee and the Company, dated July 25, 1991, shall
continue in full force and effect and survive the termination of the Employee's
employment.
19. COUNTERPARTS
This Agreement may be executed in counterparts, each of which
counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument.
20. HEADINGS
All headings used herein are for convenience only and shall not in any
way affect the construction of, or be taken into consideration in interpreting,
this Agreement.
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<PAGE> 25
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement effective on the date first set forth above.
EMPLOYEE
/s/ John R. Wall
----------------------------------------
John R. Wall
WALL DATA INCORPORATED
By /s/ Robert J. Frankenberg
--------------------------------------
Robert J. Frankenberg
Chairman of the Board
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<PAGE> 26
APPENDIX A TO
CHANGE OF CONTROL AGREEMENT BETWEEN
WALL DATA INCORPORATED
AND JOHN R. WALL
For purposes of this Agreement, a "Change of Control" shall mean:
(a) A "Board Change" which, for purposes of this Agreement, shall have
occurred if a majority (excluding vacant seats) of the seats on the Company's
Board are occupied by individuals who were neither (i) nominated by a majority
of the Incumbent Directors nor (ii) appointed by directors so nominated. An
"Incumbent Director" is a member of the Board who has been either (i) nominated
by a majority of the directors of the Company then in office or (ii) appointed
by directors so nominated, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person (as hereinafter defined) other than the
Board; or
(b) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of (i) more than 50% of either (i) the then outstanding shares of
Common Stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change of Control: (x) any acquisition by the Company,
(y) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (z)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subsection (c) of this
Appendix A are satisfied; or
<PAGE> 27
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, immediately following such
reorganization, merger or consolidation, (i) more than 50% of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportion as
their ownership immediately prior to such reorganization, merger or
consolidation of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding the
Company, any employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or consolidation and any
Person beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 33% or more of the Outstanding Company
Common Stock or the Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 33% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors, and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such reorganization, merger
or consolidation were the Incumbent Directors at the time of the execution of
the initial agreement providing for such reorganization, merger or
consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all the assets of the Company, other than to a
corporation with respect to which immediately following such sale or other
disposition, (A) more than 50% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company, any employee benefit plan (or related trust) of the
Company
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<PAGE> 28
or such corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 33% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 33% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were approved by a majority of the Incumbent Directors at the time of the
execution of the initial agreement or action of the Board providing for such
sale or other disposition of assets of the Company.
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<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated as of January 21,
1999, between Wall Data Incorporated, a Washington corporation ("Employer"), and
Richard P. Fox ("Employee");
RECITALS
WHEREAS, Employer desires to continue to employ Employee upon the terms
and conditions set forth herein; and
WHEREAS, Employee is willing to provide services to Employer upon the
terms and conditions set forth herein;
AGREEMENT
NOW, THEREFORE, for and in consideration of the foregoing premises and
for other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, Employer and Employee hereby agree as follows:
1. EMPLOYMENT
Employer will employ Employee and Employee will accept employment by
Employer as its Vice President Finance, Chief Financial Officer and Treasurer.
Employee will have the authority, subject to Employer's Articles of
Incorporation and Bylaws, as may be granted from time to time by the Board of
Directors of Employer. Employee will perform the duties customarily performed by
the Vice President Finance, Chief Financial Officer and Treasurer of a
corporation which is similar to Employer and such other duties as may be
assigned from time to time by the Board of Directors of Employer, which relate
to the business of Employer, its subsidiaries, its parent corporation, or any
business ventures in which Employer, its subsidiaries or its parent corporation
may participate.
2. ATTENTION AND EFFORT
Employee will devote all his productive time, ability, attention and
effort to the business and affairs of Employer and the discharge of the
responsibilities assigned to him hereunder, and will use his reasonable best
efforts to perform faithfully and efficiently such responsibilities. It shall
not be a violation of this Agreement for Employee to (a) serve on corporate,
civic or charitable boards or committees
<PAGE> 2
approved in advance by Employer's President, (b) deliver lectures, fulfill
speaking engagements or teach at educational institutions, (c) manage personal
investments, so long as such activities do not significantly interfere with the
performance of Employee's responsibilities in accordance with this Agreement and
(d) other activities approved in advance by Employer.
3. TERM
Unless otherwise terminated pursuant to Section 6 hereof, Employee's
term of employment under this Agreement shall expire on the second anniversary
of the date of this Agreement (the "Initial Term"). At the end of the Initial
Term and each subsequent Renewal Term (as hereinafter defined), the term of this
Agreement shall be automatically renewed and extended for a period of one year
(the "Renewal Term"), unless either party hereto delivers a written termination
notice to the other party at least 12 months prior to the end of the Initial
Term or the then-current Renewal Term (as the case may be).
4. COMPENSATION
During the term of this Agreement, Employer agrees to pay or cause to be
paid to Employee, and Employee agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
4.1. BASE SALARY
Employee's compensation shall consist, in part, of an annual base salary
of Two Hundred Thousand Dollars ($200,000), before all customary payroll
deductions. Such annual base salary shall be paid in substantially equal
installments and at the same intervals as other officers of Employer are paid.
The Board of Directors of Employer, or a committee thereof, shall determine any
increases in the annual base salary in future years.
4.2. BONUS
Employee may be entitled to receive, in addition to the annual base
salary described above, an annual bonus in an amount to be determined by the
Board of Directors of Employer, or a committee thereof, in its sole discretion
and consistent with bonus plans then in effect.
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<PAGE> 3
5. BENEFITS
During the term of this Agreement, Employee will be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in fringe benefit programs as shall be provided from time to time
by Employer.
6. TERMINATION
Employee's employment pursuant to this Agreement may be terminated as
follows:
6.1. BY EMPLOYER
With or without Cause (as defined below), Employer may terminate
Employee's employment at any time during the term of employment upon giving
Notice of Termination (as defined below).
6.2. BY EMPLOYEE
With or without Good Reason (as defined below), Employee may terminate
his employment at any time upon giving Notice of Termination.
6.3. AUTOMATIC TERMINATION
This Agreement and Employee's employment hereunder shall terminate
automatically upon the death or Total Disability of Employee. The term "Total
Disability" as used herein shall mean Employee's inability (with such
accommodation as may be required by law and which places no undue burden on
Employer), as determined by a physician selected by Employer and acceptable to
Employee, to perform the duties set forth in Section 1 hereof for a period or
periods aggregating 120 calendar days in any 12-month period as a result of
physical or mental illness, loss of legal capacity or any other cause beyond
Employee's control, unless Employee is granted a leave of absence by the Board
of Directors of Employer. Employee and Employer hereby acknowledge that the
duties specified in Section 1 hereof are essential to Employee's position and
that Employee's ability to perform those duties is the essence of this
Agreement.
6.4. NOTICE
The term "Notice of Termination" shall mean at least 30 days' written
notice of termination of Employee's employment, during which period Employee's
employment and performance of services will continue; provided, however, that
Employer may, upon notice to Employee and without reducing Employee's
compensation during such period, excuse Employee from any or all of his duties
during such period. The effective date of
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<PAGE> 4
the termination of Employee's employment hereunder shall be the date on which
such 30-day period expires.
7. TERMINATION PAYMENTS
In the event of termination of Employee's employment, all compensation
and benefits set forth in this Agreement shall terminate, except as specifically
provided in this Section 7:
7.1. TERMINATION BY EMPLOYER
If Employer terminates Employee's employment without Cause prior to the
end of the term of this Agreement, Employee shall be entitled to receive (a)
severance payments equal to (i) one times Employee's annual base salary for the
year in which such termination occurred, plus (ii) a percentage of such annual
base salary equal to the percentage paid under Employer's Executive Incentive
Plan (or any successor plan) for the prior fiscal year, (b) any unpaid annual
base salary which has accrued for services already performed as of the date
termination of Employee's employment becomes effective and any compensation
previously deferred by Employee (together with accrued interest or earnings
thereon, if any) and any accrued vacation pay which would be payable under
Employer's standard policy, in each case to the extent not theretofore paid, and
(c) for 18 months from the termination date, premiums for health insurance
benefit continuation for Employee and his family members, if applicable, which
Employer provides to Employee under the provisions of the federal Comprehensive
Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), to the extent
that Employer would have paid such premiums had Employee remained employed by
Employer. If employment is terminated by Employer for Cause, Employee shall not
be entitled to receive any of the foregoing benefits, other than those set forth
in clause (b) above.
7.2. TERMINATION BY EMPLOYEE
In the case of termination of Employee's employment for Good Reason,
Employee shall be entitled to receive those payments set forth in Sections
7.1(a), (b) and (c) hereof. In the case of the termination of Employee's
employment by Employee other than for Good Reason, Employee shall not be
entitled to any payments hereunder, other than those set forth in Section 7.1(b)
hereof.
7.3. DEATH AND TOTAL DISABILITY
In the case of a termination of Employee's employment as a result of the
Employee's death or Employee's Total Disability, Employee shall not be entitled
to receive any payments hereunder, other than those set forth in Section 7.1(b)
hereof.
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<PAGE> 5
7.4. TERMINATION IN CONNECTION WITH A CHANGE OF CONTROL
Employee and Employer shall enter into a Change of Control Agreement, in
the form attached hereto as Exhibit A. Notwithstanding Sections 7.1 and 7.2
hereof and in full substitution of all payments otherwise due thereunder, if a
Change of Control (as defined in such agreement) of Employer occurs, this
Agreement shall terminate and the relationship between Employee and Employer
shall be governed in all respects by the Change of Control Agreement.
7.5. PAYMENT SCHEDULE
All payments under this Section 7 shall be made to Employee within
thirty working days of the effective date of termination except that payments
for COBRA premiums pursuant to Section 7.1(c) shall be made on a monthly basis.
7.6. CAUSE
Wherever reference is made in this Agreement to termination being with
or without Cause, "Cause" is limited to the occurrence of one or more of the
following events:
(a) Failure or refusal to carry out the lawful duties of Employee
described in Section 1 hereof or any directions of the Board of
Directors of Employer, which directions are reasonably consistent with
the duties herein set forth to be performed by Employee;
(b) Violation by Employee of a state or federal criminal law
involving the commission of a crime against Employer or any of its
subsidiaries;
(c) Deception, fraud, misrepresentation or dishonesty by
Employee; any incident materially compromising Employee's reputation or
ability to represent Employer with the public; any act or omission by
Employee which substantially impairs Employer's business, good will or
reputation; or
(d) Any other material violation of any provision of this
Agreement.
7.7. GOOD REASON
Wherever reference is made in this Agreement to termination being with
or without Good Reason, "Good Reason" is limited to the occurrence of one or
more of the following events:
(a) the reduction in Employee's annual base salary as specified
in Section 4.1 hereof or the reduction in the value of bonus payments
that Employee
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<PAGE> 6
is eligible to receive under Section 4.2 hereof (provided, however, that
Good Reason shall not exist under this Section 7.7(a), in the event
Employee does not actually realize such values because of failure to
satisfy performance or other criteria applicable to such bonus payments
or equity awards);
(b) the material and substantial diminution or reduction without
his consent of Employee's title, authority, duties or responsibilities;
(c) Employer requiring Employee without his consent to be based
at any offices or locations outside of King County, Washington; or
(d) any breach by Employer of any other material provision of
this Agreement.
8. REPRESENTATIONS AND WARRANTIES
In order to induce Employer to enter into this Agreement, Employee
represents and warrants to Employer that neither the execution nor the
performance of this Agreement by Employee will violate or conflict in any way
with any other agreement by which Employee may be bound, or with any other
duties imposed upon Employee by corporate or other statutory or common law.
9. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than pursuant to the definition of Cause set forth in
Section 7.6 hereof, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least 20 days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the 20-day period.
10. CONFIDENTIALITY AGREEMENT
Employer and Employee agree that the Confidential Information,
Inventions and Nonsolicitation Agreement, dated April 8, 1998, between
Employer and Employee and attached hereto as Exhibit B shall remain in full
force and effect and survive the termination of Employee's employment.
-6-
<PAGE> 7
11. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall
specifically refer to this Agreement and shall be personally delivered or sent
by telecopy or other electronic facsimile transmission or by reputable overnight
courier, at the address set forth below or at such other address as may
hereafter be designated by notice given in compliance with the terms hereof.
Such notice shall be effective upon receipt or upon refusal of the addressee to
accept delivery.
If to Employee: Richard P. Fox
5255 Forest SE
Mercer Island, WA 98040
If to Employer: Wall Data Incorporated
11332 NE 122nd Way
Kirkland, WA 98034-6931
Attn: General Counsel
Phone: (425) 814-9255
Facsimile: (425) 814-4372
Copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: L. Michelle Wilson
Phone: (206) 583-8888
Facsimile: (206) 583-8500
12. ASSIGNMENT
This Agreement is personal to Employee and shall not be assignable by
Employee. Employer may assign its rights hereunder to (a) any corporation
resulting from any merger, consolidation, spin-off or other reorganization to
which Employer is a party or (b) any corporation, partnership, association or
other person to which Employer may transfer all or substantially all the assets
and business of Employer existing at such time. All the terms and provisions of
this Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns.
13. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver
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<PAGE> 8
by a party hereto of any right, title, interest or remedy in a particular
instance or circumstance shall not constitute a waiver thereof in any other
instance or circumstance. All rights and remedies shall be cumulative and not
exclusive of any other rights or remedies.
14. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by Employer
and Employee, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by Employer and Employee.
15. ARBITRATION
Any dispute arising under this Agreement shall be subject to
arbitration. The arbitration proceeding shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA Rules") then in effect, conducted by one arbitrator either mutually agreed
upon or selected in accordance with the AAA Rules, except that the parties
thereto shall have any right to discovery as would be permitted by the Federal
Rules of Civil Procedure for a period of 90 days following the commencement of
such arbitration and the arbitrator thereof shall resolve any dispute which
arises in connection with such discovery. The arbitration shall be conducted in
King County, Washington under the jurisdiction of the Seattle office of the
American Arbitration Association. The arbitrator shall have authority only to
interpret and apply the provisions of this Agreement and shall have no authority
to add to, subtract from, or otherwise modify the terms of this Agreement. Any
demand for arbitration must be made within 60 days of the event(s) giving rise
to the claim that this Agreement has been breached. The arbitrator's decision
shall be final and binding, and each party agrees to be bound by the
arbitrator's award subject, only to an appeal therefrom in accordance with the
laws of state of Washington. Either party may obtain judgment upon the
arbitrator's award in the Superior Court of King County, Washington.
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<PAGE> 9
16. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
17. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, then, to the full extent
permitted by law (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
18. HEADINGS
All headings used herein are for convenience only and shall not in any
way affect the construction of, or be taken into consideration in interpreting,
this Agreement.
19. COUNTERPARTS
This Agreement, and any amendment or modification entered into pursuant
to Section 14 hereof, may be executed in any number of counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
20. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between Employer and Employee with respect to the subject matter
hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between Employer and Employee with respect to such
subject matter are hereby superseded and nullified in their entireties.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement on the date set forth above.
EMPLOYEE:
/s/ Richard P. Fox
----------------------------------------
Richard P. Fox
EMPLOYER:
WALL DATA INCORPORATED
By /s/ Robert J. Frankenberg
--------------------------------------
Robert J. Frankenberg
Chairman of the Board
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<PAGE> 11
EXHIBIT A
CHANGE OF CONTROL AGREEMENT
<PAGE> 12
EXHIBIT B
CONFIDENTIAL INFORMATION, INVENTIONS AND NONSOLICITATION AGREEMENT
<PAGE> 13
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement"), dated as of January
21, 1999, is between WALL DATA INCORPORATED, a Washington corporation (the
"Company"), and RICHARD P. FOX (the "Employee").
RECITAL
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to ensure that
the Company will have the continued dedication of the Employee, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined in
Section 1.1 hereof) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Employee arising from the personal
uncertainties and risks created by a pending or threatened Change of Control, to
encourage the Employee's full attention and dedication to the Company currently
and in the event of any threatened or pending Change of Control, and to provide
the Employee with reasonable compensation and benefit arrangements upon a Change
of Control.
AGREEMENT
In order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
1. DEFINITIONS
1.1 CHANGE OF CONTROL
"Change of Control" shall have the definition set forth in Appendix A to
this Agreement, which is hereby incorporated by reference.
1.2 CHANGE OF CONTROL DATE
"Change of Control Date" shall mean the first date on which a Change of
Control occurs.
1.3 EMPLOYMENT PERIOD
"Employment Period" shall mean the two-year period commencing on the
Change of Control Date and ending on the second anniversary of such date.
<PAGE> 14
2. TERM
The term of this Agreement ("Term") shall be for the Initial Term and
any Renewal Term, as such terms are defined in the Employment Agreement, dated
the date hereof, between the Company and the Employee; provided, however, that
if a Change of Control occurs during the Term, the Term shall automatically
extend for the duration of the Employment Period.
3. EMPLOYMENT
3.1 EMPLOYMENT PERIOD
During the Employment Period, the Company hereby agrees to continue the
Employee in its employ or in the employ of its affiliated companies, and the
Employee hereby agrees to remain in the employ of the Company or its affiliated
companies, in accordance with the terms and provisions of this Agreement;
provided, however, that either the Company or the Employee may terminate the
employment relationship subject to the terms of this Agreement.
3.2 POSITION AND DUTIES
During the Employment Period, the Employee's title, position, authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 90-day period immediately preceding the Change of Control Date.
3.3 LOCATION
During the Employment Period, the Employee's services shall be performed
at the Company's headquarters on the Change of Control Date or any office which
is subsequently designated as the headquarters of the Company and is located in
King County, Washington.
3.4 TERMINATION PRIOR TO CHANGE OF CONTROL
If prior to the Change of Control Date, the Employee's employment with
the Company or its affiliated companies terminates for any reason, then the
Employee shall have no further rights under this Agreement; provided, however,
that the Company may not avoid liability for any termination payments which
would have been required during the Employment Period pursuant to Section 8
hereof by terminating the Employee prior to the Employment Period where such
termination is carried out in anticipation of a Change of Control and the
principal motivating purpose is to avoid liability for such termination
payments.
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<PAGE> 15
4. ATTENTION AND EFFORT
During the Employment Period, and excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee will devote all his
productive time, ability, attention and effort to the business and affairs of
the Company and the discharge of the responsibilities assigned to him hereunder,
and he will use his reasonable best efforts to perform faithfully and
efficiently such responsibilities. It shall not be a violation of this Agreement
for the Employee to (a) serve on corporate, civic or charitable boards or
committees approved in advance by the Company's President, (b) deliver lectures,
fulfill speaking engagements or teach at educational institutions, (c) manage
personal investments, so long as such activities do not significantly interfere
with the performance of the Employee's responsibilities in accordance with this
Agreement and (d) other activities approved in advance by the Company. It is
expressly understood and agreed that to the extent any such activities have been
conducted by the Employee prior to the Employment Period, the continued conduct
of such activities (or the conduct of activities similar in nature and scope
thereto) during the Employment Period shall not thereafter be deemed to
interfere with the performance of the Employee's responsibilities to the
Company.
5. COMPENSATION
As long as the Employee remains employed by the Company during the
Employment Period, the Company agrees to pay or cause to be paid to the
Employee, and the Employee agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
5.1 SALARY
The Employee shall receive an annual base salary (the "Annual Base
Salary") at least equal to the annual salary established by the Board or a
committee of the Board (the "Compensation Committee") for the fiscal year in
which the Change of Control Date occurs. The Annual Base Salary shall be paid in
substantially equal installments and at the same intervals as the salaries of
other employees of the Company are paid. The Board or the Compensation Committee
shall review the Annual Base Salary at least annually and shall determine in
good faith and consistent with any generally applicable Company policy any
increases for future years.
5.2 BONUS
In addition to Annual Base Salary, the Employee shall be awarded, for
each fiscal year ending during the Employment Period, an annual bonus (the
"Annual Bonus") in cash at least equal to the average annualized (for any fiscal
year consisting
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<PAGE> 16
of less than 12 full months) bonus paid or payable, including by reason of any
deferral, to the Employee by the Company and its affiliated companies in respect
of the three fiscal years immediately preceding the fiscal year in which the
Change of Control Date occurs. Each such Annual Bonus shall be paid no later
than 90 days after the end of the fiscal year for which the Annual Bonus is
awarded, unless the Employee shall elect to defer the receipt of such Annual
Bonus.
6. BENEFITS
6.1 INCENTIVE, RETIREMENT AND WELFARE BENEFIT PLANS; VACATION
During the Employment Period, the Employee shall be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in such fringe benefit programs as shall be generally made
available to other employees of the Company and its affiliated companies from
time to time during the Employment Period by action of the Board (or any person
or committee appointed by the Board to determine fringe benefit programs and
other emoluments), including, without limitation, paid vacations; any stock
purchase, savings or retirement plan, practice, policy or program; and all
welfare benefit plans, practices, policies or programs (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
or programs).
6.2 EXPENSES
During the Employment Period, the Employee shall be entitled to receive
prompt reimbursement for all reasonable employment expenses incurred by him in
accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the employees of the Company and its
affiliated companies during the Employment Period.
7. TERMINATION
During the Employment Period, employment of the Employee may be
terminated as follows:
7.1 BY THE COMPANY OR THE EMPLOYEE
At any time during the Employment Period, the Company may terminate the
employment of the Employee with or without Cause (as defined below), and the
Employee may terminate his employment for Good Reason (as defined below) or for
any reason, upon giving Notice of Termination (as defined below).
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<PAGE> 17
7.2 AUTOMATIC TERMINATION
This Agreement and the Employee's employment during the Employment
Period shall terminate automatically upon the death or Total Disability of the
Employee. The term "Total Disability" as used herein shall mean the Employee's
inability (with such accommodation as may be required by law and which places no
undue burden on the Company), as determined by a physician selected by the
Company and acceptable to the Employee, to perform the duties set forth in
Section 3.2 hereof for a period or periods aggregating 120 calendar days in any
12-month period as a result of physical or mental illness, loss of legal
capacity or any other cause beyond the Employee's control, unless the Employee
is granted a leave of absence by the Board. The Employee and the Company hereby
acknowledge that the duties specified in Section 3.2 hereof are essential to the
Employee's position and that Employee's ability to perform those duties is the
essence of this Agreement.
7.3 NOTICE OF TERMINATION
Any termination by the Company or by the Employee during the Employment
Period shall be communicated by Notice of Termination to the other party given
in accordance with Section 11 hereof. The term "Notice of Termination" shall
mean a written notice which (a) indicates the specific termination provision in
this Agreement relied upon and (b) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated. The
failure by the Employee or the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Employee or the Company hereunder or preclude
the Employee or the Company from asserting such fact or circumstance in
enforcing the Employee's or the Company's rights hereunder.
7.4 DATE OF TERMINATION
During the Employment Period, "Date of Termination" means (a) if the
Employee's employment is terminated by reason of death, at the end of the
calendar month in which the Employee's death occurs, (b) if the Employee's
employment is terminated by reason of Total Disability, immediately upon a
determination by the Company of the Employee's Total Disability, and (c) in all
other cases, five days after the effective date of notice pursuant to Section 11
hereof. The Employee's employment and performance of services will continue
during such five-day period; provided, however, that the Company may, upon
notice to the Employee and without
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<PAGE> 18
reducing the Employee's compensation during such period, excuse the Employee
from any or all of his duties during such period.
8. TERMINATION PAYMENTS
In the event of termination of the Employee's employment during the
Employment Period, all compensation and benefits set forth in this Agreement
shall terminate, except as specifically provided in this Section 8.
8.1 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE
EMPLOYEE FOR GOOD REASON
If during the Employment Period the Company terminates the Employee's
employment other than for Cause or the Employee terminates his employment for
Good Reason, the Employee shall be entitled to:
(a) receive payment of the following accrued obligations (the
"Accrued Obligations"):
(i) the Employee's Annual Base Salary through the Date of
Termination to the extent not theretofore paid; and
(ii) any compensation previously deferred by the Employee
(together with accrued interest or earnings thereon, if any) and any
accrued vacation pay which would be payable under the Company's standard
policy, in each case to the extent not theretofore paid;
(b) for 18 months after the Date of Termination, Employee's
premiums for health insurance benefit continuation for Employee and his family
members, if applicable, which the Company provides to the Employee under the
provisions of the federal Comprehensive Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), to the extent that the Company would have paid such
premiums had the Employee remained employed by the Company; and
(c) an amount as severance pay equal to one and one-half times
the Annual Base Salary for the fiscal year in which the Date of Termination
occurs, plus a percentage of such Annual Base Salary equal to the percentage
paid under the Company's Executive Incentive Plan (or any successor plan) for
the prior fiscal year (the "Severance Obligation").
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<PAGE> 19
8.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON
If during the Employment Period the Employee's employment shall be
terminated by the Company for Cause or by the Employee for other than Good
Reason, this Agreement shall terminate without further obligation on the part of
the Company to the Employee, other than the Company's obligation to pay the
Employee (a) his Annual Base Salary through the Date of Termination, (b) the
amount of any compensation previously deferred by the Employee, and (c) any
accrued vacation pay which would be payable under the Company's standard policy,
in each case to the extent theretofore unpaid.
8.3 EXPIRATION OF TERM
In the case of a termination of the Employee's employment as a result of
the expiration of the Term of this Agreement, this Agreement shall terminate
without further obligation on the part of the Company to the Employee, other
than the Company's obligation to pay the Employee the Accrued Obligations.
8.4 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY
If during the Employment Period the Employee's employment is terminated
by reason of the Employee's death or Total Disability, this Agreement shall
terminate automatically without further obligation on the part of the Company to
the Employee or his legal representatives under this Agreement, other than the
Company's obligation to pay the Employee the Accrued Obligations (which shall be
paid to the Employee's estate or beneficiary, as applicable in the case of the
Employee's death).
8.5 PAYMENT SCHEDULE
All payments of the Accrued Obligations and the Severance Obligation, or
any portion thereof payable pursuant to this Section 8, shall be made to the
Employee within thirty working days of the Date of Termination, except that
payments for COBRA premiums pursuant to Section 8.1(b) shall be made on a
monthly basis.
8.6 CAUSE
For purposes of this Agreement, "Cause" means cause given by the
Employee to the Company and shall be limited to the occurrence of one or more of
the following events:
(a) A clear refusal to carry out any material lawful duties of
the Employee or any directions of the Board, all reasonably consistent with the
duties
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<PAGE> 20
described in Section 3.2 hereof, provided the Employee has been given reasonable
notice and opportunity to correct any such failure;
(b) Violation by the Employee of a state or federal criminal law
involving the commission of a crime against the Company or any of its
subsidiaries;
(c) Deception, fraud, misrepresentation or dishonesty by the
Employee; any incident materially compromising the Employee's reputation or
ability to represent the Company with investors, customers or the public; or
(d) Any other material violation of any provision of this
Agreement by the Employee, subject to the notice and opportunity to cure
requirements of Section 10.
8.7 GOOD REASON
For purposes of this Agreement, "Good Reason" means
(a) The assignment to the Employee of any duties materially
inconsistent with the Employee's title, position, authority, duties or
responsibilities as contemplated by Section 3.2 hereof or any other action by
the Company which results in a material diminution in such title, position,
authority, duties or responsibilities;
(b) Any failure by the Company to comply with any of the
provisions of Section 5 or 6 hereof;
(c) The Company's requiring the Employee to be based at any
office or location other than that described in Section 3.3 hereof;
(d) Any failure by the Company to comply with and satisfy Section
12 hereof, provided that the Company's successor has received at least ten days'
prior written notice from the Company or the Employee of the requirements of
Section 12 hereof; or
(e) Any other material violation of any provision of this
Agreement by the Company.
8.8 EXCESS PARACHUTE LIMITATION
If either the Company or the Employee receives confirmation from the
Company's independent tax counsel or its certified public accounting firm, or
such other accounting firm retained as independent certified public accountants
for the Company (the "Tax Advisor"), that any payment by the Company to the
Employee
-8-
<PAGE> 21
under this Agreement or otherwise would be considered to be an "excess parachute
payment" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended, or any successor statute then in effect (the "Code"), then the
aggregate payments by the Company pursuant to this Agreement shall be reduced to
the highest amount that may be paid to the Employee by the Company under this
Agreement without having any portion of any amount payable to the Employee by
the Company or a related entity under this Agreement or otherwise treated as
such an "excess parachute payment," and, if permitted by applicable law and
without adverse tax consequence, such reduction shall be made to the last
payment due hereunder. Any payments made by the Company to the Employee under
this Agreement which are later confirmed by the Tax Advisor to be "excess
parachute payments" shall be considered by all parties to have been a loan by
the Company to the Employee, which loan shall be repaid by the Employee upon
demand, together with interest calculated at the lowest interest rate authorized
for such loans under the Code, without a requirement that further interest be
imputed.
9. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS
In order to induce the Company to enter into this Agreement, the
Employee represents and warrants to the Company that neither the execution nor
the performance of this Agreement by the Employee will violate or conflict in
any way with any other agreement by which the Employee may be bound or with any
other duties imposed upon Employee by corporate or other statutory or common
law.
10. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than pursuant to the definition of Cause set forth in
Section 8.6 hereof, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least ten days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the ten-day period.
11. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall
specifically refer to this Agreement and shall be personally delivered or sent
by telecopy or other electronic facsimile transmission or by reputable overnight
courier, at the address set forth below or at such other address as may
hereafter be designated by notice given in
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<PAGE> 22
compliance with the terms hereof. Such notice shall be effective upon receipt or
upon refusal of the addressee to accept delivery.
If to Employee: Richard P. Fox
5255 Forest SE
Mercer Island, WA 98040
If to Company: Wall Data Incorporated
11332 NE 122nd Way
Kirkland, WA 98034-6931
Attn: General Counsel
Phone: (425) 814-9255
Facsimile: (425) 814-4372
Copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: L. Michelle Wilson
Phone: (206) 583-8888
Facsimile: (206) 583-8500
12. ASSIGNMENT
This Agreement is personal to the Employee and shall not be assignable
by the Employee. The Company shall assign to and require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean Wall Data Incorporated
and any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise. All the
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns.
13. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or
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<PAGE> 23
circumstance. All rights and remedies shall be cumulative and not exclusive of
any other rights or remedies.
14. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by the Company
and the Employee, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Company and the Employee.
15. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
16. ARBITRATION
Any dispute arising under this Agreement shall be subject to
arbitration. The arbitration proceeding shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA Rules") then in effect, conducted by one arbitrator either mutually agreed
upon or selected in accordance with the AAA Rules, except that the parties
thereto shall have any right to discovery as would be permitted by the Federal
Rules of Civil Procedure for a period of 90 days following the commencement of
such arbitration and the arbitrator thereof shall resolve any dispute which
arises in connection with such discovery. The arbitration shall be conducted in
King County, Washington under the jurisdiction of the Seattle office of the
American Arbitration Association. The arbitrator shall have authority only to
interpret and apply the provisions of this Agreement and shall have no authority
to add to, subtract from, or otherwise modify the terms of this Agreement. Any
demand for arbitration must be made within 60 days of the event(s) giving rise
to the claim that this Agreement has been breached. The arbitrator's decision
shall be final and binding, and each party agrees to be bound by the
arbitrator's award subject, only to an appeal therefrom in accordance with the
laws of
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<PAGE> 24
the state of Washington. Either party may obtain judgment upon the arbitrator's
award in the Superior Court of King County, Washington.
17. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, then, to the full extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
18. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between the Company and the Employee with respect to the subject
matter hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between the Company and the Employee with respect
to such subject matter are hereby superseded and nullified in their entireties,
except that the Confidential Information, Inventions and Nonsolicitation
Agreement between the Employee and the Company, dated April 8, 1998, shall
continue in full force and effect and survive the termination of the Employee's
employment.
19. COUNTERPARTS
This Agreement may be executed in counterparts, each of which
counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument.
20. HEADINGS
All headings used herein are for convenience only and shall not in any
way affect the construction of, or be taken into consideration in interpreting,
this Agreement.
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<PAGE> 25
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement effective on the date first set forth above.
EMPLOYEE
/s/ Richard P. Fox
----------------------------------------
Richard P. Fox
WALL DATA INCORPORATED
By /s/ Robert J. Frankenberg
--------------------------------------
Robert J. Frankenberg
Chairman of the Board
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<PAGE> 26
APPENDIX A TO
CHANGE OF CONTROL AGREEMENT BETWEEN
WALL DATA INCORPORATED
AND RICHARD P. FOX
For purposes of this Agreement, a "Change of Control" shall mean:
(a) A "Board Change" which, for purposes of this Agreement, shall have
occurred if a majority (excluding vacant seats) of the seats on the Company's
Board are occupied by individuals who were neither (i) nominated by a majority
of the Incumbent Directors nor (ii) appointed by directors so nominated. An
"Incumbent Director" is a member of the Board who has been either (i) nominated
by a majority of the directors of the Company then in office or (ii) appointed
by directors so nominated, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person (as hereinafter defined) other than the
Board; or
(b) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of (i) more than 50% of either (i) the then outstanding shares of
Common Stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change of Control: (x) any acquisition by the Company,
(y) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (z)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subsection (c) of this
Appendix A are satisfied; or
<PAGE> 27
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, immediately following such
reorganization, merger or consolidation, (i) more than 50% of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportion as
their ownership immediately prior to such reorganization, merger or
consolidation of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding the
Company, any employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or consolidation and any
Person beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 33% or more of the Outstanding Company
Common Stock or the Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 33% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors, and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such reorganization, merger
or consolidation were the Incumbent Directors at the time of the execution of
the initial agreement providing for such reorganization, merger or
consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all the assets of the Company, other than to a
corporation with respect to which immediately following such sale or other
disposition, (A) more than 50% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company, any employee benefit plan (or related trust) of the
Company
-2-
<PAGE> 28
or such corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 33% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 33% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were approved by a majority of the Incumbent Directors at the time of the
execution of the initial agreement or action of the Board providing for such
sale or other disposition of assets of the Company.
-3-
<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated as of January 21,
1999, between Wall Data Incorporated, a Washington corporation ("Employer"), and
Kevin B. Vitale ("Employee");
RECITALS
WHEREAS, Employer desires to continue to employ Employee upon the terms
and conditions set forth herein; and
WHEREAS, Employee is willing to provide services to Employer upon the
terms and conditions set forth herein;
AGREEMENT
NOW, THEREFORE, for and in consideration of the foregoing premises and
for other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, Employer and Employee hereby agree as follows:
1. EMPLOYMENT
Employer will employ Employee and Employee will accept employment by
Employer as its Chief Operating Officer. Employee will have the authority,
subject to Employer's Articles of Incorporation and Bylaws, as may be granted
from time to time by the Board of Directors of Employer. Employee will perform
the duties customarily performed by the Chief Operating Officer of a corporation
which is similar to Employer and such other duties as may be assigned from time
to time by the Board of Directors of Employer, which relate to the business of
Employer, its subsidiaries, its parent corporation, or any business ventures in
which Employer, its subsidiaries or its parent corporation may participate.
2. ATTENTION AND EFFORT
Employee will devote all his productive time, ability, attention and
effort to the business and affairs of Employer and the discharge of the
responsibilities assigned to him hereunder, and will use his reasonable best
efforts to perform faithfully and efficiently such responsibilities. It shall
not be a violation of this Agreement for Employee to (a) serve on corporate,
civic or charitable boards or committees approved in advance by Employer's
President, (b) deliver lectures, fulfill speaking engagements or
<PAGE> 2
teach at educational institutions, (c) manage personal investments, so long as
such activities do not significantly interfere with the performance of
Employee's responsibilities in accordance with this Agreement and (d) other
activities approved in advance by Employer.
3. TERM
Unless otherwise terminated pursuant to Section 6 hereof, Employee's
term of employment under this Agreement shall expire on the second anniversary
of the date of this Agreement (the "Initial Term"). At the end of the Initial
Term and each subsequent Renewal Term (as hereinafter defined), the term of this
Agreement shall be automatically renewed and extended for a period of one year
(the "Renewal Term"), unless either party hereto delivers a written termination
notice to the other party at least 12 months prior to the end of the Initial
Term or the then-current Renewal Term (as the case may be).
4. COMPENSATION
During the term of this Agreement, Employer agrees to pay or cause to be
paid to Employee, and Employee agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
4.1. BASE SALARY
Employee's compensation shall consist, in part, of an annual base salary
of Two Hundred Seventy-Five Thousand Dollars ($275,000), before all customary
payroll deductions. Such annual base salary shall be paid in substantially equal
installments and at the same intervals as other officers of Employer are paid.
The Board of Directors of Employer, or a committee thereof, shall determine any
increases in the annual base salary in future years.
4.2. BONUS
Employee may be entitled to receive, in addition to the annual base
salary described above, an annual bonus in an amount to be determined by the
Board of Directors of Employer, or a committee thereof, in its sole discretion
and consistent with bonus plans then in effect.
5. BENEFITS
During the term of this Agreement, Employee will be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in fringe benefit programs as shall be provided from time to time
by Employer.
-2-
<PAGE> 3
6. TERMINATION
Employee's employment pursuant to this Agreement may be terminated as
follows:
6.1. BY EMPLOYER
With or without Cause (as defined below), Employer may terminate
Employee's employment at any time during the term of employment upon giving
Notice of Termination (as defined below).
6.2. BY EMPLOYEE
With or without Good Reason (as defined below), Employee may terminate
his employment at any time upon giving Notice of Termination.
6.3. AUTOMATIC TERMINATION
This Agreement and Employee's employment hereunder shall terminate
automatically upon the death or Total Disability of Employee. The term "Total
Disability" as used herein shall mean Employee's inability (with such
accommodation as may be required by law and which places no undue burden on
Employer), as determined by a physician selected by Employer and acceptable to
Employee, to perform the duties set forth in Section 1 hereof for a period or
periods aggregating 120 calendar days in any 12-month period as a result of
physical or mental illness, loss of legal capacity or any other cause beyond
Employee's control, unless Employee is granted a leave of absence by the Board
of Directors of Employer. Employee and Employer hereby acknowledge that the
duties specified in Section 1 hereof are essential to Employee's position and
that Employee's ability to perform those duties is the essence of this
Agreement.
6.4. NOTICE
The term "Notice of Termination" shall mean at least 30 days' written
notice of termination of Employee's employment, during which period Employee's
employment and performance of services will continue; provided, however, that
Employer may, upon notice to Employee and without reducing Employee's
compensation during such period, excuse Employee from any or all of his duties
during such period. The effective date of the termination of Employee's
employment hereunder shall be the date on which such 30-day period expires.
-3-
<PAGE> 4
7. TERMINATION PAYMENTS
In the event of termination of Employee's employment, all compensation
and benefits set forth in this Agreement shall terminate, except as specifically
provided in this Section 7:
7.1. TERMINATION BY EMPLOYER
If Employer terminates Employee's employment without Cause prior to the
end of the term of this Agreement, Employee shall be entitled to receive (a)
severance payments equal to (i) two times Employee's annual base salary for the
year in which such termination occurred, plus (ii) a percentage of such annual
base salary equal to the percentage paid under Employer's Executive Incentive
Plan (or any successor plan) for the prior fiscal year, (b) any unpaid annual
base salary which has accrued for services already performed as of the date
termination of Employee's employment becomes effective and any compensation
previously deferred by Employee (together with accrued interest or earnings
thereon, if any) and any accrued vacation pay which would be payable under
Employer's standard policy, in each case to the extent not theretofore paid, and
(c) for 18 months from the termination date, premiums for health insurance
benefit continuation for Employee and his family members, if applicable, which
Employer provides to Employee under the provisions of the federal Comprehensive
Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), to the extent
that Employer would have paid such premiums had Employee remained employed by
Employer. If employment is terminated by Employer for Cause, Employee shall not
be entitled to receive any of the foregoing benefits, other than those set forth
in clause (b) above.
7.2. TERMINATION BY EMPLOYEE
In the case of termination of Employee's employment for Good Reason,
Employee shall be entitled to receive those payments set forth in Sections
7.1(a), (b) and (c) hereof. In the case of the termination of Employee's
employment by Employee other than for Good Reason, Employee shall not be
entitled to any payments hereunder, other than those set forth in Section 7.1(b)
hereof.
7.3. DEATH AND TOTAL DISABILITY
In the case of a termination of Employee's employment as a result of the
Employee's death or Employee's Total Disability, Employee shall not be entitled
to receive any payments hereunder, other than those set forth in Section 7.1(b)
hereof.
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<PAGE> 5
7.4. TERMINATION IN CONNECTION WITH A CHANGE OF CONTROL
Employee and Employer shall enter into a Change of Control Agreement, in
the form attached hereto as Exhibit A. Notwithstanding Sections 7.1 and 7.2
hereof and in full substitution of all payments otherwise due thereunder, if a
Change of Control (as defined in such agreement) of Employer occurs, this
Agreement shall terminate and the relationship between Employee and Employer
shall be governed in all respects by the Change of Control Agreement.
7.5. PAYMENT SCHEDULE
All payments under this Section 7 shall be made to Employee within
thirty working days of the effective date of termination except that payments
for COBRA premiums pursuant to Section 7.1(c) shall be made on a monthly basis.
7.6. CAUSE
Wherever reference is made in this Agreement to termination being with
or without Cause, "Cause" is limited to the occurrence of one or more of the
following events:
(a) Failure or refusal to carry out the lawful duties of Employee
described in Section 1 hereof or any directions of the Board of
Directors of Employer, which directions are reasonably consistent with
the duties herein set forth to be performed by Employee;
(b) Violation by Employee of a state or federal criminal law
involving the commission of a crime against Employer or any of its
subsidiaries;
(c) Deception, fraud, misrepresentation or dishonesty by
Employee; any incident materially compromising Employee's reputation or
ability to represent Employer with the public; any act or omission by
Employee which substantially impairs Employer's business, good will or
reputation; or
(d) Any other material violation of any provision of this
Agreement.
7.7. GOOD REASON
Wherever reference is made in this Agreement to termination being with
or without Good Reason, "Good Reason" is limited to the occurrence of one or
more of the following events:
(a) the reduction in Employee's annual base salary as specified
in Section 4.1 hereof or the reduction in the value of bonus payments
that Employee
-5-
<PAGE> 6
is eligible to receive under Section 4.2 hereof (provided, however, that
Good Reason shall not exist under this Section 7.7(a), in the event
Employee does not actually realize such values because of failure to
satisfy performance or other criteria applicable to such bonus payments
or equity awards);
(b) the material and substantial diminution or reduction without
his consent of Employee's title, authority, duties or responsibilities;
(c) Employer requiring Employee without his consent to be based
at any offices or locations outside of King County, Washington; or
(d) any breach by Employer of any other material provision of
this Agreement.
8. REPRESENTATIONS AND WARRANTIES
In order to induce Employer to enter into this Agreement, Employee
represents and warrants to Employer that neither the execution nor the
performance of this Agreement by Employee will violate or conflict in any way
with any other agreement by which Employee may be bound, or with any other
duties imposed upon Employee by corporate or other statutory or common law.
9. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than pursuant to the definition of Cause set forth in
Section 7.6 hereof, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least 20 days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the 20-day period.
10. CONFIDENTIALITY AGREEMENT
Employer and Employee agree that the Confidential Information,
Inventions and Nonsolicitation Agreement, dated July 12, 1993, between
Employer and Employee and attached hereto as Exhibit B shall remain in full
force and effect and survive the termination of Employee's employment.
-6-
<PAGE> 7
11. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall
specifically refer to this Agreement and shall be personally delivered or sent
by telecopy or other electronic facsimile transmission or by reputable overnight
courier, at the address set forth below or at such other address as may
hereafter be designated by notice given in compliance with the terms hereof.
Such notice shall be effective upon receipt or upon refusal of the addressee to
accept delivery.
If to Employee: Kevin B. Vitale
10809 - 178th Pl. NE
Redmond, WA 98052
If to Employer: Wall Data Incorporated
11332 NE 122nd Way
Kirkland, WA 98034-6931
Attn: General Counsel
Phone: (425) 814-9255
Facsimile: (425) 814-4372
Copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: L. Michelle Wilson
Phone: (206) 583-8888
Facsimile: (206) 583-8500
12. ASSIGNMENT
This Agreement is personal to Employee and shall not be assignable by
Employee. Employer may assign its rights hereunder to (a) any corporation
resulting from any merger, consolidation, spin-off or other reorganization to
which Employer is a party or (b) any corporation, partnership, association or
other person to which Employer may transfer all or substantially all the assets
and business of Employer existing at such time. All the terms and provisions of
this Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns.
13. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver
-7-
<PAGE> 8
by a party hereto of any right, title, interest or remedy in a particular
instance or circumstance shall not constitute a waiver thereof in any other
instance or circumstance. All rights and remedies shall be cumulative and not
exclusive of any other rights or remedies.
14. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by Employer
and Employee, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by Employer and Employee.
15. ARBITRATION
Any dispute arising under this Agreement shall be subject to
arbitration. The arbitration proceeding shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA Rules") then in effect, conducted by one arbitrator either mutually agreed
upon or selected in accordance with the AAA Rules, except that the parties
thereto shall have any right to discovery as would be permitted by the Federal
Rules of Civil Procedure for a period of 90 days following the commencement of
such arbitration and the arbitrator thereof shall resolve any dispute which
arises in connection with such discovery. The arbitration shall be conducted in
King County, Washington under the jurisdiction of the Seattle office of the
American Arbitration Association. The arbitrator shall have authority only to
interpret and apply the provisions of this Agreement and shall have no authority
to add to, subtract from, or otherwise modify the terms of this Agreement. Any
demand for arbitration must be made within 60 days of the event(s) giving rise
to the claim that this Agreement has been breached. The arbitrator's decision
shall be final and binding, and each party agrees to be bound by the
arbitrator's award subject, only to an appeal therefrom in accordance with the
laws of state of Washington. Either party may obtain judgment upon the
arbitrator's award in the Superior Court of King County, Washington.
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<PAGE> 9
16. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
17. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, then, to the full extent
permitted by law (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
18. HEADINGS
All headings used herein are for convenience only and shall not in any
way affect the construction of, or be taken into consideration in interpreting,
this Agreement.
19. COUNTERPARTS
This Agreement, and any amendment or modification entered into pursuant
to Section 14 hereof, may be executed in any number of counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
20. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between Employer and Employee with respect to the subject matter
hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between Employer and Employee with respect to such
subject matter are hereby superseded and nullified in their entireties.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement on the date set forth above.
EMPLOYEE:
/s/ Kevin B. Vitale
----------------------------------------
Kevin B. Vitale
EMPLOYER:
WALL DATA INCORPORATED
By /s/ Robert J. Frankenberg
--------------------------------------
Robert J. Frankenberg
Chairman of the Board
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<PAGE> 11
EXHIBIT A
CHANGE OF CONTROL AGREEMENT
<PAGE> 12
EXHIBIT B
CONFIDENTIAL INFORMATION, INVENTIONS AND NONSOLICITATION AGREEMENT
<PAGE> 13
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement"), dated as of January
21, 1999, is between WALL DATA INCORPORATED, a Washington corporation (the
"Company"), and KEVIN B. VITALE (the "Employee").
RECITAL
The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to
ensure that the Company will have the continued dedication of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of
Control (as defined in Section 1.1 hereof) of the Company. The Board
believes it is imperative to diminish the inevitable distraction of the
Employee arising from the personal uncertainties and risks created by a
pending or threatened Change of Control, to encourage the Employee's full
attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the Employee with
reasonable compensation and benefit arrangements upon a Change of Control.
AGREEMENT
In order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
1. DEFINITIONS
1.1 CHANGE OF CONTROL
"Change of Control" shall have the definition set forth in Appendix A to
this Agreement, which is hereby incorporated by reference.
1.2 CHANGE OF CONTROL DATE
"Change of Control Date" shall mean the first date on which a Change of
Control occurs.
1.3 EMPLOYMENT PERIOD
"Employment Period" shall mean the two-year period commencing on the
Change of Control Date and ending on the second anniversary of such date.
<PAGE> 14
2. TERM
The term of this Agreement ("Term") shall be for the Initial Term and
any Renewal Term, as such terms are defined in the Employment Agreement, dated
the date hereof, between the Company and the Employee; provided, however, that
if a Change of Control occurs during the Term, the Term shall automatically
extend for the duration of the Employment Period.
3. EMPLOYMENT
3.1 EMPLOYMENT PERIOD
During the Employment Period, the Company hereby agrees to continue the
Employee in its employ or in the employ of its affiliated companies, and the
Employee hereby agrees to remain in the employ of the Company or its affiliated
companies, in accordance with the terms and provisions of this Agreement;
provided, however, that either the Company or the Employee may terminate the
employment relationship subject to the terms of this Agreement.
3.2 POSITION AND DUTIES
During the Employment Period, the Employee's title, position, authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 90-day period immediately preceding the Change of Control Date.
3.3 LOCATION
During the Employment Period, the Employee's services shall be performed
at the Company's headquarters on the Change of Control Date or any office which
is subsequently designated as the headquarters of the Company and is located in
King County, Washington.
3.4 TERMINATION PRIOR TO CHANGE OF CONTROL
If prior to the Change of Control Date, the Employee's employment with
the Company or its affiliated companies terminates for any reason, then the
Employee shall have no further rights under this Agreement; provided, however,
that the Company may not avoid liability for any termination payments which
would have been required during the Employment Period pursuant to Section 8
hereof by terminating the Employee prior to the Employment Period where such
termination is carried out in anticipation of a Change of Control and the
principal motivating purpose is to avoid liability for such termination
payments.
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<PAGE> 15
4. ATTENTION AND EFFORT
During the Employment Period, and excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee will devote all his
productive time, ability, attention and effort to the business and affairs of
the Company and the discharge of the responsibilities assigned to him hereunder,
and he will use his reasonable best efforts to perform faithfully and
efficiently such responsibilities. It shall not be a violation of this Agreement
for the Employee to (a) serve on corporate, civic or charitable boards or
committees approved in advance by the Company's President, (b) deliver lectures,
fulfill speaking engagements or teach at educational institutions, (c) manage
personal investments, so long as such activities do not significantly interfere
with the performance of the Employee's responsibilities in accordance with this
Agreement and (d) other activities approved in advance by the Company. It is
expressly understood and agreed that to the extent any such activities have been
conducted by the Employee prior to the Employment Period, the continued conduct
of such activities (or the conduct of activities similar in nature and scope
thereto) during the Employment Period shall not thereafter be deemed to
interfere with the performance of the Employee's responsibilities to the
Company.
5. COMPENSATION
As long as the Employee remains employed by the Company during the
Employment Period, the Company agrees to pay or cause to be paid to the
Employee, and the Employee agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
5.1 SALARY
The Employee shall receive an annual base salary (the "Annual Base
Salary") at least equal to the annual salary established by the Board or a
committee of the Board (the "Compensation Committee") for the fiscal year in
which the Change of Control Date occurs. The Annual Base Salary shall be paid in
substantially equal installments and at the same intervals as the salaries of
other employees of the Company are paid. The Board or the Compensation Committee
shall review the Annual Base Salary at least annually and shall determine in
good faith and consistent with any generally applicable Company policy any
increases for future years.
5.2 BONUS
In addition to Annual Base Salary, the Employee shall be awarded, for
each fiscal year ending during the Employment Period, an annual bonus (the
"Annual Bonus") in cash at least equal to the average annualized (for any fiscal
year consisting
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<PAGE> 16
of less than 12 full months) bonus paid or payable, including by reason of any
deferral, to the Employee by the Company and its affiliated companies in respect
of the three fiscal years immediately preceding the fiscal year in which the
Change of Control Date occurs. Each such Annual Bonus shall be paid no later
than 90 days after the end of the fiscal year for which the Annual Bonus is
awarded, unless the Employee shall elect to defer the receipt of such Annual
Bonus.
6. BENEFITS
6.1 INCENTIVE, RETIREMENT AND WELFARE BENEFIT PLANS; VACATION
During the Employment Period, the Employee shall be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in such fringe benefit programs as shall be generally made
available to other employees of the Company and its affiliated companies from
time to time during the Employment Period by action of the Board (or any person
or committee appointed by the Board to determine fringe benefit programs and
other emoluments), including, without limitation, paid vacations; any stock
purchase, savings or retirement plan, practice, policy or program; and all
welfare benefit plans, practices, policies or programs (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
or programs).
6.2 EXPENSES
During the Employment Period, the Employee shall be entitled to receive
prompt reimbursement for all reasonable employment expenses incurred by him in
accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the employees of the Company and its
affiliated companies during the Employment Period.
7. TERMINATION
During the Employment Period, employment of the Employee may be
terminated as follows:
7.1 BY THE COMPANY OR THE EMPLOYEE
At any time during the Employment Period, the Company may terminate the
employment of the Employee with or without Cause (as defined below), and the
Employee may terminate his employment for Good Reason (as defined below) or for
any reason, upon giving Notice of Termination (as defined below).
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<PAGE> 17
7.2 AUTOMATIC TERMINATION
This Agreement and the Employee's employment during the Employment
Period shall terminate automatically upon the death or Total Disability of the
Employee. The term "Total Disability" as used herein shall mean the Employee's
inability (with such accommodation as may be required by law and which places no
undue burden on the Company), as determined by a physician selected by the
Company and acceptable to the Employee, to perform the duties set forth in
Section 3.2 hereof for a period or periods aggregating 120 calendar days in any
12-month period as a result of physical or mental illness, loss of legal
capacity or any other cause beyond the Employee's control, unless the Employee
is granted a leave of absence by the Board. The Employee and the Company hereby
acknowledge that the duties specified in Section 3.2 hereof are essential to the
Employee's position and that Employee's ability to perform those duties is the
essence of this Agreement.
7.3 NOTICE OF TERMINATION
Any termination by the Company or by the Employee during the Employment
Period shall be communicated by Notice of Termination to the other party given
in accordance with Section 11 hereof. The term "Notice of Termination" shall
mean a written notice which (a) indicates the specific termination provision in
this Agreement relied upon and (b) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated. The
failure by the Employee or the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Employee or the Company hereunder or preclude
the Employee or the Company from asserting such fact or circumstance in
enforcing the Employee's or the Company's rights hereunder.
7.4 DATE OF TERMINATION
During the Employment Period, "Date of Termination" means (a) if the
Employee's employment is terminated by reason of death, at the end of the
calendar month in which the Employee's death occurs, (b) if the Employee's
employment is terminated by reason of Total Disability, immediately upon a
determination by the Company of the Employee's Total Disability, and (c) in all
other cases, five days after the effective date of notice pursuant to Section 11
hereof. The Employee's employment and performance of services will continue
during such five-day period; provided, however, that the Company may, upon
notice to the Employee and without
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<PAGE> 18
reducing the Employee's compensation during such period, excuse the Employee
from any or all of his duties during such period.
8. TERMINATION PAYMENTS
In the event of termination of the Employee's employment during the
Employment Period, all compensation and benefits set forth in this Agreement
shall terminate, except as specifically provided in this Section 8.
8.1 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE
EMPLOYEE FOR GOOD REASON
If during the Employment Period the Company terminates the Employee's
employment other than for Cause or the Employee terminates his employment for
Good Reason, the Employee shall be entitled to:
(a) receive payment of the following accrued obligations (the
"Accrued Obligations"):
(i) the Employee's Annual Base Salary through the Date of
Termination to the extent not theretofore paid; and
(ii) any compensation previously deferred by the Employee
(together with accrued interest or earnings thereon, if any) and any
accrued vacation pay which would be payable under the Company's standard
policy, in each case to the extent not theretofore paid;
(b) for 18 months after the Date of Termination, Employee's
premiums for health insurance benefit continuation for Employee and his family
members, if applicable, which the Company provides to the Employee under the
provisions of the federal Comprehensive Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), to the extent that the Company would have paid such
premiums had the Employee remained employed by the Company; and
(c) an amount as severance pay equal to two and one-half times
the Annual Base Salary for the fiscal year in which the Date of Termination
occurs, plus a percentage of such Annual Base Salary equal to the percentage
paid under the Company's Executive Incentive Plan (or any successor plan) for
the prior fiscal year (the "Severance Obligation").
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<PAGE> 19
8.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON
If during the Employment Period the Employee's employment shall be
terminated by the Company for Cause or by the Employee for other than Good
Reason, this Agreement shall terminate without further obligation on the part of
the Company to the Employee, other than the Company's obligation to pay the
Employee (a) his Annual Base Salary through the Date of Termination, (b) the
amount of any compensation previously deferred by the Employee, and (c) any
accrued vacation pay which would be payable under the Company's standard policy,
in each case to the extent theretofore unpaid.
8.3 EXPIRATION OF TERM
In the case of a termination of the Employee's employment as a result of
the expiration of the Term of this Agreement, this Agreement shall terminate
without further obligation on the part of the Company to the Employee, other
than the Company's obligation to pay the Employee the Accrued Obligations.
8.4 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY
If during the Employment Period the Employee's employment is terminated
by reason of the Employee's death or Total Disability, this Agreement shall
terminate automatically without further obligation on the part of the Company to
the Employee or his legal representatives under this Agreement, other than the
Company's obligation to pay the Employee the Accrued Obligations (which shall be
paid to the Employee's estate or beneficiary, as applicable in the case of the
Employee's death).
8.5 PAYMENT SCHEDULE
All payments of the Accrued Obligations and the Severance Obligation, or
any portion thereof payable pursuant to this Section 8, shall be made to the
Employee within thirty working days of the Date of Termination, except that
payments for COBRA premiums pursuant to Section 8.1(b) shall be made on a
monthly basis.
8.6 CAUSE
For purposes of this Agreement, "Cause" means cause given by the
Employee to the Company and shall be limited to the occurrence of one or more of
the following events:
(a) A clear refusal to carry out any material lawful duties of
the Employee or any directions of the Board, all reasonably consistent with the
duties
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<PAGE> 20
described in Section 3.2 hereof, provided the Employee has been given reasonable
notice and opportunity to correct any such failure;
(b) Violation by the Employee of a state or federal criminal law
involving the commission of a crime against the Company or any of its
subsidiaries;
(c) Deception, fraud, misrepresentation or dishonesty by the
Employee; any incident materially compromising the Employee's reputation or
ability to represent the Company with investors, customers or the public; or
(d) Any other material violation of any provision of this
Agreement by the Employee, subject to the notice and opportunity to cure
requirements of Section 10.
8.7 GOOD REASON
For purposes of this Agreement, "Good Reason" means
(a) The assignment to the Employee of any duties materially
inconsistent with the Employee's title, position, authority, duties or
responsibilities as contemplated by Section 3.2 hereof or any other action by
the Company which results in a material diminution in such title, position,
authority, duties or responsibilities;
(b) Any failure by the Company to comply with any of the
provisions of Section 5 or 6 hereof;
(c) The Company's requiring the Employee to be based at any
office or location other than that described in Section 3.3 hereof;
(d) Any failure by the Company to comply with and satisfy Section
12 hereof, provided that the Company's successor has received at least ten days'
prior written notice from the Company or the Employee of the requirements of
Section 12 hereof; or
(e) Any other material violation of any provision of this
Agreement by the Company.
8.8 EXCESS PARACHUTE LIMITATION
If either the Company or the Employee receives confirmation from the
Company's independent tax counsel or its certified public accounting firm, or
such other accounting firm retained as independent certified public accountants
for the Company (the "Tax Advisor"), that any payment by the Company to the
Employee
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<PAGE> 21
under this Agreement or otherwise would be considered to be an "excess parachute
payment" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended, or any successor statute then in effect (the "Code"), then the
aggregate payments by the Company pursuant to this Agreement shall be reduced to
the highest amount that may be paid to the Employee by the Company under this
Agreement without having any portion of any amount payable to the Employee by
the Company or a related entity under this Agreement or otherwise treated as
such an "excess parachute payment," and, if permitted by applicable law and
without adverse tax consequence, such reduction shall be made to the last
payment due hereunder. Any payments made by the Company to the Employee under
this Agreement which are later confirmed by the Tax Advisor to be "excess
parachute payments" shall be considered by all parties to have been a loan by
the Company to the Employee, which loan shall be repaid by the Employee upon
demand, together with interest calculated at the lowest interest rate authorized
for such loans under the Code, without a requirement that further interest be
imputed.
9. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS
In order to induce the Company to enter into this Agreement, the
Employee represents and warrants to the Company that neither the execution nor
the performance of this Agreement by the Employee will violate or conflict in
any way with any other agreement by which the Employee may be bound or with any
other duties imposed upon Employee by corporate or other statutory or common
law.
10. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than pursuant to the definition of Cause set forth in
Section 8.6 hereof, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least ten days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the ten-day period.
11. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall
specifically refer to this Agreement and shall be personally delivered or sent
by telecopy or other electronic facsimile transmission or by reputable overnight
courier, at the address set forth below or at such other address as may
hereafter be designated by notice given in
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<PAGE> 22
compliance with the terms hereof. Such notice shall be effective upon receipt or
upon refusal of the addressee to accept delivery.
If to Employee: Kevin B. Vitale
10809 - 178th Pl. NE
Redmond, WA 98052
If to Company: Wall Data Incorporated
11332 NE 122nd Way
Kirkland, WA 98034-6931
Attn: General Counsel
Phone: (425) 814-9255
Facsimile: (425) 814-4372
Copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: L. Michelle Wilson
Phone: (206) 583-8888
Facsimile: (206) 583-8500
12. ASSIGNMENT
This Agreement is personal to the Employee and shall not be assignable
by the Employee. The Company shall assign to and require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean Wall Data Incorporated
and any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise. All the
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns.
13. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or
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<PAGE> 23
circumstance. All rights and remedies shall be cumulative and not exclusive of
any other rights or remedies.
14. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by the Company
and the Employee, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Company and the Employee.
15. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
16. ARBITRATION
Any dispute arising under this Agreement shall be subject to
arbitration. The arbitration proceeding shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA Rules") then in effect, conducted by one arbitrator either mutually agreed
upon or selected in accordance with the AAA Rules, except that the parties
thereto shall have any right to discovery as would be permitted by the Federal
Rules of Civil Procedure for a period of 90 days following the commencement of
such arbitration and the arbitrator thereof shall resolve any dispute which
arises in connection with such discovery. The arbitration shall be conducted in
King County, Washington under the jurisdiction of the Seattle office of the
American Arbitration Association. The arbitrator shall have authority only to
interpret and apply the provisions of this Agreement and shall have no authority
to add to, subtract from, or otherwise modify the terms of this Agreement. Any
demand for arbitration must be made within 60 days of the event(s) giving rise
to the claim that this Agreement has been breached. The arbitrator's decision
shall be final and binding, and each party agrees to be bound by the
arbitrator's award subject, only to an appeal therefrom in accordance with the
laws of
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<PAGE> 24
the state of Washington. Either party may obtain judgment upon the arbitrator's
award in the Superior Court of King County, Washington.
17. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, then, to the full extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
18. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between the Company and the Employee with respect to the subject
matter hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between the Company and the Employee with respect
to such subject matter are hereby superseded and nullified in their entireties,
except that the Confidential Information, Inventions and Nonsolicitation
Agreement between the Employee and the Company, dated July 12, 1993, shall
continue in full force and effect and survive the termination of the Employee's
employment.
19. COUNTERPARTS
This Agreement may be executed in counterparts, each of which
counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument.
20. HEADINGS
All headings used herein are for convenience only and shall not in any
way affect the construction of, or be taken into consideration in interpreting,
this Agreement.
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<PAGE> 25
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement effective on the date first set forth above.
EMPLOYEE
/s/ Kevin B. Vitale
----------------------------------------
Kevin B. Vitale
WALL DATA INCORPORATED
By /s/ Robert J. Frankenberg
--------------------------------------
Robert J. Frankenberg
Chairman of the Board
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<PAGE> 26
APPENDIX A TO
CHANGE OF CONTROL AGREEMENT BETWEEN
WALL DATA INCORPORATED
AND KEVIN B. VITALE
For purposes of this Agreement, a "Change of Control" shall mean:
(a) A "Board Change" which, for purposes of this Agreement, shall have
occurred if a majority (excluding vacant seats) of the seats on the Company's
Board are occupied by individuals who were neither (i) nominated by a majority
of the Incumbent Directors nor (ii) appointed by directors so nominated. An
"Incumbent Director" is a member of the Board who has been either (i) nominated
by a majority of the directors of the Company then in office or (ii) appointed
by directors so nominated, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person (as hereinafter defined) other than the
Board; or
(b) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of (i) more than 50% of either (i) the then outstanding shares of
Common Stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change of Control: (x) any acquisition by the Company,
(y) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (z)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subsection (c) of this
Appendix A are satisfied; or
<PAGE> 27
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, immediately following such
reorganization, merger or consolidation, (i) more than 50% of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportion as
their ownership immediately prior to such reorganization, merger or
consolidation of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding the
Company, any employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or consolidation and any
Person beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 33% or more of the Outstanding Company
Common Stock or the Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 33% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors, and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such reorganization, merger
or consolidation were the Incumbent Directors at the time of the execution of
the initial agreement providing for such reorganization, merger or
consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all the assets of the Company, other than to a
corporation with respect to which immediately following such sale or other
disposition, (A) more than 50% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company, any employee benefit plan (or related trust) of the
Company
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<PAGE> 28
or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 33% or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 33%
or more of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board of directors
of such corporation were approved by a majority of the Incumbent Directors at
the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
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<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement"), dated as of January 21,
1999, between Wall Data Incorporated, a Washington corporation ("Employer"), and
Craig E. Shank ("Employee");
RECITALS
WHEREAS, Employer desires to continue to employ Employee upon the terms
and conditions set forth herein; and
WHEREAS, Employee is willing to provide services to Employer upon the
terms and conditions set forth herein;
AGREEMENT
NOW, THEREFORE, for and in consideration of the foregoing premises and
for other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, Employer and Employee hereby agree as follows:
1. EMPLOYMENT
Employer will employ Employee and Employee will accept employment by
Employer as its Vice President, General Counsel and Secretary. Employee will
have the authority, subject to Employer's Articles of Incorporation and Bylaws,
as may be granted from time to time by the Board of Directors of Employer.
Employee will perform the duties customarily performed by the Vice President,
General Counsel and Secretary of a corporation which is similar to Employer and
such other duties as may be assigned from time to time by the Board of Directors
of Employer, which relate to the business of Employer, its subsidiaries, its
parent corporation, or any business ventures in which Employer, its subsidiaries
or its parent corporation may participate.
2. ATTENTION AND EFFORT
Employee will devote all his productive time, ability, attention and
effort to the business and affairs of Employer and the discharge of the
responsibilities assigned to him hereunder, and will use his reasonable best
efforts to perform faithfully and efficiently such responsibilities. It shall
not be a violation of this Agreement for Employee to (a) serve on corporate,
civic or charitable boards or committees approved in advance by Employer's
President, (b) deliver lectures, fulfill speaking engagements or
<PAGE> 2
teach at educational institutions, (c) manage personal investments, so long as
such activities do not significantly interfere with the performance of
Employee's responsibilities in accordance with this Agreement and (d) other
activities approved in advance by Employer.
3. TERM
Unless otherwise terminated pursuant to Section 6 hereof, Employee's
term of employment under this Agreement shall expire on the second anniversary
of the date of this Agreement (the "Initial Term"). At the end of the Initial
Term and each subsequent Renewal Term (as hereinafter defined), the term of this
Agreement shall be automatically renewed and extended for a period of one year
(the "Renewal Term"), unless either party hereto delivers a written termination
notice to the other party at least 12 months prior to the end of the Initial
Term or the then-current Renewal Term (as the case may be).
4. COMPENSATION
During the term of this Agreement, Employer agrees to pay or cause to be
paid to Employee, and Employee agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
4.1. BASE SALARY
Employee's compensation shall consist, in part, of an annual base salary
of One Hundred Eighty-Five Thousand Dollars ($185,000), before all customary
payroll deductions. Such annual base salary shall be paid in substantially equal
installments and at the same intervals as other officers of Employer are paid.
The Board of Directors of Employer, or a committee thereof, shall determine any
increases in the annual base salary in future years.
4.2. BONUS
Employee may be entitled to receive, in addition to the annual base
salary described above, an annual bonus in an amount to be determined by the
Board of Directors of Employer, or a committee thereof, in its sole discretion
and consistent with bonus plans then in effect.
5. BENEFITS
During the term of this Agreement, Employee will be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in fringe benefit programs as shall be provided from time to time
by Employer.
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<PAGE> 3
6. TERMINATION
Employee's employment pursuant to this Agreement may be terminated as
follows:
6.1. BY EMPLOYER
With or without Cause (as defined below), Employer may terminate
Employee's employment at any time during the term of employment upon giving
Notice of Termination (as defined below).
6.2. BY EMPLOYEE
With or without Good Reason (as defined below), Employee may terminate
his employment at any time upon giving Notice of Termination.
6.3. AUTOMATIC TERMINATION
This Agreement and Employee's employment hereunder shall terminate
automatically upon the death or Total Disability of Employee. The term "Total
Disability" as used herein shall mean Employee's inability (with such
accommodation as may be required by law and which places no undue burden on
Employer), as determined by a physician selected by Employer and acceptable to
Employee, to perform the duties set forth in Section 1 hereof for a period or
periods aggregating 120 calendar days in any 12-month period as a result of
physical or mental illness, loss of legal capacity or any other cause beyond
Employee's control, unless Employee is granted a leave of absence by the Board
of Directors of Employer. Employee and Employer hereby acknowledge that the
duties specified in Section 1 hereof are essential to Employee's position and
that Employee's ability to perform those duties is the essence of this
Agreement.
6.4. NOTICE
The term "Notice of Termination" shall mean at least 30 days' written
notice of termination of Employee's employment, during which period Employee's
employment and performance of services will continue; provided, however, that
Employer may, upon notice to Employee and without reducing Employee's
compensation during such period, excuse Employee from any or all of his duties
during such period. The effective date of the termination of Employee's
employment hereunder shall be the date on which such 30-day period expires.
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<PAGE> 4
7. TERMINATION PAYMENTS
In the event of termination of Employee's employment, all compensation
and benefits set forth in this Agreement shall terminate, except as specifically
provided in this Section 7:
7.1. TERMINATION BY EMPLOYER
If Employer terminates Employee's employment without Cause prior to the
end of the term of this Agreement, Employee shall be entitled to receive (a)
severance payments equal to (i) one times Employee's annual base salary for the
year in which such termination occurred, plus (ii) a percentage of such annual
base salary equal to the percentage paid under Employer's Executive Incentive
Plan (or any successor plan) for the prior fiscal YEAR, (b) any unpaid annual
base salary which has accrued for services already performed as of the date
termination of Employee's employment becomes effective and any compensation
previously deferred by Employee (together with accrued interest or earnings
thereon, if any) and any accrued vacation pay which would be payable under
Employer's standard policy, in each case to the extent not theretofore paid, and
(c) for 18 months from the termination date, premiums for health insurance
benefit continuation for Employee and his family members, if applicable, which
Employer provides to Employee under the provisions of the federal Comprehensive
Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), to the extent
that Employer would have paid such premiums had Employee remained employed by
Employer. If employment is terminated by Employer for Cause, Employee shall not
be entitled to receive any of the foregoing benefits, other than those set forth
in clause (b) above.
7.2. TERMINATION BY EMPLOYEE
In the case of termination of Employee's employment for Good Reason,
Employee shall be entitled to receive those payments set forth in Sections
7.1(a), (b) and (c) hereof. In the case of the termination of Employee's
employment by Employee other than for Good Reason, Employee shall not be
entitled to any payments hereunder, other than those set forth in Section 7.1(b)
hereof.
7.3. DEATH AND TOTAL DISABILITY
In the case of a termination of Employee's employment as a result of the
Employee's death or Employee's Total Disability, Employee shall not be entitled
to receive any payments hereunder, other than those set forth in Section 7.1(b)
hereof.
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<PAGE> 5
7.4. TERMINATION IN CONNECTION WITH A CHANGE OF CONTROL
Employee and Employer shall enter into a Change of Control Agreement, in
the form attached hereto as Exhibit A. Notwithstanding Sections 7.1 and 7.2
hereof and in full substitution of all payments otherwise due thereunder, if a
Change of Control (as defined in such agreement) of Employer occurs, this
Agreement shall terminate and the relationship between Employee and Employer
shall be governed in all respects by the Change of Control Agreement.
7.5. PAYMENT SCHEDULE
All payments under this Section 7 shall be made to Employee within
thirty working days of the effective date of termination except that payments
for COBRA premiums pursuant to Section 7.1(c) shall be made on a monthly basis.
7.6. CAUSE
Wherever reference is made in this Agreement to termination being with
or without Cause, "Cause" is limited to the occurrence of one or more of the
following events:
(a) Failure or refusal to carry out the lawful duties of Employee
described in Section 1 hereof or any directions of the Board of
Directors of Employer, which directions are reasonably consistent with
the duties herein set forth to be performed by Employee;
(b) Violation by Employee of a state or federal criminal law
involving the commission of a crime against Employer or any of its
subsidiaries;
(c) Deception, fraud, misrepresentation or dishonesty by
Employee; any incident materially compromising Employee's reputation or
ability to represent Employer with the public; any act or omission by
Employee which substantially impairs Employer's business, good will or
reputation; or
(d) Any other material violation of any provision of this
Agreement.
7.7. GOOD REASON
Wherever reference is made in this Agreement to termination being with
or without Good Reason, "Good Reason" is limited to the occurrence of one or
more of the following events:
(a) the reduction in Employee's annual base salary as specified
in Section 4.1 hereof or the reduction in the value of bonus payments
that Employee
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<PAGE> 6
is eligible to receive under Section 4.2 hereof (provided, however, that
Good Reason shall not exist under this Section 7.7(a), in the event
Employee does not actually realize such values because of failure to
satisfy performance or other criteria applicable to such bonus payments
or equity awards);
(b) the material and substantial diminution or reduction without
his consent of Employee's title, authority, duties or responsibilities;
(c) Employer requiring Employee without his consent to be based
at any offices or locations outside of King County, Washington; or
(d) any breach by Employer of any other material provision of
this Agreement.
8. REPRESENTATIONS AND WARRANTIES
In order to induce Employer to enter into this Agreement, Employee
represents and warrants to Employer that neither the execution nor the
performance of this Agreement by Employee will violate or conflict in any way
with any other agreement by which Employee may be bound, or with any other
duties imposed upon Employee by corporate or other statutory or common law.
9. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than pursuant to the definition of Cause set forth in
Section 7.6 hereof, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least 20 days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the 20-day period.
10. CONFIDENTIALITY AGREEMENT
Employer and Employee agree that the Confidential Information,
Inventions and Nonsolicitation Agreement, dated March 31, 1998, between
Employer and Employee and attached hereto as Exhibit B shall remain in full
force and effect and survive the termination of Employee's employment.
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<PAGE> 7
11. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall
specifically refer to this Agreement and shall be personally delivered or sent
by telecopy or other electronic facsimile transmission or by reputable overnight
courier, at the address set forth below or at such other address as may
hereafter be designated by notice given in compliance with the terms hereof.
Such notice shall be effective upon receipt or upon refusal of the addressee to
accept delivery.
If to Employee: Craig E. Shank
7863 NE 10th St.
Medina, WA 98039
If to Employer: Wall Data Incorporated
11332 NE 122nd Way
Kirkland, WA 98034-6931
Attn: General Counsel
Phone: (425) 814-9255
Facsimile: (425) 814-4372
Copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: L. Michelle Wilson
Phone: (206) 583-8888
Facsimile: (206) 583-8500
12. ASSIGNMENT
This Agreement is personal to Employee and shall not be assignable by
Employee. Employer may assign its rights hereunder to (a) any corporation
resulting from any merger, consolidation, spin-off or other reorganization to
which Employer is a party or (b) any corporation, partnership, association or
other person to which Employer may transfer all or substantially all the assets
and business of Employer existing at such time. All the terms and provisions of
this Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns.
13. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver
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<PAGE> 8
by a party hereto of any right, title, interest or remedy in a particular
instance or circumstance shall not constitute a waiver thereof in any other
instance or circumstance. All rights and remedies shall be cumulative and not
exclusive of any other rights or remedies.
14. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by Employer
and Employee, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by Employer and Employee.
15. ARBITRATION
Any dispute arising under this Agreement shall be subject to
arbitration. The arbitration proceeding shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA Rules") then in effect, conducted by one arbitrator either mutually agreed
upon or selected in accordance with the AAA Rules, except that the parties
thereto shall have any right to discovery as would be permitted by the Federal
Rules of Civil Procedure for a period of 90 days following the commencement of
such arbitration and the arbitrator thereof shall resolve any dispute which
arises in connection with such discovery. The arbitration shall be conducted in
King County, Washington under the jurisdiction of the Seattle office of the
American Arbitration Association. The arbitrator shall have authority only to
interpret and apply the provisions of this Agreement and shall have no authority
to add to, subtract from, or otherwise modify the terms of this Agreement. Any
demand for arbitration must be made within 60 days of the event(s) giving rise
to the claim that this Agreement has been breached. The arbitrator's decision
shall be final and binding, and each party agrees to be bound by the
arbitrator's award subject, only to an appeal therefrom in accordance with the
laws of state of Washington. Either party may obtain judgment upon the
arbitrator's award in the Superior Court of King County, Washington.
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<PAGE> 9
16. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
17. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, then, to the full extent
permitted by law (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
18. HEADINGS
All headings used herein are for convenience only and shall not in any
way affect the construction of, or be taken into consideration in interpreting,
this Agreement.
19. COUNTERPARTS
This Agreement, and any amendment or modification entered into pursuant
to Section 14 hereof, may be executed in any number of counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
20. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between Employer and Employee with respect to the subject matter
hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between Employer and Employee with respect to such
subject matter are hereby superseded and nullified in their entireties.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement on the date set forth above.
EMPLOYEE:
/s/ Craig E. Shank
----------------------------------------
Craig E. Shank
EMPLOYER:
WALL DATA INCORPORATED
By /s/ Robert J. Frankenberg
--------------------------------------
Robert J. Frankenberg
Chairman of the Board
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<PAGE> 11
EXHIBIT A
CHANGE OF CONTROL AGREEMENT
<PAGE> 12
EXHIBIT B
CONFIDENTIAL INFORMATION, INVENTIONS AND NONSOLICITATION AGREEMENT
<PAGE> 13
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement"), dated as of January
21, 1999, is between WALL DATA INCORPORATED, a Washington corporation (the
"Company"), and CRAIG E. SHANK (the "Employee").
RECITAL
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to ensure that
the Company will have the continued dedication of the Employee, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined in
Section 1.1 hereof) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Employee arising from the personal
uncertainties and risks created by a pending or threatened Change of Control, to
encourage the Employee's full attention and dedication to the Company currently
and in the event of any threatened or pending Change of Control, and to provide
the Employee with reasonable compensation and benefit arrangements upon a Change
of Control.
AGREEMENT
In order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
1. DEFINITIONS
1.1 CHANGE OF CONTROL
"Change of Control" shall have the definition set forth in Appendix A to
this Agreement, which is hereby incorporated by reference.
1.2 CHANGE OF CONTROL DATE
"Change of Control Date" shall mean the first date on which a Change of
Control occurs.
1.3 EMPLOYMENT PERIOD
"Employment Period" shall mean the two-year period commencing on the
Change of Control Date and ending on the second anniversary of such date.
<PAGE> 14
2. TERM
The term of this Agreement ("Term") shall be for the Initial Term and
any Renewal Term, as such terms are defined in the Employment Agreement, dated
the date hereof, between the Company and the Employee; provided, however, that
if a Change of Control occurs during the Term, the Term shall automatically
extend for the duration of the Employment Period.
3. EMPLOYMENT
3.1 EMPLOYMENT PERIOD
During the Employment Period, the Company hereby agrees to continue the
Employee in its employ or in the employ of its affiliated companies, and the
Employee hereby agrees to remain in the employ of the Company or its affiliated
companies, in accordance with the terms and provisions of this Agreement;
provided, however, that either the Company or the Employee may terminate the
employment relationship subject to the terms of this Agreement.
3.2 POSITION AND DUTIES
During the Employment Period, the Employee's title, position, authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 90-day period immediately preceding the Change of Control Date.
3.3 LOCATION
During the Employment Period, the Employee's services shall be performed
at the Company's headquarters on the Change of Control Date or any office which
is subsequently designated as the headquarters of the Company and is located in
King County, Washington.
3.4 TERMINATION PRIOR TO CHANGE OF CONTROL
If prior to the Change of Control Date, the Employee's employment with
the Company or its affiliated companies terminates for any reason, then the
Employee shall have no further rights under this Agreement; provided, however,
that the Company may not avoid liability for any termination payments which
would have been required during the Employment Period pursuant to Section 8
hereof by terminating the Employee prior to the Employment Period where such
termination is carried out in anticipation of a Change of Control and the
principal motivating purpose is to avoid liability for such termination
payments.
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<PAGE> 15
4. ATTENTION AND EFFORT
During the Employment Period, and excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee will devote all his
productive time, ability, attention and effort to the business and affairs of
the Company and the discharge of the responsibilities assigned to him hereunder,
and he will use his reasonable best efforts to perform faithfully and
efficiently such responsibilities. It shall not be a violation of this Agreement
for the Employee to (a) serve on corporate, civic or charitable boards or
committees approved in advance by the Company's President, (b) deliver lectures,
fulfill speaking engagements or teach at educational institutions, (c) manage
personal investments, so long as such activities do not significantly interfere
with the performance of the Employee's responsibilities in accordance with this
Agreement and (d) other activities approved in advance by the Company. It is
expressly understood and agreed that to the extent any such activities have been
conducted by the Employee prior to the Employment Period, the continued conduct
of such activities (or the conduct of activities similar in nature and scope
thereto) during the Employment Period shall not thereafter be deemed to
interfere with the performance of the Employee's responsibilities to the
Company.
5. COMPENSATION
As long as the Employee remains employed by the Company during the
Employment Period, the Company agrees to pay or cause to be paid to the
Employee, and the Employee agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
5.1 SALARY
The Employee shall receive an annual base salary (the "Annual Base
Salary") at least equal to the annual salary established by the Board or a
committee of the Board (the "Compensation Committee") for the fiscal year in
which the Change of Control Date occurs. The Annual Base Salary shall be paid in
substantially equal installments and at the same intervals as the salaries of
other employees of the Company are paid. The Board or the Compensation Committee
shall review the Annual Base Salary at least annually and shall determine in
good faith and consistent with any generally applicable Company policy any
increases for future years.
5.2 BONUS
In addition to Annual Base Salary, the Employee shall be awarded, for
each fiscal year ending during the Employment Period, an annual bonus (the
"Annual Bonus") in cash at least equal to the average annualized (for any fiscal
year consisting
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<PAGE> 16
of less than 12 full months) bonus paid or payable, including by reason of any
deferral, to the Employee by the Company and its affiliated companies in respect
of the three fiscal years immediately preceding the fiscal year in which the
Change of Control Date occurs. Each such Annual Bonus shall be paid no later
than 90 days after the end of the fiscal year for which the Annual Bonus is
awarded, unless the Employee shall elect to defer the receipt of such Annual
Bonus.
6. BENEFITS
6.1 INCENTIVE, RETIREMENT AND WELFARE BENEFIT PLANS; VACATION
During the Employment Period, the Employee shall be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in such fringe benefit programs as shall be generally made
available to other employees of the Company and its affiliated companies from
time to time during the Employment Period by action of the Board (or any person
or committee appointed by the Board to determine fringe benefit programs and
other emoluments), including, without limitation, paid vacations; any stock
purchase, savings or retirement plan, practice, policy or program; and all
welfare benefit plans, practices, policies or programs (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
or programs).
6.2 EXPENSES
During the Employment Period, the Employee shall be entitled to receive
prompt reimbursement for all reasonable employment expenses incurred by him in
accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the employees of the Company and its
affiliated companies during the Employment Period.
7. TERMINATION
During the Employment Period, employment of the Employee may be
terminated as follows:
7.1 BY THE COMPANY OR THE EMPLOYEE
At any time during the Employment Period, the Company may terminate the
employment of the Employee with or without Cause (as defined below), and the
Employee may terminate his employment for Good Reason (as defined below) or for
any reason, upon giving Notice of Termination (as defined below).
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<PAGE> 17
7.2 AUTOMATIC TERMINATION
This Agreement and the Employee's employment during the Employment
Period shall terminate automatically upon the death or Total Disability of the
Employee. The term "Total Disability" as used herein shall mean the Employee's
inability (with such accommodation as may be required by law and which places no
undue burden on the Company), as determined by a physician selected by the
Company and acceptable to the Employee, to perform the duties set forth in
Section 3.2 hereof for a period or periods aggregating 120 calendar days in any
12-month period as a result of physical or mental illness, loss of legal
capacity or any other cause beyond the Employee's control, unless the Employee
is granted a leave of absence by the Board. The Employee and the Company hereby
acknowledge that the duties specified in Section 3.2 hereof are essential to the
Employee's position and that Employee's ability to perform those duties is the
essence of this Agreement.
7.3 NOTICE OF TERMINATION
Any termination by the Company or by the Employee during the Employment
Period shall be communicated by Notice of Termination to the other party given
in accordance with Section 11 hereof. The term "Notice of Termination" shall
mean a written notice which (a) indicates the specific termination provision in
this Agreement relied upon and (b) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated. The
failure by the Employee or the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Employee or the Company hereunder or preclude
the Employee or the Company from asserting such fact or circumstance in
enforcing the Employee's or the Company's rights hereunder.
7.4 DATE OF TERMINATION
During the Employment Period, "Date of Termination" means (a) if the
Employee's employment is terminated by reason of death, at the end of the
calendar month in which the Employee's death occurs, (b) if the Employee's
employment is terminated by reason of Total Disability, immediately upon a
determination by the Company of the Employee's Total Disability, and (c) in all
other cases, five days after the effective date of notice pursuant to Section 11
hereof. The Employee's employment and performance of services will continue
during such five-day period; provided, however, that the Company may, upon
notice to the Employee and without
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<PAGE> 18
reducing the Employee's compensation during such period, excuse the Employee
from any or all of his duties during such period.
8. TERMINATION PAYMENTS
In the event of termination of the Employee's employment during the
Employment Period, all compensation and benefits set forth in this Agreement
shall terminate, except as specifically provided in this Section 8.
8.1 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE
EMPLOYEE FOR GOOD REASON
If during the Employment Period the Company terminates the Employee's
employment other than for Cause or the Employee terminates his employment for
Good Reason, the Employee shall be entitled to:
(a) receive payment of the following accrued obligations (the
"Accrued Obligations"):
(i) the Employee's Annual Base Salary through the Date of
Termination to the extent not theretofore paid; and
(ii) any compensation previously deferred by the Employee
(together with accrued interest or earnings thereon, if any) and any
accrued vacation pay which would be payable under the Company's standard
policy, in each case to the extent not theretofore paid;
(b) for 18 months after the Date of Termination, Employee's
premiums for health insurance benefit continuation for Employee and his family
members, if applicable, which the Company provides to the Employee under the
provisions of the federal Comprehensive Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), to the extent that the Company would have paid such
premiums had the Employee remained employed by the Company; and
(c) an amount as severance pay equal to one and one-half times
the Annual Base Salary for the fiscal year in which the Date of Termination
occurs, plus a percentage of such Annual Base Salary equal to the percentage
paid under the Company's Executive Incentive Plan (or any successor plan) for
the prior fiscal year (the "Severance Obligation").
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<PAGE> 19
8.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON
If during the Employment Period the Employee's employment shall be
terminated by the Company for Cause or by the Employee for other than Good
Reason, this Agreement shall terminate without further obligation on the part of
the Company to the Employee, other than the Company's obligation to pay the
Employee (a) his Annual Base Salary through the Date of Termination, (b) the
amount of any compensation previously deferred by the Employee, and (c) any
accrued vacation pay which would be payable under the Company's standard policy,
in each case to the extent theretofore unpaid.
8.3 EXPIRATION OF TERM
In the case of a termination of the Employee's employment as a result of
the expiration of the Term of this Agreement, this Agreement shall terminate
without further obligation on the part of the Company to the Employee, other
than the Company's obligation to pay the Employee the Accrued Obligations.
8.4 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY
If during the Employment Period the Employee's employment is terminated
by reason of the Employee's death or Total Disability, this Agreement shall
terminate automatically without further obligation on the part of the Company to
the Employee or his legal representatives under this Agreement, other than the
Company's obligation to pay the Employee the Accrued Obligations (which shall be
paid to the Employee's estate or beneficiary, as applicable in the case of the
Employee's death).
8.5 PAYMENT SCHEDULE
All payments of the Accrued Obligations and the Severance Obligation, or
any portion thereof payable pursuant to this Section 8, shall be made to the
Employee within thirty working days of the Date of Termination, except that
payments for COBRA premiums pursuant to Section 8.1(b) shall be made on a
monthly basis.
8.6 CAUSE
For purposes of this Agreement, "Cause" means cause given by the
Employee to the Company and shall be limited to the occurrence of one or more of
the following events:
(a) A clear refusal to carry out any material lawful duties of
the Employee or any directions of the Board, all reasonably consistent with the
duties
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<PAGE> 20
described in Section 3.2 hereof, provided the Employee has been given reasonable
notice and opportunity to correct any such failure;
(b) Violation by the Employee of a state or federal criminal law
involving the commission of a crime against the Company or any of its
subsidiaries;
(c) Deception, fraud, misrepresentation or dishonesty by the
Employee; any incident materially compromising the Employee's reputation or
ability to represent the Company with investors, customers or the public; or
(d) Any other material violation of any provision of this
Agreement by the Employee, subject to the notice and opportunity to cure
requirements of Section 10.
8.7 GOOD REASON
For purposes of this Agreement, "Good Reason" means
(a) The assignment to the Employee of any duties materially
inconsistent with the Employee's title, position, authority, duties or
responsibilities as contemplated by Section 3.2 hereof or any other action by
the Company which results in a material diminution in such title, position,
authority, duties or responsibilities;
(b) Any failure by the Company to comply with any of the
provisions of Section 5 or 6 hereof;
(c) The Company's requiring the Employee to be based at any
office or location other than that described in Section 3.3 hereof;
(d) Any failure by the Company to comply with and satisfy Section
12 hereof, provided that the Company's successor has received at least ten days'
prior written notice from the Company or the Employee of the requirements of
Section 12 hereof; or
(e) Any other material violation of any provision of this
Agreement by the Company.
8.8 EXCESS PARACHUTE LIMITATION
If either the Company or the Employee receives confirmation from the
Company's independent tax counsel or its certified public accounting firm, or
such other accounting firm retained as independent certified public accountants
for the Company (the "Tax Advisor"), that any payment by the Company to the
Employee
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<PAGE> 21
under this Agreement or otherwise would be considered to be an "excess parachute
payment" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended, or any successor statute then in effect (the "Code"), then the
aggregate payments by the Company pursuant to this Agreement shall be reduced to
the highest amount that may be paid to the Employee by the Company under this
Agreement without having any portion of any amount payable to the Employee by
the Company or a related entity under this Agreement or otherwise treated as
such an "excess parachute payment," and, if permitted by applicable law and
without adverse tax consequence, such reduction shall be made to the last
payment due hereunder. Any payments made by the Company to the Employee under
this Agreement which are later confirmed by the Tax Advisor to be "excess
parachute payments" shall be considered by all parties to have been a loan by
the Company to the Employee, which loan shall be repaid by the Employee upon
demand, together with interest calculated at the lowest interest rate authorized
for such loans under the Code, without a requirement that further interest be
imputed.
9. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS
In order to induce the Company to enter into this Agreement, the
Employee represents and warrants to the Company that neither the execution nor
the performance of this Agreement by the Employee will violate or conflict in
any way with any other agreement by which the Employee may be bound or with any
other duties imposed upon Employee by corporate or other statutory or common
law.
10. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than pursuant to the definition of Cause set forth in
Section 8.6 hereof, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least ten days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the ten-day period.
11. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall
specifically refer to this Agreement and shall be personally delivered or sent
by telecopy or other electronic facsimile transmission or by reputable overnight
courier, at the address set forth below or at such other address as may
hereafter be designated by notice given in
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<PAGE> 22
compliance with the terms hereof. Such notice shall be effective upon receipt or
upon refusal of the addressee to accept delivery.
If to Employee: Craig E. Shank
7863 NE 10th St.
Medina, WA 98039
If to Company: Wall Data Incorporated
11332 NE 122nd Way
Kirkland, WA 98034-6931
Attn: General Counsel
Phone: (425) 814-9255
Facsimile: (425) 814-4372
Copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: L. Michelle Wilson
Phone: (206) 583-8888
Facsimile: (206) 583-8500
12. ASSIGNMENT
This Agreement is personal to the Employee and shall not be assignable
by the Employee. The Company shall assign to and require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean Wall Data Incorporated
and any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise. All the
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns.
13. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or
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<PAGE> 23
circumstance. All rights and remedies shall be cumulative and not exclusive of
any other rights or remedies.
14. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by the Company
and the Employee, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Company and the Employee.
15. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
16. ARBITRATION
Any dispute arising under this Agreement shall be subject to
arbitration. The arbitration proceeding shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA Rules") then in effect, conducted by one arbitrator either mutually agreed
upon or selected in accordance with the AAA Rules, except that the parties
thereto shall have any right to discovery as would be permitted by the Federal
Rules of Civil Procedure for a period of 90 days following the commencement of
such arbitration and the arbitrator thereof shall resolve any dispute which
arises in connection with such discovery. The arbitration shall be conducted in
King County, Washington under the jurisdiction of the Seattle office of the
American Arbitration Association. The arbitrator shall have authority only to
interpret and apply the provisions of this Agreement and shall have no authority
to add to, subtract from, or otherwise modify the terms of this Agreement. Any
demand for arbitration must be made within 60 days of the event(s) giving rise
to the claim that this Agreement has been breached. The arbitrator's decision
shall be final and binding, and each party agrees to be bound by the
arbitrator's award subject, only to an appeal therefrom in accordance with the
laws of
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<PAGE> 24
the state of Washington. Either party may obtain judgment upon the arbitrator's
award in the Superior Court of King County, Washington.
17. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, then, to the full extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
18. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between the Company and the Employee with respect to the subject
matter hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between the Company and the Employee with respect
to such subject matter are hereby superseded and nullified in their entireties,
except that the Confidential Information, Inventions and Nonsolicitation
Agreement between the Employee and the Company, dated March 31, 1998, shall
continue in full force and effect and survive the termination of the Employee's
employment.
19. COUNTERPARTS
This Agreement may be executed in counterparts, each of which
counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument.
20. HEADINGS
All headings used herein are for convenience only and shall not in any
way affect the construction of, or be taken into consideration in interpreting,
this Agreement.
-12-
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement effective on the date first set forth above.
EMPLOYEE:
/s/ Craig E. Shank
----------------------------------------
Craig E. Shank
EMPLOYER:
WALL DATA INCORPORATED
By /s/ Robert J. Frankenberg
--------------------------------------
Robert J. Frankenberg
Chairman of the Board
-13-
<PAGE> 26
APPENDIX A TO
CHANGE OF CONTROL AGREEMENT BETWEEN
WALL DATA INCORPORATED
AND CRAIG E. SHANK
For purposes of this Agreement, a "Change of Control" shall mean:
(a) A "Board Change" which, for purposes of this Agreement, shall have
occurred if a majority (excluding vacant seats) of the seats on the Company's
Board are occupied by individuals who were neither (i) nominated by a majority
of the Incumbent Directors nor (ii) appointed by directors so nominated. An
"Incumbent Director" is a member of the Board who has been either (i) nominated
by a majority of the directors of the Company then in office or (ii) appointed
by directors so nominated, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person (as hereinafter defined) other than the
Board; or
(b) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of (i) more than 50% of either (i) the then outstanding shares of
Common Stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that the following acquisitions
shall not constitute a Change of Control: (x) any acquisition by the Company,
(y) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (z)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subsection (c) of this
Appendix A are satisfied; or
<PAGE> 27
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, immediately following such
reorganization, merger or consolidation, (i) more than 50% of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportion as
their ownership immediately prior to such reorganization, merger or
consolidation of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding the
Company, any employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or consolidation and any
Person beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 33% or more of the Outstanding Company
Common Stock or the Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 33% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors, and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such reorganization, merger
or consolidation were the Incumbent Directors at the time of the execution of
the initial agreement providing for such reorganization, merger or
consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all the assets of the Company, other than to a
corporation with respect to which immediately following such sale or other
disposition, (A) more than 50% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company, any employee benefit plan (or related trust) of the
Company
-2-
<PAGE> 28
or such corporation and any Person beneficially owning, immediately prior to
such sale or other disposition, directly or indirectly, 33% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 33% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were approved by a majority of the Incumbent Directors at the time of the
execution of the initial agreement or action of the Board providing for such
sale or other disposition of assets of the Company.
-3-
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