SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission File Number: 0-22044
WONDERWARE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-03046777
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
100 Technology Drive Irvine, CA 92618 714) 727-3200
(Address of principal executive offices, (Registrant's telephone number,
including Zip code) including area code)
None Common Stock, $.001 par value
(Securities registered pursuant (Securities registered pursuant
to Section 12(b) of the Act) to Section 12(g) of the Act)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 28, 1997 was $131,029,000, based on the last sales
price on that date as reported on the NASDAQ National Market System.*
As of February 28, 1997, there were 14,013,438 shares of the Registrant's Common
Stock outstanding.
Documents Incorporated by Reference
(to the extent indicated herein)
Proxy Statement for Annual Meeting of Stockholders
to be held May 12, 1997 Part III
* Excludes 60,795 shares of Common Stock held by directors and officers and
stockholders whose beneficial ownership exceeds ten percent of the shares
outstanding at February 28, 1997. Exclusion of shares held by any person
should not be construed to indicate that such person possesses the power,
direct or indirect, to direct or cause the direction of the management or
policies of the Registrant, or that such person is controlled by or under
common control with the Registrant.
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This Annual Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties. The actual future results of Wonderware
Corporation ("Wonderware" or the "Company") could differ materially from those
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those factors discussed in Item 1, "Business - Risk
Factors," Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this Report.
PART I
Item 1. Business
Wonderware supplies Microsoft Windows-based software products for the
industrial automation market. The Company's object-oriented software development
tools enable customers to rapidly develop personal computer applications that
provide dynamic, graphical representations of physical processes in a factory.
These applications gather and display information about an automated
manufacturing process and can interact with and control that process. Wonderware
has offered industrial automation software development tools since 1989 that
feature ease-of-use and an intuitive operator interface typical of Windows
applications. The Company's products enable customers to reduce operating costs
and improve product quality by providing access to real-time information
throughout a manufacturing enterprise.
The Company has shipped its Wonderware InTouch products to a wide range
of industries, including chemical, oil and gas, food, public utility,
pharmaceutical, pulp and paper, automobile, aerospace, electronics,
telecommunications, water treatment, transportation and numerous other
industries. End user customers include Anheuser Busch, AT&T, Boeing, Coca-Cola,
Ford, Lockheed, Mercedes Benz, Nestle, Philip Morris, Procter & Gamble, Shell
Oil, Texaco and Weyerhaeuser.
Wonderware was formed as a partnership in April 1987 and was
incorporated in California in June 1988 as Wonderware Software Development
Corporation. The Company reincorporated in Delaware in July 1993.
Background
In the 1960s, electronic equipment and computers were generally
believed to be unsuitable for the manufacturing environment, primarily because
of their insufficient reliability for mission-critical production management and
control tasks. Pneumatic controls and electromechanical devices were the
preferred methods for controlling production equipment. However, as improvements
were made in the capability and reliability of analog and digital electronics,
production control tasks were increasingly assumed by controllers employing
integrated circuits and early microprocessors. In the 1970s, the programmable
logic controller (PLC) was introduced. PLCs were thought of as "hard hat"
computers, designed to function in the hostile environment of the factory floor
and to be programmed by electricians. PLCs found early acceptance in "discrete"
manufacturing segments, such as the automotive industry. In parallel with this
trend, distributed control systems (DCSs) evolved to provide computerized
control capabilities for "continuous" processes such as oil refining and
chemical production. Both PLCs and DCSs were based on proprietary hardware and
software technology. Today, these and other computer-based control systems are
widely used throughout both the discrete and continuous process manufacturing
industries.
Initially, the operator interface for PLCs was provided by dedicated
panels of buttons, lights and indicators known as operator interface panels. For
DCSs, this interface capability was typically provided by special purpose
devices or proprietary graphics consoles supplied by the DCS vendor. Because of
their proprietary, closed architectures and primitive operator interfaces, these
approaches were generally expensive, inflexible, difficult to program, limited
in capability and unable to communicate easily with other systems.
On the plant management side of manufacturing, computers began to
replace the manual recording of production data and other hand written reports
in the 1960s. In the 1970s, vendors of mainframe and minicomputers identified
manufacturing industries as potentially significant markets for their hardware
and software products. These companies developed applications, such as materials
resource planning, cost accounting, inventory control and production scheduling,
that offered improved functionality but were closed and tedious to program,
cumbersome to use
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and difficult to integrate with other systems. Also, these applications did not
address the problem of tracking and allocating factory resources, such as
materials, equipment and labor, nor did they address the tracking of work in
process inventory.
As PLCs, DCSs and computer systems became increasingly prevalent in the
manufacturing environment throughout the 1980s, several serious problems became
apparent. Most of these systems were proprietary and built on platforms that
lacked the ability to communicate outside their own environment. For example,
PLCs, while greatly improving control of individual processes, created multiple
"islands of information" that were generally unable to communicate or share data
with other systems throughout the manufacturing enterprise. Software for a
manufacturing operation typically had to be developed or customized to satisfy
the unique requirements for that operation. In addition, mastery of multiple
proprietary programming languages was required to modify and maintain
applications once developed. As a result, high initial cost and high cost of
ownership have characterized the application of computer hardware and software
to each facet of the manufacturing enterprise.
Manufacturers have also become aware of the importance of accurate and
timely data capture on the factory floor and the value of the data for decision
making throughout the manufacturing enterprise. Manufacturers increasingly need
cost-effective mechanisms to connect the "islands of information" that have
characterized manufacturing automation throughout the 1980s and early 1990s.
With the advent of low-cost, high-performance, standard personal computers and
open operating environments, such as Microsoft Windows, the economics of the
mass market can now be brought to the factory floor to solve the problems
inherent in the traditional automation solutions.
Personal computers have become the platform of choice for man-machine
interface and other manufacturing automation functions, including PLC and DCS
capabilities. However, low-cost, standard platforms alone do not address the
problem of delivering cost-effective solutions to complex industrial process and
control problems. Manufacturers are increasingly seeking software products that
allow the rapid development and deployment of automation systems built on
standard hardware, operating system and networking platforms.
Strategy
The Company's overall business strategy is to offer manufacturing
enterprises innovative, easy-to-use and open software solutions that exploit
advances in hardware, software and communications technologies. The key elements
of this strategy are as follows:
Offer easy-to-use tools for developing industrial automation applications.
Since 1989, Wonderware has offered intuitive, object-oriented,
graphical software tools for the industrial automation market. The Company
believes that the substantial improvements in application development
productivity resulting from the use of the Company's products will lead to
increased acceptance of its products.
Focus on Microsoft Windows.
Recognizing the strategic importance of Microsoft Windows, in 1987
Wonderware chose Windows as the primary operating platform for its products. The
Company believes that the subsequent proliferation of Windows in the
manufacturing environment has fueled the Company's recent growth and has
favorably positioned Wonderware as Windows continues to penetrate the industrial
automation market. Its early commitment to and focus on Windows has enabled the
Company to develop a high degree of expertise in developing Windows
applications. For example, recognizing a need for easy communications among
Windows applications on networks, Wonderware developed its NetDDE connectivity
products. This technology has been licensed to Microsoft for inclusion in
Windows, Windows NT and Windows 95. The Company believes that Microsoft's
licensing of NetDDE has enhanced the Company's reputation among end-users and
has established NetDDE as a de facto standard for dynamic data exchange over
networks.
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Exploit emerging client/server technologies.
The acceptance of the client/server architecture in the industrial
automation market creates additional opportunities for the Company. Wonderware
believes that the growing acceptance of Microsoft Windows NT will accelerate the
migration in the industrial automation market from systems based on proprietary
architectures to open client/server architectures based on personal computers
and standard networking technologies. The Company also believes that Windows NT
offers personal computer users operating system functionality comparable to
mini- or mainframe computers with the ease-of-use and economics typical of the
desktop marketplace. Wonderware intends to capitalize on this transition to
client/server architectures and its leadership position in the Windows
environment to expand into additional segments of the industrial automation
market. Through a series of acquisitions during 1995, Wonderware acquired the
rights to an object-oriented, client/server application software product for the
manufacturing execution systems market, an object-oriented, client/server batch
processing software product, and a client/server-based, real-time data historian
software product that enhances the performance of Microsoft's SQL Server
database software to meet the real-time data demands of manufacturing processes.
Provide enterprise-oriented solutions.
The Company believes that its commitment to an open architecture
provides its customers with the flexibility to integrate the Company's products
into enterprise-wide information systems. To this end, the Company continually
evaluates new technologies for inclusion in its products. Since Microsoft
platforms continue to dominate the Company's market and Microsoft technologies
have become de facto industry standards, special attention is directed to these
technologies. Current product offerings by the Company exploit technologies such
as the Open Data Base Connectivity (ODBC) standard, Object Linking &
Embedding/Common Object Model (OLE/COM) technology and the Dynamic Data Exchange
(DDE) protocol. As an example, the Wonderware InTrack product uses both ODBC and
OLE Automation to perform production tracking functions with popular relational
data base management systems (RDBMS) such as Microsoft SQL Server and Oracle 7.
The company continues to build upon the Microsoft technologies. The new
Wonderware IndustrialSQL Server product adds extensions to Microsoft SQL Server
to make it acceptable for industrial applications where high speed and large
volumes of information are required.
Maintain high levels of customer satisfaction.
Wonderware generally sells its products through distributors to large
manufacturing organizations, each of which has the potential to purchase
significant quantities of the Company's products over time. As a result, repeat
business is a very important factor in the Company's growth. Wonderware's goal
is to achieve extremely high levels of customer satisfaction, and therefore
repeat business, by delivering high quality products and support at competitive
prices. In addition, the Company strives to maintain application compatibility
from its entry-level to its high-end products and from one release of a product
to the next as it continually improves the capabilities and performance of those
products. The Company believes that the scalability and compatibility provided
by Wonderware products have not traditionally been available in the industrial
automation market.
Leverage worldwide network of distributors.
The Company sells its products worldwide through a network of more than
135 technically skilled, independent distributor offices specializing in sales
of industrial automation products. Many of these distributors represent other
lines of products, some of which are competitive with the Company's products,
and the Company's distributors are not obligated to purchase products from the
Company. However, the Company's products contribute a substantial portion of
revenues for a number of these distributors. The Company believes that because
these distributors are highly focused on sales of its products, this sales
channel represents a significant competitive advantage for the Company. During
1996 this channel was upgraded to provide sales and support for client/server
application tools. The Company believes that it has the only distribution
channel in the industrial automation market with this high level of capability.
In December 1996, the Company completed the acquisition of all of the
shares of ICT-Wonderware Gmbh which it did not already own. ICT-Wonderware Gmbh
is the distributor of the Company's products in Germany (see
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Note 12 of Notes to Consoldiated Financial Statements). This transaction may
serve as a model for future investments in other distributors.
As of December 31, 1996, the Company had a 212 person sales, marketing
and technical support organization that, among other responsibilities,
supplements the selling efforts of the Company's distributors by targeting large
end-user customers, system integrators and OEMs. Furthermore, the Company is
pursuing additional OEM agreements to broaden the distribution of its products
to new market segments. The Company believes that for certain types of end-users
and markets, this complementary sales effort enhances the Company's market
penetration. In 1996 the Company invested in this organization to provide
support for client/server products.
Products
Wonderware supplies easy-to-use application development tools and
connectivity products, rather than finished applications. The Company's products
incorporate object-oriented, graphical user interface concepts, support popular
communication standards, and run on low-cost, high-performance personal computer
hardware. Each new release of a Wonderware product is typically designed to
offer users application compatibility with all prior releases, providing
continuity as the capabilities and performance of the product are improved. In
addition, the Company's product families are scalable from entry-level through
high-end products, permitting end-users to upgrade easily as their requirements
increase.
Wonderware InTouch
Wonderware InTouch is a man-machine interface application generator.
Applications developed using Wonderware InTouch allow personal computers to act
as "dashboards" that are used by operators to monitor and manage
computer-controlled processes. With Wonderware InTouch, a developer uses an
object-oriented graphics editor to create an animated, graphical representation
of a manufacturing process. Changes in data values cause immediate changes in
the appearance of the graphics images. The size, color, location, orientation,
or other attributes of objects, such as tanks, gauges or pumps, may change in
response to changes in the data values acquired via DDE. Objects can also act as
"buttons" or "sliders" that cause data values to change when the objects are
pressed or moved with a mouse or touchscreen. Wonderware InTouch also includes
features such as distributed trending, alarming and security:
Real-time and historical trending. Trend objects graphically
display historical data. Each graph can track up to four parameters
with variable size, shape, background and color. Numerous trend
displays may be configured on a single Wonderware InTouch screen.
Historical data may be logged to disk or printed.
Alarms. Wonderware InTouch provides for up to 999 levels of
alarm priority which may be configured by the end-users. Alarm
conditions and alarm summaries are displayed as alarm objects on the
screen. These alarm objects can be grouped in alarm hierarchies and
include color changes for various alarm states. Alarm points may also
be logged to a disk file or printed.
Security. Wonderware InTouch provides built-in application
security. Up to 9,999 access levels may be assigned to restrict
access.
Wonderware also offers add-in modules that complement Wonderware
InTouch:
SPC module. The statistical process control (SPC) add-in
module enables Wonderware InTouch to provide statistical process
control functionality at both the plant operation and plant management
levels. The module allows the Wonderware InTouch application to compare
actual process performance against statistical standards to maintain
the desired quality of the end product. The module collects and
analyzes SPC data, which can then be displayed using any of several
standard SPC charts. The module's alarm feature alerts the operator if
a process exceeds statistically normal bounds. The module also includes
reporting and historical review features which enhance its value in an
enterprise's total quality management program.
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SQL Access module. The structured query language (SQL) add-in
module enables Wonderware InTouch to create and modify tables in any
ODBC-compliant relational database, including Oracle, Sybase,
Microsoft's SQL Server and Microsoft Access. The module allows the
Wonderware InTouch application to down-load data from an SQL data
source to the application or to up-load run-time, alarm status or
historical trend data from Wonderware InTouch to the SQL database.
Recipe module. The Recipe add-in module for Wonderware InTouch
makes it easy to set up, modify and download recipes of process
variables from within the Wonderware InTouch application. The module's
recipe manager program allows the user to easily create recipe files
specifying ingredients, quantities and other variables. The recipe
files can then be accessed from Wonderware InTouch via recipe function
calls.
InSupport. The InSupport module is a complete support solution
that integrates expert diagnostics, on-line documentation and training
in an easy-to-use package. InSupport utilizes advanced expert system
technology and the latest in multimedia capabilities in a system that
not only quickly identifies problems but also interactively
demonstrates solutions using video, text, schematics and sound.
Technicians can quickly pinpoint problems and apply user-proven
solutions on a 24-hour a day basis, all via Windows-based,
point-and-click interaction. InSupport integrates with Wonderware
InTouch to provide an ideal response mechanism to system alarms
generated within a Wonderware InTouch application.
The IDEA (InTouch Database External Access) software development kit
allows users to adapt their existing software modules or develop new modules to
manipulate data in the Wonderware InTouch runtime database. In a DOS program,
users can work in C, FORTRAN, Turbo Pascal or QuickBASIC. In a Microsoft Windows
program, users can work in C, Visual Basic or Turbo Pascal.
I/O servers
I/O servers are input/output drivers that provide seamless data sharing
among Wonderware InTouch, other Windows-based programs (e.g., spreadsheets and
word processing programs), and more than 250 PLCs, DCSs and other control
devices used in process automation. These devices can then be configured as
servers in a client/server architecture. The need to support a broad range of
controllers in the industrial automation market has been a significant barrier
to entry to providers of general purpose application development tools. The
Company believes that its ability to develop, acquire and support such a broad
range of controllers is a significant competitive advantage.
I/O server toolkit
The Wonderware I/O server toolkit is a software development kit that
enables programmers to quickly and easily develop their own I/O servers to
connect Wonderware InTouch with custom equipment or communications protocols not
served by the Company's line of I/O servers. The toolkit, which is the same
toolkit Wonderware uses to develop all of the Company's I/O servers for
Wonderware InTouch, consists of a set of libraries, utilities and source code
examples.
NetDDE
NetDDE is a family of network connectivity products that extends
data-sharing capabilities over networks of computers and workstations and can
support protocols such as NetBIOS, DECnet, TCP/IP, IPX and serial links, and
multiple operating environments, such as Windows, Windows NT, UNIX and VAX/VMS.
The Company licensed NetDDE to Microsoft for inclusion in Windows, Windows NT
and Windows 95. NetDDE toolkits for VAX/VMS and UNIX allow software developers
to add DDE functionality to applications running on the VAX/VMS and UNIX
operating systems, respectively. These applications are then able to communicate
with Wonderware InTouch or any other DDE-aware application connected via NetDDE.
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Wonderware InTrack
Wonderware InTrack(TM) is a production management and tracking
application generator. Applications developed using Wonderware InTrack allow
client/server architectures to model computer-controlled manufacturing processes
and then track material flow and resource usage through that process. The
Wonderware InTouch graphical user interface provides operators with a "window"
into the manufacturing process at each work station. Information collected
provides a production history of events, such as yields, material consumed, and
actual process conditions, for each operation.
The Wonderware InTrack graphical build-time module uses object
technology to model the manufacturing process. Objects are used to represent
process variables such as raw materials, work-in-process, operations, bills of
materials, equipment, operators, finished goods, and quality data. The
build-time module also creates all files, tables and data in a relational
database that resides on the server. The graphical interface that allows
operators and the process controllers to interact with the model is developed
using Wonderware InTouch.
Wonderware InBatch
Wonderware InBatch is flexible, sustainable and scalable batch
management software designed specifically for the modeling and automation of
batch-oriented production processes, such as in the chemical, pharmaceutical and
food processing industries. Wonderware InBatch applications provide recipe
control, equipment modeling, sequence control and scheduling of batch processes.
Wonderware FactorySuite
In January 1996, the Company announced the integration of its complete
family of industrial automation software products into two new packages,
Wonderware FactorySuite and Wonderware FactorySuite Plus, that provide multiple
application development tools at cost-effective new pricing. The Wonderware
FactorySuite is intended to provide core technology modules for process
visualization, PC-based machine and process control, real-time plant data
management, Internet/Intranet data viewing capabilities and a complete library
of I/O servers. The Wonderware FactorySuite will include the following modules:
* Wonderware InTouch
* Wonderware InControl, a PC-based real-time control system;
* Wonderware IndustrialSQL Server, a PC-based real-time plant data
manager, which incorporates Microsoft SQL server;
* the Scout family of visualization tools for remote viewing of plant
applications via the Internet or corporate Intranets;
* and all Wonderware I/O servers for interfacing to factory equipment
and processes.
The Wonderware Factory Suite Plus will incorporate all of the above
technologies and will add modules for production management and work-in-process
tracking (Wonderware InTrack) and flexible batch management (Wonderware
InBatch).
The Company expects to begin shipping the FactorySuite products in
April 1997. The Wonderware FactorySuite will be sold at a greatly reduced price
when compared to the cost of buying each of the components of the suite
separately. The large discount available to customers when buying the
FactorySuite packages is designed to produce additional volume, but could have
an adverse effect on the Company's future revenues for other products. Further
it is expected that some of the Company's competitiors, some of whom have much
greater resources than the Company, will offer similar suites of products. There
can be no assurance that the FactorySuite will gain acceptance in the industrial
automation market.
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Technology
To meet its users' complex and evolving needs and to maintain a
leadership position in its markets, Wonderware intends to exploit and improve
upon three core competencies: man-machine interface development technology,
connectivity technology and data acquisition technology. Wonderware's products
are designed to run on Microsoft Windows, Windows 95 and Windows NT operating
systems, and to interface with any other DDE-aware software. Wonderware InTrack
runs on Microsoft Windows clients and interfaces to any database server that
supports Windows clients. Key technology features include:
Man-Machine Interface Technology
Object-oriented graphics. Devices or industrial controls such
as pumps, gauges and levers can be graphically represented as objects
on a computer screen. Unlike character-based graphics, these objects
can be moved, re-sized, animated and manipulated in many ways. They can
be re-used in other applications and used at any resolution. The
resulting impact on development cost, time, and application quality can
be significant.
Simple-to-use graphics development toolbox. The Wonderware
InTouch toolbox supplies powerful drawing and editing tools that allow
developers to complete designs rapidly with precision and creativity.
Wonderware InTouch real-time database. This is a repository
for system data around which all system functions are organized. For
example, the "run/stop" status of a process might be monitored by the
Wonderware InTouch server for the real-time control device and assigned
to a "tagname" (i.e., a real number, integer or string variable) in the
database. An object on the viewing screen might then have its color
attribute linked directly to this tagname. When the real status is
"run," the object could appear green. When it has stopped, the object
could appear red. The Wonderware InTouch database accommodates over
32,000 tagnames.
Animation links. Wonderware InTouch provides easy and
intuitive procedures for linking the color attributes, position,
orientation, visibility and size of screen objects with values in the
database. These values may reflect real factory status or may be
manipulated by the application developer. These animation links provide
the ability to easily achieve numerous animation effects for
communicating status to operators and system users.
Powerful and extensible scripting language. Wonderware InTouch
scripts allow rapid development of calculation routines, animation
sequences and logic required for automated processes. These scripts can
be driven by events, by variable status or by other scripts. For
example, the touching of a "button" object on the screen might cause a
calculation to be performed on selected values in the database. These
recalculated values might then be displayed within another screen
object or passed on to yet another object/device for further action.
Connectivity Technology
Dynamic data exchange. Wonderware InTouch applications can
share data with any DDE-aware Windows application. This enables the
user to employ a powerful, yet low cost application like Microsoft's
Excel spreadsheet program as a means to display, manipulate and report
changing manufacturing data in real time.
NetDDE. NetDDE was developed by Wonderware to extend the DDE
protocol to networks. NetDDE was licensed directly to Microsoft for
inclusion in Windows, Windows NT and Windows 95. Wonderware believes
that Microsoft's adoption of NetDDE has established NetDDE as a de
facto standard for dynamic data exchange over networks.
OLE/COM. Wonderware makes use wherever possible of new
Microsoft connectivity technologies such as OLE/COM to provide the most
advanced open architecture capabilities to its customers.
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Data Acquisition Technology
FastDDE. Wonderware's products support FastDDE, which is a
proprietary technology providing enhanced data transfer rates between
DDE-aware applications.
Automatically optimized polling. Wonderware has developed
technology to optimize system performance. Whenever a window is
displayed in Wonderware InTouch, the DDE server automatically acquires
only the data needed to be displayed on that particular window. This
feature eliminates the need for users to specify poll lists manually in
advance for each window displayed.
Marketing, Sales and Distribution
Wonderware's products are sold in more than 55 countries through a
network of more than 80 technically skilled, independent distributors
specializing in industrial automation products. Except for Wonderware GmbH, the
Company's German distributor, the Company's distributors are not within the
control of the Company and are not obligated to purchase products from the
Company. However, sales of the Company's products constitute a substantial
portion of revenues for a number of these distributors. The Company believes
that its relationships with its distributors represent a significant competitive
advantage for the Company.
Many of these distributors represent other lines of products, some of
which compete with the Company's products. While the Company encourages its
distributors to focus primarily on the promotion and sale of the Company's
products, there can be no assurance that these distributors will not give higher
priority to the sale of other products, including products developed by existing
or potential competitors. A reduction in sales efforts or discontinuance of
sales of the Company's products by its distributors could lead to reduced sales
and could adversely affect the Company's operating results. There can be no
assurance as to the continued viability or financial stability of the Company's
distributors, the Company's ability to retain its existing distributors or the
Company's ability to add new distributors in the future. In addition, as a
result of new product introductions or pricing actions by the Company or others,
the Company's distributors or end-users may alter the expected timing of their
product purchases, thereby exacerbating the possible variability of the
Company's quarterly operating results.
Wonderware maintains a 212 person sales, marketing and technical
support organization to support the distribution channel. The Company's sales
staff also targets large end-user customers, system integrators and OEMs to
complement the selling efforts of the Company's distributors. The Company
believes that, for certain customers and markets, this supplemental sales effort
enhances the Company's penetration. The Company has a sales office at its
headquarters in Irvine, California and six domestic field offices. To enhance
its presence in international markets, the Company maintains several sales and
support offices throughout Europe, Asia and Latin America. International sales
accounted for 42%, 43% and 38% of total revenues in 1996, 1995 and 1994,
respectively. See Note 6 of Notes to Consolidated Financial Statements.
Wonderware seeks to establish relationships with OEM providers of
industrial automation solutions to broaden the distribution of its products and
to pursue additional market segments. The Company has established relationships
with several OEMs, including Motorola, Yokogawa, Moore Products, Hewlett Packard
and Philips Weighing. Motorola bundles Wonderware InTouch with Motorola's remote
monitoring and control terminals. Yokogawa purchases Wonderware InTouch for use
in their Darwin product which is part of their line of chart recorders. Hewlett
Packard licenses NetDDE for resale with its computers and systems. Moore
Products and Philips Weighing both use the InBatch product as the batch software
in process systems which they sell. The Company is pursuing additional OEM
relationships to broaden the distribution of its products to new market
segments.
Supplying premium quality product support to every customer is a
primary Wonderware objective. The Company offers several customer support
services including the Wonderware Information Exchange, a bulletin board service
designed to facilitate communications with and among end-users. Users who dial
into the bulletin board can leave or retrieve messages or files and can access a
library of "How To Notes." The Company maintains a World Wide
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Web site on the Internet that offers hundreds of pages of corporate, marketing
and product information to any interested browser around the world. The Company
offers six to eighteen month comprehensive support agreements to its end-user
customers entitling them to software upgrades and numerous other benefits
distributed via CD-ROM. The Company also supports a user group that has
established a Program Information Exchange to allow users to share their
evaluations of third-party hardware and software devices for use with Wonderware
InTouch. The user group is led by an Advisory Board of Directors comprised of
representatives from a number of Wonderware end-user customers including Philip
Morris, Lockheed Missiles & Space, Texaco, Weyerhaeuser and Nestle. Wonderware
has a comprehensive training department that offers a number of different
courses covering each of the Company's products and communications technologies.
Backlog
The Company typically ships its products within a very short period
after acceptance of purchase orders from distributors. Accordingly, the Company
typically does not have a material backlog of unfilled orders, and revenues in
any quarter are substantially dependent on orders booked in that quarter. Any
significant weakening in customer demand would therefore have an almost
immediate adverse impact on the Company's operating results and on the Company's
ability to maintain profitability.
Product Development
The Company believes that its success will depend in large part on its
ability to maintain and enhance its current product line, develop new products,
maintain technological competitiveness and meet an expanding range of customer
requirements. In 1995, the Company acquired EnaTec Software Systems, Inc. and
Soft Systems Engineering, Inc. and established development centers in Cupertino,
California and York, Pennsylvania, respectively to maintain and further develop
the technologies acquired in those transactions. In February 1997, the Company
closed its Cupertino development center and consolidated the development of it
production management products in the York development center (see Note 13 of
Notes to Consolidated Financial Statements). The Company also maintains a
product development and research facility in Johnson City, Tennessee where
employees focus on the development of software products for the industrial
controls market. As of December 31, 1996, the Company's research and development
group consisted of 152 full-time employees. During 1996, 1995 and 1994, research
and development expenses were approximately $18.9 million, $10.6 million and
$6.2 million, respectively. The Company anticipates that it will continue to
commit substantial resources to research and development in the future. See Note
2 of Notes to Consolidated Financial Statements for a discussion of the
Company's policy regarding capitalization of software development expenses.
Competition
The market for industrial automation and process control software
products is intensely competitive and is characterized by rapid changes in
technology and frequent introductions of new platforms and features. To maintain
or improve its position in this industry, the Company must continue to enhance
its current products and develop new products in a timely fashion.
The Company competes generally on the basis of product features and
functions, product architecture, the ability to run on a variety of industry
standard platforms, local technical support and other related services, ease of
product integration with third party applications software and
price/performance. The Company competes with a number of independent software
suppliers as well as large PLC and DCS manufacturers that provide interface
software along with their hardware products. Many of the Company's existing and
potential competitors have longer operating histories and significantly greater
financial, technical, sales, marketing and other resources than the Company.
Certain of these organizations may also have greater name recognition and a
larger installed base than the Company. The Company's competitors could in the
future introduce products with more features and lower prices than the Company's
product offerings. These organizations could also bundle existing or new
products with other products or systems to compete with the Company. The Company
expects competition to increase and the Company's market share may decline as
other companies introduce additional and more competitive Microsoft
Windows-based products in this emerging market segment. As the market for
industrial automation and process control software products develops, a
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<PAGE>
number of companies with significantly greater resources than the Company could
attempt to increase their presence in this market by acquiring, or forming
strategic alliances with, competitors of the Company. There can be no assurance
that the Company will be able to compete successfully in the future.
Proprietary Rights
The Company regards its software as proprietary and attempts to protect
it with copyrights, trademarks, trade secret laws and restrictions on
disclosure, copying and transferring title. However, the Company has no patents
and existing copyright laws afford only limited practical protection for its
software. Furthermore, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as the laws of the United
States. The Company licenses its products primarily under "shrink wrap" license
agreements that are not signed by licensees and therefore may be unenforceable
under the laws of certain foreign jurisdictions. In addition, in some instances
the Company licenses its products under agreements that give licensees limited
access to the source code of the Company's products. Accordingly, despite
precautions taken by the Company, it may be possible for unauthorized third
parties to copy certain portions of the Company's products or to obtain and use
information that the Company regards as proprietary.
The Company believes that, due to the rapid pace of innovation within
its industry, factors such as the technological and creative skills of its
personnel are more important to establishing and maintaining a technology
leadership position within the industry than are the various legal protection of
its technology. As the number of software products in the industry increases and
the functionality of these products further overlaps, the Company believes that
its software will become increasingly the subject of claims that such software
infringes the rights of others. See Note 9 of Notes to Consolidated Financial
Statements for a description of legal proceedings involving the Company
pertaining to proprietary rights and the Company's intellectual property.
Employees
As of December 31, 1996, the Company employed 443 full-time employees,
of which 212 were engaged in sales, marketing and technical support, 35 in
general management, administration and finance, 144 in software development and
engineering and 52 in operations. None of the Company's employees is subject to
a collective bargaining agreement, and the Company has not experienced any work
stoppage. The Company believes that its employee relations are good.
Executive Officers
Roy H. Slavin, 51, has served as Chairman, President and Chief
Executive Officer since December 1995. From July 1995 to November 1995, he
served as President and Chief Operating Officer of the Company. From October
1993 to June 1995, he was President and Chief Executive Officer of Siemens
Industrial Automation, Inc., a manufacturer of industrial automation components
and systems. From January 1986 to September 1993, he was President and Chief
Executive Officer of Potter and Brumfield, Inc. (A Siemens Company), a
manufacturer of electronic components.
Sam M. Auriemma, 44, has served as Vice President of Finance, Chief
Financial Officer and Secretary since April 1996. From September 1990 to March
1996, he served as Vice President of Finance and Chief Financial Officer of
Locus Computing Corporation, a software and software services company.
Joe L. Cowan, 47, has served as Vice President of Marketing since
December, 1995. From December 1993 to November 1995, he held various sales and
marketing positions with the Company. From April 1992 to November 1993, Mr.
Cowan was Director of Automation Business for Lanex, Inc., a system integration
company for industrial automation. From January 1989 to March 1992, he was Vice
President of Systems for Eurotherm, Inc., a process control company.
11
<PAGE>
Risk Factors
In addition to the other information set forth in this Report, the
following risk factors should be considered carefully in evaluating the Company
and its business.
Short Operating History; Fluctuations in Quarterly Operating Results
The Company has a limited operating history and, although the Company
has experienced significant growth in recent periods, such growth rates are not
sustainable and are not indicative of future operating results. The Company
expects to experience significant fluctuations in future quarterly operating
results that may be caused by many factors, including, among others: delays in
introduction of products or product enhancements by the Company, its competitors
or other providers of hardware, software and components for the industrial
automation market; costs associated with product or technology acquisitions; the
size and timing of individual orders; software "bugs" or other product quality
problems; competition and pricing in the software industry; seasonality of
revenues; customer order deferrals in anticipation of new products; market
acceptance of new products; reductions in demand for existing products and
shortening of product life cycles as a result of new product introductions;
changes in operating expenses; changes in Company strategy; personnel changes;
foreign currency exchange rates; regulatory requirements and political and
economic instability in foreign markets; mix of products sold; and general
economic conditions. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance.
Because the Company ships software products within a short period after
receipt of an order, the Company typically does not have a material backlog of
unfilled orders, and revenues in any quarter are substantially dependent on
orders booked in that quarter. The Company's expense levels are based in part on
its expectations as to future revenues and the Company may be unable to adjust
spending in a timely manner to compensate for any revenue shortfall.
Accordingly, operating results would be adversely affected by a reduction in
revenues in that quarter since the majority of the Company's expenses are fixed.
Any significant weakening in demand would have an almost immediate adverse
impact on the Company's operating results and on the Company's ability to
achieve profitability. Fluctuations in operating results may also result in
volatility in the price of the Company's Common Stock.
Product Concentration
Although the Company has introduced several new products over the last
year, the bulk of the Company's revenues are still concentrated in the
Wonderware InTouch family of products for industrial automation applications.
The Company introduced the initial version of Wonderware InTouch in August 1989.
Revenues from the Wonderware InTouch family of products have grown rapidly and
represented over 85% of the Company's total revenues since 1990. The Company
expects that revenues from these products will continue to account for a
substantial portion of the Company's revenues. The life cycles of the Company's
products are difficult to estimate due in large measure to the recent emergence
some of the Company's market, the future effect of product enhancements and
future competition. Declines in demand for these products, whether as a result
of competition, technological change or otherwise, or price reductions would
have a material adverse effect on the Company's operating results.
Competition
The market for the Company's products is intensely competitive. The
Company expects competition to increase and the Company's market share to
decline as other companies introduce additional and more competitive Microsoft
Windows-based products in this emerging market segment. This trend is expected
to accelerate with the release by Microsoft of Windows 95 and Windows NT 4.0.
Many of the Company's present or anticipated competitors have substantially
greater financial, technical, marketing and sales resources than the Company.
There can be no assurance that the Company will be able to compete successfully
in the future.
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Dependence on Microsoft Windows
The Company's software development tools are designed for use with
personal computers running in the Microsoft Windows operating environment, and
future sales of the Company's products are dependent upon continued use of
Windows and Windows NT. In addition, changes to Windows (such as the release of
Windows 95) or Windows NT require the Company to continually upgrade its
products. Any inability to produce upgrades or any material delay in doing so
would adversely affect the Company's operating results. The successful
introduction of new operating systems or improvements of existing operating
systems that compete with Windows or Windows NT also could adversely affect
sales of the Company's products and have a material adverse effect on the
Company's operating results.
Rapid Technological Change
The market for the Company's products is characterized by rapid
technological advances, evolving industry standards, changes in end-user
requirements and frequent new product introductions and enhancements. While the
Company to date has been committed to the Microsoft Windows and Windows NT
platforms, the introduction of products embodying new technologies and the
emergence of new industry standards could render the Company's existing products
and products currently under development obsolete and unmarketable. The
Company's future success will depend upon its ability to enhance its current
products and to develop and introduce new products that keep pace with
technological developments, respond to evolving end-user requirements and
achieve market acceptance. Any failure by the Company to anticipate or respond
adequately to technological developments or end-user requirements, or any
significant delays in product development or introduction, could result in a
loss of competitiveness or revenues. In the past, the Company occasionally
experienced delays in the introduction of new products and product enhancements.
There can be no assurance that the Company will be successful in developing and
marketing new products or product enhancements on a timely basis or that the
Company will not experience significant delays in the future, which could have a
material adverse effect on the Company's results of operations. In addition,
there can be no assurance that new products or product enhancements developed by
the Company will achieve market acceptance.
Integration of Recent Acquisition
In December 1996, the Company purchased all outstanding shares of
ICT-Wonderware GmbH not already owned by the Company. ICT-Wonderware GmbH is the
distributor of the Company's products in Germany. The acquisition of
ICT-Wonderware GmbH will divert some of the Company's management resources for
an indefinite period of time. There can be no assurance that difficulties will
not arise in integrating the operations of ICT Wonderware GmbH or that the
Company will realize increased revenues as a result of the acquisition of
ICT-Wonderware GmbH. The failure to accomplish any of the goals of this
acquisition or the failure to successfully integrate the operations of
ICT-Wonderware GmbH would have a material adverse effect on the Company's
operating results and financial condition.
Non-Recurring Charges
As a result of the acquisition of ICT-Wonderware GmbH, the Company
incurred a charge in fiscal 1996 of approximately $1.3 million to reflect the
write-off of purchased in-process research and development costs. There can be
no assurance that the Company would not incur additional charges in subsequent
periods to reflect costs associated with this acquisition. All of such costs may
adversely affect the market price of the Common Stock.
Management of Growth
The Company has recently experienced rapid growth in the number of
employees, the scope of its operating and financial systems and the geographic
area of its operations. This growth has resulted in an increase in the level of
responsibility for both existing and new management personnel. To manage its
growth effectively, the Company will be required to continue to implement and
improve its operating and financial systems and to expand, train and manage its
employee base. There can be no assurance that the management skills and systems
currently in place will be adequate if the Company continues to grow. The
Company may make additional acquisitions in the future. The
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Company's management has only limited experience with acquisitions, which
involve numerous risks, including difficulties in the assimilation of the
operations and products of the acquired companies, the diversion of management's
attention from other business concerns and the potential loss of key employees
of the acquired companies.
Key Employees
The Company's continued success will depend upon its ability to retain
a number of key employees, most of whom are not subject to employment agreements
or agreements that restrict their ability to compete with the Company following
the termination of their employment. In addition, the Company believes that its
future success will depend in large part on its ability to attract and retain
highly skilled technical, managerial and marketing personnel. Competition for
such personnel is intense, and there can be no assurance that the Company will
be successful in attracting and retaining such personnel. The loss of certain
key employees or the Company's inability to attract and retain other qualified
employees could have a material adverse effect on the Company's business.
Reliance upon Distribution Channel
The Company has relied and expects to continue to rely primarily on
independent distributors for the marketing and distribution of its products.
These distributors may also represent other lines of products, some of which may
be complementary to or competitive with the Company's products. The Company's
distributors are not within the control of the Company and are not obligated to
purchase products from the Company. While the Company encourages its
distributors to focus primarily on the promotion and sale of the Company's
products, there can be no assurance that these distributors will not give higher
priority to the sale of other products, including products developed by existing
or potential competitors. A reduction in sales efforts or discontinuance of
sales of the Company's products by its distributors could lead to reduced sales
and could adversely affect the Company's operating results. There can be no
assurance as to the continued viability or financial stability of the Company's
distributors, the Company's ability to retain its existing distributors or the
Company's ability to add new distributors in the future. In addition, as a
result of new product introductions or pricing actions by the Company or others,
the Company's distributors or end-users may alter the expected timing of their
product purchases, thereby exacerbating the possible variability of the
Company's quarterly operating results.
Dependence on General Economic Conditions
Based in part on the growth in the overall market for and the Company's
penetration of the industrial automation software market, as well as the
geographic and industry diversity of the Company's customers, the Company
believes that general economic conditions have not had a material adverse effect
on the Company's results of operation to date. There can be no assurance,
however, that economic conditions will not have a material adverse effect on the
Company in the future.
International Sales
The Company derived approximately $27.0 million (42%) of its total
revenues from international sales during 1996. The Company expects that
international sales will continue to represent a significant percentage of its
total revenues. The Company's international operations are subject to various
risks, including exposure to currency fluctuations, regulatory requirements,
political and economic instability and trade restrictions. With the acquisition
of ICT-Wonderware GmbH, the Company now operates directly in Germany is now
exposed to the risks of fluctuations in the deutsch mark relative to the dollar.
Although the Company's sales in other international markets are typically made
in U.S. dollars, a weakening in the value of foreign currencies relative to the
U.S. dollar could have an adverse impact on the effective price of the Company's
products in its international markets. In addition, the Company's business may
be adversely affected by lower sales levels in Europe, which typically occur
during the summer months.
Dependence on Proprietary Rights
The Company regards its software as proprietary and attempts to protect
it with copyrights, trademarks, trade secret laws and restrictions on
disclosure, copying and transferring title. However, the Company has no patents,
and
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existing copyright laws afford only limited practical protection for the
Company's software. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent as do the laws of
the United States. The Company licenses its products primarily under "shrink
wrap" license agreements that are not signed by licensees and therefore may be
unenforceable under the laws of certain foreign jurisdictions. In addition, in
some instances the Company licenses its products under agreements that give
licensees limited access to the source code of the Company's products.
Accordingly, despite precautions taken by the Company, it may be possible for
unauthorized third parties to copy certain portions of the Company's products or
to obtain and use information that the Company regards as proprietary. As the
number of software products in the industry increases and the functionality of
these products further overlaps, the Company believes that such software will
become increasingly the subject of claims that such software infringes the
rights of others.
Although the Company does not believe that its products infringe on the
rights of third parties, there can be no assurance that third parties will not
assert infringement claims against the Company in the future or that any such
assertion will not result in costly litigation or require the Company to obtain
a license to intellectual property rights of such parties. In addition, there
can be no assurance that such licenses will be available on reasonable terms, or
at all. See Note 9 of Notes to Consolidated Financial Statements for a
description of litigation involving the Company pertaining to proprietary rights
and the Company's intellectual property.
Potential Volatility of Stock Price
The Company believes factors such as quarterly fluctuations in results
of operations and announcements of new products by the Company or by its
competitors may cause the market price of the Common Stock to fluctuate, perhaps
substantially. In addition, in recent years the stock market in general, and the
shares of technology companies in particular, have experienced extreme price
fluctuations. These broad market and industry fluctuations may adversely affect
the market price of the Company's Common Stock.
Anti-Takeover Effects of Certain Charter Provisions, Unissued Preferred Stock
and Delaware Law
The Company's Board of Directors has the authority, without action by
the stockholders, to fix the rights and preferences of and to issue shares of
Preferred Stock. In February 1996, the Board of Directors adopted a Preferred
Share Purchase Rights Plan (commonly known as a "poison pill"), which may have
the effect of delaying or preventing a change in control of the Company. The
Company is also subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. Furthermore, certain provisions of the
Company's Certificate of Incorporation and Bylaws may discourage certain types
of transactions involving an actual or potential change in control of the
Company, including transactions in which the stockholders might otherwise
receive a premium for their shares over then current prices, and may limit the
ability of the stockholders to approve transactions that they deem to be in
their best interests.
Item 2. Properties
The Company's principal sales, marketing, technical support,
administration, product development and support facilities occupy an aggregate
of 100,000 square feet in four office buildings in Irvine, California. The lease
agreements with respect to such space expire between July 1998 and January 2002.
In addition, the Company leases sales office space in the metropolitan areas of
several cities. The Company also leases office space for its development centers
in York, Pennsylvania; and Johnson City, Tennessee. The Company considers its
leased real property adequate for its current and reasonably foreseeable needs.
Item 3. Legal Proceedings
In July 1995, The Foxboro Company ("Foxboro") initiated litigation
against SSE in the U.S. District Court for the District of Massachusetts to
delay the acquisition of SSE by the Company and subsequently amended its
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complaint to assert additional claims with respect to Foxboro's ownership
interest in certain software developed by SSE, which interest is subject to a
repurchase right in favor of SSE. Following the completion of the acquisition of
SSE by the Company, Foxboro withdrew its initial claims related directly to the
acquisition. SSE has tendered payment to Foxboro for the repurchase of Foxboro's
asserted ownership interest in the subject software, which Foxboro has rejected.
In January 1996 SSE filed its answer and counterclaim to Foxboro's amended
complaint, seeking damages based upon SSE's allegation that Foxboro breached its
contractual obligation to sell its interest in the subject software. In January
1997, the parties negotiated an agreement for the mutual dismissal, without
prejudice, of the claims asserted in the litigation. Further proceedings in the
litigation have been stayed pending execution of the written agreement of
dismissal.
In December 1995, RWT Corporation (RWT) filed an action in the U.S. District
Court for the Northern District of Illinois against the Company alleging that
the Company's use of the term "INTRACK" violated RWT's alleged federal trademark
and related rights to the term "ONTRACK." In its answer, the Company denied
RWT's allegations and asserted a counterclaim seeking that the "ONTRACK"
trademark be declared invalid. In October 1996, the parties entered into a
settlement of these proceedings, the specific terms of which are confidential,
and the action was dismissed with prejudice.
In July 1996, the Company filed a complaint in the Superior Court of California
for the County of Orange against Constantin S. Delivanis and Vladimir Preysman,
formerly the Vice President and Vice President-Engineering, respectively, of the
Company's Cupertino Development Center. This complaint alleges fraud, negligent
misrepresentation, duress, securities fraud, breach of the implied covenant of
good faith and fair dealing, and breach of fiduciary duty against Messrs.
Delivanis and Preysman. The Cupertino Development Center was established in 1995
upon the Company's acquisition of EnaTec Software Systems, Inc., in which
Messrs. Delivanis and Preysman owned a substantial majority of the stock. The
Company is seeking compensatory and punitive damages with respect to its claims,
as well as the costs incurred in pursuing these claims. Mr. Delivanis and Mr.
Preysman's employment with the Company was terminated. Both Mr. Delivanis and
Mr. Preysman answered the complaint and asserted cross-claims against the
Company, alleging breach of contract, termination in violation of public policy,
defamation (slander per se), intentional infliction of emotional distress,
negligent infliction of emotional distress, negligence, common law fraud and
deceit, and civil conspiracy. Both requested relief in the form of compensatory
and punitive damages as well as the costs incurred in pursuing their
cross-claims. In addition, in September 1996, Mr. Delivanis, Mr. Preysman, and
the Delivanis Family Trust filed a complaint for declaratory judgment and
specific performance, seeking registration of certain Wonderware common stock.
The Company intends to file an answer and cross-complaint in response. Further,
in December 1996, Mr. Delivanis, Mr. Preysman and the Delivanis-Kibrick Family
Trust filed a complaint in the United States District Court, Northern District
of California. This complaint was served on the Company in late January 1997 and
alleges securities law violations, fraud and deceit, and negligent
misrepresentation. The Company also intends to file an answer and
cross-complaint in this action. The Company intends to vigorously defend the
allegations made against it; however, it is too early to determine the impact,
if any, of these proceedings on the Company, its financial condition or the
results of the Company's operations.
In October 1996, the Company filed a complaint in the U.S. District Court for
the Central District of California against Cyberlogic Technologies, Inc.
(Cyberlogic) and Intellution, Inc. (Intellution). The complaint alleges that
Cyberlogic and Intellution have infringed the copyright in a particular software
program which Cyberlogic originally developed under contract for the Company and
seeks preliminary and permanent injunctive relief as well as actual and punitive
damages and attorneys fees. In October 1996, the Court issued a temporary
restraining order against Cyberlogic and Intellution, and pursuant to the
Court's order, U.S. Marshals seized and copied certain materials at the offices
of Cyberlogic and Intellution. In January 1997, the Court entered its
preliminary injunction which generally bars Cyberlogic and Intellution from
marketing or otherwise distributing any infringing copies of the computer
software at issue in the proceeding. In February 1997, Intellution filed its
appeal of the preliminary injunction to the U.S. Court of Appeals for the Ninth
Circuit, and the Court denied the defendants' requests to stay the injunction
pending appeal. Although Intellution has filed its answer to the Company's
complaint in this proceeding, Cyberlogic has yet to file an answer. It is too
early to determine the impact, if any, of this proceeding on the Company, its
financial condition or the results of the Company's operations.
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In December 1996, Cyberlogic submitted a demand for arbitration of the
underlying contractual issues involved in these proceedings. Cyberlogic's
arbitration demand purports to seek damages and attorneys' fees in unspecified
amounts and injunctive relief. The Company has generally agreed to proceed to
arbitration based upon the current status of these proceedings. Dates for
hearing the arbitration and other related events have not yet been set. The
Company believes the allegations in Cyberlogic's arbitration demand to be
without merit and intend to vigorously defend itself against these claims. It is
too early to determine the impact, if any, of this proceeding on the Company,
its financial condition or the results of the Company's operations.
In January 1997, the Company received a copy of a complaint which Cyberlogic
filed in the U.S. District Court for the Eastern District of Michigan. Among
other claims, this complaint purports to claim damages in excess of $40 million
and injunctive relief for the Company's alleged infringement of certain software
programs which Cyberlogic contends it owns. The Company has not yet filed its
formal response to this complaint. The Company believes the allegations in
Cyberlogic's complaint to be without merit and intends to vigorously defend
itself against these claims. Further, the Company believes that these claims
arise out of or relate to the proceeding pending in the U.S. District Court of
the Central District of California and the anticipated arbitration proceeding,
where they should be adjudicated. It is too early to determine the impact, if
any, of this proceeding on the Company, its financial condition or the results
of the Company's operations.
In December 1996, the Company was notified that a complaint had been filed in
the U.S. District Court for the Eastern District of Pennsylvania by Otto M.
Voit, III. In the complaint, Mr. Voit purports to be acting on behalf of all
former holders of common stock, or options to acquire common stock, of SSE,
which was acquired by the Company in a stock-for-stock merger in August 1995.
Mr. Voit alleges in the complaint that the Company and certain of its officers
who have also been named as defendants in the action made or caused to be made
materially false and misleading statements and concealed material information in
connection with the acquisition of SSE by the Company. In the complaint, Mr.
Voit claims that these alleged misrepresentations and omissions constitute
violations of the Securities Exchange Act of 1934, as amended, Rule 10b-5
thereunder and various state securities laws, common law fraud, negligent
misrepresentation, fraudulent inducement to enter into a contract and inducement
to enter into a contract by material misrepresentation and request relief in the
form of compensatory and punitive damages as well as the costs incurred in
pursuing his claims. In January 1997, the Company filed a motion to dismiss the
complaint on several grounds. No hearing date has been set on the motion. The
case is in a preliminary stage, and no discovery has been conducted to date. The
Company believes the allegations in the complaint to be without merit and
intends to vigorously defend itself and the other defendants, each of whom has
been previously indemnified by the Company in connection with his employment as
an officer of the Company, against the claims stated in the complaint. It is too
early to determine the impact, if any, of this proceeding on the Company, its
financial condition or the results of the Company's operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the
quarter ended December 31, 1996.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock trades on the NASDAQ National Market System
under the symbol "WNDR." The following table sets forth for the periods
indicated the high and low sale prices for the common stock reported by the
NASDAQ National Market System. These prices do not include retail markups,
markdowns or commissions.
1996 High Low
---- ------ -----
Fourth Quarter $11 1/4 $ 7
Third Quarter $19 3/8 $ 7 7/8
Second Quarter $24 5/8 $17 7/8
First Quarter $24 3/4 $14 1/4
1995 High Low
---- ------ -----
Fourth Quarter $39 1/4 $12 3/4
Third Quarter $42 1/4 $33 3/4
Second Quarter $42 3/4 $27 1/2
First Quarter $33 1/2 $26 1/4
1994 High Low
---- ------ -----
Fourth Quarter $35 1/2 $20 1/2
Third Quarter $23 $13 1/4
Second Quarter $17 3/4 $12
First Quarter $23 3/4 $16
There were approximately 303 holders of record of the common stock as of
February 28, 1997. The Company has never declared or paid any cash dividends on
its capital stock. The Company currently intends to retain future earnings to
finance the growth and development of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
Company's bank line of credit prohibits the Company from paying cash dividends
without the bank's prior approval. See Note 10 of Notes to Consolidated
Financial Statements.
The Company believes factors such as quarterly fluctuations in the results of
operations and announcements of new products by the Company or by its
competitors may cause the market price of the common stock to fluctuate, perhaps
substantially. In addition, the stock market in general, and the shares of
technology stocks in particular, have historically experienced extreme price
fluctuations. These broad market and industry fluctuations may adversely affect
the market price of the Company's common stock.
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Item 6. Selected Financial Data
The following information should be read in conjunction with the
consolidated financial statements and related notes.
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31
Total revenues ................................... $ 64,924 $ 55,011 $ 35,705 $ 21,328 $ 11,329
Operating income (loss) before
acquired in-process research
and development costs ........................ (8,940) 11,388 9,772 5,603 2,702
Operating income (loss) .......................... (10,240) (21,703) 9,772 5,603 2,702
Net income (loss) ................................ (6,121) (14,302) 7,575 3,823 1,642
Net income (loss) per share (1) .................. $ (0.45) $ (1.13) $ 0.58 $ 0.36 $ 0.17
Weighted average common shares (1) ............... 13,658 12,650 13,131 10,695 9,625
Cash generated from operations ................... $ 358 $ 5,528 $ 8,825 $ 4,000 $ 2,054
As of December 31
Cash and short-term investments .................. $ 52,169 $ 66,925 $ 58,482 $ 36,359 $ 2,720
Working capital .................................. 55,545 71,393 59,532 37,274 2,933
Total assets ..................................... 93,689 91,362 71,613 42,000 6,449
Long-term obligations ............................ 61
Stockholders' equity (2) ......................... 78,606 81,841 65,749 39,433 3,655
<FN>
(1) See Note 2 of Notes to Consolidated Financial Statements for a description
of shares used in calculating net income (loss) per share.
(2) Includes amounts attributable to preferred stock outstanding through 1992.
</FN>
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion for Wonderware Corporation (the Company)
contains forward-looking statements that involve risks and uncertainties. The
Company's actual future results could differ materially from those
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section, as
well as elsewhere in this Report.
Results of Operations
The following table sets forth the percentage of total revenues represented by
certain consolidated statement of operations data for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
----------------------------
<S> <C> <C> <C>
Total revenues 100% 100% 100%
Cost of sales 7% 5% 6%
----------------------------
Gross profit 93% 95% 94%
Operating expenses:
Research and development 29% 19% 17%
Selling, general and administrative 74% 53% 50%
Restructuring and severance costs 3% 2%
----------------------------
Operating income (loss) before acquired in-process
research and development costs -13% 21% 27%
Acquired in-process research and development costs 2% 60%
----------------------------
Operating income (loss) -15% -39% 27%
Other income, net 4% 5% 5%
----------------------------
Income (loss) before provision for income taxes -11% -34% 32%
Provision (benefit) for income taxes -2% 8% 11%
----------------------------
Net income (loss) -9% -26% 21%
============================
</TABLE>
Comparison of 1996 to 1995
Total revenues. Total revenues include sales of software licenses and
services, less promotional discounts and sales returns. The Company's revenues
for 1996 increased 18 percent to $64.9 million from $55.0 million in 1995. This
increase resulted primarily from increased unit sales of the Wonderware InTouch
product line. The revenue increase also reflected to a lesser extent increased
sales of the Wonderware InTrack products and the introduction of Wonderware
InBatch. Revenues also increased slightly due to the acquisition of
ICT-Wonderware GmbH (ICT-Wonderware), the Company's distributor in Germany.
Revenues subsequent to the close of the acquisition in mid-December 1996 reflect
higher unit sales prices because there is no longer a distributor markdown
associated with such sales.
Revenues from the Wonderware InTouch product line represented
approximately 85 percent of the Company's total sales in 1996 as compared to 90
percent in 1995. The Company expects that revenues from these products will
continue to account for a substantial portion of the Company's total sales in
future periods, but that the share of revenues derived from other products will
increase if new products introduced by the Company gain market acceptance.
International sales increased to $27.0 million in 1996 from $23.6
million in 1995. Despite overall growth in international sales during 1996,
international sales growth has slowed relative to total sales, contributing 42
percent of total revenues for 1996 as compared to 43 percent in 1995. The
decline in international sales growth is primarily due to the increased
competitive pressures and a recessionary economy in Europe. The Company expects
that international sales will continue to represent a significant portion of its
total revenues. The Company's international operations are subject to various
risks, including seasonality, regulatory requirements, political and
20
<PAGE>
economic instability and trade restrictions. Although the Company's sales have
been typically made in US dollars, the Company's recently acquired German
operation conducts its business in German marks. Therefore, a portion of the
Company's revenues are now directly subject to the risk of currency fluctuations
in that market. In addition, a weakening in the value of foreign currencies
relative to the US dollar could have an adverse impact on the effective price of
the Company's products in other international markets. The Company expects that
it will increasingly be required to transact in local currencies in order to
further its growth internationally and will become more directly exposed to the
risk of foreign currency fluctuations.
The life cycles of the Company's products are difficult to estimate due
in large measure to the recent emergence of some of the Company's markets, the
future effect of product enhancements and future competition. Declines in demand
for these products, whether as a result of competition, technological change,
price reductions or otherwise would have a material adverse effect on the
Company's operating results. There can be no assurance that the Company's
historical growth rates or operating margins will resume or, if resumed, will be
sustained in the future.
During 1997, the Company plans to begin shipment of the Wonderware
FactorySuite. There will be two versions of the FactorySuite. These suites will
bundle together the development versions of most of the Company's products into
a single package. The Wonderware Factory Suite will be sold at a greatly reduced
price when compared to buying each of the Company's current products separately.
The large discount available to the customer when buying the Wonderware
FactorySuite could have an adverse impact on the Company's future revenues from
its other products. Also, it is expected that some of the Company's competitors,
some of whom have greater resources than the Company, will offer similar suites
of products. There can also be no assurance that the Wonderware FactorySuite
will gain market acceptance.
Gross profit. Cost of sales includes the costs of manuals, diskettes
and duplication, packaging materials, assembly, paper goods, third party
royalties and shipping. Cost of sales for the years ended December 31, 1996 and
1995 include the amortization of developed technology acquired as part of the
acquisition of Soft Systems Engineering, Inc. (SSE) in 1995 (see Note 2 of Notes
to Consolidated Financial Statements). All internal costs related to research
and development of software products and enhancements to existing products are
expensed as incurred.
The Company's gross margin decreased to 93 percent in 1996 from 95
percent in 1995. The decrease was primarily due to increased documentation
included with recent releases of the Company's products. The product
documentation is being converted to an electronic format, and the Company
anticipates that this will result in cost savings, contingent upon the
acceptance of the electronic documentation format by its customers. Gross margin
is expected to decline over the next fiscal year as new products incorporating
additional third party software royalties begin shipping. Gross profit increased
16 percent to $60.6 million in 1996 from $52.4 million in 1995 primarily due to
increased revenues.
Research and development expenses. Research and development expenses
consist primarily of personnel and equipment costs required to conduct the
Company's development effort. Research and development expenses for 1996
increased 77 percent to $18.8 million in 1996, from $10.6 million in 1995, and
increased as a percentage of revenues to 29 percent from 19 percent.
Approximately half of the increase in cost is attributable to operating expenses
of entities acquired during the latter half of 1995. The remaining increase is
primarily due to the addition of development personnel associated with the
Company's core product line, as well as other products. The Company believes
that the introduction of new technologies and products to the industrial
automation market in a timely manner is crucial to its success. As a
consequence, the Company has increased the amount of its expenditures on
research and development. For the foreseeable future, the Company anticipates
that it will continue to increase spending in absolute dollars on research and
development for both the enhancement of current products, the addition of new
product capabilities and the integration efforts associated with the Wonderware
FactorySuite.
Costs incurred in the research and development of new software products
and enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological feasibility
is established, any additional costs would be capitalized in accordance with
Statement of Financial
21
<PAGE>
Accounting Standards No. 86, Accounting for the Costs of Computer Software to Be
Sold, Leased or Otherwise Marketed. Because the Company believes that its
current process for developing software is essentially completed concurrently
with the establishment of technological feasibility, no internal software
development costs were capitalized as of December 31, 1996. Significant new
products developed in the future may require the capitalization of internal
software development expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of compensation costs of
administrative, sales and marketing personnel; advertising and promotional
expenses; and customer service and technical support costs. Selling, general and
administrative expenses increased 66 percent to $48.4 million in 1996 from $29.1
million in 1995, and increased as a percentage of revenue to 74 percent from 53
percent. The increase in the dollar amount of selling, general and
administrative expenses was primarily due to the increased staffing in field
sales and marketing required to further penetrate current and new markets for
the Company's products; increased staffing in technical support to provide
service to the Company's new product lines; increased staffing and other costs
in administrative functions to support the overall growth of the Company; and
operating costs associated with the entities acquired in the second half of
1995. The Company expects that such expenses will continue to increase in
absolute dollars as it expands its worldwide sales distribution and customer
support network to penetrate new markets for its production management products,
as well as to increase worldwide market penetration for its Wonderware InTouch
product line.
Restructuring and severance costs. During the fourth quarter of 1996,
the Company recorded a charge of $2.4 million for restructuring costs associated
with the closure of its Cupertino, California, development center and the
consolidation of its Manufacturing Business Systems group into the Company's
York, Pennsylvania, development center. The charge includes accruals for
severance, real property lease termination, transition bonuses and the costs of
transferring development of the Wonderware InTrack product line from Cupertino
to York.
During the fourth quarter of 1995, the Company accrued severance costs
totaling $1.3 million, including compensation and benefits expense, incurred in
conjunction with the resignation of seven former executives of the Company.
Acquired in-process research and development costs. As a result of the
acquisition of ICT-Wonderware in December 1996, the Company incurred an
after-tax charge of $1.3 million related to the allocation of purchase price to
in-process research and development costs acquired in the transaction. As a
result of the acquisitions of EnaTec Software Systems, Inc. (EnaTec) and SSE in
July and August 1995, respectively, the Company incurred charges of $23.4
million ($33.1 million, net of taxes of $9.7 million) to reflect direct
transaction costs and the allocation of purchase price to in-process research
and development costs.
Provision for income taxes. The Company recognized had an effective tax
rate of 19 percent in 1996. The change in the rate for 1996 from 1995, exclusive
of the tax effect related to the write-off on in-process research and
development costs, was due to an increase in the valuation allowance recorded
against the Company's deferred tax assets based on an evaluation of the
recoverability of such deferred tax assets. Any tax benefits not realized by the
Company in 1996 may be recoverable in future years should the Company generate
taxable income in those years.
Net loss. Due to the increasing level of spending in the areas of
research and development, and in selling, general and administrative functions
as discussed above, the Company anticipates that when the Company's operations
return to profitability, net income as a percentage of total revenues will
continue to be lower than historical levels. There can be no assurance as to
when, if ever, the Company will resume profitable operations.
Comparison of 1995 to 1994
Total revenues. The Company's revenues for 1995 increased 54 percent to
$55.0 million from $35.7 million in 1994. The increase in revenues resulted
primarily from increased unit sales of the Wonderware InTouch product line, due
in part to investments in the Company's worldwide sales distribution and
customer support
22
<PAGE>
network. Revenues from the Wonderware InTouch product line represented
approximately 90 percent of the Company's total sales.
International sales were $23.6 million, or 43 percent of total
revenues, in 1995 and $13.7 million, or 38 percent of total revenues, in 1994.
The growth in international sales was the result of increased market
penetration, as well as expansion of the Company's presence in both Europe and
Asia.
The strategic acquisitions completed during the second half of 1995 did
not result in significant additional revenue streams in 1995.
Gross profit. The Company's gross margin increased to 95 percent in
1995 from 94 percent in 1994. The increase was primarily due to cost control
measures implemented in the area of inventory purchasing, including the
execution of volume purchase agreements. Gross profit increased 56 percent to
$52.4 million in 1995 from $33.7 million in 1994 primarily due to increased
revenues.
Research and development expenses. Research and development expenses
increased 72 percent to $10.6 million in 1995, from $6.2 million in 1994, and
increased as a percentage of revenues to 19 percent from 17 percent. The Company
believes that the introduction of new technologies and products to the
industrial automation market in a timely manner is crucial to its success. As a
consequence, the Company increased the amount of its expenditures on research
and development in 1995, primarily through the employment of additional
development personnel.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 64 percent to $29.1 million in 1995 from $17.8
million in 1994, and increased as a percentage of revenue to 53 percent from 50
percent. The increase in the dollar amount of selling, general and
administrative expenses was primarily due to the increased staffing in field
sales and marketing and administrative functions to support the overall growth
of the Company, as well as the operating costs associated with the acquisitions.
Acquired in-process research and development costs. As a result of the
acquisitions of EnaTec and SSE the Company incurred an aggregate after-tax
charges of $23.4 million in 1995 to reflect direct transaction costs and the
allocation of purchase price to acquired in-process research and development
costs.
Provision for income taxes. The Company recognized income tax benefit
at an effective rate of 24 percent in 1995, as compared to income tax expense at
an effective rate of 34 percent in 1994. The change in the rate was due to the
tax effect of in-process research and development costs.
Fluctuations in Quarterly Operating Results
Many software companies experience seasonal variations in revenues,
with soft domestic sales in the first quarter and soft European sales in the
third quarter. Although the significant growth in the Company's total revenues
over the past several years may have masked seasonal variations in the Company's
operating results, the Company believes that its results of operations are
subject to similar quarterly variations.
The Company has experienced significant fluctuations in its quarterly
operating results in the current year. The Company expects to experience
significant fluctuations in future quarterly operating results that may be
caused by many factors, including, among others: delays in introduction of
products or product enhancements by the Company, the Company's competitors or
other providers of hardware, software and components for the industrial
automation market; costs associated with product or technology acquisitions; the
size and timing of individual orders; software "bugs" or other product quality
problems; competition and pricing in the software industry; seasonality of
revenues; customer order deferrals in anticipation of new products; market
acceptance of new products; reductions in demand for existing products and
shortening of product life cycles as a result of new product introductions;
changes in distributors' ordering patterns; changes in operating expenses;
changes in Company strategy; personnel changes; foreign currency exchange rates;
regulatory requirements and political and economic instability in foreign
markets; mix of products sold; and general economic conditions. As a result, the
Company
23
<PAGE>
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.
Because the Company ships software within a short period after receipt
of an order, the Company typically does not have a material backlog of unfilled
orders and revenues in any quarter are substantially dependent on orders booked
in that quarter. The Company's expense levels are based in part on its
expectations as to future revenues and the Company may be unable to adjust
spending in a timely manner to compensate for any revenue shortfall.
Accordingly, operating results would be adversely affected by a reduction in
revenues in that quarter since the majority of the Company's expenses are fixed.
Any significant weakening in demand would have an almost immediate adverse
impact on the Company's operating results and on the Company's ability to
achieve profitability. Fluctuations in operating results may also result in
volatility in the price of the Company's common stock.
Based in part on the growth in the overall industrial automation
software market and the Company's penetration of that market, as well as the
geographic and industry diversity of the Company's customers, the Company
believes that general economic conditions have not had a material adverse effect
on the Company's results of operations to date. There can be no assurance,
however, that economic conditions will not have a material adverse effect on the
Company in the future.
Liquidity and Capital Resources
The Company currently finances its operations (including capital
expenditures) primarily through cash flow from operations and its current cash
and short-term investment balances. The short-term investments consist of highly
rated, taxable, short-term securities selected to maximize the Company's
after-tax return on its excess funds at a relatively low risk level. In 1996,
operating activities provided cash totaling $358,000 primarily related to
depreciation and amortization expense, an increase in accounts payable and the
write-off of acquired in-process research and development costs offset by
operating losses and increases in deferred taxes, other assets and inventory. In
1995, operating activities provided cash totaling $5.5 million primarily related
to operating income before acquired in-process research and development costs,
depreciation and amortization expense and increases in accrued expenses, offset
by increases in deferred taxes, accounts receivable, and other assets. The net
loss in 1995 resulted from the write-off of acquired in-process research and
development costs. As these were non-cash transactions, the Company's liquidity
was not impacted. In 1994, operating activities provided cash totaling $8.8
million primarily related to net income and depreciation and amortization
expense and increases in accounts payable, accrued expenses and deferred
revenues, offset by an increase in accounts receivable due to higher sales
levels. At December 31, 1996, the Company's cash, cash equivalent and short-term
investment balances totaled $52.2 million.
During 1996, the Company generated cash from investing activities
totaling $2.1 million. Net proceeds from sales and maturities of short-term
investments generated approximately $18.4 million in cash. This was offset by
$11.5 million used for the purchase of property and equipment and $4.8 million
used for the purchase of the outstanding shares of ICT-Wonderware (see Note 12
of Notes to Consolidated Financial Statements). During 1995, the Company used
cash in investing activities totaling $11.0 million. Of this amount, $4.8
million was used to purchase property and equipment, $555,000 was used in
acquisitions and $5.7 million was used for the purchase of short-term
investments. During 1994, the Company used cash in investing activities totaling
$38.2 million. Of this amount, $32.8 million was used to purchase short-term
investments, $2 million was invested in EnaTec and $800,000 was invested in
ICT-Wonderware. The remaining cash used in investing activities in 1994 was
primarily for the purchase of property and equipment.
During 1996, the Company generated cash from financing activities of
$1.4 million, primarily from funds generated through the exercise of stock
options and sale of stock through the employee stock purchase plan. This was
offset by payments of approximately $1.0 million against the credit line of
ICT-Wonderware. During 1995, the Company generated cash from financing
activities of $8.0 million, including tax benefits from the exercise of stock
options totaling $6.0 million. The remaining cash was generated primarily
through the exercise of stock options and the sale of common stock through the
employee stock purchase plan. During 1994, the Company generated cash from
financing activities of $18.8 million, primarily from the sale of common stock
in its public offering completed
24
<PAGE>
in February 1994. Also, the Company realized tax benefits in 1994 totaling $2.9
million related to the exercise of stock options.
The Company maintains an unsecured bank line of credit with a domestic
bank expiring in May 1997 that provides for borrowings up to $5 million at the
bank's prime rate. No borrowings were outstanding under the line of credit at
December 31, 1996. The Company plans to renew the line of credit at terms
comparable to the current agreement. The Company's new German subsidiary
maintains a separate bank line of credit in Germany which expires in October
1997. This line of credit provides for maximum borrowings of DM900,000 at the
German bank's prime rate. Approximately $289,000 of borrowings against the
German credit line were outstanding as of December 31, 1996.
The Company's principal commitments as of December 31, 1996 consisted
primarily of leases on its headquarters and other facilities, and there were no
material commitments for capital expenditures.
The Company believes that its cash and short-term investment balances
and availability under its bank lines of credit as of December 31, 1996, and
cash flow from operations will be sufficient to meet its working capital and
capital expenditure requirements for at least the next twelve months.
Item 8. Financial Statements and Supplementary Data
The following financial statements are filed as part of this Annual Report:
Page
Independent Auditors' Report 26
Consolidated Balance Sheets as of December 31, 1996 and 1995 27
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 28
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 29
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994 30
Notes to Consolidated Financial Statements 31
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wonderware Corporation
Irvine, California
We have audited the accompanying consolidated balance sheets of
Wonderware Corporation and its subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31,1996. Our
audits also included the financial statement schedule listed in the index at
Item 8. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Wonderware Corporation and
its subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
January 30, 1997
26
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------------------
1996 1995
----------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 26,487,553 $ 22,637,986
Short-term investments ....................................... 25,681,766 44,287,316
Accounts receivable, less allowance for
doubtful accounts of $1,132,010 and
$903,839 at December 31, 1996 and 1995 ................... 12,377,041 7,402,071
Accounts receivable from a related party ..................... 3,037,108
Inventories .................................................. 1,100,056 460,663
Deferred tax assets .......................................... 2,184,687 2,139,690
Prepaid expenses and other current assets .................... 2,796,136 948,387
------------ ------------
Total current assets ..................................... 70,627,239 80,913,221
Property and equipment, net ...................................... 13,395,833 6,272,399
Investments ...................................................... 800,000
Goodwill, net .................................................... 4,829,792
Noncurrent deferred tax assets ................................... 3,736,296 1,967,711
Other assets ..................................................... 1,099,703 1,408,265
------------ ------------
Total assets ............................................. $ 93,688,863 $ 91,361,596
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit .......................................... $ 289,446
Accounts payable ............................................. 5,210,079 $ 1,532,721
Accrued employee incentive compensation ...................... 977,793 833,627
Accrued commissions .......................................... 309,845 450,287
Income taxes payable ......................................... 80,247 438,548
Accrued payroll and related liabilities ...................... 2,845,333 2,939,677
Other accrued liabilities .................................... 3,728,163 2,090,756
Deferred revenue ............................................. 1,641,605 1,234,640
------------ ------------
Total current liabilities ................................ 15,082,511 9,520,256
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; 10,000,000
shares authorized; no shares issued or
outstanding as of December 31, 1996 and 1995
Common stock, $.001 par value; 50,000,000 shares
authorized; 13,865,896 and 13,247,610 shares
issued and outstanding at December 31, 1996 and 1995 ..... 13,866 13,248
Additional paid-in capital ................................... 86,424,172 83,331,383
Unrealized gain (loss) on short-term investments ............. (14,905) 192,698
Accumulated deficit .......................................... (7,816,781) (1,695,989)
------------ ------------
Net stockholders' equity ................................. 78,606,352 81,841,340
------------ ------------
Total liabilities and stockholders' equity ............... $ 93,688,863 $ 91,361,596
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
----------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues:
Product and license revenue ........................... $ 59,392,416 $ 46,339,271 $32,809,231
Product and license revenue from a related party ...... 2,472,834 6,697,668 2,042,548
Service contract revenue .............................. 3,059,092 1,973,994 853,501
------------ ------------ -----------
Total revenues .................................... 64,924,342 55,010,933 35,705,280
Cost of sales ......................................... 4,298,174 2,581,032 2,022,042
------------ ------------ -----------
Gross profit ...................................... 60,626,168 52,429,901 33,683,238
Operating expenses:
Research and development .............................. 18,788,930 10,607,252 6,155,473
Selling, general and administrative ................... 48,427,057 29,114,618 17,755,308
Restructuring and severance costs ..................... 2,350,000 1,319,624
------------ ------------ -----------
Operating income (loss) before acquired
in-process research and development costs ......... (8,939,819) 11,388,407 9,772,457
Acquired in-process research and development costs .... 1,300,000 33,091,626
------------ ------------ -----------
Operating income (loss) ........................... (10,239,819) (21,703,219) 9,772,457
Other income, net ..................................... 2,713,807 2,815,232 1,627,611
------------ ------------ -----------
Income (loss) before provision for income taxes ... (7,526,012) (18,887,987) 11,400,068
Provision (benefit) for income taxes .................. (1,405,220) (4,586,320) 3,824,731
------------ ------------ -----------
Net income (loss) ................................. $ (6,120,792) $(14,301,667) $ 7,575,337
============ ============ ===========
Net income (loss) per common and common
equivalent share .................................. (0.45) (1.13) 0.58
Weighted average common and common
equivalent shares ................................. 13,658,344 12,650,347 13,131,448
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------------------------------------------------
1996 1995 1994
---------------- ---------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................. $ (6,120,792) $(14,301,667) $ 7,575,337
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization .................................. 5,326,483 2,214,285 979,166
Provision for doubtful accounts ................................ 241,302 558,306 224,539
Deferred taxes ................................................. (1,813,582) (10,940,515) (413,712)
Compensation costs related to stock options .................... 636,177 283,485 149,027
Acquired in-process research and development costs ............. 1,300,000 33,091,626
Changes in operating assets and liabilities, net of
the effect of acquisitions:
Accounts receivable ........................................ (318,700) (5,637,205) (3,019,642)
Income tax refund receivable ............................... 248,255
Inventories ................................................ (519,248) (82,316) (219,687)
Prepaid expenses and other current assets .................. (597,856) (1,778,372) (279,506)
Accounts payable ........................................... 1,540,929 315,174 688,061
Accrued employee incentive compensation .................... (6,979) 5,136 4,895
Accrued commissions ........................................ (140,442) 71,245 162,508
Income taxes payable ....................................... (353,788) 185,693 247,275
Accrued payroll and other accrued liabilities .............. 777,049 1,225,011 1,839,778
Deferred revenue ........................................... 406,965 318,235 638,426
------------ ------------ ------------
Net cash provided by operating activities .................. 357,518 5,528,121 8,824,720
Cash flows from investing activities:
Purchases of property and equipment ................................ (11,536,732) (4,787,285) (2,351,729)
Investment in affiliate ............................................ (2,800,000)
Net effect of pooling of interests ................................. (243,320)
Cash paid for acquisitions, net of cash acquired ................... (4,808,388) (554,533)
Sales and maturities of short-term investments ..................... 94,685,231 67,855,628 13,962,055
Purchases of short-term investments ................................ (76,287,284) (73,544,027) (46,768,274)
------------ ------------ ------------
Net cash provided by (used in) investing activities ........ 2,052,827 (11,030,217) (38,201,268)
Cash flows from financing activities:
Proceeds from exercise of stock options ............................ 875,853 1,621,552 167,998
Tax benefit related to exercise of stock options ................... 5,994,301 2,904,143
Payments on bank line of credit .................................... (1,018,008) (592,989)
Repayment of loan payable to employee .............................. (283,418)
Deferred offering costs ............................................ 142,302
Net proceeds from issuance of common stock ......................... 1,581,377 969,470 15,834,434
------------ ------------ ------------
Net cash provided by financing activities ................... 1,439,222 7,992,334 18,765,459
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ................... 3,849,567 2,490,238 (10,611,089)
Cash and cash equivalents, beginning of period ......................... 22,637,986 20,147,748 30,758,837
------------ ------------ ------------
Cash and cash equivalents, end of period ............................... $ 26,487,553 $ 22,637,986 $ 20,147,748
============ ============ ============
Supplemental cash flow information:
Interest paid ...................................................... $ 7,931 $ 1,830 $ 33,334
Income taxes paid .................................................. $ 748,625 $ 215,712 $ 813,759
Detail of businesses acquired in purchase business
combinations:
Acquired in-process research and development costs ................. $ 1,300,000 $ 33,091,626
Goodwill ........................................................... 4,850,000
Fair value of assets acquired (net of previous
investment) ........................................................ 3,132,171 645,632
Common stock issued in acquisitions ................................ 21,260,477
Cash paid for acquisitions, net of cash acquired ................... 4,808,388 554,533
Liabilities assumed or created ..................................... 4,473,783 11,922,248
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Unrealized
Common stock Additional Gain (Loss) Retained Net
----------------------- Paid-in Short-term Earnings Stockholders'
Shares Amount Capital Investments (Deficit) Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 ............. 10,836,056 $ 10,836 $ 34,138,908 $ 5,283,661 $ 39,433,405
Acquisition accounted for as
pooling of interests ............... 78,137 78 9,922 (253,320) (243,320)
Compensation costs related to
stock option grants ................ 149,027 149,027
Stock options exercised .............. 338,405 339 167,659 167,998
Tax benefit related to exercise
of stock options ................... 2,904,143 2,904,143
Proceeds from sale of common
stock .............................. 845,576 845 15,833,589 15,834,434
Unrealized loss on short-term
investments ........................ $ (71,883) (71,883)
Net income ........................... 7,575,337 7,575,337
-------------------------------------------------------------------------------------------
Balance, December 31, 1994 ........... 12,098,174 12,098 53,203,248 (71,883) 12,605,678 65,749,141
Common stock issued in
acquisitions ....................... 571,168 571 21,259,906 21,260,477
Compensation costs related to
stock option grants ................. 283,485 283,485
Stock options exercised .............. 527,728 528 1,621,024 1,621,552
Tax benefit related to exercise
of stock options ................... 5,994,301 5,994,301
Proceeds from sale of common
stock .............................. 50,540 51 969,419 969,470
Unrealized gain on short-term
investments ...................... 264,581 264,581
Net loss ............................. (14,301,667) (14,301,667)
-------------------------------------------------------------------------------------------
Balance, December 31, 1995 ........... 13,247,610 13,248 83,331,383 192,698 (1,695,989) 81,841,340
Compensation costs related to
stock option grants ................ 636,177 636,177
Stock options exercised .............. 472,640 473 875,380 875,853
Proceeds from sale of common
stock .............................. 145,646 145 1,581,232 1,581,377
Unrealized loss on short-term
investments ...................... (207,603) (207,603)
Net loss ............................. (6,120,792) (6,120,792)
-------------------------------------------------------------------------------------------
Balance, December 31, 1996 ........... 13,865,896 $ 13,866 $ 86,424,172 $ (14,905) $ (7,816,781) $ 78,606,352
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For The Years Ended December 31,
1996, 1995 and 1994
1. General
Nature of Operations - Wonderware Corporation (the Company) is primarily engaged
in the development and marketing of microcomputer software for use in the
worldwide industrial automation market. Its customers include end users, system
integrators and original equipment manufacturers. The Company markets its
products principally through distributors and grants credit to customers in a
wide range of industries.
Basis of Presentation - The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Significant Accounting Policies
Cash and Equivalents - The Company considers all highly-liquid, short-term
investments purchased with an original maturity of three months or less to be
cash equivalents.
Short-term Investments - The Company's short-term investments, consisting
entirely of highly rated, taxable debt securities, have been classified as
"available for sale" and, in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities, have been recorded at fair value as of December 31, 1996 and 1995.
Unrealized gains or losses on such investments as of December 31, 1996 and 1995
have been recorded as a separate component of stockholders' equity (see Note 3).
Fair Value of Financial Instruments - SFAS No. 107, Disclosures About Fair Value
of Financial Instruments, requires management to disclose the estimated fair
value of certain assets and liabilities defined by SFAS No. 107 as financial
instruments. Financial instruments are generally defined by SFAS No. 107 as cash
or a contractual obligation that both conveys to one entity a right to receive
cash or other financial instruments from another entity, and imposes on the
other entity the obligation to deliver cash or other financial instruments to
the first entity. At December 31, 1996, the Company believes that the carrying
amounts of cash and cash equivalents, receivables, bank line of credit and trade
payables approximate fair value because of the short maturity of these financial
instruments.
Inventories - Inventories, consisting primarily of software program storage
media, related user manuals, and packaging materials are valued at the lower of
cost, determined on the first-in, first-out method, or market.
Depreciation and Amortization - Property and equipment are stated at cost and
are depreciated using the straight-line method over the estimated useful lives
of the related assets, ranging from three to five years. Leasehold improvements
are amortized using the straight-line method over the lesser of the economic
useful lives of the assets or the related lease term. Intangible assets,
including goodwill, are amortized over the estimated useful life of the asset.
Goodwill - Goodwill is amortized over ten years on a straight line basis. The
Company will periodically review the value of goodwill to determine whether or
not an impairment to such value has occurred.
Other Assets - Other assets include the cost of technology procured in the
acquisition of Soft Systems Engineering, Inc. (SSE) in 1995, technology acquired
from Professional Technology Management (PTM) in 1995, and the cost of
non-compete agreements executed with certain former shareholders of PTM. The
Company is amortizing these assets over an estimated useful life of three years.
31
<PAGE>
Software Development Costs - Costs incurred in the research and development of
new software products and enhancements to existing software products are
expensed as incurred until technological feasibility has been established. After
technological feasibility is established, any additional costs would be
capitalized in accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed. Because the Company believes
that its current process for developing software is essentially completed
concurrently with the establishment of technological feasibility, no internally
generated software development costs have been capitalized as of December 31,
1996 or 1995.
Long-Lived Assets - The Company accounts for the impairment and disposition of
long-lived assets in accordance with SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed. In accordance
with SFAS 121, long-lived assets to be held are reviewed for events or changes
in circumstances which indicate that their carrying value may not be
recoverable. The Company will periodically review the carrying value of
long-lived assets to determine whether or not an impairment to such value has
occurred.
Revenue Recognition - Revenues from the licensing of computer software products
are recognized upon delivery of the products to customers in accordance with
Statement of Position 91-1, Software Revenue Recognition, as there are no
significant vendor obligations remaining and collection of the related
receivable is probable. The Company accounts for insignificant vendor
obligations and post-contract support at the time of product delivery by
accruing such costs and recognizing them ratably on completion of performance.
The Company also offers its customers a 60-day right of return on sales (returns
over 30 days from shipment are subject to restocking charges) and records an
estimate of such returns at the time of product delivery based on historical
experience. Revenues related to version support contracts with customers are
deferred and amortized over the terms of the contracts, which range from six to
eighteen months.
Income Taxes - The provision for income taxes is determined in accordance with
SFAS No. 109, Accounting for Income Taxes. Deferred tax assets and liabilities
arise from temporary differences between the tax basis of assets and liabilities
and their reported amounts in the consolidated financial statements that will
result in taxable or deductible amounts in future years.
Translation of Foreign Currencies - Assets and liabilities of foreign operations
are translated into U.S. dollars at the fiscal year end exchange rate. The
related translation adjustments are recorded in the statement of operations
because the functional currency is considered to be U.S. dollars. Revenues and
expenses are translated using average exchange rates prevailing during the year.
Foreign currency transaction gains and losses are included in net income (loss).
Realized and unrealized foreign currency gains and losses for the years
presented were not material.
Net Income (Loss) Per Share - Net income (loss) per share is computed based on
the weighted average number of common shares outstanding each year using the
treasury stock method. Outstanding stock options are excluded from the
calculation of net loss per share for 1996 and 1995 as they are anti-dilutive.
Outstanding stock options are considered common stock equivalents and are
included in the calculation of net income per share for 1994.
3. Short Term Investments
The Company's short-term investments as of December 31, 1996 and 1995 consist
almost entirely of debt securities issued by the United States or its agencies,
states of the United States and political subdivisions of the states and are
recorded at an aggregate fair value of $25,681,766 and $44,287,316,
respectively. The amortized cost basis of these investments was $25,696,671 at
December 31, 1996 and $44,094,618 at December 31, 1995. Gross unrealized holding
gains and losses, respectively, were $3,029 and $17,934 at December 31, 1996 and
$196,547 and $3,849 at December 31, 1995. The net unrealized holding gain (loss)
as of the end each year is included in stockholders' equity.
During 1996, proceeds from the sale of short-term investments totaled
$94,685,231. Gross realized gains and losses from these sales were $192,341 and
$21,273, respectively. During 1995, proceeds from the sale of short-term
32
<PAGE>
investments totaled $67,855,628. Gross realized gains and losses from these
sales were $53,363 and $8,203, respectively. The cost of the investments sold
was determined through specific identification.
4. Property and Equipment
The following table summarizes the components of property and equipment:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Leasehold improvements $ 3,162,692 $ 1,554,132
Data processing equipment 14,911,819 6,211,081
Furniture, fixtures and other equipment 4,514,703 2,724,014
------------ ------------
22,589,214 10,489,227
Less: accumulated depreciation (9,193,381) (4,216,828)
============ ============
Property and equipment, net $ 13,395,833 $ 6,272,399
============ ============
</TABLE>
5. Stockholders' Equity
Public Stock Offerings - In February 1994, the Company completed a public stock
offering in which it sold 800,000 shares of its common stock at a price of
$20.50 per share. The net proceeds raised by the Company in the offering were
approximately $15 million.
Stock-Based Compensation Plans- At December 31, 1996 the Company has two types
of stock-based compensation plans, which are described below. The Company
accounts for these plans in accordance with the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations (APB 25). Accordingly, no compensation expense has been
recognized for its stock-based compensation plans other than for stock options
granted at below fair market value, and for stock options granted in connection
with a guaranteed gain contract. Options were granted at below fair market value
to selected employees at various times from 1992 to 1995. The compensation
expense that has been charged against income for options granted at below market
rates was $486,703, $157,828, and $149,027 in 1996, 1995 and 1994, respectively.
In 1995 the Company entered into a guaranteed gain contract with the Chief
Executive Officer of the Company in connection with the grant of 200,000 options
under the Wonderware Corporation 1989 Stock Option Plan (1989 Plan) (see Note
7). Under the terms of the contract, the officer will receive a minimum gain of
$1,250,000 related to the options. The guaranteed gain amount is reduced by the
maximum total gain achieved by the vested options during the vesting period. The
compensation expense that has been recognized in connection with the guaranteed
gain contract was $149,474 and $125,657 in 1996 and 1995, respectively. A credit
is recorded to additional paid-in capital to reflect the stock option
compensation expense amounts recognized. The income tax effect of any difference
between the market price of the Company's common stock at the grant date and the
market price at the exercise date is credited to additional paid-in capital.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). As permitted by SFAS No.
123, the Company has chosen to continue to account for its stock-based
compensation plans under APB 25 and provide the expanded disclosures specified
in SFAS No. 123.
Had compensation cost been determined using the provisions of SFAS No. 123, the
Company's net loss and loss per share would have been reduced to the pro forma
amounts indicated below:
1996 1995
------------- -------------
Net loss As reported $ (6,120,792) $(14,301,667)
Pro forma $ (9,175,244) $(16,020,383)
Loss per share As reported $ (0.45) $ (1.13)
Pro forma $ (0.67) $ (1.27)
33
<PAGE>
Fixed option plans
The Company has five fixed option plans. The 1989 Plan provides for granting
incentive stock options or non-statutory stock options to all employees,
non-employee members of the Board of Directors (the Board) and consultants who
provide valuable services to the Company. The 1989 Plan allows for the issuance
of options covering 4,000,000 shares of common stock. The option price per share
may not be less than 100 percent of the fair market value of a share of common
stock on the grant date as determined by the Board for incentive stock options
and 85 percent of fair market value for non-statutory stock options. For
incentive stock options, the exercise price may not be less than 110 percent of
the fair market value of a share of common stock on the grant date for any
individual possessing 10 percent or more of the voting power of all classes of
stock of the Company. The timing of exercise for individual option grants is at
the discretion of the Board, and the options expire no later than ten years
after the grant date (five years in the case of incentive stock options granted
to individuals possessing 10 percent or more of the voting power of all classes
of stock of the Company).
The 1994 Non-Employee Directors' Stock Option Plan (the Directors' Plan) allows
for the issuance of options covering 200,000 shares of common stock. The
Directors' Plan provides for the granting of stock options to directors of the
Company who are not otherwise employed by the Company or any affiliate of the
Company. Option grants under the Directors' Plan are non-discretionary. Each
person who is elected a non-employee director of the Company after adoption of
the Directors' Plan is granted upon such election options to purchase 10,000
shares of common stock. These options vest 25 percent one year after the date of
grant and 6.25 percent for each full three-month period thereafter. In addition,
on the date of each annual meeting of stockholders, each non-employee director
is granted options to purchase 10,000 shares of common stock. Such options vest
25 percent one year from the date of grant and 6.25 percent for each full
three-month period thereafter. The exercise price of all options granted under
the Directors' Plan shall be equal to 100 percent of the fair market value of
the Company's common stock on the date of grant. Unexercised options issued
under the Directors' Plan expire ten years from the date of grant.
In April 1993, the Company issued an option to purchase 90,000 shares of common
stock at $1.82 per share outside of the 1989 Plan to an executive of the
Company. Such option vests at the rate of 24 percent after 12 months and 2
percent per month thereafter. The recipient of this option resigned as an
officer of the Company in December, 1995. Under the terms of the former
officer's separation agreement, the options will continue vesting for an
additional twelve months, and the former officer will have until March 1997 to
exercise all vested options, subject to the terms of the separation agreement.
In connection with the acquisition of EnaTec Software Systems, Inc. (EnaTec) in
July 1995, the Company assumed all outstanding options to purchase shares of
EnaTec stock in exchange for options to purchase 72,882 shares of Wonderware
Corporation common stock. Such options are outside of the 1989 Plan and are
incentive stock options which vest 25 percent one year following the date of
grant, with the remaining vesting occurring ratably over the following 36
months. Option grant dates range from February 1992 to May 1995. There are
currently no shares available under this plan for future option grants.
In connection with the acquisition of certain assets of PTM in December 1995,
options to purchase 45,349 shares of common stock were issued to six of the
former shareholders of PTM at an exercise price of $3.00 per share. The options
vest one third on the date of grant and one third on each anniversary date
thereafter, contingent upon continued employment with the Company.
At December 31, 1996 and 1995, 2,803,368 and 3,229,442 shares, respectively, of
the Company's common stock were reserved for future exercise of stock options.
For purposes of estimating the compensation cost of the Company's option grants
in accordance with SFAS 123, the fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions used for grants in the years 1996 and 1995, respectively:
expected volatility of 74.2 and
34
<PAGE>
63.9 percent and risk-free interest rates of 5.5 and 5.9 percent. The expected
lives of the Company's option grants range from 4.5 to 5.0 years.
A summary of the status of the Company's fixed option plans as of December 31 is
presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- ---------------------------- -------------
Weighted Avg Weighted Avg
Fixed Options Shares Exercise Price Shares Exercise Price Shares
<S> <C> <C> <C> <C> <C>
Outstanding, beginning of year 1,868,315 $ 14.27 1,756,777 $ 5.45 1,729,350
Granted at fair market value 1,155,100 $ 14.55 573,803 $ 31.85 556,400
Granted at less than fair
market value 45,349 $ 3.00 140,087 $ 22.69
Exercises (472,640) $ 1.89 (527,728) $ 3.01 (338,405)
Canceled (869,560) $ 24.06 (74,624) $ 20.24 (190,568)
============ ============ =============
Balance, end of year 1,726,564 $ 11.50 1,868,315 $ 14.27 1,756,777
============ ============ =============
Options exercisable at year-end 509,519 724,996 960,413
Weighted average fair value of
options granted during year $ 6.36 $ 14.42
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ------------------------------
Range of Weighted Avg
Exercise Number Remaining Weighted Avg Number Weighted Avg
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$.01 - $3.99 347,394 5.3 $ 0.94 302,534 $ 0.69
$4.00 - $9.74 130,505 8.8 $ 7.80 32,026 $ 5.55
$9.75 - $10.24 405,900 9.7 $ 9.75
$10.25 - $17.12 517,065 8.4 $ 14.98 143,365 $ 13.82
$17.13 - $37.75 325,700 9.1 $ 20.88 31,594 $ 23.33
============ ============
1,726,564 8.2 $ 11.50 509,519 $ 6.10
============ ============
</TABLE>
Employee Stock Purchase Plan
In May 1993, the Company adopted the Employee Stock Purchase Plan (the Purchase
Plan) covering an aggregate of 300,000 shares of common stock. The Purchase Plan
is intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Internal Revenue Code. Under the Purchase Plan, the Board may
authorize participation by eligible employees, including officers, in periodic
six-month offerings following the commencement of the Purchase Plan. The current
offering under the Purchase Plan commenced on August 16, 1996 and will terminate
on February 15, 1997. Employees are eligible to participate in the Purchase Plan
if they are employed by the Company or a subsidiary of the Company designated by
the Board for at least 20 hours per week and are customarily employed by the
Company or a subsidiary of the Company designated by the Board for at least five
months per calendar year. Participating employees may elect to have up to 15
percent of their earnings withheld pursuant to the Purchase Plan. The amount
withheld is then used to purchase shares of common stock on specified dates
determined by the Board. The price of common stock purchased under the Purchase
Plan is equal to 85 percent of the lower of the fair market value of the common
stock at the commencement date of each offering period or the relevant purchase
date. Employees may end their participation in the offering at any time during
the offering period and participation ends automatically on termination of
employment with the Company.
35
<PAGE>
In the event of a merger, reorganization, consolidation or liquidation involving
the Company, the Board has discretion to provide that each right to purchase
common stock will be assumed or an equivalent right substituted by the successor
corporation, or the Board may shorten the offering period and provide for all
sums collected by payroll deductions to be applied to purchase stock immediately
prior to such merger or other transaction. The Purchase Plan will terminate in
May 2003. The Board has the authority to amend or terminate the Purchase Plan,
provided, however, that no such action may adversely affect any outstanding
rights to purchase common stock.
At December 31, 1996, $670,949 had been withheld from employee earnings for
stock purchases under the Purchase Plan. The Company issued 145,646 shares of
common stock in 1996 in connection with the semi-annual offerings under the
Purchase Plan and raised net proceeds of approximately $1,581,377.
For purposes of estimating the compensation cost of employees' purchase rights
under the Purchase Plan in accordance with SFAS 123, the fair value of the
purchase rights has been estimated using the Black-Scholes model with the
following assumptions used for 1996 and 1995, respectively: expected volatility
of 74.2 and 63.9 percent; weighted average risk-free interest rates of 5.3 and
6.4 percent; and expected lives of six months. The weighted-average fair value
of those purchase rights granted in 1996 and 1995 was $5.28 and $8.63,
respectively.
Share Purchase Rights Plan - In February 1996, the Company adopted a Share
Purchase Rights Plan (the Rights Plan) designed to protect the Company's
stockholders should the Company become the target of coercive and unfair
takeover tactics. Upon adoption of the Rights Plan, the Company declared a
dividend distribution of preferred stock purchase rights at the rate of one
right for each share of common stock outstanding on February 29, 1996. A right
entitles the holder, upon occurrence of certain events, to purchase one-one
hundredth of a share of Series A Junior Preferred Stock at a purchase price of
$90, subject to adjustment. The rights, however, will not become exercisable
unless and until, among other things, any person or group acquires 15 percent or
more of the outstanding common stock of the Company or any person or group
announces its intent to launch a tender offer to acquire 15 percent or more of
the Company. Upon the occurrence of either of these events, the rights (other
than those held by any defined acquirer) will become exercisable for common
stock of the Company having a market value of twice the exercise price of a
right. Furthermore, if the Company is involved in a merger or other business
combination or sale of a specified percentage of assets or earnings power, the
rights (other than those held by any defined acquirer) may be used to purchase,
for the exercise price, that number of shares of the acquirer's common stock
having a market value of twice the exercise price of a right. The rights are
redeemable under certain circumstances at $.001 per right and, unless redeemed
earlier, expire on February 15, 2006.
6. Export Revenue
Product sales to customers located in Europe were $17,146,441, $17,585,465 and
$10,595,917 during the years ended December 31, 1996, 1995 and 1994,
respectively. Product sales to customers in other international geographic
locations were $9,825,839, $5,981,805 and $3,097,234 during the years ended
December 31, 1996, 1995 and 1994, respectively. The Company expects that
international sales will continue to represent a significant percentage of its
total revenues.
36
<PAGE>
7. Transactions With Related Parties
Chief Executive Officer - The Company has entered into an agreement with its
President and Chief Executive Officer, who commenced service as President and
Chief Operating Officer in July 1995. Under the terms of the agreement, options
to purchase 200,000 shares of the Company's common stock under the 1989 Plan
were granted to the officer at an exercise price of $37.75, the market price of
the common stock as of July 31, 1995. Such options originally vested at the rate
of 24 percent one year from the date of grant and 2 percent per month
thereafter. On August 31, 1996, the terms of these options were revised such
that the exercise price was reduced to $9.75 (the market price of the common
stock on August 30, 1996) and the vesting schedule was revised so that 50
percent of the options vest two years from August 31, 1996 and 25 percent per
year thereafter. In addition, the Company has guaranteed the officer will
achieve a minimum gain of $1,250,000 (the "guaranteed amount") related to the
options. The guaranteed amount is reduced by the maximum total gain achieved by
vested options during the vesting period. At the end of the vesting period, any
remaining guaranteed amount would be due and payable.
Also under the terms of the agreement, the officer received a $200,000 loan to
assist in the relocation of his primary residence to Orange County, California.
In December 1995, the loan was forgiven and the officer received additional
funds to cover the effect of payroll taxes on the forgiveness. The total cost to
the Company of $400,139 was charged to compensation expense in 1995.
Severance Protection Agreements - In August 1996, the Compensation Committee of
the Board of Directors authorized severance protection agreements covering all
officers of the Company. Under the agreement covering the Chief Executive
Officer of the Company, such officer will receive 2.5 times his annual average
salary over the last three years in the event that he is either terminated other
than for cause, or a change of control of the Company occurs and he decides not
to continue his employment with the Company. The agreements covering officers
other than the Chief Executive Officer have essentially the same terms as the
agreement with the Chief Executive Officer except that the payment will be one
times the officers' average annual salary over the last three years. Under all
of the severance agreements, in the event of a change of control of the Company,
all unvested stock options held by the officers shall immediately vest and
become exercisable.
Ownership Interest in Major Distributor - During 1996, the Company purchased the
remaining 85 percent interest in ICT-Wonderware GmbH which it did not already
own (see Note 12). ICT-Wonderware GmbH is the principal distributor of
Wonderware's products in Germany. Revenues derived from ICT-Wonderware GmbH for
the years ended December 31, 1996 and 1995 amounted to 3.8 percent and 12.2
percent of net revenues, respectively.
Major Customer - During the year ended December 31, 1994, revenues derived from
a distribution customer who was also a stockholder amounted to 6 percent of net
revenues.
37
<PAGE>
8. Income Taxes
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 700,792 $ 4,792,001 $ 3,116,778
State 485,343 1,562,194 1,121,665
Foreign 352,979
---------------------------------------------------------------
1,539,114 6,354,195 4,238,443
Deferred:
Federal (2,027,579) (8,500,845) (299,262)
State (916,755) (2,439,670) (114,450)
---------------------------------------------------------------
(2,944,334) (10,940,515) (413,712)
---------------------------------------------------------------
$ (1,405,220) $ (4,586,320) $ 3,824,731
===============================================================
</TABLE>
A reconciliation of the statutory federal tax rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax (benefit) at statutory rate -35% -35% 35%
State tax (benefit) net of federal effect -4% -3% 6%
Increase in deferred tax valuation allowance 29%
Acquired in-process research and development costs 18%
Nontaxable interest income -10% -4% -5%
Research and development credit -3% -1% -1%
Other 4% 1% -1%
------------------------------
-19% -24% 34%
==============================
</TABLE>
The Company provides deferred income taxes for temporary differences between
assets and liabilities recognized for financial reporting and income tax
purposes. The significant portions of the Company's net deferred tax asset of
$5,920,983 and $4,107,401 at December 31, 1996 and 1995, respectively, are as
follows:
38
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Allowance for doubtful accounts $ 477,628 $ 391,362
Vacation accrual 450,796 218,951
Restructuring reserve 866,000
State income tax (561,526) (215,178)
Severance accrual 312,567 456,710
Other reserves and allowances 365,357 636,088
NOL carryforwards 3,431,422 1,548,449
Credit carryforwards 2,714,755 729,867
Depreciation and amortization 1,010,618 322,262
Other 337,907 201,890
------------------------------------------
9,405,524 4,290,401
Valuation allowance (3,484,541) (183,000)
------------------------------------------
$ 5,920,983 $ 4,107,401
==========================================
</TABLE>
Based on the Company's assessment of future realizability of certain deferred
tax assets, a valuation allowance has been provided, primarily related to
acquired net operating loss carryforwards and credit carryforwards, as it is
more likely than not that sufficient taxable income will not be generated to
realize these temporary differences. Additionally, at December 31, 1996,
approximately $1,131,000 of the valuation allowance was attributable to the
potential tax benefit of stock option transactions, which will be credited
directly to stockholders' equity if realized.
At December 31, 1996, the Company had federal net operating loss carryforwards
of approximately $8,503,000 and federal research credit carryforwards of
approximately $561,000, both of which are subject to various limitations and
expire at various dates through 2011. The Company also has an alternative
minimum tax carryforward of approximately $1,474,000 which has no expiration
date.
As of December 31, 1996 and 1995, the Company believes that its net deferred tax
assets will be recoverable out of future taxable income.
9. Commitments and Contingencies
Lease Commitments - The Company leases its office facilities under
non-cancelable operating leases that expire at various dates through 2002.
Future minimum rental payments under non-cancelable operating leases as of
December 31, 1996 are summarized as follows:
Year Ended December 31,
- - ---------------------------------------------------------
1997 $ 2,150,635
1998 1,696,602
1999 1,253,490
2000 1,045,326
2001 832,457
Thereafter 150,864
-----------------
$ 7,129,374
=================
Rent expense for all operating leases totaled $2,049,571, $997,434 and $687,203
for the years ended December 31, 1996, 1995 and 1994, respectively.
39
<PAGE>
Employment Agreements - The Company has executed employment agreements with
certain former shareholders of PTM. The aggregate potential termination expense
under these agreements was $1.1 million at December 31, 1996.
Legal Proceedings - In 1995, The Foxboro Company ("Foxboro") initiated
litigation against SSE to delay the acquisition of SSE by the Company and
subsequently amended its complaint to assert additional claims with respect to
Foxboro's ownership interest in certain software developed by SSE, which
interest is subject to a repurchase right in favor of SSE. Following the
completion of the acquisition of SSE by the Company, Foxboro withdrew its
initial claims related directly to the acquisition. SSE has tendered payment to
Foxboro for the repurchase of Foxboro's asserted ownership interest in the
subject software, which Foxboro has rejected. In 1996, SSE filed its answer and
counterclaim to Foxboro's amended complaint, seeking damages based upon SSE's
allegation that Foxboro breached its contractual obligation to sell its interest
in the subject software. In January 1997, the parties negotiated an agreement
for the mutual dismissal, without prejudice, of the claims asserted in the
litigation. Further proceedings in the litigation have been stayed pending
execution of the written agreement of dismissal.
In December 1995, RWT Corporation (RWT) filed an action against the Company
alleging that the Company's use of the term "INTRACK" violated RWT's alleged
federal trademark and related rights to the term "ONTRACK." In its answer, the
Company denied RWT's allegations and asserted a counterclaim seeking that the
"ONTRACK" trademark be declared invalid. In October 1996, the parties entered
into a settlement of these proceedings, the specific terms of which are
confidential, and the action was dismissed with prejudice.
In July 1996, the Company filed a complaint in the Superior Court of California
for the County of Orange against Constantin S. Delivanis and Vladimir Preysman,
formerly the Vice President and Vice President-Engineering, respectively, of the
Company's Cupertino Development Center. This complaint alleges fraud, negligent
misrepresentation, duress, securities fraud, breach of the implied covenant of
good faith and fair dealing, and breach of fiduciary duty against Messrs.
Delivanis and Preysman. The Cupertino Development Center was established in 1995
upon the Company's acquisition of EnaTec Software Systems, Inc., in which
Messrs. Delivanis and Preysman owned a substantial majority of the stock. The
Company is seeking compensatory and punitive damages with respect to its claims,
as well as the costs incurred in pursuing these claims. Mr. Delivanis and Mr.
Preysman's employment with the Company was terminated. Both Mr. Delivanis and
Mr. Preysman answered the complaint and asserted cross-claims against the
Company, alleging breach of contract, termination in violation of public policy,
defamation (slander per se), intentional infliction of emotional distress,
negligent infliction of emotional distress, negligence, common law fraud and
deceit, and civil conspiracy. Both requested relief in the form of compensatory
and punitive damages as well as the costs incurred in pursuing their
cross-claims. In addition, in September 1996, Mr. Delivanis, Mr. Preysman, and
the Delivanis Family Trust filed a complaint for declaratory judgment and
specific performance, seeking registration of certain Wonderware common stock.
The Company intends to file an answer and cross-complaint in response. Further,
in December 1996, Mr. Delivanis, Mr. Preysman and the Delivanis-Kibrick Family
Trust filed a complaint in the United States District Court, Northern District
of California. This complaint was served on the Company in late January 1997,
and alleges securities law violations, fraud and deceit, and negligent
misrepresentation. The Company also intends to file an answer and
cross-complaint in this action. The Company intends to vigorously defend the
allegations made against it; however, it is too early to determine the impact,
if any, of these proceedings on the Company, its financial condition or the
results of the Company's operations.
In October 1996, the Company filed a complaint in the U.S. District Court for
the Central District of California against Cyberlogic Technologies, Inc.
(Cyberlogic) and Intellution, Inc. (Intellution). The complaint alleges that
Cyberlogic and Intellution have infringed the copyright in a particular software
program which Cyberlogic originally developed under contract for the Company,
and seeks preliminary and permanent injunctive relief as well as actual and
punitive damages and attorneys fees. In October 1996, the Court issued a
temporary restraining order against Cyberlogic and Intellution, and pursuant to
the Court's order, U.S. Marshals seized and copied certain materials at the
offices of Cyberlogic and Intellution. In January 1997, the Court entered its
preliminary injunction which generally bars Cyberlogic and Intellution from
marketing or otherwise distributing any infringing copies of the computer
software at issue in the proceeding. In February 1997, Intellution filed its
appeal of the preliminary injunction to the U.S. Court of Appeals for the Ninth
Circuit, and the Court denied the defendants' requests to stay
40
<PAGE>
the injunction pending appeal. Although Intellution has filed its answer to the
Company's complaint in this proceeding, Cyberlogic has yet to file an answer. It
is too early to determine the impact, if any, of this proceeding on the Company,
its financial condition or the results of the Company's operations.
In December 1996, Cyberlogic submitted a demand for arbitration of the
underlying contractual issues involved in these proceedings. Cyberlogic's
arbitration demand purports to seek damages and attorneys' fees in unspecified
amounts and injunctive relief. The Company has generally agreed to proceed to
arbitration based upon the current status of these proceedings. Dates for
hearing the arbitration and other related events have not yet been set. The
Company believes the allegations in Cyberlogic's arbitration demand to be
without merit and intend to vigorously defend itself against these claims. It is
too early to determine the impact, if any, of this proceeding on the Company,
its financial condition or the results of the Company's operations.
In January 1997, the Company received a copy of a complaint which Cyberlogic
filed in the U.S. District Court for the Eastern District of Michigan. Among
other claims, this complaint purports to claim damages in excess of $40 million
and injunctive relief for the Company's alleged infringement of certain software
programs which Cyberlogic contends it owns. The Company has not yet filed its
formal response to this complaint. The Company believes the allegations in
Cyberlogic's complaint to be without merit and intends to vigorously defend
itself against these claims. Further, the Company believes that these claims
arise out of or relate to the proceeding pending in the U.S. District Court of
the Central District of California and the anticipated arbitration proceeding,
where they should be adjudicated. It is too early to determine the impact, if
any, of this proceeding on the Company, its financial condition or the results
of the Company's operations.
In December 1996, the Company was notified that a complaint had been filed in
the U.S. District Court for the Eastern District of Pennsylvania by Otto M.
Voit, III. In the complaint, Mr. Voit purports to be acting on behalf of all
former holders of common stock, or options to acquire common stock, of SSE,
which was acquired by the Company in a stock-for-stock merger in August 1995.
Mr. Voit alleges in the complaint that the Company and certain of its officers
who have also been named as defendants in the action made or caused to be made
materially false and misleading statements and concealed material information in
connection with the acquisition of SSE by the Company. In the complaint, Mr.
Voit claims that these alleged misrepresentations and omissions constitute
violations of the Securities Exchange Act of 1934, as amended, Rule 10b-5
thereunder and various state securities laws, common law fraud, negligent
misrepresentation, fraudulent inducement to enter into a contract and inducement
to enter into a contract by material misrepresentation and request relief in the
form of compensatory and punitive damages as well as the costs incurred in
pursuing his claims. In January 1997, the Company filed a motion to dismiss the
complaint on several grounds. No hearing date has been set on the motion. The
case is in a preliminary stage and no discovery has been conducted to date. The
Company believes the allegations in the complaint to be without merit and
intends to vigorously defend itself and the other defendants, each of whom has
been previously indemnified by the Company in connection with his employment as
an officer of the Company, against the claims stated in the complaint. It is too
early to determine the impact, if any, of this proceeding on the Company, its
financial condition or the results of the Company's operations.
10. Lines of Credit
The Company has an unsecured line of credit arrangement with a domestic bank
that provides for borrowings of up to $5 million expiring in May 1997.
Outstanding loans under the line of credit bear interest at the bank's prime
rate. As of December 31, 1996 and 1995, no amounts were outstanding under the
line of credit.
The line of credit agreement contains restrictive covenants, the most
significant of which relate to profitability, minimum tangible net worth, debt
to tangible net worth, and current asset to current liability requirements. At
December 31, 1996 and 1995, the Company was in compliance with such covenants.
The line of credit agreement also prohibits the Company from paying cash
dividends without the bank's prior approval.
The Company's German subsidiary has a secured, revolving line of credit with a
German bank that provides for borrowings of up to DM900,000 expiring in October,
1997. Outstanding loans under this line of credit bear interest
41
<PAGE>
at the bank's prime rate. As of December 31, 1996, $289,446 was outstanding
under this line of credit. The Company has provided a guarantee of payment to
the bank in the event of default by the subsidiary.
11. Employee Benefit Plans
Incentive Compensation Program - Beginning in January 1996, the Company
instituted a discretionary, performance-based incentive compensation program
that provides additional compensation in the form of an annual bonus for certain
eligible employees. Bonus payments are based, in part, on the overall financial
performance of the Company and individual performance of the employee. Total
incentive compensation expense recognized during 1996 under this program was
$783,985.
Prior to 1996, the Company had a discretionary incentive compensation program
that provided additional compensation in the form of a quarterly bonus for
certain eligible employees and a semi-annual profit bonus for all employees as
determined by formulas in the program. Total incentive compensation expense
recognized under this program amounted to $1,618,118 and $1,322,149 for the
years ended December 31, 1995 and 1994.
Employee Savings Plan - The Company has a defined contribution retirement
savings plan (the 401(k) plan) covering substantially all full-time employees.
Annually, the Company may make a discretionary contribution to the 401(k) plan
as determined by the Board of Directors. No such discretionary contribution was
made for the years ended December 31, 1996, 1995 or 1994.
12. Acquisitions
On December 12, 1996, a wholly owned subsidiary of the Company purchased all
outstanding shares of ICT-Wonderware GmbH not already owned by the Company.
ICT-Wonderware GmbH is the distributor of the Company's products in Germany.
Under the terms of the acquisition agreement, the Company paid $4.85 million in
cash for all of the outstanding voting stock of ICT-Wonderware GmbH other than
shares held by the Company. The total value of the transaction was $5.87
million, which includes the Company's 1994 investment in ICT-Wonderware GmbH of
$800,000, and was accounted for under the purchase method of accounting.
Accordingly, the Company's total investment in ICT-Wonderware GmbH was allocated
to the assets acquired, including in-process research and development, and
liabilities assumed based on the estimated fair value of such assets and
liabilities. The purchase price allocated to in-process research and development
was charged to the Company's operations, resulting in a non-recurring charge of
$1.3 million. Approximately $4.85 million of the total purchase price has been
allocated to goodwill and is being amortized over 10 years from the acquisition
date on a straightline basis.
On July 28, 1995, the Company merged with EnaTec by issuing 398,570 shares of
its common stock in exchange for all of the outstanding voting stock of EnaTec
other than shares held by the Company. In addition, the Company assumed all
outstanding options to purchase EnaTec common stock, which resulted in the
reservation of 72,882 shares of common stock for issuance upon exercise of the
assumed options. The transaction was valued at approximately $16.9 million and
was accounted for as a purchase. The purchase price was allocated to the assets
acquired, including in-process research and development, and liabilities assumed
based on the estimated fair value. The purchase price allocated to in-process
research and development was charged to the Company's operations, resulting in a
non-recurring charge of $16.9 million (net of a $7.0 million tax benefit).
On August 31, 1995, the Company merged with SSE by issuing 172,598 shares of its
common stock in exchange for all of the outstanding common stock of SSE. The
transaction was valued at approximately $7.1 million and was accounted for as a
purchase. The purchase price was allocated to the assets acquired and
liabilities assumed based on the estimated fair value. The purchase price
allocation included a $572,000 allocation to developed technology and an
allocation to in-process research and development that was charged to the
Company's operations, resulting in a non-recurring charge of $6.5 million (net
of a $2.7 million tax benefit).
42
<PAGE>
The accompanying consolidated statements of operations include the results of
operations of ICT-Wonderware GmbH, EnaTec and SSE from their respective
acquisition dates. The following unaudited pro forma information presents
results of operations of the Company for the years ended December 31, 1996 and
1995 as if the ICT-Wonderware GmbH acquisition had been consummated as of the
beginning of 1995 and as if the EnaTec and SSE acquisitions had been consummated
as of the beginning of 1994. The pro forma information is presented for
information purposes only. It is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the combined
enterprise.
Year Ended December 31,
-----------------------------------
1996 1995
---- ----
Total revenues $ 72,601,818 $ 57,902,090
Net income (loss) $ (3,433,769) $ 4,734,112
Earnings (loss) per common and common
equivalent share $ (0.25) $ 0.35
On December 1, 1995, the Company acquired certain assets of PTM for $500,000. In
addition, the Company hired six of the former shareholders of PTM, executing
employment and non-competition agreements with each. Pursuant to such employment
agreements, the former PTM shareholders received options to purchase 45,349
shares of common stock at an exercise price of $3.00 per share. The options vest
over a period of three years, contingent on continued employment with the
Company, and resulted in compensation expense equal to the difference between
the option exercise price and the market price of the Company's common stock on
the date of grant. Non-competition payments in the aggregate amount of $330,000
were paid to the former PTM shareholders on February 29, 1996.
13. Restructuring and Severance Costs
During the fourth quarter of 1996, the Company recorded a charge of $2.4 million
for restructuring costs associated with the closure of its Cupertino,
California, development center and the consolidation of its Manufacturing
Business Systems group into the Company's York, Pennsylvania, development
center. The charge includes accruals for severance, real property lease
termination, retention bonuses and the costs of transferring development of the
Wonderware InTrack product line from Cupertino to York. As of December 31, 1996,
approximately $2.0 million of the accrual has not been utilized. It is
anticipated that the remaining balance will be expended by the end of the first
quarter of 1997.
During the fourth quarter of 1995, the Company accrued severance costs,
including compensation and benefits expense, incurred in conjunction with the
resignation of seven former executives of the Company.
43
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item with respect to directors is
contained in the Proxy Statement for the Company's annual meeting of
stockholders to be held May 12, 1997 and, except as modified herein, is
incorporated herein by reference. Information required with respect to executive
officers is contained in Part I, Item 1 of this Annual Report.
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except that Ron
C. Mehaffey, a former executive officer of the Company, filed a late Form 4 to
report his acquisition of shares through the Company's Employee Stock Purchase
Program.
Item 11. Executive Compensation
Information with respect to this item is contained in the Proxy
Statement for the Company's annual meeting of stockholders to be held May 12,
1997 and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to this item is contained in the Proxy
Statement for the Company's annual meeting of stockholders to be held May 12,
1997 and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information with respect to this item is contained in the Proxy
Statement for the Company's annual meeting of stockholders to be held May 12,
1997 and is incorporated herein by reference.
44
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Annual Report.
1. Financial Statements
The financial statements listed in Part II, Item 8 on page 25 are filed as part
of this Annual Report.
2. Financial Statement Schedules
Page
Independent Auditors' Report 26
Schedule II - Valuation and Qualifying Accounts 48
Schedules not listed above have been omitted because the required information is
not present or is not present in amounts sufficient to require submission of the
schedule, or because information required is included in the consolidated
financial statements or the notes thereto.
3. Exhibits
See Exhibit Index on page 49.
The following management compensatory plans and arrangements are required to be
filed as exhibits to this Annual Report pursuant to Item 14(c):
Exhibit
Number Description
10.2 Registrant's 1989 Stock Option Plan, as amended (the "Stock Option
Plan")(1)
10.3 Form of Incentive Stock Option grant under the Stock Option Plan(2)
10.4 Form of Supplemental Stock Option grant under the Stock Option Plan(2)
10.5 Registrant's Employee Stock Purchase Plan, as amended(3)
10.12 Registrant's 1994 Non-Employee Directors' Stock Option Plan, as
amended (4)
- - ----------------
(1) Filed as an exhibit to the Registrant's Registration Statement on
Form S-8 (No. 33-94030) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on
Form S-1 (No. 33-72380) or amendments thereto and incorporated herein
by reference.
(3) Filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993 and incorporated
herein by reference.
(4) Filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated
herein by reference.
45
<PAGE>
(b) Reports on Form 8-K
In a report filed on Form 8-K on December 2, 1996, the Company reported the
filing of a complaint against the Company by Otto M. Voit, III. See Note 9 of
Notes to Consolidated Financial Statements included in Part II, Item 8 herein.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 27th day of
March, 1997.
WONDERWARE CORPORATION
By: /s/ ROY H. SLAVIN
------------------------------
Roy H. Slavin
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Roy H. Slavin and Sam M. Auriemma, or
either of them, his attorney-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Roy H. Slavin March 27, 1997
- - ------------------------
Roy H. Slavin Chairman of the Board,
President and Chief Executive Officer
(Principal executive officer)
/s/ Sam M. Auriemma March 27, 1997
- - ------------------------
Sam M. Auriemma Vice President, Finance and
Chief Financial Officer
(Principal financial and
accounting officer)
/s/ F. Rigdon Currie Director March 27, 1997
- - ------------------------
F. Rigdon Currie
/s/ Harvard H. Hill, Jr. Director March 27, 1997
- - ------------------------
Harvard H. Hill, Jr.
/s/ Jay L. Kear Director March 27, 1997
- - ------------------------
Jay L. Kear
/s/ John E. Rehfeld Director March 27, 1997
- - ------------------------
John E. Rehfeld
47
<PAGE>
<TABLE>
<CAPTION>
WONDERWARE CORPORATION AND SUBSIDIARY
Schedule II--Valuation and Qualifying Accounts
Additions
Balance, Charged to Additions Balance,
Beginning Costs and Charged to End of
Description of Period Expenses Revenues Deductions Period
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts $ 903,839 $ 241,302 $ (13,131) $ 1,132,010
Sales returns allowance 190,000 $ 1,030,377 (1,030,377) 190,000
Year ended December 31, 1995:
Allowance for doubtful accounts 402,426 558,290 (56,877) 903,839
Sales returns allowance 455,000 334,043 (599,043) 190,000
Year ended December 31, 1994:
Allowance for doubtful accounts 212,190 224,539 (34,303) 402,426
Sales returns allowance 50,000 907,814 (502,814) 455,000
</TABLE>
48
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
3.1 Registrant's Amended and Restated Certificate of Incorporation(1)
3.2 Registrant's Amended Bylaws(1)
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Specimen stock certificate(2)
4.3 Specimen Right Certificate (3)
4.4 Rights Agreement, dated February 15, 1996, between the Registrant and
the First National Bank of Boston, as Rights Agent (3)
10.1 Form of Indemnity Agreement entered into between the Registrant and its
directors and officers(2)
10.2 Registrant's 1989 Stock Option Plan, as amended (the "Stock Option
Plan")(4)
10.3 Form of Incentive Stock Option grant under the Stock Option Plan(1)
10.4 Form of Supplemental Stock Option grant under the Stock Option Plan(1)
10.5 Registrant's Employee Stock Purchase Plan(5)
10.6 Form of Registrant's Proprietary Information and Inventions
Agreement(2)
10.7 Series B Preferred Stock Purchase Agreement among the Registrant
and the other parties named therein, dated as of February 28, 1991, as
amended(2)
10.8 Industrial Lease Agreement between the Registrant and The Irvine
Company, dated April 23, 1993(2)
10.9 Loan and Security Agreement between the Registrant and Silicon Valley
Bank, dated May 29, 1992, as amended(1)
10.10 License and Consulting Agreement between the Registrant and Microsoft
Corporation, dated October 3, 1991, as amended (6)
10.11 Development and License Agreement between the Registrant and Microsoft
Corporation, dated December 3, 1992 (6)
10.12 Registrant's 1994 Non-Employee Directors Stock Option Plan, as
amended (7)
10.13 Lease Agreement between the Registrant and Aetna Life Insurance
Company, dated July 24, 1996
10.14 Employment Agreement between the Registrant and Roy H. Slavin, dated
November 28, 1995
10.15 Separation Agreement between the Registrant and Gary J. Wilson, dated
September 9, 1996
21.1 Subsidiaries of the Registrant
23.1 Independent Auditors' Consent
24.1 Power of Attorney. See page 47
49
<PAGE>
- - ----------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (No. 33-72380) or amendments thereto and incorporated herein by
reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (No. 33-63906) or amendments thereto and incorporated herein by
reference.
(3) Filed as an exhibit to the Registrant's Current Report on Form 8-K dated
February 15, 1996 and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 (No. 33-94030) and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993 and incorporated herein by reference.
(6) This exhibit was originally filed as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-63906) with certain confidential
portions redacted. It is filed as an exhibit to this Report to disclose
those portions for which confidential treatment was previously granted.
(7) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein by reference.
50
EXHIBIT 10.10
License and Consulting Agreement between the Registrant and Microsoft
Corporation, dated October 3, 1991, as amended
MICROSOFT CORPORATION
LICENSE AND CONSULTING AGREEMENT
This License and Consulting Agreement ("Agreement") is made and entered
into as of the later of the two dates on the signature page by and between
WONDERWARE, INC. ("COMPANY"), a California corporation, and MICROSOFT
CORPORATION ("MS"), a Delaware corporation.
In consideration of the covenants and conditions hereinafter set forth,
MS and COMPANY agree as follows:
1. License.
1.1 Licensed Software. COMPANY hereby grants to MS a nonexclusive,
worldwide, fully paid, perpetual, irrevocable license (a) to use,
modify, create derivative works based upon, reproduce, distribute
or license, or sell, rent or lease copies of, the software
described on Exhibit A ("the Licensed Software") as part of or in
conjunction with MS products, in source and object code forms, and
derivative works thereof, and (b) to license third parties to
exercise the foregoing rights, including the right to license such
rights to further third parties. The foregoing license grant
includes a license under any patents owned or licensable by
COMPANY at any time during the term of this Agreement (I) to the
extent necessary to exercise any license right granted herein, or
(ii) to combine the Licensed Software or derivative works thereof
with equipment. The foregoing license grant shall include all
COMPANY test software for Licensed Software, provided that such
test software shall be used by MS and its licensees internally
only. The Licensed Software shall conform to the specifications
attached as Exhibit A. The above restriction that the Licensed
Software be distributed or licensed "as part of or in conjunction
with MS products" shall not apply to International Business
Machines, Inc. and its subsidiaries ("IBM").
1.2 MS Derivative Works. MS hereby grants to COMPANY a
nonexclusive, worldwide, fully paid, perpetual, irrevocable
license to:
(A)use and modify dervative works of Licensed Software
developed by MS eighteen (18) months after MS' first
commercial shipment of Licensed Software (" MS First Cycle
Derivative Works") in source and object code forms for the
purpose of maintaining compatability between Licensed
Software and MS First Cycle Derivative Works: and
(B)reproduce, distribute or license, or sell, rent or lease
copies of MS First Cycle Derivative Works in object code
form.
<PAGE>
COMPANY may not use MS' name in connection with MS Derivative Works or
otherwise, and shall not make any statements to the effect that the MS
Derivative Works are "certified", "guaranteed" or the like by MS.
1.3 Compatibility.
(A)With respect to MS' initial release of Licensed Product,
MS and COMPANY shall agree upon joint specifications for
(1) wire protocol and (2) Network Interface DLL API
(currently defined in Appendix A). In the event that the
parties are unable to agree to such joint specifications,
either party may terminate this Agreement without
obligation for further payment.
(B)MS shall use reasonable best efforts to provide COMPANY
with specifications of derivative works of Licensed
Software developed by MS for a period of five (5) years
after MS' first commercial shipment of Licensed Software,
and at MS' sole discretion, pre-release copies thereof,
for COMPANY's use to maintain compatibility between
Licensed Software and such derivative works thereof.
1.4 Competing Products.
In partial considerations for MS'
license rights above, MS agrees that for a period of one
(1) year after MS' first commercial shipment of Licensed
Software or a derivative thereof, it will not distribute
any derivative works of Licensed Software for exclusive
use in HP-UX and DEC VMS environments. MS further agrees
that in the event it will not distribute any derivative
works of Licensed Software for TCP, Serial and SPX/IPX
mechanisms until September 30, 1992, and thereafter it
will give COMPANY sixty (60) days notice of its intent to
do so. MS further agrees that it will not release
specifications for Network Interface DLL API (see Exhibit
A) until the earlier of January 1, 1992 or the date of MS'
first commercial shipment of Licensed Software or a
derivative thereof. MS agrees to give COMPANY ninety (90)
days notice of its first commercial shipment of Licensed
Software.
1.5 "Buyout" for Distribution of TCP, Serial and SPX/IPX
Mechanisms. Notwithstanding Section 1.4 above, MS, at
its option, may either:
(1)extend its license rights in Section 1.1 to
Licensed Software for TCP, Serial and SPX/IPX
mechanisms developed by COMPANY (at which time
"Licensed Software" shall be deemed to include
such mechanisms) or
(2)distribute TCP, Serial and SPX/IPX mechanisms
developed by MS or a third party. In such case,
MS shall pay COMPANY the applicable amount listed
below:
<TABLE>
<CAPTION>
Date of MS' first commercial TCP, Serial, SPX/IPX licensed TCP, Serial, SPX/IPX developed by
shipment of Licensed Software for from COMPANY MS or third party
TCP, Serial and SPX/IPX
---------------------- ---------------------- ----------------------
<S> <C> <C>
before June 30, 1992 100,000 100,000
before July 31, 1992 80,000 80,000
before August 31, 1992 60,000 60,000
before September 30, 1992 50,000 50,000
after September 30, 1992 50,000 0
</TABLE>
2. Delivery Schedule. COMPANY shall complete and deliver the Licensed
Software to MS on or before September 23, 1991.
MS shall evaluate the Licensed Software and shall submit a written
acceptance or notice of nonconformities to COMPANY within ninety (90) days after
MS' receipt of the Licensed Software, in a default of which the Licensed
Software shall be deemed accepted. Successful execution of Licensed Software
with MS development tools, as determined by MS, shall solely determine MS' right
to accept or reject the Licensed Software. The Licensed Software shall be deemed
accepted if MS ships the same to a customer for revenue. If rejected, COMPANY
shall promptly correct the Licensed Software. If COMPANY fails to correct the
Licensed Software within fifteen (15) days after notice of rejection, MS may
terminate this Agreement with no further obligation to COMPANY or may extend the
correction period, at its option.
3. Payment. MS shall pay COMPANY up to One Hundred Twenty-Five Thousand
Dollars ($125,000.00) and MS shall provide COMPANY with Twenty-Five
Thousand Dollars (US$25,000.00) worth of MS products and/or services as
selected by COMPANY, as a one-time, fully paid royalty for the Licensed
Software as follows:
Payment Event Amount
Signing this Agreement $10,000
Delivery of Licensed Software $40,000
Agreement for Joint Specifications for $40,000 +
MS initial release of Licensed $25,000 of MS
Software products/services
First shipment of Licensed Software for
revenue by MS $35,000
4. Maintenance. COMPANY shall provide MS with corrections and enhancements to
the Licensed Software, at no additional charge, for a period of one (1)
year ("Maintenance Period") after MS' final acceptance of the Licensed
Software. Such corrections or enhancements shall be provided to MS in beta
and final forms, and no later than they are provided to any other
customers. During the Maintenance Period COMPANY shall use reasonable best
efforts to correct all errors or defects in the Licensed Software reported
by MS promptly (but no later than twenty (20) days ) after notice of errors
or defects from MS. COMPANY shall provide MS with reasonable assistance
when errors or defects are attributed to derivative works of Licensed
Software rather than to Licensed Software itself.
5. Non-Disclosure; Press Release .
(a) COMPANY expressly undertakes to retain in confidence all
information and know-how transmitted to COMPANY by MS that MS has
designated as proprietary and/or confidential or that, by the
nature of the circumstances surrounding the disclosure, ought in
good faith to be treated as proprietary and/or confidential, and
will make no use of such information and know-how except under the
terms and during the existence of this Agreement COMPANY's
obligation under this section 5 with respect to any particular
information shall extend to the earlier of such time as the
information is in the public domain through no fault of COMPANY or
ten (10) years following its receipt by COMPANY.
(b) At the earlier of such time that MS first discloses to any
customer that MS has licensed the Licensed Software or January 31,
1992, COMPANY may thereafter inform its customers that COMPANY has
licensed the Licensed Software to MS. MS shall notify COMPANY
prior to MS' initial disclosure to any customer. Prior to MS'
first commercial shipment of Licensed Software, all disclosures by
MS and COMPANY to its customers shall be pursuant to
non-disclosure agreements.
(c) Upon MS' first shipment of Licensed Software in any form by MS to
a customer, MS and COMPANY shall issue a joint press release
announcing the licensing of Licensed Software to MS, the content
of which shall be agreed upon by the parties.
6. COMPANY Warranties. COMPANY warrants that:
(a) The Licensed Software as delivered to MS does not infringe any
copyright, patent, trade secret, or other proprietary right held
by any third party; and
(b) The Licensed Software will meet the specifications listed in
Exhibit A of this Agreement.
7. Indemnity.
(a) COMPANY agrees to indemnify, defend, and hold MS and its
successors, officers, directors and employees harmless from any
and all actions, causes of action, claims, demands, costs,
liabilities, expenses and damages arising out of or in connection
with any claim which, if true, would constitute a breach of
COMPANY's warranty under Section 6(a).
(b) If any action shall be brought against MS in respect to which
indemnity may be sought from COMPANY pursuant to the provisions of
this Section, MS shall promptly notify COMPANY in writing,
specifying the nature of the action and the total monetary amount
sought or other such relief as is sought therein. MS shall
cooperate with COMPANY at COMPANY's expense in all reasonable
respects in connection with the defense of any such action.
COMPANY may upon written notice thereof to MS undertake to conduct
all proceedings or negotiations in connection therewith, assume
the defense thereof, and if it so undertakes, it shall also
undertake all other required steps or proceedings to settle or
defend any such action, including the employment of counsel which
shall be satisfactory to MS, and payment of all expenses. Ms shall
have the right to employ separate counsel and participate in the
defense thereof. COMPANY shall reimburse MS upon demand for any
payments made or loss suffered by it at any time after the date
hereof, based upon the judgment of any court of competent
jurisdiction or pursuant to a bona fide compromise or settlement
of claims, demands, or actions, in respect to any damages to which
the foregoing relates.
(c) If the Licensed Software furnished hereunder is in any action held
to constitute an infringement and its use is enjoined, COMPANY
shall immediately and at its expense:
(i) procure for MS the right to continue to license the
Licensed Software as provided in Section 1; or (ii) replace
or modify the Licensed Software with a version of the
Licensed Software that is non-infringing.
If (i) or (ii) are not available to COMPANY, and without limiting
MS' other remedies, COMPANY shall refund MS all amounts paid to
COMPANY by MS hereunder.
(d) This Section 7 shall survive any termination or expiration of this
Agreement.
8. Termination. If the Licensed Software is not delivered on the due date(s)
specified above, or if the Licensed Software does not meet the
specifications in Exhibit A, MS may, at its option and upon written notice
to COMPANY, terminate this Agreement and obtain a full refund of any
amounts paid hereunder.
9. Notices and Requests.
All notices and requests in connection with this Agreement shall be
deemed given as of the day they are received either by messenger, delivery
service, or in the United States of America mails, postage prepaid,
certified or registered, return receipt requested, addressed as follows:
COMPANY: WONDERWARE, INC.
===================
Attention: ___________________
MS: MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
Attention: _________________________
with a copy to: MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
Attention: Law & Corporate Affairs
or to such other address as the party to receive the notice or request
so designates by written notice to the other.
10. Miscellaneous.
(a) COMPANY is an independent licensor and contractor for MS, and
nothing in this Agreement shall be construed as creating an
employer-employee relationship, a partnership, or a joint venture
between the parties.
(b) This Agreement shall be governed by the laws of the State of
Washington and COMPANY consents to jurisdiction and venue in the
state and federal courts sitting in the State of Washington. In
any action or suit to enforce any right or remedy under this
Agreement or to interpret any provision of this Agreement, the
prevailing party shall be entitled to recover its costs, including
reasonable attorneys' fees.
(c) This Agreement does not constitute an offer by MS and it shall not
be effective until signed by both parties. This Agreement
constitutes the entire agreement between the parties with respect
to the Licensed Software and all other subject matter hereof and
merge all prior and contemporaneous communications. It shall not
be modified except by a written agreement dated subsequent to the
date of this Agreement and signed on behalf of COMPANY and MS by
their respective duly authorized representatives.
(d) This Agreement may be assigned by MS but shall not be assigned by
COMPANY without MS' prior written approval. Except as otherwise
provided, this Agreement shall be binding upon and inure to the
benefit of the parties' successors and lawful assigns.
WONDERWARE SOFTWARE
MICROSOFT CORPORATION DEVELOPMENT, INC.
One Microsoft Way 16 Technology Dr.
Redmond, WA 98052-6399 Irvine, CA 92718
Steven A. Ballmer Dennis R. Morin
Senior Vice President President, CEO
October 3, 1991 October 2, 1991
33-0304677
COMPANY's Federal
Employer ID number or
Social Security number
<PAGE>
Exhibit A
LICENSED SOFTWARE SPECIFICATIONS
The Licensed Software shall contain the following features and perform in
accordance with the following specifications:
<PAGE>
Appendix A
NetDDE for Windows
Overview
This document describes the functional end user behavior that NetDDE for Windows
supplies.
Microsoft's Dynamic Data Exchange (DDE) protocol is normally limited to
exchanging data between applications running in a single environment on a single
machine. By using NetDDE for Windows the functionality of DDE is extended to
include communication with multiple applications over different networks between
similar or different operating environments. This allows applications to
exchange information dynamically even if they are running on different machines
and different network interfaces.
DDE is the acronym for Dynamic Data Exchange. DDE is a complete communication
protocol designed by Microsoft to allow applications in the Windows environment
to send/receive data and instructions to/from each other. It implements a
client-server relationship between two concurrently running applications. The
server application provides the data and accepts requests from any other
application interested in its data. Requesting applications are called clients.
Some applications (e.g. InTouch, Excel, etc.) can simultaneously be both a
client and server.
To obtain data from another application, the client program opens a conversation
to the server application by specifying three things: the server application
name, the topic name and the specific item name. For example, in the case of
Excel, the application name is "Excel", the topic name is the name of the
specific spreadsheet that contains the data and the item name is the specific
cell on the spreadsheet.
When a client application sets up a conversation to another DDE program, it
requests the server application to advise the client whenever a specific item's
value changes. These data links remain active until either the client or server
program terminates the conversation. This is a very efficient means of
exchanging data because once the conversation has been established, no
communication occurs until the specified data value changes. Additionally,
clients can perform one-time requests, change data values in the server and
cause commands to be executed in the server, all via DDE.
Hardware and Networks Supported
NetDDE for Windows supports the following hardware:
IBM PC's and compatibles running Windows
Reserving Onboard Memory
If the NetDDE for Windows program will be used in Windows 386 Enhanced Mode.
Windows must be prevented from trying to manage the memory on the network card.
A range of memory addresses that are not used by any other devices must be
identified in the computer. The range size depends on the network card. The
following address ranges are typical; but PC-compatibles vary. The best
candidate is indicated by an asterisk (*).
Memory Range Typical Use
0000-A000 System memory; do not use.
A000-B000 Graphic video display memory; do not use
B000-B800 Monochrome display memory; okay to use if using a
color-only system.
B800-C000 Color display memory; okay to use if using a
monochrome- only system.
C000-C400 EGA BIOS; do not use if display controller is EGA.
C000-C800 VGA BIOS; do not use if display controller is VGA.
C800-D000 Sometimes used by video cards. Use with caution.
D000-E000 Usually available. Be sure to avoid conflicts with other
cards such as network adapters.
E000-F000 Sometimes used by system BIOS; use with caution.
F000-FFFF System BIOS; do not use.
The chosen memory address should be set in the switches on the network card. The
memory is reserved by modifying the SYSTEM.INI file as described below. (The
SYSTEM.INI file is located in the same directory as Microsoft Windows.)
Using a text editor program, open the file SYSTEM.INI and locate the 386
Enhanced section which is indicated by a line containing only [386Enh]. If there
is no such section, add it to the end of the file and enter the following
EMMExclude statement:
[386Enh]
EMMExclude=A000-EFFF
Installing NetDDE for Windows
The NetDDE for Windows program is installed by running the INSTALL.EXE program
contained on the distribution disk as follows:
1. Start Windows
2. Insert the NetDDE for Windows program disk into the appropriate drive.
3. From the Windows Program Manager invoke the /File/Run command.
The following dialog box will appear:
[GRAPHIC OMITTED, Sample of Screen View]
4. Enter A:\INSTALL or B:INSTALL (according to the drive being used) and click
on OK or press the (Enter) key. The following dialog box will appear:
[GRAPHIC OMITTED, Sample of Screen View]
5. To install the program in the default directory, C:\INTOUCH, click on OK.
To install the program in a different directory, enter the pathname for the
directory and then click on OK.
To automatically start up the NetDDE for Windows program when Windows is
started, enter the actual program name in the "load line" in the WIN.INI file;
load=NETDDE.
Running NetDDE for Windows
Start NetDDE for Windows by double-clicking on its icon or by invoking the
/File/Run.. command from the Windows Program Manager and entering NetDDE.
Each node on the network must have a unique network name defined for it.
Therefore, the first time NetDDE for Windows is run, the following dialog box
will automatically appear:
[GRAPHIC OMITTED, Sample of Screen View]
Enter a name for the local node and click on OK. Note: All nodes on the network
must have unique names.
The "Network Interface Selection" dialog box will appear:
[GRAPHIC OMITTED, Sample of Screen View]
Select the network interface(s) which are to be available for the local computer
and click on OK. A confirmation message box will appear noting the addition,
click on OK. Note: Only NetBIOS is supported.
The NetDDE for Windows Program Window
Once the node has been named and the network interface(s) has been selected, the
NetDDE for Windows program window will appear. The connection information
displayed in the window will depend upon the options enabled in the /Display
menu:
[ GRAPHIC OMITTED, Sample of Screen View ]
If all connection information options are enabled, the window will be displayed
as follows:
[ GRAPHIC OMITTED, Sample of Screen View ]
The following describes each connection information box:
Direct Connections
Layer - Network interface through which the connection is being made. Node -
Name of the remote node to which the local node is connected.
Status - Current state of the NetDDE connection.
Network Routes
Source - A node name will appear in this area if the local computer is being
used as a hop in a route being used by another node. Otherwise.[Local] will be
displayed.
Dest - A node name will appear in this area. Status - Current state of the
network connection.
DDE Routes
Type - The DDE route type; Local -> Net, Net ->Local or Local->Local. Status -
Current state of the network connection.
Conversations
Conversation - The remote \\nodename\application (client) initiating the DDE
conversation to the local \\nodename\application\topic (server) via NetDDE.
Status - Current state of the DDE conversation.
Once a connection has been established, data regarding the connection will be
displayed in the window as shown in the example below. Enabling the
/Display/Stastics option will cause Sent and Rcvd fields to appear in the
window. These fields will display the number of packets sent and received. For
example:
[GRAPHIC OMITTED, Sample of Screen View]
If none of the /Display options are enabled, the window will appear as follows:
[GRAPHIC OMITTED, Sample of Screen View]
Configuring NetDDE for Windows
When NetDDE is installed, the `NETDDE.INI' file is automatically created in the
Windows default directory and is read by the NetDDE for Windows program when it
is started to determine its operating parameters. Note: The operating parameters
saved in this file should not be edited manually by the user.
The /Configure menu contains the commands which are used to modify and/or setup
the NetDDE for Windows program's operating parameters:
[GRAPHIC OMITTED, Sample of Screen View]
The following pages describe each /Configure menu command.
Node Name ...Command
This command is used to change the name currently assigned to the local node. If
the node name is changed, the following self-explanatory message box appears:
[GRAPHIC OMITTED, Sample of Screen View]
Note: The first time the NetDDE for Windows program is started up, the user must
enter a name for the node in order to run the program (as previously described
in the Running NetDDE for Windows section).
Routing Information ... Command
This command is used to setup and/or edit the routing.csv file which stores all
routes to remote nodes to be used by the local node. (Refer to The Routing
Information File section for complete details on setting up this file.)
Preferences... Command
Invoking this command will cause the ".CSV Editor" dialog box to appear:
[GRAPHIC OMITTED, Sample of Screen View]
This dialog box is used to designate the program (default is "Notepad") to be
used as the editor for the node's Routing Information and Security Information
files. To specify another program to be used for the editor, enter that
program's name (e.g., Excel) and click on OK.
Security Information ... Command
This command is used to setup and/or edit the security.csv file which stores all
security access data for the local node. (Refer to The Security Information File
section for complete details on setting up this file.)
Network Interfaces ... Command
This command is used to set the network interface(s) default and to add/modify
the interface(s) available for the local node. When the command is invoked, the
"Network Interface Selection" dialog box will appear:
[GRAPHIC OMITTED, Sample of Screen View]
Note: The first time the NetDDE for Windows program is started up, the user must
select the default network interface in order to run the program. Only NetBIOS
is supported.
Configuring the NetBIOS Network Interface
The NetBIOS Parameters command is used to configure the operating parameters for
the NetBIOS network interface. It is recommended that these parameters be the
same on all nodes to which connections may be made. (These parameters are saved
in the NETDDE.INI file in the Windows directory and are read by the NetDDE for
Windows program each time it is run.) Invoking this command will cause the
"NetBIOS Configuration Parameters" dialog box to appear:
[GRAPHIC OMITTED, Sample of Screen View]
The following describes each field in this dialog box:
Packet Size
The Default packet size (in bytes) used to communicate with other NetDDE nodes
via NetBIOS.
Max Unack Pkts
The maximum number of outstanding packets that will be permitted.
Timeouts
Receive connect Cmd
The number of seconds NetDDE for Windows will wait from the initial connection
to this node to receive the initial connect packet from the remote node.
Receive Connect Rsp
The number of seconds NetDDE for Windows will wait from when it sent the initial
connect packet to when it receives the initial connect response packet.
Memory Pause
The number of seconds to wait before retrying to transmit a DDE message which
the remote node did not have enough memory to initially receive.
No Response
The number of seconds to wait for the remote node to acknowledge a packet sent.
When this timeout expires, the packet is retransmitted.
Keep Alive
If there is no DDE activity being conducted, this is the frequency (in seconds)
an inquiry will be sent to the remote node to see if the connection is still
alive.
Stuck Xmit
The number of seconds NetDDE for Windows will wait for the NetBios session to
allow more information to be sent. When this timeout is exceeded, the connection
is closed.
Retry Limits
Transmission Errors
The consecutive number of times NetDDE for Windows will tolerate the remote node
indicating that it received a packet with a checksum or CRC error. If this limit
is exceeded, the connection is closed.
Out-of-Memory Errors
The number of times NetDDE for Windows will retry to send a DDE message when the
remote node does not have enough memory for it. If this limit is exceeded, the
connection is closed.
No Response Errors
The number of times NetDDE for Windows will attempt to send a DDE message when
there is no response from the remote node. If this limit is exceeded, the
connection is closed.
Validation Method
Select the option for controlling the method of valid packet verification
between NetDDE nodes. A value of 1 uses CRC, a value of 2 uses 32-bit checksum.
(The validation method can be different on each node.)
The Routing Information File
NetDDE has the capability of directly connecting nodes which reside on the same
network interface or establishing routes over different operating networks.
Establishing these routes serves two purposes; bridging multiple networks and
providing the capability for dial-in support from laptops. To accomplish this, a
Routing Information File is setup on each node to store the routes it will use.
Note: If using just LAN, routes are not necessary. NetDDE uses a CSV (comma
separated variable) file format, generally named routing.csv. The format of a
route in the routing.csv file is as follows:
ToNode,/NetworkInterface(Node)+[/NetworkInterface(Node)],CloseRoute,Seconds
The ToNode is the name of the node to which the route relates. The
/NetworkInterface(Node) + /NetworkInterface(Node) sections are each called a
hop. A hop tells NetDDE the network interface and node on that network to which
the connection must be made to get to the desired node. /NetworkInterface(Node)
is the generic term for a fully qualified hop. There is no limit to the number
of hops for a route. However, the total string length must be 512 characters or
less. The following lists examples of fully qualified hops and their
descriptions:
/netbios(Jerry) Use NetBIOS to connect to Jerry
Fully qualified hops are not always required.
To setup and/or edit the Routing Information File invoke the /Configure/Routing
Information command. Invoking this command will cause the ".CSV file for Routing
Information" dialog box to appear:
[GRAPHIC OMITTED, Sample of Screen View]
When this dialog box appears, the default directory and filename (routing.csv)
will be displayed in the .CSV File: field. To save the file under a different
name or in a different directory, enter the new directory and filename here.
Note: The file must be saved with the .csv extension.
By default, NetDDE for Windows is setup to automatically close all network
connection routes which are not used for 30 seconds. (The default number of
seconds can be increased or decreased, as required.) To disable this function
(which changes the default) for all network routes, deselect the Close Route
when not in use checkbox.
The number of seconds and the closing of a specific network route to a specific
node, can be controlled by entries made in the local node's Routing Information
File. To control the closing, a 1 (to close) or a 0 (not to close) is entered
following the NetworkInterface portion of the node's route. To control the
number of seconds, enter the desired amount following the closing data. In the
following example. the network route from "Rich" to "Phil" will automatically be
closed (indicated by the "1" following the Network Interface) after 45 seconds.
Phil./netbios(Chet)+/netbios(Rich),1,45
Note: If the closing and/or seconds information is not included in the route,
the default settings are used.
To edit the Routing Information file, click on the Edit button. If this is the
first time the Routing Information file is being edited, the following message
box will appear:
[GRAPHIC OMITTED, Sample of Screen View]
Note: By default the file will automatically be created using the "Notepad"
program unless another program is designated to be used as the editor via the
/Configure/Preferences command (previously described).
Click on Yes to open "Notepad" and create the routing.csv file
The Security Information File
When a DDE client attemps to establish a conversation with the local node
(server), NetDDE for Windows knows what remote node/application is trying to
establish the conversation and the application/topic to which the client is
trying to connect. The Security Information File is setup to control access to
the DDE-available data on the local node. It proves the user with the ability to
prevent specific nodes from gaining access to a specific application and/or
topic. NetDDE uses a CSV (comma separated variable) file format, generally named
security.csv to implement this security. The format of each line in the.
Security.csv file is as follows:
ToApp,ToTopic,FromNode,FromApp,Allow?,StartApp?,CommandToRun
where: To App is the name of the application on the server to be accessed.
ToTopic is the topic within the ToApplication to be accessed.
FromNode the client initiating the DDE Conversation.
FromApp the name of the application on the remote node attempting to
connect to the application on the local node.
Allow? a flag to indicate whether or not the client is allowed to
access to the application/topic
StartApp? A flag to indicate whether or not the client is allowed to
start the application (if currently not running) on the server.
CommandToRun (optional) a command can be entered, that is run when
NetDDE initiates the DDE conversation.
NetDDE for Windows will read the security file in order (from top to bottom) for
a line that matches the intended DDE conversation. The first four fields in each
line are used to find the match.
For example, let's assume we have an Excel spreadsheet (receipe1.xls) that we
only want one remote node (Phil) to have access to regardless of what
application he is running. We also only want to allow Jerry to have access from
the Wonderware InTouch View application. All other Excel spreadsheets we will
allow everyone to access. If we use the Excel as the editor, our Security
Information File would be set up as follows:
[GRAPHIC OMITTED, Sample of Screen View]
When "Phil" attempts to connect to excellreceipe1.xls. the first line in the
matches and the conversation would be permitted. When "Jerry" tries to connect
to excellreceipe1.xls. if he is using the View application, the second line
matches and the conversation would be permitted. If the application on "Jerry"
were the other than View, the third line matches and the conversation would be
rejected because the Allow? field is set to "0" (do not allow). Note: Since
asterisks (*) can be used to match all, there is complete flexibility for
setting up security.
To setup the Security Information File invoke the /Configure/Security
Information command. Invoking this command will cause the ".CSV file for
Security Information" dialog box to appear:
[GRAPHIC OMITTED, Sample of Screen View]
Whe this dialog box appears the default directory and filename for the Security
file will be displayed in the .CSV File field. To save the file in a different
directory or under a different name, enter the new directory and filename here.
Note: The file must be saved with the .csv extension.
By default, NetDDE for Windows is setup to automatically Allow Conversations
with the local node from all remote nodes. Tp prevent all remote nodes from
establishing DDE conversations with the local node, deselect this checkbox.
Through entries made in the Security Information File, a specific remote node
can be prevented from establishing any DDE conversation with the local node or a
DDE conversation to a specific application.
For example, if "Sue" is not permitted to establish a DDE conversation with
Excel on the local node, "excel,*,sue,*,0" would be entered in the Security
Information File.
Selecting the checkbox for the Start Applications when initiate fails option
will allow applications on the local node to automatically be started (if not
currently running) whenever a remote node initiates a DDE conversation to that
applciation. (The default is "application/topic".
If a conversation is permitted via the Security Information File, NetDDE will
try to initiate the conversation. If the Initiate fails, NetDDE consults the
StartApp? and CommandToRun options. If StartApp? is set to "1", NetDDE will
start the appliciation and try the initiate. A specific remote node can be
prevented from starting all or specific applications on the local node by
entering a "0" in the StartApp? Field in the Security Information File.
For example, if "Chet" is permitted to establish a DDE conversation with Excel
and is allowed to startup Excel if it is not running on the local node,
"excel,*,Chet,1,1" would be entered in the Security Information File. Also, if
an entry exists in the CommandToRun field, that command will be run and then
NetDDE will try to initiate the conversation. In the following example, Excel
will be started and will load resume.xlw then the initiate will be retried.
Excel,receipe1.xls,Chet,*,1,1,excel resume.xlw
To edit the Security file, click on the Edit button. If this is the first time
the Security file is being edited, the following message box will appear:
[GRAPHIC OMITTED, Sample of Screen View]
Note: By default, the file will automatically be created using the "Notepad"
program unless another program is designated to be used as the editor via the
/Configure/Preferences command (previously described) Click on Yes to cause
NetDDE to create the security.csv file.
If "Notepad" is used for the editor, the Security Information File should be
setup as shown in the following example:
[GRAPHIC OMITTED, Sample of Screen View]
Security Guidelines
In general, it is recommended that the last line in the security.csv file
contain asterisks (*) for the first four fields and then the default processing
for Allow? and StartApp?. For example, if you generally want to restrict access
to your system, and only allow certain conversations to take place, make the
last line of the file:
*,*,*,*,0
This makes the default processing to not allow the conversation if not
specifically mentioned previously in the file.
If you wish to generally allow conversations to take place, but not to default
to starting applications on your machine, make the last line:
*,*,*,*,1,0
If you wish to be very generous to your network peers, and by default allow all
conversations and the ability to start all applications whenever necessary, make
the last line:
*,*,*,*,1,1
Testing the NetDDE for Windows Installation
To test the installation of NetDDE for Windows, install the program on two nodes
on the network. On one node, invoke the /Connections/Open command:
[GRAPHIC OMITTED, Sample of Screen View]
The "Name to connect to" dialog box will appear:
[GRAPHIC OMITTED, Sample of Screen View]
Enter the name of a remote node to connect to and click on OK. If the connection
is successful, connection information will appear in the NetDDE program window's
"Direct Connections" and "Network Routes" boxes and "Connected" will be
displayed in the "Status" section of those boxes. For example:
[GRAPHIC OMITTED, Sample of Screen View]
Note: If data momentarily appears and then disappears, the connection is not
established. If this is the case, verify that the network is properly installed.
The NetDDE Connection State Variable
The NetBIOS DDE networking program has a built-in discrete variable which
indicates the state of each network connection. The built-in discrete item,
"Connected", is set to 0 when the network connection fails or is disabled and is
set to 1 when connection is successful. To monitor the connection state a DDE
address is setup as follows:
netdde/info!node.connected
In Excel, the state of the network connection may be read and displayed in a
cell which contains the appropriate formula as shown in the following example:
[GRAPHIC OMITTED, Sample of Screen View]
If the connection is successful a 1 will be displayed in the cell. If the
connection is unsuccessful or broken a 0 will be displayed.
Setting Up a DDE Conversation
The DDE protocol identifies an element of data by using a three-part address.
The three parts of a DDE address are Application, Topic and Item.
Application refers to the name of the Windows program (server) which has the
ability to access the data element (e.g., Excel). In the case of NetDDE, when a
client application opens a conversation with an application residing on a remote
node (server), the name of the remote node must precede the application name in
the DDE Address. To distinguish the node name from the application name, it must
be preceded by two backslashes and followed by one backslash. For example:
\\NodeName\applicationname
Note: If the remote node to be accessed resides on a network interface other
that the default interface, the node name must have a route setup for it in the
local node's routing.csv file.
Topic Name is an application-specific sub-group of data elements. For example,
when conducting a DDE conversation with Excel, the topic name is name the
spreadsheet is saved under on the remote node.
Item Name indicates a specific data element within the specified topic. For
example, when conducting a DDE conversation with Excel, the item name is the
identification of a cell in the row/column format (RICI).
For example, if writing data from Excel on the local node to Excel on a remote
node, the following DDE formatted formula would be entered in an Excel cell on
the local node's spreadsheet:
[GRAPHIC OMITTED, Sample of Screen View]
where: \\NodeName\excel represents the application name
sheet.xls is the name of the spreadsheet to be accessed on the remote
node and represents the topic name rlc10 is the identification of the
cell in the spreadsheet from which the data is being sent and
represents the item name
Closing NetDDE Network Connections
All connections are terminated by invoking opening the /Connections menu and
invoking either the /Close Direct or /CloseRoute command. The "Choose
connection(s) to close" dialog box will appear:
[GRAPHIC OMITTED, Sample of Screen View]
The names of all remote nodes to which the local computer is directly connected
will be displayed in this dialog box. To close a connection, select the name(s)
of the node(s) and click on OK.
Note: If a node closes its direct connection to a node which is being used in a
route by another node, the route connection will also be terminated.
Network Interface DLL API
NetDDE for Windows uses the following API calls to communicate with a network
DLL. This feature provides a method for network independence.
Generic
BOOL Init (lpszNodeName)
VOID Shutdown 0
VOID Slice 0
Connection Management
CONNID ConnectToNode (lpszConnectionInfo)
VOID SetConnName (lpszName)
BOOL AnyNewConnection 0
CONNID GetNewConnection 0
VOID Disconnect (connid)
Status
DWORD ConnectionStatus (connid)
Connection CONN_OK. CONN_CONNECTING.
CONN_CLOSED
Rev Packet RCV_READY,RCV_EMPTY
Xmt Packet XMT_READY,XMT_BUSY
Packet I/O
BOOL RevPacket (connid.lpXmtBuf,lpwPktLen.lpwStatus)
BOOL XmtPacket (connid.lpXmtBuf,wPktLen)
Connection Config
VOID SetupConnection (connid,wMaxUnAckPkts,wPktSize)
VOID GetConnectionSetup (connid,lpwMaxUnAckPkts,lpwPktSize,
timeout info and retries)
Debug
VOID SetDebugLevel (connid,dwFlags)
VOID LogDebugInfo (connid,dwFlags)
<PAGE>
Amendment No.1 to the License and Consulting Agreement
Between
WONDERWARE, INC and MICROSOFT CORPORATION
Dated October 3, 1991
This Amendment to the License and Consulting Agreement between
MICROSOFT CORPORATION ("MS") and WONDERWARE, INC. ("COMPANY") dated October 3,
1991 ("Agreement"), is made and entered into this ______ day of _______________,
1992
The parties agree to amend the Agreement as follows:
1. The Licensed Software as defined in the Agreement shall be deemed to
include (a) a security enhancement for NetDDE for inclusion in MS' product
currently know as "Winball" and (b) a port of Licensed Software (described
in Exhibit A) to the Windows NT operating system. The security enhancement
shall conform to the specifications in Exhibit A1.
2. COMPANY shall complete the Licensed Software according to the following
schedule:
WORK Due Date
Design security scheme (Exhibit A1) April 7, 1992
Implement security (Exhibit A1) April 30, 1992
Port to Windows NT May 11, 1992
(as demonstrated at Windows World.
March 1992)
3. The second sentence of Section 1.4 shall be replaced with the following:
"MS further agrees that it will not distribute any derivative works of
Licensed Software for TCP, Serial and SPX/IPX mechanisms developed by MS or
a third party until twelve (12) months after MS' first commercial shipment
of Licensed Software or a derivative thereof, and it will give COMPANY
sixty (60) days notice of its intent to do so".
4. Section 1.5 shall be replaced with the following:
"License for TCP, Serial and SPX/IPX Mechanisms. Notwithstanding Section
1.4 above, at any time MS may extend its license rights in Section 1.1 for
Licensed Software to TCP, Serial and SPX/IPX mechanisms developed by
COMPANY (at which time "Licensed Software" shall be deemed to include such
mechanisms) by payment of Fifty Thousand Dollars (US$50,000.00) to COMPANY
for each (TCP, Serial or SPX/IPX) mechanisms."
5. Section 3 shall be replaced with the following:
"Signing this Agreement $10,000
Delivery of Licensed Software $40,000
Signing of Amendment #1 $65,000 plus
$25,000 of MS
products/services
First shipment of Licensed Software for $10,000
revenue by MS"
6. MS shall pay COMPANY's reasonable pre-approved travel expenses in
connection with development of the security enhancement (Exhibit A1).
COMPANY shall submit written invoices to MS for payment of these amounts
when they become due.
7. Section (C) shall be delected from the Agreement. Upon signing of Amendment
No.1 to the Agreement, MS and COMPANY shall issue a joint press release
announcing the licensing of Licensed Software to MS, the content of which
shall be agreed upon by the parties. In addition, MS agrees to permit
COMPANY to advertise the foregoing in a brochure to be included in the
retail product box for MS Windows 3.1. COMPANY shall submit all such
advertising to MS for approval prior to distribution, such approval shall
not be unreasonably withheld.
Except for the foregoing modifications, the terms of the Agreement shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement as of the date set forth above. All signed copies of this Amendment to
the Agreement shall be deemed originals. This Amendment does not constitute an
offer by MS. This Amendment shall be effective upon execution on behalf of
COMPANY and MS by their duly authorized representatives.
MICROSOFT CORPORATION WONDERWARE, INC.
Brad A Silverberg Dennis R. Morin
Vice President President, CEO
4/28/92 April 28, 1992
EXHIBIT 10.11
Development and License Agreement between the Registrant and Microsoft
Corporation, dated December 3, 1992
MICROSOFT CORPORATION
DEVELOPMENT AND LICENSE AGREEMENT
(Wonderware)
This Development and License Agreement (the "Agreement") is made and entered
into as of the later of the two dates on the signature page (the "Effective
Date") by and between WONDERWARE CORPORATION ("COMPANY"), a California
corporation, and MICROSOFT CORPORATION ("MS"), a Delaware corporation.
In consideration of the covenants and conditions hereinafter set forth, MS and
COMPANY agree as follows:
1. Development of Licensed Software. COMPANY shall develop and license to MS
on a non-exclusive basis a custom-designed software program for the
implementation of a Network DDE server on Windows NT which will compile and
run on both x86 and MIPS platforms (the "LICENSED SOFTWARE"), all in
accordance with the specifications attached hereto as Exhibit A and
incorporated by this reference (the "Specifications").
2. Delivery Schedule. COMPANY shall complete and deliver the LICENSED
SOFTWARE to MS according to the following schedule:
LICENSED SOFTWARE (or portion thereof) Due Date
Beta Quality Code January 1, 1993
Final Acceptance March 31, 1993
MS shall evaluate the LICENSED SOFTWARE and shall submit a written acceptance or
rejection to COMPANY within fifteen (15) days after MS' receipt of the LICENSED
SOFTWARE. Conformity to the Specifications and COMPANY's warranties herein shall
solely determine MS' right to accept or reject the LICENSED SOFTWARE. If
rejected, COMPANY shall promptly correct the LICENSED SOFTWARE. If COMPANY fails
to correct the licensed software within fifteen (15) days after notice of
rejection, MS may terminate this Agreement with no further obligation to
COMPANY.
3. License.
COMPANY hereby grants to MS a worldwide, fully paid, perpetual,
non-exclusive, irrevocable license (a) to use, modify, create derivative
works based upon, reproduce, distribute or license, or sell, rent or lease
copies of, the LICENSED SOFTWARE, in source and object code forms, and
derivative works thereof, and (b) to license third parties to exercise the
foregoing rights, including the right to license such rights to further
third parties.
Notwithstanding anything in license granted above to the contrary, MS shall
not license the source code of the LICENSED SOFTWARE or any derivative of
the LICENSED SOFTWARE to DEC for inclusion in non-MS operating systems. The
foregoing sentence, however shall not preclude DEC from shipping Network
DDE on versions of Windows NT that DEC licenses from MS.
4. Payment and Other MS Obligations.
(a) Royalties. In consideration for the development of the LICENSED
SOFTWARE and all royalties thereto, MS shall pay COMPANY [One Hundred
Thousand and no/100 Dollars ($100,000)] for the LICENSED SOFTWARE in
the following manner:
(i) [Thirty Thousand and no/100 Dollars ($30,000)] shall be paid to
COMPANY on the Effective Date of this Agreement;
(ii) [Forty Thousand and no/100 Dollars ($40,000)] shall be paid to
COMPANY upon MS' release of the beta version of the LICENSED SOFTWARE;
and
(iii)[Thirty Thousand and no/100 Dollars ($30,000)] shall be paid to
COMPANY upon MS' final acceptance of the LICENSED SOFTWARE.
(b) Limited License for Rights to MS PRODUCTS.
(i) License Grant. In addition to the payment described in subsection
(a) above, in consideration for the LICENSED SOFTWARE, upon
execution of this Agreement MS will provide COMPANY with one copy
of CLIPBOOK and CLIPSRV from Windows for Workgroups Version 3.1
and one copy of CLIPBOOK and CLIPSRV from Windows NT Version 3.1
(collectively, the "MS PRODUCTS") in source code form. MS hereby
grants COMPANY a limited, non-exclusive, non-transferable,
non-assignable, royalty-free ,perpetual license to: (a) modify
and adapt the MS PRODUCTS in source code form as needed to port
the MS PRODUCTS to MS and non-MS operating systems; and (b) to
reproduce and distribute worldwide such MS PRODUCTS in object
code form. COMPANY agrees that it will always distribute the MS
PRODUCTS pursuant to the terms of COMPANY's end-user license
agreement ("EULA"). COMPANY's EULA may be a "break-the-seal" end
user license agreement or a signed end user license agreement.
COMPANY's EULA shall conform substantially to the terms and
conditions of the MS end user license agreement. MS agrees to
provide COMPANY with changes made to the MS PRODUCT to correct
defects or bugs in the MS PRODUCTS. Except as expressly provided
above, however, MS shall have no obligation to provide COMPANY
any updates or enhancements to the MS PRODUCTS, or any other
software or product.
(ii) MS' Proprietary Rights to MS PRODUCTS. COMPANY acknowledges that,
subject to the limited licenses granted above, all right, title
and interest in the MS PRODUCTS belong to MS and no proprietary
rights to the MS PRODUCTS whatsoever are being transferred under
this Agreement.
(iii)Restrictions on COMPANY's Use of MS PRODUCTS' Names. COMPANY
shall not use the words or names CLIPBOOK OR CLIPSERVE, or any
confusingly similar declaration thereof, in or pertaining to any
of COMPANY's products or in any COMPANY's marketing or
advertising.
(iv)Trademark Notices. Both parties shall use the appropriate
trademarks, product descriptors and trade symbols (either "(TM)"
or "(R)" in a superscript) when using the trademarks of the other
party in advertising, publicity, literature, packaging and other
promotional activities in connection with the other party's
products.;
(c)Windows NT Changes. Furthermore, in order to enable COMPANY to
complete the LICENSED SOFTWARE, MS hereby agrees to implement those
changes to Windows NT as set forth on Exhibit B attached hereto and
incorporated by this reference (the "WINDOWS NT Changes"). The WINDOWS
NT Changes is a complete and final list of such changes and can only be
modified by written consent of authorized representatives of both
parties. MS shall complete the WINDOWS BT Changes no later than
December 1, 1992.
(d)No Other MS Obligations. MS' payment and other obligations to the
COMPANY under this Agreement shall be limited to the payments and
obligations described in this Section 4; MS shall not otherwise be
responsible for any expenses or obligations of, or royalties to,
COMPANY.
5. Other COMPANY Obligations. In considerations of the obligations of MS
hereunder, COMPANY also covenants that COMPANY recognizes that Network DDE
and CLIPBOOK/CLIPSRV are components of Windows for Workgroups and as such
COMPANY will not market or promote Network DDE and CLIPBOOK/CLIPSRV as a
complete replacement for Windows for Workgroups.
6. Disclosure. COMPANY expressly undertakes to retain in confidence all
information and know-how transmitted to COMPANY by MS that MS has
designated as proprietary and/or confidential or that, by the nature of the
circumstances surrounding the disclosure, ought in good faith to be treated
as proprietary and/or confidential, and will make no use of such
information and know-how except under the terms and during the existence of
this Agreement. COMPANY's obligation under this Section 6 with respect to
any particular information shall extend to the earlier of such time as the
information protected hereby is in the public domain through no fault of
COMPANY or ten (10) years following its receipt by COMPANY.
7. Ownership of LICENSED SOFTWARE. Subject to the license granted above, all
right, title and interest in the LICENSED SOFTWARE belongs to COMPANY and
no proprietary rights of the LICENSED SOFTWARE are being transferred,
assigned or affected by this Agreement.
8. COMPANY Warranties. COMPANY warrants that:
(a) The LICENSED SOFTWARE as delivered to MS does not infringe any
copyright, patent, trade secret, or other proprietary right held by any
third party
(b) The LICENSED SOFTWARE will meet the Specifications listed in
Exhibit A of this Agreement; and
(c) The services provided by COMPANY shall be performed in a professional
manner and shall be of a high grade, nature, and quality.
9. Indemnity.
(a)COMPANY agrees to indemnify, defend, and hold MS and its successors,
officers, directors and employees harmless from any and all actions,
causes of action, claims, demands, costs, liabilities, expenses and
damages arising out of or in connection with any claim that the
LICENSED SOFTWARE, names, and marks furnished or licensed by COMPANY
under this Agreement constitute an infringement of any confidential
information, trade secret, patent, copyright, trademark, trade name, or
other legal right of any third party. COMPANY further agrees to
indemnify, defend, and hold MS and its successors, officers, directors
and employees harmless from any and all actions, causes of action,
claims, demands, costs, liabilities, expenses and damages arising out
of or in connection with any claim that COMPANY's modifications or
adaptations of the MS PRODUCTS under this Agreement constitute an
infringement of any confidential information, trade secret, patent,
copyright, trademark, trade name, or other legal right of any third
party.
(b)If any action shall be brought against MS in respect to which
indemnity may be sought from COMPANY pursuant to the provisions of this
Section 9, MS shall promptly notify COMPANY in writing, specifying the
nature of the action and the total monetary amount sought or other such
relief as is sought therein. MS shall cooperate with COMPANY at
COMPANY's expense in all reasonable respects in connection with the
defense of any such action. COMPANY may upon written notice thereof to
MS undertake to conduct all proceedings or negotiations in connection
therewith, assume the defense thereof, and if it so undertakes, it
shall also undertake all other required steps or proceedings to settle
or defend any such action, including the employment of counsel which
shall be satisfactory to MS, and payment of all expenses. MS shall have
the right to employ separate counsel and participate in the defense
thereof. COMPANY shall reimburse MS upon demand for any payments made
or loss suffered by it at any time after the date hereof, based upon
the judgment of any court of competent jurisdiction or pursuant to a
bona fide compromise or settlement of claims, demands, or actions, in
respect to any damages to which the foregoing relates.
(c) If the LICENSED SOFTWARE furnished hereunder is in any action held
to constitute an infringement and its use is enjoined, COMPANY
shall immediately and at its expense:
(i) procure for MS the right to continue use, sale, and marketing of
the LICENSED SOFTWARE, or
(ii) replace or modify the LICENSED SOFTWARE with a version of the
LICENSED SOFTWARE that is non-infringing.
If (i) or (ii) are not available to COMPANY, COMPANY shall refund to
MS all amounts paid to COMPANY by MS hereunder.
(d) This indemnity provision shall survive any termination or
expiration of this Agreement.
10. Termination. If the LICENSED SOFTWARE is not delivered on the due date(s)
specified above, or if the LICENSED SOFTWARE does not meet the Specifications in
Exhibit A, or if the services provided by COMPANY are not performed in a
professional manner or are not of a high grade, nature, and quality, MS may, at
its option and upon written notice to COMPANY, terminate this Agreement and/or
have the LICENSED SOFTWARE properly prepared at COMPANY's expense.
11. Notices and Requests. All notices and requests in connection with this
Agreement shall be deemed given as of the date they are received by messenger,
delivery service, or in the United States of America mails, postage prepaid,
certified or registered, return receipt requested, and addressed as follows:
COMPANY: WONDERWARE CORPORATION
Arter, Hadden, Lawler, Felix & Hall
2 Park Plaza (Jamboree Center)
Irvine, CA 92714
Attention: Stephen H. LaCount
MS: MICROSOFT CORPORATION
One Microsoft Way
Redmond, Washington 98052-6399
Attention: Robert Muglia
with a cc to: MICROSOFT CORPORATION
One Microsoft Way
Redmond, Washington 98052-6399
Attention: Law & Corporate Affairs
12. Miscellaneous:
(a) COMPANY is an independent contractor for MS, and nothing in this
Agreement shall be construed as creating an employer-employee
relationship, a partnership, or a joint venture between the
parties.
(b) In the event taxes are required to be withheld on payments made
hereunder by any U.S. (state or federal) or foreign governments, MS may
deduct such taxes from the amount owned COMPANY and pay them to the
appropriate taxing authority. MS shall in turn promptly secure and
deliver to COMPANY an official receipt for any taxes withheld. MS will
use reasonable efforts to minimize such taxes to the extent permissible
under applicable law.
(c) This Agreement shall be governed by the laws of the State of
Washington and COMPANY consents to jurisdiction and venue in the
state and federal courts sitting in the State of Washington. In
any action or suit to enforce any right or remedy under this
Agreement or to interpret any provision of this Agreement, the
prevailing party shall be entitled to recover its costs, including
reasonable attorneys' fees.
(d) Agreement does not constitute an offer by MS and it shall not be
effective until signed by both parties. This Agreement constitutes
the entire agreement between the parties with respect to the
LICENSED SOFTWARE and all other subject matter hereof and merges
all prior and contemporaneous communications. It shall not be
modified except by a written agreement dated subsequent to the
date of this Agreement and signed on behalf of COMPANY and MS by
their respective duly authorized representatives.
(e) This Agreement may be assigned by MS but shall not be assigned by
COMPANY without MS' prior written approval. Except as otherwise
provided, this Agreement shall be binding upon and inure to the
benefit of the parties' successors and lawful assigns.
MICROSOFT CORPORATION WONDERWARE CORPORATION
Robert Muglia Dennis Morin
By (Sign) By (Sign)
Director, Advanced Windows President, CEO
Title Title
12/3/92 Dec 2, 1992
Date Date
33-0304677
COMPANY's Federal
Employer ID Number or
Social Security Number
Appendix A (Specifications)
This appendix specifies what Wonderware Software Development Corporation
(hereafter referred to as Wonderware) will deliver to Microsoft Corporation
(hereafter referred to as Microsoft) for the Microsoft Windows NT product as
specified in the development contract.
Network DDE
Wonderware will develop and component test the Network DDE component. Network
DDE is a system service which runs in the Local System account and services
network DDE requests. The Network DDE component has two parts, a client and a
server.
Network DDE Client
The Network DDE client will perform the following functions:
* Forward network DDE requests to the appropriate computer.
* For forwarding to Windows NT servers, the username, domain name,
and password is sent to allow the server side to perform a
network logon. The LSA challenge-response architecture will be
applied to pass the DES encrypted password over the network.
* For forwarding to Windows for Workgroup servers, the username and
password is sent to allow the server side to authenticate the
request. The Windows for Workgroups DES password encryption
scheme will be applied to pass the password over the network.
* Network DDE sessions, connections, and conversations will only be
started by using DDE with the appropriate AppTopic syntax.
* Network DDE client will log Error, Warning, and Information
events to the system event log as appropriate.
Network DDE Server
The Network DDE server will perform the following functions:
* Receive and service Newtork DDE requests from Windows NT and
Windows for Workgroup computers.
* Perform network logons using the username, domain name, and
password passed by Windows NT clients. The LSA challenge-response
architecture will be applied to pass the DES encrypted password
over the network.
* Perform network logons using the username, and password, and if
available the domain name, passed by Windows for Workgroups
clients. The LSA challenge-response architecture will be applied
to pass the DES encrypted password over the network.
* Act as a secure service, using impersonation of the client for
all accesses on its behalf including:
Initiation of a Network DDE conversation
Executes in a Network DDE conversation
Requests for each item in a Network DDE conversation
Advises for each item in a Network DDE conversation
Pokes for each item in a Network DDE conversation
* If there is a user interactively logged onto the server computer
and that user has added the share to their Trusted Shares List to
configure Network DDE to start an application on the client's
behalf:
Will run the application in the security context of the user
interactively logged on to the server
Will run the application minimized, restored, or maximized as
specified in the Network DDE share information or in the Trusted
Share List information for the user logged on to the server.
* Network DDE server will log Error, Warning, and Information
events to the system event log as appropriate.
DSDM
Wonderware will develop and component test the DSDMJ component. DSDM is a system
service which runs in the Local System account and services DDE Share requests.
* Act as a secure service, using impersonation of the client for all
accesses on its behalf including:
Enumerating Network DDE shares
Querying for Network DDE share information
Changing Network DDE shares
Adding Network DDE shares
Deleting Network DDE shares
* Provide API to allow the following functionality:
Enumeration of Network DDE shares
Query for Network DDE share information
Set Network DDE share information
Adding a Network DDE share
Deleting a Network DDE share
* DSDM will log Error, Warning, and Information events to the system event
log as appropriate.
Appendix B (Windows NT Changes)
This appendix specifies the modifications Microsoft Corporation will make to
Windows NT to enable Network DDE support as a part of this development and
license agreement.
* Microsoft will allow Network DDE to run in the security
context of Local System, and to create invisible windows on
the default desktop for the purposes of DDE communications.
* Microsoft will increase the timeouts for OLE clients to
allow for network delays.
* Microsoft will provide an API or other mechanism to set the
"quality of service" for DDE clients.
* Microsoft will provide an API for DdeImpersonateClientWindow
() that provides impersonation without requiring the client
to have a thread per conversation client window.
EXHIBIT 10.13
Lease Agreement between the Registrant and Aetna Life Insurance
Company, dated July 24, 1996
LEASE AGREEMENT
(Net)
Basic Lease Information
Lease Date: July 24, 1996
Lessor: Aetna Life Insurance Company,
a Connecticut Corporation
Lessor's Address: P.O. Box 19693, 30 Executive Park, Suite 100
Irvine, California 92713-9693
Lessee: Wonderware Corporation,
a Delaware Corporation
Lessee's Address: 100 Technology Drive
Irvine, CA 92618
Premises: Approximately 18,800 square feet as shown on
Exhibit A
Premises Address: 15285 Alton Parkway, Suites 100, 200 and 300
Irvine, CA 92618
Park: 213,585 square feet
Term: October 1, 1996 ("Commencement Date"), through
February 28, 2002 ("Expiration Date")
Base Rent (P. 3) Fifteen Thousand Forty Dollars and No Cents
($15,040.00) per month.
Adjustments to Base Rent: October 1, 1997 $15,642.00 per month
October 1, 1998 $16,268.00 per month
October 1, 1999 $16,919.00 per month
October 1, 2000 $17,596.00 per month
October 1, 2001 $18,300.00 per month
Letter of Credit Eighteen Thousand Three Hundred Dollars and No
Cents ($18,300.00)
Cleaning Deposit (P. 4.B): N/A
*Lessee's Share of Operating Expenses (P. 6.A): 8.8% of the Park
*Lessee's Share of Tax Expenses (P. 6.B): 8.8% of the Park
*Lessee's Share of Common Area Utility Costs (P. 7): 8.8% of the Park
*The amount of Lessee's Share of the expenses as referenced above shall be
subject to modification as set forth in this Lease.
Permitted Uses: Office, Production, Light Manufacturing, Storage
and Distribution, Subject to Lessor's
Reasonable Approval for Any Change in Use.
General Liability Insurance Bodily injury limit of not less than
$1,000,000.00 per occurrence;
Amount (P. 12): Property damage limit of not less than
$1,000,000.00 per occurrence;
Combined single limit of not less than
$2,000,000.00.
Unreserved Parking Spaces: Sixty Four (64) nonexclusive and undesignated
spaces
Broker (P. 38): Kim Josephson; CB Commercial, 24422 Avenida de
la Carlota, Suite 120, Laguna Hills, CA 92653
Exhibits: Exhibit A - Premises, Building, Lot and/or Park
Exhibit B - Tenant Improvements
Exhibit C - Rules and Regulations
Exhibit D - Intentionally Omitted
Exhibit E - Sign Criteria
Exhibit F - Hazardous Materials Disclosure
Certificate
Exhibit G - Change of Commencement Date
Addenda: Addendum I
Tenant Improvement Allowance: $75,200.00. See Exhibit "B"
NNNLSE: 11/10/94
<PAGE>
LEASE AGREEMENT
DATE: This Lease is made and entered into as of the Lease Date defined on
Page 1. The Basic Lease information set forth on Page 1 and this Lease are
and shall be construed as a single instrument.
1. Premises: Lessor hereby leases the Premises to Lessee upon the terms and
conditions contained herein. Lessor hereby grants to Lessee a revocable license
for the right to use, on a non-exclusive basis, parking areas and ancillary
facilities located within the Common Area of the Park, subject to the terms of
this Lease.
2. Adjustment of Commencement Date; Condition of the Premises: If Lessor cannot
deliver possession of the Premises on the Commencement Date, Lessor shall not be
subject to any liability nor shall the validity of the Lease be affected;
provided the Lease term and the obligation to pay Rent shall commence on the
date possession is tendered and the termination date shall be extended by a
period of time equal to the period computed from the Commencement Date to the
date possession is tendered by Lessor to Lessee. In the event the commencement
date of this Lease is other than the Commencement Date provided on Page 1,
Lessor and Lessee shall execute a written amendment to this Lease, substantially
in the form of Exhibit G hereto, wherein the parties shall specify the actual
commencement date, termination date and the date on which Lessee is to commence
paying Rent. In the event that Lessor permits Lessee to occupy the Premises
prior to the Commencement Date, such occupancy shall be at Lessee's sole risk
and subject to all the provisions of this Lease, including, but not limited to,
the requirement to pay Rent and the Security Deposit, and to obtain the
insurance required pursuant to this Lease and to deliver insurance certificates
as required herein. In addition to the foregoing, Lessor shall have the right to
impose such additional conditions on Lessee's early entry as Lessor shall deem
appropriate. By taking possession of the Premises, Lessee shall be deemed to
have accepted the Premises in a good, clean and completed condition and state of
repair, in compliance with all applicable laws, codes, regulations,
administrative orders and ordinances, and subject to all matters of record.
Lessee hereby acknowledges and agrees that neither Lessor nor Lessor's agents or
representatives has made any representations or warranties as to the
suitability, safety or fitness of the Premises for the conduct of Lessee's
business, Lessee's intended use of the Premises or for any other purpose, and
that neither Lessor nor Lessor's agents or representatives has agreed to
undertake any alterations or construct any Tenant Improvements to the Premises
except as expressly provided in this Lease.
3. Rent: On the date that Lessee executes this Lease, Lessee shall deliver to
Lessor the original executed Lease, the Base Rent (which shall be applied
against the Rent payable for the first month Lessee is required to pay Base
Rent), the Security Deposit, the Cleaning Deposit, and all insurance
certificates evidencing the insurance required to be obtained by Lessee under
Paragraph 12 of this Lease. Lessee agrees to pay Lessor, without prior notice or
demand, or abatement, offset, deduction or claim, the Base Rent described on
Page 1, payable in advance at Lessor's address shown on Page 1 on the first day
of each month throughout the term of the Lease. In addition to the Base Rent set
forth on Page 1, Lessee shall pay Lessor in advance and on the first (1st) day
of each month throughout the term of this Lease (including any extensions of
such term), as additional rent Lessee's share, as set forth on Page 1, of
Operating Expenses, Tax Expenses, Common Area Utility Costs, administrative
expenses and Utility Expenses, as specified in Paragraphs 6.A., 6.B., 6.C. and 7
of this Lease, respectively. Additionally, Lessee shall pay to Lessor as
additional rent hereunder, immediately on Lessor's demand therefor, any and all
costs and expenses incurred by Lessor to enforce the provisions of this Lease,
including, but not limited to, costs associated with any proposed assignment or
subletting of all or any portion of the Premises by Lessee, costs associated
with the delivery of notices, delivery and recordation of notice(s) of default,
attorneys' fees, expert fees, court costs and filing fees (collectively, the
"Enforcement Expenses"). The term "Rent" whenever used herein refers to the
aggregate of all these amounts. If Lessor permits Lessee to occupy the Premises
without requiring Lessee to pay rental payments for a period of time, the waiver
of the requirement to pay rental payments shall only apply to waiver of the Base
Rent and Lessee shall otherwise perform all other obligations of Lessee
hereunder, including, but not limited to paying to Lessor any and all amounts
considered additional rent, such as Lessee's share of Operating Expenses, Tax
Expenses, Common Area Utility Costs, Utility Expenses, and administrative
expenses. If, at any time, Lessee is in default of or otherwise breaches any
term, condition or provision of this Lease, any such waiver by Lessor of
Lessee's requirement to pay rental payments shall be null and void and Lessee
shall immediately pay to Lessor all rental payments waived by Lessor. The Rent
for any fractional part of a calendar month at the commencement or termination
of the Lease term shall be a prorated amount of the Rent for a full calendar
month based upon a thirty (30) day month. The prorated Rent shall be paid on the
Commencement Date and the first day of the calendar month in which the date of
termination occurs, as the case may be.
<PAGE>
4. Letter of Credit and Cleaning Deposit:
A. Letter of Credit: Upon Lessee's execution of this Lease, Lessee shall
deliver to Lessor, an irrevocable Letter of Credit for the performance by Lessee
of its obligations under this Lease, the amount described on Page 1. If Lessee
is in default, Lessor may, but without obligation to do so, use the Letter of
Credit, or any portion thereof, to cure the default or to compensate Lessor for
all damages sustained by Lessor resulting from Lessee's default, including, but
not limited to the Enforcement Expenses. Lessee shall, immediately on demand,
pay to Lessor a sum equal to the portion of the Letter of Credit so applied or
used so as to replenish the amount of the Letter of Credit held up to the amount
initially deposited with Lessor. Concurrently with any increase in the Base
Rent, Lessee shall deliver to Lessor an amount equal to such increase, which
amount shall be added to the Letter of Credit being held by Lessor and be deemed
a part of such Letter of Credit thereafter. At anytime after Lessee has
defaulted hereunder, Lessor may require an increase in the amount of the Letter
of Credit required hereunder for the then balance of the Lease term and Lessee
shall, immediately on demand, pay to Lessor additional sums in the amount of
such increase. As soon as practicable after the termination of this Lease,
Lessor shall return the Letter of Credit to Lessee, less such amounts as are
reasonably necessary, as determined solely by Lessor, to remedy Lessee's
default(s) hereunder or to otherwise restore the Premises to a clean and safe
condition, reasonable wear and tear excepted. If the cost to restore the
Premises exceeds the amount of the Letter of Credit, Lessee shall promptly
deliver to Lessor any and all of such excess sums as determined solely by
Lessor.
B. Cleaning Deposit: Intentionally Omitted.
5. Condition of Premises: Lessee hereby accepts the Premises in its current "as
is" condition unless otherwise specified in Exhibit B, attached hereto and
incorporated herein by this reference. If so specified in Exhibit B hereto,
Lessor or Lessee, as the case may be, shall install the improvements ("Tenant
Improvements") on the Premises as described and in accordance with the terms,
conditions, criteria and provisions set forth in Exhibit B, attached and
incorporated herein by this reference. Lessee acknowledges that neither Lessor
nor any of Lessor's agents, representatives or employees has made any
representations as to the suitability or fitness of the Premises for the conduct
of Lessee's business or for any other purpose, and that neither Lessor nor any
of Lessor's agents, representatives or employees has agreed to undertake any
alterations or construct any Tenant Improvements to the Premises except as
expressly provided in Exhibit B to this Lease.
6. Expenses:
A. Operating Expenses: In addition to the Base Rent set forth in
Paragraph 3, Lessee shall pay its share, which is defined on Page 1, of all
Operating Expenses as additional rent. The term "Operating Expenses" as used
herein shall mean the total amounts paid or payable by Lessor in connection with
the ownership, maintenance, repair and operation of the Premises, the Building
and the Lot, and where applicable, of the Park referred to on Page 1. The amount
of Lessee's share of Operating Expenses shall be reviewed from time to time by
Lessor and shall be subject to modification by Lessor as reasonably determined
by Lessor. These Operating Expenses may include, but are not limited to:
(i) Lessor's cost of non-structural repairs to and
maintenance of the roof and exterior walls of the Building;
(ii) Lessor's cost of maintaining the outside paved area,
landscaping and other common areas for the Park. The term "Common Area"
shall mean all areas and facilities within the Park exclusive of the
Premises and the other portions of the Park leased exclusively to other
tenants. The Common Area includes, but is not limited to, interior
lobbies, mezzanines, parking areas, access and perimeter roads,
sidewalks, landscaped areas and similar areas and facilities;
(iii) Lessor's annual cost of insurance insuring against fire
and extended coverage (including, if Lessor elects, "all risk" coverage)
and all other insurance, including, but not limited to, earthquake,
flood and/or surface water endorsements for the Building, the Lot and
the Park (including the Common Area), and rental value insurance against
loss of Rent in an amount equal to the amount of Rent for a period of at
least six (6) months commencing on the date of loss;
(iv) Lessor's cost of modifications to the Building, the
Common Area and/or the Park occasioned by any rules, laws or regulations
effective subsequent to the commencement of the Lease;
(v) Lessor's cost of modifications to the Building, the Common
Area and/or the Park occasioned by any rules, laws or regulations
arising from Lessee's use of the Premises regardless of when such rules,
laws or regulations became effective;
<PAGE>
(vi) If Lessor elects to so procure, Lessor's cost of
preventative maintenance, repair and replacement contracts including,
but not limited to, contracts for elevator systems and heating,
ventilation and air conditioning systems, and trash or refuse
collection;
(vii) Lessor's cost of security and fire protection services
for the Park, if in Lessor's sole discretion such services are provided;
(viii) Lessor's establishment of reasonable reserves for
replacements and/or repairs of Common Area improvements, equipment and
supplies;
(ix) Lessor's cost for the creation and negotiation of,
and pursuant to, any rail spur or track agreements, licenses, easements
or other similar undertakings; and
(x) Lessor's cost of supplies, equipment, rental equipment and
other similar items used in the operation and/or maintenance of the
Park.
Operating expenses shall specifically exclude the following:
(i) Brokerage commissions, attorneys' fees, costs, disbursements and other
expenses incurred by Lessor or its agents in connection with negotiations for
leases with tenants, other occupants or prospective tenants or other occupants
of the Park, and similar costs incurred in connection with disputes with and/or
enforcement of any lease with tenants, other occupants, or prospective tenants
or other occupants of the Park.
(ii) "Tenant allowances", "tenant concessions", workletters, and other
costs or expenses (including permit, license and inspection fees) incurred in
completing, fixturing, furnishing, renovating or otherwise improving, decorating
or redecorating space for tenants or other occupants of the Park, or vacant,
leasable space in the Park, including space planning/interior design fees for
same.
(iii) Depreciation and other "non-cash" expense items or amortization
except as provided in Paragraph 43 of Addendum 1.
(iv) Services, items and benefits for which Lessee or any other tenant or
occupant of the Park specifically reimburse Lessor or for which Lessee or any
other tenant or occupant of the Building pays third persons.
(v) Costs or expenses (including fines, penalties and legal fees)
incurred due to the violation by Lessor, its employees, agents and/or
contractors, any tenant (other than Lessee) or other occupant of the Park of any
items and conditions (other than by Lessee) of this Lease or of the leases of
other tenants in the Park and /or of any valid, applicable laws, rules,
regulations and codes of any federal, state, county, municipal or other
governmental authority having jurisdiction over the Building that would not have
incurred but for such violation by Lessor, its employees agents and/or
contractors, it being intended that each party shall be responsible for the
costs resulting from its own violation of such leases and laws, rules,
regulations and codes as same shall pertain to the Building.
(vi) Penalties for late payment, including without limitation, with
respect to taxes, equipment leases, etc.
(vii) Payment of principal, finance charge or interest on debt or
amortization on any mortgage, deed of trust or other debt, and rental payments
(or increases in same) under any ground of underlying lease or leases (except to
the extent the same may be made to pay or reimburse, or may be measured by, real
estate taxes).
(viii) Real estate taxes allocable to the leasehold improvements of
other tenants in the Park.
(ix) Advertising and promotional expenses
(x) Costs of restoration or repair of the Park as a result of total or
partial destruction or condemnation thereof, such costs to be handled pursuant
to Article 15 the Lease.
(xi) Contributions to charitable organizations.
(xii) Costs incurred in removing the property of former tenants
and/or other occupants of the Park.
<PAGE>
(xiii) Costs or fees relating to the defense of Lessor's title to or
interest in the Park and/or the land, or any part thereof.
(xiv) Compensation in the form of wages, salaries and such other
compensation and benefits, as well as any adjustments thereto, for all employees
and personnel of Lessor above the level of Property Manager.
(xv) Gross receipt taxes.
B. Tax Expenses: In addition to the Base Rent set forth in Paragraph 3,
Lessee shall pay its share, which is defined on Page 1, of all real property
taxes applicable to the land and improvements included within the Lot on which
the Premises are situated and one hundred percent (100%) of all personal
property taxes now or hereafter assessed or levied against the Premises or
Lessee's personal property. The amount of Lessee's share of Tax Expenses shall
be reviewed from time to time by Lessor and shall be subject to modification by
Lessor as solely determined by Lessor. Lessee shall also pay any increase in
real property taxes attributable, in Lessor's sole discretion, to any and all
alterations, Tenant Improvements or other improvements of any kind whatsoever
placed in, on or about the Premises for the benefit of, at the request of, or by
Lessee. The term "Tax Expenses" includes, but is not limited to, any form of tax
and assessment (general, special, ordinary or extraordinary), commercial rental
tax, payments under any improvement bond or bonds, license, rental tax,
transaction tax, levy, or penalty imposed by authority having the direct or
indirect power of tax (including any city, county, state or federal government,
or any school, agricultural, lighting, drainage or other improvement district
thereof) as against any legal or equitable interest of Lessor in the Premises,
Lot or Park, as against Lessor's right to rent or other income therefrom, or as
against Lessor's business of leasing the Premises or the occupancy of Lessee or
any other tax, fee, or excise, however described (excluding inheritance or
estate taxes), including any value added tax, or any tax imposed in
substitution, partially or totally, of any tax previously included within the
definition of real property taxes, or any additional tax the nature of which was
previously included within the definition of real property tax.
C. Payment of Expenses and Administrative Expenses: Lessor shall
estimate Lessee's share of the Operating Expenses and Tax Expenses for the
calendar year in which the Lease commences. Commencing on the Commencement Date,
one-twelfth (1/12th) of this estimated amount shall be paid by Lessee to Lessor,
as additional rent, on the first (1st) day of each month and throughout the
remaining months of such calendar year. Thereafter, Lessor may estimate such
expenses as of the beginning of each calendar year and Lessee shall pay
one-twelfth (1/12th) of such estimated amount as additional rent hereunder on
the first day of each month during such calendar year and for each ensuing
calendar year throughout the term of this Lease (including any extensions of the
term). Not later than March 31 of each of the following calendar years, or as
soon thereafter as reasonably possible, including the calendar year after the
calendar year in which this Lease terminates or the term expires, Lessor shall
endeavor to furnish Lessee with a true and correct accounting of actual
Operating Expenses and Tax Expenses. Within thirty (30) days of Lessor's
delivery of such accounting, Lessee shall pay to Lessor the amount of any
underpayment. Notwithstanding the foregoing, failure by Lessor to give such
accounting by such date shall not constitute a waiver by Lessor of its right to
collect any of Lessee's underpayment at anytime. Lessor shall credit the amount
of any overpayment by Lessee toward the next estimated monthly installment(s)
falling due, or where the term of the Lease has expired, refund the amount of
overpayment to Lessee. Lessee, at its sole cost and expense through any
qualified representative designated by it, shall have the right to examine
and/or audit the books and records evidencing such costs and expenses for the
previous one (1) calendar year, during Lessor's reasonable business hours and
not more frequently than once during any calendar year. Lessee's obligations to
pay its share of Operating Expenses and Tax Expenses shall survive the
expiration or earlier termination of this Lease.
If the term of the Lease expires prior to the annual reconciliation of
expenses, if any, Lessor shall have the right to reasonably estimate Lessee's
share of such expenses, and if Lessor determines that an underpayment is due,
Lessee hereby agrees that Lessor shall be entitled to deduct such underpayment
from Lessee's Security Deposit. If Lessor reasonably determines that an
overpayment has been made by Lessee, Lessor shall refund said overpayment
together with the return of Lessee's Security Deposit. Notwithstanding the
foregoing, failure of Lessor to accurately estimate Lessee's share of such
expenses shall not constitute a waiver of Lessor's right to collect any of
Lessee's underpayment at anytime.
In addition to the Base Rent set forth in Paragraph 3 hereof, Lessee
shall pay Lessor, without prior notice or demand, on the first (1st) day of each
month throughout the term of this Lease (including any extensions of such term),
as compensation to Lessor for accounting and management services rendered on
behalf of the Park, an amount equal to ten percent (10%) of the aggregate of
Lessee's share of (i) the total Operating Expenses and Tax Expenses as described
in Paragraphs 6.A. and 6.B. above, respectively, and (ii) all Common Area
Utility
<PAGE>
Costs for the Park as described in Paragraph 7. Lessee's obligations to pay its
share of such administrative expenses shall survive the expiration or earlier
termination of this Lease.
7. Utilities: Lessee shall pay the cost of all water, sewer use and connection
fees, gas, heat, electricity, refuse pickup, janitorial service, telephone and
other utilities billed or metered separately to the Premises and/or Lessee.
Lessee shall also pay its share of any assessments or charges for utility or
similar purposes included within any tax bill for the Lot on which the Premises
are situated. For any such utility fees or use charges that are not billed or
metered separately to Lessee, Lessee shall pay to Lessor, as additional rent,
without prior notice or demand, on the first (1st) day of each month throughout
the term of this Lease the amount which is attributable to Lessee's use of the
Premises as reasonably estimated and determined by Lessor based upon factors
such as size of the Premises and intensity of use of such utilities by Lessee
such that Lessee shall pay the portion of such charges reasonably consistent
with Lessee's use of such utilities ("Utility Expenses"). If Lessee disputes any
such estimate or determination, then Lessee shall either pay the estimated
amount or cause the Premises to be separately metered at Lessee's sole expense.
In addition, Lessee shall pay Lessor its share, which is described on Page 1, as
additional rent, of any Common Area utility costs, fees, charges or expenses
("Common Area Utility Costs") within fifteen (15) days after receiving a bill
from Lessor. The amount of Lessee's share of Common Area Utility Costs shall be
reviewed from time to time by Lessor and shall be subject to modification by
Lessor as reasonably determined by Lessor. Lessee acknowledges that the Premises
may become subject to the rationing of utility services or restrictions on
utility use as required by a public utility company, governmental agency or
other similar entity having jurisdiction thereof. Notwithstanding any such
rationing or restrictions on use of any such utility services, Lessee
acknowledges and agrees that its tenancy and occupancy hereunder shall be
subject to such rationing restrictions as may be imposed upon Lessor, Lessee,
the Premises, the Building or the Park, and Lessee shall in no event be excused
or relieved from any covenant or obligation to be kept or performed by Lessee by
reason of any such rationing or restrictions. Lessee further agrees to pay and
discharge, prior to delinquency, any amount, tax, charge, surcharge, assessment
or imposition levied, assessed or imposed upon the Premises, or Lessee's use and
occupancy thereof, or as a result directly or indirectly of any such rationing
or restrictions.
8. Late Charges: Lessee acknowledges that late payment (the fifth day of each
month or anytime thereafter) by Lessee to Lessor of Base Rent, Lessee's share of
Operating Expenses, Tax Expenses, Common Area Utility Costs, Utility Expenses or
other sums due hereunder, will cause Lessor to incur costs not contemplated by
this Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Lessor by the terms
of any note secured by any encumbrance against the Premises, and late charges
and penalties due to the late payment of real property taxes on the Premises.
Therefore, if any installment of Rent or any other sum due from Lessee is not
received by Lessor when due, Lessee shall promptly pay to Lessor all of the
following, as applicable: (a) an additional sum equal to ten percent (10%) of
such delinquent amount plus interest on such delinquent amount at the rate equal
to the prime rate plus three percent (3%) for the time period such payments are
delinquent as a late charge for every month or portion thereof that such sums
remain unpaid, (b) the amount of seventy-five dollars ($75) for each three-day
notice prepared for, or served on, Lessee, (c) the amount of fifty dollars ($50)
relating to checks for which there are not sufficient funds. The parties agree
that this late charge and the other charges referenced above represent a fair
and reasonable estimate of the costs that Lessor will incur by reason of late
payment by Lessee. Acceptance of any late charge or other charges shall not
constitute a waiver by Lessor of Lessee's default with respect to the delinquent
amount, nor prevent Lessor from exercising any of the other rights and remedies
available to Lessor for any other breach of Lessee under this Lease. If a late
charge or other charge becomes payable for any three (3) installments of Rent
within any twelve (12) month period, then Lessor, at Lessor's sole option, can
either require the Rent be paid quarterly in advance, or be paid monthly in
advance by cashier's check or by electronic funds transfer.
9. Use of Premises: The Premises are to be used solely for the uses stated on
Page 1 and for no other uses or purposes without Lessor's prior written consent.
The use of the Premises by Lessee and its agents, invitees and employees shall
be subject to, and at all times in compliance with, (a) any and all applicable
laws, ordinances, statutes, orders and regulations as same exist from time to
time (collectively, the "Laws"), and (b) any and all declarations of covenants,
conditions and restrictions ("CC&Rs") and any supplement thereto which has been
or hereafter is recorded in any official or public records with respect to the
Premises, the Building, the Lot and/or the Park, or any portion thereof.
Lessee shall not use the Premises or permit anything to be done in or
about the Premises nor keep or bring anything therein which will in any way
conflict with any of the requirements of the Board of Fire Underwriters or
similar body now or hereafter constituted or in any way increase the existing
rate of or affect any policy of fire or other insurance upon the Building or any
of its contents, or cause a cancellation of any insurance policy. Lessee shall
not do or permit anything to be done in or about the Premises which will in any
way obstruct or interfere with the rights of Lessor, other tenants or occupants
of the Building, other buildings in the Park, or other persons or businesses in
the Park, or injure or annoy other tenants or use or allow the Premises to be
used for any
<PAGE>
improper, immoral, unlawful or objectionable purpose, as determined by Lessor,
in its sole discretion, for the benefit, quiet enjoyment and use by Lessor and
all other tenants or occupants of the Building or other buildings in the Park;
nor shall Lessee cause, maintain or permit any private or public nuisance in, on
or about the Premises, Building, Park and/or the Common Area, including, but not
limited to, any offensive odors, fumes or vibrations. Lessee shall not damage or
deface or otherwise commit or suffer to be committed any waste in, upon or about
the Premises. Lessee shall not store, nor permit any other person or entity to
store, any property, equipment, materials, supplies, personal property or any
other items or goods outside of the Premises. Lessee shall not permit any
animals, including, but not limited to, any household pets, to be brought or
kept in or about the Premises. Lessee shall place no loads upon the floors,
walls, or ceilings in excess of the maximum designed load permitted by the
applicable Uniform Building Code or which may damage the Building or outside
Park; nor place any harmful liquids in the drainage systems; nor dump or store
waste materials, refuse or other such materials, or allow such to remain outside
the Building area, except in refuse dumpsters or in any enclosed trash areas
provided. Lessee shall honor the terms of all recorded CC&Rs relating to the
Premises, the Building, the Lot and/or the Park. Lessee shall honor the rules
and regulations set forth in Exhibit C, attached to and made a part of this
Lease, and any other reasonable rules and regulations of Lessor now or hereafter
enacted relating to parking and the operation of the Building and the Park. If
Lessee fails to comply with such Laws, CC&Rs, rules and regulations or the
provisions of this Lease, Lessor shall have the right to collect from Lessee a
reasonable sum as a penalty, in addition to all rights and remedies of Lessor
hereunder including, but not limited to, the payment by Lessee to Lessor of all
Enforcement Expenses and Lessor's costs and expenses, if any, to cure any of
such failures of Lessee, if Lessor, at its sole option, elects to undertake such
cure.
10. Alterations and Additions: Lessee shall not install any signs, fixtures,
improvements, nor make or permit any other alterations or additions to the
Premises without the prior written consent of Lessor. If any such alteration or
addition is expressly permitted by Lessor, Lessee shall deliver at least twenty
(20) days prior notice to Lessor, from the date Lessee intends to commence
construction, sufficient to enable Lessor to post a Notice of
Non-Responsibility. In all events, Lessee shall obtain all permits or other
governmental approvals prior to commencing any of such work and deliver a copy
of same to Lessor. All alterations and additions shall be installed by a
licensed contractor approved by Lessor, at Lessee's sole expense in compliance
with all applicable Laws, CC&Rs, and Lessor's rules and regulations. Lessee
shall keep the Premises and the property on which the Premises are situated free
from any liens arising out of any work performed, materials furnished or
obligations incurred by or on behalf of Lessee. As a condition to Lessor's
consent to the installation of any fixtures or improvements, Lessor may require
Lessee to post and obtain a completion and indemnity bond for up to one hundred
fifty percent (150%) of the cost of the work. Upon termination of this Lease,
Lessee shall remove all signs, fixtures, furniture and furnishings and if
requested by Lessor, remove any improvements made by Lessee and repair any
damage caused by the installation or removal of such signs, fixtures, furniture,
furnishings and improvements and leave the Premises in as good condition as they
were in at the time of the commencement of this Lease, excepting for reasonable
wear and tear. Reasonable wear and tear shall not include any damage or
deterioration that would have been prevented by proper maintenance by Lessee or
Lessee otherwise performing all of its obligations under this Lease.
11. Repairs and Maintenance: Lessee shall, at Lessee's sole cost and expense,
keep and maintain the Premises and the adjacent Park in good, clean and safe
condition and repair to the satisfaction of Lessor including, but not limited
to, repairing any damage caused by Lessee or its employees, representatives,
agents, invitees, licensees or contractors. Without limiting the generality of
the foregoing, Lessee shall be solely responsible for maintaining, repairing and
replacing all interior plumbing and mechanical systems, heating, ventilation and
air conditioning systems (see Paragraph 43), interior electrical wiring and
equipment, interior lighting, all interior glass, interior window casements,
partitions, tenant signage, interior doors and door closers, fixtures,
equipment, interior painting, and interior walls and floors of the Premises.
Lessee's obligation to keep, maintain, preserve and repair the Premises and the
adjacent Park shall specifically extend to the cleanup and removal of any and
all Hazardous Materials (hereafter defined) occurring in, on or about the
Premises.
Subject to the provisions of Paragraphs 6 and 9 of this Lease and except
for repairs rendered necessary by the active or passive negligent acts or
omissions of Lessee, its agents, customers, employees and invitees, Lessor
agrees, at Lessor's expense, subject to reimbursement pursuant to Paragraph 6
above, to keep in good repair the plumbing and mechanical systems exterior to
the Premises, roof membranes, signage (exclusive of tenant signage), exterior
electrical wiring and equipment, exterior lighting, all exterior glass, exterior
doors and entrances, exterior window casements, exterior doors and door closers,
exterior painting, and underground utility and sewer pipes outside the exterior
walls of the Building. Lessor reserves the right, but without the obligation, to
procure and maintain the heating, ventilation and air conditioning systems
maintenance contract and if Lessor so elects, Lessee will reimburse Lessor for
the cost thereof in accordance with the provisions of Paragraph 6 above.
Except for repairs rendered necessary by the active or passive negligent
acts or omissions of Lessee, its agents, customers, employees and invitees,
Lessor agrees, at Lessor's sole cost and expense, to keep in good
<PAGE>
repair the structural portions of the floors, foundations and exterior walls
(exclusive of glass and exterior doors), and the structural portions of the roof
(excluding the roof membrane) of the Building.
Except for normal maintenance and repair of the items outlined above,
Lessee shall have no right of access to or right to install any device on the
roof of the Building nor make any penetrations of the roof of the Building
without the express prior written consent of Lessor. If Lessee refuses or
neglects to repair and maintain the Premises and the adjacent Park properly as
required herein and to the reasonable satisfaction of Lessor, Lessor may, but
without obligation to do so, at anytime make such repairs and/or maintenance
without Lessor having any liability to Lessee for any loss or damage that may
accrue to Lessee's merchandise, fixtures or other property, or to Lessee's
business by reason thereof. In the event Lessor makes such repairs and/or
maintenance, upon completion thereof Lessee shall pay to Lessor, as additional
rent, the Lessor's costs for making such repairs and/or maintenance, plus twenty
percent (20%) for overhead, upon presentation of a bill therefor, plus any
Enforcement Expenses. The obligations of Lessee hereunder shall survive the
expiration of the term of this Lease or the earlier termination thereof. Lessee
hereby waives any right to repair at the expense of Lessor under any applicable
Laws now or hereafter in effect respecting the Premises.
12. Insurance: Lessee shall maintain in full force and effect at all times
during the term of this Lease, at Lessee's sole cost and expense, for the
protection of Lessee and Lessor, as their interests may appear, policies of
insurance issued by a carrier or carriers acceptable to Lessor and its lender(s)
which afford the following coverages: (i) worker's compensation: statutory
limits; (ii) employer's liability: as required by law with a minimum of
$1,000,000; (iii) comprehensive general liability insurance (occurrence form)
including blanket contractual liability, broad form property damage, premises,
personal injury, completed operations, products liability, personal and
advertising coverage, fire damage with a combined single limit of not less than
(the amount set forth on Page 1) per occurrence, and (the amount set forth on
Page 1) per occurrence per location if Lessee has multiple locations, with
deletion of the exclusion for explosion, collapse or underground hazard, if
applicable, and if necessary, Lessee shall provide for restoration of the
aggregate limit; (iv) comprehensive automobile liability insurance: a combined
single limit of not less than $1,000,000 per occurrence and insuring Lessee
against liability for claims arising out of the ownership, maintenance, or use
of any owned, hired or non-owned automobiles; and (v) "all risk" property
insurance including boiler and machinery comprehensive form, if applicable,
covering damage to or loss of any personal property, fixtures and equipment,
including, without limitation, electronic data processing equipment, of Lessee
(and coverage for the full replacement cost thereof including business
interruption of Lessee).
Insurance required to be maintained by Lessee shall be written by
companies licensed to do business in the State of California and having a
"General Policyholders Rating" of at least A (or such higher rating as may be
required by a lender having a lien on the Premises) as set forth in the most
current issue of "Best's Insurance Guide." Lessee shall deliver to Lessor
certificates of insurance for all insurance required to be maintained by Lessee
hereunder at the time of execution of this Lease by Lessee. Lessee shall, at
least thirty (30) days prior to expiration of each policy, furnish Lessor with
certificates of renewal or "binders" thereof. Each certificate shall expressly
provide that such policies shall not be cancelable or otherwise subject to
modification except after thirty (30) days prior written notice to the parties
named as additional insureds as required in this Lease (except for cancellation
for nonpayment of premium, in which event cancellation shall not take effect
until at least ten (10) days' notice has been given to Lessor). If Lessee fails
to maintain any insurance required in this Lease, Lessee shall be liable for all
losses and costs resulting from such failure.
Lessor, any property management company of Lessor for the Premises, any
lender(s) of Lessor having a lien against the Premises, the Building, the Lot or
the Park, and any joint venture partners of Lessor shall be named as additional
insureds under all of the policies required in Paragraph 12.(iii) above.
Additionally, such policies shall provide for severability of interest. All
insurance to be maintained by Lessee shall, except for workers' compensation and
employer's liability insurance, be primary, without right of contribution from
insurance maintained by Lessor. Any umbrella liability policy or excess
liability policy (which shall be in "following form") shall provide that if the
underlying aggregate is exhausted, the excess coverage will drop down as primary
insurance. The limits of insurance maintained by Lessee shall not limit Lessee's
liability under this Lease.
13. Limitation of Liability and Indemnity: Except for damage resulting from the
gross negligence or willful misconduct of Lessor or its authorized
representatives, Lessee agrees to protect, defend (with counsel acceptable to
Lessor) and hold Lessor and Lessor's lender(s), partners, employees,
representatives, legal representatives, successors and assigns (collectively,
the "Indemnitees") harmless and indemnify the Indemnitees from and against all
liabilities, damages, claims, losses, judgments, charges and expenses (including
reasonable attorneys' fees, costs of court and expenses necessary in the
prosecution or defense of any litigation including the enforcement of this
provision) arising from or in any way related to, directly or indirectly,
Lessee's use of the Premises and/or the Park, or the conduct of Lessee's
business, or from any activity, work or thing done, permitted or suffered by
Lessee in or about the Premises, or in any way connected with the Premises or
with the
<PAGE>
improvements or personal property therein, including, but not limited to, any
liability for injury to person or property of Lessee, its agents or employees or
third party persons. Lessee agrees that the obligations of Lessee herein shall
survive the expiration or earlier termination of this Lease.
Except for damage resulting from the gross negligence or willful
misconduct of Lessor or its authorized representatives, Lessor shall not be
liable to Lessee for any loss or damage to Lessee or Lessee's property, for any
injury to or loss of Lessee's business or for any damage or injury to any person
from any cause whatsoever, including, but not limited to, any acts, errors or
omissions by or on behalf of any other tenants or occupants of the Building
and/or the Park. Lessee shall not, in any event or circumstance, be permitted to
offset or otherwise credit against any payments of Rent required herein for
matters for which Lessor may be liable hereunder. Lessor and its authorized
representatives shall not be liable for any interference with light or air, or
for any latent defect in the Premises or the Building. To the fullest extent
permitted by law, Lessee agrees that neither Lessor nor any of Lessor's
lender(s), partners, employees, representatives, legal representatives,
successors and assigns shall at any time or to any extent whatsoever be liable,
responsible or in any way accountable for any loss, liability, injury, death or
damage to persons or property which at any time may be suffered or sustained by
Lessee or by any person(s) whomsoever who may at any time be using or occupying
or visiting the Premises, the Building or the Park.
14. Assignment and Subleasing:
A. Lessee shall not voluntarily or by operation of law, (1) mortgage,
pledge, hypothecate or encumber this Lease or any interest herein, (2) assign or
transfer this Lease or any interest herein, sublease the Premises or any part
thereof, or any right or privilege appurtenant thereto, or allow any other
person (the employees, agents and invitees of Lessee excepted) to occupy or use
the Premises, or any portion thereof, without first obtaining the written
consent of Lessor, which consent shall not be withheld unreasonably. When Lessee
requests Lessor's consent to such assignment or subletting, it shall notify
Lessor in writing of the name and address of the proposed assignee or subtenant
and the nature and character of the business of the proposed assignee or
subtenant prepared in accordance with generally accepted accounting principles.
Lessee shall also provide Lessee with a copy of the proposed sublease or
assignment agreement, including all material terms and conditions thereof.
Except in the case of an assignment or sublease to a Lessee Affiliate (as
hereinafter defined), Lessor shall have the option, to be exercised within
thirty (30) days of receipt of the foregoing, to (1) terminate this Lease as of
the commencement date stated in the proposed sublease or assignment; provided,
however, that if Lessee proposes to sublease twenty-five percent (25%) or less
of the Premises, then Lessor shall only have the right under this subsection (1)
to terminate this Lease as to the portion of the Premises proposed to be covered
by such sublease, (2) sublease or take an assignment, as the case may be, from
Lessee of the interest, or any portion thereof, in this Lessee and/or the
Premises that Lessee proposes to assign or sublease, on the same terms and
conditions as stated in the proposed sublet or assignment agreement, (3) consent
to the proposed assignment or sublease, or (4) refuse its consent to the
proposed assignment or sublease, providing that such consent shall not be
unreasonably withheld.
B. Notwithstanding anything to the contrary contained in Section 14(A)
above, Lessee shall have the right with the consent of Lessor, which consent
shall not be unreasonably withheld, to assign this Lease or to sublease the
Premises or any part thereof to a Lessee Affiliate. In the event Lessee proposes
to enter into an assignment or sublease with a Lessee Affiliate, then Lessee
shall provide Lessor with the information required to be delivered pursuant to
said Section 14(A). Lessor shall have the option, to be exercised with thirty
(30) days of receipt of the foregoing, to (1) consent to the proposed assignment
or sublease, or (2) in the event Lessor is not satisfied with the proposed
Lessee Affiliate Lessor shall have the right to require Lessee to provide a
Letter of Credit equal to six (6) months current rent. Said Letter of Credit
shall be additional security to the Lease obligation. For proposes of this
Section 14, a "Lessee Affiliate" shall mean an entity that controls, is
controlled by or is under common control with, Lessee; and a party shall be
deemed to "control" another party for purposes of the aforesaid definition only
if the first party owns more than fifty percent (50%) of the stock or other
beneficial interests of the second party.
C. Without otherwise limiting the criteria upon which Lessor may
withhold its consent under Sections 14(A) and (B) above, Lessor shall be
entitled to consider all reasonable criteria including, but not limited to the
following: (i) whether or not the proposed subtenant or assignee is engaged in a
business which, and the use of the Premises will be in a manner which, is in
keeping, with the then character and nature of all other tenancies in the Park,
(ii) whether the use to be made of the Premises by the proposed subtenant or
assignee will conflict with any so-called "exclusive" use then in favor of any
other tenant of the Park and whether such use would be prohibited by any other
portion of this Lease, including, but not limited to any rules and regulations
then in effect, or under applicable Laws, and whether such use imposes a greater
load upon the Premises and the Park and Project services then imposed by Lessee,
(iii) the business reputation of the proposed individuals who will be managing
and operating the business operations of the assignee or subtenant, and the
long-tern financial and competitive business prospects of the proposed assignee
or subtenant, (iv) the creditworthiness and financial
<PAGE>
stability of the proposed assignee or subtenant in light of the responsibilities
involved, and (v) that the sublease or assignment agreement requires payment of
the rent and other amounts as required of Lessee hereunder with respect to the
space being subleased or assigned which are in no event less than that being
offered by Lessor for similar space in the Park under leases then being
negotiated. In any event, Lessor may withhold its consent to any assignment or
sublease, if (1) the actual use proposed to be conducted in the Premises or
portion thereof conflicts with the provisions of Paragraph 9 above or with any
other lease which restricts the use to which any space in the Park may be put,
or (2) the proposed assignment or sublease requires alterations, improvements or
additions to the Premises of portions thereof with a cost in excess of one
thousand dollars ($1,000.00), and Lessor has not given reasonable prior written
approval.
D. The assignment or sublease agreement, as the case may be, after
approval by Lessor in the form of Lessor's standard Consent to Sublease executed
by all parties, shall not be amended without Lessor's prior written consent, and
shall contain a provision directing the assignee or subtenant to pay the rent
and other sums due thereunder directly to Lessor upon receiving written notice
from Lessor that Lessee is in default under this Lease with respect to the
payment of Rent. Lessor's colletion of such rent and other sums shall not
constitute an acceptance by Lessor of attornment by such assignee or subtenant.
A consent to one assignment, subletting, occupation or use shall not be deemed
to be a consent to any other or subsequent assignment, subletting, occupation or
use, and consent to any assignment or subletting shall in no way relieve Lessee
of any liability under this Lease. Any assignment or subletting without Lessor's
consent shall be void, and shall, at the option of Lessor, constitute a Default
under this Lease.
E. Lessee shall pay Lessor reasonable fees (including, without
limitation, the fees of Lessor's counsel), incurred in connection with Lessor's
review and processing of documents regarding any proposed assignment or
sublease.
F. Lessee acknowledges and agrees that the restrictions, conditions and
limitations imposed by this Paragraph 14 on Lessee's ability to assign or
transfer this Lease or any interest herein, to sublet the Premises or any part
thereof, to transfer or assign any right or privilege appurtenant to the
Premises, or to allow any other person to occupy or use the Premises or any
portion thereof, are for the purposes of California Civil Code Section 1951.4,
as amended from time to time, and for all other purposes, reasonable at the time
that the Lease was entered into, and shall be deemed to be reasonable at the
time that Lessee seeks to assign or transfer this Lease or any interest herein,
to sublet the Premises or any part thereof, to transfer or assign any right or
privilege appurtenant to the Premises, or to allow any other person to occupy or
use the Premises or any portion thereof.
G. Excess Sublease Rental or Assignment Consideration: In the event of
any sublease or assignment of all or any portion of the Premises where the rent
or other consideration provided for in the sublease or assignment either
initially or over the term of the sublease or assignment exceeds the Rent or pro
rata portion of the Rent, as the case may be, for such space reserved in the
Lease, Lessee shall pay the Lessor monthly, as additional rent, at the same time
as the monthly installments of Rent are payable hereunder, fifty percent (50%)
of the excess of each such payment of rent net of commissions or other
consideration in excess of the Rent called for hereunder.
H. Waiver: Notwithstanding any assignment or sublease, or any indulgences,
waivers or extensions of time granted by Lessor to any assignee or sublessee, or
failure by Lessor to take action against any assignee or sublessee, Lessee
waives notice of any default of any assignee or sublessee and agrees that Lessor
may, at its option, proceed against Lessee without having taken action against
or joined such assignee or sublessee, except that Lessee shall have the benefit
of any indulgences, waivers and extensions of time granted to any such assignee
or sublessee.
15. Waiver of Subrogation: Lessee waives any right to recover against Lessor for
claims for damages to Lessee's property, including, but not limited to, personal
property, fixtures and equipment, covered by insurance. This provision is
intended to waive fully, and for the benefit of Lessor, any rights and/or claims
which might give rise to a right of subrogation in favor of any insurance
carrier. The coverage obtained by Lessee pursuant to this Lease shall include,
without limitation, a waiver of subrogation endorsement attached to the
certificate of insurance.
16. Ad Valorem Taxes: Prior to delinquency, Lessee shall pay all taxes and
assessments levied upon trade fixtures, alterations, additions, improvements,
inventories and personal property located and/or installed on or in the Premises
by, or on behalf of, Lessee; and if requested by Lessor, Lessee shall promptly
deliver to Lessor copies of receipts for payment of all such taxes and
assessments. To the extent any such taxes are not separately assessed or billed
to Lessee, Lessee shall pay the amount thereof as invoiced by Lessor.
<PAGE>
17. Subordination: Without the necessity of any additional document being
executed by Lessee for the purpose of effecting a subordination, and at the
election of Lessor or any bona fide mortgagee or deed of trust beneficiary with
a lien on all or any portion of the Premises or any ground lessor with respect
to the land of which the Premises are a part, this Lease shall be subject and
subordinate at all times to: (i) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Building or the land upon
which the Building is situated or both, and (ii) the lien of any mortgage or
deed of trust which may now exist or hereafter be executed in any amount for
which the Building, the Lot, ground leases or underlying leases, or Lessor's
interest or estate in any of said items is specified as security.
Notwithstanding the foregoing, Lessor or any such ground lessor, mortgagee, or
any beneficiary shall have the right to subordinate or cause to be subordinated
any such ground leases or underlying leases or any such liens to this Lease. If
any ground lease or underlying lease terminates for any reason or any mortgage
or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made
for any reason, Lessee shall, notwithstanding any subordination and upon the
request of such successor to Lessor, attorn to and become the Lessee of the
successor in interest to Lessor, provided such successor in interest will not
disturb Lessee's use, occupancy or quiet enjoyment of the Premises so long as
Lessee is not in default of the terms and provisions of this Lease. The
successor in interest to Lessor following foreclosure, sale or deed in lieu
thereof shall not be (a) liable for any act or omission of any prior lessor or
with respect to events occurring prior to acquisition of ownership; (b) subject
to any offsets or defenses which Lessee might have against any prior lessor; (c)
bound by prepayment of more than one (1) month's Rent; or (d) liable to Lessee
for any Security Deposit not actually received by such successor in interest.
Lessee covenants and agrees to execute (and acknowledge if required by Lessor,
any lender or ground lessor) and deliver, within five (5) days of a demand or
request by Lessor and in the form requested by Lessor, ground lessor, mortgagee
or beneficiary, any additional documents evidencing the priority or
subordination of this Lease with respect to any such ground leases or underlying
leases or the lien of any such mortgage or deed of trust. Lessee's failure to
timely execute and deliver such additional documents shall, at Lessor's option,
constitute a material default hereunder. It is further agreed that Lessee shall
be liable to Lessor, and shall indemnify Lessor from and against any loss, cost,
damage or expense, incidental, consequential, or otherwise, arising or accruing
directly or indirectly, from any failure of Lessee to execute or deliver to
Lessor any such additional documents.
18. Right of Entry: Lessee grants Lessor or its agents the right to enter the
Premises escorted by a representative of Lessee at all reasonable times for
purposes of inspection, exhibition, posting of notices, repair or alteration. At
Lessor's option, Lessor shall at all times have and retain a key with which to
unlock all the doors in, upon and about the Premises, excluding Lessee's vaults
and safes. It is further agreed that Lessor shall have the right to use any and
all means Lessor deems necessary to enter the Premises in an emergency. Lessor
shall also have the right to place "for rent" and/or "for sale" signs on the
outside of the Premises. Lessee hereby waives any claim from damages or for any
injury or inconvenience to or interference with Lessee's business, or any other
loss occasioned thereby except for any claim for any of the foregoing arising
out of the gross active negligent acts or willful misconduct of Lessor or its
authorized representatives.
19. Estoppel Certificate: Lessee shall execute (and acknowledge if required by
any lender or ground lessor) and deliver to Lessor, within ten (10) days after
Lessor provides such to Lessee, a statement in writing certifying that this
Lease is unmodified and in full force and effect (or, if modified, stating the
nature of such modification), the date to which the Rent and other charges are
paid in advance, if any, acknowledging that there are not, to Lessee's
knowledge, any uncured defaults on the part of Lessor hereunder or specifying
such defaults as are claimed, and such other matters as Lessor may reasonably
require. Any such statement may be conclusively relied upon by Lessor and any
prospective purchaser or encumbrancer of the Premises. Lessee's failure to
deliver such statement within such time shall be conclusive upon the Lessee that
(a) this Lease is in full force and effect, without modification except as may
be represented by Lessor; (b) there are no uncured defaults in Lessor's
performance; and (c) not more than one month's Rent has been paid in advance,
except in those instances when Lessee pays Rent quarterly in advance pursuant to
Paragraph 8 hereof, then not more than three month's Rent has been paid in
advance. Failure by Lessee to so deliver such certified estoppel certificate
shall be a default of the provisions of this Lease. Lessee shall be liable to
Lessor, and shall indemnify Lessor from and against any loss, cost, damage or
expense, incidental, consequential, or otherwise, arising or accruing directly
or indirectly, from any failure of Lessee to execute or deliver to Lessor any
such certified estoppel certificate.
20. Lessee's Default: The occurrence of any one or more of the following
events shall, at Lessor's option, constitute a default and breach of this Lease
by Lessee:
(i) The vacation or abandonment of the Premises by Lessee for
a period of ten (10) consecutive days, unless Lessee is actively
attempting to sublease the premises and Lessee waives any right to
notice Lessee may have under applicable law;
(ii) The failure by Lessee to make any payment of Rent or
any other payment required hereunder on the date said payment is due;
<PAGE>
(iii) The failure by Lessee to observe, perform or comply with
any of the conditions, covenants or provisions of this Lease (except
default in the payment of Rent); provided, if such default is
susceptible of cure and Lessee has promptly commenced the cure of such
default and is diligently prosecuting such cure to completion, then the
same must remain uncured for a period, unless otherwise noted herein, of
fifteen (15) days after written notice;
(iv) The making of a general assignment by Lessee for the
benefit of creditors, the filing of a voluntary petition by Lessee or
the filing of an involuntary petition by any of Lessee's creditors
seeking the rehabilitation, liquidation, or reorganization of Lessee
under any law relating to bankruptcy, insolvency or other relief of
debtors and, in the case of an involuntary action, the failure to remove
or discharge the same within sixty (60) days of such filing, the
appointment of a receiver or other custodian to take possession of
substantially all of Lessee's assets or this leasehold, Lessee's
insolvency or inability to pay Lessee's debts or failure generally to
pay Lessee's debts when due, any court entering a decree or order
directing the winding up or liquidation of Lessee or of substantially
all of Lessee's assets, Lessee taking any action toward the dissolution
or winding up of Lessee's affairs, the cessation or suspension of
Lessee's use of the Premises, or the attachment, execution or other
judicial seizure of substantially all of Lessee's assets or this
leasehold;
(v) Lessee's use or storage of Hazardous Materials on
the Premises other than as permitted by the provisions of Paragraph 29
below;
(vi) The making of any material misrepresentation or
omission by Lessee in any materials delivered by or on behalf of Lessee
to Lessor pursuant to this Lease; or
(vii) Lessee's default or other breach of any covenant, condition or
provision of any lease agreement between Lessee or an affiliated entity of
Lessee, as the tenant, and Lessor or an affiliated entity of Lessor, as
landlord, with regard to any and all leased premises other than the
Premises as described herein.
21. Remedies for Lessee's Default: In the event of Lessee's default or breach of
the Lease, Lessor may terminate Lessee's right to possession of the Premises by
any lawful means in which case upon delivery of written notice by Lessor this
Lease shall terminate on the date specified by Lessor in such notice and Lessee
shall immediately surrender possession of the Premises to Lessor. In addition,
the Lessor shall have the immediate right of re-entry whether or not this Lease
is terminated, and if this right of re-entry is exercised following abandonment
of the Premises by Lessee, Lessor may consider any personal property belonging
to Lessee and left on the Premises to also have been abandoned. No re-entry or
taking possession of the Premises by Lessor pursuant to this Paragraph 21 shall
be construed as an election to terminate this Lease unless a written notice of
such intention is given to Lessee. If Lessor relets the Premises or any portion
thereof, (i) Lessee shall be liable immediately to Lessor for all costs Lessor
incurs in reletting the Premises or any part thereof, including, without
limitation, broker's commissions, expenses of cleaning, redecorating, and
further improving the Premises and other similar costs, and (ii) the rent
received by Lessor from such reletting shall be applied to the payment of,
first, any indebtedness from Lessee to Lessor other than Base Rent, Operating
Expenses, Tax Expenses, Common Area Utility Costs, and Utility Expenses; second,
all costs including maintenance, incurred by Lessor in reletting; and, third,
Base Rent, Operating Expenses, Tax Expenses, Common Area Utility Costs, and
Utility Expenses due under this Lease. After deducting the payments referred to
above, any sum remaining from the rental Lessor receives from reletting shall be
held by Lessor and applied in payment of future Rent as Rent becomes due under
this Lease. In no event shall Lessee be entitled to any excess rent received by
Lessor. Reletting may be for a period shorter or longer than the remaining term
of this Lease. No act by Lessor other than giving written notice to Lessee shall
terminate this Lease. Acts of maintenance, efforts to relet the Premises or the
appointment of a receiver on Lessor's initiative to protect Lessor's interest
under this Lease shall not constitute a termination of Lessee's right to
possession. So long as this Lease is not terminated, Lessor shall have the right
to remedy any default of Lessee, to maintain or improve the Premises, to cause a
receiver to be appointed to administer the Premises and new or existing
subleases and to add to the Rent payable hereunder all of Lessor's reasonable
costs in so doing, with interest at the maximum rate permitted by law from the
date of such expenditure.
If Lessee breaches this Lease and abandons the property before the end
of the term, or if Lessee's right to possession is terminated by Lessor because
of a breach or default of the Lease, then in either such case, Lessor may
recover from Lessee all damages suffered by Lessor as a result of Lessee's
failure to perform its obligations hereunder, including, but not limited to, the
cost of any tenant improvements, and all costs Lessor incurs in reletting the
Premises or any part thereof, including without limitation, brokerage or leasing
commissions, expenses of cleaning, redecorating, and further improving the
Premises and like costs, and the worth at the time of the award (computed in
accordance with paragraph (3) of Subdivision (a) of Section 1951.2 of the
California Civil Code) of the amount by which the Rent then unpaid hereunder for
the balance of the Lease term exceeds the amount of such loss of Rent for the
same period which Lessee proves could be reasonably avoided by Lessor and in
such case, Lessor prior to the award, may relet the Premises for the purpose of
mitigating damages suffered
<PAGE>
by Lessor because of Lessee's failure to perform its obligations hereunder;
provided, however, that even though Lessee has abandoned the Premises following
such breach, this Lease shall nevertheless continue in full force and effect for
as long as Lessor does not terminate Lessee's right of possession, and until
such termination, Lessor shall have the remedy described in Section 1951.4 of
the California Civil Code (Lessor may continue this Lease in effect after
Lessee's breach and abandonment and recover Rent as it becomes due, if Lessee
has the right to sublet or assign, subject only to reasonable limitations) and
may enforce all its rights and remedies under this Lease, including the right to
recover the Rent from Lessee as it becomes due hereunder. The "worth at the time
of the award" within the meaning of Subparagraphs (a)(1) and (a)(2) of Section
1951.2 of the California Civil Code shall be computed by allowing interest at
the rate of ten percent (10%) per annum. Lessee waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law, in the event Lessee is evicted or Lessor
takes possession of the Premises by reason of any default of Lessee hereunder.
The foregoing rights and remedies of Lessor are not exclusive; they are
cumulative in addition to any rights and remedies now or hereafter existing at
law, in equity by statute or otherwise, or to any equitable remedies Lessor may
have, and to any remedies Lessor may have under bankruptcy laws or laws
affecting creditor's rights generally. In addition to all remedies set forth
above, if Lessee defaults or otherwise breaches this Lease, any and all Base
Rent waived by Lessor under Paragraph 3 above shall be immediately due and
payable to Lessor and all options granted to Lessee hereunder shall
automatically terminate, unless otherwise expressly agreed to in writing by
Lessor.
The waiver by Lessor of any default or breach of any provision of this
Lease shall not be deemed or construed a waiver of any other breach or default
by Lessee hereunder or of any subsequent breach or default of this Lease, except
for the default specified in the waiver.
22. Holding Over: If Lessee holds possession of the Premises after the
expiration of the term of this Lease with Lessor's consent, Lessee shall become
a tenant from month-to-month upon the terms and provisions of this Lease,
provided the monthly Base Rent during such hold over period shall be 150% of the
Base Rent due on the last month of the Lease term, payable in advance on or
before the first day of each month. Such month-to-month tenancy shall not
constitute a renewal or extension for any further term. All options, if any,
granted under the terms of this Lease shall be deemed automatically terminated
and be of no force or effect during said month-to-month tenancy. Lessee shall
continue in possession until such tenancy shall be terminated by either Lessor
or Lessee giving written notice of termination to the other party at least
thirty (30) days prior to the effective date of termination. This paragraph
shall not be construed as Lessor's permission for Lessee to hold over.
Acceptance of Base Rent by Lessor following expiration or termination of this
Lease shall not constitute a renewal of this Lease.
23. Lessor's Default: Lessor shall not be deemed in breach or default of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor hereunder. For purposes of this provision, a
reasonable time shall in no event be more than thirty (30) days after receipt by
Lessor of written notice specifying the nature of the obligation Lessor has not
performed; provided, however, that if the nature of Lessor's obligation is such
that more than thirty (30) days, after receipt of written notice, is reasonably
necessary for its performance, then Lessor shall not be in breach or default of
this Lease if performance of such obligation is commenced within such thirty
(30) day period and thereafter diligently pursued to completion.
24. Parking: Lessee shall have a license to use the number of undesignated and
nonexclusive parking spaces set forth on Page 1. Lessor shall exercise
reasonable efforts to insure that such spaces are available to Lessee for its
use, but Lessor shall not be required to enforce Lessee's right to use the same.
25. Sale of Premises: In the event of any sale of the Premises by Lessor, Lessor
shall be and is hereby entirely released from any and all of its obligations to
perform or further perform under this Lease and from all liability hereunder as
of the date of such sale; and the purchaser, at such sale or any subsequent sale
of the Premises shall be deemed, without any further agreement between the
parties or their successors in interest or between the parties and any such
purchaser, to have assumed and agreed to carry out any and all of the covenants
and obligations of the Lessor under this Lease. Lessee agrees to attorn to such
new owner provided such new owner does not disturb Lessee's use, occupancy or
quiet enjoyment of the Premises so long as Lessee is not in default of any of
the provisions of this Lease.
26. Waiver: No delay or omission in the exercise of any right or remedy of
Lessor on any default by Lessee shall impair such a right or remedy or be
construed as a waiver.
<PAGE>
The subsequent acceptance of Rent by Lessor after breach by Lessee of
any covenant or term of this Lease shall not be deemed a waiver of such breach,
other than a waiver of timely payment for the particular Rent payment involved,
and shall not prevent Lessor from maintaining an unlawful detainer or other
action based on such breach.
No payment by Lessee or receipt by Lessor of a lesser amount than the
monthly Rent and other sums due hereunder shall be deemed to be other than on
account of the earliest Rent or other sums due, nor shall any endorsement or
statement on any check or accompanying any check or payment be deemed an accord
and satisfaction; and Lessor may accept such check or payment without prejudice
to Lessor's right to recover the balance of such Rent or other sum or pursue any
other remedy provided in this Lease.
27. Casualty Damage: If the Premises or any part thereof shall be damaged by
fire or other casualty, Lessee shall give prompt written notice thereof to
Lessor. In case the Building shall be so damaged by fire or other casualty that
substantial alteration or reconstruction of the Building shall, in Lessor's sole
opinion, be required (whether or not the Premises shall have been damaged by
such fire or other casualty), Lessor may, at its option, terminate this Lease by
notifying Lessee in writing of such termination within sixty (60) days after the
date of such damage, in which event the Rent shall be abated as of the date of
such damage. If Lessor does not elect to terminate this Lease and provided
insurance proceeds and any contributions from Lessee, if necessary, are
available to fully repair the damage, Lessor shall within ninety (90) days after
the date of such damage commence to repair and restore the Building and shall
proceed with reasonable diligence to restore the Building (except that Lessor
shall not be responsible for delays outside its control) to substantially the
same condition in which it was immediately prior to the happening of the
casualty; provided, Lessor shall not be required to rebuild, repair, or replace
any part of Lessee's furniture, furnishings or fixtures and equipment removable
by Lessee or any improvements, alterations or additions installed by or for the
benefit of Lessee under the provisions of this Lease. Lessor shall not in any
event be required to spend for such work an amount in excess of the insurance
proceeds and any contributions from Lessee, if necessary, actually received by
Lessor as a result of the fire or other casualty. Lessor shall not be liable for
any inconvenience or annoyance to Lessee, injury to the business of Lessee, loss
of use of any part of the Premises by the Lessee or loss of Lessee's personal
property resulting in any way from such damage or the repair thereof, except
that, subject to the provisions of the next sentence, Lessor shall allow Lessee
a fair diminution of Rent during the time and to the extent the Premises are
unfit for occupancy. If the Premises or any other portion of the Building be
damaged by fire or other casualty resulting from the fault or active or passive
negligence or omissions of Lessee or any of Lessee's agents, employees, or
invitees, the Rent shall not be diminished during the repair of such damage and
Lessee shall be liable to Lessor for the cost and expense of the repair and
restoration of the Building caused thereby to the extent such cost and expense
is not covered by insurance proceeds. In the event the holder of any
indebtedness secured by the Premises requires that the insurance proceeds be
applied to such indebtedness, then Lessor shall have the right to terminate this
Lease by delivering written notice of termination to Lessee within thirty (30)
days after the date of notice to Lessee of any such event, whereupon all rights
and obligations shall cease and terminate hereunder.
Except as otherwise provided in this Paragraph 27, Lessee hereby waives
the provisions of Sections 1932(2.), 1933(4.), 1941 and 1942 of the California
Civil Code.
28. Condemnation: If twenty-five percent (25%) or more of the Premises is
condemned by eminent domain, inversely condemned or sold in lieu of condemnation
for any public or quasi-public use or purpose ("Condemned"), then Lessee or
Lessor may terminate this Lease as of the date when physical possession of the
Premises is taken and title vests in such condemning authority, and Rent shall
be adjusted to the date of termination. Lessee shall not because of such
condemnation assert any claim against Lessor or the condemning authority for any
compensation because of such condemnation, and Lessor shall be entitled to
receive the entire amount of any award without deduction for any estate of
interest or interest of Lessee. If a substantial portion of the Premises,
Building or the Lot is so Condemned, Lessor at its option may terminate this
Lease. If Lessor does not elect to terminate this Lease, Lessor shall, if
necessary, promptly proceed to restore the Premises or the Building to
substantially its same condition prior to such partial condemnation, allowing
for the reasonable effects of such partial condemnation, and a proportionate
allowance shall be made to Lessee, as solely determined by Lessor, for the Rent
corresponding to the time during which, and to the part of the Premises of
which, Lessee is deprived on account of such partial condemnation and
restoration. Lessor shall not be required to spend funds for restoration in
excess of the amount received by Lessor as compensation awarded.
29. Environmental Matters/Hazardous Materials: As used in this Lease, the term
"Hazardous Materials" shall mean and include any substance that is or contains
petroleum, asbestos, polychlorinated byphenyls, lead, or any other substance,
material or waste which is now or is hereafter classified or considered to be
hazardous or toxic under any federal, state or local law, rule, regulation or
ordinance relating to pollution or the protection or regulation of human health,
natural resources or the environment (collectively "Environmental Laws") or
poses or threatens to pose a hazard to the health or safety of persons on the
Leased Premises or any adjacent property.
<PAGE>
Lessee agrees that during its use and occupancy of the Leased Premises
it will not permit Hazardous Materials to be present on or about the Leased
Premises except in a manner and quantity necessary for the ordinary performance
of Lessee's business and that it will comply with all Environmental Laws
relating to the use, storage or disposal of any such Hazardous Materials.
If Lessee's use of Hazardous Materials on or about the Leased Premises
results in a release, discharge or disposal of Hazardous Materials on, in, at,
under, or emanating from, the Leased Premises or the property in which the
Leased Premises are located, Lessee agrees to investigate, clean up, remove or
remediate such Hazardous Materials in full compliance with (a) the requirements
of (i) all Environmental Laws and (ii) any governmental agency or authority
responsible for the enforcement of any Environmental Laws; and (b) any
additional requirements of Lessor that are reasonably necessary to protect the
value of the Leased Premises or the property in which the Leased Premises are
located. Lessor shall also have the right, but not the obligation, to take
whatever action with respect to any such Hazardous Materials that it deems
reasonably necessary to protect the value of the Leased Premises or the property
in which the Leased Premises are located. All costs and expenses paid or
incurred by Lessor in the exercise of such right shall be payable by Lessee upon
demand.
Upon reasonable notice to Lessee, Lessor may inspect the Leased Premises
for the purpose of determining whether there exists on the Leased Premises any
Hazardous Materials or other condition or activity that is in violation of the
requirements of this Lease or of any Environmental Laws. The right granted to
Lessor herein to perform inspections shall not create a duty on Lessor's part to
inspect the Leased Premises, or liability on the part of Lessor for Lessee's
use, storage or disposal of Hazardous Materials, it being understood that Lessee
shall be solely responsible for all liability in connection therewith.
Lessee shall surrender the Leased Premises to Lessor upon the expiration
or earlier termination of this Lease free of debris, waste or Hazardous
Materials placed on or about the Leased Premises by Lessee or its agents,
employees, contractors or invitees, and in a condition which complies with all
Environmental Laws.
Lessee agrees to indemnify and hold harmless Lessor from and against any
and all claims, losses (including, without limitation, loss in value of the
Leased Premises or the property in which the Leased Premises are located),
liabilities and expenses (including reasonable attorney's fees) sustained by
Lessor attributable to (i) any Hazardous Materials placed on or about the Leased
Premises by Lessee or its agents, employees, contractors or invitees or (ii)
Lessee's breach of any provision of this Section 29.
The provisions of this Section 29 shall survive the expiration or
earlier termination of this Lease.
30. Financial Statements: Lessee, for the reliance of Lessor, any lender holding
or anticipated to acquire a lien upon the Premises, the Building or the Park or
any portion thereof, or any prospective purchaser of the Building or the Park or
any portion thereof, within ten (10) days after Lessor's request therefor, but
not more often than once annually so long as Lessee is not in default of this
Lease, shall deliver to Lessor the then current audited financial statements of
Lessee which shall be those financial statements that are available to the
public (including interim periods following the end of the last fiscal year for
which annual statements are available) which statements shall be prepared or
compiled by a certified public accountant and shall present fairly the financial
condition of Lessee at such dates and the result of its operations and changes
in its financial positions for the periods ended on such dates. If an audited
financial statement has not been prepared, Lessee shall provide Lessor with an
unaudited financial statement and/or such other information, the type and form
of which are acceptable to Lessor in Lessor's reasonable discretion, which
reflects the financial condition of Lessee. If Lessor so requests, Lessee shall
deliver to Lessor an opinion of a certified public accountant, including a
balance sheet and profit and loss statement for the most recent prior year, all
prepared in accordance with generally accepted accounting principles
consistently applied. Any and all options granted to Lessee hereunder shall be
subject to and conditioned upon Lessor's reasonable approval of Lessee's
financial condition at the time of Lessee's exercise of any such option.
31. General Provisions:
(i) Time. Time is of the essence in this Lease and with respect
to each and all of its provisions in which performance is a factor.
(ii) Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
(iii) Recordation. Lessee shall not record this Lease or a short
form memorandum hereof without the prior written consent of the Lessor.
<PAGE>
(iv) Lessor's Personal Liability. The liability of Lessor (which, for
purposes of this Lease, shall include Lessor and the owner of the Building if
other than Lessor) to Lessee for any default by Lessor under the terms of this
Lease shall be limited to the actual interest of Lessor and its present or
future partners in the Premises or the Building and Lessee agrees to look solely
to the Premises for satisfaction of any liability and shall not look to other
assets of Lessor nor seek any recourse against the assets of the individual
partners, directors, officers, shareholders, agents or employees of Lessor; it
being intended that Lessor and the individual partners, directors, officers,
shareholders, agents or employees of Lessor shall not be personally liable in
any manner whatsoever for any judgment or deficiency. The liability of Lessor
under this Lease is limited to its actual period of ownership of title to the
Building, and Lessor shall be automatically released from further performance
under this Lease and from all further liabilities and expenses hereunder upon
transfer of Lessor's interest in the Premises or the Building. Lessee agrees to
attorn to any entity purchasing or otherwise acquiring the Premises.
(v) Separability. Any provisions of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provisions hereof and such other provision shall remain in full force and
effect.
(vi) Choice of Law. This Lease shall be governed by the laws of
the State of California.
(vii) Attorneys' Fees. In the event any legal action is brought to
enforce or interpret the provisions of this Lease, the prevailing party therein
shall be entitled to recover all costs and expenses including reasonable
attorneys' fees.
(viii) Entire Agreement. This Lease supersedes any prior agreements,
representations, negotiations or correspondence between the parties, and
contains the entire agreement of the parties on matters covered. No other
agreement, statement or promise made by any party that is not in writing and
signed by all parties to this Lease shall be binding.
(ix) Warranty of Authority. Each person executing this agreement on
behalf of a party represents and warrants that (1) such person is duly and
validly authorized to do so on behalf of the entity it purports to so bind, and
(2) if such party is a partnership, corporation or trustee, that such
partnership, corporation or trustee has full right and authority to enter into
this Lease and perform all of its obligations hereunder.
(x) Notices. All notices and demands required or permitted to be sent to
Lessor or Lessee shall be in writing and shall be sent by United States mail,
certified and postage prepaid, or by personal delivery or by overnight courier,
addressed to Lessor at 30 Executive Park, Suite 100, Irvine, California 92714,
or to Lessee at the Premises, or to such other place as such party may designate
in a notice to the other party given as provided herein. Notice shall be deemed
given upon the earlier of actual receipt or the third day following deposit in
the United States mail.
(xi) Joint and Several. If Lessee consists of more than one person or
entity, the obligations of all such persons or entities shall be joint and
several.
(xii) Covenants and Conditions. Each provision to be performed by
Lessee hereunder shall be deemed to be both a covenant and a condition.
(xiii) Waiver of Jury Trial. The parties hereto shall and they hereby do
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other on any matters whatsoever arising out of
or in any way related to this Lease, the relationship of Lessor and Lessee,
Lessee's use or occupancy of the Premises, the Building or the Park, and/or any
claim of injury, loss or damage.
(xiv) Counterclaims. In the event Lessor commences any proceedings for
nonpayment of Rent, or any other sums or amounts due hereunder, Lessee shall not
interpose any counterclaim of whatever nature or description in any such
proceedings, provided, however, nothing contained herein shall be deemed or
construed as a waiver of the Lessee's right to assert such claims in any
separate action brought by Lessee or the right to offset the amount of any final
judgment owed by Lessor to Lessee.
32. Signs: All signs and graphics of every kind visible in or from public view
or corridors or the exterior of the Premises shall be subject to Lessor's prior
written approval and shall be subject to any applicable governmental laws,
ordinances, and regulations and in compliance with Lessor's Sign Criteria as set
forth in Exhibit E hereto and made a part hereof. Lessee shall remove all such
signs and graphics prior to the termination of this Lease. Such installations
and removals shall be made in a manner as to avoid damage or defacement of the
Premises; and Lessee shall repair any damage or defacement, including without
limitation, discoloration caused by such installation or removal. Lessor shall
have the right, at its option, to deduct from the Security Deposit such sums as
are reasonably necessary to remove such signs, including, but not limited to,
the costs and expenses associated with any repairs necessitated by such removal.
Notwithstanding the foregoing, in no event shall any: (a) neon, flashing or
moving sign(s) or (b) sign(s) which shall interfere with the visibility of any
sign,
<PAGE>
awning, canopy, advertising matter, or decoration of any kind of any other
business or occupant of the Building or the Park be permitted hereunder. Lessee
further agrees to maintain any such sign, awning, canopy, advertising matter,
lettering, decoration or other thing as may be approved in good condition and
repair at all times.
33. Mortgagee Protection: Upon any breach or default on the part of Lessor,
Lessee will give written notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee of a mortgage covering the Premises
who has provided Lessee with notice of their interest together with an address
for receiving notice, and shall offer such beneficiary or mortgagee a reasonable
opportunity to cure the default (which, in no event shall be more than ninety
(90) days), including time to obtain possession of the Premises by power of sale
or a judicial foreclosure, if such should prove necessary to effect a cure. If
such breach or default cannot be cured within such time period, then such
additional time as may be necessary will be given to such beneficiary or
mortgagee to effect such cure so long as such beneficiary or mortgagee has
commenced the cure within the original time period and thereafter diligently
pursues such cure to completion, in which event this Lease shall not be
terminated while such cure is being diligently pursued. Lessee agrees that each
lender to whom this Lease has been assigned by Lessor is an express third party
beneficiary hereof. Lessee shall not make any prepayment of Rent more than one
(1) month in advance without the prior written consent of each such lender,
except if Lessee is required to make quarterly payments of Rent in advance
pursuant to the provisions of Paragraph 8 above. Lessee waives the collection of
any deposit from such lender(s) or any purchaser at a foreclosure sale of such
lender(s)' deed of trust unless the lender(s) or such purchaser shall have
actually received and not refunded the deposit. Lessee agrees to make all
payments under this Lease to the lender with the most senior encumbrance upon
receiving a direction, in writing, to pay said amounts to such lender. Lessee
shall comply with such written direction to pay without determining whether an
event of default exists under such lender's loan to Lessor.
34. Quitclaim: Upon any termination of this Lease, Lessee shall, at Lessor's
request, execute, have acknowledged and deliver to Lessor a quitclaim
deed of Lessee's interest in and to the Premises.
35. Modifications for Lender: If, in connection with obtaining financing for the
Premises or any portion thereof, Lessor's lender shall request reasonable
modification(s) to this Lease as a condition to such financing, Lessee shall not
unreasonably withhold, delay or defer its consent thereto, provided such
modifications do not materially adversely affect Lessee's rights hereunder or
the use, occupancy or quiet enjoyment of Lessee hereunder.
36. Warranties of Lessee: Lessee hereby warrants and represents to Lessor, for
the express benefit of Lessor, that Lessee has undertaken a complete and
independent evaluation of the risks inherent in the execution of this Lease and
the operation of the Premises for the use permitted hereby, and that, based upon
said independent evaluation, Lessee has elected to enter into this Lease and
hereby assumes all risks with respect thereto. Lessee hereby further warrants
and represents to Lessor, for the express benefit of Lessor, that in entering
into this Lease, Lessee has not relied upon any statement, fact, promise or
representation (whether express or implied, written or oral) not specifically
set forth herein in writing and that any statement, fact, promise or
representation (whether express or implied, written or oral) made at any time to
Lessee, which is not expressly incorporated herein in writing, is hereby waived
by Lessee.
37. Compliance with Americans with Disabilities Act: Lessor and Lessee hereby
agree and acknowledge that the Premises, the Building and/or the Park may be
subject to the requirements of the Americans with Disabilities Act (the "ADA"),
a federal law codified at 42 U.S.C. 12101 et seq, including, but not limited to
Title III thereof, all regulations and guidelines related thereto, and any
amendments thereof. Any Tenant Improvements to be constructed hereunder shall be
in compliance with the requirements of the ADA, and all costs incurred for
purposes of compliance therewith shall be a part of and included in the costs of
the Tenant Improvements. Lessee is responsible for conducting its own
independent investigation of this matter. Except for the construction of any
Tenant Improvements, for which Lessee shall be solely responsible for compliance
with the ADA, if any barrier removal work or other work is required to the
Building, the Common Area or the Park under Title III of the ADA, then such work
shall be performed by Lessor; provided, if such work is required under the ADA
as a result of Lessee's use of the Premises or any work or alteration made to
the Premises by or on behalf of Lessee, then such work shall be performed by
Lessor at the sole cost and expense of Lessee. Except as otherwise provided in
this provision, Lessee shall be responsible at its sole cost and expense for
fully and faithfully complying with all applicable requirements of the ADA.
38. Brokerage Commission: Lessee hereby represents and warrants to Lessor
that Lessee's sole contact with Lessor or with the Premises in connection with
this Lease has been directly with Lessor and the Broker (as set forth on Page
1), and that no other broker or finder can properly claim a right to a
commission or a finder's fee
<PAGE>
based upon contacts between the claimant and Lessee. Lessee shall indemnify,
defend by counsel acceptable to Lessor, protect and hold Lessor harmless from
and against any loss, liability, suit, judgment, cost or expense, including, but
not limited to, experts' and attorneys' fees and costs, arising from or relating
to any claim for a fee or commission by any broker or finder in connection with
the Premises and this Lease other than Broker, if any.
IN WITNESS WHEREOF, this Lease is executed on the date and year first written
above.
LESSOR:
AETNA LIFE INSURANCE COMPANY ,
A CONNECTICUT CORPORATION
By: Allegis Realty Investors, LLC
Its Investment Advisor
By:
/s/ CYNTHIA STEVENIN
Cynthia Stevenin, Vice President
LESSEE:
WONDERWARE CORPORATION,
A DELAWARE CORPORATION
By: ___________________________________
Title: ___________________________________
Date: ___________________________________
By: ___________________________________
Tile: ___________________________________
Date: ___________________________________
EXHIBIT 10.14
Employment Agreement between the Registrant and Roy H. Slavin,
dated November 28, 1995
November 28, 1995
Mr. Roy Slavin
888 Van Dyke Drive
Laguna Beach, CA 92651
Re: Employment Agreement
Dear Roy:
As we have previously discussed, Wonderware Corporation (the "Company")
is pleased to offer you the position of President and Chief Operating Officer on
the terms set forth below (the "Agreement"), beginning on June 1, 1995
("Effective Date").
1. Duties and Responsibilities. As the Company's President and Chief
Operating Officer, you will perform the duties customarily associated with this
position and such other duties as may be assigned to you by me in my position as
the Company's Chief Executive Officer. You will report to the Chief Executive
Officer. You will be elected to the Company's Board of Directors at the first
meeting of the Board following the date you commence employment with the
Company. You agree to exercise the highest degree of professionalism, utilize
your expertise and creative talents, and devote all of your business time in
performing your duties, both as the Company's President and Chief Operating
Officer and as a member of the Board. You will be considered for a promotion to
become the Company's Chief Executive Officer if you and I mutually agree after
you have worked at the Company for at least 6 months. Of course, the Board will
need to evaluate your job performance and approve any promotion to Chief
Executive Officer before it can become effective. The Company will provide you
with necessary staff support to permit you to discharge your responsibilities
effectively.
2. Base Salary and Bonus. Your base salary will be thirteen thousand
dollars ($13,000) per month, less payroll deductions and withholdings. You will
also receive a sign-on bonus in the amount of one hundred thousand dollars
($100,000), less payroll deductions and withholdings, which will be payable in
quarterly installments beginning on your start date and each three months
thereafter provided that you are employed by the Company on the relevant payment
date.
You will also be eligible to earn a cash bonus as determined under the
terms of the "Wonderware January-December 1995 Incentive Compensation Program"
(the "1995 Incentive Bonus Plan") and any cash incentive compensation program
that succeeds the 1995 Incentive Bonus Plan. Your semi-annual "Quota Bonus
amount" will be $26,000 and your semi-annual "Profit Bonus amount" will be
$26,000. Both terms are defined in the 1995 Incentive Bonus Plan. These "Quota
Bonus" and "Profit Bonus" amounts will also be applicable for the first five
months of 1996. Therefore, if the Company's performance entitles you to 100% of
your Quota Bonus and Profit Bonus for your first twelve months of employment,
you would receive total cash compensation (base salary plus cash bonus) of
$260,000 for that period.
Your base salary and various target bonus amounts will be subject to
review and adjustment after you have been employed by the Company for at least
twelve months in accordance with the established procedures set forth by the
Company's Compensation Committee of the Board of Directors. If at that time you
are serving as the Company's Chief Executive Officer, your base salary will be
increased to eighteen thousand dollars ($18,000) per month, less payroll
deductions and withholdings, your semi-annual "Quota Bonus amount" will be
increased to $36,000 and your semi-annual "Profit Bonus amount" will be
increased to $36,000. Therefore, if these increases occur and if the Company's
performance entitles you to 100% of your Quota Bonus and Profit Bonus for your
first twelve months of employment following these increases, then you would
receive total cash compensation (base salary plus cash bonus) of $360,000 for
this period.
3. Compensatory Stock Awards. Upon the commencement of your employment,
the Board of Directors agrees to grant to you a stock option to acquire two
hundred thousand (200,000) shares of the Company's common stock under the
Company's 1989 Stock Option Plan (the "Option Plan"). In the event you are
promoted to serve as the Company's Chief Executive Officer and you have
completed at least twelve months of employment with the Company, the Board of
Directors also agrees to grant to you, as soon as practicable following January
1, 1996, an additional stock option to acquire one hundred thousand (100,000)
shares of the Company's common stock under the Option Plan. The exercise price
per share of these options shall be equal to one hundred percent (100%) of the
fair market value of the Company's common stock as determined under the Plan on
the date of grant and in any case not to exceed $30.00 per share. Each option
shall vest as to 24% of the shares subject to such option following twelve
continuous months of service with the Company beginning on the date of grant (or
in the case of your initial option, the day you start work with the Company) and
as to an additional 2% for each subsequent month of completed service. Both of
these options shall have substantially the same terms and conditions as provided
in the standard forms of option agreement for options granted under the Option
Plan, except as expressly provided in this agreement.
4. Relocation Assistance. The Company agrees to purchase your current
principal residence in Atlanta, Georgia for a price equal to its current
appraised fair market value (as determined by a knowledgeable real estate
professional selected by the Company who is agreeable to you). The Company will
also provide you with a two hundred thousand dollar ($200,000) interest-bearing
mortgage loan to reflect the higher cost of housing in California as well as
compensation for the loss of incentive compensation you would have otherwise
received from your previous employer. The loan is conditioned on future
performance of substantial service provided by you and must be used for a
mortgage on your new principal residence. In the event that you are promoted to
serve as the Company's Chief Executive Officer, the Company will forgive the
interest-bearing mortgage relocation loan plus accrued interest and will pay you
an additional two hundred thousand dollars ($200,000), less applicable taxes to
cover any taxes as a result of this forgiveness. The Company will also reimburse
you for your actual costs directly related to the relocation of your family to
California, including such costs as moving expenses, travel and lodging for
house hunting trips, temporary housing, and closing costs, but in no event shall
the total amount of the Company's reimbursement for such costs exceed one
hundred thousand dollars ($100,000).
5. Supplemental Compensation Guarantee. We understand that by accepting
our invitation, you will be giving up the potential receipt of a substantial
amount of future compensation under the terms of your current employer's
Supplemental Executive Retirement Plan ("SERP"). In order to provide you with
compensation for that sacrifice, the Company will guarantee to pay you any
amount by which the maximum built-in gain at any time of the shares of the
Company's common stock which have vested at that time under the terms of the
stock options granted to you by the Company, whether now or in the future (the
"Maximum Realizable Gain"), fails to equal or exceed $1,250,000. The time period
within which the Maximum Realizable Gain shall be calculated shall begin on the
date you commence employment with the Company and end on the date on which all
shares subject to these options either have vested or been returned to the
Company. Any payment shall be due within 30 days after the date on which all
shares subject to these options have vested or, in the event that you are no
longer employed by the Company, within 30 days after the date on which all
shares subject to these options would have vested had you continued to provide
services to the Company.
However, in the event your employment with the Company is terminated
for "Cause," then the Company will have no obligation to pay you any amount
under the terms of this section 5. For purposes of this section 5, "Cause" shall
mean either (i) conviction of a crime, or entry of a plea of nolo contendere
with regard to a crime, involving moral turpitude or dishonesty, or (ii) an
intentional, material violation by you of any contract between you and the
Company or any statutory duty which you have to the Company which is not
corrected within 30 days after notice is provided to you of such a violation. In
addition, if you voluntarily decide to terminate your employment with the
Company for any reason, then the Company will adjust the amount which would be
paid to you as calculated under the previous paragraph by a fraction, the
numerator of which is the number of shares subject to your options which have
vested and the denominator of which is the total number of shares subject to
your option.
6. Benefits. The Company also will provide you with benefits consistent
with the Company's established policies and practice for its senior executives.
Details about these benefits are provided in the summary plan descriptions and
other communications materials available for your review. Of course, the Company
reserves the right to modify any or all of these benefits in the future in its
discretion.
7. At-Will Employment. In order to protect our mutual employment
rights, either you or the Company may terminate your employment relationship at
any time for any reason whatsoever, with or without cause or advance notice.
This at-will employment relationship cannot be changed except in a writing
signed by you and a duly authorized officer of the Company. You agree that for
one year following the termination of your employment with the Company, you will
not, either directly or through others, solicit or attempt to solicit any
employee, consultant or independent contractor of the Company to terminate his
or her relationship with the Company in order to become an employee, consultant
or independent contractor to or for any other person or business entity.
This Agreement, including the attachments, and your Proprietary
Information and Inventions Agreement, constitutes the complete, final and
exclusive embodiment of the entire agreement between you and the Company with
respect to the terms and conditions of your employment. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it supersedes
any other such promises, warranties, representations or agreements. It may not
be amended or modified except by a written instrument signed by you and a duly
authorized officer of the Company. If any provision of this Agreement is
determined to be invalid or unenforceable, in whole or in part, this
determination will not affect any other provision of this Agreement. This
Agreement shall be construed and interpreted in accordance with the laws of the
State of California.
As required by law, this offer of employment is subject to satisfactory
proof of your right to work in the United States.
To indicate your acceptance of our offer under the terms described
above, please sign below and return this letter and your signed Proprietary
Information and Inventions Agreement to me. I look forward to your favorable
reply, and to starting a working relationship which I hope will be successful
both for Wonderware and for you.
Very truly yours,
WONDERWARE CORPORATION
/s/ Jay L. Kear 11/28/95
Jay L. Kear
Chairman, Executive Committee
Accepted by: /s/ Roy H. Slavin
Roy Slavin
Date: 11/28/95
<PAGE>
EXHIBIT 10.15
Separation Agreement between the Registrant and Gary J. Wilson,
dated September 9, 1996
SEPARATION AGREEMENT
This SEPARATION AGREEMENT ("Agreement") is made and entered into by and
between GARY J. WILSON ("Mr. Wilson") and WONDERWARE CORPORATION (the
"Company"), as of the Effective Date as defined in Paragraph 11 herein.
W I T N E S S E T H
WHEREAS, Mr. Wilson has tendered his resignation as an employee and
officer of the Company, and all other positions he may hold with the Company,
and wishes to enter into a part-time employment relationship with the Company;
WHEREAS, the Company has accepted Mr. Wilson's resignation as an
employee and officer of the Company, and all other positions he may hold with
the Company, and wishes to enter into a part-time employment relationship with
Mr. Wilson and provide him with certain benefits in consideration of his service
to the Company and the promises and covenants of Mr. Wilson as contained herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is agreed by and between the parties hereto as follows:
1. RESIGNATION. Mr. Wilson has tendered and the
Company has accepted Mr. Wilson's resignation as an employee and officer of the
Company, and all other positions he may hold with the Company, effective
September 9, 1996 (the "Separation Date").
2. ACCRUED SALARY AND PAID TIME OFF. On the Separation
Date, the Company will pay Mr. Wilson all accrued salary, and all accrued and
unused paid time off earned prior to the Separation Date, subject to
standaACCRUED SALARY AND PAID TIME OFF. On the Separation Date, the Company will
pay Mr. Wilson all accrued salary, and all accrued and unused paid time off
earned prior to the Separation Date, subject to standard payroll deductions and
withholdings.
3. EXPENSE REIMBURSEMENT. Within ten (10) business days of the
Effective Date, Mr. Wilson will submit his final documented expense
reimbursement statement reflecting all business expenses he incurred through the
Separation Date, if any, for which he seeks reimbursement. The Company shall
reimburse Mr. WilsoEXPENSE REIMBURSEMENT. Within ten (10) business days of the
Effective Date, Mr. Wilson will submit his final documented expense
reimbursement statement reflecting all business expenses he incurred through the
Separation Date, if any, for which he seeks reimbursement. The Company shall
reimburse Mr. Wilson's expenses pursuant to Company policy and regular business
practice.
4. PART-TIME EMPLOYMENT AGREEMENT. Mr. Wilson shall serve as a
part-time employee of the Company under the terms specified below. The part-time
employment relationship shall commence on the Separation Date and continue
through March 9, 1997, or if Mr. Wilson's services under this Agreement are
terminated by the Company in accordance with paragraph 14 hereof prior to March
9, 1997, the date such terminatiPART-TIME EMPLOYMENT AGREEMENT. Mr. Wilson shall
serve as a part-time employee of the Company under the terms specified below.
The part-time employment relationship shall commence on the Separation Date and
continue through March 9, 1997, or if Mr. Wilson's services under this Agreement
are terminated by the Company in accordance with paragraph 14 hereof prior to
March 9, 1997, the date such termination is effective (the "Part-Time Employment
Period").
a. Duties. Mr. Wilson agrees to provide
services to the Company in any area of his expertise upon reasonable request
made from time to time by and at the direction of the Board of Directors of the
Company. He agrees to utilize his expertise and act in a professional manner in
performing these services. The services to be provided hereunder shall be
performed in Orange County, California at such times as mutually agreed to by
the parties, after reasonable notice, taking into account vacation and
scheduling conflicts. Mr. Wilson agrees to make himself available to perform
such services throughout the Part-Time Employment Period, up to a maximum of
twenty (20) hours per month. Mr. Wilson agrees that throughout the Part-Time
Employment Period he will continue to be bound by the Company's written
employment policies, procedures and practices as contained in its employee
haDuties. Mr. Wilson agrees to provide services to the Company in any area of
his expertise upon reasonable request made from time to time by and at the
direction of the Board of Directors of the Company. He agrees to utilize his
expertise and act in a professional manner in performing these services. The
services to be provided hereunder shall be performed in Orange County,
California at such times as mutually agreed to by the parties, after reasonable
notice, taking into account vacation and scheduling conflicts. Mr. Wilson agrees
to make himself available to perform such services throughout the Part-Time
Employment Period, up to a maximum of twenty (20) hours per month. Mr. Wilson
agrees that throughout the Part-Time Employment Period he will continue to be
bound by the Company's written employment policies, procedures and practices as
contained in its employee handbook.
Salary and Benefits.
ii. Salary. During the Part-Time
Employment Period, Mr. Wilson shall receive eleven thousand six hundred sixty
six dollars and sixty-seven cents ($11,666.67) per month, subject to standard
deductions and witSalary. During the Part-Time Employment Period, Mr. Wilson
shall receive eleven thousand six hundred sixty six dollars and sixty-seven
cents ($11,666.67) per month, subject to standard deductions and withholdings.
iv. Stock Option. The Company and Mr.
Wilson each acknowledge that, pursuant to the terms of his outstanding stock
option (the "Option"), the term and vesting of such Option will continue beyond
the SeparatStock Option. The Company and Mr. Wilson each acknowledge that,
pursuant to the terms of his outstanding stock option (the "Option"), the term
and vesting of such Option will continue beyond the Separation Date and for the
duration of the Part-Time Employment Period. Mr. Wilson further acknowledges
that the Option will cease vesting and terminate in accordance with its terms
upon completion of the Part-Time Employment Period.
vi. Health Insurance. The Company will
continue Mr. Wilson's health insurance benefits under the Company's group health
insurance plans during the Part-Time Employment Period. Thereafter, to the
extent permitted by law and by the Company's group health insurance plans, Mr.
Wilson will be eligible to continue his health insurance benefits under the
federal COBRA law, at his own expense for up to eighteen (18) months and, later,
to convert to an individual policy if he wishes. At the end of the Part-Time
Employment Period, Mr. WilsHealth Insurance. The Company will continue Mr.
Wilson's health insurance benefits under the Company's group health insurance
plans during the Part-Time Employment Period. Thereafter, to the extent
permitted by law and by the Company's group health insurance plans, Mr. Wilson
will be eligible to continue his health insurance benefits under the federal
COBRA law, at his own expense for up to eighteen (18) months and, later, to
convert to an individual policy if he wishes. At the end of the Part-Time
Employment Period, Mr. Wilson will be provided with a separate notice of his
COBRA rights.
viii. Other Compensation. Except as
expressly provided herein, Mr. Wilson acknowledges that he will not receive (nor
is he entitled to) any additional compensation, severance or benefits
(including, but not limitedOther Compensation. Except as expressly provided
herein, Mr. Wilson acknowledges that he will not receive (nor is he entitled to)
any additional compensation, severance or benefits (including, but not limited
to, life insurance and disability insurance) from the Company.
d. Limitations on Authority. Mr. Wilson
shall have no responsibilities or authority as an employee of the Company other
than as provided for above. Mr. Wilson hereby agrees not to represent or purport
to represent the Company in any manner whatsoever to any third party, including
any employee of the Company, unless authorized by the Company, in writing, to do
so or as otherwise necessary to carry out the duties requested oLimitations on
Authority. Mr. Wilson shall have no responsibilities or authority as an employee
of the Company other than as provided for above. Mr. Wilson hereby agrees not to
represent or purport to represent the Company in any manner whatsoever to any
third party, including any employee of the Company, unless authorized by the
Company, in writing, to do so or as otherwise necessary to carry out the duties
requested of him by the Board of Directors in accordance with paragraph 4.a.
f. Other Work Activities. Throughout the
Part-Time Employment Period, Mr. Wilson retains the right to engage in
employment, consulting or other work relationships in addition to his work for
the Company. The Company will make reasonable arrangements to enable Mr. Wilson
to perform his work for the Company at such times and in such a manner so that
it will not interfere with other activities in which he may engage. Other Work
Activities. Throughout the Part-Time Employment Period, Mr. Wilson retains the
right to engage in employment, consulting or other work relationships in
addition to his work for the Company. The Company will make reasonable
arrangements to enable Mr. Wilson to perform his work for the Company at such
times and in such a manner so that it will not interfere with other activities
in which he may engage.
5. NONSOLICITATION. Mr. Wilson agrees that, during the
Part-Time Employment Period and for one (1) year thereafter, he will not, either
directly or through others, solicit or attempt to solicit any person (including
any entity) who is then an employee, consultant or independent contractor of the
Company to terminate his, her or its relationship with the Company in order to
become an employee, consultant or independent contractoNONSOLICITATION. Mr.
Wilson agrees that, during the Part-Time Employment Period and for one (1) year
thereafter, he will not, either directly or through others, solicit or attempt
to solicit any person (including any entity) who is then an employee, consultant
or independent contractor of the Company to terminate his, her or its
relationship with the Company in order to become an employee, consultant or
independent contractor to or for any other person or entity.
7. PROPRIETARY INFORMATION OBLIGATIONS. Mr. Wilson hereby
agrees to be bound throughout the Part-Time Employment Period by the terms of
his Proprietary Information and Inventions Agreement (the "Proprietary
Information Agreement"), a copy of which is attached hereto as Exhibit A,
certain obligations under which continue after the termination of the Part-Time
Employment Period, as specified in the Proprietary InformatiPROPRIETARY
INFORMATION OBLIGATIONS. Mr. Wilson hereby agrees to be bound throughout the
Part-Time Employment Period by the terms of his Proprietary Information and
Inventions Agreement (the "Proprietary Information Agreement"), a copy of which
is attached hereto as Exhibit A, certain obligations under which continue after
the termination of the Part-Time Employment Period, as specified in the
Proprietary Information Agreement.
9. COMPANY PROPERTY. Mr. Wilson agrees to return to the
Company, within ten (10) business days of the Effective Date, all Company
documents (and all copies thereof) and other Company property in his possession,
or his control, including, but not limited to, Company files, notes, drawings,
records, business plans and forecasts, financial information, specifications,
computer-recorded information, tangible property, credit cards, entry cards,
identification badges and keys; and, any materials of any kind which contain or
embody any proprietary or confidential material of the Company (and all
reproductions thereof), including without limitation Company Inventions, Third
Party Information and Proprietary Information (as such terms are defined in the
Proprietary Information Agreement); provided, however, that if Mr. Wilson
discovers any such documents or property in his possession after the expiration
of such 10-day period, Mr. Wilson agrees to return such property to the Company
as soon as practicable following discovery. Mr. Wilson agrees that, as of the
Separation Date, he will neither use Company property nor possess (except
pending the return of such property as contemplated in this paragraph 7) Company
property, except such property which the Board specifically authorizes him to
use or possess for the sCOMPANY PROPERTY. Mr. Wilson agrees to return to the
Company, within ten (10) business days of the Effective Date, all Company
documents (and all copies thereof) and other Company property in his possession,
or his control, including, but not limited to, Company files, notes, drawings,
records, business plans and forecasts, financial information, specifications,
computer-recorded information, tangible property, credit cards, entry cards,
identification badges and keys; and, any materials of any kind which contain or
embody any proprietary or confidential material of the Company (and all
reproductions thereof), including without limitation Company Inventions, Third
Party Information and Proprietary Information (as such terms are defined in the
Proprietary Information Agreement); provided, however, that if Mr. Wilson
discovers any such documents or property in his possession after the expiration
of such 10-day period, Mr. Wilson agrees to return such property to the Company
as soon as practicable following discovery. Mr. Wilson agrees that, as of the
Separation Date, he will neither use Company property nor possess (except
pending the return of such property as contemplated in this paragraph 7) Company
property, except such property which the Board specifically authorizes him to
use or possess for the sole purpose of performing his duties under this
Agreement.
12. NONDISPARAGEMENT. Mr. Wilson agrees that he will not at
any time intentionally disparage the Company in any manner likely to be harmful
to the Company, its business reputation, or the personal or business reputation
of its directors, stockholders or employees, and the Company agrees that neither
it nor its representatives will at any time intentionally disparage Mr. Wilson
or his personal or business reputation, provided that each party shall respond
accurately and fully to any question, inquiry or request for information when
requNONDISPARAGEMENT. Mr. Wilson agrees that he will not at any time
intentionally disparage the Company in any manner likely to be harmful to the
Company, its business reputation, or the personal or business reputation of its
directors, stockholders or employees, and the Company agrees that neither it nor
its representatives will at any time intentionally disparage Mr. Wilson or his
personal or business reputation, provided that each party shall respond
accurately and fully to any question, inquiry or request for information when
required by legal process.
14. CONFIDENTIALITY. The provisions of this Agreement shall be
held in strictest confidence by Mr. Wilson and the Company and shall not be
publicized or disclosed in any manner whatsoever. Notwithstanding the
prohibition in the preceding sentence: (a) the parties may disclose this
Agreement in confidence to their respective attorneys, accountants, auditors,
tax preparers, and financial advisors (and, in the case of Mr. Wilson, to
members of his family); (b) the Company may disclose this Agreement as necessary
to fulfill standard or legally required corporate reporting or disclosure
requirements; and (c) the parties may disclose this Agreement insofar as such
disclosure may be necessary to enforce its terms or as otherwise required by
law. In particular (and without limitation), Mr. Wilson agrees not to discuss
the contents of this Agreement with present or former Company employees or other
personnel, except to the extent necessary to explain his
part-timeCONFIDENTIALITY. The provisions of this Agreement shall be held in
strictest confidence by Mr. Wilson and the Company and shall not be publicized
or disclosed in any manner whatsoever. Notwithstanding the prohibition in the
preceding sentence: (a) the parties may disclose this Agreement in confidence to
their respective attorneys, accountants, auditors, tax preparers, and financial
advisors (and, in the case of Mr. Wilson, to members of his family); (b) the
Company may disclose this Agreement as necessary to fulfill standard or legally
required corporate reporting or disclosure requirements; and (c) the parties may
disclose this Agreement insofar as such disclosure may be necessary to enforce
its terms or as otherwise required by law. In particular (and without
limitation), Mr. Wilson agrees not to discuss the contents of this Agreement
with present or former Company employees or other personnel, except to the
extent necessary to explain his part-time employment relationship with the
Company or to carry out his duties under this Agreement.
16. RELEASE OF CLAIMS BY MR. WILSON. Except as otherwise set
forth in this Agreement, Mr. Wilson hereby releases, acquits and forever
discharges the Company, its officers, directors, agents, attorneys, servants,
employees, shareholders, successors, assigns and affiliates, of and from any and
all claims, liabilities, demands, causes of action, costs, expenses, attorneys
fees, damages, indemnities and obligations of every kind and nature, in law,
equity, or otherwise, known and unknown, suspected and unsuspected, disclosed
and undisclosed, arising out of or in any way related to agreements, events,
acts or conduct at any time prior to and including the date Mr. Wilson signs
this agreement, including but not limited to: any and all such claims and
demands directly or indirectly arising out of or in any way connected with Mr.
Wilson's employment with the Company or the termination of that employment;
claims or demands related to salary, bonuses, commissions, stock, stock options,
or any other ownership interests in the Company, vacation pay, fringe benefits,
expense reimbursements, severance benefits, or any other form of compensation;
claims pursuant to any federal, state or local law, statute, or cause of action
including, but not limited to, the federal Civil Rights Act of 1964, as amended;
the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA");
the federal Americans with Disabilities Act of 1990; the California Fair
Employment and Housing Act, as amended; tort law; contract law; wrongful
discharge; discrimination; harassment; fraud; defamation; emotional distress;
and breach of the implied covenant of good faith and fair dealing.
18. ADEA WAIVER. Mr. Wilson acknowledges that he is knowingly
and voluntarily waiving and releasing any rights he may have under the federal
Age Discrimination in Employment Act of 1967, as amended. He also acknowledges
that the consideration given for the waiver in the above paragraph is in
addition to anything of value to which he was already entitled. He further
acknowledges that he has been advised by this writing, as required by the ADEA
that: (a) his waiver and release do not apply to any claims that may arise after
the date he signs this Agreement; (b) he has been advised to consult with an
attorney prior to executing this Agreement; (c) he has twenty-one (21) days
within which to consider this Agreement (although he may choose to voluntarily
execute this Agreement earlier); (d) he has seven (7) days following the
execution of this Agreement to revoke the Agreement; (e) this Agreement shall
not be effective until the date upon which the revocation period has expired,
which shall be the eighth day after this Agreement is executed by Mr. Wilson,
provided that the Company has also signed the Agreement by that date ("Effective
Date").
20. RELEASE BY THE COMPANY. The Company, on its behalf and its
directors, successors, assigns and affiliates, hereby releases, acquits and
forever discharges Mr. Wilson and his agents, successors, assigns and affiliates
from any and all claims, liabilities, demands, causes of action, costs,
expenses, attorneys fees, damages, indemnities, and obligations of every kind
and nature, in law, equity, or otherwise, known and unknown, suspected and
unsuspected, disclosed and undisclosed arising out of or in any way related to
agreements, events, acts or conduct at any time prior to and including the
Effective Date, including but not limited to: any act or omission by Mr. Wilson
within the authorized course and scope of his employment with the Company, with
the exception of any claim arising out of his obligations under this Agreement
or his proprietary information obligations.
22. SECTION 1542 WAIVER. Mr. Wilson and the Company
acknowledge that they have read and understanSECTION 1542 WAIVER. Mr. Wilson and
the Company acknowledge that they have read and understand Section 1542 of the
Civil Code of the State of California which reads as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
Mr. Wilson and the Company hereby expressly waive and relinquish all rights and
benefits under that section and any law or legal principle of similar effect in
any jurisdiction with respect to the release of unknown and unsuspected claims
granted in this Agreement.
23. TERMINATION OF PART-TIME EMPLOYMENT BY THE COMPANY. In the
event that Mr. Wilson materially breaches any provision of this Agreement or the
Proprietary Information Agreement, the Company at its election may terminate Mr.
Wilson's part-time employment by the Company and its obligation to make any
further payments to Mr. Wilson pursuant to paragraph 4 hereof effective upon
written notice to Mr. Wilson. Mr. Wilson acknowledges that the Option will cease
vesting and terminate in accordance with the applicable terms of the option
agreement upon the termination of his part-time employment by the Company. All
provisions of this Agreement (other than paragraph 4) and all provisions of the
Proprietary Information Agreement shall survive such termination and remain in
full force and effect. The rights under this paragraph 14 are in addition to any
other rights or remedies at law or in equity, that the Company may have to
enforce this Agreement.
24. NO ADMISSIONS. It is understood and agreed by
Mr. Wilson and the Company that this Agreement represents a compromise
settlement of various matters, and that the promises and payments in
consideration of this Agreement shall not be construed to be an admission of any
liability or obligation by either party to the other party or to any other
person.
25. NOTICES. All notices, instructions and other
communications given hereunder or in connection herewith shall be in writing.
Any such notice, instruction or communication shall be sent either (a) by
registered or certified mail, return receipt requested, postage prepaid, or (b)
via a reputable express courier service, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed to have
been delivered three (3) business days after it is mailed, by certified mail,
postage prepaid, return receipt requested, or one business day after it is sent
via a reputable nationwide overnight courier service.
If to the Company: Wonderware Corporation
100 Technology Drive
Irvine, California 92718
Attn: President
If to Mr. Wilson: Mr. Gary J. Wilson
21301 Birdhallow
Trabuco Canyon, CA 92679
Either party may give any notice, instruction or communication in connection
with this Agreement using any other means (including personal delivery, telecopy
or ordinary mail), but no such notice, instruction or communication shall be
deemed to have been delivered unless and until it is actually received by the
party to whom it was sent. Either party may change the address to which notices,
instructions or communications are to be delivered by giving the other party to
this Agreement notice thereof in the manner set forth in this paragraph 16.
26. ENTIRE AGREEMENT. This Agreement, including Exhibit A,
constitutes the complete, final and exclusive embodiment of the entire agreement
between Mr. Wilson and the Company with regard to the subject matter hereof. It
is entered into without reliance on any promise or representation, written or
oral, other than those expressly contained herein. It may not be modified except
in a writing signed by Mr. Wilson and a duly authorized officer of the Company.
Each party has carefully read this Agreement, has been afforded the opportunity
to be advised of its meaning and consequences by his or its respective
attorneys, and signed the same of his or its own free will.
27. SUCCESSORS AND ASSIGNS. This Agreement shall bind the
heirs, personal representatives, successors, assigns, executors, and
administrators of each party, and inure to the benefit of each party, its heirs,
successors and assigns. However, because of the unique and personal nature of
Mr. Wilson's duties under this Agreement, Mr. Wilson agrees not to delegate the
performance of his duties under this Agreement.
28. APPLICABLE LAW. This Agreement shall be deemed
to have been entered into and shall be construed and enforced in accordance with
the laws of the State of California as applied to contracts made and to be
performed entirely within California.
29. SEVERABILITY. If a court of competent jurisdiction
determines that any term or provision of this Agreement is invalid or
unenforceable, in whole or in part, then the remaining terms and provisions
hereof shall be unimpaired. Such court will have the authority to modify or
replace the invalid or unenforceable term or provision with a valid and
enforceable term or provision that most accurately represents the parties'
intention with respect to the invalid or unenforceable term or provision.
30. DISPUTE RESOLUTION. Unless otherwise prohibited by law or
specified below, all disputes, claims, and causes of action, in law or equity,
arising from or relating to this Agreement or its enforcement, performance,
breach, or interpretation shall be resolved solely and exclusively by
confidential final and binding arbitration held in Irvine, California through
Judicial Arbitration & Mediation Services/Endispute, Inc. ("JAMS") under the
then existing JAMS arbitration rules. However, nothing in this section is
intended to prevent either party from obtaining injunctive relief in court to
prevent irreparable harm pending the conclusion of any such arbitration.
31. SECTION HEADINGS. The section and paragraph
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
32. COUNTERPARTS. This Agreement may be executed in
two counterparts, each of which shall be deemed an original, all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly authorized and caused this
Agreement to be executed as follows:
GARY J. WILSON WONDERWARE CORPORATION
an individual a Delaware corporation
/s/ Gary J. Wilson /s/ Roy H. Slavin President
Date: September 9, 1996 Date: October 1, 1996
<PAGE>
EXHIBIT A
Proprietary Information Agreement
WONDERWARE CORPORATION
Proprietary Information
And Inventions Agreement
In consideration of my employment or continued employment by Wonderware
Corporation, a Delaware corporation (the "Company"), and the compensation now
and hereafter paid to me, I hereby agree as follows:
1. Recognition of Company's Rights; Nondisclosure. At all times during
the term of my employment and thereafter, I will hold in strictest confidence
and will not disclose, use, lecture upon or publish any of the Company's
Proprietary Information (defined below), except as such disclosure, use or
publication may be required in connection with my work for the Company, or
unless an officer of the company expressly authorizes such in writing. I hereby
assign to the Company any rights I may have or acquire in any such Proprietary
Information and recognize that all Proprietary Information shall be the sole
property of the Company and its assigns, and the Company and its assigns shall
be the sole owner of all patent rights, copyrights, mask work rights, trade
secret rights and all other rights throughout the world (collectively,
"Proprietary Rights") in connection therewith.
The term "Proprietary Information" shall mean trade secrets
confidential knowledge, data or any other proprietary information of the
Company. By way of illustration but not limitation, "Proprietary Information"
includes (a) inventions, mask works, trade secrets, ideas, processes, formulas,
source and object codes, data, programs, other works of authorship, know-how,
improvements, discoveries, developments, designs and techniques (hereinafter
collectively referred to as "Inventions"); and (b) information regarding plans
for research development, new products, marketing and selling, business plans,
budgets and unpublished financial statements, licenses, prices and costs,
suppliers and customers; and information regarding the skills and compensation
of other employees of the Company.
2. Third Party Information. I understand, in addition, that the Company
has received and in the future will receive from third parties confidential or
proprietary information ("Third Party Information") subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of my employment and
thereafter, I will hold Third Party Information in the strictest confidence, and
will not disclose (to anyone other than Company personnel who need to know such
information in connection with their work for the Company) or use, except in
connection with my work for the Company, Third Party Information unless
expressly authorized by an officer of the Company in writing.
3. Assignment of Inventions.
3.1 I hereby assign to the Company all my right, title and
interest in and to any and all Inventions (and all Proprietary Rights
with respect thereto) whether or not patentable or registrable under
patent, copyright or similar statutes, made or conceived or reduced to
practice or learned by me, either alone or jointly with others, during
the period of my employment with the Company. I recognize that the
Agreement does not require assignment of any invention which qualifies
fully for protection under Section 2870 of the California Labor Code
(hereinafter "Section 2870"), which provides as follows:
(a) Any provision in an employment agreement
which provides that an employee shall assign, or offer to assign, any of his or
her rights in an invention to his or her employer shall not apply to an
invention that the employee developed entirely on his or her own time without
using the employer's equipment, supplies, facilities, or trade secret
information except for those inventions that either:
(1) Relate at the time of conception or
reduction to practice of the invention to the employer's business, or actual or
demonstrably anticipated research or development of the employer.
(2) Result from any work performed by
the employee for the employer.
(b) To the extent a provision in an employment
agreement purports to require an employee to assign an Invention otherwise
excluded from being required to be assigned under subdivision (a), the provision
is against the public policy of this state and is unenforceable.
3.2 I also assign to or as directed by the Company all my
right, title and interest in and to any and all Inventions, full title to which
is required to be in the United States by a contract between the Company and the
United States or any of its agencies.
3.3 I acknowledge that all original works of authorship which
are made by me (solely or jointly with others) within the scope of my employment
and which are protectable by copyright are "works made for hire," as the term is
defined in the United State copyright Act (17 U.S.C., Section 101). Inventions
assigned to or as directed by the Company by this paragraph 3 are hereinafter
referred to as "Company Inventions."
4. Enforcement of Proprietary Rights. I will assist the Company in
every proper way to obtain and from time to time enforce United States and
foreign Proprietary Rights relating to Company Inventions in any and all such
countries. To that end I will execute, verify and deliver such documents and
perform such other acts (including appearances as a witness) as the Company may
reasonable request for use in applying for, obtaining, perfecting, evidencing,
sustaining and enforcing such Proprietary Rights and the assignment thereof. In
addition, I will execute, verify and deliver assignments of such Proprietary
Rights to the Company or its designee. My obligation to assist the Company with
respect to Proprietary Rights relating to such Company Inventions in any and all
countries shall continue beyond the termination of my employment, but the
Company shall compensate me at a reasonable rate after my termination for the
time actually spent by me at the Company's request on such assistance.
In the event the company is unable for any reason, after
reasonable effort, to secure my signature on any document needed in connection
with the actions specified in the preceding paragraph, I hereby irrevocably
designate and appoint the Company and its duly authorized officers and agents as
my agent and attorney in fact, which appointment is coupled with an interest to
act for and in my behalf to execute, verify and file any such documents and to
do all other lawfully permitted acts to further the purposes of the preceding
paragraph thereon with the same legal force and effect as if executed by me. I
hereby waive and quitclaim to the Company any and all claims, of any nature
whatsoever, which I now or may hereafter have for infringement of any
Proprietary Rights assigned hereunder to the Company.
5. Obligation to Keep Company Informed. During the period of my
employment, and for six (6) months after termination of my employment with the
Company, I will promptly disclose to the Company fully and in writing all
Inventions authored, conceived or reduced to practice by me, either alone or
jointly with others. In addition, after termination of my employment, I will
disclose all patent applications filed by me, or on my behalf, within a year
after termination of employment. At the time of each such disclosure, I will
advise the company in writing of any Inventions that I believe fully qualify for
protection under Section 2870; and I will at that time provide to the Company in
writing all evidence necessary to substantiate the belief. I understand that the
Company will keep in confidence and will not disclose to third parties without
my consent any proprietary information disclosed to third parties without my
consent any proprietary information disclosed in writing to the Company pursuant
to this Agreement relating to Inventions that qualify fully for protection under
the provisions of Section 2870. I will preserve the confidentiality of any
Invention that does not fully qualify for protection under Section 2870.
I agree to keep and maintain adequate and current records (in the form of notes,
sketches, drawings and in any other form that may be required by the Company) of
all Proprietary Information developed by me and all Inventions made by me during
the period of my employment at the Company, which records shall be available to
and remain the sole property of the Company at all times.
6. Prior Inventions. Inventions, if any, patented or unpatented, which
I made prior to the commencement of my employment with the Company are excluded
from the scope of this Agreement. To preclude any possible uncertainty, I have
set forth on Exhibit A attached hereto, a complete list of all Inventions that I
have, alone or jointly with others, conceived, developed or reduced to practice
or caused to be conceived, developed or reduced to practice prior to the
commencement of my employment with the Company, that I consider to be my
property or the property of the third parties and that I wish to have excluded
from the scope of this Agreement. If disclosure of any such Invention on Exhibit
A would cause me to violate any prior confidentiality agreement, I understand
that I am not to list such Inventions in Exhibit A, but am to inform the Company
that all such Inventions have not been listed for that reason.
7. Additional Activities. I agree that during the period of my
employment by the Company I will not, without the Company's express written
consent, engage in any employment of business activity other than for the
Company, and for the period of my employment by the Company and for one (1) year
after the date of termination of my employment by the Company I will not (i)
induce any employee of the company to leave the employ of the Company or (ii)
solicit the business of any client or customer of the Company (other than on
behalf of the Company).
8. No Improper Use of Materials. During my employment by the Company I
will not improperly use or disclose any confidential information or trade
secrets, if any, of any former employer or any other person to whom I have an
obligation of confidentiality, and will not bring onto the premises of the
Company any unpublished documents or any property belonging to any former
employer or any other person to whom I have an obligation of confidentiality
unless consented to in writing by the former employer or person. I will use in
the performance of my duties only information which is generally known and used
by persons with training and experience comparable to my own, which is common
knowledge in the industry or otherwise legally in the public domain, or which is
otherwise provided or developed by the Company.
9. No Conflicting Obligation. I represent that my performance of all
the terms of this Agreement and as an employee of the Company does not and will
not breach any agreement to keep in confidence information acquired by me in
confidence or in trust prior to my employment by the Company. I have not entered
into, and I agree I will not enter into, any agreement either written or oral in
conflict herewith.
10. Return of Company Documents. When I leave the employ of the
Company, I will deliver to the Company any and all drawings, notes, memoranda,
specifications, devices, formulas, and documents, together with all copies
thereof, and any other material containing or disclosing any Company Inventions,
Third Party Information or Proprietary Information of the Company, including
disks and other storage media, filing cabinets or other work areas, is subject
to inspection by Company personnel at any time with or without notice. Prior to
leaving, I will cooperate with the Company in completing and signing the
Company's termination statement for technical and management personnel.
Some agreements include a discussion of the employee's possible civil
and criminal liability in the event of a violation thereof. The following is a
sample provision:
"Employee has been informed and acknowledges that the
unauthorized taking of the Company's trade secrets:
i. could result in civil liability under California Civil
code Section 3426, and that,if willful, could result in an award for
triple the amount of the Company's damages and attorneys' fees; and
ii. is a crime under California Penal Code Section 499(c),
punishable by imprisonment for a time not exceeding one year, or by a
fine not exceeding five thousand dollars ($5,000), or by both."
11. Legal and Equitable Remedies. Because my services are personal and
unique and because I may have access to and become acquainted with the
Proprietary Information of the Company, the Company shall have the right to
enforce this Agreement and any of its provisions by injunction, specific
performance or other equitable relief, without bond, without prejudice to any
other rights and remedies that the Company may have for a breach of this
Agreement.
12. Notices. Any notices required or permitted hereunder shall be given
to the appropriate party at the address specified below or at such other address
as the party shall specify in writing. Such notice shall be deemed given upon
personal delivery to the appropriate address or if sent by certified or
registered mail, three days after the date of mailing.
13. General Provisions.
13.1 Governing Law. This Agreement will be governed by
and construed according to the laws of the State of California.
13.2 Entire Agreement. This Agreement is the final, complete
and exclusive agreement of the parties with respect to the subject matter hereof
and supersedes and merges all prior discussions between us. No modification of
or amendment to this Agreement, nor any waiver of any rights under this
Agreement, will be effective unless in writing signed by the party to be
charged. Any subsequent change or changes in my duties, salary or compensation
will not affect the validity or scope of this Agreement. As used in this
Agreement, the period of my employment includes any time during which I may be
retained by the Company as a consultant.
13.3 Severability. If one or more of the provisions in this
Agreement are deemed unenforceable by law, then such provision will be deemed
stricken from this Agreement and the remaining provisions will continue in full
force and effect.
13.4 Successors and Assigns. This Agreement will be binding
upon my heirs, executors, administrators and other legal representatives and
will be for the benefit of the Company, its successors and its assigns.
13.5 Survival. The provisions of this Agreement shall survive
the termination of my employment and the assignment of this Agreement by the
Company to any successor in interest or other assignee.
13.6 Employment. I agree and understand that nothing in this
Agreement shall confer any right with respect to continuation of employment by
the Company, nor shall it interfere in any way with my right or the Company's
right to terminate my employment at any time, with or without cause.
13.7 Waiver. No waiver by the Company of any breach of this
Agreement shall be a waiver of any preceding or succeeding breach. No waiver by
the Company of any right under this Agreement shall be construed as a waiver of
any other right. The Company shall not be required to give notice to enforce
strict adherence to all terms of this Agreement.
This Agreement shall be effective as of the first day of my employment
with the Company, namely November, 1989.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE
DURING MY EMPLOYMENT, AND RESTRICTS MY RIGHT TO DISCLOSE OR USE THE COMPANY'S
CONFIDENTIAL INFORMATION DURING OR SUBSEQUENT TO MY EMPLOYMENT.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT A TO THIS AGREEMENT.
Dated: November 5, 1993.
/s/ Gary Wilson
GARY WILSON
ACCEPTED AND AGREED TO:
Wonderware Corporation,
A Delaware corporation
By: /S/ Beccie Crossman
Its Authorized Officer
<PAGE>
EXHIBIT 21.1
WONDERWARE CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary Jurisdiction of Incorporation
- - ------------------- -----------------------------
Soft Systems Engineering, Inc. Pennsylvania
Wonderware Europe, Inc. Delaware
Wonderware International, Inc. U.S. Virgin Islands
Wonderware Korea, Ltd. Korea
Wonderware Systems, Inc. Delaware
Wonderware GmbH Germany
Wonderware Italia Spa Italy
Wonderware of Argentina, Inc. Delaware
Wonderware of Japan, Inc. Delaware
Wonderware of Mexico, Inc. Delaware
Wonderware of Taiwan, Inc. Delaware
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-66366, 33-77372, 33-77374, 33-95924, and 33-94030 on Form S-8 and
33-97774 and 33-96254 on Form S-3 of our report dated January 30, 1997,
appearing in the Annual Report on Form 10-K of Wonderware Corporation for the
year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
March 27, 1997
<PAGE>
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