<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-23560
XCELLENET, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1749705
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
5 CONCOURSE PARKWAY, SUITE 850, ATLANTA, GEORGIA 30328
(Address of principal executive offices)
(770) 804-8100
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation 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 (assuming, for purposes of this calculation, without conceding, that
all 10% shareholders, executive officers and directors are "affiliates") was
$114,515,674 at January 31, 1997, based on a closing market price of $20.25 for
the Common Stock on such date, as reported by the Nasdaq National Market.
The number of shares of registrant's Common Stock $.01 par value per share,
outstanding at January 31, 1997 was 7,474,372.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
PART I
Item 1. Business.
BUSINESS
XcelleNet develops, markets and supports software utilities that improve the
manageability and enhance the performance of remote access computing for users
who routinely work offline and periodically dial in to enterprise systems to
exchange or synchronize information. These intermittently connected users have
traditionally included field sales and service workers and remote users in
branch offices or retail locations. The number of these users has grown
significantly as the ability to quickly and easily share information
throughout the enterprise has become a key asset. Increasingly, these users
may also include a broader constituency of both internal and external users
who access corporate intranets.
The Company's products make many popular messaging, groupware, database and
web-based applications work more effectively for remote users who routinely work
offline and connect intermittently. The foundation of the Company's products is
its Queued Event Architecture ("QEA") and its session automation technology.
QEA's three-tier, client/agent/server design facilitates the automated staging
of various types of user-and system-initiated events that are executed whenever
communication sessions occur. Session automation technology provides secure,
fast and reliable file transfers and advanced session scripting to control which
tasks occur before, during and after a communication session. Session scripting
and automation hide many of the technical complexities of remote access
computing from the user and provide scheduling capabilities for the system
administrator. The Company believes that its products can reduce its customers'
operating and support costs by increasing user productivity and improving system
management for many remote users whose corporate information needs are not
adequately addressed by existing mainframe, client/server and internet
technologies.
The Company's original RemoteWare product family was introduced in 1989. The
first generation of RemoteWare products was developed to operate on the OS/2
server platform and was marketed to corporations designing customized solutions
for remote sites and users. From its introduction, RemoteWare was designed to
provide a scalable, secure and user-friendly environment for the remote site
automation of business processes such as sales order entry, inventory query,
field activity reporting and catalog delivery. Consequently, the Company's early
marketing efforts were focused on industries with large numbers of remote sites
engaged in these activities. As of December 31, 1996, the Company had licensed
directly or through its Solution Providers RemoteWare for the IBM OS/2 platform
("RemoteWare for OS/2") to approximately 1,300 organizations and supporting
approximately 470,000 users.
In 1995, the Company recognized the growing popularity of Windows NT as an
enterprise computing platform and the increased deployment of third-party and
customized applications based on industry standards. As a result, in early
1995 XcelleNet began committing significant resources to develop RemoteWare
products that (i) operate on Microsoft Windows NT servers and are integrated
with Microsoft Back Office products, (ii) embrace widely used Microsoft
standards, such as MAPI, ODBC and ActiveX, (iii) support popular industry
leading products with large installed bases of remote users such as IBM's Lotus
Notes and Sybase's SQL AnyWhere, and (iv) support internet standards and browser
and server offerings from Microsoft and Netscape.
In March 1996, the Company introduced RemoteWare for the Windows NT platform
("RemoteWare for NT"), which the Company believes will expand the potential
market for RemoteWare and the number of its potential marketing partners.
Software license fees from RemoteWare for NT products accounted for 17% and 41%
of the Company's total software license fees in the third and fourth quarters of
1996, respectively.
The Company believes that the widespread adoption of internet technologies
by organizations with enterprise information networks and the emergence of
corporate intranets will create significant opportunities for the Company to
expand the applicability of its core technologies. The Company intends to
aggressively pursue these opportunities by developing and marketing a new
family of intranet system and application management utilities to be offered
upon their release under the NetEssentials name.
INDUSTRY BACKGROUND
The ability to quickly and easily share information throughout the
enterprise has become a key asset in today's increasingly competitive business
environment. Accordingly, enterprise information systems have expanded to
include not only users who are local to central systems, but also those who
are remote. These remote users include branch office workers, mobile
professionals and telecommuters, and with the growing deployment of corporate
intranets, increasingly may include suppliers, distributors, customers and
sales prospects. The need to disseminate information to these remote users,
whether by electronic mail or more complex groupware or database applications,
is accelerating the deployment of remote access technology.
The needs of remote users can be classified by the nature of their
connection to a central system and the nature of the software applications
they use remotely. Connection methods can either be intermittent (e.g., dial-
up lines) or continuous (e.g., leased lines). Software applications can be
classified as offline or interactive, depending upon the degree of network
interaction required between the user and the network while the application is
in use.
Many dial-up users employ remote access software (generally known as "remote
node" software) to dial in to a network and function as a slow-speed,
interactive LAN user. This software provides transparent access to a network
and is a popular solution for interactive applications. Increasingly, many
client/server applications, such as electronic mail, workgroup software, and
databases, have been designed to allow users to download, review and modify
centrally stored data, and to synchronize any changes with the central data at
a later time. These applications are especially valuable for remote users who
need to work offline but also need access to the latest corporate information.
Such users need remote access utilities that can work over various
intermittent connections such as traditional dial-up lines and internet or
cellular services. They also need remote access utilities that can support and
coordinate multiple applications during a single, highly efficient connection.
Finally, they need remote access that is easy to use, secure, fast and
reliable.
Dial-up users also pose a challenge to the system administrator since
monitoring and maintaining remote users' hardware, software and data files is
inherently difficult if the user is not continuously connected to the
enterprise network. As the number of remote dial-up users grows, system
administrators need efficient and reliable tools to manage and support them.
The Company believes that as the Internet and corporate intranets become
popular tools for disseminating corporate information, remote system
management for dial-up users will become increasingly important to intranet
managers.
THE XCELLENET SOLUTION
XcelleNet develops, markets and supports software utilities that address the
remote user's needs and the system management issues associated with
intermittently connected users who routinely work offline. RemoteWare provides
advanced system management capabilities and performance enhancements for many
popular messaging, groupware, database and web-based applications. For many
remote users, RemoteWare can make remote computing easier and more reliable
while reducing connect time and increasing the remote user's productivity.
RemoteWare also provides remote system management features and is typically
marketed to system administrators within large enterprises.
The following diagram illustrates the target market for the RemoteWare
family of products.
GRAPHIC: A set of horizontal and vertical axes is the basis for the graphic. The
vertical axis is labelled "Intermittent Connections (e.g., dial-up lines)" on
the top and "Continuous Connections (e.g., leased lines,)" on the bottom. The
horizontal axis is labelled "Interactive Applications" on the left and "Offline
Applications" on the right. Superimposed on the axes is a circle that is located
primarily in the "Northeast" quadrant but edges of which fall within the
"Northwest" and "Southeast" quadrants.
The word "RemoteWare" is centered in the circle.
The foundation of the Company's products is its Queued Event Architecture
and its session automation technology. QEA's three-tier, client/agent/server
design facilitates the automated staging of various types of user- and system-
initiated events that are executed whenever communication sessions occur.
Automated staging increases remote user efficiency by queuing user-initiated
network transactions, thereby allowing the user to work productively offline.
Session automation technology provides secure, fast and reliable file transfers
and advanced session scripting to control which tasks occur before, during and
after a communication session. The combination of QEA and session automation
allows the RemoteWare server to "push" applications and various types of content
to individual dial-up users based on pre-defined user profiles. Similarly, the
RemoteWare client may "pull" content from the server by requesting or
subscribing to specified content. The Company's products provide advanced system
management capabilities that allow system administrators to manage user
sessions, and to deploy user-specific implementations of software and data files
based on individual user profiles.
Remote users sometimes require access to both interactive and offline
applications. For these users, RemoteWare can be used in conjunction with
remote node software to allow the user to work interactively in an application
during a communication session, while RemoteWare concurrently services the
offline applications and performs system management tasks in the background.
BUSINESS STRATEGY
The Company's objective is to become the leading provider of software
utilities that improve the manageability and enhance the performance of remote
access computing for users who routinely work offline, but periodically need
to exchange and synchronize information with enterprise application resources.
Important features of the Company's strategy are to:
Enhance Functionality and Extend Applicability of RemoteWare for NT. The
Company intends to continue to enhance RemoteWare for NT by including more
robust software distribution and asset management capabilities and other
features. The Company also intends to pursue opportunities to adapt its system
management capabilities to work with other vendors' system management
products. The Company plans additional feature and performance improvements
that embrace industry standards and support popular messaging, groupware,
database and web-based applications. The Company also intends to focus its
RemoteWare development and marketing efforts on complementing and enhancing
third-party products that are designed for offline use and have large and
growing installed bases, such as Lotus Notes, SQL AnyWhere and Vantive On-the-
Go. Specifically, the Company has recently introduced products to improve the
replication efficiency of Lotus Notes for remote users. To further extend the
applicability of RemoteWare, the Company plans to pursue technology alliances
and OEM relationships with vendors of complementary hardware and software
products.
Leverage Microsoft Technologies. The Company believes that Microsoft's
Windows NT environment is emerging as the predominant enterprise computing
platform. By leveraging Microsoft's enterprise platform, the Company believes
that its RemoteWare for NT products will be applicable to a broader range of
customers than its OS/2-based products. The Company intends to expand its
support for Microsoft technologies, including further integration with
Microsoft Back Office products such as Exchange Server, and to leverage the
Microsoft Solution Provider channel for complementary sales and support
services.
Pursue Intranet System Management Opportunities. As corporate intranets are
increasingly used to disseminate information and software to remote users, the
Company is seeking to leverage its core technologies to address intranet
system management. The Company intends to aggressively pursue these
opportunities by developing and marketing a new family of intranet system
management and application enhancement utilities called NetEssentials. This
line of products, which is currently under development, is being designed to
support internet standards and browser and server offerings from Microsoft and
Netscape, and is derived from RemoteWare's QEA and session automation
technology. A trial version of SessionXpress Basic, the first of these
products, was released on the Company's web site in February 1997.
Expand Distribution and Marketing Channels. The Company relies on its direct
sales force as its primary distribution channel and intends to increase the
number of its direct sales personnel in the future. In addition, the Company
is developing new distribution and marketing channels for its RemoteWare
product family and the NetEssentials product line. These new channels will
include a telesales function, indirect sales through OEM and bundling
arrangements, and web-based marketing. The Company's objectives for these new
channels are to facilitate product trials, generate qualified leads, and
generally increase market awareness and sales of the Company's products.
PRODUCTS
The Company's products improve the manageability and enhance the performance
of remote access computing for users who routinely work offline and
periodically dial in to enterprise systems to exchange or synchronize
information.
The foundation of the Company's products is its Queued Event Architecture
and its session automation technology. QEA's three-tier, client/agent/server
design facilitates the automated staging of various types of user- and system-
initiated events that are executed whenever communications sessions occur.
Automated staging increases remote user efficiency by queuing user-initiated
network transactions, thereby allowing the user to work productively offline.
These events may include database transactions (such as the entry of sales
orders), the sending and receiving of electronic mail, the replication of Lotus
Notes databases or the request for web pages to be viewed offline. Similarly,
system-initiated transactions tailored to each remote user are queued at the
central site server. These events typically include software upgrades and
updates to standard corporate data such as product catalogs, price lists, sales
reports and administrative manuals. Whenever a connection takes place, whether
initiated by the user or the system, the events queued at the user site and the
events queued at the central site are executed automatically.
The Company's session automation technology provides secure, fast, and
reliable file transfers and advanced session scripting to control which tasks
occur before, during and after communication sessions. XcelleNet's products
can reduce online connection time by performing pre-connection processing,
using compression algorithms and employing automated checkpoint restart and
recovery to avoid duplicate processing when a session is terminated
prematurely.
The combination of QEA and session automation allows the RemoteWare server
to "push" applications and various types of content to individual dial-up
users based on pre-defined user profiles. Similarly, the RemoteWare client may
"pull" content from the server by requesting or subscribing to specified
content.
RemoteWare Products
In 1989, XcelleNet released its original version of RemoteWare for OS/2. The
Company designates its RemoteWare for OS/2 products as the 2.x family and the
most recently released version is RemoteWare 2.5. In March 1996, the Company
released its first version of RemoteWare for NT, designated as the 3.x family.
The most recent version of the 3.x family is RemoteWare 3.1. The Company
intends to continue to offer and support its RemoteWare 2.x family, but
believes that sales of RemoteWare for NT products will constitute an
increasing proportion of the Company's RemoteWare sales.
RemoteWare consists of two components: the RemoteWare server software
installed at the central site and the RemoteWare client software installed on
each user's personal computer. The RemoteWare server software provides
integrated facilities for:
. Session automation services providing a variety of flexible scheduling
options through advanced session scripting; secure, fast, and reliable
file transfers; checkpoint restart and recovery; and compression
algorithms.
. System management services, enabling remote client systems to be managed
through electronic software distribution and version management,
providing disk and memory monitoring and offering problem logging and
reporting capabilities.
. Communications services, providing support for multiple transports and
protocols, such as asynchronous serial communications, TCP/IP, IPX/SPX
and NetBios.
. Messaging services, providing support for Microsoft Messaging API
("MAPI"), which permits MAPI-enabled applications to benefit from the
speed and reliability of RemoteWare's session automation services.
. Subscription and publishing services, enabling RemoteWare Subscriber
users to select and automatically receive multiple types of content for
offline viewing using "push" and "pull" methods (Extended Client only).
. User environment management services, allowing administrators to
centrally create, manage and distribute password-protected graphical
application menus to insulate RemoteWare Workshop users from the
complexities of the client operating system (Extended Client only).
RemoteWare servers support up to 32 simultaneous communication sessions per
server and are designed to support clustering of up to five servers. To date,
the largest installation of RemoteWare is on an OS/2 system that supports
approximately 13,000 licensed clients. The cluster feature for RemoteWare for
NT has been made available only to a limited number of customers in RemoteWare
3.1. Because RemoteWare 3.1 was first released commercially in September 1996,
many customers licensing this version have not yet fully deployed the product
and there may remain undetected errors or compatibility issues in this version.
The RemoteWare client provides an easy-to-use interface that simplifies
communication sessions with the RemoteWare server and takes advantage of the
server's integrated services. Options available as add-ons to extend the
functionality of the RemoteWare client are:
. RemoteWare Extended Client, which includes both RemoteWare Subscriber
and Workshop, allowing the client to utilize subscription and publishing
services and user environment management services, respectively.
. RemoteWare Replication Agent for Lotus Notes, which reduces replication
time by up to approximately 80% for remote Lotus Notes users through the
intelligent preprocessing and compression of records.
The replication capabilities of RemoteWare can also be purchased as a
standalone product, RemoteWare ESSENTIALS for Lotus Notes. This product
consists of a limited-function RemoteWare for NT server that performs only
Lotus Notes replication and a client component.
PRODUCTS UNDER DEVELOPMENT
The Company's product development efforts are currently focused on
increasing the functionality of RemoteWare for NT and developing the
NetEssentials product line.
RemoteWare for NT
The Company is currently investing significant product development resources
to produce RemoteWare 3.2, which is scheduled to be released
in the second quarter of 1997. The Company currently plans for this version to
include facilities for central management and distribution of web content to
RemoteWare users and integration of RemoteWare's messaging services with
Microsoft's Exchange Server. There can be no assurance that the Company will not
encounter difficulties that could delay or prevent the successful and timely
development, introduction and marketing of future versions of RemoteWare for NT.
Moreover, even if such future versions are developed and introduced, there can
be no assurance that they will achieve any significant degree of market
acceptance.
NetEssentials
The Company is currently developing the NetEssentials product line, a new
family of software utilities being designed to provide a tailored subset of
RemoteWare functionality to companies that are implementing intranets. The
NetEssentials products are derived from the Company's QEA and session
automation technology and will run on Microsoft Windows NT servers. It is
anticipated that these products would be sold individually or as a suite to
address specific customer needs. One of these planned products, SessionXpress,
is being developed to provide efficient "push" and "pull" delivery of content
and to include integrated capabilities for remote disk, file and directory
management. SessionXpress is expected to be offered in two versions,
SessionXpress and SessionXpress Basic, with SessionXpress Basic to have a more
limited set of features. A trial version of SessionXpress Basic was released
on the Company's web site in February 1997, and commercial availability of
SessionXpress Basic is scheduled for the second quarter of 1997.
Due to the complexity of remote access computing software in general, and
the NT operating system and internet standards in particular, and the
difficulty in gauging the engineering effort required to develop these planned
products, the development of RemoteWare 3.2 and the NetEssentials family of
potential products is subject to significant technical risks. Furthermore,
software products as complex as those currently under development by the
Company are subject to frequent delays and undetected errors or compatibility
issues following their introduction or as new versions are released. There can
be no assurance that the Company will not encounter difficulties that could
delay or prevent the successful and timely development, introduction and
marketing of these planned products. Moreover, even if such planned products are
developed and introduced, there can be no assurance that there will be a
significant market for such products, that RemoteWare 3.2 or the planned
NetEssentials products will achieve any significant degree of market acceptance,
or that the NetEssentials products will not result in price erosion or reduced
sales of the RemoteWare products. Failure to release these planned products on a
timely basis, failure of these planned products, if and when released, to
achieve any significant degree of market acceptance, or failure to effectively
manage the introduction of the planned NetEssentials products without eroding
the sales or sales prices of RemoteWare products, would have a material adverse
effect upon the Company's business, operating results and financial condition.
SERVICES
In addition to its product offerings, the Company provides systems
integration services, a software maintenance program, help desk support and
training programs.
Through 1996, the Company relied primarily upon Solution Providers to provide
application development and systems integration services to RemoteWare customers
and prospects. In mid-1996, the Company established its own integration services
group to offer a range of consulting and integration services required by large
customers. In January 1997, the Company acquired Electronic Commerce, Inc., a
14-person systems integrator that had been one of the Company's Solution
Providers. This acquisition significantly expanded the Company's ability to
provide integration services directly. The Company intends to focus its
integration services on new, large accounts as well as on customers migrating
from RemoteWare for OS/2 to RemoteWare for NT.
The Company offers help desk support and software maintenance together under
its RCAP program to customers and Solution Providers. In
December 1996, the Company began offering separate plans for software
maintenance and help desk support to all new customers and to existing
customers as their RCAP agreements expired. Software maintenance offered under
a RemoteWare Maintenance Agreement ("RMA") provides an extension of the
Company's software warranty and the right to receive upgrades during the 12-
month, renewable term of the agreement. A customer's annual fee under RCAP and
RMA is based on the cumulative software license fees paid by the customer.
Separately, help desk support is available on an annual fee or per-incident fee
basis.
PRODUCT DEVELOPMENT
All of the Company's products have been developed by its internal product
development staff, which has from time to time included a number of
independent development contractors. The Company's product development staff
consisted of 81 full-time employees and nine independent contractors as of
December 31, 1996. The Company's total product development expenditures were
$3.2 million, $5.4 million and $8.6 million in fiscal 1994, 1995 and 1996,
respectively, substantially all of which were attributable to the development
of RemoteWare products. Beginning in 1995, the Company substantially increased
its product development expenditures in order to develop its RemoteWare for NT
products and to increase the functionality of its existing RemoteWare for OS/2
products. In accordance with SFAS 86, the Company capitalizes software
development expenditures once a product has established technological
feasibility until such time as the resulting software product is available for
commercial sale.
The market for the Company's products is characterized by rapid change in
computer hardware and software technology, evolving industry standards and
changing customer requirements, and is highly competitive with respect to
timely product innovation. The introduction of competitive products embodying
new technologies, the emergence of new industry standards and the acceptance
of new communications and data delivery channels, such as the Internet, may
render the Company's existing products or underlying technologies obsolete or
unmarketable. For example, the Company may be required to change and improve
its products in response to changes in operating systems, application and
networking software, computer and communications hardware, programming tools
and computer language technology. Announced and unannounced changes or errors
in operating and other systems with which the Company's products are used may
adversely affect the performance of the Company's products and require the
Company to modify its products to compensate for such changes or errors. As a
result, the Company's future success will depend in large part upon its ability
to enhance its current products and services and develop new products and
services that maintain technological leadership, address the increasingly
sophisticated needs of customers, keep pace with new competitive product
offerings and emerging industry standards, and achieve broad market acceptance.
There can be no assurance that the Company will be successful in developing and
marketing new products or product enhancements that respond to technological
change or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these new products or product enhancements, or
that its new products and product enhancements will adequately meet the
requirements of the marketplace and achieve market acceptance.
In order to introduce and market new or enhanced products successfully with
minimal disruption in customer purchasing patterns, the Company must
effectively manage the transition from existing products. Announcements by the
Company or its competitors of new products, capabilities or technologies that
have the potential to replace or shorten the life cycles of the Company's
existing products may cause customers to defer purchases of existing Company
products. Furthermore, software products as complex as those offered by the
Company may contain undetected errors or compatibility issues following their
introduction or as new versions are released, which may result in reduced
orders, delays in collecting accounts receivable and additional service costs.
The Company has previously experienced delays in software development,
including delays in the commercial release of RemoteWare for NT, and has
discovered software errors in new products after commercial release. There can
be no assurance that the Company will not encounter difficulties that could
delay or prevent the successful and timely development, introduction and
marketing of potential new products or product enhancements. Failure of the
Company, for technological or other reasons, to develop and introduce new
products and product enhancements and new services on a timely basis that are
compatible with industry standards, to respond to technological advances by
others and satisfy changing customer requirements, to successfully manage
product transitions, and to minimize the impact of errors in new products
would have a material adverse effect on the Company's business, operating
results and financial condition.
The Company licenses certain third-party products that are incorporated into
the Company's products. These components include database drivers, a scripting
engine, a document viewer, a spell checker and X.400 gateway API libraries,
some of which perform key functions within the Company's products. In the
future, the Company may license or acquire other such products or may acquire
products that expand the functionality of the Company's existing or potential
future products where the Company considers such an acquisition preferable to
developing the functionality internally. If any of these current or future
third-party vendors were to terminate their relationship with the Company or
to materially increase the cost to the Company for their products, or if a
material problem were to arise in connection with any of the software products
licensed from them, the Company would be required to license an alternative
product from another third party or attempt to internally develop a
replacement for the function of the licensed software. The loss of or
inability to maintain any of these technology licenses could result in
interruptions in the availability of the Company's existing products and
delays in the introduction of new products and services until equivalent
technology, if available, is identified, licensed or developed, and
integrated. There can be no assurance that an alternative source of a suitable
product would be available or that the Company would be able to develop an
alternative product in sufficient time or at a reasonable cost. The failure of
the Company to obtain or develop an alternative product on a timely basis and
at a reasonable cost would have a material adverse effect on the Company's
business, operating results and financial condition.
PRICING
The Company generally grants non-exclusive, perpetual licenses for the
RemoteWare products at license fees based upon the server and client
components licensed. List prices for RemoteWare licenses in North America
range from $5,000 to $30,000 for each server, depending on the number of ports
and clients supported. List prices for RemoteWare client licenses in North
America range from $200 to $550 per seat, depending upon the options selected.
Volume pricing discounts are also available for purchases of 100 clients or
more. A RemoteWare installation of approximately 300 clients licensed directly
by the Company would typically represent license fees ranging from $66,000 to
$110,000, depending on the options selected.
RemoteWare licenses include a six-month warranty period. A customer may obtain
software maintenance for a 12-month renewable term through RCAP or RMA, which
are generally effective as of the date of the license agreement. For RemoteWare
for OS/2 customers only, RCAP and RMAs also provide the right to migrate to a
RemoteWare for NT license without incurring additional license fees. The annual
cost of a subscription to either RCAP or RMA is 15% of cumulative license fees.
In 1996, the Company began to offer the RemoteWare Discovery System, which
allows customers to evaluate the full RemoteWare product suite for a maximum
of 20 clients. The RemoteWare Discovery System is priced at $3,750 for a ten-
client system and $3,750 for an additional ten-client pack. The purchase price
of the RemoteWare Discovery System can be credited against license fees due
for a full production RemoteWare system. No maintenance plan is available for
the RemoteWare Discovery System.
The Company intends to price each of the planned NetEssentials products on a
per server basis, with separate prices for unlimited and limited concurrent
session capacity. The Company intends to price SessionXpress at $4,995 for
eight concurrent sessions and at $9,995 for unlimited concurrent sessions. The
Company also intends to offer SessionXpress Basic, a version of SessionXpress
with a limited set of features, at a lower price.
The market for the Company's products is characterized by significant price
competition, and the Company expects that it will face increasing pricing
pressures from current or future competitors. In addition, annual fees for
software support and maintenance have been a material part of the Company's
revenues in the past. These agreements are optional for the Company's
licensees and there can be no assurance that licensees who are currently
parties to RCAP or RMAs will renew those agreements or that new customers will
elect to enter into RMAs in the same numbers.
SALES AND MARKETING
The Company's sales and marketing efforts typically target Fortune 1000
companies with large numbers of remote and mobile users as potential customers
for the RemoteWare product line. XcelleNet relies primarily on its direct
sales force to qualify and sell to prospective customers. The Company also has
a network of Solution Providers who provide remarketing and integration
services to RemoteWare customers. In addition, XcelleNet has recently created
a telesales function to augment its direct sales force. The Company conducts
comprehensive targeted marketing programs to generate sales leads, which
include advertising, direct mail, public relations, user and partner
conferences, seminars, trade shows and telemarketing.
The Company has established informal marketing relationships with remote
access, database and sales force automation vendors, as well as with Microsoft
and IBM. These relationships are intended to promote awareness of the
Company's products among potential customers and to provide leads for the
Company's direct sales force.
The Company is in the early stages of developing its sales and marketing
channels for its planned NetEssentials products. The Company is expanding its
recently created telesales function and intends to leverage the Web for building
market awareness, as well as for selling the planned NetEssentials products. The
Company also intends to pursue OEM and bundling opportunities with software and
hardware vendors. The planned NetEssentials product line will also be offered by
the Company's direct sales force.
The Company's direct sales, Solution Provider and telesales sales efforts
are described in more detail below.
The Company's direct sales force is divided into: (i) four regional "area
teams" in North America; (ii) a team responsible for Europe, the Middle East
and Africa; and (iii) a team responsible for Australia and New Zealand. The
Company intends to strengthen its direct selling efforts by increasing its
direct sales force in 1997. In 1996, 62% of the Company's software license fee
revenues were attributable to sales made by the Company's direct sales force.
The primary function of Solution Providers is to assist the Company's
customers in implementing RemoteWare by providing application development and
systems integration services. Certain Solution Providers are authorized to
remarket the Company's products in connection with providing their services.
The Company is changing its network of Solution Providers in two respects.
First, in order to increase the Microsoft support capability of the Company's
Solution Provider network, the Company is requiring that all Solution
Providers be Windows NT-qualified in order for their agreements with the
Company to be renewed. Second, the Company's experience has been that most of
the sales produced by the Company's Solution Provider network have been
generated by a small number of effective Solution Providers; therefore, the
Company is renewing the agreements of only some of its Solution Providers. As a
result, the Company expects that license fees generated from Solution Providers
as a percentage of total license fees will decrease. There can be no assurance
that the Company will be able to attract or retain a sufficient number of NT-
qualified Solution Providers to adequately fill the Company's needs.
The Company's telesales effort focuses on sales of services, including
training and integration services, and RemoteWare ESSENTIALS for Lotus Notes.
The telesales effort was initiated in January 1997.
Any failure by the Company to expand its direct sales and telesales force
and other distribution channels, or the failure by the Company to increase
revenues commensurate with such expansion, would have a material adverse
effect on the Company's business, operating results and financial condition.
CUSTOMERS
As of December 31, 1996, XcelleNet, either directly or through its Solution
Providers, had licensed RemoteWare systems to over 1,400 organizations
supporting approximately 500,000 users. The Company receives license fees and
service revenues from end-user customers and in some cases through Solution
Partners. In 1996, no Solution Provider accounted for more than 8% of the
Company's total revenues and no customer licensed directly by the Company
accounted for more than 2% of the Company's revenues.
The Company's products are predominantly used by field sales and service
workers and remote users in branch offices or retail locations spanning a
range of industries. The following is a representative list as of December 31,
1996 of the end-user customers in the indicated industries:
HEALTHCARE/PHARMACEUTICAL SERVICES
Coulter Corporation ADP, Inc.
Manor Care, Inc. HBO & Company
Minnesota Mining and Manufacturing CompanyJenny Craig, Inc.
Sandoz Corporation Mail Boxes, Etc.
Schering-Plough Corporation Securities Industry Automation
Corporation
RESTAURANTS (FOOD CHAINS) Vanstar Corporation
Black-Eyed Pea Management Corp.
Brinker International, Inc. MANUFACTURING
Chick-Fil-A, Inc. Coors Brewing Company
Cracker Barrel Old Country Store, Inc. Holophane Company, Inc.
Denny's, Inc. Lanier Worldwide, Inc.
Whataburger, Inc. Liebert Corporation
Siemens Industrial Automation, Inc.
SPECIALTY RETAIL
General Nutrition Corporation
Kits Cameras, Inc.
Mrs. Fields, Inc.
Sharper Image Corp.
The Southland Corporation
Victoria's Secret Stores, Inc.
Wilson's House of Suede, Inc.
COMPETITION
The market for remote access software, including the Company's specific area
of remote access utilities, is highly competitive, highly fragmented and
characterized by rapidly changing technology and evolving standards. Many
software vendors offer products that are competitive with the products offered
by the Company. These competitors vary in size and in the scope and breadth of
the products and services offered. Within specific ranges of functionality,
the Company encounters competition from a number of sources including: (i)
enterprise system management tool vendors such as Microsoft, Tivoli and
Computer Associates; (ii) messaging-enabled application vendors such as Lotus
and Microsoft; (iii) groupware vendors such as Lotus; (iv) database
application vendors such as Oracle; (v) internet software vendors such as
Netscape and Microsoft; (vi) content distribution software vendors such as
Microsoft, Pointcast and BackWeb; (vii) remote access software and hardware
vendors such as Microsoft, Shiva and Citrix; (viii) vendors of applications
software who incorporate remote access utilities in their software such as
Lotus; and (ix) custom software-based solutions developed by internal
management information systems personnel or third-party professional service
organizations.
As the Company offers new products in the future, it expects that in
addition to facing competition from existing competitors it will have
additional competitors. Many of the Company's current competitors are
broadening the functionality of their product offerings. In addition, vendors
of network operating systems, network management software or intranet server
software, such as Microsoft, IBM, Novell and Netscape, may enhance their
products to include some or all of the functionality currently provided by the
Company's products, which would render the Company's products obsolete or
unmarketable. Because there are relatively low barriers to entry in the software
market, the Company also expects additional competition from other established
and emerging companies. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
have a material adverse effect on the Company's business, operating results or
financial condition.
The Company believes its principal competitive advantages are its focus on,
and experience with, the requirements of remote access computing for users who
intermittently dial in to enterprise information systems, its product
architecture, and its extensive customer base. The Company believes competition
will continue to intensify as the market for its products and services develops
and competitors focus more clearly on that market's specific requirements. There
can be no assurance that other companies will not develop experience, products
and marketing approaches that will be more successful than those of the Company.
Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing and other resources than the Company. As
a result, they may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion, sale and support of their products than
the Company. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products to address the remote computing needs
of the Company's prospective customers. Accordingly, it is possible that new
competitors, alliances among competitors, or alliances between competitors and
third parties may emerge and rapidly acquire significant market share. If this
were to occur, it would have a material adverse effect on the Company's
business, operating results and financial condition.
The Company believes that the principal competitive factors affecting the
market it serves include vendor and product reputation, product architecture,
functionality and features, scalability, ease of use, quality of product and
support, performance, price, brand name recognition and effectiveness of sales
and marketing efforts. Although the Company believes that its products
currently compete favorably with respect to such factors, there can be no
assurance that the Company can maintain its competitive position against
current and potential competitors, especially those with significantly greater
financial, marketing, service, support, technical and other competitive
resources, or that competitive pressures faced by the Company would not have a
material adverse effect on the Company's business, operating results or
financial condition.
In the future, vendors of network operating systems, network management
software or intranet server software, such as Microsoft, IBM, Novell, Inc.,
and Netscape, may enhance their products to include some or all of the
functionality currently provided by the Company's remote access software
utilities. For example, in the past Microsoft incorporated an anti-virus
utility in its release of DOS 6.0. The inclusion of the functionality of the
Company's products as a standard feature of network operating systems, network
management software or intranet server software could, particularly if the
quality of such functionality were comparable to that of the Company's
products, render the Company's products obsolete and unmarketable.
Additionally, the announcement by a vendor of network operating systems,
network management software or intranet server software that it intends to
include in a future product or version some or all of the functionality that
is currently provided by the Company's remote access software utilities, or
the rumor of such an intention absent an announcement by the vendor involved,
could materially adversely affect the marketability of the Company's products.
Furthermore, even if the remote access software utilities provided as standard
features in network operating systems, network management software or intranet
server software were more limited than that of the Company's products, there
can be no assurance that a significant number of customers would not elect to
accept such limited functionality in lieu of purchasing additional software
from another vendor such as the Company. If any of the foregoing events were
to occur, they would have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
INTELLECTUAL PROPERTY AND THIRD PARTY LICENSES
The Company relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary technology. For example, the Company licenses rather
than sells its software and generally requires licensees to sign license
agreements that impose certain restrictions on licensees' right to use the
software. In addition, the Company seeks to avoid disclosure of its trade
secrets, including but not limited to, generally requiring those persons with
access to the Company's proprietary information to execute confidentiality
agreements with the Company and restricting access to the Company's source
code.
The Company seeks to protect its software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. In addition, the Company has applied for patents in the United
States and certain other countries with respect to certain aspects of its
software. None of these patents have been granted and there can be no
assurance that a patent will be issued pursuant to any of these applications
or that, if granted, such patent would survive a legal challenge to its
validity or provide significant protection to the Company.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or
to obtain and use information that the Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and while
the Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem.
There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology. While the Company's competitive
position may be affected by its ability to protect its proprietary
information, the Company believes that trade secret, copyright and, if
granted, patent protections are less significant to the Company's competitive
position than other factors such as the knowledge, ability and experience of
the Company's personnel, name recognition and ongoing product development and
support.
For certain of its client products and the RemoteWare Discovery System, the
Company uses "shrinkwrap" licenses that are not signed by licensees to protect
its copyrights and trade secrets in those products. In addition, the Company
uses an electronic version of a shrinkwrap license for all users of the trial
version of its SessionXpress Basic product distributed electronically through
the Company's web site. In addition, the Company expects to use a shrinkwrap
license agreement, or an electronic version of such agreement, for its
NetEssentials products when commercially released. Since these shrinkwrap
licenses are not signed by the licensee, many authorities believe that they may
not be enforceable under many state laws and the laws of many foreign
jurisdictions. The laws of the State of Georgia, which govern these licenses for
the Company's products, continue to be unclear on this subject. 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.
In 1995, the Company received a claim that its products infringe upon a third
party's intellectual property rights, and there can be no assurance that other
third parties will not in the future claim infringement by the Company with
respect to current or future products, trademarks or other proprietary rights.
The Company expects that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in
the Company's industry segment grows and the functionality of products in
different industry segments overlaps. Any such claims, with or without merit,
could be time consuming, result in costly litigation, cause product shipment
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on
terms acceptable to the Company or available at all, which could have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company licenses certain third-party products that are incorporated into
the Company's products. These components include database drivers, a scripting
engine, a document viewer, spell checker and X.400 gateway API libraries, some
of which perform key functions within the Company's products. In the
future, the Company may license or acquire other such products or may acquire
products that expand the functionality of the Company's existing or potential
future products where the Company considers such an acquisition preferable to
developing the functionality internally. If any of these current or future
third-party vendors were to terminate their relationship with the Company or
to materially increase the cost to the Company for their products, or if a
material problem were to arise in connection with any of the software products
licensed from them, the Company would be required to license an alternative
product from another third party or attempt to internally develop a replacement
for the function of the licensed software. The loss of or inability to maintain
any of these technology licenses could result in interruptions in the
availability of the Company's existing products and delays in the introduction
of new products and services until equivalent technology, if available, is
identified, licensed or developed, and integrated. There can be no assurance
that an alternative source of a suitable product would be available or that the
Company would be able to develop an alternative product in sufficient time or at
a reasonable cost. The failure of the Company to obtain or develop an
alternative product on a timely basis and at a reasonable cost would have a
material adverse effect on the Company's business, operating results or
financial condition.
EMPLOYEES
As of December 31, 1996, the Company had 280 full-time employees, consisting
of 81 in product development, 57 in sales, 45 in marketing, 50 in customer
service and 47 in finance and administration. The Company's employees are not
represented by any collective bargaining organization, and the Company has never
experienced a work stoppage.
ITEM 2. PROPERTIES.
FACILITIES
The Company's corporate headquarters are located in Atlanta, Georgia, in a
leased facility consisting of approximately 98,000 square feet of office space
under a lease expiring September 1, 2000. The Company also leases an
additional 2,700 square feet in Raleigh, North Carolina for its E-Comm
subsidiary under a lease expiring December 31, 1999 and an additional 2,500
square feet in High Wycombe, Buckinghamshire, in the United Kingdom for its
European operations center under a lease expiring in 2006. Additionally, the
Company leases direct sales offices with square footage ranging from 150 to
400 square feet and lease terms of one to two years, in 14 locations in the
United States and in Sydney, Australia, Montreal, Canada, and Dusseldorf and
Munich, Germany. The Company believes that its existing facilities and offices
and additional space available to it are adequate to meet its requirements
through December 1997, and that, if necessary, additional or alternative space
will be available on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Common Stock of XcelleNet has been traded on the Nasdaq National Market
under the symbol "XNET" since XcelleNet's initial public offering in April
1994. The following table sets forth the range of quarterly high and low sale
prices of the Common Stock of XcelleNet on the Nasdaq National Market since
the Company's initial public offering.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Second Quarter (from April 14, 1994)......................... $ 14 $ 8
Third Quarter................................................ 15 3/4 6 3/4
Fourth Quarter............................................... 17 5/8 12 3/4
YEAR ENDED DECEMBER 31, 1995
First Quarter................................................ 31 3/4 14 3/4
Second Quarter............................................... 33 1/4 18 1/4
Third Quarter................................................ 23 3/4 16 1/4
Fourth Quarter............................................... 22 13 1/4
YEAR ENDED DECEMBER 31, 1996
First Quarter................................................ 15 1/4 8 3/4
Second Quarter............................................... 15 1/2 9 1/2
Third Quarter................................................ 14 1/2 8 3/4
Fourth Quarter............................................... 20 13 1/2
YEAR ENDED DECEMBER 31, 1997
First Quarter (through February 27, 1997).................... 23 1/4 15 3/4
</TABLE>
On February 27, 1997, the closing price of XcelleNet's Common Stock as
reported on the Nasdaq National Market was $18.75 per share. As of January
31, 1997, there were approximately 245 holders of record of the Company's
7,474,372 shares of outstanding Common Stock.
On January 2, 1997, XcelleNet acquired all of the outstanding shares of
Electronic Commerce, Inc., a system integrator based in Raleigh, North Carolina,
for consideration that included 50,000 shares of unregistered common stock
issued in reliance upon Regulation D promulgated under the Securities Act of
1933, as amended.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future
earnings for use in its business and does not anticipate paying cash dividends
in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Software license fees............... $30,703 $25,612 $21,399 $14,222 $8,932
Services............................ 11,948 8,487 5,490 3,191 1,425
------- ------- ------- ------- ------
Total revenues..................... 42,651 34,099 26,889 17,413 10,357
Costs and expenses................... 43,585 29,331 21,707 14,484 9,514
------- ------- ------- ------- ------
Operating income (loss).............. (934) 4,768 5,182 2,929 843
Other income, net.................... 934 1,264 748 162 96
------- ------- ------- ------- ------
Income before income taxes........... -- 6,032 5,930 3,091 939
Provision for income taxes........... -- 2,230 2,375 1,149 100
------- ------- ------- ------- ------
Net income........................... $ -- $ 3,802 $ 3,555 $ 1,942 $ 839
======= ======= ======= ======= ======
Net income per share................. $ -- $ 0.45 $ 0.45 $ 0.30 $ 0.15
======= ======= ======= ======= ======
Weighted average shares outstanding.. 7,915 8,480 7,833 6,450 5,824
======= ======= ======= ======= ======
<CAPTION>
DECEMBER 31,
---------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- ------
(in thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............ $10,587 $ 9,304 $12,375 $ 4,381 $4,120
Working capital...................... 23,198 24,968 28,815 7,689 6,810
Total assets......................... 36,683 33,461 36,144 12,208 9,489
Long-term debt....................... -- -- -- -- --
Total shareholders' equity........... 31,130 29,849 32,473 9,869 7,465
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company develops, markets and supports software utilities that improve
the manageability and enhance the performance of remote access computing for
users who routinely work offline and periodically dial in to enterprise
information systems to exchange or synchronize information. The Company was
incorporated in 1986 and began shipping its first product, RemoteWare for
OS/2, in 1989. In 1995, the Company began to develop RemoteWare for NT and
introduced its first such product, RemoteWare 3.0, in March 1996. In September
1996, the Company released RemoteWare 3.1, and is currently investing a majority
of its software development resources to develop RemoteWare 3.2.
The Company's revenues are derived from software license fees and services
related to its RemoteWare products. All of the Company's software license fees
currently result from noncancelable license agreements , including agreements
obtained directly by the Company and agreements obtained through Solution
Providers. Historically, services revenues have been derived substantially
from the Company's RemoteWare Assurance Plan ("RCAP") program, which bundles
software maintenance and help desk support for customers and Solution Providers.
In December 1996, the Company began offering separate plans for software
maintenance and help desk support. The Company's future financial performance
will depend in large part on the continued market acceptance of its RemoteWare
software and services, as well as the Company's ability to adapt and modify this
software to meet the evolving needs of its customers.
The Company's revenues are largely dependent on software license fees, which
are difficult to predict. Historically, the Company has operated with
virtually no order backlog because its software products are shipped as orders
are received. Moreover, the Company has often recognized a substantial portion
of its software license fees in the last month of a quarter, with these
revenues frequently concentrated in the last two weeks of a quarter.
Additionally, the Company has experienced, and may continue to experience,
significant seasonality in its business and the Company's results of
operations may be affected by such trends in the future. See "--Quarterly
Discussion."
License fees from the RemoteWare for NT products accounted for 17% and 41%
of total license fees in the third and fourth quarters of 1996, respectively.
The Company believes that Microsoft's Windows NT environment is emerging as
the predominant enterprise computing platform, and that its RemoteWare for NT
products will be applicable to a broader range of customers than its
RemoteWare for OS/2 products. While the Company intends to continue to offer
and support its RemoteWare for OS/2 products, the Company anticipates that
sales of the RemoteWare for NT products will constitute an increasing
proportion of total license fees. Because a significant portion of the
Company's installed base is composed of customers (including those who license
RemoteWare through Solution Providers) of the RemoteWare for OS/2 products,
the software maintenance revenue that may be received from those customers in
the future will depend in large part on the Company's ability to introduce
updates to or migration paths for its OS/2 products that encourage these
customers to participate in the Company's software maintenance program.
The Company relies primarily on its direct sales force to qualify and
sell to prospective customers. The Company also has a network of Solution
Providers who provide remarketing and/or integration services to RemoteWare
customers. During the second half of 1996, the Company began modifying its
Solution Provider channel model to place greater emphasis on Solution
Providers who offer substantial RemoteWare integration services. These and
other program changes that became effective January 1, 1997 have resulted in
fewer Solution Providers that are authorized to remarket RemoteWare and
remarketing discount rates that range from 20% to 30%, compared to 30% to 40%
in prior years. As a result, the Company expects that license fees generated
from Solution Providers as a percentage of total license fees will decrease.
In accordance with generally accepted accounting principles, the Company
capitalizes certain costs incurred in developing computer software products.
Capitalized software development costs were $786,000, $319,000 and $2.1
million in 1994, 1995 and 1996, respectively. Capitalized software costs
increased in 1996 primarily due to the development of RemoteWare for NT.
The Company is currently investing significant product development resources
in developing its NetEssentials family of products, which the Company currently
anticipates will consist of several products that are being derived from
RemoteWare and that are being targeted at companies implementing corporate
intranets. These products are planned for release throughout 1997, beginning
with the first product in the second quarter. The Company believes that the
market for intranet system management products in general, and for the planned
NetEssentials products in particular, is highly uncertain and the development of
these new products is subject to significant technical risks. As a result, the
Company does not anticipate that the software license fees generated from the
NetEssentials products in 1997 will be material compared to its total revenues.
Furthermore, there can be no assurance that any customer confusion over the
similar capabilities of the NetEssentials and RemoteWare products will not
result in price erosion or reduced sales of the RemoteWare products.
In the fourth quarter of 1996, the Company purchased the WorldLink product
line from The NetPlex Group, Inc. for approximately $3.0 million in cash. The
purchase price of the WorldLink technology was allocated to goodwill as of the
acquisition date and written off as a nonrecurring charge in the fourth
quarter due to uncertainties regarding its recoverability. In January 1997,
the Company acquired all of the outstanding shares of Electronic Commerce,
Inc. ("E-Comm"), a systems integration company that had been one of the
Company's Solution Providers, for stock and cash valued at approximately $2.7
million. As a result of the E-Comm acquisition, the Company anticipates that
revenues from the Company's systems integration business will increase as a
percentage of services revenues in 1997, and that costs of services will
increase as a percentage of services revenues.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenues of the line items in the Company's Consolidated Statements of
Operations and the percentage changes from the preceding periods:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL REVENUES YEAR-TO-YEAR CHANGES
---------------- ---------------------------
1994 1995 1996 1995 VS. 1994 1996 VS. 1995
---- ---- ---- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees............... 80% 75% 72% 20% 20%
Services............................ 20 25 28 55 41
--- --- --- --- ----
Total revenues.................... 100 100 100 27 25
--- --- --- --- ----
Costs and expenses:
Costs of license fees............... 4 5 5 48 9
Costs of services................... 7 7 9 31 63
Sales and marketing................. 43 43 51 25 49
Product development................. 9 15 15 116 26
General and administrative.......... 18 16 14 18 12
Nonrecurring charges................ -- -- 8 -- --
--- --- --- --- ----
Total costs and expenses.......... 81 86 102 35 49
--- --- --- --- ----
Operating income (loss).............. 19 14 (2) (8) (120)
Other income, net.................... 3 4 2 69 (26)
--- --- --- --- ----
Income before income taxes........... 22 18 -- 2 (100)
Provision for income taxes........... 9 7 -- (6) (100)
--- --- --- --- ----
Net income........................... 13% 11% --% 7% (100)%
=== === === === ====
</TABLE>
Revenues
Total revenues were $26.9 million, $34.1 million and $42.7 million in 1994,
1995 and 1996, respectively, representing increases of 27% from 1994 to 1995
and 25% from 1995 to 1996. These increases in total revenues were due to
increases in both license fees and service revenues.
The Company recognizes revenue in accordance with the Statement of
Position 91-1 on "Software Revenue Recognition" issued by the American Institute
of Certified Public Accountants. Software license fees are recognized when a
noncancelable license agreement has been signed, the product has been shipped
and all significant contractual obligations have been satisfied. The Company
licenses its products directly to licensees and through Solution Providers. All
licensees, whether licensed directly or through Solution Providers, are referred
to throughout this document as the Company's customers. Software licensed to a
customer through a Solution Provider is recognized net of the discount to the
Solution Provider. Services revenues are primarily derived from the RCAP
program, which includes help desk support and maintenance for customers and
Solution Providers, and to a lesser extent from training and systems integration
services. Revenues from the RCAP program are recognized proportionately over the
term of the 12-month agreement, while revenues for training and systems
integration services are recognized as services are performed. Starting in
December 1996, the Company began offering separate plans for software
maintenance and help desk support to all new customers and to existing customers
as their RCAP agreements expired. Software maintenance revenues under these new
agreements will be recognized over their 12-month terms.
Software License Fees. The Company currently derives all of its software
license fees from noncancelable license agreements for its RemoteWare
products. Software license fees were $21.4 million, $25.6 million and $30.7
million in 1994, 1995 and 1996, respectively, representing increases of 20%
from 1994 to 1995 and from 1995 to 1996. The increases in software license
fees reflect increased market acceptance by new customers and additional sales
to the Company's installed base. Software license fees as a percentage of
total revenues were 80%, 75% and 72% in 1994, 1995 and 1996, respectively,
reflecting the effect of the growth of services revenues associated with the
Company's larger installed base and the high rate of participation of
RemoteWare customers in the RCAP program.
In March 1996, the Company released its first version of RemoteWare for NT,
and the most recent version was released in September 1996. Software license
fees from the RemoteWare for NT products accounted for 17% and 41% of total
software license fees in the third and fourth quarters of 1996, respectively.
The Company believes that Microsoft's Windows NT environment is emerging as
the predominant enterprise computing platform, and that its RemoteWare for NT
products will be applicable to a broader range of customers than its
RemoteWare for OS/2 products. While the Company intends to offer and support its
RemoteWare for OS/2 products, the Company anticipates that sales of the
RemoteWare for NT products will constitute an increasing proportion of total
software license fees.
Software license fees from new customers were $11.6 million, $11.1 million
and $13.3 million in 1994, 1995 and 1996, respectively, representing 54%, 43%
and 43% of total software license fees in those years, respectively. The
decline in the percentage of software license fees from new customers is
related to the growth of the Company's installed base and the additional
software purchased by this installed base of customers. The Company added 247,
301 and 296 new customers in 1994, 1995 and 1996, respectively. The average
initial RemoteWare purchase for these new customers was $46,000, $36,000 and
$45,000 during the same three years. Average initial purchase size varies as a
function of the number of clients and servers included in the sale, whether
the sale was direct or through a Solution Provider, and the specific products
and options licensed.
Software license fees from existing customers were $9.8 million, $14.5
million and $17.4 million in 1994, 1995 and 1996, respectively, representing
46%, 57% and 57% of total software license fees in those years, respectively.
Software license fees from existing customers increased 48% from 1994 to 1995
and 20% from 1995 to 1996. Existing customers that purchase additional
RemoteWare products do so to complete deployment of an initial pilot or limited
production implementation and to extend RemoteWare to additional clients and
projects within the enterprise. The vast majority of the Company's existing
installed base is composed of customers who purchased RemoteWare for OS/2.
Software license fees generated by Solution Providers represented 40%, 48%
and 38% of total software license fees in 1994, 1995 and 1996, respectively.
During the second half of 1996, the Company implemented changes to its
Solution Provider channel to place greater emphasis on Solution Providers who
offer substantial RemoteWare integration services. These changes, and
additional program changes that became effective January 1, 1997, have
resulted in fewer Solution Providers that are authorized to remarket
RemoteWare and remarketing discount rates that range from 20% to 30%, compared
to 30% to 40% in prior years. As a result, the Company expects that software
license fees generated from Solution Providers as a percentage of total
software license fees will decrease.
The Company is currently investing significant product development resources
in developing its NetEssentials family of products, which the Company currently
anticipates will consist of several products that are being derived from
RemoteWare and are being targeted to companies implementing corporate intranets.
The Company currently plans to release the first of such products, SessionXpress
Basic, in the second quarter of 1997 and currently plans to release the other
NetEssentials products at various times throughout 1997. The Company believes
that the market for intranet system management products in general, and the
market for the planned NetEssentials product line in particular, is highly
uncertain. Furthermore, the development of these new products is subject to
significant technical risks. As a result, the Company does not anticipate that
the software license fees generated from the NetEssentials products in 1997 will
be material compared to its total revenues.
Services. Services revenues have historically been derived substantially
from the Company's RCAP program, which bundles help desk support and software
maintenance for customers and Solution Providers. Services revenues were $5.5
million, $8.5 million and $11.9 million for 1994, 1995 and 1996, respectively,
representing increases of 55% from 1994 to 1995 and 41% from 1995 to 1996. The
percentage of total revenues derived from services increased from 20% in 1994
to 25% in 1995 and to 28% in 1996. The growth in services revenues, and the
relative significance of such revenues to total revenues, is primarily due to
the Company's growing customer base and their significant rate of
participation in the RCAP program. Because a significant portion of the
Company's installed base is composed of customers of the RemoteWare for OS/2
products, the software maintenance revenue that may be received from those
customers in the future will depend in large part on the Company's ability to
introduce updates to or migration paths for its OS/2 products that encourage
these customers to continue their participation in the Company's software
maintenance program. There can be no assurance that such services revenues will
not decline in the future.
Services revenues also include field engineering and systems integration
services that are focused on selected RemoteWare customer implementations and
that facilitate Solution Provider development, certification and quality
assurance. The revenue generated from these activities totaled $152,000,
$343,000 and $438,000 in 1994, 1995 and 1996, respectively. In January 1997,
the Company acquired Electronic Commerce, Inc., a 14-person privately owned
systems integration company to provide project management and systems
expertise. Consequently, the Company anticipates that its revenues from systems
integration services will increase as a percentage of services revenues in 1997,
and that costs of services will increase as a percentage of services revenues.
Costs and Expenses
Costs of license fees. Costs of license fees consist of amortization of
capitalized software development costs, packaging and documentation materials,
royalties and personnel costs for shipping. Costs of license fees were $1.2
million, $1.8 million and $2.0 million in 1994, 1995 and 1996, respectively,
representing 6%, 7% and 6% of software license fees for those years,
respectively. The increases reflect the higher volume of products shipped in
each year, as well as increased amortization of capitalized software development
costs in 1996 associated with the development of RemoteWare for NT. As a result
of the higher level of capitalization of software development costs in 1996, the
Company anticipates an increase in amortization of capitalized software
development costs in 1997. This increase in amortization may increase costs of
license fees as a percentage of software license fees.
Costs of services. Costs of services consist primarily of personnel costs
for field services, customer support and training. In addition, a portion of
packaging and documentation materials and personnel costs for shipping are
allocated to costs of services for upgrades and enhancements shipped to
customers participating in the maintenance program. Costs of services were
$1.8 million, $2.3 million and $3.8 million in 1994, 1995 and 1996,
respectively, representing 33%, 28% and 32% of service revenues in those
years, respectively. These increases were primarily due to increased personnel
costs for field engineers, systems integration personnel and trainers. The
Company believes that costs of services will continue to increase as a
percentage of service revenues as a result of the Company's planned expansion
of its systems integration business.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and commissions of direct sales and marketing personnel and marketing
program costs. These expenses were $11.6 million, $14.5 million and $21.6
million in 1994, 1995 and 1996, respectively, representing 43%, 43% and 51% of
total revenues in those years, respectively. The increase in sales and
marketing expenses, in absolute dollars and as a percentage of total revenues,
in 1996 was due primarily to a new advertising campaign initiated in 1996,
personnel additions and investments in Europe. Advertising expenses were
$707,000, $194,000 and $2.0 million in 1994, 1995 and 1996, respectively. The
Company expects that sales and marketing expenses will increase in dollar
amount in 1997, but may decrease as a percentage of total revenues.
Product development. The table below summarizes product development
expenditures:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
1994 1995 1996
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Product development expenditures.................. $3,163 $5,447 $8,559
Less: capitalized software development costs...... (786) (319) (2,108)
------ ------ ------
Net product development expenses.................. $2,377 $5,128 $6,451
====== ====== ======
As a percentage of total revenues:
Product development expenditures.................. 12% 16% 20%
Less: capitalized software development costs...... (3%) (1%) (5%)
------ ------ ------
Net product development expenses.................. 9% 15% 15%
====== ====== ======
Capitalized product development rate............... 25% 6% 25%
====== ====== ======
</TABLE>
Most product development costs are personnel related. Product development
expenditures (expenses plus capitalized software development costs) were $3.2
million, $5.4 million and $8.6 million in 1994, 1995 and 1996, respectively,
representing increases of 72% from 1994 to 1995 and 57% from 1995 to 1996.
These increases were primarily due to additional personnel costs (including
outside contractor costs) for development of RemoteWare for NT.
In accordance with Statement of Financial Accounting Standards No. 86 ("SFAS
86"), "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed", the Company capitalizes certain costs incurred in
developing computer software products. These rules require capitalization of
certain product development expenditures from the time technological feasibility
is established for a new product or significant enhancement of an existing
product until it is generally available for all customers. The Company defines
technological feasibility as the release of product to selected customers for
beta testing. Thus, capitalization levels each year depend on product
development cycles. The Company amortizes capitalized software development
costs on a product-by-product basis over periods not exceeding three years,
with such amortization included in costs of license fees.
Capitalized software development costs were $786,000, $319,000 and $2.1
million in 1994, 1995 and 1996, respectively. Capitalized software development
costs in 1994 related to RemoteWare for OS/2. The substantial majority of the
capitalized software development costs in 1995 and 1996 related to the
development of RemoteWare for NT.
General and administrative. General and administrative expenses consist
primarily of personnel costs for general management, finance and
administration, information systems and human resources. General and
administrative expenses were $4.7 million, $5.5 million and $6.2 million in
1994, 1995 and 1996, respectively, representing increases of 18% from 1994 to
1995 and 12% from 1995 to 1996. General and administrative expenses as a
percentage of revenues were 18%, 16% and 14% in 1994, 1995 and 1996,
respectively. The Company expects that general and administrative expenses
will increase in absolute dollars, but may fluctuate as a percentage of
revenues.
Nonrecurring charges. In November 1996, the Company purchased the WorldLink
product line from The NetPlex Group, Inc. for approximately $3.0 million in
cash. The purchase price of the WorldLink technology was allocated to goodwill
as of the acquisition date and written off as a nonrecurring charge in the
fourth quarter due to uncertainties regarding its recoverability. In addition,
the Company recorded nonrecurring charges of $459,000 primarily representing
severance and hiring costs associated with certain key employees.
Provision for Income Taxes
The effective tax rate was 40%, 37% and 0% in 1994, 1995 and 1996,
respectively. The 1994 rate exceeded the statutory rate primarily due to
losses in the Company's U.K. operations. Such losses will not provide a tax
benefit until those operations are profitable. The 1995 tax rate declined as a
result of increases in tax-exempt interest income and research and development
tax credits and a decrease in losses from the U.K. operation. Since the
Company reported no taxable income in 1996, no provision was made for income
taxes in 1996.
QUARTERLY RESULTS
The following tables set forth consolidated statement of operations data for
each of the eight quarters beginning January 1, 1995 and ending December 31,
1996, and the percentage of the Company's total revenues represented by each
item. This information has been derived from unaudited consolidated quarterly
financial statements of the Company, which include all adjustments, consisting
only of normal recurring adjustments, that the Company considers necessary for
a fair presentation of the information when read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this document. The results of operations for any quarter are not necessarily
indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands,except per share data)
CONSOLIDATED STATEMENTS OF
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license fees.... $6,851 $7,002 $4,918 $6,841 $6,931 $ 7,381 $6,133 $10,258
Services................. 1,822 2,037 2,195 2,433 2,519 2,745 3,227 3,457
------ ------ ------ ------ ------ ------- ------ -------
Total revenues:......... 8,673 9,039 7,113 9,274 9,450 10,126 9,360 13,715
------ ------ ------ ------ ------ ------- ------ -------
Costs and expenses:
Costs of license fees.... 484 440 417 476 477 524 387 598
Costs of services........ 591 529 581 638 731 856 938 1,281
Sales and marketing...... 3,501 3,759 3,281 3,959 4,368 5,471 5,384 6,405
Product development...... 1,189 1,315 1,251 1,373 1,341 1,561 1,500 2,049
General and
administrative.......... 1,369 1,562 1,200 1,416 1,489 1,393 1,506 1,830
Nonrecurring charges..... -- -- -- -- -- -- 384 3,112
------ ------ ------ ------ ------ ------- ------ -------
Total costs and
expenses............... 7,134 7,605 6,730 7,862 8,406 9,805 10,099 15,275
------ ------ ------ ------ ------ ------- ------ -------
Operating income (loss)... 1,539 1,434 383 1,412 1,044 321 (739) (1,560)
Other income, net......... 304 334 330 296 288 265 204 177
------ ------ ------ ------ ------ ------- ------ -------
Income (loss) before
income taxes............. 1,843 1,768 713 1,708 1,332 586 (535) (1,383)
Provision for (benefit
from) income taxes....... 715 654 264 597 466 223 (160) (529)
------ ------ ------ ------ ------ ------- ------ -------
Net income (loss)......... $1,128 $1,114 $ 449 $1,111 $ 866 $ 363 $ (375) $ (854)
====== ====== ====== ====== ====== ======= ====== =======
Net income (loss) per
share.................... $ 0.13 $ 0.13 $ 0.05 $ 0.14 $ 0.11 $ 0.05 $(0.05) $ (0.12)
====== ====== ====== ====== ====== ======= ====== =======
Weighted average shares
outstanding.............. 8,624 8,602 8,502 8,160 7,852 7,883 7,238 7,345
====== ====== ====== ====== ====== ======= ====== =======
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Software license fees.... 79% 77% 69% 74% 73% 73% 66% 75%
Services................. 21 23 31 26 27 27 34 25
------ ------ ------ ------ ------ ------- ------ -------
Total revenues:.......... 100% 100% 100% 100% 100% 100% 100% 100%
Costs and expenses:
Costs of license fees.... 5 5 6 5 5 5 4 4
Costs of services........ 7 6 8 7 8 9 10 9
Sales and marketing...... 40 42 46 43 46 54 58 47
Product development...... 14 14 18 15 14 15 16 15
General and
administrative.......... 16 17 17 15 16 14 16 13
Nonrecurring charges..... -- -- -- -- -- -- 4 23
------ ------ ------ ------ ------ ------- ------ -------
Total costs and
expenses............... 82 84 95 85 89 97 108 111
------ ------ ------ ------ ------ ------- ------ -------
Operating income (loss)... 18 16 5 15 11 3 (8) (11)
Other income, net......... 3 3 5 3 3 3 2 1
------ ------ ------ ------ ------ ------- ------ -------
Income (loss) before
income taxes............. 21 19 10 18 14 6 (6) (10)
Provision for (benefit
from) income taxes....... 8 7 4 6 5 2 (2) (4)
------ ------ ------ ------ ------ ------- ------ -------
Net income (loss)......... 13% 12% 6% 12% 9% 4% (4)% (6)%
====== ====== ====== ====== ====== ======= ====== =======
</TABLE>
QUARTERLY DISCUSSION
License fees in the first half of 1995 increased 34% compared to the first
half of 1994 and 6% in the second half of 1995 compared to the same period in
1994. The slower growth rate experienced in the second half of 1995 continued
through the first half of 1996, with license fees increasing only 3% compared
to the first half of 1995. The Company believes that this 12-month period of
lower growth rates partly reflects purchasing delays of networking and remote
access systems as corporate information system departments evaluated the
applicability of internet technology to enterprise information systems and
purchasing delays as potential customers considered the Company's RemoteWare
for NT products, which were initially released in March 1996.
The Company has experienced, and may continue to experience, significant
seasonality in its business and the Company's results of operations may be
affected by such trends in the future. In previous years, the Company has
experienced a significant decline in revenues, and correspondingly, net
income, in the quarter ended September 30 compared to the quarter ended
June 30. Revenues may be lower in the summer months when many businesses defer
purchase decisions. In addition, the September 30 quarter is the first quarter
of the Company's annual quota-based sales compensation plan and may be affected
by the efforts of direct sales representatives to accelerate prospects' buying
decisions into the quarter ended June 30, which is the final quarter of their
preceding annual plan. In addition, revenues have in the past been relatively
flat from the quarter ended December 31 to the quarter ended March 31 primarily
as a result of customers' year-end purchasing patterns.
The Company has experienced and expects to continue to experience
significant fluctuations in quarterly operating results that may be caused by
many factors including, among others, the number, timing and significance of
product enhancements and new product announcements by the Company or its
competitors, the ability of the Company to develop, introduce and market new
and enhanced versions of the Company's products on a timely basis, the length
of the Company's sales cycle, market acceptance of and demand for the
Company's products, the growth rate of the market for remote access products,
the mix of the Company's products sold, the mix between revenues generated
from software license fees and services, customer order deferrals in
anticipation of enhancements or new products offered by the Company or its
competitors, renewal rates for service agreements, software defects and other
product quality problems, the Company's ability to attract and retain key
personnel, the extent of international sales, changes in the level of costs
and expenses, trends in the computer industry, general economic conditions,
extraordinary events such as acquisitions or litigation and the occurrence of
unexpected events. Historically, the Company's software support and
maintenance revenues have accounted for a significant portion of the Company's
total revenues. However, there can be no assurance that such rates will not
decline in the future.
The Company's revenues are largely dependent on software license fees, which
are difficult to predict. Historically, the Company has operated with
virtually no order backlog because its software products are shipped as orders
are received. Moreover, the Company has in the past recognized and expects to
continue to recognize a substantial portion of its software license fee
revenues in the last month of a quarter, with these revenues frequently
concentrated in the last two weeks of a quarter. As a result, software license
fee revenues in any quarter are dependent on orders booked and shipped in that
quarter, and the revenues for any quarter may not be predictable until the end
of the quarter.
Sales of the Company's software products generally involve a significant
commitment of management attention and resources by prospective customers.
Accordingly, the Company's sales process is often lengthy and subject to
delays associated with the long approval process that accompanies significant
customer initiatives or capital expenditures. The Company's sales cycle, from
initial trial to complete installation, varies substantially from customer to
customer as a result of the foregoing factors. Because the Company's staffing
and operating expenses are based on anticipated revenue levels and a high
percentage of the Company's costs are fixed in the short term, small
variations between anticipated order dates and actual order dates, as well as
nonrecurring or unanticipated large orders, can cause significant variations
in the Company's operating results from quarter to quarter. In addition, the
Company's expenditures for product development are treated differently under
applicable accounting standards depending upon the stage of product
development. Certain of the Company's development expenditures may be expensed
as incurred, while others are capitalized subject to amortization over the
expected useful lives of the products, causing significant variations in the
Company's operating results. For example, capitalized software development costs
increased significantly in 1996 as a result of reaching technological
feasibility for RemoteWare for NT. 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.
Due to all of the foregoing factors, it is likely that in some future
quarter or quarters the Company's operating results may be below the
expectations of securities analysts and investors. The Company has previously
failed to meet the expectations of securities analysts and investors, and
there can be no assurance that the Company will meet such expectations in the
future. Failure of the Company to meet such expectations would have a material
adverse effect on the price of the Company's Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
Since 1994, the Company has financed its operations primarily through the
public sale of its Common Stock in its initial public offering, and through cash
generated from operations. At December 31, 1996, the Company had $10.6 million
in cash and cash equivalents, $23.2 million in working capital and no debt.
Net cash provided by operating activities was $3.5 million, $4.9 million, and
$1.6 million in 1994, 1995, and 1996, respectively. In 1994 and 1995, net cash
provided by operating activities consisted primarily of net income plus
depreciation and amortization, offset primarily by increases in trade
receivables. In 1996, net cash provided by operating activities resulted
primarily from depreciation and amortization, the write-off of the WorldLink
product line, and an increase in liabilities, offset primarily by an increase in
trade receivables.
Net cash used in investing activities was $14.0 million, $1.9 million, and
$1.4 million in 1994, 1995 and 1996, respectively. In 1994, net cash used in
investing activities resulted primarily from the purchase of short-term
investments, fixed asset additions, and capitalized software development costs.
In 1995, the net cash used in investing activities resulted primarily from the
fixed asset additions offset by a decrease in short-term investments. In 1996,
net cash used in investing activities resulted primarily from the purchase of
the WorldLink product line from The NetPlex Group, Inc., fixed asset additions,
and capitalized software development costs, offset by a decrease in short-term
investments. The Company expects that its capital expenditures, primarily for
computer workstations and file servers, will remain approximately the same or
increase as the Company's employee base grows.
Net cash provided by financing activities was $18.9 million and $1.1 million
in 1994 and 1996, respectively. Net cash used in financing activities in 1995
was $6.4 million. Net cash provided by financing activities in 1994 consisted
primarily of net proceeds from issuance of common stock and in 1996 consisted
of the proceeds from, and income tax benefits associated with, the exercise of
stock options. Net cash used in financing activities in 1995 resulted primarily
from the Company's purchase of treasury stock.
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk.
Management expects that, in the future, cash in excess of current
requirements, if any, will be invested in investment grade, interest-bearing
securities. The Company's principal commitments consist primarily of leases on
its headquarters facilities.
The Company believes that the net proceeds from the sale of Common Stock
offered by the Company hereby, together with its current cash balances and cash
flows from operations will be sufficient to meet its working capital and capital
expenditure requirements through 1997. There can be no assurance that, in the
event additional financing is required, the Company will be able to raise such
additional financing on acceptable terms or at all.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands,except per share data)
CONSOLIDATED STATEMENTS OF
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license fees.... $6,851 $7,002 $4,918 $6,841 $6,931 $7,381 $6,133 $10,258
Services................. 1,822 2,037 2,195 2,433 2,519 2,745 3,227 3,457
------ ------ ------ ------ ------ ------ ------ -------
Total revenues.......... 8,673 9,039 7,113 9,274 9,450 10,126 9,360 13,715
------ ------ ------ ------ ------ ------ ------ -------
Costs and expenses:
Costs of license fees.... 484 440 417 476 477 524 387 598
Costs of services........ 591 529 581 638 731 856 938 1,281
Sales and marketing...... 3,501 3,759 3,281 3,959 4,368 5,471 5,384 6,405
Product development...... 1,189 1,315 1,251 1,373 1,341 1,561 1,500 2,049
General and
administrative.......... 1,369 1,562 1,200 1,416 1,489 1,393 1,506 1,830
Nonrecurring charges..... -- -- -- -- -- -- 384 3,112
------ ------ ------ ------ ------ ------ ------ -------
Total costs
and expenses........... 7,134 7,605 6,730 7,862 8,406 9,805 10,099 15,275
------ ------ ------ ------ ------ ------ ------ -------
Operating income (loss)... 1,539 1,434 383 1,412 1,044 321 (739) (1,560)
Other income, net......... 304 334 330 296 288 265 204 177
------ ------ ------ ------ ------ ------ ------ -------
Income (loss) before
income taxes............. 1,843 1,768 713 1,708 1,332 586 (535) (1,383)
Provision for (benefit
from) income taxes....... 715 654 264 597 466 223 (160) (529)
------ ------ ------ ------ ------ ------ ------ -------
Net income (loss)......... $1,128 $1,114 $ 449 $1,111 $ 866 $ 363 $ (375) $ (854)
====== ====== ====== ====== ====== ====== ====== =======
Net income (loss) per
share.................... $ 0.13 $ 0.13 $ 0.05 $ 0.14 $ 0.11 $ 0.05 $(0.05) $ (0.12)
====== ====== ====== ====== ====== ====== ====== =======
Weighted average shares
outstanding.............. 8,624 8,602 8,502 8,160 7,852 7,883 7,238 7,345
====== ====== ====== ====== ====== ====== ====== =======
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Software license fees.... 79% 77% 69% 74% 73% 73% 66% 75%
Services................. 21 23 31 26 27 27 34 25
------ ------ ------ ------ ------ ------ ------ -------
Total revenues:.......... 100% 100% 100% 100% 100% 100% 100% 100%
Costs and expenses:
Costs of license fees.... 5 5 6 5 5 5 4 4
Costs of services........ 7 6 8 7 8 9 10 9
Sales and marketing...... 40 42 46 43 46 54 58 47
Product development...... 14 14 18 15 14 15 16 15
General and
administrative.......... 16 17 17 15 16 14 16 13
Nonrecurring charges..... -- -- -- -- -- -- 4 23
------ ------ ------ ------ ------ ------ ------ -------
Total operating costs
and expenses........... 82 84 95 85 89 97 108 111
------ ------ ------ ------ ------ ------ ------ -------
Operating income (loss)... 18 16 5 15 11 3 (8) (11)
Other income, net......... 3 3 5 3 3 3 2 1
------ ------ ------ ------ ------ ------ ------ -------
Income (loss) before
income taxes............. 21 19 10 18 14 6 (6) (10)
Provision for (benefit
from) income taxes....... 8 7 4 6 5 2 2 (4)
------ ------ ------ ------ ------ ------ ------ -------
Net income (loss)......... 13% 12% 6% 12% 9% 4% (4)% (6)%
====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of XCELLENET,
INC. (a Georgia corporation) AND SUBSIDIARIES as of December 31, 1996 and
1995, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements 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, the financial statements referred to above present fairly,
in all material respects, the financial position of XcelleNet, Inc. and
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.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 23, 1997
XCELLENET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $10,587 $ 9,304
Short-term investments...................................... 2,157 9,115
Trade receivables, less allowance for doubtful accounts of
$503 and $325 at December 31, 1996 and 1995, respectively.. 13,306 8,091
Prepaid expenses and other current assets................... 1,049 714
Income tax receivable....................................... 793 522
------- -------
Total current assets..................................... 27,892 27,746
------- -------
Furniture, fixtures and equipment, net....................... 5,378 4,885
Capitalized software development costs, net of accumulated
amortization of $1,566 and $922 at December 31, 1996 and
1995, respectively.......................................... 2,231 767
Deferred income tax assets................................... 754 --
Other noncurrent assets...................................... 428 63
------- -------
$36,683 $33,461
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 1,207 $ 991
Accrued bonuses and commissions............................. 1,375 610
Sales tax payable........................................... 360 146
Deferred income tax liabilities............................. -- 33
Other current liabilities................................... 1,752 998
------- -------
Total current liabilities................................ 4,694 2,778
------- -------
Long-term liabilities........................................ 859 834
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; no shares issued or outstanding................ -- --
Common stock, $.01 par value; 30,000,000 shares authorized,
7,537,876 shares issued and 7,380,337 shares outstanding in
1996 and 7,537,876 shares issued and 7,039,641 outstanding
in 1995.................................................... 75 75
Additional paid-in capital.................................. 24,211 28,093
Retained earnings........................................... 9,232 9,232
Treasury stock at cost, 157,539 shares in 1996 and 498,235
shares in 1995............................................. (2,388) (7,551)
------- -------
Total shareholders' equity............................... 31,130 29,849
------- -------
$36,683 $33,461
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
XCELLENET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
REVENUES
Software license fees................................ $30,703 $25,612 $21,399
Services............................................. 11,948 8,487 5,490
------- ------- -------
Total revenues.................................... 42,651 34,099 26,889
------- ------- -------
COSTS AND EXPENSES
Costs of license fees................................ 1,986 1,816 1,230
Costs of services.................................... 3,806 2,340 1,786
Sales and marketing.................................. 21,628 14,500 11,621
Product development.................................. 6,451 5,128 2,377
General and administrative........................... 6,218 5,547 4,693
Nonrecurring charges................................. 3,496 -- --
------- ------- -------
Total costs and expenses.......................... 43,585 29,331 21,707
------- ------- -------
Operating income (loss)............................... (934) 4,768 5,182
Other income, net..................................... 934 1,264 748
------- ------- -------
Income before income taxes............................ -- 6,032 5,930
Provision for income taxes............................ -- 2,230 2,375
------- ------- -------
NET INCOME............................................ $ -- $ 3,802 $ 3,555
======= ======= =======
NET INCOME PER SHARE.................................. $ -- $ .45 $ .45
======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING................... 7,915 8,480 7,833
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
XCELLENET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL
------------------ ---------------- ----------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ --------- ------ -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 1,062,594 $ 11 1,702,881 $17 -- $ -- $ 7,966 $1,875 $ 9,869
Conversion of preferred
stock to common stock. (1,062,594) (11) 3,187,782 32 (21) --
Initial public offering
of common stock, net
of issuance costs..... 1,810,000 18 17,748 17,766
Stock options exercised
for cash.............. 451,276 4 172 176
Compensation related to
stock options......... 121 121
Income tax benefits
related to exercise of
stock options......... 948 948
Net income............. 3,555 3,555
Foreign currency
translation
adjustment............ 38 38
---------- ---- --------- --- -------- ------- ------- ------ -------
Balance, December 31,
1994................... -- -- 7,151,939 71 -- -- 26,972 5,430 32,473
Purchase of treasury
shares................ (527,879) (8,000) (8,000)
Stock options exercised
for cash.............. 385,937 4 17,100 259 37 300
Employee stock purchase
plan shares issued.... 12,544 190 15 205
Income tax benefits
related to exercise of
stock options......... 1,131 1,131
Net income............. 3,802 3,802
Unrealized loss on
short-term
investments........... (50) (50)
Foreign currency
translation
adjustment............ (12) (12)
---------- ---- --------- --- -------- ------- ------- ------ -------
Balance, December 31,
1995................... -- -- 7,537,876 75 (498,235) (7,551) 28,093 9,232 29,849
Exercise of stock
options............... 347,831 5,450 (4,282) 1,168
Shares acquired related
to stock option
exercises............. (47,926) (906) (906)
Employee stock purchase
plan shares issued.... 30,791 467 (94) 373
Restricted stock
issuance.............. 10,000 152 (28) 124
Income tax benefits
related to exercise of
stock options......... 480 480
Net income............. -- --
Unrealized loss on
short-term
investments........... (21) (21)
Foreign currency
translation
adjustment............ 63 63
---------- ---- --------- --- -------- ------- ------- ------ -------
Balance, December 31,
1996................... -- $-- 7,537,876 $75 (157,539) $(2,388) $24,211 $9,232 $31,130
========== ==== ========= === ======== ======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
XCELLENET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income....................................... $ -- $ 3,802 $ 3,555
Adjustments to reconcile net income to net cash
provided by operating activities:
Writeoff of WorldLink product line.............. 3,037 -- --
Issuance of restricted stock.................... 124 -- --
Depreciation and amortization................... 3,030 2,330 1,351
Increase in trade receivables................... (5,215) (1,601) (2,101)
Increase in prepaid expenses and other current
assets......................................... (335) (55) (251)
(Increase) decrease in income taxes receivable.. (271) 494 (899)
(Increase) decrease in deferred income tax
assets......................................... (754) -- 295
Decrease in other long-term assets.............. -- -- 186
Increase (decrease) in current liabilities...... 1,916 (77) 1,253
Increase in long-term liabilities............... 25 18 83
-------- ------- --------
Total adjustments............................. 1,557 1,109 (83)
-------- ------- --------
Net cash provided by operating activities..... 1,557 4,911 3,472
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments.... 6,958 1,655 (10,770)
Purchase of WorldLink product line............... (3,037) -- --
Purchases of furniture, fixtures and equipment... (2,879) (3,217) (2,749)
Additions to capitalized software development
costs........................................... (2,108) (319) (786)
Decrease (increase) in long-term investments..... (225) (35) 142
Other............................................ (77) (12) 114
-------- ------- --------
Net cash used in investing activities......... (1,368) (1,928) (14,049)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock....................... -- (8,000) --
Proceeds from issuance of common stock, net of
related costs................................... 635 505 17,942
Income tax benefits related to exercise of stock
options......................................... 480 1,131 948
Other............................................ (21) (50) 41
-------- ------- --------
Net cash provided by (used in) financing
activities................................... 1,094 (6,414) 18,931
-------- ------- --------
Net increase (decrease) in cash and cash equiva-
lents............................................ 1,283 (3,431) 8,354
Cash and cash equivalents, beginning of year...... 9,304 12,735 4,381
-------- ------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR............ $ 10,587 $ 9,304 $ 12,735
======== ======= ========
SUPPLEMENTAL DISCLOSURES:
Interest paid.................................... $ -- $ -- $ 1
Income taxes paid................................ $ 887 $ 1,253 $ 1,771
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
XCELLENET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The accompanying consolidated financial statements include the accounts of
XcelleNet, Inc. and its wholly owned subsidiaries (the "Company"). The Company
develops, markets and supports software utilities that improve the
manageability and enhance the performance of remote access computing for users
who routinely work offline and periodically dial in to enterprise systems to
exchange or synchronize information.
The Company's foreign subsidiaries accounted for approximately 9%, 9% and 7%
of consolidated revenues for the years ended December 31, 1996, 1995 and 1994,
respectively. Thus, separate disclosure is not included.
On April 14, 1994, the Securities and Exchange Commission declared effective
the Company's registration statement relating to the initial public offering
of its common stock. The offering was comprised of 2,300,000 shares (1,810,000
shares issued by the Company and 490,000 shares sold by certain existing
shareholders) at an initial offering price of $11.00 per share. The net
proceeds to the Company (after underwriters' discounts and commissions and
other costs associated with the offering of $2,144,000) totaled $17,766,000.
Basis of Presentation
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.
Change in Company Year-End
Effective December 31, 1993, the Company changed its fiscal year-end from
June 30 to December 31. All prior year financial statements have been restated
to reflect a December 31 year-end.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to Be Disposed Of"
("SFAS 121"), which became effective for fiscal years beginning after
December 15, 1995. SFAS 121 established standards for determining when
impairment losses on long lived assets have occured and how impairment losses
should be measured. The Company adopted SFAS 121 effective January 1, 1996.
The financial statement impact of adopting SFAS 121 was not material.
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Effective in 1996, the Company adopted the disclosure option of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"). SFAS 123 requires that companies which do
not choose to account for stock-based compensation as prescribed by this
statement, shall disclose the pro forma effects on earnings per share as if
SFAS 123 had been adopted. Additionally, certain other disclosures are
required with respect to stock compensation and the assumptions used to
determine the pro forma effects of SFAS 123.
XCELLENET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Cash, Cash Equivalents, and Short-term Investments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Short-term
investments consist of the following (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Municipal securities........................................... $ 1,658 $ 5,860
U.S. Government agencies....................................... 499 1,751
Corporate notes and bonds...................................... -- 1,005
U.S. Treasury securities....................................... -- 499
------- -------
Short-term investments......................................... $ 2,157 $ 9,115
======= =======
</TABLE>
The fair value of financial instruments is estimated based on quoted market
prices. Differences between the fair value and the cost of investments are
recorded as unrealized gains (losses) in additional paid-in capital. All
investments are considered available for sale and have effective maturities of
less than one year.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
related assets ranging from three to five years. Maintenance and repairs are
charged to expense as incurred. Replacements and improvements are capitalized.
Furniture, fixtures and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Computer equipment............................................ $ 7,814 $ 6,771
Furniture and fixtures........................................ 2,540 2,408
Leasehold improvements........................................ 676 600
Automobiles................................................... 168 81
------- -------
11,198 9,860
Less accumulated depreciation................................. (5,820) (4,975)
------- -------
Furniture, fixtures and equipment, net........................ $ 5,378 $ 4,885
======= =======
</TABLE>
Capitalized Software Development Costs
In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed," the Company capitalizes
certain software development costs when a new or enhanced product is released
for customer testing and ceases capitalization when the product is released
for sale. Software development costs of $2,108,000, $319,000 and $786,000 were
capitalized in 1996, 1995 and 1994, respectively. Amortization of capitalized
software development costs begins as products are made available for sale,
with annual amortization equal to the greater of the amount computed using the
ratio that current gross revenues bear to the total of current and anticipated
future gross revenues for the product or the straight-line method over the
remaining estimated economic life of the product, which is a maximum of three
years. Amortization expense is included in costs of license fees. Amortization
totaled $644,000, $332,000, and $48,000 in 1996, 1995 and 1994, respectively.
XCELLENET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Revenue Recognition
The Company's revenues are generated from the licensing of its software
products; from fees paid for extended warranties and rights to upgrades and
updates ("maintenance") of the software products; and from training,
installation, implementation, support, and consulting services related to such
software products. In accordance with AICPA Statement of Position No. 91-1,
Software Revenue Recognition, the Company recognizes revenue from software
licenses upon the execution of a license agreement and delivery of the product
to a customer, provided the Company has no significant future obligations and
collection of the license fees is probable. Maintenance fees are recognized on
a straight-line basis over the period covered by the related contract. Service
revenues are recognized when the specific service is performed.
Advertising
The Company expenses the production costs of advertising at the time
incurred, except for direct-response advertising, which is capitalized and
amortized over its expected period of future benefits. Direct-response
advertising consists primarily of advertisements in business, financial, and
software magazines and newspapers. The cost of each advertisement is amortized
over the four-month period following the issuance of the publication in which
it appears. Advertising expenditures totaled $2,171,000, $194,000 and $707,000
for 1996, 1995 and 1994, respectively. Advertising expense was $2,027,000,
$194,000 and $707,000 for 1996, 1995 and 1994, respectively. Unamortized
advertising costs included in prepaid expenses were $144,000 and $0 at
December 31, 1996 and 1995, respectively.
Other Income, Net
Other income primarily includes interest income. Interest income was
$911,000, $1,256,000, and $719,000 in 1996, 1995, and 1994, respectively.
Income Taxes
Deferred income tax assets and liabilities are recorded based on the
differences between the financial reporting and income tax bases of assets and
liabilities.
Net Income Per Share
Net income per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from convertible
preferred stock and stock options have been included in the computation when
dilutive. The difference between primary and fully diluted earnings per share
is not material for any of the periods presented, and fully diluted earnings
per share have therefore been excluded.
Foreign Currency Translation
Non-U.S. assets and liabilities are translated into U.S. dollars using the
balance sheet date exchange rates. Revenues and expenses are translated at
average rates during the period. Foreign currency translation adjustments are
reflected as increases (decreases) in additional paid-in capital and were
$63,000, $(12,000) and $38,000 in 1996, 1995 and 1994, respectively.
Cumulative foreign currency translation adjustments were $76,000 and $13,000
at December 31, 1996 and 1995, respectively.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
XCELLENET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2. SHAREHOLDERS' EQUITY
Convertible Preferred Stock
Upon closing of the Company's initial public offering in April 1994, all of
the outstanding shares of each series of convertible preferred stock were
converted, on a 3-for-1 basis, into a total of 3,187,782 shares of common
stock. The convertible preferred stock converted into common stock has been
returned to the status of authorized but unissued shares of preferred stock.
At December 31, 1996 and 1995, 10,000,000 shares were authorized and none were
issued or outstanding.
Stock Options
The Company maintains three stock option plans: the 1987 Stock Option Plan
(the "1987 Plan"), the 1994 Stock Option Plan for Outside Directors (the
"Director Plan"), and the 1996 Long-Term Incentive Plan (the "LTIP"). The 1987
Plan provides for the issuance of incentive stock options ("ISOs"),
nonqualified stock options ("NQSOs"), and stock appreciation rights ("SARs")
to employees and officers of the Company. The Director Plan provides for the
issuance of NQSOs to non-employee members of the Company's Board of Directors
who are not prohibited by their employer from receiving options under the
Director Plan. The LTIP Plan provides for the issuance of ISOs, NQSOs, SARs
and other stock-based awards to employees, officers and directors of the
Company. Additionally, the Company has granted NQSOs to non-employee directors
and consultants on an individual basis and not under a plan. A total of
516,945 options were exercisable at December 31, 1996.
Under the 1987 Plan, ISOs, NQSOs, and SARs to purchase a total of 2,650,000
shares were authorized for issuance, of which 1,327,756 options were
outstanding and 345,773 options were exercisable at December 31, 1996. All
options have been granted at the fair market value of the Company's common
stock at the date of grant. The ISOs and NQSOs are generally exercisable
beginning one to three years from the date of grant, after which options vest
over a period not to exceed ten years from the date of grant and terminate ten
years from the date of grant. No SARs have been granted under the plan.
During 1994, the Company adopted the Director Plan, under which 300,000
shares were authorized for issuance. Under the Director Plan, the Company
automatically grants nonqualified stock options to purchase 40,000 shares of
common stock, at the fair market value of the Company's common stock at the
date of grant, to each eligible non-employee member of the Company's Board of
Directors. These options vest over a four-year period and terminate five years
from the date of grant. A total of 240,000 options were outstanding, of which
70,000 options were exercisable, at December 31, 1996.
During 1996, the Company adopted the LTIP Plan, under which 3,000,000 shares
were authorized for issuance, of which 437,950 options were outstanding, and
none were exercisable, at December 31, 1996. All options have been granted at
the fair market value or higher of the Company's common stock at the date of
grant. The ISOs and NQSOs are exercisable beginning one year from the date of
grant, after which options vest over a period not to exceed ten years from the
date of grant and terminate up to ten years from the date of grant. No SARs or
other stock-based awards have been granted under the plan.
The Company has granted NQSOs to purchase shares on an individual basis and
not under a plan, on terms similar to the 1987 Plan. At December 31, 1996,
101,172 options were outstanding and exercisable.
XCELLENET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Changes in all outstanding options are as follows:
<TABLE>
<CAPTION>
PRICE RANGE SHARES
------------ ---------
<S> <C> <C>
Outstanding at December 31, 1993...................... $ .07-$ 4.00 1,962,138
Granted.............................................. 7.50- 14.50 437,800
Exercised............................................ .07- 4.00 451,276
Forfeited............................................ .32- 4.00 103,215
------------ ---------
Outstanding at December 31, 1994...................... .07- 14.50 1,845,447
Granted.............................................. 15.50- 30.25 488,500
Exercised............................................ .07- 11.00 403,037
Forfeited............................................ .47- 23.50 197,071
------------ ---------
Outstanding at December 31, 1995...................... .07- 30.25 1,733,839
Granted.............................................. 10.00- 19.00 1,172,007
Exercised............................................ .32- 10.00 347,831
Forfeited............................................ .47- 30.25 451,137
------------ ---------
Outstanding at December 31, 1996...................... $ .07-$23.50 2,106,878
============ =========
</TABLE>
In 1996, 1995 and 1994, the Company recognized income tax benefits of
$480,000, $1,131,000 and $948,000, respectively, related to disqualifying
dispositions of ISOs and NQSO exercises. These benefits were recorded as
increases to additional paid-in capital.
Stock-Based Compensation
During 1995, the FASB issued SFAS 123 which defines a fair value-based
method of accounting for an employee stock option plan or similar equity
instrument. However, it also allows an entity to continue to measure
compensation cost for those plans using the method of accounting prescribed by
APB 25. Entities electing to remain with the accounting in APB 25 must make
pro forma disclosures of net income and earnings per share, as if the fair
value-based method of accounting defined in SFAS 123 had been applied.
The Company has elected to account for its stock-based compensation plans
under APB 25; however, the Company has computed for pro forma disclosure
purposes the value of all options granted during 1996 and 1995 using the
Black-Scholes option pricing model as prescribed by SFAS 123 using the
following weighted average assumptions for grants in 1996 and 1995:
<TABLE>
<S> <C>
Risk free interest rate........................................ 6.17%-6.48%
Expected dividend yield........................................ 0%
Expected lives................................................. 4.2-5.8 years
Expected volatility............................................ 73.6%
</TABLE>
XCELLENET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The total fair value of the options granted during the years ended December
31, 1996 and 1995 were computed as approximately $7,580,000 and $4,938,000,
respectively, which would be amortized over the vesting period of the options.
If the Company had accounted for these plans in accordance with SFAS 123, the
Company's reported pro forma net income (loss) and pro forma net income (loss)
per share for the years ended December 31, 1996 and 1995 would have been as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
------ ------
<S> <C> <C>
Net income (loss):
As reported..................................................... $ -- $3,802
Pro forma....................................................... (2,027) 2,817
Primary EPS:
As reported..................................................... -- .45
Pro forma....................................................... (.28) .33
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of that expected in future years.
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
ACTUAL NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ .07-
.47 176,689 2.9 $ .27 176,689 $ .27
1.08-
1.08 136,227 5.6 1.08 89,754 1.08
2.33-
2.33 34,095 6.2 2.33 14,101 2.33
4.00-
4.00 257,199 6.7 4.00 122,925 4.00
7.50-
7.50 81,150 7.6 7.50 -- --
10.00-
14.99 1,188,192 8.4 12.32 84,900 10.71
15.50-
19.00 180,076 6.8 16.99 17,926 15.81
23.50-
23.50 53,250 8.3 23.50 10,650 23.50
- ------- --------- --- ------ ------- ------
$ .07-
23.50 2,106,878 7.3 $ 9.90 516,945 $ 4.09
======= ========= === ====== ======= ======
</TABLE>
Restricted Stock
During 1996, the Company issued 10,000 shares of restricted stock to an
executive officer at no cost. The fair market value of the stock at the date
of issuance was $12.375 per share, and the Company recorded compensation
expense of $123,750 related to the stock issuance.
XCELLENET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Employee Stock Purchase Plan
During 1995, the Company established an employee discount stock purchase
plan for eligible employees of XcelleNet, Inc. and designated subsidiaries and
authorized 300,000 shares for issuance under this plan. Participants may use
up to 10% of their compensation to purchase the Company's common stock at the
end of each six-month plan period for 85% of the lower of the beginning or
ending stock price in the plan period. At December 31, 1996, there were
256,665 shares of stock reserved for issuance under this plan. The weighted
average fair value of the purchase rights granted in 1996 and 1995 was $14.42
and $18.49, respectively.
Treasury Stock
In November 1995, the Company's Board of Directors approved the repurchase
of 527,879 shares of its common stock from Motorola, Inc. at a negotiated
price of approximately $15.15 per share. The closing price of the Company's
common stock on the date of the transaction was $15.50. After the transaction,
Motorola, Inc. owned 731,047 shares of the Company's common stock.
Additionally, on October 27, 1995, the Company's Board of Directors
authorized a common stock repurchase program of up to 350,000 shares. The
stock repurchase plan authorizes the Company to periodically purchase shares
in the open market or through privately negotiated transactions to meet the
requirements of its stock-based compensation plans.
3. INCOME TAXES
The components of the income tax provision are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................... $ 621 $ 1,792 $ 1,657
State............................................. 113 303 278
Foreign........................................... 33 -- --
------ -------- --------
767 2,095 1,935
------ -------- --------
Deferred:
Federal........................................... (663) 128 410
State............................................. (104) 7 30
Foreign........................................... -- -- --
------ -------- --------
(767) 135 440
------ -------- --------
$ -- $ 2,230 $ 2,375
====== ======== ========
</TABLE>
The Company's effective tax rate varies from the statutory federal income
tax rate as a result of the following items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Statutory federal income tax rate.............. 34% 34% 34%
Foreign losses providing no tax benefit........ 25 1 2
State income taxes, net of federal benefit..... 3 3 3
R&D tax credits................................ (35) (3) (2)
FSC tax benefit................................ (2) -- --
State tax credits.............................. (9) -- --
Tax exempt interest income..................... (19) (2) --
Other, net..................................... 3 4 3
-------- ------- -------
Effective tax rate............................. --% 37% 40%
======== ======= =======
</TABLE>
XCELLENET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The sources of the difference between the financial reporting and income tax
bases of the Company's assets and liabilities that give rise to the deferred
income tax liabilities and assets and the tax effects of each are as follows
(in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1996 1995
-------- -------
<S> <C> <C>
Deferred income tax liabilities:
Capitalized software development costs...................... $ 832 $ 286
Prepaid marketing expense................................... 55 121
Other....................................................... 83 99
-------- -------
970 506
-------- -------
Deferred income tax assets:
Software acquisition........................................ (1,115) --
Net losses from foreign subsidiaries........................ (533) (433)
Deferred lease credits...................................... (302) (316)
Allowance for doubtful accounts receivable.................. (181) (97)
Other....................................................... (126) (60)
-------- -------
(2,257) (906)
-------- -------
Valuation allowance for deferred income tax assets........... 533 433
-------- -------
Net deferred income tax (assets) liabilities................. $ (754) $ 33
======== =======
</TABLE>
The losses from the Company's U.K. operations were $258,000, $190,000 and
$289,000 in 1996, 1995 and 1994, respectively. The income tax benefit related
to losses since inception of $533,000 and $433,000 at December 31, 1996 and
1995, respectively, has been offset by a valuation allowance due to the
uncertainty of realization.
4. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain office space and equipment under noncancelable
operating lease agreements, which expire at various dates through 2001. In
1996, 1995 and 1994, rent expense under these agreements totaled $1,754,000,
$1,131,000 and $790,000, respectively.
For financial reporting purposes, rent expense and lease incentives related
to the office lease are being recognized on a straight-line basis over the
term of the lease. The lease incentives and accrued lease costs resulted in
deferred credits of $885,000 and $847,000 at December 31, 1996 and 1995,
respectively, the majority of which are included in long-term liabilities in
the accompanying balance sheets.
XCELLENET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Future minimum payments due under all noncancelable operating lease
agreements at December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997........................................... $ 2,412
1998........................................... 2,411
1999........................................... 2,472
2000........................................... 1,737
2001........................................... 41
Thereafter..................................... --
--------------
$ 9,073
==============
</TABLE>
Employment Agreement
The Company has entered into an agreement with its Chief Executive Officer
("CEO") that permits the CEO to obtain, at no cost, a license to use the full
range of the Company's products at one central site, and on up to 250 nodes
for his own internal business, charitable, or educational purposes. The CEO's
license right commences when his employment with the Company, any subsidiary
of the Company, or any 40% shareholder of the Company, is terminated other
than for cause, or in the event the CEO resigns from employment following a
change in control, as defined. This agreement has a term of twenty years
following the CEO's termination of employment.
Legal Proceedings
The Company is not a party to any material legal proceedings.
5. RELATED PARTY TRANSACTIONS
Electronic Commerce, Inc. ("E-Comm"), a system integrator based in Raleigh,
North Carolina that remarkets the Company's software to end-user customers, is
partially owned by the brother of the Company's CEO. During 1995 the Company's
CEO personally loaned E-Comm $200,000 which was outstanding at December 31,
1996, in the form of an unsecured note for working capital purposes.
Subsequent to year-end, this loan was paid back in full in conjunction with
the acquisition of E-Comm by the Company. See Note 7 "Subsequent Events."
During 1996, 1995 and 1994, E-Comm purchased software from the Company
totaling $734,000, $852,000 and $63,000, respectively, of which $734,000,
$664,000 and $63,000 were remarketed to end-user customers and the balance was
used internally. All of these transactions were at the Company's standard
terms and conditions. At December 31, 1996 and 1995, $107,000 and $243,000,
respectively, were receivable from E-Comm and related to remarketing
activities. See Note 7 "Subsequent Events."
6. NONRECURRING CHARGES
Effective November 5, 1996, the Company acquired all tangible and intangible
WorldLink software rights from The NetPlex Group, Inc. under the terms of an
asset purchase agreement for a total consideration of approximately
$3,037,000. The acquisition was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Accounting for Business
Combinations" ("APB 16"), and accordingly, the purchase price was allocated to
goodwill as of the acquisition date. An amount equal to the purchase price was
included in nonrecurring charges on the Company's statement of operations due
to uncertainties regarding its recoverability.
XCELLENET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
In addition, the Company recorded nonrecurring charges of $459,000 primarily
representing severance plus hiring costs associated with certain key
employees.
7. SUBSEQUENT EVENTS
The following events have occurred subsequent to December 31, 1996:
Acquisition of E-Comm
During January 1997, the Company acquired all of the outstanding shares of
E-Comm for a total consideration comprising cash and stock of approximately
$2,675,000. The Company will account for the acquisition as a purchase in
accordance with APB 16. See Note 5 "Related Party Transactions."
Potential Public Stock Offering
The Company filed a registration statement on February 24, 1997 for the sale
of 655,953 shares of the Company's common stock (excluding shares that may be
sold upon the exercise of the underwriters' over-allotment option and any
selling shareholders' shares and including 157,539 shares classified as treasury
stock in the Company's accompanying Consolidated Balance Sheets). There can be
no assurance that the offering will be successfully completed.
Employment Agreements
During February 1997, the Company entered into employment agreements with
certain of its executive officers that provide for compensation and benefit
arrangements upon a change in control as defined in the agreements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
February 28, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR FIRST
NAME AGE POSITION ELECTED DIRECTOR
---- --- -------- ----------------
<S> <C> <C> <C>
Dennis M. 44 Chairman of the Board, Chief Executive 1986
Crumpler(3)(4)......... Officer and Director
Shereef W. Nawar(3)..... 37 Chief Technical Officer and Director 1987
Corey M. Smith.......... 40 President
Sidney V. Sack.......... 51 Executive Vice President, Chief
Financial Officer and Assistant
Secretary
Stefanus F. Coetzee..... 44 Vice President--North American
Customer Operations
W. Michael Parham....... 43 Vice President--North American Sales
Jeanne N. Bateman....... 42 Vice President--Finance, Treasurer and
Secretary
Joel A. Miller.......... 37 Vice President--Human Resources
Stephen P. 55 Director 1995
Bradley(2)(3)..........
Donald L. House(1)(4)... 55 Director 1992
Richard C. 58 Director 1990
Marcus(1)(2)(4)........
Geoffrey A. Moore(3).... 50 Director 1996
Richard L. Nolan(3)..... 56 Director 1995
Jeffrey P. Parker(2).... 53 Director 1990
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation and Stock Option Committee.
(3) Member of the Strategic Oversight Committee.
(4) Member of the Nominating Committee.
Each of the directors of the Company serves until the next annual meeting of
the shareholders of the Company or until his successor is elected and
qualifies. Each of the executive officers of the Company serves at the
pleasure of the Board of Directors.
Mr. Crumpler is a co-founder of the Company and has served as Chairman of
the Board, a director and Chief Executive Officer of the Company since its
inception in 1986. Mr. Crumpler also served as the President of the Company
from September 1986 to October 1992 and from September 1996 to January 1997.
Mr. Nawar is a co-founder of the Company. Mr. Nawar has served as a director
of the Company since 1987, and has served as the Company's Chief Technical
Officer since October 1992. Mr. Nawar served as the Company's Vice President
of Development from 1987 until October 1992.
Mr. Smith joined the Company in September 1996 as its Executive Vice
President responsible for marketing and became President in January 1997.
Prior to joining the Company, Mr. Smith was the President of Decision Point
Data, a human resources decision support software company, from October 1995
until September 1996. He served as the President and Chief Executive Officer
of Creative Multimedia, Inc., a consumer CD-ROM multimedia company, from
December 1993 until September 1995. In July 1992, Mr. Smith founded Legacy
Venture Capital and served as its President and General Partner from July 1992
until September 1994 and continues to serve as General Partner. From January
1988 until May 1992, Mr. Smith was the President and Chief Executive Officer
of Central Point Software, Inc., a personal computer utilities
software company. From 1978 to October 1988, Mr. Smith served in various
positions at Hewlett-Packard Company including market development and product
marketing manager positions.
Mr. Sack joined the Company in September 1990 as its Chief Financial
Officer. Mr. Sack has served as an Executive Vice President of the Company
since September 1996. Mr. Sack has served as Assistant Secretary of the
Company since January 1995 and from October 1990 to October 1991, and served
as the Secretary of the Company from October 1991 to January 1995. He also
served as Chief Operating Officer of the Company from September 1996 to
January 1997.
Mr. Coetzee joined the Company in April 1992 as Managing Director of
XcelleNet Ltd. Mr. Coetzee served as the Company's Vice President--
International from January 1995 until August 1995, Vice President--Global
Customer Operations from August 1995 to April 1996, and has been Vice
President--North American Customer Operations since April 1996. From 1988
until 1992, he was employed by Dun & Bradstreet Europe Ltd., a business
information services company.
Mr. Parham joined the Company in November 1988 as its Director of Sales,
served as the Vice President--Sales from December 1990 to April 1996, and has
served as Vice President--North American Sales since April 1996.
Ms. Bateman joined the Company in December 1993 as its Vice President and
Treasurer, and has been Secretary of the Company since January 1995 and Vice
President--Finance since April 1995. Prior to joining the Company, Ms. Bateman
was employed by HBO & Company, a healthcare information systems company, from
December 1985 until August 1993, and served as its Vice President and
Treasurer from March 1993 to August 1993 and its Assistant Treasurer, Investor
Relations from January 1991 to March 1993.
Mr. Miller joined the Company as its Director of Human Resources in February
1995 and has served as the Company's Vice President--Human Resources since
October 1995. Prior to joining the Company, he held various positions in
manufacturing, sales and administration with Procter & Gamble Company, a
consumer products company, over a period of fourteen years, including Manager
of Corporate Training & Development for P&G China, Ltd. from February 1992
until April 1994.
Mr. Bradley has served as a director of the Company since October 1995. Mr.
Bradley is currently a professor at the Harvard Business School, a position he
has held since 1968. He also serves as the Chairman of the Harvard Business
School's Competition and Strategy Area. From September 1993 to January 1996,
Mr. Bradley served as the Senior Associate Dean for Faculty Development at the
Harvard Business School. Mr. Bradley is a director of RDM Sports Group, Inc.
(formerly Roadmaster Industries, Inc.), a sporting goods company.
Mr. House has served as a director of the Company since 1992. Mr. House has
served as the Chairman of the Board of SQL Financials International, Inc., an
early-stage client/server software company since January 1993. From January
1992 until December 1992, he was President of Prentice Hall Professional
Software, a subsidiary of Simon and Schuster, Inc. Since 1988, he has been a
consultant and investor in a number of early-stage technology firms, including
the Company.
Mr. Marcus has served as a director of the Company since 1990. Mr. Marcus is
a principal of InterSolve Group Inc., a firm that provides management
consulting services to companies in several industries. He has served in this
capacity since InterSolve was formed in 1991. From December 1994 until
December 1995, Mr. Marcus was also the Chief Executive Officer of Plaid
Clothing Group, Inc., a manufacturer of tailored clothing. Plaid Clothing
Group filed a voluntary federal bankruptcy petition in July 1995. From January
1989 to January 1992, Mr. Marcus was a principal of RCM Consulting, a provider
of consulting services to the retail industry. From 1979 until 1988, Mr.
Marcus was Chief Executive Officer of Neiman-Marcus, a department store
retailer. Mr. Marcus is a director of Zale Corporation, a specialty retailer of
fine jewelry, and a member of its compensation committee. He is also a director
of Edisol Bros. Stores, a specialty retailer of apparel.
Mr. Moore has served as a director of the Company since March 1996. Mr.
Moore is a founder of The Chasm Group, a firm that provides marketing strategy
and organizational consulting to high-technology companies. He has served as
President of that firm since it was founded in 1992. From 1987 until 1992, Mr.
Moore was a principal and partner of Regis McKenna, Inc., a high-technology
marketing and communications company. Mr. Moore is a director of BroadVision,
Inc., a supplier of software applications for enabling personalized business
on the Web.
Mr. Nolan has served as a director of the Company since 1995. Mr. Nolan is
currently a professor at the Harvard Business School, a position he has held
since July 1991. From 1977 to July 1991, Mr. Nolan served as a principal of
KPMG Peat Marwick, and as Chairman of the Board of Nolan, Norton & Co., a
technology-strategy consulting firm. Mr. Nolan was a general partner of
Lincoln North Associates Limited Partnership ("Lincoln") from 1986 to 1994,
and was a general partner of Cranberry Hill Associates Limited Partnership
("Cranberry") from 1984 to 1993. Lincoln and Cranberry owned office buildings
in Massachusetts. Lincoln and Cranberry filed voluntary federal bankruptcy
petitions in May 1993 and July 1992, respectively. Mr. Nolan is a director of
H.F. Ahmanson & Company, a bank holding company.
Mr. Parker has served as a director of the Company since 1990. Mr. Parker is
a private investor focusing on start-up and early-stage investments. From
October 1986 until December 1990, Mr. Parker was the Chief Executive Officer
of Thomson Financial Services ("Thomson"), and from October 1986 to December
1991, Mr. Parker was also Chairman of the Board and Chief Executive Officer of
First Call Corporation ("First Call"). Both Thomson and First Call are
financial information service companies.
SECTION 16(a) REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Company's Common Stock, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Directors, executive officers and
greater than ten percent shareholders are required by Securities and Exchange
Commission regulation to furnish the Company with copies of all Section 16(a)
reports they file. To the Company's knowledge, based solely on 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 directors, executive
officers and greater than ten percent beneficial owners were complied with by
such persons except that Mr. Moore filed a late Form 3 in connection with his
initial election to the Company's Board of Directors on March 9, 1996.
2
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table presents certain summary information concerning compensation
earned for services rendered in all capacities to the Company by the Company's
Chief Executive Officer and each of the other five most highly compensated
executive officers of the Company during 1996 (collectively, the "Named
Executive Officers") for the years ended December 31, 1996, 1995 and 1994.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
---------------------- Securities
Name and Fiscal Underlying All Other
Principal Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
- ------------------ ------ ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Dennis M. Crumpler 1996 176,667 13,250 120,000 2,375 (1)
Chairman, 1995 160,000 16,320 - 2,234 (1)
Chief Executive 1994 163,600 81,000 - -
Officer and Director
Stefanus F. Coetzee 1996 147,500 7,375 50,000 -
Vice President -- 1995 94,585 95,790 10,000 102,054 (2)
North American 1994 88,395 59,651 6,000 4,061 (3)
Customer Operations
Shereef W. Nawar 1996 131,667 9,875 41,413 3,602 (1)
Chief Technical 1995 115,000 8,797 25,000 3,741 (1)
Officer and Director 1994 115,000 45,500 - 2,363 (4)
W. Michael Parham 1996 114,996 75,300 40,000 1,155 (1)
Vice President -- 1995 117,491 93,896 10,000 1,304 (1)
North American Sales 1994 110,000 78,885 - 282 (4)
Sidney V. Sack 1996 145,000 7,250 90,000 3,572 (1)
Executive Vice President, 1995 76,815 6,222 - 3,928 (1)
Chief Financial Officer 1994 120,000 59,000 22,400 2,265 (4)
and Assistant Secretary
Corey M. Smith 1996 46,667 123,750 155,000 50,000 (5)
President
</TABLE>
- ------------
(1) Includes premiums paid by the Company for term life insurance for Messrs.
Nawar, Parham and Sack in 1996 of $2,257, $204 and $2,592, respectively,
and in 1995 of $2,257, $300 and $2,255, respectively, and matching
contributions under the Company's qualified salary deferral plan under
Section 401(k) of the Internal Revenue Code for Messrs. Crumpler, Nawar,
Parham and Sack in 1996 of $2,375, $1,345, $951 and $980, respectively, and
in 1995 of $2,234, $1,484, $1,004 and $1,673, respectively.
(2) Includes $97,079 of estimated relocation expenses from U.K. Customer
Operations Center to Atlanta, $1,490 related to a Company supplied
automobile, and $3,485 of matching contributions under the Company's U.K.
subsidiary's retirement benefit program.
(3) Matching contributions under the Company's U.K. subsidiary's retirement
benefit program.
(4) Premiums paid by the Company for term life insurance.
(5) Relocation expenses from Portland to Atlanta.
3
<PAGE>
OPTION GRANTS IN 1996
The following table presents further information on grants of stock options
pursuant to the Company's 1987 Stock Option Plan and the Company's 1996 Long-
Term Incentive Plan during the year ended December 31, 1996 to the Named
Executive Officers. Such grants are reflected in the Summary Compensation Table
above.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------- Potential Realizable
% of Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Exercise Price Appreciation for
Underlying Employees or Base Option Term(1)
Options in Price Expiration -----------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
- ---- ----------- ----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dennis M. Crumpler 22,017 (2) 1.94% $ 14.988 9/30/01 $ 52,881 $ 153,144
37,983 (3) 3.36% $ 13.625 9/30/06 $ 325,465 $ 824,791
60,000 (4) 5.30% $ 13.625 9/30/06 $ 514,121 $1,302,884
Stefanus F. Coetzee 14,171 (5) 1.25% $ 12.250 2/27/06 $ 109,173 $ 276,665
10,829 (5) .96% $ 12.250 2/27/06 $ 83,426 $ 211,418
12,500 (3) 1.10% $ 13.625 9/30/06 $ 107,109 $ 271,434
12,500 (4) 1.10% $ 13.625 9/30/06 $ 107,109 $ 271,434
Shereef W. Nawar 15,547 (6) 1.37% $ 12.250 2/27/06 $ 119,773 $ 303,529
866 (6) .08% $ 12.250 2/27/06 $ 6,672 $ 16,907
9,761 (7) .86% $ 12.250 2/27/06 $ 75,198 $ 190,567
15,239 (7) 1.35% $ 12.250 2/27/06 $ 117,401 $ 297,516
W. Michael Parham 9,998 (8) .88% $ 12.250 2/27/06 $ 77,024 $ 195,194
10,002 (8) .88% $ 12.250 2/27/06 $ 77,055 $ 195,272
10,000 (3) .88% $ 13.625 9/30/06 $ 85,687 $ 217,147
10,000 (4) .88% $ 13.625 9/30/06 $ 85,687 $ 217,147
Sidney V. Sack 22,534 (9) 1.99% $ 12.250 2/27/06 $ 173,601 $ 439,939
2,466 (9) .22% $ 12.250 2/27/06 $ 18,998 $ 48,145
32,500 (3) 2.87% $ 13.625 9/30/06 $ 278,482 $ 705,729
32,500 (4) 2.87% $ 13.625 9/30/06 $ 278,482 $ 705,729
Corey M. Smith 24,240 (10) 2.14% $ 12.375 9/16/06 $ 188,650 $ 478,075
25,760 (10) 2.28% $ 12.375 9/16/06 $ 200,479 $ 508,053
80,000 (11) 7.07% $ 12.375 9/16/06 $ 622,606 $1,577,805
25,000 (3) 2.21% $ 14.000 9/29/06 $ 220,113 $ 557,810
</TABLE>
___________
(1) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the option term, which is ten years for
all options listed, except for 22,017 options granted to Mr. Crumpler for
which the option term is five years. The assumed 5% and 10% rates of stock
appreciation are mandated by the rules of the SEC and may not accurately
reflect the appreciation of the price of the Common Stock from the grant
date until the end of the option term. These assumptions are not intended
to forecast future price appreciation of the Company's Common Stock.
(2) Incentive stock option granted at 10% above the fair market value of a
share of the Company's Common Stock on the date of grant that will become
exercisable on the first anniversary of the grant date, with 1/3 of the
underlying shares becoming exercisable at that time, and an additional 1/3
becoming exercisable on each successive anniversary date until fully vested
on the third anniversary date. The vesting of this option may be
accelerated at the discretion of the Compensation and Stock Option
Committee.
4
<PAGE>
(3) Nonqualified stock option granted at the fair market value of a share of
the Company's Common Stock on the date of grant that will become
exercisable on the first anniversary of the grant date, with 1/3 of the
underlying shares becoming exercisable at that time, and an additional 1/3
becoming exercisable on each successive anniversary date until fully vested
on the third anniversary date. The vesting of this option may be
accelerated at the discretion of the Compensation and Stock Option
Committee.
(4) Nonqualified stock option granted at the fair market value of a share of
the Company's Common Stock on the date of grant that will become
exercisable on the first anniversary of the grant date, with 10% of the
underlying shares becoming exercisable at that time, and an additional 10%
becoming exercisable on each successive anniversary date through the ninth
anniversary and the final 10% becoming exercisable one day prior to the
tenth anniversary date. The vesting of a portion of these options may be
accelerated upon the achievement of certain market values of a share of the
Company's Common Stock. Additionally, the vesting of these options may be
partially accelerated during the first 18 months after the grant date upon
the occurrence of any event that changes control of the Company. The
vesting of these options may also be accelerated at the discretion of the
Compensation and Stock Option Committee.
(5) The option to acquire 14,171 shares is an incentive stock option, and the
option to acquire 10,829 shares is a nonqualified stock option. Each of
these options was granted at the fair market value of a share of the
Company's Common Stock on the date of grant. The incentive stock option
will become exercisable as to 634 shares on the first anniversary date,
1,518 shares on the second anniversary date, 2,693 shares on the third
anniversary date, 4,326 shares on the fourth anniversary date and 5,000
shares on the fifth anniversary date, at which time the options will be
fully exercisable. The nonqualified stock option will become exercisable
as to 4,366 shares on the first anniversary, 3,482 shares on the second
anniversary, 2,307 shares on the third anniversary and 674 shares on the
fourth anniversary, at which time the option will be fully exercisable.
The vesting of these options may be accelerated upon the occurrence of any
event that in the opinion of the Board of Directors is likely to lead to a
change in control of the Company (whether or not such a change in control
actually occurs).
(6) The option to acquire 15,547 shares is an incentive stock option, and the
option to acquire 866 shares is a nonqualified stock option. Each of such
options was received in the Company's stock option repricing program in
1996 under which adjustments to the exercise price and term of certain
stock options previously awarded were made. Each of these options was
granted at the fair market value of a share of the Company's Common Stock
on the date of grant. The incentive stock option will become exercisable
as to 2,416 shares on the first anniversary of the grant date, 3,283 shares
on the second anniversary, 3,282 shares on the third anniversary, 3,283
shares on the fourth anniversary and 3,283 shares on the fifth anniversary
at which time the options will be fully exercisable. The nonqualified stock
option will become fully exercisable on the first anniversary of the grant
date. The vesting of these options may be accelerated upon the occurrence
of any event that in the opinion of the Board of Directors is likely to
lead to a change in control of the Company (whether or not such a change in
control actually occurs).
(7) The option to acquire 9,761 shares is an incentive stock option, and the
option to acquire 15,239 shares is a nonqualified stock option. Each of
these options was granted at the fair market value of a share of the
Company's Common Stock on the date of grant. The incentive stock option
will become exercisable as to 4,880 shares on the second anniversary date
and 4,881 shares on the third anniversary date, at which time the option
will be fully exercisable. The nonqualified stock option will become
exercisable as to 8,333 shares on the first anniversary, 3,453 shares on
the second anniversary and 3,453 shares on the third anniversary, at which
time the option will be fully exercisable. The vesting of these options
may be accelerated upon the occurrence of any event that in the opinion of
the Board of Directors is likely to lead to a change in control of the
Company (whether or not such a change in control actually occurs).
(8) The option to acquire 9,998 shares is an incentive stock option, and the
option to acquire 10,002 shares is a nonqualified stock option. Each of
these options was granted at the fair market value of a share of the
Company's Common Stock on the date of grant. The incentive stock option
will become exercisable as to 2,668 shares on the first anniversary date,
3,004 shares on the second anniversary date and 4,326 shares on the third
anniversary date, at which time the option will be fully exercisable. The
nonqualified stock option will become exercisable as to 3,998 shares on the
first anniversary, 3,663 shares on the second anniversary and 2,341 shares
on the third anniversary, at which time the option will be fully
exercisable. The vesting of these options may be accelerated upon the
occurrence of any event that in the opinion of the Board of Directors is
likely to lead to a change in control of the Company (whether or not such a
change in control actually occurs).
5
<PAGE>
(9) The option to acquire 22,534 shares is an incentive stock option, and the
option to acquire 2,466 shares is a nonqualified stock option. Each of
these options was granted at the fair market value of a share of the
Company's Common Stock on the date of grant. The incentive stock option
will become exercisable as to 6,208 shares on the first anniversary date,
8,163 shares on the second anniversary date and 8,163 shares on the third
anniversary date, at which time the option will be fully exercisable. The
nonqualified stock option will become exercisable as to 2,125 shares on the
first anniversary, 170 shares on the second anniversary and 171 shares on
the third anniversary, at which time the option will be fully exercisable.
The vesting of these options may be accelerated upon the occurrence of any
event that in the opinion of the Board of Directors is likely to lead to a
change in control of the Company (whether or not such a change in control
actually occurs).
(10) The option to acquire 24,240 shares is an incentive stock option, and the
option to acquire 25,760 shares is a nonqualified stock option. Each of
these options was granted at the fair market value of a share of the
Company's Common Stock on the date of grant. Each option will become
exercisable on the first anniversary of the grant date, with 1/3 of the
underlying shares becoming exercisable at that time, and an additional 1/3
becoming exercisable on each successive anniversary date until fully vested
on the third anniversary date. The vesting of these options may be
accelerated upon the occurrence of any event that in the opinion of the
Board of Directors is likely to lead to a change in control of the Company
(whether or not such a change in control actually occurs).
(11) Nonqualified stock option granted at the fair market value of a share of
the Company's Common Stock on the date of grant that will become
exercisable on the first anniversary of the grant date, with 10% of the
underlying shares becoming exercisable at that time, and an additional 10%
becoming exercisable on each successive anniversary date through the ninth
anniversary and the final 10% becoming exercisable one day prior to the
tenth anniversary date. The vesting of a portion of these options may be
accelerated upon the achievement of certain market values of a share of the
Company's Common Stock. Additionally, the vesting of these options may be
partially accelerated during the first 18 months upon the occurrence of any
event that changes control of the Company. The vesting of these options may
be accelerated upon the occurrence of any event that in the opinion of the
Board of Directors is likely to lead to a change in control of the Company
(whether or not such a change in control actually occurs).
6
<PAGE>
AGGREGATED OPTION EXERCISES IN 1996
AND YEAR-END OPTION VALUES
The following table presents information with respect to options exercised
by the Named Executive Officers during 1996 and the unexercised options to
purchase the Company's Common Stock granted in 1996 and prior years under the
1987 Stock Option Plan and the 1996 Long-Term Incentive Plan and held by them as
of December 31, 1996.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End (#) at Fiscal Year-End ($)(2)
Shares Acquired Value ------------------------------ ---------------------------
Name on Exercise (#) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dennis M. Crumpler - - - 120,000 - $270,002
Stefanus F. Coetzee - - 33,551 81,199 $451,830 $433,827
Shereef W. Nawar - - 53,046 65,392 $694,231 $476,736
W. Michael Parham - - 32,432 59,898 $449,098 $282,841
Sidney V. Sack 3,990 $29,925 28,385 95,985 $209,768 $331,943
Corey M. Smith - - - 155,000 - $540,625
</TABLE>
- ------------
(1) "Value Realized" represents the amount equal to the excess of the fair
market value of the shares at the time of exercise over the exercise price.
(2) Represents the fair market value as of December 31, 1996 ($16.125 per
share closing stock price) of the option shares less the exercise price of
the options.
TEN YEAR OPTION REPRICINGS
The following table presents information with respect to adjustments to the
exercise price and term of stock options previously awarded to any current
executive officer since the Company became a reporting company, pursuant to the
Securities Exchange Act of 1934 on April 14, 1994.
<TABLE>
<CAPTION>
Number of
Securities Length of Original
Underlying Market Price of Exercise Price Option Term
Options Stock at Time at Time of New Remaining at Date
Repriced or of Repricing or Repricing or Exercise of Repricing or
Name Date Amended (#) Amendment ($) Amendment ($) Price ($) Amendment
- ---- ------- ----------- --------------- --------------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Jeanne N. Bateman 2/29/96 3,939 $12.25 $23.50 $12.25 9 years, 2 months
Joel A. Miller 2/29/96 9,848 $12.25 $23.50 $12.25 9 years, 2 months
Shereef W. Nawar 2/29/96 16,413 $12.25 $23.50 $12.25 9 years, 2 months
</TABLE>
Compensation and Stock Option Committee Report on Stock Option Repricing
- ------------------------------------------------------------------------
The Company uses stock options as a significant element of compensation. Stock
options are used to attract, retain, and motivate key employees, as well as
to help align the interests of employees and shareholders. As the
7
<PAGE>
Company's stock price falls below the employee's stock option exercise price,
the options may lose a relative portion of their motivational and retentive
value. As the difference between the two prices increases, the perceived value
of the options degrade. This situation occurred at XcelleNet in the fourth
quarter of 1995, as XcelleNet's stock price had dropped to the $11-$12 range
from a high of over $33 in February 1995. The Company needed to restore the
motivational and retentive value of the existing stock options in order to
promote the successful implementation of XcelleNet's growth strategies. As such,
in January 1996, the Compensation and Stock Option Committee approved a stock
option repricing program that was offered to all employees who held options.
This program allowed the employee to replace all options with an exercise price
of $15 or higher (granted under the 1987 Stock Option Plan) for a fewer number
of options at the current fair market value, conditioned on the surrender of the
previously granted options. There were two trade-offs to this program. First,
the number of new options granted were proportionally less than the original
grant, using a future stock valuation formula. Second, the vesting of the newly
granted options would start anew, thus ensuring the long-term commitments
intended. A total of 83 out of 136 eligible employees (61%) chose to reprice
their options, resulting in the repricing and reissuance of a total of 173,431
stock options and the net cancellation of 81,319 options. For all executive
officers the number of options elected for repricing totaled 46,000, which
converted to 30,200 after repricing, yielding net cancellations of 15,800
options.
Compensation and Stock Option Committee
- ---------------------------------------
Stephen P. Bradley
Richard C. Marcus
Jeffrey P. Parker
INDEMNIFICATION OF OFFICERS
The Company is obligated to indemnify each of its officers under
the Company's Amended and Restated Bylaws and separate indemnification
agreements with each executive officer.
EMPLOYMENT ARRANGEMENTS
In March 1994, the Company entered into an agreement with Mr. Crumpler (the
"Crumpler Agreement"), which provides that in the event that Mr. Crumpler's
employment with the Company, any subsidiary of the Company or any forty percent
(40%) shareholder of the Company is terminated other than for cause, or in the
event that Mr. Crumpler resigns from employment following a "change in control"
(as defined in the Crumpler Agreement) of the Company, Mr. Crumpler may obtain
at no cost a license to use the full range of the Company's RemoteWare products
at one central site and on up to 250 nodes for his own business, charitable or
educational purposes. In addition, under such circumstances, a business of which
Mr. Crumpler owns at least twenty percent (20%) and in which he is actively
involved in managing has the right to obtain licenses to use the Company's
RemoteWare products on terms that are no less favorable than any granted to a
licensee of similar size within the eighteen months prior to the grant of the
license to this business. Each of these licenses will be granted pursuant to the
Company's then standard software license agreement for its products, and Mr.
Crumpler or the related business will be entitled to the Company's standard
software support and maintenance agreements. The Crumpler Agreement has a term
of twenty (20) years following the termination of Mr. Crumpler's employment as
described above.
In September 1996, the Company issued 10,000 shares of restricted Common
Stock at no cost to Corey M. Smith, current President of the Company. The fair
market value of the stock at the date of issuance was $12.375 per share, and the
Company recorded $123,750 of compensation expense related to the stock issuance.
In September 1996, two executive officers of the Company resigned. The
Company entered into seperation agreements with them that included payments of
$172,000. These payments are included in nonrecurring charges.
The Company is a party to Change in Control Employment Agreements with
certain of its executive officers. See Item 13 - Certain Relationships and
Related Transactions.
8
<PAGE>
COMPENSATION OF DIRECTORS
In 1996, the Company reimbursed directors for travel and other out-of-
pocket expenses incurred in connection with their services as directors. In
addition, each non-employee director has received an option to purchase 40,000
shares of the Company's common stock pursuant to the Company's 1994 Stock Option
Plan for Outside Directors (the "Director Plan"). The Director Plan was adopted
by the Board of Directors on March 2, 1994, amended by the Board of Directors on
March 24, 1995, and approved by shareholders at the Company's 1995 Annual
Meeting. The Director Plan is intended to be a "formula plan" as defined by Rule
16b-3(c)(2)(ii) promulgated under the Securities Exchange Act of 1934, as
amended. Pursuant to the Director Plan, the Company automatically grants
nonqualified options to each non-employee member of the Company's Board of
Directors who is not prohibited by his employer from receiving options under the
Director Plan (an "Outside Director"). All of the Company's six current Outside
Directors have received options under the Director Plan. Each option granted
under the Director Plan vests in four installments of 10,000 shares on each of
the first four anniversaries of the first day of the first fiscal quarter of the
Company beginning after the date of grant. If, during the year prior to any
vesting date, any Outside Director fails to attend any regular meeting of the
Board of Directors, then, on the day prior to such vesting, the option will
terminate as to that number of shares equal to 10,000 multiplied by the
percentage of such meetings not attended by the Outside Director.
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
From January 1, 1996 until April 22, 1996, Messrs. Crumpler, Marcus and
Parker served on the Company's Compensation and Stock Option Committee. Since
April 22, 1996, Messrs. Bradley, Marcus and Parker have served on the
Compensation and Stock Option Committee.
From time to time, certain members of the Company's Board of Directors,
including members of the Compensation and Stock Option Committee, have provided,
and been compensated for, consulting services to the Company. In 1996, Messrs.
Bradley, House and Marcus provided such services and were compensated $5,000,
$15,713 and $21,000, respectively. Mr. House also served in an ad hoc management
oversight role on behalf of the Board of Directors and was compensated for
$17,500 for meetings with management of the Company in that capacity. In
consideration for his past services rendered to the Company, in July 1992 the
Board of Directors resolved to provide Mr. Marcus a license at no cost to use
the RemoteWare product suite for his own purposes to create an information
system with up to 250 node sites. The Company has not yet provided any software
or services to Mr. Marcus in connection with that resolution.
9
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Based on available information, the Company believes that set forth in the
table below is information in connection with the beneficial ownership of Common
Stock of the Company as of January 31, 1997 by the Company's directors, the
Named Executive Officers (as defined herein), the directors and executive
officers of the Company as a group (14 persons) and certain persons known to the
Company to be beneficial owners of more than five percent of the outstanding
Common Stock of the Company:
<TABLE>
<CAPTION>
Name of Five Percent Percentage of
Beneficial Owner, Director Shares of Common Stock Common
Title of Class or Named Executive Officer Beneficially Owned (1) Stock Outstanding
- -------------- ------------------------------- ---------------------- -----------------
<S> <C> <C> <C>
Common Stock, Five Percent Beneficial Owners:
$0.01 par value
Motorola, Inc. 731,047 9.8%
1303 East Algonquin Road
Schaumburg, Illinois 60196
GeoCapital Corporation (2) 685,616 9.2%
767 Fifth Avenue
New York, New York 10153
Robert Fleming Inc. (3) 410,750 5.5%
320 Park Avenue, 11th Floor
New York, NY 10022
Directors and Named Executive
Officers:
Dennis M. Crumpler (4) 1,434,831 19.2%
Stephen P. Bradley (5) 10,000 *
Donald L. House (6) 36,599 *
Richard C. Marcus (7) 81,494 1.1%
Geoffrey A. Moore (5) 10,000 *
Shereef W. Nawar (8) 157,498 2.1%
Richard L. Nolan (9) 20,000 *
Jeffrey P. Parker (10) 136,751 1.8%
Stefanus F. Coetzee (11) 42,694 *
W. Michael Parham (12) 82,630 1.1%
Sidney V. Sack (13) 103,666 1.4%
Corey M. Smith 10,000 *
Directors and Executive
Officers as a Group (14) 2,149,841 27.5%
</TABLE>
- --------
*Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person who has or shares voting or investment power with
respect to such shares. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws where applicable. Shares of Common Stock subject to options
that are currently exercisable or exercisable within 60 days of
January 31, 1997 are deemed to be outstanding and to be beneficially owned
by the person holding such options for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
(2) GeoCapital Corporation ("GeoCapital") is an investment advisor registered
under Section 203 of the Investment Advisors Act of 1940. GeoCapital has
sole investment power with respect to all of these shares and voting power
with respect to none of these shares. The information herein regarding
GeoCapital's stock ownership was obtained from a Schedule 13G filed by
GeoCapital with the Securities and Exchange Commission and received by the
Company on February 25, 1997. The Company makes no representation as to the
accuracy or completeness of the information reported regarding GeoCapital.
(3) Robert Fleming Inc. ("Fleming") is an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940. Fleming has shared
investment power and shared voting power with respect to all of these
shares. The information herein regarding Fleming's stock ownership was
obtained from a Schedule 13G filed by Fleming with the Securities and
Exchange Commission and received by the Company on February 25, 1997. The
Company makes no representation as to the accuracy or completeness of the
information reported regarding Fleming.
(4) Includes 1,200,000 shares held by a limited partnership, the general
partner of which is a limited liability company of which Mr. Crumpler is
the controlling manager. As such, Mr. Crumpler has voting and investment
power over these shares. Also includes 104,800 shares owned by Mr.
Crumpler's spouse. In November 1989, Mr. Crumpler entered into an agreement
with his spouse that provides that Mr. Crumpler has sole voting power with
respect to the shares of Common Stock presently held, or acquired in the
future, by her. This agreement also places certain restrictions on the
ability of Mr. Crumpler's spouse to transfer her shares of Common Stock and
provides Mr. Crumpler a right of first refusal in connection with such
shares. Also includes 3,800 shares held by Mr. Crumpler as trustee of a
trust for the benefit of his mother, as to which he retains sole voting
and investment power. Also includes 3,000 shares held by Mr. Crumpler as
custodian for his minor children and as to which he retains sole voting
and investment power.
(5) Consists of 10,000 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of January 31,
1997.
(6) Includes 30,350 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of January 31,
1997.
(7) Consists of 33,114 shares held jointly by Mr. Marcus and his spouse and
48,380 shares subject to stock options that are currently exercisable or
will become exercisable within 60 days of January 31, 1997.
(8) Includes 64,661 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of January 31,
1997.
(9) Consists of 20,000 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of January 31,
1997.
(10) Includes 21,050 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of January 31,
1997.
(11) Includes 900 shares held by Mr. Coetzee's spouse. Also includes 40,551
shares subject to stock options that are currently exercisable or will
become exercisable within 60 days of January 31, 1997.
(12) Includes 39,098 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of January 31,
1997.
(13) Includes 39,352 shares held jointly by Mr. Sack and his spouse. Also
includes 36,718 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of January 31,
1997.
(14) Includes 330,564 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of January 31,
1997.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In November 1995, the Company's Board of Directors approved the purchase of
527,879 shares of its common stock from Motorola, Inc. (the beneficial owner of
more than 5% of the Company's outstanding common stock) at a negotiated price of
approximately $15.15 per share, or an aggregate purchase price of approximately
$8 million. The Company paid all of the foregoing purchase price at the closing
of the transaction. The closing price of the Company's common stock on the date
of such transaction was $15.50.
Mr. Crumpler is the Chairman of the Board and Chief Executive Officer of
the Company. Prior to January 2, 1997, Electronic Commerce, Inc. ("E-Comm"), a
Solution Partner that remarkets the Company's software to end-user customers,
was partially owned by Mr. Crumpler's brother. On January 2, 1997 the Company
acquired all the outstanding shares of E-Comm for a total consideration
comprising cash and stock of approximately $2,675,000. During 1995, Mr. Crumpler
personally loaned E-Comm $200,000, which was outstanding at December 31, 1996,
in the form of an unsecured note for working capital purposes. Subsequent to
year-end, this loan was paid back in full in conjunction with the acquisition of
E-Comm by the Company. During 1996 and 1995, E-Comm purchased software from the
Company totaling $734,000 and $852,000, respectively, of which $734,000 and
$664,000, respectively, were remarketed to end-user customers (the balance was
used internally by E-Comm). All of these transactions were at the Company's
standard terms and conditions. At December 31, 1996 and 1995, the Company had
receivables of $107,000 and $243,000, respectively, from E-Comm, all of which
were related to remarketing activities.
In September 1996, the Company issued 10,000 shares of restricted Common
Stock at no cost to Corey M. Smith, current President of the Company. The fair
market value of the stock at the date of issuance was $12.375 per share, and the
Company recorded compensation expense of $123,750 related to the stock issuance.
In September 1996, two executive officers of the Company resigned. The
Company entered into seperation agreements with them that included payments of
$172,000. These payments are included in nonrecurring charges.
In March 1994, the Company entered into an agreement with Mr. Crumpler (the
"Crumpler Agreement"), which provides that in the event that Mr. Crumpler's
employment with the Company, any subsidiary of the Company or any forty percent
(40%) shareholder of the Company is terminated other than for cause, or in the
event that Mr. Crumpler resigns from employment following a "change in control"
(as defined in the Crumpler Agreement) of the Company, Mr. Crumpler may obtain
at no cost a license to use the full range of the Company's RemoteWare products
at one central site and on up to 250 nodes for his own business, charitable or
educational purposes. In addition, under such circumstances, a business of which
Mr. Crumpler owns at least twenty percent (20%) and in which he is actively
involved in managing has the right to obtain licenses to use the Company's
RemoteWare products on terms that are no less favorable than any granted to a
licensee of similar size within the eighteen months prior to the grant of the
license to this business. Each of these licenses will be granted pursuant to the
Company's then standard software license agreement for its products, and Mr.
Crumpler or the related business will be entitled to the Company's standard
software support and maintenance agreements. The Crumpler Agreement has a term
of twenty (20) years following the termination of Mr. Crumpler's employment as
described above.
In February 1997, the Company entered into Change in Control Employment
Agreements (each, an "Agreement") with Messrs. Crumpler, Smith, Sack and Nawar.
Each Agreement will become effective if and when a Change in Control (as defined
therein) occurs during the three-year period following the date of the Agreement
or during any of the one-year annual renewal periods (the "Change of Control
Period"), or if the employee's employment is terminated in connection with or in
anticipation of a Change of Control (in either case, the "Effective Date"). The
employee's employment period under the Agreement begins on the Effective Date
and continues for three years. During the employment period, the
11
<PAGE>
employee will (i) receive a monthly base salary equal to or greater than the
highest monthly base salary paid to him by the Company during the previous 12
months; (ii) an annual cash bonus at least equal to the highest bonus paid to
him in any of the three fiscal years prior to the Effective Date, and (iii) the
ability to participate in all incentive, savings, welfare benefit, fringe
benefit and retirement plans of the Company. If the employee's employment
terminates during the employment period he will receive certain severance
benefits under the Agreement. If his employment terminates for any reason other
than cause (as defined in the Agreement) or the voluntary resignation of the
employee without good reason (as defined in the Agreement) other than during the
30-day period beginning on the first anniversary of the Effective Date, he will
receive only his accrued benefits, if applicable. If he is terminated by the
Company (i) without cause, (ii) resigns voluntarily for good reason , or (iii)
resigns for any reason during the 30-day period beginning on the first
anniversary of the Effective Date, he would receive a lump sum cash payment
equal to: (a) his base salary through the date of termination, (b) a prorata
bonus for the year of termination, based upon the greater of one-half of his
then-current base salary or the highest of his actual bonuses earned in the
prior three years ("Bonus"), (c) the product of two and the sum of his base
salary and Bonus, (d) unpaid deferred compensation and vacation pay, and (e) a
contingent payment based upon 1.2 times the difference between the fair market
value of the securities issuable upon exercise of certain of the employee's
unvested stock options at the date of termination that would have become vested
within three years after the date of termination and the aggregate exercise
price of such options; provided that this last amount will not be payable if the
vesting of those unvested options is accelerated to a date not later than the
date of termination. In addition, the employee would be entitled to certain
continued employee benefits. In the event that payments to the employee are
subject to excise tax under Section 4999 of the Internal Revenue Code, the
Company will make an additional payment in an amount such that after the payment
of all income and excise taxes, the employee will be in the same after-tax
position as if no excise tax had been imposed.
12
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a)1. Financial Statements
XCELLENET, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules
All financial statement schedules have been omitted because they are not
required or the required information is included in the financial statements or
notes thereto.
(a)3. Exhibits
The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Commission. The Company shall furnish
copies of exhibits for a reasonable fee (covering the expense of furnishing
copies) upon request.
Exhibit
Number Exhibit Description
3.01 Amended and Restated Articles of Incorporation of the Registrant
(Incorporated herein by reference to Exhibit 3.01 to Registration
Statement No. 33-76012).
3.02 Amended and Restated Bylaws of the Registrant (Incorporated herein
by reference to Exhibit 3.02 to Registration Statement No. 33-
76012).
4.01 Specimen Stock Certificate for the Common Stock of the Registrant
(Incorporated herein by reference to Exhibit 4.01 to Registration
Statement No. 33-76012).
4.02 Amended and Restated Articles of Incorporation of the Registrant
(Incorporated herein by reference to Exhibit 3.01 to Registration
Statement No. 33-76012).
4.03 Amended and Restated Bylaws of the Registrant (Incorporated herein by
reference to Exhibit 3.02 to Registration Statement No. 33-76012).
4.04 Shareholder Agreement dated June 22, 1990 as amended by the Amendment
to Shareholder Agreement dated February 11, 1994 (the "Amendment")
among the Registrant and the persons listed on Exhibit A to the
Amendment (Incorporated herein by reference to Exhibit 10.12 to
Registration Statement No. 33-76012).
10.01 Lease Agreement, First Amendment to Lease Agreement, Commencement
Date Agreement, Second Amendment to Lease Agreement and Third
Amendment to Lease Agreement between the Registrant and Concourse V
Associates dated August 17, 1990, September 30, 1992, January 27,
1993, August 10, 1993 and September 9, 1993, respectively
(Incorporated herein by reference to Exhibit 10.01 to Registration
Statement No. 33-76012).
10.011 Fourth Amendment to Lease Agreement, Commencement Date Agreement and
Acceptance of Premises and Fifth Amendment to the Lease Agreement
between the Registrant and Concourse V Associates dated August 15,
1994, January 18, 1995 and March 2, 1995, respectively (Incorporated
herein by reference to Exhibit 10.011 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
10.012 Sixth Amendment to the Lease Agreement between the Registrant and
Concourse V Associates dated March 26, 1996 (Incorporated herein by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996).
10.013 Seventh Amendment to the Lease Agreement between the Registrant and
Concourse V Associates dated July 1, 1996.
13
<PAGE>
10.02 Underlease between XcelleNet Limited and Grant Thornton Nominees
dated December 15, 1995 (Incorporated herein by reference to Exhibit
10.02 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.03 Q+E Database Library Distributor License Agreement between the
Registrant and Q+E Software, Inc. effective as of July 1, 1993
(Incorporated herein by reference to Exhibit 10.03 to Registration
Statement No. 33-76012).
10.04 XcelleNet, Inc. 1994 Stock Option Plan for Outside Directors
(Incorporated herein by reference to Exhibit 10.04 to Registration
Statement No. 33-76012).
10.041 First Amendment to XcelleNet, Inc. 1994 Stock Option Plan for Outside
Directors adopted by the Board of Directors on March 24, 1995
(Incorporated herein by reference to Exhibit 10.041 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.05* XcelleNet, Inc. 1987 Stock Option Plan, as amended (Incorporated
herein by reference to Exhibit 10.05 to Registration Statement No.
33-76012).
10.051* Tenth Amendment to XcelleNet, Inc. 1987 Stock Option Plan dated March
24, 1995 (Incorporated herein by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995).
10.06* Written description of XcelleNet, Inc. Key Employee Loan Program (the
"Program") together with Form of Installment Note and Form of Pledge
Agreement executed by participants in the Program (Incorporated
herein by reference to Exhibit 10.06 to Registration Statement No.
33-76012).
10.07* Form of Agreement to License Software between the Registrant and
Dennis M. Crumpler dated March 1994 (Incorporated herein by reference
to Exhibit 10.07 to Registration Statement No. 33-76012).
10.08 Form Non-Qualified Stock Option Agreement for individual options
granted to directors of the Registrant in connection with their
service as directors and not under any option plan of the Registrant
(Incorporated herein by reference to Exhibit 10.08 to Registration
Statement No. 33-76012).
10.09 Form Non-Qualified Stock Option Agreement for individual options
granted to directors of the Registrant in connection with their
service as consultants to the Registrant and not under any option
plan of the Registrant (Incorporated herein by reference to Exhibit
10.09 to Registration Statement No. 33-76012).
10.10* Form Indemnity Agreement (Incorporated herein by reference to Exhibit
10.10 to Registration Statement No. 33-76012). In addition to the
individuals identified in Schedule 1 to this Exhibit, the following
have entered into a form Indemnity Agreement with the Registrant
substantially identical to this exhibit:
Geoffrey A. Moore
Robert I. Apollo
Corey M. Smith
Joseph W. Owen
10.11 Form Employment Agreement (Incorporated herein by reference to
Exhibit 10.11 to Registration Statement No. 33-76012).
10.12 Shareholder Agreement dated June 22, 1990 as amended by the Amendment
to Shareholder Agreement dated February 11, 1994 (the "Amendment")
among the Registrant and the persons listed on Exhibit A to the
Amendment (Incorporated herein by reference to Exhibit 10.12 to
Registration Statement No. 33-76012).
10.13* Compensation Plan for W. Michael Parham 1996.
10.15* Written Description of XcelleNet, Inc. Performance Compensation
Program (Incorporated herein by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.16 Investment Management Agreement between the Registrant and Wells
Fargo Bank, N.A. dated October 25, 1994 (Incorporated herein by
reference to Exhibit 10.16 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1994).
14
<PAGE>
10.17 Investment Management Agreement between the Registrant and Morgan
Stanley & Co. Inc. dated October 24, 1994 (Incorporated herein by
reference to Exhibit 10.17 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1994).
10.18 Linguistic System Licensing Agreement between the Registrant and
Proximity Technology, Inc. effective as of December 14, 1994
(Incorporated herein by reference to Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.19 North American OEM Program License Agreement between the Registrant
and Retix effective as of March 31, 1994 (Incorporated herein by
reference to Exhibit 10.19 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1994).
10.20 The Registrant's Software License Agreement and Software License
Agreement Schedule A (Incorporated herein by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.21 XcelleNet, Inc. 1995 Employee Stock Purchase Plan dated March 24,
1995 (Incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995).
10.22 Basicscript Licensing Agreement between the Registrant and Summit
Software Company effective as of February 27, 1996 (Incorporated
herein by reference to Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996).
10.23 Visiodbc Licensing Agreement between the Registrant and Visigenic
Software, Inc. effective as of December 18, 1996.
10.24* XcelleNet, Inc. 1996 Long Term Incentive Plan adopted by the Board of
Directors on October 16, 1996.
10.25* Form of Change in Control Employment Agreement between the Company
and Messrs. Crumpler, Smith, Sack and Nawar.
11.01 Statement re: computation of per share earnings.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Arthur Andersen LLP.
27.01 Financial Data Schedule.
_________________
* Indicates executive officer compensation plans and arrangements.
(b). REPORTS ON FORM 8-K DURING THE QUARTER ENDED DECEMBER 31, 1996.
Form 8-K dated November 5, 1996:
Reporting under Item 5 that the Company entered into a definitive agreement
to acquire the WorldLink line of products from The NetPlex Group, Inc. and
Technology Development Systems, Inc.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to its
report to be signed on its behalf by the undersigned, thereunto duly authorized.
XCELLENET, INC.
By: /s/ Dennis M. Crumpler
------------------------------------
Dennis M. Crumpler
Chairman and Chief Executive Officer
March 20, 1997
<PAGE>
Exhibit
Number Exhibit Description
------ -------------------
3.01* Amended and Restated Articles of Incorporation of the Registrant
(Incorporated herein by reference to Exhibit 3.01 to Registration
Statement No. 33-76012).
3.02* Amended and Restated Bylaws of the Registrant (Incorporated herein by
reference to Exhibit 3.02 to Registration Statement No. 33-76012).
4.01* Specimen Stock Certificate for the Common Stock of the Registrant
(Incorporated herein by reference to Exhibit 4.01 to Registration
Statement No. 33-76012).
4.02* See Exhibits 3.01 and 3.02 for provisions of the Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws of the
Registrant defining the rights of holders of the Common Stock of the
Registrant. Amended and Restated Articles of Incorporation of the
Registrant (Incorporated herein by reference to Exhibit 3.01 to
Registration Statement No. 33-76012).
4.03* Amended and Restated Bylaws of the Registrant (Incorporated herein by
reference to Exhibit 3.02 to Registration Statement No. 33-76012).
4.04* Shareholder Agreement dated June 22, 1990 as amended by the Amendment
to Shareholder Agreement dated February 11, 1994 (the "Amendment")
among the Registrant and the persons listed on Exhibit A to the
Amendment (Incorporated herein by reference to Exhibit 10.12 to
Registration Statement No. 33-76012).
10.01* Lease Agreement, First Amendment to Lease Agreement, Commencement Date
Agreement, Second Amendment to Lease Agreement and Third Amendment to
Lease Agreement between the Registrant and Concourse V Associates
dated August 17, 1990, September 30, 1992, January 27, 1993, August
10, 1993 and September 9, 1993, respectively (Incorporated herein by
reference to Exhibit 10.01 to Registration Statement No. 33-76012).
10.011* Fourth Amendment to Lease Agreement, Commencement Date Agreement and
Acceptance of Premises and Fifth Amendment to the Lease Agreement
between the Registrant and Concourse V Associates dated August 15,
1994, January 18, 1995 and March 2, 1995, respectively (Incorporated
herein by reference to Exhibit 10.011 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
10.012* Sixth Amendment to the Lease Agreement between the Registrant and
Concourse V Associates dated March 26, 1996 (Incorporated herein by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996).
10.013 Seventh Amendment to the Lease Agreement between the Registrant and
Concourse V Associates dated July 1, 1996 .
10.02* Underlease between XcelleNet Limited and Grant Thornton Nominees dated
December 15, 1995 (Incorporated herein by reference to Exhibit 10.02
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.03* Q+E Database Library Distributor License Agreement between the
Registrant and Q+E Software, Inc. effective as of July 1, 1993
(Incorporated herein by reference to Exhibit 10.03 to Registration
Statement No. 33-76012).
10.04* XcelleNet, Inc. 1994 Stock Option Plan for Outside Directors
(Incorporated herein by reference to Exhibit 10.04 to Registration
Statement No. 33-76012).
10.041* First Amendment to XcelleNet, Inc. 1994 Stock Option Plan for Outside
Directors adopted by the Board of Directors on March 24, 1995
(Incorporated herein by reference to Exhibit 10.041 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.05* XcelleNet, Inc. 1987 Stock Option Plan, as amended (Incorporated
herein by reference to Exhibit 10.05 to Registration Statement No. 33-
76012).
10.051* Tenth Amendment to XcelleNet, Inc. 1987 Stock Option Plan dated March
24, 1995 (Incorporated herein by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995).
17
<PAGE>
10.06* Written description of XcelleNet, Inc. Key Employee Loan Program (the
"Program") together with Form of Installment Note and Form of Pledge
Agreement executed by participants in the Program (Incorporated herein
by reference to Exhibit 10.06 to Registration Statement No. 33-76012).
10.07* Form of Agreement to License Software between the Registrant and
Dennis M. Crumpler dated March 1994 (Incorporated herein by reference
to Exhibit 10.07 to Registration Statement No. 33-76012) .
10.08* Form Non-Qualified Stock Option Agreement for individual options
granted to directors of the Registrant in connection with their
service as directors and not under any option plan of the Registrant
(Incorporated herein by reference to Exhibit 10.08 to Registration
Statement No. 33-76012).
10.09* Form Non-Qualified Stock Option Agreement for individual options
granted to directors of the Registrant in connection with their
service as consultants to the Registrant and not under any option plan
of the Registrant (Incorporated herein by reference to Exhibit 10.09
to Registration Statement No. 33-76012).
10.10* Form Indemnity Agreement (Incorporated herein by reference to Exhibit
10.10 to Registration Statement No. 33-76012). In addition to the
individuals identified in Schedule 1 to this Exhibit, the following
have entered into a form Indemnity Agreement with the Registrant
substantially identical to this exhibit:
Geoffrey A. Moore
Robert I. Apollo
Corey M. Smith
Joseph W. Owen
10.11* Form Employment Agreement (Incorporated herein by reference to Exhibit
10.11 to Registration Statement No. 33-76012).
10.12* Shareholder Agreement dated June 22, 1990 as amended by the Amendment
to Shareholder Agreement dated February 11, 1994 (the "Amendment")
among the Registrant and the persons listed on Exhibit A to the
Amendment (Incorporated herein by reference to Exhibit 10.12 to
Registration Statement No. 33-76012).
10.13 Compensation Plan for W. Michael Parham 1996.
10.15* Written Description of XcelleNet, Inc. Performance Compensation
Program. (Incorporated herein by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.16* Investment Management Agreement between the Registrant and Wells Fargo
Bank, N.A. dated October 25, 1994 (Incorporated herein by reference to
Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.17* Investment Management Agreement between the Registrant and Morgan
Stanley & Co. Inc. dated October 24, 1994 (Incorporated herein by
reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.18* Linguistic System Licensing Agreement between the Registrant and
Proximity Technology, Inc. effective as of December 14, 1994
(Incorporated herein by reference to Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.19* North American OEM Program License Agreement between the Registrant
and Retix effective as of March 31, 1994 (Incorporated herein by
reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.20* The Registrant's Software License Agreement and Software License
Agreement Schedule A (Incorporated herein by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.21* XcelleNet, Inc. 1995 Employee Stock Purchase Plan dated March 24, 1995
(Incorporated herein by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995).
10.22* Basicscript Licensing Agreement between the Registrant and Summit
Software Company effective as of February 27, 1996 (Incorporated
herein by reference to Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996).
18
<PAGE>
10.23 Visiodbc Licensing Agreement between the Registrant and Visigenic
Software, Inc. effective as of December 18, 1996.
10.24 XcelleNet, Inc. 1996 Long Term Incentive Plan adopted by the Board of
Directors on October 16, 1996.
10.25 Form of Change in Control Employment Agreements between the Company
and Messrs. Crumpler, Smith, Sack and Nawar.
11.01 Statement re: computation of per share earnings.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Arthur Andersen LLP.
27.01 Financial Data Schedule.
_________________
* Indicates exhibit was previously filed and is incorporated by reference
herein.
19
<PAGE>
EXHIBIT 10.013
SEVENTH AMENDMENT TO LEASE AGREEMENT
------------------------------------
THIS SEVENTH AMENDMENT TO LEASE AGREEMENT (the "Seventh Amendment") is
made this ______ day of July, 1996, by and between CONCOURSE V ASSOCIATES (as
"Landlord") and XCELLENET, INC. (as "Tenant").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Landlord and Tenant did enter into a Lease Agreement dated as
of August 17, 1990 (the "Original Lease"), for space in that certain building
known as "Concourse Corporate Center V" (the "Building"), as such space is more
particularly described in the Original Lease (the "Premises"); and
WHEREAS, Landlord and Tenant did enter into a First Amendment to Lease
Agreement dated September 30, 1992 (the "First Amendment"), adding certain space
more particularly described therein to the Premises; and
WHEREAS, Landlord and Tenant did enter into a Second Amendment to
Lease Agreement dated August 10, 1993 (the "Second Amendment"); and
WHEREAS, Landlord and Tenant did enter into a Third Amendment to Lease
Agreement dated September 9, 1993 (the "Third Amendment"); and
WHEREAS, Landlord and Tenant did enter into a Fourth Amendment to
Lease Agreement, dated August 15, 1994 (the "Fourth Amendment");
WHEREAS, Landlord and Tenant did enter into a Fifth Amendment to Lease
Agreement, dated February 20, 1995 (the "Fifth Amendment");
WHEREAS, Landlord and Tenant did enter into a Sixth Amendment to Lease
Agreement, dated March 27, 1996 (the "Sixth Amendment");
WHEREAS, the Original Lease, First Amendment, Second Amendment, Third
Amendment, Fourth Amendment, Fifth Amendment and Sixth Amendment are sometimes
referred to herein collectively as the "Lease"; and
WHEREAS, Landlord and Tenant desire to modify and amend the Lease, in
the manner and for the purposes herein set forth.
<PAGE>
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and for Ten and No/100 Dollars ($10.00) and other good and
valuable consideration, paid by the parties hereto to one another, the receipt
and sufficiency of which are acknowledged by the parties hereto, the parties
hereto hereby covenant and agree as follows:
1. Effective Date. The effective date (the "Effective Date") of
--------------
this Seventh Amendment shall be January 1, 1997, as to the "First Expansion
Premises", (as that term is herein defined), and April 1, 1997, as to the
"Second Expansion Premises" (as that term is herein defined). This Seventh
Amendment shall inure to the benefit of and be binding upon Landlord and Tenant
upon the due execution and delivery of this Seventh Amendment, notwithstanding
that the Effective Date shall be a later date.
2. Additional Premises. From and after January
-------------------
1, 1997, Landlord hereby leases and rents to Tenant, and Tenant hereby leases
and rents from Landlord, that certain space, consisting of 13,609 rentable
square feet, more or less, on the 7th floor of the Building as shown on Exhibit
-------
"A", attached hereto and by this reference incorporated herein (the "First
- ---
Expansion Premises"). From and after April 1, 1997, Landlord hereby leases and
rents to Tenant, and Tenant hereby leases and rents from Landlord, that certain
space, consisting of 6,806 rentable square feet, more or less, on the 4th floor
of the Building, as shown on Exhibit "A", attached hereto and by this reference
-----------
incorporated herein (the "Second Expansion Premises"). This First Expansion
Premises and the Second Expansion Premises are herein sometimes collectively
referred to as the Expansion Premises. From and after the Effective Date, any
reference in the Original Lease to the "Premises" shall mean the Premises and
the First Expansion Premises and, when applicable, the Second Expansion
Premises, except that the "Rent" due on such Expansion Premises and the
"Allowance" provided for tenant fit-up and finish work therein shall be governed
by this Seventh Amendment.
3. Base Rent Rate. The Base Rent for the
--------------
Additional Premises shall be paid by Tenant in addition to and not in lieu of,
the other payments due under the Lease, and shall be as follows:
-2-
<PAGE>
<TABLE>
<CAPTION>
Annual Monthly
Term/Period Base Rent Base Rent Base Rent
- ---------------------------------------- --------- ----------- ----------
<S> <C> <C> <C>
January 1, 1997 (First Expansion $24.50 $333,420.50 $27,785.04
Premises) -
April 1, 1997 $24.50 $500,167.50 $41,680.63
(Second Expansion Premises) -
December 31, 1997
January 1, 1998 - December 31, 1998 $24.87 $507,670.01 $42,305.83
January 1, 1999 - December 31, 1999 $25.24 $515,336.86 $42,944.74
January 1, 2000 - September 6, 2000 $25.62 $523,003.71 $43,583.64
</TABLE>
Such amounts shall be paid at the time and in the manner Base Rent is paid
under the Original Lease, except that the Increase Multiplier provisions of
Paragraph 2(c) of the Original Lease do not apply.
4. Tenant Improvement Costs. (a) Tenant shall have access to the
------------------------
First Expansion Premises on or before October 1, 1996, and access to the Second
Expansion Premises on or before January 1, 1997. Landlord shall cause the
tenant fit-up and finish work in the Expansion Premises to be completed in
accordance with plans and specifications to be provided by Tenant, as soon as
possible, and to be agreed upon by Landlord and Tenant, in their respective
reasonable judgment. The Term shall start and Base Rent shall commence for the
Expansion Space on the dates set forth in Paragraph 2 and 3 herein, whether or
not the First Expansion Premises or Second Expansion Premises, as applicable,
are substantially completed. Landlord shall provide an allowance for the tenant
fit-up and finish work, including the design costs and the cost of generating
plans and specifications associated therewith, in the Expansion Premises of
Eleven and 10/100 Dollars ($11.10) per usable square foot within the Expansion
Premises (the "Allowance"). To the extent the costs to complete the tenant fit-
up and finish work in the Expansion Premises are less than the Allowance, then
the difference shall paid to Tenant. To the extent the costs to complete the
tenant fit-up and finish work in the Premises are greater than the Allowance,
then the amount of such excess shall be paid by Tenant to Landlord on demand.
(b) There shall be a construction management fee of three percent (3%)
of the Allowance based on the tenant fit-up and finish work in the Expansion
Premises. Such fee may be funded out of the Allowance.
-3-
<PAGE>
5. Operating Costs. Tenant shall pay to Landlord for the
---------------
Expansion Premises, in addition to and not in lieu of the amounts due hereunder,
Tenant's Share of Operating Costs for the Expansion Premises above the Initial
Operating Costs. For the purposes of this Seventh Amendment, the Initial
Operating Costs shall be deemed to be the Operating Costs, on a per square foot
per annum basis, for the Expansion Premises in the year 1997. Such amounts
shall be due from Tenant and shall be paid at the time and in the manner that
Base Rent is paid under the Lease.
6. Brokerage. FAISON & ASSOCIATION ("FAISON") ACTED AS AGENT FOR
---------
LANDLORD IN THIS TRANSACTION. FAISON SHALL BE PAID A COMMISSION BY LANDLORD.
RICHARD BOWERS & COMPANY ("BOWERS") HAS ACTED AS AGENT FOR TENANT IN THIS
TRANSACTION. BOWERS IS TO BE PAID A COMMISSION BY LANDLORD. Tenant warrants
that there are no other agents that have acted on its behalf in this transaction
which have a claim for broker's commissions or finder's fees in connection with
its execution of this Sixth Amendment. Tenant hereby indemnifies Landlord and
holds Landlord harmless from and against all loss, cost, damage or expense,
including, but not limited to, attorney's fees and court costs, incurred by
Landlord as a result of or in conjunction with a claim of any real estate agent
or broker other than Bowers, if made by, through or under Tenant. Landlord
hereby indemnifies Tenant and holds Tenant harmless from and against all loss,
cost, damage or expense, including, but not limited to, attorney's fees and
court costs, incurred by Tenant as a result of or in conjunction with a claim of
any real estate agent or broker, if made by, through or under Landlord.
7. Transfers, Successors and Assigns. This Seventh Amendment
---------------------------------
shall inure to the benefit of and be binding upon Landlord, Tenant, and their
respective transfers, successors and assigns.
8. Georgia Law. This Seventh Amendment shall be construed and
-----------
interpreted under the laws of the State of Georgia.
9. No Other Modifications. Except as modified by this Seventh
----------------------
Amendment, the Lease remains unmodified and of full force and effect.
-4-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Seventh Amendment to
be executed under seal and delivered, on the day and year first above written.
"LANDLORD"
CONCOURSE V ASSOCIATES, a Georgia general
partnership
By: Dan Properties, Inc., as general partner
8/8/96
__________________________ By: /s/ Alan Lang
Date Executed: --------------------------------
Its: Assistant Secretary
----------------------------
By: JV Georgia One, Inc., as general partner
By: /s/ Alan Lang
--------------------------------
Its: Assistant Secretary
----------------------------
"TENANT"
XCELLENET, INC., a Georgia corporation
By: /s/ Jeanne N. Bateman
--------------------------------
Its: Vice President--Finance
---------------------------
July 30, 1996
__________________________ Attest: /s/ John C. Bacon
Date Executed: -----------------------------
Its: President
------------------------------
(CORPORATE SEAL)
6/20/96
-5-
<PAGE>
Exhibit "A" - "First Expansion Premises"
Description of Exhibit A:
Floor plan of the 7/th/ floor expansion as referred to in the Seventh
Amendment.
Exhibit "A" - "Second Expansion Premises"
Description of Exhibit A:
Floor plan of the 4/th/ floor expansion as referred to in the Seventh
Amendment.
-6-
<PAGE>
EXHIBIT 10.13
1996 COMPENSATION PLAN
MIKE PARHAM
VICE PRESIDENT, SALES
COMPENSATION OBJECTIVES
1. Provide overall compensation that is competitive within the industry for
the job position and responsibilities.
2. Provide motivation to meet and exceed quantitative and qualitative goals
for the development and management of the North American and (temporarily)
the EMEA sales force.
3. Ensure management of the worldwide sales force in a way that is fully
compatible with, and in support of, the Company's overall goals, especially
attainment of quota objectives at specified expense levels.
4. Set the stage for transitioning of the management of the EMEA sales
organization to the VP International Sales by Jan. 97.
TARGET COMPENSATION LEVEL AT PLAN
Compensation at plan is $215,000 (for the 12 month period), with opportunity for
increased payout above that level based upon performance as described below.
PLAN DESCRIPTION
The Plan will operate with an Annual Base Salary of $115,000 (paid semi-monthly
beginning January 1, 1996). In addition to Base Salary, there will be
Quantitative Incentive Payments, Qualitative Incentive Payments, and Bonus
Payments. The Bonus Payments are broken into Fixed and Override portions.
Quarterly incentive payments will be determined in accordance with the Plan and
paid upon completion of the quarter's closing, allowing reasonable time for
administration. The Override Bonus Incentive Payment will be made after the
close of the Compensation Period. The Override Bonus Incentive Payments will
have no fixed upper limit.
At Target, the Quantitative Incentive Payments would total $76,540, the
Qualitative Incentive Payments would total $12,000 and the Fixed portion of the
Bonus Payment would total $12,000.
<PAGE>
PLAN OPERATION
QUANTITATIVE INCENTIVE PAYMENTS
For the first 1 through 100% of Plan, the override percentage is .0018 per
dollar of revenue. At Plan, the worldwide revenue from all sources is as
follows:
Q1 96 $ 9,400,000
Q2 96 $10,100,000
Q3 96 $ 9,500,000
Q4 96 $13,500,000
-----------
TOTAL $42,500,000
QUALITATIVE INCENTIVE PAYMENTS
Attainment of quarterly qualitative performance objectives will be judged by the
VP-Sale's manager. The ongoing agreement and specification of each quarter's
qualitative objectives will be the responsibility of the VP-Sales and the VP-
Sale's manager. These qualitative objectives will not exceed three in number
for each quarter. If all goals are met, payment will be $3,000. If fewer goals
are met, payment will be prorated accordingly.
FIXED BONUS PAYMENTS
- --------------------
Fixed Bonus Payments include quarterly payments of $3,000 upon attainment of the
Quarterly Revenue objective (per Plan as set forth above).
OVERRIDE BONUS PAYMENTS will be paid as an additional 0.0036% of all worldwide
- -----------------------
sales over $42,500,000 There will be no cap on this amount.
<PAGE>
Exhibit 10.23
VALUE ADDED RESELLER AGREEMENT
------------------------------
FOR VISIGENIC PRODUCTS
----------------------
This Value Added Reseller Agreement ("Agreement") is entered into as of the
EFFECTIVE DATE (identified below), between VISIGENIC SOFTWARE, INC.,
("VISIGENIC"), and XCELLENET, INC and its wholly owned subsidiaries,
hereinafter.("VAR"). VAR desires to license VISIGENIC's Open Database
Connectivity ("ODBC"/1/) Driver Set and the DB2 VISIODBC Driver from VISIGENIC
under the terms of this Agreement, for the purpose of packaging the VISIODBC
Driver Set and/ or the DB2 VISIODBC Driver in combination with certain of VAR's
software products as an application bundle, and to sublicense that application
bundle to end users for their internal use. Therefore, the parties agree as
follows:
1. DEFINITIONS
-----------
(A) "VISIODBC DRIVER SET" means the current commercially available English
language version of VISIGENIC's proprietary software product known as the
VISIODBC Driver Set for Windows 3.1, Windows NT and Windows 95, in object code
form.
(B) "DB2 VISIODBC DRIVER" means the current commercially available English
language version of VISIGENIC's software product known as the DB2 VISIODBC
DRIVER for Windows 3.1, Windows NT and Windows 95, in object code form.
(C) "VISIGENIC PRODUCTS" means the VISIODBC DRIVER SET, the DB2 VISIODBC
DRIVER and any other software provided to VAR by VISIGENIC under this Agreement.
(D) "VAR PRODUCTS" means VAR's software product(s) specified in Exhibit A.
(E) "APPLICATION BUNDLE" means the VISIODBC DRIVER SET and/or the DB2 VISIODBC
DRIVER packaged in combination with one or more VAR PRODUCTS.
(F) "DISTRIBUTOR" means a third party appointed by VAR to distribute
APPLICATION BUNDLEs directly to RESELLERs or END USERs, subject to the terms and
conditions imposed by this Agreement.
(G) "RESELLER" means a third party appointed by VAR or a DISTRIBUTOR to
distribute APPLICATION BUNDLEs directly to END USERs, subject to the terms and
conditions imposed by this Agreement.
(H) "END USER" means a third party sublicensed by VAR, a DISTRIBUTOR, or a
RESELLER to use an APPLICATION BUNDLE for the END USER's customary internal
business purposes, and not for redistribution.
(I) "TERRITORY" will be worldwide.
2. LICENSE GRANTS AND LIMITATIONS
------------------------------
(A) GRANT. Subject to the terms and conditions of this Agreement, VISIGENIC
------
grants to VAR a non-exclusive, non-transferable, non-assignable, limited license
throughout the TERRITORY (i) to copy the VISIODBC DRIVER SET and the DB2
VISIODBC DRIVER and package it in combination with one or more VAR PRODUCTS as
an APPLICATION BUNDLE and (ii) to market and distribute the VISIODBC DRIVER SET
and the DB2 VISIODBC DRIVER as contained in such APPLICATION BUNDLE to END
USERs.
(B) APPOINTMENT OF DISTRIBUTORS AND RESELLERS. VISIGENIC grants to VAR the
------------------------------------------
right to appoint DISTRIBUTORs and RESELLERs to market and distribute APPLICATION
BUNDLEs to END USERs. DISTRIBUTORs will have the additional right to appoint
RESELLERs. Each DISTRIBUTOR or RESELLER appointed by VAR, and each RESELLER
appointed by a DISTRIBUTOR, must enter into a written license agreement with VAR
or the appointing DISTRIBUTOR that provides substantially similar protection of
VISIGENIC's title, rights and defenses as this Agreement. VAR will use its best
efforts to ensure that DISTRIBUTORs, RESELLERs and END USERs comply with the
terms of their respective agreements, and will notify VISIGENIC of any violation
of which it has knowledge. Upon VISIGENIC's request, VAR will supply VISIGENIC
with a copy of any license or sublicense agreement.
(C) LIMITATIONS. All rights not expressly granted herein are reserved by
------------
VISIGENIC and/or its suppliers. Without limiting the generality of the
preceding sentence, VAR receives no rights and agrees: (i) not to modify, port,
translate, localize, or create derivative works of the VISIGENIC PRODUCTS, (ii)
not to decompile, disassemble or otherwise reverse engineer the VISIGENIC
PRODUCTS, (iii) not to distribute an APPLICATION BUNDLE except under a valid
sublicense agreement that contains substantially the terms set forth in Exhibit
B, (iv) not to use the VISIGENIC PRODUCTS for VAR's internal productive
purposes, (v) not to copy, market or distribute the VISIODBC DRIVER SET or the
DB2 VISIODBC DRIVER except as part of an APPLICATION BUNDLE, (vi) not to copy or
sublicense the VISIODBC DRIVER SET or the DB2 VISIODBC DRIVER on a stand-alone
basis or for use with any software other than the VAR PRODUCTS and (vii) not to
distribute any APPLICATION BUNDLE outside the TERRITORY or when it is reasonably
foreseeable that it will be transported outside the TERRITORY. Each DISTRIBUTOR
and RESELLER must agree to substantially similar limitations as those set forth
the above, with the additional limitation that DISTRIBUTORs and RESELLERs may
not copy the VISIODBC DRIVER SET, the DB2 VISIODBC DRIVER, or APPLICATION
BUNDLE, but must market and distribute unaltered APPLICATION BUNDLEs received
from VAR.
(D) PER-PLATFORM LICENSE OF VISIGENIC PRODUCTS. VISIGENIC will license copies
--------------------------------------------
of the VISIGENIC PRODUCTS on available platforms to VAR, for VAR's internal
development use under Section 2(a) above, at a discount of twenty-five percent
(25%) off VISIGENIC's list price for such platforms in effect at the time of
order.
(E) DISTRIBUTION OF PACKAGED VISIODBC DRIVER SETS OR DB2 VISIODBC DRIVERS.
-----------------------------------------------------------------------
As an alternative to distributing APPLICATION BUNDLES under Section 2(a) above,
VAR may purchase packaged copies of the VISIODBC DRIVER SET or the DB2 VISIODBC
DRIVER from VISIGENIC at a 25% discount and market and distribute such packaged
copies in combination with one or more VAR PRODUCTS. In this case, provided
that VAR does not reproduce the VISIODBC DRIVER SET or the DB2 VISIODBC DRIVER
or alter its packaging, VAR will not be required: (i) to make quarterly reports
or royalty payments for such packaged copies under Sections 3(c) and 3(d), (ii)
to submit to audits under Section 3(g), or (iii) to pay the VOLUME SUPPORT FEE
under Section 3(e). VISIGENIC will offer maintenance and support for such
packaged copies directly to the END USER under VISIGENIC's standard END USER
maintenance and support program.
(F) DOCUMENTATION. VISIGENIC will supply VAR with the VISIGENIC PRODUCTS
----------------
current commercially available end user documentation in electronic format, and
in paper format if available. VISIGENIC grants to VAR the right to reformat the
VISIGENIC PRODUCTS documentation and distribute such reformatted documentation
solely for use with the APPLICATION BUNDLE
- -----------
/1/ODBC is a trademark of Microsoft Corporation
VISIODBC Driver Set VAR Agreement
1
<PAGE>
3. PAYMENT AND OTHER OBLIGATIONS
-----------------------------
(A) INITIAL LICENSE FEE. VAR agrees to pay to VISIGENIC an INITIAL LICENSE
-------------------
FEE of $500, as set forth in Exhibit A, on or before the EFFECTIVE DATE. The
INITIAL LICENSE FEE is noncancellable and nonrefundable regardless of the number
of copies of the VISIODBC DRIVER SETS or the DB2 DRIVERS, if any, that are used
or distributed by VAR.
(B) ONE-TIME LICENSE FEE. VAR agrees to pay to VISIGENIC a ONE-TIME LICENSE
---------------------
FEE or $20,000, as set forth in Exhibit A, on or before the EFFECTIVE DATE.
The ONE-TIME LICENSE FEE is noncancellable and nonrefundable regardless of the
number of copies of the VISIODBC DRIVER SETS and/ or the DB2 DRIVERS, if any,
that are used or distributed by VAR.
(C) DEVELOPMENT SUPPORT FEE. VAR will pay a DEVELOPMENT SUPPORT FEE of
$2,500 on or before the EFFECTIVE DATE and on or before each anniversary of the
EFFECTIVE DATE. This DEVELOPMENT SUPPORT FEE may be changed by VISIGENIC by
notice to VAR prior to each such anniversary. DEVELOPMENT SUPPORT increases
during the initial term of the Agreement shall not total more than 10% of the
current DEVELOPMENT SUPPORT FEE.
(D) SUPPORT FEE FOR REMOTEWARE FOR NT RDK. VAR will pay a REMOTEWARE FOR NT
----------------------------------------
RDK SUPPORT FEE of $2,000 on or before the EFFECTIVE DATE and on or before each
anniversary of the EFFECTIVE DATE. The REMOTEWARE FOR NT RDK SUPPORT FEE
increases during the initial term of the Agreement shall not total more than 10%
of the current REMOTEWARE FOR NT RDK SUPPORT FEE
(E) QUARTERLY REPORTS. VAR agrees to make a quarterly report describing each
------------------
VAR shipment of one or more copies of any APPLICATION BUNDLE in any calendar
quarter, within fifteen (15) business days after the end of each such calendar
quarter, and fifteen (15) business days after termination or expiration of this
Agreement for the final full or partial quarter. Each report will include the
VISIGENIC PRODUCT shipped, the shipment date, the name of the APPLICATION
BUNDLE, the VISIGENIC list price, the quantity and the quantity list price,
followed by a computation of the ROYALTY due to VISIGENIC under Section 3(d).
Each such report will be in substantially the form of Exhibit C, and will be
signed by a duly authorized representative of VAR. VAR will submit quarterly
reports even if no ROYALTY or other amounts are due for such month.
(F) ROYALTY. VAR agrees to report and pay to VISIGENIC a monthly ROYALTY as
--------
part of the monthly report described in Section 3(e) above. The amount of the
ROYALTY will be computed based upon the number of new copies of the APPLICATION
BUNDLE shipped by VAR, multiplied by the VAR ROYALTY as is set forth in Exhibit
A for the VISIODBC DRIVER SET and the DB2 VISIODBC DRIVER packaged in
combination with such APPLICATION BUNDLE. The ROYALTY is not to be paid on -non-
revenue generating, (i) upgrades of existing copies to existing customers, (ii)
evaluation copies of the APPLICATION BUNDLE, (iii) copies of the APPLICATION
BUNDLE used for training purposes, (iv) demonstration copies of the APPLICATION
BUNDLE, (v) copies of the APPLICATION BUNDLE for VAR developers who are not
using Data Exchange Agent (DXA), (vi) non-revenue generating copies of the
APPLICATION BUNDLE that are distributed to VAR's partners, (vii) copies of the
APPLICATION BUNDLE where the VISIGENIC PRODUCT is not licensed in conjunction
with the APPLICATION BUNDLE but is on the CD that is shipped (such copies of the
VISIGENIC PRODUCT will not be accessible by the customer without a software key
requirement from VAR) , or (viii) disaster recovery, backup or test bed copies
of the APPLICATION BUNDLE. The ROYALTIES due will be net of normal customer
returns with pre-approval in writing from VISIGENIC. Any existing prepaid
ROYALTY balance may be credited by VAR against the ROYALTY due, but not against
the VOLUME SUPPORT FEE. All payments will be in U.S. dollars.
(G) VOLUME SUPPORT FEE. VAR agrees to pay to VISIGENIC a VOLUME SUPPORT FEE
-------------------
to be computed as provided in Exhibit A, such VOLUME SUPPORT FEE to be remitted
at the same time as the ROYALTY due. Any prepaid ROYALTY may not be credited
against the VOLUME SUPPORT FEE. The VOLUME SUPPORT FEE increases during the
initial term of the Agreement shall not total more than 10% of the current
VOLUME SUPPORT FEE
(H) TAXES. VAR will pay or reimburse all federal, state and local taxes
------
(exclusive of taxes on VISIGENIC's net income), duties and assessments arising
on or measured by amounts payable to VISIGENIC under this Agreement, or furnish
VISIGENIC with evidence acceptable to the taxing authority to sustain an
exemption therefrom.
(I) RECORDS; AUDITS. VAR agrees to keep all usual and proper records and
----------------
books of account and all usual and proper entries relating to each transaction
involving any APPLICATION BUNDLE. VISIGENIC may cause an audit and/or
inspection to be made of the applicable VAR records and facilities in order to
verify statements issued by VAR and VAR's compliance with the terms of this
Agreement. Within 30 days of notice by VISIGENIC to VAR of any error or
omission disclosed by such audit with sufficient explanatory materials, VAR will
make prompt adjustment and reimbursement to VISIGENIC of such error or omission.
Any such audit will be conducted by an independent certified public accountant
selected by VISIGENIC (other than on a contingent fee basis). Any audit and/or
inspection will be conducted no more than once per year during regular business
hours at VAR's facilities, with five (5) days written notice. VAR agrees to
provide VISIGENIC's designated audit or inspection team access to the relevant
VAR records and facilities. Any such audit will be paid for by VISIGENIC. VAR
will impose a similar audit requirement upon each DISTRIBUTOR or RESELLER, and
upon request by VISIGENIC will cause an audit to be conducted. VISIGENIC may
disclose the results of any audit conducted under this section to its suppliers.
(J) MARKETING EFFORTS. VAR will use its commercially reasonable efforts to
------------------
market the APPLICATION BUNDLE. All fees charged by VAR for the APPLICATION
BUNDLE will be at its sole discretion. Not withstanding the foregoing nothing
in this Agreement shall be construed to prevent VAR form developing, licensing,
or otherwise acquiring any software, even if such software is functionally
similar in whole or in part to any of the VISIGENIC PRODUCTS.
(K) SUPPORT OBLIGATIONS. VAR will be responsible for providing adequate
--------------------
support and maintenance of the APPLICATION BUNDLE to its DISTRIBUTORs and
RESELLERs, and VAR and its DISTRIBUTORs and RESELLERs will be responsible for
providing adequate support and maintenance of the APPLICATION BUNDLEs to END
USERs. VISIGENIC will provide VAR with Premium Support, as described in Exhibit
D, in consideration of VAR's maintenance payments under Sections 3(c),3(d) and
3(g). VISIGENIC will not be required to provide support or maintenance
directly to VAR's DISTRIBUTORs, RESELLERs or END USERs, unless they contract for
such support directly to VISIGENIC.
(L) USE OF SOFTWARE KEY MECHANISM. VISIGENIC will supply a software key
------------------------------
mechanism to VAR with which to bind the VISIODBC DRIVER SET to the VAR PRODUCTS
in each APPLICATION BUNDLE to prevent the VISIODBC DRIVER SET from being used by
non-licensed applications. VAR agrees to include this software key mechanism in
each copy of any APPLICATION BUNDLE distributed by VAR to its DISTRIBUTORs,
RESELLERs or END USERs.
4. PROPRIETARY RIGHTS
------------------
Except as expressly provided for in Section 2 of this Agreement, VISIGENIC
and/or its suppliers retain any and all right, title and interest in and to the
VISIGENIC PRODUCTS. This Agreement grants no additional express or implied
license, right or interest in any copyright, patent, trade secret, trademark,
invention or other intellectual property right of VISIGENIC. VAR receives no
rights to and will not sell, assign, lease, market, transfer, encumber or suffer
to exist any lien or security interest on any VISIGENIC PRODUCT, nor will VAR
knowingly take any action that would cause any VISIGENIC PRODUCT to be placed in
VISIODBC Driver Set VAR Agreement
2
<PAGE>
the public domain. VAR will not remove, or allow to be removed, any VISIGENIC
copyright, trade secret or other proprietary rights notice from any VISIGENIC
PRODUCT. VAR will display on the APPLICATION BUNDLE splash screen and in the
credits page of the APPLICTION BUNDLE documentation "Portions of this product
(C) 1994-1996 Visigenic Software, Inc. VAR will not make any warranties with
respect to any VISIGENIC PRODUCT beyond those made to VAR by VISIGENIC under
this Agreement, except warranties given by VAR applicable to the APPLICATION
BUNDLE. Should VAR's warranty(s) exceed those extended to VAR by VISIGENIC
pursuant to Section 7 hereunder, such warranties obligations will be the sole
responsibility of VAR and shall in no event extend VISIGENIC's obligations
beyond those defined in Section 7 hereunder.
5. CONFIDENTIAL INFORMATION
------------------------
(A) DEFINITION. Confidential information will include all confidential and
-----------
proprietary information of either party or any third party disclosed by one
party to the other, which in the case of written information is marked
"confidential" or "proprietary", and which in the case of information disclosed
orally, is identified at the time of the disclosure as confidential or
proprietary ("CONFIDENTIAL INFORMATION"). All oral disclosures of CONFIDENTIAL
INFORMATION will be summarized and confirmed as confidential or proprietary by
the disclosing party in writing within ten (10) business days of the disclosure.
(B) GENERAL NONDISCLOSURE OBLIGATIONS. Each party must hold the other party's
----------------------------------
CONFIDENTIAL INFORMATION in confidence, and use the same degree of care (but not
less than reasonable care) to safeguard such CONFIDENTIAL INFORMATION as the
party uses to protect its own CONFIDENTIAL INFORMATION. Each party agrees that
it has obtained or will obtain a written agreement with each employee or
contractor having access to any such CONFIDENTIAL INFORMATION, under which the
employee or contractor acknowledges the importance of protecting the
CONFIDENTIAL INFORMATION to which such individual may have access and agrees to
protect and not disclose the CONFIDENTIAL INFORMATION. CONFIDENTIAL INFORMATION
may only be used for exercising rights and fulfilling obligations under this
Agreement.
(C) EXCEPTIONS TO NONDISCLOSURE OBLIGATIONS. The obligations of this Section
----------------------------------------
5 do not apply to information which was in the recipient's rightful possession
without an obligation of confidentiality before receipt from the disclosing
party, or is or becomes a matter of public knowledge through no fault of the
recipient, or is rightfully received by the recipient from a third party without
a duty of confidentiality, or is independently developed by the recipient
without reliance on the CONFIDENTIAL INFORMATION, or is disclosed under
operation of law, or is disclosed by the disclosing party to third parties
habitually without restriction on subsequent disclosure. Either party may
disclose the name of the other party and the existence of this Agreement, but
not its terms, without the consent of the other party.
(D) INJUNCTIVE RELIEF. In the event of a breach of this Section 5 regarding
------------------
CONFIDENTIAL INFORMATION, money or damages will not be an adequate remedy, and
therefore, in addition to any other legal or equitable remedies, either party
will be entitled to seek an injunction or other equitable relief against such
breach.
6. INDEMNIFICATION
---------------
(A) VISIGENIC'S OBLIGATIONS. VISIGENIC will defend, indemnify and hold
------------------------
harmless VAR against any claim and all damages and losses including reasonable
attorney fees that the use of the VISIGENIC PRODUCTS under the terms of this
Agreement allegedly infringes any United States patent, trademark, or other
intellectual property right of any third party, or any copyright or trade secret
of any third party in any country of the world. VISIGENIC will have no
obligation hereunder for any claim of infringement based on (i) the use of a
superseded or altered release of the VISIGENIC PRODUCTS if such infringement
would have been avoided by the use of a current, unaltered release of the
VISIGENIC PRODUCTS, (ii) the combination or use of the VISIGENIC PRODUCTS with
software, hardware or other materials not furnished by VISIGENIC if such
infringement would have been avoided by the use of VISIGENIC PRODUCTS alone, or
(iii) the use of the VISIGENIC PRODUCTS other than as permitted under this
Agreement. In the event that the VISIGENIC PRODUCTS are held or are believed by
VISIGENIC to infringe, VISIGENIC shall have the option, at its expense, to: (i)
modify the VISIGENIC PRODUCTS to be noninfringing; (ii) obtain for VAR a license
to continue using the VISIGENIC PRODUCTS, or (iii) terminate this Agreement as
to the infringing VISIGENIC PRODUCTS and refund to VAR the fees paid under this
Agreement for such infringing VISIGENIC PRODUCTS. The foregoing states
VISIGENIC's entire liability and VAR's exclusive remedies for infringement of
intellectual property rights of any kind.
(B) INDEMNITY OBLIGATIONS. The parties agree to indemnify and defend each
----------------------
other from any and all claims, lawsuits or damages, including attorney's fees,
that the other party may suffer as a result of the failure of the other party to
abide by the terms of this Agreement. The indemnified party may participate in
any legal proceeding with counsel of its choice at its own expense
(C) CONDITIONS OF INDEMNITY. The foregoing indemnities are conditioned on
------------------------
prompt written notice of any claim, action or demand for which indemnity is
claimed; complete control of the defense and settlement thereof by the
indemnifying party, and cooperation of the other party in such defense.
7. WARRANTY
--------
(A) MEDIA. For 90 days from the date of shipment, VISIGENIC warrants that the
------
media on which any VISIGENIC PRODUCT is contained will be free from defects in
materials and workmanship. To obtain warranty service during the 90-day period,
VAR may return the VISIGENIC PRODUCT to VISIGENIC, postage prepaid, with a
description of the problem. The defective media on which the VISIGENIC PRODUCT
is contained will be replaced at no additional charge to VAR.
(B) NO OTHER WARRANTIES. OTHER THAN PREMIUM SUPPORT SERVICES PROVIDED
--------------------
PURSUANT TO EXHIBIT D FOR SO LONG AS VAR IS CURRENT WITH ITS SUPPORT FEES, THE
VISIGENIC PRODUCTS AND THE ACCOMPANYING WRITTEN MATERIALS ARE PROVIDED "AS IS"
WITHOUT EXPRESS OR IMPLIED WARRANTY OF ANY KIND. VISIGENIC FURTHER DISCLAIMS ALL
IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. VISIGENIC DOES NOT
WARRANT THAT THE VISIGENIC PRODUCTS WILL BE ERROR FREE OR WILL OPERATE WITHOUT
INTERRUPTION. THE ENTIRE RISK ARISING OUT OF THE USE OR PERFORMANCE OF THE
VISIGENIC PRODUCTS AND ACCOMPANYING WRITTEN MATERIALS REMAINS WITH VAR AND ITS
LICENSEES.
The VISIODBC DRIVER SET and the DB2 VISIODBC DRIVERS are not designed or
licensed for use in hazardous environments requiring fail-safe controls,
including without limitation operation of nuclear facilities, aircraft
navigation or communication systems, air traffic control, and life support or
weapons systems. Without limiting the generality of the foregoing, VISIGENIC
specifically disclaims any express or implied warranty of fitness for such
purposes.
(C) RIGHTS, POWER AND AUTHORITY. Each party warrants to the other party that
----------------------------
it has all necessary rights, power and authority to enter into this Agreement
and to grant the rights granted by such party under this Agreement.
8. LIMITATION OF LIABILITY
-----------------------
EXCEPT FOR THE OBLIGATIONS IN SECTIONS 4 PROPRIETARY RIGHTS, 5 CONFIDENTIAL
INFORMATION AND 6 INDEMNIFICATION, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR
ANY, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES ARISING
OUT OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO THE USE, INABILITY TO USE,
OR PERFORMANCE OF THE VISIGENIC PRODUCTS, INCLUDING WITHOUT LIMITATION DAMAGES
FOR LOSS OF BUSINESS PROFITS OR BUSINESS INTERRUPTION, BASED UPON PRINCIPLES OF
VISIODBC Driver Set VAR Agreement
3
<PAGE>
CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, BREACH OF ANY
STATUTORY DUTY, PRINCIPLES OF INDEMNITY OR CONTRIBUTION, EVEN IF THE OTHER PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9. TERM AND TERMINATION
--------------------
(A) TERM. The term of this Agreement will begin on the EFFECTIVE DATE and
-----
will end three (3) years following such EFFECTIVE DATE, unless terminated
earlier in accordance with the provisions hereof. It will thereafter be
automatically renewed for successive two (2) year terms, subject to the discount
schedule and terms and conditions in effect for the successive term, unless VAR
elects to terminate this Agreement by providing written notice of such
termination to VISIGENIC at least sixty (60) days prior to the expiration date
of the current term.
(B) TERMINATION FOR BREACH. Either party may terminate this Agreement by
-----------------------
written notice to the other party if the other party materially fails to perform
or observe any of its obligations under this Agreement and such failure is not
cured within thirty (30) days after written notice thereof from the terminating
party.
(C) BANKRUPTCY. Either party may terminate this Agreement immediately by
-----------
written notice to the other party if there occurs any assignment of the other
party's assets for the benefit of creditors, any dissolution of the other party,
any voluntary act of bankruptcy by the other party, or any involuntary filing
under any bankruptcy law against the other party which is not dismissed within
thirty (30) days of filing.
(D) EFFECT. Upon expiration or termination of this Agreement for any reason:
-------
(i) All licenses and other rights granted to VAR under this Agreement will
become null and void, except: (a) for the END USER licenses for any APPLICATION
BUNDLE previously distributed by VAR, or (b) for the limited license to VAR to
use the VISIGENIC PRODUCTS for the sole purpose of fulfilling any pre-existing
contractual obligations for maintenance and support services of the APPLICATION
BUNDLE to its END USERs.
(ii) VAR and its DISTRIBUTORs and RESELLERs will surrender all copies of the
VISIGENIC PRODUCTS in their possession or control, or, at VAR's option, they
will destroy and provide VISIGENIC with a certificate signed by an executive
officer attesting to the destruction of all copies of the VISIGENIC PRODUCTS
remaining in their possession or control.
(iii) Upon termination of this Agreement, all outstanding obligations or
commitments of either party to pay amounts to the other party, if any, will
become immediately due and payable.
(iv) Upon termination of this Agreement, neither party will have any right to
receive any compensation, reimbursement or other amounts from the other party
solely as a result of such termination, and neither party will have any right
whatsoever in or to the other party's software or any copyrighted materials,
patents, trade secrets, or other proprietary rights relating to the other
party's software, other than as provided for in this Section 9.
(v) Upon termination of this Agreement, either party can pursue its remedies
under this Agreement, whether at law or in equity, including without limitation
suing for damages and injunctive relief, and all other remedies available under
copyright, patent, trademark, trade secret, and other applicable laws and
administrative regulations.
(vi) Notwithstanding the foregoing, in the event of expiration or termination
except in the case of an uncured material breach by VAR of Section 3 (PAYMENT
AND OTHER OBLIGATIONS), Section 4 (PROPRIETARY RIGHTS), or Section 5
(CONFIDENTIAL INFORMATION), VISIGENIC agrees to permit VAR a period of six (6)
months ("REMOVAL PERIOD") from the date of termination to re-engineer its
products to remove the VISIODBC DRIVER SET and the DB2 VISIODBC DRIVERS from
such products. Until the earlier of (i) the expiration of the REMOVAL PERIOD or
(ii) the date VAR has removed the VISIODBC DRIVER SET and the DB2 VISIODBC
DRIVERS from its products, all licenses and rights to support, so long as VAR is
current with its support payment hereunder, granted under this Agreement will
remain in effect, subject to payment under Section 3.
10. GENERAL
-------
(A) GOVERNING LAW, COMPLETE AGREEMENT; MODIFICATIONS. This Agreement is
-------------------------------------------------
governed by the laws of the State of California and VAR further consents to
jurisdiction by the state and federal courts sitting in the State of California.
This Agreement and accompanying exhibit is the complete agreement between
VISIGENIC and VAR regarding the VISIGENIC PRODUCTS and supersedes any prior
agreements between VISIGENIC and VAR relating to the subject matter hereof.
This Agreement will not be modified except by a properly executed written
agreement. Any terms and conditions of any purchase order or other instrument
issued by VAR in connection with this Agreement which are in addition to,
inconsistent with or different from the terms and conditions of this Agreement
will be of no force or effect.
(B) ATTORNEYS' FEES. If either VISIGENIC or VAR employs attorneys to enforce
----------------
any rights arising out of or relating to this Agreement, the prevailing party
will be entitled to recover reasonable attorneys' fees.
(C) SURVIVAL. All provisions, except for Section 2, will survive termination
---------
of this Agreement for any reason.
(D) ASSIGNMENT AND BINDING EFFECT. VAR may not assign this Agreement or the
------------------------------
license granted hereunder and any attempt to do so will be void except to a
subsidiary or pursuant to a merger or reorganization or sale of its assets. VAR
agrees that this Agreement binds VAR and each of its employees, agents,
representatives and persons associated with it and them.
(E) NOTICES. Any notice required to be sent to a party under this Agreement
--------
will be in writing, effective on receipt by that party, and will be sent by fax,
first-class mail or personal delivery to the Address for Notice given for that
party below. Either party may change its notice address by giving written
notice to the other party at the other party's notice address.
(F) WAIVER AND SEVERABILITY. The waiver of one breach or default under this
------------------------
Agreement will not constitute the waiver of any subsequent breach or default.
Any provision of this Agreement held to be illegal or unenforceable will be
deemed amended to conform to applicable laws or regulations, or if it cannot be
so amended without materially altering the intention of the parties, it will be
stricken and the remainder of this Agreement will continue in full force and
effect.
(G) INDEPENDENT CONTRACTORS. The parties will at all times be independent
------------------------
contractors and will so represent themselves to all third parties. Neither
party has granted to the other the right to bind it in any manner whatsoever and
nothing herein will be deemed to constitute either party the agent or legal
representative of the other nor to constitute the parties as joint venturers.
(H) EXCUSABLE DELAYS. Neither party will be responsible for failure of
-----------------
performance due to causes beyond its control. Such causes include (without
limitation) accidents, acts of God, labor disputes, actions of any government
agency and shortage of materials.
(I) EXPORT. VAR will not export or transfer, whether directly or indirectly,
-------
the VISIGENIC PRODUCTS or any portion thereof without first obtaining any
required license from the appropriate agency of the United States government.
If at any time VISIGENIC reasonably determines the laws of any country are or
will become insufficient to protect VISIGENIC's rights in the VISIGENIC
PRODUCTS, VISIGENIC reserves the right to restrict VAR and its DISTRIBUTORs' and
RESELLERs' rights to further distribute the VISIGENIC PRODUCTS in that country
with 30 days prior written notice.
(J) GOVERNMENT USE. VAR will not distribute all or any part of the VISIGENIC
---------------
PRODUCTS or documentation to any agency of the U.S. government without attaching
the appropriate legend to indicate that the VISIGENIC PRODUCTS is provided with
VISIODBC Driver Set VAR Agreement
4
<PAGE>
"Restricted Rights" and that its use, duplication or disclosure is governed by
DFARS 252.227-7013 (c)(1)(ii) or FAR 52.227-19, as applicable.
(K) ESCROW. VISIGENIC has an existing source code escrow agreement with
------
SourceFile, Inc. under which VISIGENIC has deposited those VISIODBC drivers for
which it has sufficient source code rights (i.e., the Oracle, Informix, Sybase
and Ingres drivers), but not including VISIODBC drivers acquired from a third
party without such rights, including but not limited to the DB2 VISIODBC driver
Visigenic agrees to make VAR a beneficiary of this source code escrow so that
the relevant VISIODBC driver(s) will be released to VAR under certain conditions
in the event that VISIGENIC is unable or unwilling to support or maintain such
VISIODBC drivers in breach of this Agreement. Any source code released to VAR
will be CONFIDENTIAL INFORMATION under this Agreement. Such source code may
only be used by VAR for support and maintenance of its customers within the
scope of this Agreement. VAR will promptly deliver to VISIGENIC copies of all
modifications made to the source code by VAR, and VISIGENIC will own such
modifications, subject to a license under this Agreement to VAR of the same
scope as that for the VISIGENIC PRODUCTS.
IN WITNESS WHEREOF, VISIGENIC and VAR have caused this Agreement to be entered
into by their duly authorized representatives as of the EFFECTIVE DATE written
below:
VISIODBC Driver Set VAR Agreement
5
<PAGE>
VAR
XCELLENET, INC.
/s/ Jeanne N. Bateman
- -----------------------------
By
Jeanne N. Bateman
- -----------------------------
Name (Print)
Vice President--Finance
- -----------------------------
Title
Address for Notice:
Xcellenet, Inc.
Attn.: Chief Financial Officer,
Contract Services Manager,
RemoteWare Product Manage
5 Concourse Pkwy, Suite 850
Atlanta, GA 30328
Phone: 770-804-8100
Fax: 770-804-8102
EFFECTIVE DATE OF THIS AGREEMENT:
---------------------
VISIGENIC SOFTWARE, INC.
/s/ Mark D. Hanson
- -------------------------------
By
Mark D. Hanson
- -------------------------------
Name (Print)
President
- ------------------------------
Title
Address for Notice:
Visigenic Software, Inc.
Attn.: Legal Counsel
951 Mariner's Island Blvd., Suite 460
San Mateo, CA 94404
Phone: (415) 286-1900
Fax: (415) 286-2464
VISIODBC Driver Set VAR Agreement
6
<PAGE>
EXHIBIT A
ADDITIONAL TERMS AND CONDITIONS
1. VAR PRODUCT(S) PERMITTED TO BE PACKAGED IN COMBINATION WITH THE VISIODBC
DRIVER SET AND OR THE DB2 VISIODBC DRIVER AS AN APPLICATION BUNDLE:
RemoteWare for NT Client.
RemoteWare for NT RDK (VAR's Software Developers Kit)
RemoteWare for NT Server
2. INITIAL LICENSE FEE: The INITIAL LICENSE FEE will be $500, in consideration
for which VAR will be entitled to a total of 3 copies of the VISIODBC Driver
Set. VAR may select the 3 copies from (i) the VISIODBC Driver Set for
Windows 3.1, (ii) the VISIODBC Driver Set for Windows NT, or (iii) the
VISIODBC Driver Set for Windows 95. The 3 copies of the VISIODBC Driver Set
are for internal development purposes only.
3. ONE-TIME LICENSE FEE: The ONE-TIME LICENSE FEE OF $20,000 in consideration
for which VAR may distribute unlimited copies of the VISIODBC Driver Set and
the DB2 VISIODBC Driver for NT as part of the Application Bundle known as
RemoteWare for NT RDK.
4. DEVELOPMENT SUPPORT FEE: The DEVELOPMENT SUPPORT FEE will be $2,500 per
year.
5. REMOTEWARE FOR NT RDK SUPPORT FEE: The REMOTEWARE FOR NT RDK SUPPORT FEE
will be $2,000 per year.
6. VOLUME SUPPORT FEE: The VOLUME SUPPORT FEE will be 10% annually of the
cumulative ROYALTIES paid by VAR to VISIGENIC under this Agreement.
7. VAR ROYALTIES: VAR will pay to Visigenic: (i) $200 per copy of the VISIODBC
Driver Set for NT; or (ii) $300 per copy of the VISIODBC Driver Set for NT
and the DB2 VISIODBC Driver; licensed as part of the RemoteWare for NT
Server Application Bundle pursuant to Sections 3(e) and (f) of this
Agreement.
8. PAYMENT DUE ON THE EFFECTIVE DATE:
3 x copies of the VISIODBC Driver Set for NT $ 500
One-Time License Fee for RemoteWare for NT RDK $20,000
Development Support Fee $ 2,500
RemotWare for NT RDK Support Fee $ 2,000
-------
Total Due on Effective Date $25,000
=======
9. VAR EXISTING INSTALL BASE UPGRADE OPTION:
VAR shall have the option, at VAR's sole discretion, of paying to VISIGENIC
on or before February 15, 1997, a one time fixed fee, in consideration for
which VAR shall have the right to upgrade VAR's existing RemoteWare Server
installed base to the standard VISIODBC Driver Set. The one-time fixed fee
will be equal to $30 times the number of estimated VISIODBC Driver Sets to be
upgraded. VAR may distribute up to a maximum of the number of licenses
estimated to calculate the one time fixed fee. (see example below) Subsequent
upgrades if any will be at the Royalty Fee set forth in item 7 above. VAR may
only distribute these copies of the VISIODBC Driver Set to those existing
RemoteWare Server installed base customers that are on VAR's software
maintenance plan.
EXAMPLE:
--------
<TABLE>
<CAPTION>
Price Per VISIODBC Driver Set VAR's Estimate of the VISIODBC One-Time Fixed Fee
----------------------------- Driver Sets to be Used for Upgrades ------------------
-----------------------------------
<S> <C> <C>
$30 400/(1)/ $12,000
</TABLE>
/(1)/ Maximum number of upgrades allowed.
VISIODBC Driver Set VAR Agreement
7
<PAGE>
EXHIBIT B
TERMS REQUIRED IN END USER SUBLICENSE AGREEMENT
The parties agree that each sublicense agreement between VAR (or any VAR
RESELLER) and any END USER will contain at a minimum all of the following
provisions, and will conform to generally accepted industry standards for such
sublicense agreements:
1. The VAR PRODUCT is licensed, not sold. Title does not pass to the END USER.
There is no implied license, right or interest granted in any copyright,
patent, trade secret, trademark, invention or other intellectual property
right. The END USER will not make any copies of the VAR PRODUCT except as
required for archival or backup purposes.
2. The END USER only obtains a nonexclusive license to use the object code
version of the VAR PRODUCT in the TERRITORY. The END USER will not decompile,
disassemble or otherwise reverse engineer the VAR PRODUCT.
3. The END USER may appoint one individual ("Designated User") within
its organization to use the SOFTWARE for each license the END USER acquires.
The total number of Designated Users may not exceed the number of licenses
acquired. Only Designated Users for whom the licenses have been acquired may
use the SOFTWARE. Only Designated Users may make copies of the SOFTWARE for
their backup purposes. Only Designated Users may access the SOFTWARE over a
network.
4. The END USER will not transfer or license the use of all or any portion
of the VAR PRODUCT to any third party or entity.
5. THE VAR PRODUCT IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND. THE
ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF THE VAR PRODUCT OR
MODIFICATIONS OF THE VAR PRODUCT IS ASSUMED BY END USER. VAR AND ITS SUPPLIERS
DISCLAIM ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED
TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
WITH RESPECT TO THE VAR PRODUCT.
6. IN NO EVENT WILL VAR OR ITS SUPPLIERS BE LIABLE FOR ANY DIRECT, INDIRECT,
CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES ARISING OUT OF THE USE,
INABILITY TO USE, OR PERFORMANCE OF THE VAR PRODUCT, INCLUDING WITHOUT
LIMITATION DAMAGES FOR LOSS OF BUSINESS PROFITS OR BUSINESS INTERRUPTION, BASED
UPON PRINCIPLES OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER
TORT, BREACH OF ANY STATUTORY DUTY, PRINCIPLES OF INDEMNITY OR CONTRIBUTION,
EVEN IF VAR OR ITS SUPPLIERS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. NOTWITHSTANDING THE FOREGOING, VAR'S AND ITS SUPPLIERS' CUMULATIVE
LIABILITY WILL NOT EXCEED THE AMOUNT THAT VAR HAS RECEIVED FROM END USER AS OF
THE DATE THE CAUSE OF ACTION ARISES OR SHOULD REASONABLY HAVE BEEN DISCOVERED.
7. The VAR PRODUCT is not designed or licensed for use in hazardous
environments requiring fail-safe controls, including without limitation
operation of nuclear facilities, aircraft navigation or communication systems,
air traffic control, and life support or weapons systems. VAR specifically
disclaims any express or implied warranty of fitness for such purposes.
8. The VAR PRODUCT and documentation are provided with RESTRICTED RIGHTS. Use,
duplication or disclosure by the Government is subject to restrictions as set
forth in subparagraph (c)(1)(ii) of The Rights in Technical Data and Computer
Software clause at DFARS 252.227-7013 or subparagraphs (c)(1) and (2) of the
Commercial Computer Software -- Restricted Rights clause at 48 CFR 52.227-19,
as applicable. Manufacturer is VAR, (address).
VISIODBC Driver Set VAR Agreement
8
<PAGE>
EXHIBIT C
SAMPLE QUARTERLY ROYALTY REPORT
QUARTER ENDING ____________________, 199__
<TABLE>
<CAPTION>
VISIGENIC PRODUCT NAME OF OS VISIGENIC QTY ROYALTY AMT.
APPLICATION BUNDLE ROYALTY AMT.
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Base RW Server NT NT $200 500 $100,000
- --------------------------------------------------------------------------------------
DB2 RW Server NT NT $300 250 $ 75,000
- --------------------------------------------------------------------------------------
</TABLE>
- ----------------------------------
VAR Name
- ----------------------------------
By
- ----------------------------------
Name
- ----------------------------------
Title
- ------------------- -----------
Date Phone
Include a check for the Volume Support Fee and any ROYALTIES due.
<TABLE>
<CAPTION>
<S> <C>
Current ROYALTY Due:............ 1)$175,000
Previous Cumulative Royalties:.. 2)$100,000
(line 3 from last quarter)
Current Cumulative Royalties:... 3)$275,000
(line 1 plus line 2)
Volume Support Fee:............. 4)$6,872.25
(0.02499 times line 3)
TOTAL AMOUNT DUE:............... 5)$181,872.25
(LINE 1 PLUS LINE 4) -----------
</TABLE>
VISIODBC Driver Set VAR Agreement
9
<PAGE>
EXHIBIT D
PREMIUM SUPPORT SERVICES
A. In consideration of the fees to be paid under this Agreement, VISIGENIC will
provide VAR with ongoing technical support and maintenance of the current
version and one version back of the VISIGENIC PRODUCTS. All technical
support and maintenance will be provided through VARS's internal development
organization. VISIGENIC will not be required to provided support to VAR's
customer support organization or to VAR's customers directly. VISIGENIC
agrees to maintain such number of qualified personnel as is necessary to
provide timely and knowledgeable maintenance and support service.
Maintenance and support will include, but not be limited to:
1. Receiving defect reports and fixing defects or providing
workarounds;
2. Maintaining a telephone number for VAR to call during normal
business hours to report problems and receive assistance;
3. Providing prompt communication and assistance to VAR in the
event VISIGENIC determines a problem is related to hardware or VAR
software products;
4. Providing Maintenance Releases and instructions for
implementation;
5. Providing a designated, knowledgeable support contact for
providing technical support, who may be changed by written notice.
6. VISIGENIC will deliver to VAR any Maintenance Release as
they become generally commercially available, within 30 business days
of VISIGENIC's first customer ship of the release.
7. VISIGENIC will deliver to VAR updated VISIGENIC PRODUCT
documentation as it becomes generally commercially available.
B. VAR will be responsible for primary contact with its customers in any
country in which the VISIGENIC PRODUCTS are marketed. VAR will receive
Program Defect reports and inquiries from its customers and, if VAR is
unable to resolve such inquires, forward such reports to VISIGENIC for
resolution. VAR will use all reasonable efforts but is not obligated to
provide a Reproducible Test Case with each such report, and the failure to
do so will not relieve VISIGENIC of its obligations under this paragraph.
VISIGENIC agrees to use all reasonable efforts in taking appropriate
corrective action on any Program Defect report it receives and in accordance
with the schedule below and provide VAR with the necessary data or software
to allow VAR to sublicense the solution to its customers in the form
permitted for that type of customer under this Agreement. Error
classification will initially be determined by VAR. If VISIGENIC disagrees
with VAR's initial classification, then the parties will agree in good faith
on an error classification.
<TABLE>
<CAPTION>
Error Error Initial Full Working Resolution
- ----------------- ------------------ ----------------- ------------------------------------------
Level Classification Response Time Response Time
- ----------------- ------------------ ----------------- ------------------------------------------
<S> <C> <C> <C>
1 Critical 1 day Continuous effort during normal business
hours workaround with a permanent fix
within 60 days
2 Severe 2 days 60 days or the next scheduled
maintenance release, whichever comes first
3 Medium 3 days Next scheduled maintenance release or
as agreed
4 Low 3 days Next major release or as agreed
</TABLE>
VISIODBC Driver Set VAR Agreement
10
<PAGE>
Note: Initial Response Time is the time for a return call from
VISIGENIC to VAR to acknowledge the defect and to estimate the time
delivery for the Full Working Resolution (patch, work around). All
days and hours are business days and hours.
Full Working Resolution: the documented fix (program patch, work
around, etc.) that restores full functionality to the customer.
Critical: The customer experiences real or perceived data loss or
corruption or an essential part of the system is unusable for the
customer. Unusable means that customers can't or won't use an
essential part of the system because of its design or a defect.
Essential parts of the system are those that customers need to use the
system effectively.
Severe: The customer's effectiveness is severely compromised for an
essential part of the system although all essential parts of the system
can be used. This can be measured by comparison to customer's
expectations, previous products, previous releases of the same product
or quality objectives established for the product or system.
Effectiveness refers to the customer's productivity and satisfaction
with the work process provided by the system. Satisfaction with the
work process includes concerns such as unpleasant or frustrating
processes that affect the system's fitness for use.
Medium: The customers effectiveness is compromised, though not
severely. All essential parts of the system can be used. This
classification is appropriate for all parts of the system, essential or
otherwise.
Low: The customer can circumvent the problem and use the system with
only slight inconvenience.
MAINTENANCE RELEASES (DEFINITIONS)
MAJOR RELEASES. Major releases occur approximately on a yearly basis,
and include bug fixes, additional functionality and new features.
MINOR RELEASES: Minor releases occur approximately every 4-6 months,
and include cumulative bug fixes from incremental releases and minor
enhancements.
INCREMENTAL RELEASES: Incremental releases occur as necessary to
correct major defects, and are shipped upon request.
Product releases are identified by way of a three-part number of the
following form:
XX.YY.[ZZZZ], where
XX - major release number, may be one or two digits each
YY = minor release number, may be one or two digits each
ZZZZ = incremental release number and is optionally used, may be zero
to four digits
In general usage, such as in product documentation, only the major and
minor fields are typically used.
"Program Defect" means a deviation between program behavior and program
documentation which deviation is reproducible.
"Reproducible Test Case" means a small code sample, usually less than
100 lines, that demonstrates the specific syntax that causes the
Program Defect. The code sample must demonstrate the inconsistencies
with the documentation.
VISIODBC Driver Set VAR Agreement
11
<PAGE>
EXHIBIT 10.24
XCELLENET, INC.
1996 LONG-TERM INCENTIVE PLAN
ARTICLE I
PURPOSE
1.1 GENERAL. The purpose of the XcelleNet, Inc. 1996 Long-Term Incentive
-------
Plan (the "Plan") is to promote the success, and enhance the value, of
XcelleNet, Inc. (the "Company"), by linking the personal interests of its
employees, officers and directors to those of Company shareholders and by
providing its employees, officers and directors with an incentive for
outstanding performance. The Plan is further intended to provide flexibility to
the Company in its ability to motivate, attract, and retain the services of
employees, officers and directors upon whose judgment, interest, and special
effort the successful conduct of the Company's operation is largely dependent.
Accordingly, the Plan permits the grant of incentive awards from time to time to
selected employees, officers and directors.
ARTICLE 2
EFFECTIVE DATE
2.1 EFFECTIVE DATE. The Plan shall be effective as of the date upon which
--------------
it shall be approved by the Compensation and Stock Option Committee of the
Board. However, the Plan shall be submitted to the Board for approval, and the
Plan shall be submitted to the shareholders of the Company for approval within
12 months of the Board's approval thereof. No Incentive Stock Options granted
under the Plan may be exercised prior to approval of the Plan by the
shareholders and if the shareholders fail to approve the Plan within 12 months
of the Board's approval thereof, any Incentive Stock Options previously granted
hereunder shall be automatically converted to Non-Qualified Stock Options
without any further act. In the discretion of the Committee, Awards may be made
to Covered Employees which are intended to satisfy the conditions for
deductibility under Code Section 162(m). Any such Awards shall be contingent
upon the shareholders having approved the Plan.
ARTICLE 3
DEFINITIONS
3.1 DEFINITIONS. When a word or phrase appears in this Plan with the
-----------
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Section 1.1 unless a clearly different meaning is required by the
context. The following words and phrases shall have the following meanings:
(a) "Award" means any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Share Award, Dividend Equivalent Award, or Other
<PAGE>
Stock-Based Award, or any other right or interest relating to Stock or
cash, granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Committee" means the committee of the Board described in
Article 4.
(f) "Company" means XcelleNet, Inc., a Georgia corporation.
(g) "Covered Employee" means an individual defined in Code Section
162(m)(3).
(h) "Disability" shall mean any illness or other physical or mental
condition of a Participant that renders the Participant incapable of
performing his customary and usual duties for the Company, or any medically
determinable illness or other physical or mental condition resulting from a
bodily injury, disease or mental disorder which, in the judgment of the
Committee, is permanent and continuous in nature. The Committee may
require such medical or other evidence as it deems necessary to judge the
nature and permanency of the Participant's condition.
(i) "Dividend Equivalent" means a right granted to a Participant under
Article 11.
(j) "Effective Date" has the meaning assigned such term in
Section 2.1.
(k) "Fair Market Value", on any date, means (i) if the Stock is not
traded on the applicable date on a national stock exchange, the closing
price for the Stock as reported on the Nasdaq National Market for that date
or, if no closing price is so reported for that date, the closing price on
the next preceding date for which a closing price was reported; or (ii) if
the Stock is traded on the applicable date on a national stock exchange,
the closing price on such date of a share of Stock as traded on the largest
stock exchange on which it is then traded or, if no shares were traded on
such date, on the next preceding day on which shares were traded on such
exchange, as reported by National Quotation Bureau, Inc., or other national
quotation service. If at any time the Stock is not traded on an exchange
or in the over-the-counter market, Fair Market Value shall be the value
-2-
<PAGE>
determined by the Board or the Committee, taking into consideration those
factors affecting or reflecting value which they deem appropriate.
(l) "Incentive Stock Option" means an Option that is intended to meet
the requirements of Section 422 of the Code or any successor provision
thereto.
(m) "Non-Qualified Stock Option" means an Option that is not an
Incentive Stock Option.
(n) "Option" means a right granted to a Participant under Article 7 of
the Plan to purchase Stock at a specified price during specified time
periods. An Option may be either an Incentive Stock Option or a Non-
Qualified Stock Option.
(o) "Other Stock-Based Award" means a right, granted to a Participant
under Article 12, that relates to or is valued by reference to Stock or
other Awards relating to Stock.
(p) "Participant" means a person who, as an employee, officer or
director of the Company or any Subsidiary, has been granted an Award under
the Plan.
(q) "Performance Share" means a right granted to a Participant under
Article 9, to receive cash, Stock, or other Awards, the payment of which is
contingent upon achieving certain performance goals established by the
Committee.
(r) "Plan" means the XcelleNet, Inc. 1996 Long-Term Incentive Plan, as
amended from time to time.
(s) "Restricted Stock Award" means Stock granted to a Participant
under Article 10 that is subject to certain restrictions and to risk of
forfeiture.
(t) "Retirement" means a Participant's termination of employment with
the Company after attaining any normal or early retirement age specified in
any pension, profit sharing or other retirement program sponsored by the
Company, or, in the event of the inapplicability thereof with respect to
the person in question, as determined by the Committee in its reasonable
judgment.
(u) "Stock" means the $.01 par value common stock of the Company and
such other securities of the Company as may be substituted for Stock
pursuant to Article 14.
(v) "Stock Appreciation Right" or "SAR" means a right granted to a
Participant under Article 8 to receive a payment equal to the difference
-3-
<PAGE>
between the Fair Market Value of a share of Stock as of the date of
exercise of the SAR over the grant price of the SAR, all as determined
pursuant to Article 8.
(w) "Subsidiary" means any corporation, limited liability company,
partnership or other entity of which a majority of the outstanding voting
stock or voting power is beneficially owned directly or indirectly by the
Company.
(x) "1933 Act" means the Securities Act of 1933, as amended from time
to time.
(y) "1934 Act" means the Securities Exchange Act of 1934, as amended
from time to time.
ARTICLE 4
ADMINISTRATION
4.1 COMMITTEE. The Plan shall be administered by the Compensation and
---------
Stock Option Committee of the Board or, at the discretion of the Board from time
to time, by the Board. The Committee shall consist of two or more members of
the Board who are (i) "outside directors" as that term is used in Section 162 of
the Code and the regulations promulgated thereunder, and (ii) "non-employee
directors" as such term is defined in Rule 16b-3 promulgated under Section 16 of
the 1934 Act or any successor provision. During any time that the Board is
acting as administrator of the Plan, it shall have all the powers of the
Committee hereunder, and any reference herein to the Committee (other than in
this Section 4.1) shall include the Board.
4.2 ACTION BY THE COMMITTEE. For purposes of administering the Plan, the
-----------------------
following rules of procedure shall govern the Committee. A majority of the
Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved
unanimously in writing by the Committee members in lieu of a meeting, shall be
deemed the acts of the Committee. Each member of the Committee is entitled to,
in good faith, rely or act upon any report or other information furnished to
that member by any officer or other employee of the Company or any Subsidiary,
the Company's independent certified public accountants, or any executive
compensation consultant or other professional retained by the Company to assist
in the administration of the Plan.
4.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power,
----------------------
authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted to each
Participant;
-4-
<PAGE>
(c) Determine the number of Awards to be granted and the number of
shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under the
Plan, including but not limited to, the exercise price, grant price, or
purchase price, any restrictions or limitations on the Award, any schedule
for lapse of forfeiture restrictions or restrictions on the exercisability
of an Award, and accelerations or waivers thereof, based in each case on
such considerations as the Committee in its sole discretion determines;
(e) Determine whether, to what extent, and under what circumstances an
Award may be settled in, or the exercise price of an Award may be paid in,
cash, Stock, other Awards, or other property, or an Award may be canceled,
forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(g) Decide all other matters that must be determined in connection
with an Award;
(h) Make all other decisions and determinations that may be required
under the Plan or as the Committee deems necessary or advisable to
administer the Plan.
4.4. DECISIONS BINDING. The Committee's interpretation of the Plan, any
-----------------
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES. Subject to adjustment as provided in Section 14.1,
----------------
the aggregate number of shares of Stock reserved and available for Awards or
which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right or Performance Share
Award) shall be 3,000,000.
5.2. LAPSED AWARDS. To the extent that an Award is canceled, terminates,
-------------
expires or lapses for any reason, any shares of Stock subject to the Award will
again be available for the grant of an Award under the Plan and shares subject
to SARs or other Awards settled in cash will be available for the grant of an
Award under the Plan.
-5-
<PAGE>
5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may
-----------------
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4. LIMITATION ON AWARDS. Notwithstanding any provision in the Plan to
--------------------
the contrary, the maximum number of shares of Stock with respect to one or more
Options and/or SARs that may be granted during any one calendar year under the
Plan to any one Covered Employee shall be 200,000. The maximum fair market
value of any Awards (other than Options and SARs) that may be received by a
Covered Employee (less any consideration paid by the Participant for such Award)
during any one calendar year under the Plan shall be $3,000,000. The aggregate
maximum fair market value of all Awards that may be received by a Covered
Employee (less any consideration paid by the Participant for such Award) during
any one calendar year under the Plan shall be $4,000,000. For Options and/or
SARS, such fair market value shall the Fair Market Value on the date of grant
times the number of Options and/or SARs awarded.
ARTICLE 6
ELIGIBILITY
6.1. GENERAL. Awards may be granted only to individuals who are employees,
-------
officers or directors of the Company or a Subsidiary.
ARTICLE 7
STOCK OPTIONS
7.1. GENERAL. The Committee is authorized to grant Options to Participants
-------
on the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of Stock under an
--------------
Option shall be determined by the Committee.
(b) TIME AND CONDITIONS OF EXERCISE. The Committee shall determine
-------------------------------
the time or times at which an Option may be exercised in whole or in part.
The Committee also shall determine the performance or other conditions, if
any, that must be satisfied before all or part of an Option may be
exercised. The Committee may waive any exercise provisions at any time in
whole or in part based factors as the Committee may determine in its sole
discretion so that the Option becomes exerciseable at an earlier date.
(c) PAYMENT. The Committee shall determine the methods by which the
-------
exercise price of an Option may be paid, the form of payment, including,
without limitation, cash, shares of Stock, or other property (including
"cashless exercise" arrangements), and the methods by which shares of Stock
shall be delivered or deemed to be delivered to Participants. Without
limiting the power and discretion conferred on the Committee pursuant to
-6-
<PAGE>
the preceding sentence, the Committee may, in the exercise of its
discretion, but need not, allow a Participant to pay the Option price by
directing the Company to withhold from the shares of Stock that would
otherwise be issued upon exercise of the Option that number of shares
having a Fair Market Value on the exercise date equal to the Option price,
all as determined pursuant to rules and procedures established by the
Committee.
(d) EVIDENCE OF GRANT. All Options shall be evidenced by a written
-----------------
Award Agreement between the Company and the Participant. The Award
Agreement shall include such provisions as may be specified by the
Committee.
7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options
-----------------------
granted under the Plan must comply with the following additional rules:
(a) EXERCISE PRICE. The exercise price per share of Stock shall be
--------------
set by the Committee, provided that the exercise price for any Incentive
Stock Option shall not be less than the Fair Market Value as of the date of
the grant.
(b) EXERCISE. In no event may any Incentive Stock Option be
--------
exercisable for more than ten years from the date of its grant.
(c) LAPSE OF OPTION. An Incentive Stock Option shall lapse under the
---------------
following circumstances:
(1) The Incentive Stock Option shall lapse ten years after it is
granted, unless an earlier time is set in the Award Agreement.
(2) The Incentive Stock Option shall lapse no later than three
months after the Participant's termination of employment for any
reason other than the Participant's death or Disability.
(3) If the Participant's employment terminates by reason of
Disability, the Incentive Stock Option shall lapse one year after the
date of the Participant's termination of employment.
(4) If the Participant dies before the Option lapses pursuant to
paragraph (1), (2) or (3), above, the Incentive Stock Option shall
lapse, unless it is previously exercised, on the earlier of (i) the
date on which the Option would have lapsed had the Participant lived
and had his employment status (i.e., whether the Participant was
employed by the Company on the date of his death or had previously
terminated employment) remained unchanged; or (ii) one year after the
date of the Participant's death. Upon the Participant's death, any
exercisable Incentive Stock Options may be exercised by the
Participant's legal representative or representatives, by the person
or persons entitled to do so under the Participant's last will and
-7-
<PAGE>
testament, or, if the Participant shall fail to make testamentary
disposition of such Incentive Stock Option or shall die intestate, by
the person or persons entitled to receive such Incentive Stock Option
under the applicable laws of descent and distribution.
(d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair Market Value
----------------------------
(determined as of the time an Award is made) of all shares of Stock with
respect to which Incentive Stock Options are first exercisable by a
Participant in any calendar year may not exceed $100,000.00.
(e) TEN PERCENT OWNERS. No Incentive Stock Option shall be granted to
------------------
any individual who, at the date of grant, owns stock possessing more than
ten percent of the total combined voting power of all classes of stock of
the Company or any Subsidiary unless the exercise price per share of such
Option is at least 110% of the Fair Market Value per share of Stock at the
date of grant and the Option expires no later than five years after the
date of grant.
(f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of an Incentive
-------------------------------------
Stock Option may be made pursuant to the Plan after the day immediately
prior to the tenth anniversary of the Effective Date.
(g) RIGHT TO EXERCISE. During a Participant's lifetime, an Incentive
-----------------
Stock Option may be exercised only by the Participant or, in the case of
the Participant's Disability, by the Participant's guardian or legal
representative.
(h) DIRECTORS. The Committee may not grant an Incentive Stock Option
---------
to a non-employee director. The Committee may grant an Incentive Stock
Option to a director who is also an employee of the Company or Subsidiary
but only in that individual's position as an employee and not as a
director.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1. GRANT OF SARs. The Committee is authorized to grant SARs to
-------------
Participants on the following terms and conditions:
(a) RIGHT TO PAYMENT. Upon the exercise of a Stock Appreciation
----------------
Right, the Participant to whom it is granted has the right to receive the
excess, if any, of:
(1) The Fair Market Value of one share of Stock on the date of
exercise; over
(2) The grant price of the Stock Appreciation Right as determined
by the Committee, which shall not be less than the Fair Market Value of
-8-
<PAGE>
one share of Stock on the date of grant in the case of any SAR related
to an Incentive Stock Option.
(b) OTHER TERMS. All awards of Stock Appreciation Rights shall be
-----------
evidenced by an Award Agreement. The terms, methods of exercise, methods
of settlement, form of consideration payable in settlement, and any other
terms and conditions of any Stock Appreciation Right shall be determined by
the Committee at the time of the grant of the Award and shall be reflected
in the Award Agreement.
ARTICLE 9
PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant
---------------------------
Performance Shares to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Shares granted to each Participant. All
Awards of Performance Shares shall be evidenced by an Award Agreement.
9.2. RIGHT TO PAYMENT. A grant of Performance Shares gives the Participant
----------------
rights, valued as determined by the Committee, and payable to, or exercisable
by, the Participant to whom the Performance Shares are granted, in whole or in
part, as the Committee shall establish at grant or thereafter. The Committee
shall set performance goals and other terms or conditions to payment of the
Performance Shares in its discretion which, depending on the extent to which
they are met, will determine the number and value of Performance Shares that
will be paid to the Participant.
9.3. OTHER TERMS. Performance Shares may be payable in cash, Stock, or
-----------
other property, and have such other terms and conditions as determined by the
Committee and reflected in the Award Agreement.
ARTICLE 10
RESTRICTED STOCK AWARDS
10.1. GRANT OF RESTRICTED STOCK. The Committee is authorized to make
-------------------------
Awards of Restricted Stock to Participants in such amounts and subject to such
terms and conditions as may be selected by the Committee. All Awards of
Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.
10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to
-------------------------
such restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, upon the satisfaction of performance
-9-
<PAGE>
goals or otherwise, as the Committee determines at the time of the grant of the
Award or thereafter.
10.3. FORFEITURE. Except as otherwise determined by the Committee at the
----------
time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period or upon failure to satisfy a
performance goal during the applicable restriction period, Restricted Stock that
is at that time subject to restrictions shall be forfeited and reacquired by the
Company; provided, however, that the Committee may provide in any Award
Agreement that restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of terminations resulting
from specified causes, and the Committee may in other cases waive in whole or in
part restrictions or forfeiture conditions relating to Restricted Stock.
10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under
---------------------------------
the Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock.
ARTICLE 11
DIVIDEND EQUIVALENTS
11.1 GRANT OF DIVIDEND EQUIVALENTS. The Committee is authorized to grant
-----------------------------
Dividend Equivalents to Participants subject to such terms and conditions as may
be selected by the Committee. Dividend Equivalents shall entitle the
Participant to receive payments equal to dividends with respect to all or a
portion of the number of shares of Stock subject to an Option Award or SAR
Award, as determined by the Committee. The Committee may provide that Dividend
Equivalents be paid or distributed when accrued or be deemed to have been
reinvested in additional shares of Stock, or otherwise reinvested.
ARTICLE 12
OTHER STOCK-BASED AWARDS
12.1. GRANT OF OTHER STOCK-BASED AWARDS. The Committee is authorized,
---------------------------------
subject to limitations under applicable law, to grant to Participants such other
Awards that are payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares of Stock, as deemed by the Committee to
be consistent with the purposes of the Plan, including without limitation shares
of Stock awarded purely as a "bonus" and not subject to any restrictions or
conditions, convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares of Stock, and Awards valued by reference
to book value of shares of Stock or the value of securities of or the
performance of specified Subsidiaries. The Committee shall determine the terms
and conditions of such Awards.
-10-
<PAGE>
ARTICLE 13
PROVISIONS APPLICABLE TO AWARDS
13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards granted under
------------------------------------------
the Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Committee may require the surrender of such other Award in consideration of the
grant of the new Award. Awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the
grant of such other Awards.
13.2. EXCHANGE PROVISIONS. The Committee may at any time offer to
-------------------
exchange or buy out any previously granted Award for a payment in cash, Stock,
or another Award (subject to Section 14.1), based on the terms and conditions
the Committee determines and communicates to the Participant at the time the
offer is made.
13.3. TERM OF AWARD. The term of each Award shall be for the period as
-------------
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten years from the date of its grant
(or, if Section 7.2(e) applies, five years from the date of its grant).
13.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and
--------------------------
any applicable law or Award Agreement, payments or transfers to be made by the
Company or a Subsidiary on the grant or exercise of an Award may be made in such
form as the Committee determines at or after the time of grant, including
without limitation, cash, Stock, other Awards, or other property, or any
combination, and may be made in a single payment or transfer, in installments,
or on a deferred basis, in each case determined in accordance with rules adopted
by, and at the discretion of, the Committee.
13.5. LIMITS ON TRANSFER. No right or interest of a Participant in any
------------------
unexercised or restricted Award may be pledged, encumbered, or hypothecated to
or in favor of any party other than the Company or a Subsidiary, or shall be
subject to any lien, obligation, or liability of such Participant to any other
party other than the Company or a Subsidiary. No such Award shall be assignable
or transferable by a Participant other than by will or the laws of descent and
distribution or, except in the case of an Incentive Stock Option, pursuant to a
domestic relations order as defined in Section 414(p)(1)(B) of the Code, if the
order satisfies Section 414(p)(1)(A) of the Code.
13.6 POSTHUMOUS EXERCISE OF AWARDS. Upon the Participant's death, any
-----------------------------
exercisable Award may be exercised by the Participant's legal representative or
representatives, by the person or persons entitled to do so under the
Participant's last will and testament, or, if the Participant shall fail to make
testamentary disposition of such Award or shall die intestate, by the person or
persons entitled to receive such Award under the applicable laws of descent and
distribution.
-11-
<PAGE>
13.7. STOCK CERTIFICATES. All Stock certificates delivered under the Plan
------------------
are subject to any stop-transfer orders and other restrictions as the Committee
deems necessary or advisable to comply with federal or state securities laws,
rules and regulations and the rules of any national securities exchange or
automated quotation system on which the Stock is listed, quoted, or traded. The
Committee may place legends on any Stock certificate to reference restrictions
applicable to the Stock.
13.9. ACCELERATION. The Committee may in its sole discretion at any time
------------
determine that all or a portion of a Participant's Options, Stock Appreciation
Rights, and other Awards in the nature of rights that may be exercised shall
become fully or partially exercisable, and/or that all or a part of the
restrictions on all or a portion of the outstanding Awards shall lapse, in each
case as of such date as the Committee may, in its sole discretion, declare. The
Committee may discriminate among Participants and among Awards granted to a
Participant in exercising its discretion pursuant to this Section 13.9. To the
extent that this provision causes Incentive Stock Options to exceed the dollar
limitation set forth in Section 7.2(d), the excess Options shall be deemed to be
Non-Qualified Stock Options.
13.10. PERFORMANCE GOALS. The Committee may determine that any Award
-----------------
granted pursuant to this Plan to a Participant (including, but not limited to,
Participants who are Covered Employees) shall be determined solely on the basis
of (a) the achievement by the Company or a Subsidiary of a specified target
level of revenues or a specified target percentage increase in revenues, (b) the
achievement by the Company or a Subsidiary of a specified target return on
equity or return on assets or a specified target percentage increase in return
on equity or return on assets, (c) the Company's or Subsidiary's stock price,
(d) the achievement by a business unit of the Company or Subsidiary of a
specified target operating income or operating margin or a specified target
percentage increase in operating income or operating margin, (e) the achievement
by a business unit of the Company or Subsidiary of a specified target net income
or earnings per share, or (f) any combination of the goals set forth in (a)
through (e) above. Furthermore, the Committee reserves the right for any reason
to reduce (but not increase) any Award, notwithstanding the achievement of a
specified goal. If an Award is made on such basis, the Committee shall
establish goals prior to the beginning of the period for which such performance
goal relates (or such later date as may be permitted under Code Section 162(m)).
Any payment of an Award granted with performance goals shall be conditioned on
the written certification of the Committee in each case that the performance
goals and any other material conditions were satisfied.
13.11. TERMINATION OF EMPLOYMENT. Whether military, government or other
-------------------------
service or other leave of absence or change from full-time to part-time status
shall constitute a termination of employment shall be determined in each case by
the Committee at its discretion, and any determination by the Committee shall be
final and conclusive. A termination of employment shall not occur in a
circumstance in which a Participant transfers from the Company to one of its
-12-
<PAGE>
Subsidiaries, transfers from a Subsidiary to the Company, or transfers from one
Subsidiary to another Subsidiary.
ARTICLE 14
CHANGES IN CAPITAL STRUCTURE
14.1. GENERAL. In the event a stock dividend is declared upon the Stock,
-------
the shares of Stock then subject to each Award shall be increased
proportionately without any change in the aggregate purchase price therefor. In
the event the Stock shall be changed into or exchanged for a different number or
class of shares of stock or securities of the Company or of another corporation,
whether through reorganization, recapitalization, stock split-up, combination of
shares, merger or consolidation, there shall be substituted for each such share
of Stock then subject to each Award the number and class of shares into which
each outstanding share of Stock shall be so exchanged, all without any change in
the aggregate purchase price for the shares then subject to each Award.
ARTICLE 15
AMENDMENT, MODIFICATION AND TERMINATION
15.1. AMENDMENT, MODIFICATION AND TERMINATION. With the approval of the
---------------------------------------
Board, at any time and from time to time, the Committee may terminate, amend or
modify the Plan without shareholder approval; provided, however, that the
Committee may condition any amendment on the approval of shareholders of the
Company if such approval is necessary or deemed advisable with respect to tax,
securities or other applicable laws, policies or regulations.
15.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification
-------------------------
of the Plan shall adversely affect any Award previously granted under the Plan,
without the written consent of the Participant.
ARTICLE 16
GENERAL PROVISIONS
16.1. NO RIGHTS TO AWARDS. No Participant or employee, officer or
-------------------
director shall have any claim to be granted any Award under the Plan, and
neither the Company nor the Committee is obligated to treat Participants and
employees, officers or directors uniformly.
16.2. NO SHAREHOLDER RIGHTS. No Award gives the Participant any of the
---------------------
rights of a shareholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Award.
16.3. WITHHOLDING. The Company or any Subsidiary shall have the authority
-----------
and the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy federal, state, and local taxes
-13-
<PAGE>
(including the Participant's FICA obligation) required by law to be withheld
with respect to any taxable event arising as a result of the Plan. With respect
to withholding required upon any taxable event under the Plan, the Committee
may, at the time the Award is granted or thereafter, require that any such
withholding requirement be satisfied, in whole or in part, by withholding shares
of Stock having a Fair Market Value on the date of withholding equal to the
amount to be withheld for tax purposes, all in accordance with such procedures
as the Committee establishes.
16.4. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Award Agreement
----------------------
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.
16.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded"
-------------------------
plan for incentive and deferred compensation. With respect to any payments not
yet made to a Participant pursuant to an Award, nothing contained in the Plan or
any Award Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Company or any Subsidiary.
16.6. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
------------------------------
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the Company
or any Subsidiary.
16.7. EXPENSES. The expenses of administering the Plan shall be borne by
--------
the Company and its Subsidiaries.
16.8. TITLES AND HEADINGS. The titles and headings of the Sections in the
-------------------
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
16.9. GENDER AND NUMBER. Except where otherwise indicated by the context,
-----------------
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
16.10. FRACTIONAL SHARES. No fractional shares of Stock shall be issued
-----------------
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
16.11. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to
--------------------------------
make payment of awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by government agencies as
may be required. The Company shall be under no obligation to register under the
1933 Act, any of the shares of Stock paid under the Plan. If the shares paid
under the Plan may in certain circumstances be exempt from registration under
-14-
<PAGE>
the 1933 Act, the Company may restrict the transfer of such shares in such
manner as it deems advisable to ensure the availability of any such exemption.
16.12. GOVERNING LAW. To the extent not governed by federal law, the Plan
--------------
and all Award Agreements shall be construed in accordance with and governed by
the laws of the State of Georgia.
The foregoing is hereby acknowledged as being the XcelleNet, Inc. 1996
Long-Term Incentive Plan as adopted by the Compensation and Stock Option
Committee of the Board of Directors on September 30, 1996 and by the Board of
Directors of the Company on October 16, 1996.
XCELLENET, INC.
By: /s/ Jeanne N. Bateman
-----------------------
Its: V. P. - Finance, Secretary and Treasurer
-----------------------------------------
-15-
<PAGE>
EXHIBIT 10.25
CHANGE IN CONTROL EMPLOYMENT AGREEMENT
--------------------------------------
AGREEMENT by and between XcelleNet, Inc., a corporation (the
--------
"Company") and (the "Executive"), dated as of the
------------- ---------------
day of 1997.
- ------- -------------------
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section l(b)) on which a Change of Control (as
defined in Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purposes of this Agreement, a "Change of
-----------------
Control" shall mean:
<PAGE>
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock or other equity
interests and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the entity resulting from such Business Combination (including,
without limitation, an entity which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock or other equity interests of the entity resulting
-2-
<PAGE>
from such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors or comparable body of the
entity resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination; or
3. Employment Period. The Company hereby agrees to continue the
-----------------
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period").
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 120-day period immediately preceding the Effective Date and (B)
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or location
less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
------------
-3-
<PAGE>
(i) Base Salary. During the Employment Period, the Executive
-----------
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any entity
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
------------
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
greater of fifty percent (50%) of Annual Base Salary or the Executive's highest
bonus under the Company's executive compensation plan, or any comparable bonus
under any predecessor or successor plan, for the last three full fiscal years
prior to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Recent Annual
Bonus"). Each such Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
---------------------------------------
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life,
-4-
<PAGE>
accidental death and travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the aggregate,
than the most favorable of such plans, practices, policies and programs in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive
--------
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period,
------------------------
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
5. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall terminate
-------------------
automatically upon the Executive's death during the Employment Period. If the
Company
-5-
<PAGE>
determines in good faith that the Disability of the Executive has occurred
during the Employment Period (pursuant to the definition of Disability set forth
below), it may give to the Executive written notice in accordance with Section
12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial performance
is delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
-6-
<PAGE>
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Termination Other Than for Death or Disability, Cause or Good
-------------------------------------------------------------
Reason. The Company may terminate the Executive's employment at any time for
- ------
any reason. The Executive's employment may be terminated by Executive at any
time for any reason.
(e) Notice of Termination. Any termination by the Company for Cause,
---------------------
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment
-7-
<PAGE>
under the provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than 30 days after the giving of
such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(f) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other
------------------------------------------- ------------------
Than for Cause, Death or Disability. If, during the Employment Period, the
- -----------------------------------
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned but deferred (and
annualized for any fiscal year consisting of less than twelve full months or
during which the Executive was employed for less than twelve full months), for
the most recently completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365 and
(3) any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each case
to the extent not theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial equivalent of
the benefit under the Company's qualified defined benefit retirement plan
-8-
<PAGE>
(the "Retirement Plan") (utilizing actuarial assumptions no less favorable to
the Executive than those in effect under the Company's Retirement Plan
immediately prior to the Effective Date), and any excess or supplemental
retirement plan in which the Executive participates (together, the "SERP") which
the Executive would receive if the Executive's employment continued for two
years after the Date of Termination assuming for this purpose that all accrued
benefits are fully vested, and, assuming that the Executive's compensation in
each of the three years is that required by Section 4(b)(i) and Section
4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit
(paid or payable), if any, under the Retirement Plan and the SERP as of the Date
of Termination;
D. an amount equal to the product of (1) the fair market value of the
aggregate securities subject to the Unvested Options (as hereinafter defined)
less the aggregate exercise price for the Unvested Options, and (2) 1.2;
however, no amount shall be payable pursuant to this Section 6.(i)D if the
Company accelerates the exercisability of all of the Unvested Options to a date
no later than the Date of Termination; as used herein, Unvested Options means
any options, or portions thereof, to purchase the Company's securities that have
been granted to the Executive on or prior to the Date of Termination, and which
options or portions thereof are not exercisable on the Date of Termination, but
would become exercisable within three years following the Date of Termination if
the Executive remained employed by the Company for such three-year period,
including any performance-based acceleration of exercisability that could occur
during such three-year period, in fact, occurred (the "Unvested Options").
(ii) for two years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes re-employed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility.
For purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained employed until three years after the Date of Termination and to have
retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be
-9-
<PAGE>
paid or provided or which the Executive is eligible to receive under any plan,
program, policy or practice or contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(b)
shall include without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to the most
favorable benefits provided by the Company and affiliated companies to the
estates and beneficiaries of peer executives of the Company and such affiliated
companies under such plans, programs, practices and policies relating to death
benefits, if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason
----------
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement shall
terminate without further obligations
-10-
<PAGE>
to the Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be paid
to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
-11-
<PAGE>
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 9(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $25,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments, in
the aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Arthur
Andersen & Co. L.L.P. or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall-be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to
-12-
<PAGE>
the expiration of the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
-13-
<PAGE>
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that- the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall-be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Non Competition. Upon termination of Executive's employment by
---------------
Executive or the Company for any reason:
(i) For one (1) year thereafter, Executive will not, within the
continental United States participate, directly or indirectly, in any fashion
engage in any activity as or for a competitor of the Company, which is the same
or similar to those activities in which Executive was involved for the Company
at the time of such termination or during the prior twelve (12) month period;
(ii) For three (3) years thereafter, Executive will not engage in
recruiting or hiring or attempting to recruit or hire, directly or by assisting
others, any employee of the Company;
(iii) For three (3) years thereafter, Executive will not solicit or
accept, or attempt to solicit or accept, directly or by assisting others, for
purposes of providing products or services that are competitive with those
provided by the Company, any business from the Company's customers, including
actively sought prospective customers, with whom or which Executive made
material contact while employed by the Company.
-14-
<PAGE>
If, and while, Executive acts in violation of this Section 11, the running of
the period specified in the particular subsection which Executive violated shall
be tolled and suspended.
12. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
13. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Georgia, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than-by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
--------------------
If to the Company:
------------------
XcelleNet, Inc.
Suite 850
5 Concourse Parkway
Atlanta, Georgia 30328
-15-
<PAGE>
Attention: Chief Financial Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
----------------------------------------
[Executive]
XCELLENET, INC.
By:
-------------------------------------
-16-
<PAGE>
EXHIBIT 11.01
XCELLENET, INC. AND SUBSIDIARIES
Computation of Earnings Per Share of Common Stock
For the Years Ended December 31, 1996, 1995 and 1994
(amounts in thousands, except per share)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Weighted average number of common shares outstanding 7,229 7,387 6,493
Add - Shares of common stock assumed issued upon exercise of
stock options using the "treasury stock" method as it
applies to the computation of primary earnings per share 686 1,093 1,340
----- ----- -----
NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 7,915 8,480 7,833
Add - Additional shares of common stock assumed issued upon
exercise of stock options using the "treasury stock" method as it
applies to the computation of fully diluted earnings per share 125 - 119
----- ----- -----
NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING
ASSUMING FULL DILUTION 8,040 8,480 7,952
===== ===== =====
NET INCOME - $3,802 $3,555
===== ===== =====
EARNINGS PER SHARE:
PRIMARY $0.00 $0.45 $0.45
===== ===== =====
FULLY DILUTED $0.00 $0.45 $0.45
===== ===== =====
</TABLE>
A single presentation of primary earnings per share is made on the Consolidated
Statements of Operations because the effect of assuming full dilution is
insignificant in each period presented.
<PAGE>
EXHIBIT 21.01
SUBSIDIARIES OF XCELLENET, INC.
Each of the following subsidiaries of XcelleNet, Inc. presently does
business solely under its name as set forth below.
SUBSIDIARY JURISDICTION OF INCORPORATION
1. XcelleNet Limited United Kingdom
2. Remoteware, Inc.* Georgia
3. Xventures, Inc.* Georgia
4. XcelleNet Canada, Limited Canada
5. XcelleNet, SARL France
6. XcelleNet, GmbH Germany
7. XcelleNet Australia, PTY. LTD. Australia
8. XcelleNet International Inc. Barbados
9. Electronic Commerce, Inc. North Carolina
* These are non-operating subsidiaries that have substantially
no assets or liabilities.
<PAGE>
EXHIBIT 23.01
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 23, 1997 incorporated by reference in this Form 10-K of
XcelleNet, Inc. and subsidiaries into the Company's previously filed
Registration Statement on Form S-3, file No. 333-22231 and the Company's
previously filed Registration Statements on Form S-8, File Nos. 33-82630,
33-82632, 33-92536, 33-92538 and 33-93384.
/s/ Arthur Andersen LLP
----------------------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 20, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,587
<SECURITIES> 2,157
<RECEIVABLES> 13,809
<ALLOWANCES> 503
<INVENTORY> 0
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0
0
<COMMON> 75
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<EXTRAORDINARY> 0
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</TABLE>
