-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ew/Z7U6FVuTN2n4AYJFnXFaDH2D7JYGNYP2fVtLCGOjObkySt/HBI6W7tn0SZhVo 0aCV6vyK2mRjs0yxMrpUDA== 0000891020-99-000446.txt : 19990318 0000891020-99-000446.hdr.sgml : 19990318 ACCESSION NUMBER: 0000891020-99-000446 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALL DATA INC CENTRAL INDEX KEY: 0000722607 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 911189299 STATE OF INCORPORATION: WA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21176 FILM NUMBER: 99566543 BUSINESS ADDRESS: STREET 1: 11332 NE 122ND WAY CITY: KIRKLAND STATE: WA ZIP: 98034-6931 BUSINESS PHONE: 2068149255 MAIL ADDRESS: STREET 1: 11332 NE 122ND WAY STREET 2: 11332 NE 122ND WAY CITY: KIRKLAND STATE: WA ZIP: 98034 10-Q 1 FORM 10-Q FOR PERIOD ENDED JANUARY 31, 1999 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JANUARY 31, 1999 COMMISSION FILE NUMBER 0-21176 WALL DATA INCORPORATED (Exact name of registrant as specified in its charter) WASHINGTON 91-1189299 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11332 N.E. 122ND WAY, KIRKLAND, WASHINGTON 98034 (Address of principal executive offices) (Zip Code) (425) 814-9255 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stocks, as of the latest practicable date.
OUTSTANDING AT CLASS FEBRUARY 28, 1999 ----- ----------------- COMMON STOCK 10,149,483
================================================================================ 2 WALL DATA INCORPORATED FORM 10-Q FOR THE QUARTER ENDED JANUARY 31, 1999 INDEX
PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Income Statements for the three and nine months ended January 31, 1999 and 1998 3 Consolidated Balance Sheets as of January 31, 1999 and April 30, 1998 4 Consolidated Statements of Cash Flows for the nine months ended January 31, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Qualitative and Quantitative Disclosure about Market Risk 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WALL DATA INCORPORATED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED JANUARY 31, JANUARY 31, 1999 1998 1999 1998 --------- --------- --------- --------- Net revenues License fees $ 34,325 $ 30,515 $ 96,849 $ 82,658 Services 7,490 6,212 22,730 17,680 --------- --------- --------- --------- Total net revenues 41,815 36,727 119,579 100,338 Cost of revenues License fees 5,306 4,290 15,861 14,778 Services 2,921 2,242 8,880 6,082 --------- --------- --------- --------- Total cost of revenues 8,227 6,532 24,741 20,860 --------- --------- --------- --------- Gross margin 33,588 30,195 94,838 79,478 Operating expenses: Product development 4,918 5,577 15,173 15,299 Sales and marketing 20,633 19,451 59,374 52,600 General and administrative 3,851 3,238 11,260 9,604 Amortization of intangibles from acquisitions 590 150 1,640 332 Restructuring charges -- -- 2,405 -- Other non-recurring charges -- 741 -- 11,488 --------- --------- --------- --------- Total operating expenses 29,992 29,157 89,852 89,323 --------- --------- --------- --------- Operating income (loss) 3,596 1,038 4,986 (9,845) Other income, net 730 708 2,174 2,711 --------- --------- --------- --------- Income (loss) before income taxes 4,326 1,746 7,160 (7,134) Provision for income taxes 1,242 2,002 1,807 (1,392) --------- --------- --------- --------- Net income (loss) $ 3,084 $ (256) $ 5,353 $ (5,742) ========= ========= ========= ========= Net income: Basic earnings (loss) per share $ 0.31 $ (0.03) $ 0.54 $ (0.62) ========= ========= ========= ========= Diluted earnings (loss) per share $ 0.30 $ (0.03) $ 0.53 $ (0.62) ========= ========= ========= ========= Shares used to calculate earnings per share: Basic 10,010 9,390 9,956 9,333 ========= ========= ========= ========= Diluted 10,321 9,390 10,102 9,333 ========= ========= ========= =========
See accompanying notes. 3 4 WALL DATA INCORPORATED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JANUARY 31, APRIL 30, 1999 1998 ------------ --------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 64,702 $ 57,490 Accounts receivable 42,422 33,534 Inventories 195 952 Deferred income taxes 5,698 5,701 Other current assets 5,532 2,847 -------- -------- Total current assets 118,549 100,524 Fixed assets, net 10,301 10,665 Deferred income taxes 400 458 Long-term investments 2,017 2,965 Intangible assets related to acquisitions 16,116 16,551 Other assets 5,459 9,042 -------- -------- $152,842 $140,205 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 7,838 $ 8,382 Accrued expenses 17,642 17,063 Income taxes payable 4,401 3,583 Deferred revenues 18,856 15,019 -------- -------- Total current liabilities 48,737 44,047 -------- -------- Deferred income taxes 3,142 3,390 -------- -------- Shareholders' equity: Preferred stock -- -- Common stock 61,027 58,882 Retained earnings 38,659 33,306 Accumulated other comprehensive income 1,277 580 -------- -------- Total shareholders' equity 100,963 92,768 -------- -------- $152,842 $140,205 ======== ========
See accompanying notes. 4 5 WALL DATA INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED JANUARY 31, 1999 1998 -------- -------- OPERATING ACTIVITIES Net income (loss) $ 5,353 $ (5,742) Adjustments to reconcile net income (loss) to net cash provided by operations: Deferred income taxes (187) (2,529) Depreciation and amortization of fixed assets and intangible assets 6,286 5,533 Amortization of prepaid licenses and localization costs 3,397 2,096 Non-recurring charges 1,614 741 Other, net 1,067 (10) Decrease (increase) in operating assets: Accounts receivable (8,888) (5,873) Inventories 757 195 Other current assets (2,685) 515 Increase (decrease) in operating liabilities: Accounts payable 1,456 (697) Accrued expenses 779 319 Income taxes payable 818 (3,336) Deferred revenues 3,837 2,299 -------- -------- Net cash provided by (used in) operating activities 13,604 (6,489) -------- -------- INVESTING ACTIVITIES Purchases of fixed assets (4,763) (3,466) Purchases of prepaid software technology (2,321) (1,494) Capitalized localization costs (1,124) (1,683) Investments in subsidiaries (1,000) (4,542) Other assets 540 (422) -------- -------- Net cash used in investing activities (8,668) (11,607) -------- -------- FINANCING ACTIVITIES Proceeds from issuances under stock plans 2,145 2,397 -------- -------- Net cash provided by financing activities 2,145 2,397 -------- -------- Net increase (decrease) in cash and cash equivalents 7,081 (15,699) Effect of exchange rate changes on cash 131 (209) Beginning cash and cash equivalents 57,490 82,384 -------- -------- Ending cash and cash equivalents $ 64,702 $ 66,476 ======== ========
See accompanying notes. 5 6 WALL DATA INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JANUARY 31, 1999 1. BASIS OF PRESENTATION In the opinion of management, the accompanying consolidated balance sheets and related consolidated statements of income and cash flows include all adjustments, consisting only of normal and recurring items, necessary for their fair presentation. The results for the three and nine months ended January 31, 1999 are not necessarily indicative of the results that may be expected for any future periods. These financial statements and related notes should be read in conjunction with the Company's audited consolidated financial statements for the four month period ended April 30, 1998 which are included in the Company's Transition Report on Form 10-K. As previously reported, the Company's Board of Directors approved a change in the Company's fiscal year-end from December 31 to April 30. This change was made to improve the company's ability to manage operations in light of seasonal customer buying patterns. The Company has recast the prior year quarterly financial information to conform to the new fiscal periods. 2. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," which changed the method for determining and reporting business segment information. The Company currently operates in two business segments: enterprise products and services (host connectivity) and Cyberprise products and services (web enabled products). Based on the growing materiality of the Cyberprise business segment, the Company will present segment information in its annual report on Form 10K. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is required to be adopted in years beginning after June 15, 1999. SFAS No. 133 requires all derivatives to be recognized as either assets or liabilities in the balance sheet and be measured at fair value. Although management of the Company has not completed its assessment of the impact of SFAS No. 133 on its consolidated results of operations and financial position, management believes that the impact of SFAS No. 133 will not be material. 6 7 3. RECONCILIATION OF EARNINGS PER SHARE The following table presents a reconciliation of basic earnings per share to earnings per share--assuming dilution (income and shares in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED JANUARY 31, JANUARY 31, 1999 1998 1999 1998 ------- ------- ------- ------- Net income (loss) (numerator) $ 3,084 $ (256) $ 5,353 $(5,742) ------- ------- ------- ------- Average share (denominator for basic) 10,010 9,390 9,956 9,333 Effect of dilutive stock options 311 -- 146 -- ------- ------- ------- ------- Total (denominator for diluted) 10,321 9,390 10,102 9,333 ------- ------- ------- ------- Earnings (loss) per share--basic $ 0.31 $ (0.03) $ 0.54 $ (0.62) ======= ======= ======= ======= Earnings (loss) per share--assuming dilution $ 0.30 $ (0.03) $ 0.53 $ (0.62) ======= ======= ======= =======
4. COMPREHENSIVE INCOME The components of the Company's total comprehensive income were:
THREE MONTHS ENDED NINE MONTHS ENDED JANUARY 31, JANUARY 31, 1999 1998 1999 1998 ------- ------- ------- ------- (IN THOUSANDS) (IN THOUSANDS) Net income (loss) $ 3,084 $ (256) $ 5,353 $(5,742) ------- ------- ------- ------- Other comprehensive income (loss): Foreign currency translation adjustments, net (682) (495) 582 (209) Unrealized gains (losses) on securities, net 133 (74) 115 (41) ------- ------- ------- ------- Other comprehensive income (549) (569) 697 (250) ------- ------- ------- ------- Comprehensive income (loss) $ 2,535 $ (825) $ 6,050 $(5,992) ======= ======= ======= =======
5. RESTRUCTURING CHARGES At the end of the second quarter of fiscal 1999, the Company recorded a $2.4 million charge to restructure its operations in the Asia-Pacific and Latin America (APLA) markets. The adverse economic conditions in the APLA markets and declining sales have led the Company to eliminate an administrative layer and two of its smallest sales offices. The restructuring charge includes $0.8 million for severance and lease terminations costs, $1.0 million for the write down of certain product localization costs and other assets and $0.6 million for the write down of a minority investment in a Korean distributor. These charges reduced net income for the nine months ended January 31, 1999 by $1.9 million or $0.19 per share after income taxes. The Company estimates that expense savings from the restructuring charge, on a quarterly basis, to be approximately $250,000. 6. RECLASSIFICATIONS Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. 7 8 WALL DATA INCORPORATED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS When used in this report and elsewhere by management from time to time, the words "believes," "anticipates" and "expects" and similar expressions are intended to identify forward-looking statements. Certain important factors could cause the Company's actual results to differ materially from those expressed in the Company's forward-looking statements. These factors are detailed in the Company's Transition Report on Form 10-K for the four month period ended April 30, 1998 and include, but are not limited to, uncertain acceptance of the Company's new products, risks associated with new markets and longer sales cycles, fluctuations in quarterly performance, competitive products and pricing in a rapidly changing market place, dependence on a two product segments, buying patterns of customers as a result of expenditures to make systems year 2000 compliant, dependence on host computing, dependence on Microsoft Windows, risks associated with technological change, increasing reliance on resellers and distributors, increasing reliance on the Internet, uncertainties regarding international operations, dependence on key personnel, ability to attract and retain qualified staff, ability to manage growth and risks associated with intellectual property and proprietary rights. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly release the results of any revision to the forward-looking statements that may be made to reflect subsequent events or circumstances or to reflect the occurrence of unanticipated events. RESULTS OF OPERATIONS
THREE-MONTHS ENDED JANUARY 31, NINE-MONTHS ENDED JANUARY 31, ---------------------------------------- ------------------------------------------ 1999 CHANGE 1998 1999 CHANGE 1998 - ----------------------------------------------------------------------------------------------------------------------------- (dollar amounts in thousands) (unaudited) (unaudited) (unaudited) (unaudited) LICENSE FEES ENTERPRISE PRODUCTS $ 25,620 (16%) $ 30,515 $ 79,859 (3%) $ 82,658 CYBERPRISE PRODUCTS 8,705 100% -- 16,990 100% -- -------- -------- -------- -------- TOTAL LICENSE FEES 34,325 12% 30,515 96,849 17% 82,658 -------- -------- -------- -------- SERVICES ENTERPRISE SERVICES 7,105 14% 6,212 21,968 24% 17,680 CYBERPRISE SERVICES 385 100% -- 762 100% -- -------- -------- -------- -------- TOTAL SERVICES 7,490 21% 6,212 22,730 29% 17,680 -------- -------- -------- -------- TOTAL NET REVENUES $ 41,815 14% $ 36,727 $119,579 19% $100,338 ======== ======== ======== ========
Revenues Total net revenue. Net revenues increased 14% in the third quarter of fiscal 1999 to $41.8 million from $36.7 million in the same period in the prior year. Net revenues increased 19% in the nine months ended January 31, 1999 to $119.6 million from $100.3 million in the same period in the prior year. Revenue outside North America represented 21% of net revenues in the third quarter of fiscal 1999 and 42% in the same quarter of the prior year and equaled 26% and 34% for the nine months ended January 31, 1999 and 1998, respectively. Foreign currency exchange rate changes did not have a significant effect on net revenues in the third quarter. Revenue from indirect and OEM distribution channels equaled 62% and 58% of net revenues in 8 9 the third quarter and first nine months of fiscal 1999, respectively, compared to 70% and 72% of net revenues in the same periods in the prior year. License fees. License fees increased 12% to $34.3 million in the third quarter of fiscal 1999 from $30.5 million in the same period in the prior year. Year to date license fees grew 17% to $96.8 million as compared to $82.7 million in the prior year. Revenues from the Company's Cyberprise products represented $8.7 million of the third quarter and $17.0 million of the year to date. During the third quarter and first nine months of fiscal 1999, license fees from all other products combined decreased by 16% and 3%, respectively. In the third quarter of the prior year, a license to one customer outside of North America represented approximately 10% of total revenue. Service revenue. Service revenues for third quarter of fiscal 1999 increased 21% to $7.5 million from $6.2 million in the same period in the prior year. Year to date service revenues totaled $22.7 million in fiscal 1999 and $17.7 million in the same period in the prior year, representing an increase of 29%. During the third quarter and the first nine months of fiscal 1999, the Company recorded Cyberprise services revenues of $0.4 million and $0.8 million, respectively. Cost of Revenue Cost of license fees. Cost of revenues derived from license fees increased 24% to $5.3 million in the third quarter of fiscal 1999 as compared to $4.3 million in the same period in the prior year. Year to date cost of revenues for license fees for fiscal 1999 was $15.9 million as compared to $14.8 million in the prior year representing a 7% increase. The increase in cost of license fees is due to increases in royalty fees related to Cyberprise products and other miscelleanous items. Cost of license fee revenues as a percentage of license fee revenues was flat at approximately 15% and 14% for the third quarter of fiscal 1999 and the same period in the prior year, respectively. Cost of license fee revenues as a percentage of license fee revenues declined to 16% for the first nine months of fiscal 1999 as compared to 18% in the same period in the prior year, respectively, due to the fixed nature of certain costs. Cost of service revenues. Cost of service revenues consists primarily of technical support, post-sales engineering and consulting services. Cost of service revenues increased 30% to $2.9 million in the third quarter of fiscal 1999 from $2.2 million in the same quarter in the prior year. Cost of service revenues increased 46% to $8.9 million for the nine months ended January 31, 1999 as compared to $6.1 million in the same period in the prior year. Costs as a percentage of service revenues increased to 39% for both the third quarter and first nine months of fiscal 1999 from 36% and 34% in comparable periods in the prior year. Cost of service revenues grew primarily due to increases in staffing levels related to technical support and consulting associated with increased service. In addition, the Company has built additional service capabilities in Europe. Operating Expenses Product development expenses decreased 12% to $4.9 million, or 12% of total net revenues, in the third quarter of fiscal 1999, from $5.6 million, or 15% of total net revenues, in the same period in the prior year. The decline in product development expenses is primarily due to reduced occupancy costs as a result of relocating some development to less expensive locations. For the first nine months, product development declined 1% to $15.2 million, or 13% of total net revenues, in fiscal 1999 as compared to $15.3 million, or 15% of total net revenues, in same period in the prior year. Sales and marketing expenses increased 6% to $20.6 million, or 49% of total net revenues, in the third quarter of fiscal 1999 from $19.5 million, or 53% of total net revenues, in the same period 9 10 in the prior year. On a year to date basis, sales and marketing expenses increased 13% to $59.4 million, or 50% of total net revenues, in fiscal 1999 from $52.6 million, or 52% of total net revenues, in the same period in the prior year. The increase in sales and marketing expenses was principally due to the Company's investments in the Cyberprise brand, the Cyberprise Partner Network announced in the second quarter of fiscal 1999 and increases in commissions and other incremental costs directly related to increased revenue. General and administrative expenses increased 19% to $3.9 million, or 9% of total net revenues, in the third quarter of fiscal 1999, from $3.2 million, or 9% of total net revenues, in the same period in the prior year. In the first nine months of fiscal 1999, general and administrative expenses increased 17% to $11.3 million, or 9% of total net revenues, in fiscal 1999 from $9.6 million, or 10% of total net revenues, in the same period in the prior year. The increase resulted primarily from administrative expenses from Software Development Tools, Inc. (SDTI), acquired in November 1997, and First Service Computer Dienstleistungs-GmbH (First Service), acquired in March 1998, and legal costs related to the defense of the Company's technologies. Amortization of intangibles from acquisitions increased to $0.6 million in the third quarter of fiscal 1999 from $0.2 million in the same period in the prior year due to the amortization of intangibles related to the acquisitions of First Service and SDTI. At the end of the second quarter of fiscal 1999, the Company recorded a $2.4 million charge to restructure operations in Asia-Pacific and Latin America (APLA) markets. The restructuring charge includes $0.8 million severance and lease termination costs, $1.0 million for the write down of certain localization costs and other assets and $0.6 million for the write down of a minority investment in a Korean distributor. As of January 31, 1999, the Company has made cash payments totaling $0.4 million in connection with the $0.8 million accrued severance and lease termination costs. During the nine months ended January 31, 1998, the Company recorded non-recurring charges totaling $11.5 million, of which approximately $9.1 million represents the settlement of a shareholders'class action lawsuit and related expenses. Approximately $1.0 million represents the write-off of inventories, technology investments and severance payments resulting from the restructuring of the SALSA business line. The Company recorded non-recurring charges of $0.7 million for the write-off of in-process research and development resulting from the acquisition of SDTI. The remaining $0.7 million represents a retirement payment to the Company's former chairman and Chief Executive Officer of Wall Data who retired July 31, 1997. Other Income, Net Other income, net of other expenses, was flat in the third quarter of fiscal 1999 compared with the same period in the prior year at approximately $0.7 million. Other income for the first nine months of fiscal 1999 and 1998 was $2.2 million and $2.7 million, respectively. Of the $0.5 million decrease, $0.3 million resulted from lower interest income as a result of lower average cash and cash equivalent balances during the first quarter of fiscal 1999 as compared to the prior year. Additional expenses in the first quarter of fiscal 1999 related to a loss on the sale of fixed assets. Income Taxes The Company's effective income tax rate in the third quarter of fiscal 1999 equaled 29%. The effective rate increased compared to prior quarters in fiscal 1999 due to changes in the geographic mix of operating profits. The tax rate in the three months ended January 31, 1998 was 115% due to the change in the Company's year-end from a calendar year to a fiscal year. 10 11 Because of this change in year-end, the Company was unable to offset losses from January 1998 against taxable profits in the months of November and December 1997. The effective income tax rate for the first nine months of fiscal 1999 equaled 25% compared to 20% in the same period in the prior year. The increase in the effective rate is due primarily to changes in the geographic mix of operating profits. The Company's effective tax rate for the fourth quarter may change from the third quarter rate depending on the geographic mix of operating profits. Net Income Net income equaled $3.1 million in the third quarter of fiscal 1999 compared to a net loss of $0.3 million in the same period in the prior year. On a year to date basis, net income was $5.4 million in fiscal 1999 as compared to a net loss of $5.7 million in the prior year. Excluding the restructuring charges and other non-recurring expenses, net income for the first nine months of fiscal 1999 was $7.3 million, or 6% of net revenues, as compared to $1.6 million, or 2% of net revenues, in the same period in the prior year. Earnings per share, excluding restructuring charges and other non-recurring expenses, were $0.72 per share for the first nine months of fiscal 1999 and $0.17 per share for the same period in the prior year. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents totaled $64.7 million, or 42% of total assets, at January 31, 1999, compared to $57.5 million, or 41% of total assets, at April 30, 1998. Net cash provided by operating activities totaled $13.6 million in the first nine months of fiscal 1999 compared to a use of cash of $6.5 million in the same period in the prior year. The change was primarily due to higher net income in the first nine months of fiscal 1999 compared to the same period in the prior year, increased non-cash expenses, including depreciation, amortization and restructuring charges in fiscal 1999, and changes in certain operating liabilities. Expenditures for property and equipment totaled $4.8 million in the first nine months of fiscal 1999 compared to $3.5 million in the prior year. In October 1997, the Company acquired a 15% percent interest in Suntek Information System Co. Ltd. for approximately $0.9 million. In November 1997, the Company acquired a ten percent equity interest in DataChannel, Inc. for approximately $1.7 million. Also in November 1997, the Company acquired SDTI for $2.0 million. In connection with the acquisition of SDTI, the Company paid additional contingent consideration of $1.0 million in November 1998. In March 1998, the Company acquired First Service for $11.0 million. Of the $11.0 million cash payment, $2.0 million remains in escrow for one year to cover claims, if any. Stockholders' equity increased to $101.0 million at January 31, 1999, from $92.8 million at April 30, 1998. The change primarily resulted from net income and shares issued under stock plans. Management believes that existing cash and cash equivalents together with funds from operations will be sufficient to finance the Company's operations over the near term. YEAR 2000 The Year 2000 problem arises from the common practice in software development in the past of using two digits rather than four to designate the calendar year (e.g., DD/MM/YY). This practice can lead to incorrect results whenever computer systems, software or microchips perform 11 12 arithmetic operations, comparisons or data field sorting involving years later than 1999. The Company has been assessing the impact of the Year 2000 issues for some time and has developed plans to address these issues related to its products, its internal business systems and its distributors and partners. The Company has tested its products for Year 2000 compliance and has made modifications to certain of its products to make them Year 2000 compliant. Year 2000 compliant means that neither performance nor functionality of the products or services is materially affected by dates prior to, during and after the year 2000. The Company believes that all of its Cyberprise products are Year 2000 compliant and that nearly all of its supported RUMBA, ARPEGGIO and R&R Report Writer products are Year 2000 compliant as is or with available patches, except those which are outdated and no longer supported. Because most of the work associated with testing and modification of the Company's products has occurred in the ordinary course of product development, the cost of Year 2000 compliance for the Company's products has not been material. The Company is assessing its internal systems, including financial and operational systems, for Year 2000 compliance. The Company is currently in the process of reviewing all affected Information Technology ("IT") processes, applications, hardware, operating systems and databases, as well as critical non-IT areas (such as facilities and building equipment) where Year 2000 issues may exist. The assessment of the Company's critical internal IT systems was completed on or before December 31, 1998. The Company continues to assess all remaining internal systems and external relationships. The Company's goal is to complete all assessment and mitigation tasks for all internal systems and external relationships by September 1, 1999. The Company has incurred approximately $160,000 in costs to date related to the assessment and mitigation of internal system Year 2000 issues and estimates that total related costs will approximate $500,000. These costs are primarily fees paid to third-party consultants and contractors and exclude internal costs, which the Company does not track separately and which the Company does not believe will be material. The Company believes that the costs required to remedy internal Year 2000 issues will not have a material effect on the Company's operations or financial results. The Company is also evaluating external relationships with distributors, resellers, vendors and partners for Year 2000 issues. The Company is currently in the process of surveying its external vendors and partners. None of the Company's resellers or distributors is individually responsible for a material amount of the Company's total revenues. Although the Company is not aware of material operational issues or costs associated with preparing for the Year 2000, the Company may experience serious adverse impacts or material costs if the Company or its vendors or distributors fail to resolve Year 2000 issues in a timely manner or if the Company's products are used in conjunction with the software of other suppliers that have not adequately addressed Year 2000 issues. The Company has not yet completed all contingency plans to address problems that may result if the Company, it vendors, or its distributors fail to achieve Year 2000 readiness. The Company's goal is to complete all contingency plans by September 1, 1999. The Company plans to continue to devote the necessary resources to resolve significant Year 2000 issues and develop contingency plans. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. 12 13 WALL DATA INCORPORATED PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In September 1998, the Company filed an action for declaratory judgment in Federal District Court for the Western District of Washington against OpenConnect Systems, Inc. ("OCS") of Dallas, Tex. seeking a judicial determination that the Company does not infringe on patent No. 5754,830 (the "830 Patent") held by OCS. Also in September 1998, OCS filed suit in Federal District Court for the Eastern District of Texas against the Company claiming that the Company infringes the '830 Patent. The OCS complaint seeks unspecified damages. The Company has answered the OCS complaint by denying infringement and asserting that the '830 patent is invalid and unenforceable. The Federal District Court for the Western District of Washington has stayed the action for declaratory judgement pending a ruling from the Federal District Court for the Eastern District of Texas on a motion by the Company to transfer the action. Because the complaint seeks unspecified damages, it is impossible to predict the impact of a negative outcome in the litigation on the Company's operations or financial condition. The Company intends to defend against the action vigorously. The Company may be subject to other legal proceedings or claims, either asserted or unasserted, that arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that any such legal matters will have a material adverse effect on the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (10.1) Employment Agreement, dated January 21, 1999, between the Company and John R. Wall. (10.2) Employment Agreement, dated January 21, 1999, between the Company and Richard P. Fox. (10.3) Employment Agreement, dated January 21, 1999, between the Company and Kevin B. Vitale. (10.4) Employment Agreement, dated January 21, 1999, between the Company and Craig E. Shank. (27) Financial Data Schedule (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended January 31, 1999. ITEMS 2, 3, 4, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED. 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Wall Data Incorporated Date: March 16, 1999 By: /s/ RICHARD P. FOX ------------------------------------ Richard P. Fox, Chief Financial Officer (Duly Authorized Officer and Chief Financial and Accounting Officer) 14 15 WALL DATA INCORPORATED INDEX TO EXHIBITS
Exhibit Description ------- ----------- (10.1) Employment Agreement, dated January 21, 1999, between the Company and John R. Wall. (10.2) Employment Agreement, dated January 21, 1999, between the Company and Richard P. Fox. (10.3) Employment Agreement, dated January 21, 1999, between the Company and Kevin B. Vitale. (10.4) Employment Agreement, dated January 21, 1999, between the Company and Craig E. Shank. (27) Financial Data Schedule
15 EX-10.1 2 EMPLOYMENT AGREEMENT WITH JOHN R. WALL 1 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), dated as of January 21, 1999, between Wall Data Incorporated, a Washington corporation ("Employer"), and John R. Wall ("Employee"); RECITALS WHEREAS, Employer desires to continue to employ Employee upon the terms and conditions set forth herein; and WHEREAS, Employee is willing to provide services to Employer upon the terms and conditions set forth herein; AGREEMENT NOW, THEREFORE, for and in consideration of the foregoing premises and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, Employer and Employee hereby agree as follows: 1. EMPLOYMENT Employer will employ Employee and Employee will accept employment by Employer as its President and Chief Executive Officer. Employee will have the authority, subject to Employer's Articles of Incorporation and Bylaws, as may be granted from time to time by the Board of Directors of Employer. Employee will perform the duties customarily performed by the President and Chief Executive Officer of a corporation which is similar to Employer and such other duties as may be assigned from time to time by the Board of Directors of Employer, which relate to the business of Employer, its subsidiaries, its parent corporation, or any business ventures in which Employer, its subsidiaries or its parent corporation may participate. 2. ATTENTION AND EFFORT Employee will devote all his productive time, ability, attention and effort to the business and affairs of Employer and the discharge of the responsibilities assigned to him hereunder, and will use his reasonable best efforts to perform faithfully and efficiently such responsibilities. It shall not be a violation of this Agreement for Employee to (a) serve on corporate, civic or charitable boards or committees approved in advance by Employer's Board of Directors, (b) deliver lectures, fulfill speaking 2 engagements or teach at educational institutions, (c) manage personal investments, so long as such activities do not significantly interfere with the performance of Employee's responsibilities in accordance with this Agreement and (d) other activities approved in advance by Employer. 3. TERM Unless otherwise terminated pursuant to Section 6 hereof, Employee's term of employment under this Agreement shall expire on the second anniversary of the date of this Agreement (the "Initial Term"). At the end of the Initial Term and each subsequent Renewal Term (as hereinafter defined), the term of this Agreement shall be automatically renewed and extended for a period of one year (the "Renewal Term"), unless either party hereto delivers a written termination notice to the other party at least 12 months prior to the end of the Initial Term or the then-current Renewal Term (as the case may be). 4. COMPENSATION During the term of this Agreement, Employer agrees to pay or cause to be paid to Employee, and Employee agrees to accept in exchange for the services rendered hereunder by him, the following compensation: 4.1. BASE SALARY Employee's compensation shall consist, in part, of an annual base salary of Three Hundred Twenty-Five Thousand Dollars ($325,000), before all customary payroll deductions. Such annual base salary shall be paid in substantially equal installments and at the same intervals as other officers of Employer are paid. The Board of Directors of Employer, or a committee thereof, shall determine any increases in the annual base salary in future years. 4.2. BONUS Employee may be entitled to receive, in addition to the annual base salary described above, an annual bonus in an amount to be determined by the Board of Directors of Employer, or a committee thereof, in its sole discretion and consistent with bonus plans then in effect. 5. BENEFITS During the term of this Agreement, Employee will be entitled to participate, subject to and in accordance with applicable eligibility requirements, in fringe benefit programs as shall be provided from time to time by Employer. -2- 3 6. TERMINATION Employee's employment pursuant to this Agreement may be terminated as follows: 6.1. BY EMPLOYER With or without Cause (as defined below), Employer may terminate Employee's employment at any time during the term of employment upon giving Notice of Termination (as defined below). 6.2. BY EMPLOYEE With or without Good Reason (as defined below), Employee may terminate his employment at any time upon giving Notice of Termination. 6.3. AUTOMATIC TERMINATION This Agreement and Employee's employment hereunder shall terminate automatically upon the death or Total Disability of Employee. The term "Total Disability" as used herein shall mean Employee's inability (with such accommodation as may be required by law and which places no undue burden on Employer), as determined by a physician selected by Employer and acceptable to Employee, to perform the duties set forth in Section 1 hereof for a period or periods aggregating 120 calendar days in any 12-month period as a result of physical or mental illness, loss of legal capacity or any other cause beyond Employee's control, unless Employee is granted a leave of absence by the Board of Directors of Employer. Employee and Employer hereby acknowledge that the duties specified in Section 1 hereof are essential to Employee's position and that Employee's ability to perform those duties is the essence of this Agreement. 6.4. NOTICE The term "Notice of Termination" shall mean at least 30 days' written notice of termination of Employee's employment, during which period Employee's employment and performance of services will continue; provided, however, that Employer may, upon notice to Employee and without reducing Employee's compensation during such period, excuse Employee from any or all of his duties during such period. The effective date of the termination of Employee's employment hereunder shall be the date on which such 30-day period expires. -3- 4 7. TERMINATION PAYMENTS In the event of termination of Employee's employment, all compensation and benefits set forth in this Agreement shall terminate, except as specifically provided in this Section 7: 7.1. TERMINATION BY EMPLOYER If Employer terminates Employee's employment without Cause prior to the end of the term of this Agreement, Employee shall be entitled to receive (a) severance payments equal to (i) two times Employee's annual base salary for the year in which such termination occurred, plus (ii) a percentage of such annual base salary equal to the percentage paid under Employer's Executive Incentive Plan (or any successor plan) for the prior fiscal year, (b) any unpaid annual base salary which has accrued for services already performed as of the date termination of Employee's employment becomes effective and any compensation previously deferred by Employee (together with accrued interest or earnings thereon, if any) and any accrued vacation pay which would be payable under Employer's standard policy, in each case to the extent not theretofore paid, and (c) for 18 months from the termination date, premiums for health insurance benefit continuation for Employee and his family members, if applicable, which Employer provides to Employee under the provisions of the federal Comprehensive Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), to the extent that Employer would have paid such premiums had Employee remained employed by Employer. If employment is terminated by Employer for Cause, Employee shall not be entitled to receive any of the foregoing benefits, other than those set forth in clause (b) above. 7.2. TERMINATION BY EMPLOYEE In the case of termination of Employee's employment for Good Reason, Employee shall be entitled to receive those payments set forth in Sections 7.1(a), (b) and (c) hereof. In the case of the termination of Employee's employment by Employee other than for Good Reason, Employee shall not be entitled to any payments hereunder, other than those set forth in Section 7.1(b) hereof. 7.3. DEATH AND TOTAL DISABILITY In the case of a termination of Employee's employment as a result of the Employee's death or Employee's Total Disability, Employee shall not be entitled to receive any payments hereunder, other than those set forth in Section 7.1(b) hereof. -4- 5 7.4. TERMINATION IN CONNECTION WITH A CHANGE OF CONTROL Employee and Employer shall enter into a Change of Control Agreement, in the form attached hereto as Exhibit A. Notwithstanding Sections 7.1 and 7.2 hereof and in full substitution of all payments otherwise due thereunder, if a Change of Control (as defined in such agreement) of Employer occurs, this Agreement shall terminate and the relationship between Employee and Employer shall be governed in all respects by the Change of Control Agreement. 7.5. PAYMENT SCHEDULE All payments under this Section 7 shall be made to Employee within thirty working days of the effective date of termination except that payments for COBRA premiums pursuant to Section 7.1(c) shall be made on a monthly basis. 7.6. CAUSE Wherever reference is made in this Agreement to termination being with or without Cause, "Cause" is limited to the occurrence of one or more of the following events: (a) Failure or refusal to carry out the lawful duties of Employee described in Section 1 hereof or any directions of the Board of Directors of Employer, which directions are reasonably consistent with the duties herein set forth to be performed by Employee; (b) Violation by Employee of a state or federal criminal law involving the commission of a crime against Employer or any of its subsidiaries; (c) Deception, fraud, misrepresentation or dishonesty by Employee; any incident materially compromising Employee's reputation or ability to represent Employer with the public; any act or omission by Employee which substantially impairs Employer's business, good will or reputation; or (d) Any other material violation of any provision of this Agreement. 7.7. GOOD REASON Wherever reference is made in this Agreement to termination being with or without Good Reason, "Good Reason" is limited to the occurrence of one or more of the following events: (a) the reduction in Employee's annual base salary as specified in Section 4.1 hereof or the reduction in the value of bonus payments that Employee -5- 6 is eligible to receive under Section 4.2 hereof (provided, however, that Good Reason shall not exist under this Section 7.7(a), in the event Employee does not actually realize such values because of failure to satisfy performance or other criteria applicable to such bonus payments or equity awards); (b) the material and substantial diminution or reduction without his consent of Employee's title, authority, duties or responsibilities; (c) Employer requiring Employee without his consent to be based at any offices or locations outside of King County, Washington; or (d) any breach by Employer of any other material provision of this Agreement. 8. REPRESENTATIONS AND WARRANTIES In order to induce Employer to enter into this Agreement, Employee represents and warrants to Employer that neither the execution nor the performance of this Agreement by Employee will violate or conflict in any way with any other agreement by which Employee may be bound, or with any other duties imposed upon Employee by corporate or other statutory or common law. 9. NOTICE AND CURE OF BREACH Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than pursuant to the definition of Cause set forth in Section 7.6 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least 20 days' prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the 20-day period. 10. CONFIDENTIALITY AGREEMENT Employer and Employee agree that the Confidential Information, Inventions and Nonsolicitation Agreement, dated July 25, 1991, between Employer and Employee and attached hereto as Exhibit B shall remain in full force and effect and survive the termination of Employee's employment. -6- 7 11. FORM OF NOTICE All notices given hereunder shall be given in writing, shall specifically refer to this Agreement and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by reputable overnight courier, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof. Such notice shall be effective upon receipt or upon refusal of the addressee to accept delivery. If to Employee: John R. Wall 18807 NE 103rd St. Redmond, WA 98052 If to Employer: Wall Data Incorporated 11332 NE 122nd Way Kirkland, WA 98034-6931 Attn: General Counsel Phone: (425) 814-9255 Facsimile: (425) 814-4372 Copy to: Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, WA 98101-3099 Attn: L. Michelle Wilson Phone: (206) 583-8888 Facsimile: (206) 583-8500 12. ASSIGNMENT This Agreement is personal to Employee and shall not be assignable by Employee. Employer may assign its rights hereunder to (a) any corporation resulting from any merger, consolidation, spin-off or other reorganization to which Employer is a party or (b) any corporation, partnership, association or other person to which Employer may transfer all or substantially all the assets and business of Employer existing at such time. All the terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 13. WAIVERS No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver -7- 8 by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 14. AMENDMENTS IN WRITING No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by Employer and Employee, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by Employer and Employee. 15. ARBITRATION Any dispute arising under this Agreement shall be subject to arbitration. The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA Rules") then in effect, conducted by one arbitrator either mutually agreed upon or selected in accordance with the AAA Rules, except that the parties thereto shall have any right to discovery as would be permitted by the Federal Rules of Civil Procedure for a period of 90 days following the commencement of such arbitration and the arbitrator thereof shall resolve any dispute which arises in connection with such discovery. The arbitration shall be conducted in King County, Washington under the jurisdiction of the Seattle office of the American Arbitration Association. The arbitrator shall have authority only to interpret and apply the provisions of this Agreement and shall have no authority to add to, subtract from, or otherwise modify the terms of this Agreement. Any demand for arbitration must be made within 60 days of the event(s) giving rise to the claim that this Agreement has been breached. The arbitrator's decision shall be final and binding, and each party agrees to be bound by the arbitrator's award subject, only to an appeal therefrom in accordance with the laws of state of Washington. Either party may obtain judgment upon the arbitrator's award in the Superior Court of King County, Washington. -8- 9 16. APPLICABLE LAW This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the state of Washington, without regard to any rules governing conflicts of laws. 17. SEVERABILITY If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, then, to the full extent permitted by law (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 18. HEADINGS All headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. 19. COUNTERPARTS This Agreement, and any amendment or modification entered into pursuant to Section 14 hereof, may be executed in any number of counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same instrument. 20. ENTIRE AGREEMENT This Agreement on and as of the date hereof constitutes the entire agreement between Employer and Employee with respect to the subject matter hereof and all prior or contemporaneous oral or written communications, understandings or agreements between Employer and Employee with respect to such subject matter are hereby superseded and nullified in their entireties. -9- 10 IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the date set forth above. EMPLOYEE: /s/ John R. Wall ---------------------------------------- John R. Wall EMPLOYER: WALL DATA INCORPORATED By /s/ Robert J. Frankenberg -------------------------------------- Robert J. Frankenberg Chairman of the Board -10- 11 EXHIBIT A CHANGE OF CONTROL AGREEMENT 12 EXHIBIT B CONFIDENTIAL INFORMATION, INVENTIONS AND NONSOLICITATION AGREEMENT 13 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (this "Agreement"), dated as of January 21, 1999, is between WALL DATA INCORPORATED, a Washington corporation (the "Company"), and JOHN R. WALL (the "Employee"). RECITAL The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 1.1 hereof) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Employee arising from the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Employee with reasonable compensation and benefit arrangements upon a Change of Control. AGREEMENT In order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. 1. DEFINITIONS 1.1 CHANGE OF CONTROL "Change of Control" shall have the definition set forth in Appendix A to this Agreement, which is hereby incorporated by reference. 1.2 CHANGE OF CONTROL DATE "Change of Control Date" shall mean the first date on which a Change of Control occurs. 1.3 EMPLOYMENT PERIOD "Employment Period" shall mean the two-year period commencing on the Change of Control Date and ending on the second anniversary of such date. 14 2. TERM The term of this Agreement ("Term") shall be for the Initial Term and any Renewal Term, as such terms are defined in the Employment Agreement, dated the date hereof, between the Company and the Employee; provided, however, that if a Change of Control occurs during the Term, the Term shall automatically extend for the duration of the Employment Period. 3. EMPLOYMENT 3.1 EMPLOYMENT PERIOD During the Employment Period, the Company hereby agrees to continue the Employee in its employ or in the employ of its affiliated companies, and the Employee hereby agrees to remain in the employ of the Company or its affiliated companies, in accordance with the terms and provisions of this Agreement; provided, however, that either the Company or the Employee may terminate the employment relationship subject to the terms of this Agreement. 3.2 POSITION AND DUTIES During the Employment Period, the Employee's title, position, authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Change of Control Date. 3.3 LOCATION During the Employment Period, the Employee's services shall be performed at the Company's headquarters on the Change of Control Date or any office which is subsequently designated as the headquarters of the Company and is located in King County, Washington. 3.4 TERMINATION PRIOR TO CHANGE OF CONTROL If prior to the Change of Control Date, the Employee's employment with the Company or its affiliated companies terminates for any reason, then the Employee shall have no further rights under this Agreement; provided, however, that the Company may not avoid liability for any termination payments which would have been required during the Employment Period pursuant to Section 8 hereof by terminating the Employee prior to the Employment Period where such termination is carried out in anticipation of a Change of Control and the principal motivating purpose is to avoid liability for such termination payments. -2- 15 4. ATTENTION AND EFFORT During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee will devote all his productive time, ability, attention and effort to the business and affairs of the Company and the discharge of the responsibilities assigned to him hereunder, and he will use his reasonable best efforts to perform faithfully and efficiently such responsibilities. It shall not be a violation of this Agreement for the Employee to (a) serve on corporate, civic or charitable boards or committees approved in advance by the Company's Board of Directors, (b) deliver lectures, fulfill speaking engagements or teach at educational institutions, (c) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities in accordance with this Agreement and (d) other activities approved in advance by the Company. It is expressly understood and agreed that to the extent any such activities have been conducted by the Employee prior to the Employment Period, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) during the Employment Period shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. 5. COMPENSATION As long as the Employee remains employed by the Company during the Employment Period, the Company agrees to pay or cause to be paid to the Employee, and the Employee agrees to accept in exchange for the services rendered hereunder by him, the following compensation: 5.1 SALARY The Employee shall receive an annual base salary (the "Annual Base Salary") at least equal to the annual salary established by the Board or a committee of the Board (the "Compensation Committee") for the fiscal year in which the Change of Control Date occurs. The Annual Base Salary shall be paid in substantially equal installments and at the same intervals as the salaries of other employees of the Company are paid. The Board or the Compensation Committee shall review the Annual Base Salary at least annually and shall determine in good faith and consistent with any generally applicable Company policy any increases for future years. 5.2 BONUS In addition to Annual Base Salary, the Employee shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average annualized (for any fiscal year consisting -3- 16 of less than 12 full months) bonus paid or payable, including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Change of Control Date occurs. Each such Annual Bonus shall be paid no later than 90 days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus. 6. BENEFITS 6.1 INCENTIVE, RETIREMENT AND WELFARE BENEFIT PLANS; VACATION During the Employment Period, the Employee shall be entitled to participate, subject to and in accordance with applicable eligibility requirements, in such fringe benefit programs as shall be generally made available to other employees of the Company and its affiliated companies from time to time during the Employment Period by action of the Board (or any person or committee appointed by the Board to determine fringe benefit programs and other emoluments), including, without limitation, paid vacations; any stock purchase, savings or retirement plan, practice, policy or program; and all welfare benefit plans, practices, policies or programs (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans or programs). 6.2 EXPENSES During the Employment Period, the Employee shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by him in accordance with the policies, practices and procedures of the Company and its affiliated companies in effect for the employees of the Company and its affiliated companies during the Employment Period. 7. TERMINATION During the Employment Period, employment of the Employee may be terminated as follows: 7.1 BY THE COMPANY OR THE EMPLOYEE At any time during the Employment Period, the Company may terminate the employment of the Employee with or without Cause (as defined below), and the Employee may terminate his employment for Good Reason (as defined below) or for any reason, upon giving Notice of Termination (as defined below). -4- 17 7.2 AUTOMATIC TERMINATION This Agreement and the Employee's employment during the Employment Period shall terminate automatically upon the death or Total Disability of the Employee. The term "Total Disability" as used herein shall mean the Employee's inability (with such accommodation as may be required by law and which places no undue burden on the Company), as determined by a physician selected by the Company and acceptable to the Employee, to perform the duties set forth in Section 3.2 hereof for a period or periods aggregating 120 calendar days in any 12-month period as a result of physical or mental illness, loss of legal capacity or any other cause beyond the Employee's control, unless the Employee is granted a leave of absence by the Board. The Employee and the Company hereby acknowledge that the duties specified in Section 3.2 hereof are essential to the Employee's position and that Employee's ability to perform those duties is the essence of this Agreement. 7.3 NOTICE OF TERMINATION Any termination by the Company or by the Employee during the Employment Period shall be communicated by Notice of Termination to the other party given in accordance with Section 11 hereof. The term "Notice of Termination" shall mean a written notice which (a) indicates the specific termination provision in this Agreement relied upon and (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated. The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. 7.4 DATE OF TERMINATION During the Employment Period, "Date of Termination" means (a) if the Employee's employment is terminated by reason of death, at the end of the calendar month in which the Employee's death occurs, (b) if the Employee's employment is terminated by reason of Total Disability, immediately upon a determination by the Company of the Employee's Total Disability, and (c) in all other cases, five days after the effective date of notice pursuant to Section 11 hereof. The Employee's employment and performance of services will continue during such five-day period; provided, however, that the Company may, upon notice to the Employee and without -5- 18 reducing the Employee's compensation during such period, excuse the Employee from any or all of his duties during such period. 8. TERMINATION PAYMENTS In the event of termination of the Employee's employment during the Employment Period, all compensation and benefits set forth in this Agreement shall terminate, except as specifically provided in this Section 8. 8.1 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE EMPLOYEE FOR GOOD REASON If during the Employment Period the Company terminates the Employee's employment other than for Cause or the Employee terminates his employment for Good Reason, the Employee shall be entitled to: (a) receive payment of the following accrued obligations (the "Accrued Obligations"): (i) the Employee's Annual Base Salary through the Date of Termination to the extent not theretofore paid; and (ii) any compensation previously deferred by the Employee (together with accrued interest or earnings thereon, if any) and any accrued vacation pay which would be payable under the Company's standard policy, in each case to the extent not theretofore paid; (b) for 18 months after the Date of Termination, Employee's premiums for health insurance benefit continuation for Employee and his family members, if applicable, which the Company provides to the Employee under the provisions of the federal Comprehensive Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), to the extent that the Company would have paid such premiums had the Employee remained employed by the Company; and (c) an amount as severance pay equal to two and one-half times the Annual Base Salary for the fiscal year in which the Date of Termination occurs, plus a percentage of such Annual Base Salary equal to the percentage paid under the Company's Executive Incentive Plan (or any successor plan) for the prior fiscal year (the "Severance Obligation"). -6- 19 8.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON If during the Employment Period the Employee's employment shall be terminated by the Company for Cause or by the Employee for other than Good Reason, this Agreement shall terminate without further obligation on the part of the Company to the Employee, other than the Company's obligation to pay the Employee (a) his Annual Base Salary through the Date of Termination, (b) the amount of any compensation previously deferred by the Employee, and (c) any accrued vacation pay which would be payable under the Company's standard policy, in each case to the extent theretofore unpaid. 8.3 EXPIRATION OF TERM In the case of a termination of the Employee's employment as a result of the expiration of the Term of this Agreement, this Agreement shall terminate without further obligation on the part of the Company to the Employee, other than the Company's obligation to pay the Employee the Accrued Obligations. 8.4 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY If during the Employment Period the Employee's employment is terminated by reason of the Employee's death or Total Disability, this Agreement shall terminate automatically without further obligation on the part of the Company to the Employee or his legal representatives under this Agreement, other than the Company's obligation to pay the Employee the Accrued Obligations (which shall be paid to the Employee's estate or beneficiary, as applicable in the case of the Employee's death). 8.5 PAYMENT SCHEDULE All payments of the Accrued Obligations and the Severance Obligation, or any portion thereof payable pursuant to this Section 8, shall be made to the Employee within thirty working days of the Date of Termination, except that payments for COBRA premiums pursuant to Section 8.1(b) shall be made on a monthly basis. 8.6 CAUSE For purposes of this Agreement, "Cause" means cause given by the Employee to the Company and shall be limited to the occurrence of one or more of the following events: (a) A clear refusal to carry out any material lawful duties of the Employee or any directions of the Board, all reasonably consistent with the duties -7- 20 described in Section 3.2 hereof, provided the Employee has been given reasonable notice and opportunity to correct any such failure; (b) Violation by the Employee of a state or federal criminal law involving the commission of a crime against the Company or any of its subsidiaries; (c) Deception, fraud, misrepresentation or dishonesty by the Employee; any incident materially compromising the Employee's reputation or ability to represent the Company with investors, customers or the public; or (d) Any other material violation of any provision of this Agreement by the Employee, subject to the notice and opportunity to cure requirements of Section 10. 8.7 GOOD REASON For purposes of this Agreement, "Good Reason" means (a) The assignment to the Employee of any duties materially inconsistent with the Employee's title, position, authority, duties or responsibilities as contemplated by Section 3.2 hereof or any other action by the Company which results in a material diminution in such title, position, authority, duties or responsibilities; (b) Any failure by the Company to comply with any of the provisions of Section 5 or 6 hereof; (c) The Company's requiring the Employee to be based at any office or location other than that described in Section 3.3 hereof; (d) Any failure by the Company to comply with and satisfy Section 12 hereof, provided that the Company's successor has received at least ten days' prior written notice from the Company or the Employee of the requirements of Section 12 hereof; or (e) Any other material violation of any provision of this Agreement by the Company. 8.8 EXCESS PARACHUTE LIMITATION If either the Company or the Employee receives confirmation from the Company's independent tax counsel or its certified public accounting firm, or such other accounting firm retained as independent certified public accountants for the Company (the "Tax Advisor"), that any payment by the Company to the Employee -8- 21 under this Agreement or otherwise would be considered to be an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, or any successor statute then in effect (the "Code"), then the aggregate payments by the Company pursuant to this Agreement shall be reduced to the highest amount that may be paid to the Employee by the Company under this Agreement without having any portion of any amount payable to the Employee by the Company or a related entity under this Agreement or otherwise treated as such an "excess parachute payment," and, if permitted by applicable law and without adverse tax consequence, such reduction shall be made to the last payment due hereunder. Any payments made by the Company to the Employee under this Agreement which are later confirmed by the Tax Advisor to be "excess parachute payments" shall be considered by all parties to have been a loan by the Company to the Employee, which loan shall be repaid by the Employee upon demand, together with interest calculated at the lowest interest rate authorized for such loans under the Code, without a requirement that further interest be imputed. 9. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS In order to induce the Company to enter into this Agreement, the Employee represents and warrants to the Company that neither the execution nor the performance of this Agreement by the Employee will violate or conflict in any way with any other agreement by which the Employee may be bound or with any other duties imposed upon Employee by corporate or other statutory or common law. 10. NOTICE AND CURE OF BREACH Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than pursuant to the definition of Cause set forth in Section 8.6 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least ten days' prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the ten-day period. 11. FORM OF NOTICE All notices given hereunder shall be given in writing, shall specifically refer to this Agreement and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by reputable overnight courier, at the address set forth below or at such other address as may hereafter be designated by notice given in -9- 22 compliance with the terms hereof. Such notice shall be effective upon receipt or upon refusal of the addressee to accept delivery. If to Employee: John R. Wall 18807 NE 103rd St. Redmond, WA 98052 If to Company: Wall Data Incorporated 11332 NE 122nd Way Kirkland, WA 98034-6931 Attn: General Counsel Phone: (425) 814-9255 Facsimile: (425) 814-4372 Copy to: Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, WA 98101-3099 Attn: L. Michelle Wilson Phone: (206) 583-8888 Facsimile: (206) 583-8500 12. ASSIGNMENT This Agreement is personal to the Employee and shall not be assignable by the Employee. The Company shall assign to and require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean Wall Data Incorporated and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 13. WAIVERS No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or -10- 23 circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 14. AMENDMENTS IN WRITING No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the Company and the Employee, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Employee. 15. APPLICABLE LAW This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the state of Washington, without regard to any rules governing conflicts of laws. 16. ARBITRATION Any dispute arising under this Agreement shall be subject to arbitration. The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA Rules") then in effect, conducted by one arbitrator either mutually agreed upon or selected in accordance with the AAA Rules, except that the parties thereto shall have any right to discovery as would be permitted by the Federal Rules of Civil Procedure for a period of 90 days following the commencement of such arbitration and the arbitrator thereof shall resolve any dispute which arises in connection with such discovery. The arbitration shall be conducted in King County, Washington under the jurisdiction of the Seattle office of the American Arbitration Association. The arbitrator shall have authority only to interpret and apply the provisions of this Agreement and shall have no authority to add to, subtract from, or otherwise modify the terms of this Agreement. Any demand for arbitration must be made within 60 days of the event(s) giving rise to the claim that this Agreement has been breached. The arbitrator's decision shall be final and binding, and each party agrees to be bound by the arbitrator's award subject, only to an appeal therefrom in accordance with the laws of -11- 24 the state of Washington. Either party may obtain judgment upon the arbitrator's award in the Superior Court of King County, Washington. 17. SEVERABILITY If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 18. ENTIRE AGREEMENT This Agreement on and as of the date hereof constitutes the entire agreement between the Company and the Employee with respect to the subject matter hereof and all prior or contemporaneous oral or written communications, understandings or agreements between the Company and the Employee with respect to such subject matter are hereby superseded and nullified in their entireties, except that the Confidential Information, Inventions and Nonsolicitation Agreement between the Employee and the Company, dated July 25, 1991, shall continue in full force and effect and survive the termination of the Employee's employment. 19. COUNTERPARTS This Agreement may be executed in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. 20. HEADINGS All headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. -12- 25 IN WITNESS WHEREOF, the parties have executed and entered into this Agreement effective on the date first set forth above. EMPLOYEE /s/ John R. Wall ---------------------------------------- John R. Wall WALL DATA INCORPORATED By /s/ Robert J. Frankenberg -------------------------------------- Robert J. Frankenberg Chairman of the Board -13- 26 APPENDIX A TO CHANGE OF CONTROL AGREEMENT BETWEEN WALL DATA INCORPORATED AND JOHN R. WALL For purposes of this Agreement, a "Change of Control" shall mean: (a) A "Board Change" which, for purposes of this Agreement, shall have occurred if a majority (excluding vacant seats) of the seats on the Company's Board are occupied by individuals who were neither (i) nominated by a majority of the Incumbent Directors nor (ii) appointed by directors so nominated. An "Incumbent Director" is a member of the Board who has been either (i) nominated by a majority of the directors of the Company then in office or (ii) appointed by directors so nominated, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person (as hereinafter defined) other than the Board; or (b) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (i) more than 50% of either (i) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (z) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Appendix A are satisfied; or 27 (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, immediately following such reorganization, merger or consolidation, (i) more than 50% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportion as their ownership immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 33% or more of the Outstanding Company Common Stock or the Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were the Incumbent Directors at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all the assets of the Company, other than to a corporation with respect to which immediately following such sale or other disposition, (A) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company -2- 28 or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 33% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were approved by a majority of the Incumbent Directors at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. -3- EX-10.2 3 EMPLOYMENT AGREEMENT WITH RICHARD P. FOX 1 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), dated as of January 21, 1999, between Wall Data Incorporated, a Washington corporation ("Employer"), and Richard P. Fox ("Employee"); RECITALS WHEREAS, Employer desires to continue to employ Employee upon the terms and conditions set forth herein; and WHEREAS, Employee is willing to provide services to Employer upon the terms and conditions set forth herein; AGREEMENT NOW, THEREFORE, for and in consideration of the foregoing premises and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, Employer and Employee hereby agree as follows: 1. EMPLOYMENT Employer will employ Employee and Employee will accept employment by Employer as its Vice President Finance, Chief Financial Officer and Treasurer. Employee will have the authority, subject to Employer's Articles of Incorporation and Bylaws, as may be granted from time to time by the Board of Directors of Employer. Employee will perform the duties customarily performed by the Vice President Finance, Chief Financial Officer and Treasurer of a corporation which is similar to Employer and such other duties as may be assigned from time to time by the Board of Directors of Employer, which relate to the business of Employer, its subsidiaries, its parent corporation, or any business ventures in which Employer, its subsidiaries or its parent corporation may participate. 2. ATTENTION AND EFFORT Employee will devote all his productive time, ability, attention and effort to the business and affairs of Employer and the discharge of the responsibilities assigned to him hereunder, and will use his reasonable best efforts to perform faithfully and efficiently such responsibilities. It shall not be a violation of this Agreement for Employee to (a) serve on corporate, civic or charitable boards or committees 2 approved in advance by Employer's President, (b) deliver lectures, fulfill speaking engagements or teach at educational institutions, (c) manage personal investments, so long as such activities do not significantly interfere with the performance of Employee's responsibilities in accordance with this Agreement and (d) other activities approved in advance by Employer. 3. TERM Unless otherwise terminated pursuant to Section 6 hereof, Employee's term of employment under this Agreement shall expire on the second anniversary of the date of this Agreement (the "Initial Term"). At the end of the Initial Term and each subsequent Renewal Term (as hereinafter defined), the term of this Agreement shall be automatically renewed and extended for a period of one year (the "Renewal Term"), unless either party hereto delivers a written termination notice to the other party at least 12 months prior to the end of the Initial Term or the then-current Renewal Term (as the case may be). 4. COMPENSATION During the term of this Agreement, Employer agrees to pay or cause to be paid to Employee, and Employee agrees to accept in exchange for the services rendered hereunder by him, the following compensation: 4.1. BASE SALARY Employee's compensation shall consist, in part, of an annual base salary of Two Hundred Thousand Dollars ($200,000), before all customary payroll deductions. Such annual base salary shall be paid in substantially equal installments and at the same intervals as other officers of Employer are paid. The Board of Directors of Employer, or a committee thereof, shall determine any increases in the annual base salary in future years. 4.2. BONUS Employee may be entitled to receive, in addition to the annual base salary described above, an annual bonus in an amount to be determined by the Board of Directors of Employer, or a committee thereof, in its sole discretion and consistent with bonus plans then in effect. -2- 3 5. BENEFITS During the term of this Agreement, Employee will be entitled to participate, subject to and in accordance with applicable eligibility requirements, in fringe benefit programs as shall be provided from time to time by Employer. 6. TERMINATION Employee's employment pursuant to this Agreement may be terminated as follows: 6.1. BY EMPLOYER With or without Cause (as defined below), Employer may terminate Employee's employment at any time during the term of employment upon giving Notice of Termination (as defined below). 6.2. BY EMPLOYEE With or without Good Reason (as defined below), Employee may terminate his employment at any time upon giving Notice of Termination. 6.3. AUTOMATIC TERMINATION This Agreement and Employee's employment hereunder shall terminate automatically upon the death or Total Disability of Employee. The term "Total Disability" as used herein shall mean Employee's inability (with such accommodation as may be required by law and which places no undue burden on Employer), as determined by a physician selected by Employer and acceptable to Employee, to perform the duties set forth in Section 1 hereof for a period or periods aggregating 120 calendar days in any 12-month period as a result of physical or mental illness, loss of legal capacity or any other cause beyond Employee's control, unless Employee is granted a leave of absence by the Board of Directors of Employer. Employee and Employer hereby acknowledge that the duties specified in Section 1 hereof are essential to Employee's position and that Employee's ability to perform those duties is the essence of this Agreement. 6.4. NOTICE The term "Notice of Termination" shall mean at least 30 days' written notice of termination of Employee's employment, during which period Employee's employment and performance of services will continue; provided, however, that Employer may, upon notice to Employee and without reducing Employee's compensation during such period, excuse Employee from any or all of his duties during such period. The effective date of -3- 4 the termination of Employee's employment hereunder shall be the date on which such 30-day period expires. 7. TERMINATION PAYMENTS In the event of termination of Employee's employment, all compensation and benefits set forth in this Agreement shall terminate, except as specifically provided in this Section 7: 7.1. TERMINATION BY EMPLOYER If Employer terminates Employee's employment without Cause prior to the end of the term of this Agreement, Employee shall be entitled to receive (a) severance payments equal to (i) one times Employee's annual base salary for the year in which such termination occurred, plus (ii) a percentage of such annual base salary equal to the percentage paid under Employer's Executive Incentive Plan (or any successor plan) for the prior fiscal year, (b) any unpaid annual base salary which has accrued for services already performed as of the date termination of Employee's employment becomes effective and any compensation previously deferred by Employee (together with accrued interest or earnings thereon, if any) and any accrued vacation pay which would be payable under Employer's standard policy, in each case to the extent not theretofore paid, and (c) for 18 months from the termination date, premiums for health insurance benefit continuation for Employee and his family members, if applicable, which Employer provides to Employee under the provisions of the federal Comprehensive Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), to the extent that Employer would have paid such premiums had Employee remained employed by Employer. If employment is terminated by Employer for Cause, Employee shall not be entitled to receive any of the foregoing benefits, other than those set forth in clause (b) above. 7.2. TERMINATION BY EMPLOYEE In the case of termination of Employee's employment for Good Reason, Employee shall be entitled to receive those payments set forth in Sections 7.1(a), (b) and (c) hereof. In the case of the termination of Employee's employment by Employee other than for Good Reason, Employee shall not be entitled to any payments hereunder, other than those set forth in Section 7.1(b) hereof. 7.3. DEATH AND TOTAL DISABILITY In the case of a termination of Employee's employment as a result of the Employee's death or Employee's Total Disability, Employee shall not be entitled to receive any payments hereunder, other than those set forth in Section 7.1(b) hereof. -4- 5 7.4. TERMINATION IN CONNECTION WITH A CHANGE OF CONTROL Employee and Employer shall enter into a Change of Control Agreement, in the form attached hereto as Exhibit A. Notwithstanding Sections 7.1 and 7.2 hereof and in full substitution of all payments otherwise due thereunder, if a Change of Control (as defined in such agreement) of Employer occurs, this Agreement shall terminate and the relationship between Employee and Employer shall be governed in all respects by the Change of Control Agreement. 7.5. PAYMENT SCHEDULE All payments under this Section 7 shall be made to Employee within thirty working days of the effective date of termination except that payments for COBRA premiums pursuant to Section 7.1(c) shall be made on a monthly basis. 7.6. CAUSE Wherever reference is made in this Agreement to termination being with or without Cause, "Cause" is limited to the occurrence of one or more of the following events: (a) Failure or refusal to carry out the lawful duties of Employee described in Section 1 hereof or any directions of the Board of Directors of Employer, which directions are reasonably consistent with the duties herein set forth to be performed by Employee; (b) Violation by Employee of a state or federal criminal law involving the commission of a crime against Employer or any of its subsidiaries; (c) Deception, fraud, misrepresentation or dishonesty by Employee; any incident materially compromising Employee's reputation or ability to represent Employer with the public; any act or omission by Employee which substantially impairs Employer's business, good will or reputation; or (d) Any other material violation of any provision of this Agreement. 7.7. GOOD REASON Wherever reference is made in this Agreement to termination being with or without Good Reason, "Good Reason" is limited to the occurrence of one or more of the following events: (a) the reduction in Employee's annual base salary as specified in Section 4.1 hereof or the reduction in the value of bonus payments that Employee -5- 6 is eligible to receive under Section 4.2 hereof (provided, however, that Good Reason shall not exist under this Section 7.7(a), in the event Employee does not actually realize such values because of failure to satisfy performance or other criteria applicable to such bonus payments or equity awards); (b) the material and substantial diminution or reduction without his consent of Employee's title, authority, duties or responsibilities; (c) Employer requiring Employee without his consent to be based at any offices or locations outside of King County, Washington; or (d) any breach by Employer of any other material provision of this Agreement. 8. REPRESENTATIONS AND WARRANTIES In order to induce Employer to enter into this Agreement, Employee represents and warrants to Employer that neither the execution nor the performance of this Agreement by Employee will violate or conflict in any way with any other agreement by which Employee may be bound, or with any other duties imposed upon Employee by corporate or other statutory or common law. 9. NOTICE AND CURE OF BREACH Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than pursuant to the definition of Cause set forth in Section 7.6 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least 20 days' prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the 20-day period. 10. CONFIDENTIALITY AGREEMENT Employer and Employee agree that the Confidential Information, Inventions and Nonsolicitation Agreement, dated April 8, 1998, between Employer and Employee and attached hereto as Exhibit B shall remain in full force and effect and survive the termination of Employee's employment. -6- 7 11. FORM OF NOTICE All notices given hereunder shall be given in writing, shall specifically refer to this Agreement and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by reputable overnight courier, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof. Such notice shall be effective upon receipt or upon refusal of the addressee to accept delivery. If to Employee: Richard P. Fox 5255 Forest SE Mercer Island, WA 98040 If to Employer: Wall Data Incorporated 11332 NE 122nd Way Kirkland, WA 98034-6931 Attn: General Counsel Phone: (425) 814-9255 Facsimile: (425) 814-4372 Copy to: Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, WA 98101-3099 Attn: L. Michelle Wilson Phone: (206) 583-8888 Facsimile: (206) 583-8500 12. ASSIGNMENT This Agreement is personal to Employee and shall not be assignable by Employee. Employer may assign its rights hereunder to (a) any corporation resulting from any merger, consolidation, spin-off or other reorganization to which Employer is a party or (b) any corporation, partnership, association or other person to which Employer may transfer all or substantially all the assets and business of Employer existing at such time. All the terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 13. WAIVERS No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver -7- 8 by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 14. AMENDMENTS IN WRITING No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by Employer and Employee, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by Employer and Employee. 15. ARBITRATION Any dispute arising under this Agreement shall be subject to arbitration. The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA Rules") then in effect, conducted by one arbitrator either mutually agreed upon or selected in accordance with the AAA Rules, except that the parties thereto shall have any right to discovery as would be permitted by the Federal Rules of Civil Procedure for a period of 90 days following the commencement of such arbitration and the arbitrator thereof shall resolve any dispute which arises in connection with such discovery. The arbitration shall be conducted in King County, Washington under the jurisdiction of the Seattle office of the American Arbitration Association. The arbitrator shall have authority only to interpret and apply the provisions of this Agreement and shall have no authority to add to, subtract from, or otherwise modify the terms of this Agreement. Any demand for arbitration must be made within 60 days of the event(s) giving rise to the claim that this Agreement has been breached. The arbitrator's decision shall be final and binding, and each party agrees to be bound by the arbitrator's award subject, only to an appeal therefrom in accordance with the laws of state of Washington. Either party may obtain judgment upon the arbitrator's award in the Superior Court of King County, Washington. -8- 9 16. APPLICABLE LAW This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the state of Washington, without regard to any rules governing conflicts of laws. 17. SEVERABILITY If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, then, to the full extent permitted by law (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 18. HEADINGS All headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. 19. COUNTERPARTS This Agreement, and any amendment or modification entered into pursuant to Section 14 hereof, may be executed in any number of counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same instrument. 20. ENTIRE AGREEMENT This Agreement on and as of the date hereof constitutes the entire agreement between Employer and Employee with respect to the subject matter hereof and all prior or contemporaneous oral or written communications, understandings or agreements between Employer and Employee with respect to such subject matter are hereby superseded and nullified in their entireties. -9- 10 IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the date set forth above. EMPLOYEE: /s/ Richard P. Fox ---------------------------------------- Richard P. Fox EMPLOYER: WALL DATA INCORPORATED By /s/ Robert J. Frankenberg -------------------------------------- Robert J. Frankenberg Chairman of the Board -10- 11 EXHIBIT A CHANGE OF CONTROL AGREEMENT 12 EXHIBIT B CONFIDENTIAL INFORMATION, INVENTIONS AND NONSOLICITATION AGREEMENT 13 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (this "Agreement"), dated as of January 21, 1999, is between WALL DATA INCORPORATED, a Washington corporation (the "Company"), and RICHARD P. FOX (the "Employee"). RECITAL The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 1.1 hereof) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Employee arising from the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Employee with reasonable compensation and benefit arrangements upon a Change of Control. AGREEMENT In order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. 1. DEFINITIONS 1.1 CHANGE OF CONTROL "Change of Control" shall have the definition set forth in Appendix A to this Agreement, which is hereby incorporated by reference. 1.2 CHANGE OF CONTROL DATE "Change of Control Date" shall mean the first date on which a Change of Control occurs. 1.3 EMPLOYMENT PERIOD "Employment Period" shall mean the two-year period commencing on the Change of Control Date and ending on the second anniversary of such date. 14 2. TERM The term of this Agreement ("Term") shall be for the Initial Term and any Renewal Term, as such terms are defined in the Employment Agreement, dated the date hereof, between the Company and the Employee; provided, however, that if a Change of Control occurs during the Term, the Term shall automatically extend for the duration of the Employment Period. 3. EMPLOYMENT 3.1 EMPLOYMENT PERIOD During the Employment Period, the Company hereby agrees to continue the Employee in its employ or in the employ of its affiliated companies, and the Employee hereby agrees to remain in the employ of the Company or its affiliated companies, in accordance with the terms and provisions of this Agreement; provided, however, that either the Company or the Employee may terminate the employment relationship subject to the terms of this Agreement. 3.2 POSITION AND DUTIES During the Employment Period, the Employee's title, position, authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Change of Control Date. 3.3 LOCATION During the Employment Period, the Employee's services shall be performed at the Company's headquarters on the Change of Control Date or any office which is subsequently designated as the headquarters of the Company and is located in King County, Washington. 3.4 TERMINATION PRIOR TO CHANGE OF CONTROL If prior to the Change of Control Date, the Employee's employment with the Company or its affiliated companies terminates for any reason, then the Employee shall have no further rights under this Agreement; provided, however, that the Company may not avoid liability for any termination payments which would have been required during the Employment Period pursuant to Section 8 hereof by terminating the Employee prior to the Employment Period where such termination is carried out in anticipation of a Change of Control and the principal motivating purpose is to avoid liability for such termination payments. -2- 15 4. ATTENTION AND EFFORT During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee will devote all his productive time, ability, attention and effort to the business and affairs of the Company and the discharge of the responsibilities assigned to him hereunder, and he will use his reasonable best efforts to perform faithfully and efficiently such responsibilities. It shall not be a violation of this Agreement for the Employee to (a) serve on corporate, civic or charitable boards or committees approved in advance by the Company's President, (b) deliver lectures, fulfill speaking engagements or teach at educational institutions, (c) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities in accordance with this Agreement and (d) other activities approved in advance by the Company. It is expressly understood and agreed that to the extent any such activities have been conducted by the Employee prior to the Employment Period, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) during the Employment Period shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. 5. COMPENSATION As long as the Employee remains employed by the Company during the Employment Period, the Company agrees to pay or cause to be paid to the Employee, and the Employee agrees to accept in exchange for the services rendered hereunder by him, the following compensation: 5.1 SALARY The Employee shall receive an annual base salary (the "Annual Base Salary") at least equal to the annual salary established by the Board or a committee of the Board (the "Compensation Committee") for the fiscal year in which the Change of Control Date occurs. The Annual Base Salary shall be paid in substantially equal installments and at the same intervals as the salaries of other employees of the Company are paid. The Board or the Compensation Committee shall review the Annual Base Salary at least annually and shall determine in good faith and consistent with any generally applicable Company policy any increases for future years. 5.2 BONUS In addition to Annual Base Salary, the Employee shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average annualized (for any fiscal year consisting -3- 16 of less than 12 full months) bonus paid or payable, including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Change of Control Date occurs. Each such Annual Bonus shall be paid no later than 90 days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus. 6. BENEFITS 6.1 INCENTIVE, RETIREMENT AND WELFARE BENEFIT PLANS; VACATION During the Employment Period, the Employee shall be entitled to participate, subject to and in accordance with applicable eligibility requirements, in such fringe benefit programs as shall be generally made available to other employees of the Company and its affiliated companies from time to time during the Employment Period by action of the Board (or any person or committee appointed by the Board to determine fringe benefit programs and other emoluments), including, without limitation, paid vacations; any stock purchase, savings or retirement plan, practice, policy or program; and all welfare benefit plans, practices, policies or programs (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans or programs). 6.2 EXPENSES During the Employment Period, the Employee shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by him in accordance with the policies, practices and procedures of the Company and its affiliated companies in effect for the employees of the Company and its affiliated companies during the Employment Period. 7. TERMINATION During the Employment Period, employment of the Employee may be terminated as follows: 7.1 BY THE COMPANY OR THE EMPLOYEE At any time during the Employment Period, the Company may terminate the employment of the Employee with or without Cause (as defined below), and the Employee may terminate his employment for Good Reason (as defined below) or for any reason, upon giving Notice of Termination (as defined below). -4- 17 7.2 AUTOMATIC TERMINATION This Agreement and the Employee's employment during the Employment Period shall terminate automatically upon the death or Total Disability of the Employee. The term "Total Disability" as used herein shall mean the Employee's inability (with such accommodation as may be required by law and which places no undue burden on the Company), as determined by a physician selected by the Company and acceptable to the Employee, to perform the duties set forth in Section 3.2 hereof for a period or periods aggregating 120 calendar days in any 12-month period as a result of physical or mental illness, loss of legal capacity or any other cause beyond the Employee's control, unless the Employee is granted a leave of absence by the Board. The Employee and the Company hereby acknowledge that the duties specified in Section 3.2 hereof are essential to the Employee's position and that Employee's ability to perform those duties is the essence of this Agreement. 7.3 NOTICE OF TERMINATION Any termination by the Company or by the Employee during the Employment Period shall be communicated by Notice of Termination to the other party given in accordance with Section 11 hereof. The term "Notice of Termination" shall mean a written notice which (a) indicates the specific termination provision in this Agreement relied upon and (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated. The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. 7.4 DATE OF TERMINATION During the Employment Period, "Date of Termination" means (a) if the Employee's employment is terminated by reason of death, at the end of the calendar month in which the Employee's death occurs, (b) if the Employee's employment is terminated by reason of Total Disability, immediately upon a determination by the Company of the Employee's Total Disability, and (c) in all other cases, five days after the effective date of notice pursuant to Section 11 hereof. The Employee's employment and performance of services will continue during such five-day period; provided, however, that the Company may, upon notice to the Employee and without -5- 18 reducing the Employee's compensation during such period, excuse the Employee from any or all of his duties during such period. 8. TERMINATION PAYMENTS In the event of termination of the Employee's employment during the Employment Period, all compensation and benefits set forth in this Agreement shall terminate, except as specifically provided in this Section 8. 8.1 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE EMPLOYEE FOR GOOD REASON If during the Employment Period the Company terminates the Employee's employment other than for Cause or the Employee terminates his employment for Good Reason, the Employee shall be entitled to: (a) receive payment of the following accrued obligations (the "Accrued Obligations"): (i) the Employee's Annual Base Salary through the Date of Termination to the extent not theretofore paid; and (ii) any compensation previously deferred by the Employee (together with accrued interest or earnings thereon, if any) and any accrued vacation pay which would be payable under the Company's standard policy, in each case to the extent not theretofore paid; (b) for 18 months after the Date of Termination, Employee's premiums for health insurance benefit continuation for Employee and his family members, if applicable, which the Company provides to the Employee under the provisions of the federal Comprehensive Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), to the extent that the Company would have paid such premiums had the Employee remained employed by the Company; and (c) an amount as severance pay equal to one and one-half times the Annual Base Salary for the fiscal year in which the Date of Termination occurs, plus a percentage of such Annual Base Salary equal to the percentage paid under the Company's Executive Incentive Plan (or any successor plan) for the prior fiscal year (the "Severance Obligation"). -6- 19 8.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON If during the Employment Period the Employee's employment shall be terminated by the Company for Cause or by the Employee for other than Good Reason, this Agreement shall terminate without further obligation on the part of the Company to the Employee, other than the Company's obligation to pay the Employee (a) his Annual Base Salary through the Date of Termination, (b) the amount of any compensation previously deferred by the Employee, and (c) any accrued vacation pay which would be payable under the Company's standard policy, in each case to the extent theretofore unpaid. 8.3 EXPIRATION OF TERM In the case of a termination of the Employee's employment as a result of the expiration of the Term of this Agreement, this Agreement shall terminate without further obligation on the part of the Company to the Employee, other than the Company's obligation to pay the Employee the Accrued Obligations. 8.4 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY If during the Employment Period the Employee's employment is terminated by reason of the Employee's death or Total Disability, this Agreement shall terminate automatically without further obligation on the part of the Company to the Employee or his legal representatives under this Agreement, other than the Company's obligation to pay the Employee the Accrued Obligations (which shall be paid to the Employee's estate or beneficiary, as applicable in the case of the Employee's death). 8.5 PAYMENT SCHEDULE All payments of the Accrued Obligations and the Severance Obligation, or any portion thereof payable pursuant to this Section 8, shall be made to the Employee within thirty working days of the Date of Termination, except that payments for COBRA premiums pursuant to Section 8.1(b) shall be made on a monthly basis. 8.6 CAUSE For purposes of this Agreement, "Cause" means cause given by the Employee to the Company and shall be limited to the occurrence of one or more of the following events: (a) A clear refusal to carry out any material lawful duties of the Employee or any directions of the Board, all reasonably consistent with the duties -7- 20 described in Section 3.2 hereof, provided the Employee has been given reasonable notice and opportunity to correct any such failure; (b) Violation by the Employee of a state or federal criminal law involving the commission of a crime against the Company or any of its subsidiaries; (c) Deception, fraud, misrepresentation or dishonesty by the Employee; any incident materially compromising the Employee's reputation or ability to represent the Company with investors, customers or the public; or (d) Any other material violation of any provision of this Agreement by the Employee, subject to the notice and opportunity to cure requirements of Section 10. 8.7 GOOD REASON For purposes of this Agreement, "Good Reason" means (a) The assignment to the Employee of any duties materially inconsistent with the Employee's title, position, authority, duties or responsibilities as contemplated by Section 3.2 hereof or any other action by the Company which results in a material diminution in such title, position, authority, duties or responsibilities; (b) Any failure by the Company to comply with any of the provisions of Section 5 or 6 hereof; (c) The Company's requiring the Employee to be based at any office or location other than that described in Section 3.3 hereof; (d) Any failure by the Company to comply with and satisfy Section 12 hereof, provided that the Company's successor has received at least ten days' prior written notice from the Company or the Employee of the requirements of Section 12 hereof; or (e) Any other material violation of any provision of this Agreement by the Company. 8.8 EXCESS PARACHUTE LIMITATION If either the Company or the Employee receives confirmation from the Company's independent tax counsel or its certified public accounting firm, or such other accounting firm retained as independent certified public accountants for the Company (the "Tax Advisor"), that any payment by the Company to the Employee -8- 21 under this Agreement or otherwise would be considered to be an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, or any successor statute then in effect (the "Code"), then the aggregate payments by the Company pursuant to this Agreement shall be reduced to the highest amount that may be paid to the Employee by the Company under this Agreement without having any portion of any amount payable to the Employee by the Company or a related entity under this Agreement or otherwise treated as such an "excess parachute payment," and, if permitted by applicable law and without adverse tax consequence, such reduction shall be made to the last payment due hereunder. Any payments made by the Company to the Employee under this Agreement which are later confirmed by the Tax Advisor to be "excess parachute payments" shall be considered by all parties to have been a loan by the Company to the Employee, which loan shall be repaid by the Employee upon demand, together with interest calculated at the lowest interest rate authorized for such loans under the Code, without a requirement that further interest be imputed. 9. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS In order to induce the Company to enter into this Agreement, the Employee represents and warrants to the Company that neither the execution nor the performance of this Agreement by the Employee will violate or conflict in any way with any other agreement by which the Employee may be bound or with any other duties imposed upon Employee by corporate or other statutory or common law. 10. NOTICE AND CURE OF BREACH Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than pursuant to the definition of Cause set forth in Section 8.6 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least ten days' prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the ten-day period. 11. FORM OF NOTICE All notices given hereunder shall be given in writing, shall specifically refer to this Agreement and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by reputable overnight courier, at the address set forth below or at such other address as may hereafter be designated by notice given in -9- 22 compliance with the terms hereof. Such notice shall be effective upon receipt or upon refusal of the addressee to accept delivery. If to Employee: Richard P. Fox 5255 Forest SE Mercer Island, WA 98040 If to Company: Wall Data Incorporated 11332 NE 122nd Way Kirkland, WA 98034-6931 Attn: General Counsel Phone: (425) 814-9255 Facsimile: (425) 814-4372 Copy to: Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, WA 98101-3099 Attn: L. Michelle Wilson Phone: (206) 583-8888 Facsimile: (206) 583-8500 12. ASSIGNMENT This Agreement is personal to the Employee and shall not be assignable by the Employee. The Company shall assign to and require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean Wall Data Incorporated and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 13. WAIVERS No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or -10- 23 circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 14. AMENDMENTS IN WRITING No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the Company and the Employee, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Employee. 15. APPLICABLE LAW This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the state of Washington, without regard to any rules governing conflicts of laws. 16. ARBITRATION Any dispute arising under this Agreement shall be subject to arbitration. The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA Rules") then in effect, conducted by one arbitrator either mutually agreed upon or selected in accordance with the AAA Rules, except that the parties thereto shall have any right to discovery as would be permitted by the Federal Rules of Civil Procedure for a period of 90 days following the commencement of such arbitration and the arbitrator thereof shall resolve any dispute which arises in connection with such discovery. The arbitration shall be conducted in King County, Washington under the jurisdiction of the Seattle office of the American Arbitration Association. The arbitrator shall have authority only to interpret and apply the provisions of this Agreement and shall have no authority to add to, subtract from, or otherwise modify the terms of this Agreement. Any demand for arbitration must be made within 60 days of the event(s) giving rise to the claim that this Agreement has been breached. The arbitrator's decision shall be final and binding, and each party agrees to be bound by the arbitrator's award subject, only to an appeal therefrom in accordance with the laws of -11- 24 the state of Washington. Either party may obtain judgment upon the arbitrator's award in the Superior Court of King County, Washington. 17. SEVERABILITY If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 18. ENTIRE AGREEMENT This Agreement on and as of the date hereof constitutes the entire agreement between the Company and the Employee with respect to the subject matter hereof and all prior or contemporaneous oral or written communications, understandings or agreements between the Company and the Employee with respect to such subject matter are hereby superseded and nullified in their entireties, except that the Confidential Information, Inventions and Nonsolicitation Agreement between the Employee and the Company, dated April 8, 1998, shall continue in full force and effect and survive the termination of the Employee's employment. 19. COUNTERPARTS This Agreement may be executed in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. 20. HEADINGS All headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. -12- 25 IN WITNESS WHEREOF, the parties have executed and entered into this Agreement effective on the date first set forth above. EMPLOYEE /s/ Richard P. Fox ---------------------------------------- Richard P. Fox WALL DATA INCORPORATED By /s/ Robert J. Frankenberg -------------------------------------- Robert J. Frankenberg Chairman of the Board -13- 26 APPENDIX A TO CHANGE OF CONTROL AGREEMENT BETWEEN WALL DATA INCORPORATED AND RICHARD P. FOX For purposes of this Agreement, a "Change of Control" shall mean: (a) A "Board Change" which, for purposes of this Agreement, shall have occurred if a majority (excluding vacant seats) of the seats on the Company's Board are occupied by individuals who were neither (i) nominated by a majority of the Incumbent Directors nor (ii) appointed by directors so nominated. An "Incumbent Director" is a member of the Board who has been either (i) nominated by a majority of the directors of the Company then in office or (ii) appointed by directors so nominated, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person (as hereinafter defined) other than the Board; or (b) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (i) more than 50% of either (i) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (z) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Appendix A are satisfied; or 27 (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, immediately following such reorganization, merger or consolidation, (i) more than 50% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportion as their ownership immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 33% or more of the Outstanding Company Common Stock or the Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were the Incumbent Directors at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all the assets of the Company, other than to a corporation with respect to which immediately following such sale or other disposition, (A) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company -2- 28 or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 33% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were approved by a majority of the Incumbent Directors at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. -3- EX-10.3 4 EMPLOYMENT AGREEMENT WITH KEVIN B. VITALE 1 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), dated as of January 21, 1999, between Wall Data Incorporated, a Washington corporation ("Employer"), and Kevin B. Vitale ("Employee"); RECITALS WHEREAS, Employer desires to continue to employ Employee upon the terms and conditions set forth herein; and WHEREAS, Employee is willing to provide services to Employer upon the terms and conditions set forth herein; AGREEMENT NOW, THEREFORE, for and in consideration of the foregoing premises and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, Employer and Employee hereby agree as follows: 1. EMPLOYMENT Employer will employ Employee and Employee will accept employment by Employer as its Chief Operating Officer. Employee will have the authority, subject to Employer's Articles of Incorporation and Bylaws, as may be granted from time to time by the Board of Directors of Employer. Employee will perform the duties customarily performed by the Chief Operating Officer of a corporation which is similar to Employer and such other duties as may be assigned from time to time by the Board of Directors of Employer, which relate to the business of Employer, its subsidiaries, its parent corporation, or any business ventures in which Employer, its subsidiaries or its parent corporation may participate. 2. ATTENTION AND EFFORT Employee will devote all his productive time, ability, attention and effort to the business and affairs of Employer and the discharge of the responsibilities assigned to him hereunder, and will use his reasonable best efforts to perform faithfully and efficiently such responsibilities. It shall not be a violation of this Agreement for Employee to (a) serve on corporate, civic or charitable boards or committees approved in advance by Employer's President, (b) deliver lectures, fulfill speaking engagements or 2 teach at educational institutions, (c) manage personal investments, so long as such activities do not significantly interfere with the performance of Employee's responsibilities in accordance with this Agreement and (d) other activities approved in advance by Employer. 3. TERM Unless otherwise terminated pursuant to Section 6 hereof, Employee's term of employment under this Agreement shall expire on the second anniversary of the date of this Agreement (the "Initial Term"). At the end of the Initial Term and each subsequent Renewal Term (as hereinafter defined), the term of this Agreement shall be automatically renewed and extended for a period of one year (the "Renewal Term"), unless either party hereto delivers a written termination notice to the other party at least 12 months prior to the end of the Initial Term or the then-current Renewal Term (as the case may be). 4. COMPENSATION During the term of this Agreement, Employer agrees to pay or cause to be paid to Employee, and Employee agrees to accept in exchange for the services rendered hereunder by him, the following compensation: 4.1. BASE SALARY Employee's compensation shall consist, in part, of an annual base salary of Two Hundred Seventy-Five Thousand Dollars ($275,000), before all customary payroll deductions. Such annual base salary shall be paid in substantially equal installments and at the same intervals as other officers of Employer are paid. The Board of Directors of Employer, or a committee thereof, shall determine any increases in the annual base salary in future years. 4.2. BONUS Employee may be entitled to receive, in addition to the annual base salary described above, an annual bonus in an amount to be determined by the Board of Directors of Employer, or a committee thereof, in its sole discretion and consistent with bonus plans then in effect. 5. BENEFITS During the term of this Agreement, Employee will be entitled to participate, subject to and in accordance with applicable eligibility requirements, in fringe benefit programs as shall be provided from time to time by Employer. -2- 3 6. TERMINATION Employee's employment pursuant to this Agreement may be terminated as follows: 6.1. BY EMPLOYER With or without Cause (as defined below), Employer may terminate Employee's employment at any time during the term of employment upon giving Notice of Termination (as defined below). 6.2. BY EMPLOYEE With or without Good Reason (as defined below), Employee may terminate his employment at any time upon giving Notice of Termination. 6.3. AUTOMATIC TERMINATION This Agreement and Employee's employment hereunder shall terminate automatically upon the death or Total Disability of Employee. The term "Total Disability" as used herein shall mean Employee's inability (with such accommodation as may be required by law and which places no undue burden on Employer), as determined by a physician selected by Employer and acceptable to Employee, to perform the duties set forth in Section 1 hereof for a period or periods aggregating 120 calendar days in any 12-month period as a result of physical or mental illness, loss of legal capacity or any other cause beyond Employee's control, unless Employee is granted a leave of absence by the Board of Directors of Employer. Employee and Employer hereby acknowledge that the duties specified in Section 1 hereof are essential to Employee's position and that Employee's ability to perform those duties is the essence of this Agreement. 6.4. NOTICE The term "Notice of Termination" shall mean at least 30 days' written notice of termination of Employee's employment, during which period Employee's employment and performance of services will continue; provided, however, that Employer may, upon notice to Employee and without reducing Employee's compensation during such period, excuse Employee from any or all of his duties during such period. The effective date of the termination of Employee's employment hereunder shall be the date on which such 30-day period expires. -3- 4 7. TERMINATION PAYMENTS In the event of termination of Employee's employment, all compensation and benefits set forth in this Agreement shall terminate, except as specifically provided in this Section 7: 7.1. TERMINATION BY EMPLOYER If Employer terminates Employee's employment without Cause prior to the end of the term of this Agreement, Employee shall be entitled to receive (a) severance payments equal to (i) two times Employee's annual base salary for the year in which such termination occurred, plus (ii) a percentage of such annual base salary equal to the percentage paid under Employer's Executive Incentive Plan (or any successor plan) for the prior fiscal year, (b) any unpaid annual base salary which has accrued for services already performed as of the date termination of Employee's employment becomes effective and any compensation previously deferred by Employee (together with accrued interest or earnings thereon, if any) and any accrued vacation pay which would be payable under Employer's standard policy, in each case to the extent not theretofore paid, and (c) for 18 months from the termination date, premiums for health insurance benefit continuation for Employee and his family members, if applicable, which Employer provides to Employee under the provisions of the federal Comprehensive Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), to the extent that Employer would have paid such premiums had Employee remained employed by Employer. If employment is terminated by Employer for Cause, Employee shall not be entitled to receive any of the foregoing benefits, other than those set forth in clause (b) above. 7.2. TERMINATION BY EMPLOYEE In the case of termination of Employee's employment for Good Reason, Employee shall be entitled to receive those payments set forth in Sections 7.1(a), (b) and (c) hereof. In the case of the termination of Employee's employment by Employee other than for Good Reason, Employee shall not be entitled to any payments hereunder, other than those set forth in Section 7.1(b) hereof. 7.3. DEATH AND TOTAL DISABILITY In the case of a termination of Employee's employment as a result of the Employee's death or Employee's Total Disability, Employee shall not be entitled to receive any payments hereunder, other than those set forth in Section 7.1(b) hereof. -4- 5 7.4. TERMINATION IN CONNECTION WITH A CHANGE OF CONTROL Employee and Employer shall enter into a Change of Control Agreement, in the form attached hereto as Exhibit A. Notwithstanding Sections 7.1 and 7.2 hereof and in full substitution of all payments otherwise due thereunder, if a Change of Control (as defined in such agreement) of Employer occurs, this Agreement shall terminate and the relationship between Employee and Employer shall be governed in all respects by the Change of Control Agreement. 7.5. PAYMENT SCHEDULE All payments under this Section 7 shall be made to Employee within thirty working days of the effective date of termination except that payments for COBRA premiums pursuant to Section 7.1(c) shall be made on a monthly basis. 7.6. CAUSE Wherever reference is made in this Agreement to termination being with or without Cause, "Cause" is limited to the occurrence of one or more of the following events: (a) Failure or refusal to carry out the lawful duties of Employee described in Section 1 hereof or any directions of the Board of Directors of Employer, which directions are reasonably consistent with the duties herein set forth to be performed by Employee; (b) Violation by Employee of a state or federal criminal law involving the commission of a crime against Employer or any of its subsidiaries; (c) Deception, fraud, misrepresentation or dishonesty by Employee; any incident materially compromising Employee's reputation or ability to represent Employer with the public; any act or omission by Employee which substantially impairs Employer's business, good will or reputation; or (d) Any other material violation of any provision of this Agreement. 7.7. GOOD REASON Wherever reference is made in this Agreement to termination being with or without Good Reason, "Good Reason" is limited to the occurrence of one or more of the following events: (a) the reduction in Employee's annual base salary as specified in Section 4.1 hereof or the reduction in the value of bonus payments that Employee -5- 6 is eligible to receive under Section 4.2 hereof (provided, however, that Good Reason shall not exist under this Section 7.7(a), in the event Employee does not actually realize such values because of failure to satisfy performance or other criteria applicable to such bonus payments or equity awards); (b) the material and substantial diminution or reduction without his consent of Employee's title, authority, duties or responsibilities; (c) Employer requiring Employee without his consent to be based at any offices or locations outside of King County, Washington; or (d) any breach by Employer of any other material provision of this Agreement. 8. REPRESENTATIONS AND WARRANTIES In order to induce Employer to enter into this Agreement, Employee represents and warrants to Employer that neither the execution nor the performance of this Agreement by Employee will violate or conflict in any way with any other agreement by which Employee may be bound, or with any other duties imposed upon Employee by corporate or other statutory or common law. 9. NOTICE AND CURE OF BREACH Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than pursuant to the definition of Cause set forth in Section 7.6 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least 20 days' prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the 20-day period. 10. CONFIDENTIALITY AGREEMENT Employer and Employee agree that the Confidential Information, Inventions and Nonsolicitation Agreement, dated July 12, 1993, between Employer and Employee and attached hereto as Exhibit B shall remain in full force and effect and survive the termination of Employee's employment. -6- 7 11. FORM OF NOTICE All notices given hereunder shall be given in writing, shall specifically refer to this Agreement and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by reputable overnight courier, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof. Such notice shall be effective upon receipt or upon refusal of the addressee to accept delivery. If to Employee: Kevin B. Vitale 10809 - 178th Pl. NE Redmond, WA 98052 If to Employer: Wall Data Incorporated 11332 NE 122nd Way Kirkland, WA 98034-6931 Attn: General Counsel Phone: (425) 814-9255 Facsimile: (425) 814-4372 Copy to: Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, WA 98101-3099 Attn: L. Michelle Wilson Phone: (206) 583-8888 Facsimile: (206) 583-8500 12. ASSIGNMENT This Agreement is personal to Employee and shall not be assignable by Employee. Employer may assign its rights hereunder to (a) any corporation resulting from any merger, consolidation, spin-off or other reorganization to which Employer is a party or (b) any corporation, partnership, association or other person to which Employer may transfer all or substantially all the assets and business of Employer existing at such time. All the terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 13. WAIVERS No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver -7- 8 by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 14. AMENDMENTS IN WRITING No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by Employer and Employee, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by Employer and Employee. 15. ARBITRATION Any dispute arising under this Agreement shall be subject to arbitration. The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA Rules") then in effect, conducted by one arbitrator either mutually agreed upon or selected in accordance with the AAA Rules, except that the parties thereto shall have any right to discovery as would be permitted by the Federal Rules of Civil Procedure for a period of 90 days following the commencement of such arbitration and the arbitrator thereof shall resolve any dispute which arises in connection with such discovery. The arbitration shall be conducted in King County, Washington under the jurisdiction of the Seattle office of the American Arbitration Association. The arbitrator shall have authority only to interpret and apply the provisions of this Agreement and shall have no authority to add to, subtract from, or otherwise modify the terms of this Agreement. Any demand for arbitration must be made within 60 days of the event(s) giving rise to the claim that this Agreement has been breached. The arbitrator's decision shall be final and binding, and each party agrees to be bound by the arbitrator's award subject, only to an appeal therefrom in accordance with the laws of state of Washington. Either party may obtain judgment upon the arbitrator's award in the Superior Court of King County, Washington. -8- 9 16. APPLICABLE LAW This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the state of Washington, without regard to any rules governing conflicts of laws. 17. SEVERABILITY If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, then, to the full extent permitted by law (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 18. HEADINGS All headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. 19. COUNTERPARTS This Agreement, and any amendment or modification entered into pursuant to Section 14 hereof, may be executed in any number of counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same instrument. 20. ENTIRE AGREEMENT This Agreement on and as of the date hereof constitutes the entire agreement between Employer and Employee with respect to the subject matter hereof and all prior or contemporaneous oral or written communications, understandings or agreements between Employer and Employee with respect to such subject matter are hereby superseded and nullified in their entireties. -9- 10 IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the date set forth above. EMPLOYEE: /s/ Kevin B. Vitale ---------------------------------------- Kevin B. Vitale EMPLOYER: WALL DATA INCORPORATED By /s/ Robert J. Frankenberg -------------------------------------- Robert J. Frankenberg Chairman of the Board -10- 11 EXHIBIT A CHANGE OF CONTROL AGREEMENT 12 EXHIBIT B CONFIDENTIAL INFORMATION, INVENTIONS AND NONSOLICITATION AGREEMENT 13 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (this "Agreement"), dated as of January 21, 1999, is between WALL DATA INCORPORATED, a Washington corporation (the "Company"), and KEVIN B. VITALE (the "Employee"). RECITAL The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 1.1 hereof) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Employee arising from the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Employee with reasonable compensation and benefit arrangements upon a Change of Control. AGREEMENT In order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. 1. DEFINITIONS 1.1 CHANGE OF CONTROL "Change of Control" shall have the definition set forth in Appendix A to this Agreement, which is hereby incorporated by reference. 1.2 CHANGE OF CONTROL DATE "Change of Control Date" shall mean the first date on which a Change of Control occurs. 1.3 EMPLOYMENT PERIOD "Employment Period" shall mean the two-year period commencing on the Change of Control Date and ending on the second anniversary of such date. 14 2. TERM The term of this Agreement ("Term") shall be for the Initial Term and any Renewal Term, as such terms are defined in the Employment Agreement, dated the date hereof, between the Company and the Employee; provided, however, that if a Change of Control occurs during the Term, the Term shall automatically extend for the duration of the Employment Period. 3. EMPLOYMENT 3.1 EMPLOYMENT PERIOD During the Employment Period, the Company hereby agrees to continue the Employee in its employ or in the employ of its affiliated companies, and the Employee hereby agrees to remain in the employ of the Company or its affiliated companies, in accordance with the terms and provisions of this Agreement; provided, however, that either the Company or the Employee may terminate the employment relationship subject to the terms of this Agreement. 3.2 POSITION AND DUTIES During the Employment Period, the Employee's title, position, authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Change of Control Date. 3.3 LOCATION During the Employment Period, the Employee's services shall be performed at the Company's headquarters on the Change of Control Date or any office which is subsequently designated as the headquarters of the Company and is located in King County, Washington. 3.4 TERMINATION PRIOR TO CHANGE OF CONTROL If prior to the Change of Control Date, the Employee's employment with the Company or its affiliated companies terminates for any reason, then the Employee shall have no further rights under this Agreement; provided, however, that the Company may not avoid liability for any termination payments which would have been required during the Employment Period pursuant to Section 8 hereof by terminating the Employee prior to the Employment Period where such termination is carried out in anticipation of a Change of Control and the principal motivating purpose is to avoid liability for such termination payments. -2- 15 4. ATTENTION AND EFFORT During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee will devote all his productive time, ability, attention and effort to the business and affairs of the Company and the discharge of the responsibilities assigned to him hereunder, and he will use his reasonable best efforts to perform faithfully and efficiently such responsibilities. It shall not be a violation of this Agreement for the Employee to (a) serve on corporate, civic or charitable boards or committees approved in advance by the Company's President, (b) deliver lectures, fulfill speaking engagements or teach at educational institutions, (c) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities in accordance with this Agreement and (d) other activities approved in advance by the Company. It is expressly understood and agreed that to the extent any such activities have been conducted by the Employee prior to the Employment Period, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) during the Employment Period shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. 5. COMPENSATION As long as the Employee remains employed by the Company during the Employment Period, the Company agrees to pay or cause to be paid to the Employee, and the Employee agrees to accept in exchange for the services rendered hereunder by him, the following compensation: 5.1 SALARY The Employee shall receive an annual base salary (the "Annual Base Salary") at least equal to the annual salary established by the Board or a committee of the Board (the "Compensation Committee") for the fiscal year in which the Change of Control Date occurs. The Annual Base Salary shall be paid in substantially equal installments and at the same intervals as the salaries of other employees of the Company are paid. The Board or the Compensation Committee shall review the Annual Base Salary at least annually and shall determine in good faith and consistent with any generally applicable Company policy any increases for future years. 5.2 BONUS In addition to Annual Base Salary, the Employee shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average annualized (for any fiscal year consisting -3- 16 of less than 12 full months) bonus paid or payable, including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Change of Control Date occurs. Each such Annual Bonus shall be paid no later than 90 days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus. 6. BENEFITS 6.1 INCENTIVE, RETIREMENT AND WELFARE BENEFIT PLANS; VACATION During the Employment Period, the Employee shall be entitled to participate, subject to and in accordance with applicable eligibility requirements, in such fringe benefit programs as shall be generally made available to other employees of the Company and its affiliated companies from time to time during the Employment Period by action of the Board (or any person or committee appointed by the Board to determine fringe benefit programs and other emoluments), including, without limitation, paid vacations; any stock purchase, savings or retirement plan, practice, policy or program; and all welfare benefit plans, practices, policies or programs (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans or programs). 6.2 EXPENSES During the Employment Period, the Employee shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by him in accordance with the policies, practices and procedures of the Company and its affiliated companies in effect for the employees of the Company and its affiliated companies during the Employment Period. 7. TERMINATION During the Employment Period, employment of the Employee may be terminated as follows: 7.1 BY THE COMPANY OR THE EMPLOYEE At any time during the Employment Period, the Company may terminate the employment of the Employee with or without Cause (as defined below), and the Employee may terminate his employment for Good Reason (as defined below) or for any reason, upon giving Notice of Termination (as defined below). -4- 17 7.2 AUTOMATIC TERMINATION This Agreement and the Employee's employment during the Employment Period shall terminate automatically upon the death or Total Disability of the Employee. The term "Total Disability" as used herein shall mean the Employee's inability (with such accommodation as may be required by law and which places no undue burden on the Company), as determined by a physician selected by the Company and acceptable to the Employee, to perform the duties set forth in Section 3.2 hereof for a period or periods aggregating 120 calendar days in any 12-month period as a result of physical or mental illness, loss of legal capacity or any other cause beyond the Employee's control, unless the Employee is granted a leave of absence by the Board. The Employee and the Company hereby acknowledge that the duties specified in Section 3.2 hereof are essential to the Employee's position and that Employee's ability to perform those duties is the essence of this Agreement. 7.3 NOTICE OF TERMINATION Any termination by the Company or by the Employee during the Employment Period shall be communicated by Notice of Termination to the other party given in accordance with Section 11 hereof. The term "Notice of Termination" shall mean a written notice which (a) indicates the specific termination provision in this Agreement relied upon and (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated. The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. 7.4 DATE OF TERMINATION During the Employment Period, "Date of Termination" means (a) if the Employee's employment is terminated by reason of death, at the end of the calendar month in which the Employee's death occurs, (b) if the Employee's employment is terminated by reason of Total Disability, immediately upon a determination by the Company of the Employee's Total Disability, and (c) in all other cases, five days after the effective date of notice pursuant to Section 11 hereof. The Employee's employment and performance of services will continue during such five-day period; provided, however, that the Company may, upon notice to the Employee and without -5- 18 reducing the Employee's compensation during such period, excuse the Employee from any or all of his duties during such period. 8. TERMINATION PAYMENTS In the event of termination of the Employee's employment during the Employment Period, all compensation and benefits set forth in this Agreement shall terminate, except as specifically provided in this Section 8. 8.1 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE EMPLOYEE FOR GOOD REASON If during the Employment Period the Company terminates the Employee's employment other than for Cause or the Employee terminates his employment for Good Reason, the Employee shall be entitled to: (a) receive payment of the following accrued obligations (the "Accrued Obligations"): (i) the Employee's Annual Base Salary through the Date of Termination to the extent not theretofore paid; and (ii) any compensation previously deferred by the Employee (together with accrued interest or earnings thereon, if any) and any accrued vacation pay which would be payable under the Company's standard policy, in each case to the extent not theretofore paid; (b) for 18 months after the Date of Termination, Employee's premiums for health insurance benefit continuation for Employee and his family members, if applicable, which the Company provides to the Employee under the provisions of the federal Comprehensive Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), to the extent that the Company would have paid such premiums had the Employee remained employed by the Company; and (c) an amount as severance pay equal to two and one-half times the Annual Base Salary for the fiscal year in which the Date of Termination occurs, plus a percentage of such Annual Base Salary equal to the percentage paid under the Company's Executive Incentive Plan (or any successor plan) for the prior fiscal year (the "Severance Obligation"). -6- 19 8.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON If during the Employment Period the Employee's employment shall be terminated by the Company for Cause or by the Employee for other than Good Reason, this Agreement shall terminate without further obligation on the part of the Company to the Employee, other than the Company's obligation to pay the Employee (a) his Annual Base Salary through the Date of Termination, (b) the amount of any compensation previously deferred by the Employee, and (c) any accrued vacation pay which would be payable under the Company's standard policy, in each case to the extent theretofore unpaid. 8.3 EXPIRATION OF TERM In the case of a termination of the Employee's employment as a result of the expiration of the Term of this Agreement, this Agreement shall terminate without further obligation on the part of the Company to the Employee, other than the Company's obligation to pay the Employee the Accrued Obligations. 8.4 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY If during the Employment Period the Employee's employment is terminated by reason of the Employee's death or Total Disability, this Agreement shall terminate automatically without further obligation on the part of the Company to the Employee or his legal representatives under this Agreement, other than the Company's obligation to pay the Employee the Accrued Obligations (which shall be paid to the Employee's estate or beneficiary, as applicable in the case of the Employee's death). 8.5 PAYMENT SCHEDULE All payments of the Accrued Obligations and the Severance Obligation, or any portion thereof payable pursuant to this Section 8, shall be made to the Employee within thirty working days of the Date of Termination, except that payments for COBRA premiums pursuant to Section 8.1(b) shall be made on a monthly basis. 8.6 CAUSE For purposes of this Agreement, "Cause" means cause given by the Employee to the Company and shall be limited to the occurrence of one or more of the following events: (a) A clear refusal to carry out any material lawful duties of the Employee or any directions of the Board, all reasonably consistent with the duties -7- 20 described in Section 3.2 hereof, provided the Employee has been given reasonable notice and opportunity to correct any such failure; (b) Violation by the Employee of a state or federal criminal law involving the commission of a crime against the Company or any of its subsidiaries; (c) Deception, fraud, misrepresentation or dishonesty by the Employee; any incident materially compromising the Employee's reputation or ability to represent the Company with investors, customers or the public; or (d) Any other material violation of any provision of this Agreement by the Employee, subject to the notice and opportunity to cure requirements of Section 10. 8.7 GOOD REASON For purposes of this Agreement, "Good Reason" means (a) The assignment to the Employee of any duties materially inconsistent with the Employee's title, position, authority, duties or responsibilities as contemplated by Section 3.2 hereof or any other action by the Company which results in a material diminution in such title, position, authority, duties or responsibilities; (b) Any failure by the Company to comply with any of the provisions of Section 5 or 6 hereof; (c) The Company's requiring the Employee to be based at any office or location other than that described in Section 3.3 hereof; (d) Any failure by the Company to comply with and satisfy Section 12 hereof, provided that the Company's successor has received at least ten days' prior written notice from the Company or the Employee of the requirements of Section 12 hereof; or (e) Any other material violation of any provision of this Agreement by the Company. 8.8 EXCESS PARACHUTE LIMITATION If either the Company or the Employee receives confirmation from the Company's independent tax counsel or its certified public accounting firm, or such other accounting firm retained as independent certified public accountants for the Company (the "Tax Advisor"), that any payment by the Company to the Employee -8- 21 under this Agreement or otherwise would be considered to be an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, or any successor statute then in effect (the "Code"), then the aggregate payments by the Company pursuant to this Agreement shall be reduced to the highest amount that may be paid to the Employee by the Company under this Agreement without having any portion of any amount payable to the Employee by the Company or a related entity under this Agreement or otherwise treated as such an "excess parachute payment," and, if permitted by applicable law and without adverse tax consequence, such reduction shall be made to the last payment due hereunder. Any payments made by the Company to the Employee under this Agreement which are later confirmed by the Tax Advisor to be "excess parachute payments" shall be considered by all parties to have been a loan by the Company to the Employee, which loan shall be repaid by the Employee upon demand, together with interest calculated at the lowest interest rate authorized for such loans under the Code, without a requirement that further interest be imputed. 9. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS In order to induce the Company to enter into this Agreement, the Employee represents and warrants to the Company that neither the execution nor the performance of this Agreement by the Employee will violate or conflict in any way with any other agreement by which the Employee may be bound or with any other duties imposed upon Employee by corporate or other statutory or common law. 10. NOTICE AND CURE OF BREACH Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than pursuant to the definition of Cause set forth in Section 8.6 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least ten days' prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the ten-day period. 11. FORM OF NOTICE All notices given hereunder shall be given in writing, shall specifically refer to this Agreement and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by reputable overnight courier, at the address set forth below or at such other address as may hereafter be designated by notice given in -9- 22 compliance with the terms hereof. Such notice shall be effective upon receipt or upon refusal of the addressee to accept delivery. If to Employee: Kevin B. Vitale 10809 - 178th Pl. NE Redmond, WA 98052 If to Company: Wall Data Incorporated 11332 NE 122nd Way Kirkland, WA 98034-6931 Attn: General Counsel Phone: (425) 814-9255 Facsimile: (425) 814-4372 Copy to: Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, WA 98101-3099 Attn: L. Michelle Wilson Phone: (206) 583-8888 Facsimile: (206) 583-8500 12. ASSIGNMENT This Agreement is personal to the Employee and shall not be assignable by the Employee. The Company shall assign to and require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean Wall Data Incorporated and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 13. WAIVERS No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or -10- 23 circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 14. AMENDMENTS IN WRITING No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the Company and the Employee, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Employee. 15. APPLICABLE LAW This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the state of Washington, without regard to any rules governing conflicts of laws. 16. ARBITRATION Any dispute arising under this Agreement shall be subject to arbitration. The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA Rules") then in effect, conducted by one arbitrator either mutually agreed upon or selected in accordance with the AAA Rules, except that the parties thereto shall have any right to discovery as would be permitted by the Federal Rules of Civil Procedure for a period of 90 days following the commencement of such arbitration and the arbitrator thereof shall resolve any dispute which arises in connection with such discovery. The arbitration shall be conducted in King County, Washington under the jurisdiction of the Seattle office of the American Arbitration Association. The arbitrator shall have authority only to interpret and apply the provisions of this Agreement and shall have no authority to add to, subtract from, or otherwise modify the terms of this Agreement. Any demand for arbitration must be made within 60 days of the event(s) giving rise to the claim that this Agreement has been breached. The arbitrator's decision shall be final and binding, and each party agrees to be bound by the arbitrator's award subject, only to an appeal therefrom in accordance with the laws of -11- 24 the state of Washington. Either party may obtain judgment upon the arbitrator's award in the Superior Court of King County, Washington. 17. SEVERABILITY If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 18. ENTIRE AGREEMENT This Agreement on and as of the date hereof constitutes the entire agreement between the Company and the Employee with respect to the subject matter hereof and all prior or contemporaneous oral or written communications, understandings or agreements between the Company and the Employee with respect to such subject matter are hereby superseded and nullified in their entireties, except that the Confidential Information, Inventions and Nonsolicitation Agreement between the Employee and the Company, dated July 12, 1993, shall continue in full force and effect and survive the termination of the Employee's employment. 19. COUNTERPARTS This Agreement may be executed in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. 20. HEADINGS All headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. -12- 25 IN WITNESS WHEREOF, the parties have executed and entered into this Agreement effective on the date first set forth above. EMPLOYEE /s/ Kevin B. Vitale ---------------------------------------- Kevin B. Vitale WALL DATA INCORPORATED By /s/ Robert J. Frankenberg -------------------------------------- Robert J. Frankenberg Chairman of the Board -13- 26 APPENDIX A TO CHANGE OF CONTROL AGREEMENT BETWEEN WALL DATA INCORPORATED AND KEVIN B. VITALE For purposes of this Agreement, a "Change of Control" shall mean: (a) A "Board Change" which, for purposes of this Agreement, shall have occurred if a majority (excluding vacant seats) of the seats on the Company's Board are occupied by individuals who were neither (i) nominated by a majority of the Incumbent Directors nor (ii) appointed by directors so nominated. An "Incumbent Director" is a member of the Board who has been either (i) nominated by a majority of the directors of the Company then in office or (ii) appointed by directors so nominated, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person (as hereinafter defined) other than the Board; or (b) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (i) more than 50% of either (i) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (z) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Appendix A are satisfied; or 27 (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, immediately following such reorganization, merger or consolidation, (i) more than 50% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportion as their ownership immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 33% or more of the Outstanding Company Common Stock or the Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were the Incumbent Directors at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all the assets of the Company, other than to a corporation with respect to which immediately following such sale or other disposition, (A) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company -2- 28 or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 33% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were approved by a majority of the Incumbent Directors at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. -3- EX-10.4 5 EMPLOYMENT AGREEMENT WITH CRAIG E. SHANK 1 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), dated as of January 21, 1999, between Wall Data Incorporated, a Washington corporation ("Employer"), and Craig E. Shank ("Employee"); RECITALS WHEREAS, Employer desires to continue to employ Employee upon the terms and conditions set forth herein; and WHEREAS, Employee is willing to provide services to Employer upon the terms and conditions set forth herein; AGREEMENT NOW, THEREFORE, for and in consideration of the foregoing premises and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, Employer and Employee hereby agree as follows: 1. EMPLOYMENT Employer will employ Employee and Employee will accept employment by Employer as its Vice President, General Counsel and Secretary. Employee will have the authority, subject to Employer's Articles of Incorporation and Bylaws, as may be granted from time to time by the Board of Directors of Employer. Employee will perform the duties customarily performed by the Vice President, General Counsel and Secretary of a corporation which is similar to Employer and such other duties as may be assigned from time to time by the Board of Directors of Employer, which relate to the business of Employer, its subsidiaries, its parent corporation, or any business ventures in which Employer, its subsidiaries or its parent corporation may participate. 2. ATTENTION AND EFFORT Employee will devote all his productive time, ability, attention and effort to the business and affairs of Employer and the discharge of the responsibilities assigned to him hereunder, and will use his reasonable best efforts to perform faithfully and efficiently such responsibilities. It shall not be a violation of this Agreement for Employee to (a) serve on corporate, civic or charitable boards or committees approved in advance by Employer's President, (b) deliver lectures, fulfill speaking engagements or 2 teach at educational institutions, (c) manage personal investments, so long as such activities do not significantly interfere with the performance of Employee's responsibilities in accordance with this Agreement and (d) other activities approved in advance by Employer. 3. TERM Unless otherwise terminated pursuant to Section 6 hereof, Employee's term of employment under this Agreement shall expire on the second anniversary of the date of this Agreement (the "Initial Term"). At the end of the Initial Term and each subsequent Renewal Term (as hereinafter defined), the term of this Agreement shall be automatically renewed and extended for a period of one year (the "Renewal Term"), unless either party hereto delivers a written termination notice to the other party at least 12 months prior to the end of the Initial Term or the then-current Renewal Term (as the case may be). 4. COMPENSATION During the term of this Agreement, Employer agrees to pay or cause to be paid to Employee, and Employee agrees to accept in exchange for the services rendered hereunder by him, the following compensation: 4.1. BASE SALARY Employee's compensation shall consist, in part, of an annual base salary of One Hundred Eighty-Five Thousand Dollars ($185,000), before all customary payroll deductions. Such annual base salary shall be paid in substantially equal installments and at the same intervals as other officers of Employer are paid. The Board of Directors of Employer, or a committee thereof, shall determine any increases in the annual base salary in future years. 4.2. BONUS Employee may be entitled to receive, in addition to the annual base salary described above, an annual bonus in an amount to be determined by the Board of Directors of Employer, or a committee thereof, in its sole discretion and consistent with bonus plans then in effect. 5. BENEFITS During the term of this Agreement, Employee will be entitled to participate, subject to and in accordance with applicable eligibility requirements, in fringe benefit programs as shall be provided from time to time by Employer. -2- 3 6. TERMINATION Employee's employment pursuant to this Agreement may be terminated as follows: 6.1. BY EMPLOYER With or without Cause (as defined below), Employer may terminate Employee's employment at any time during the term of employment upon giving Notice of Termination (as defined below). 6.2. BY EMPLOYEE With or without Good Reason (as defined below), Employee may terminate his employment at any time upon giving Notice of Termination. 6.3. AUTOMATIC TERMINATION This Agreement and Employee's employment hereunder shall terminate automatically upon the death or Total Disability of Employee. The term "Total Disability" as used herein shall mean Employee's inability (with such accommodation as may be required by law and which places no undue burden on Employer), as determined by a physician selected by Employer and acceptable to Employee, to perform the duties set forth in Section 1 hereof for a period or periods aggregating 120 calendar days in any 12-month period as a result of physical or mental illness, loss of legal capacity or any other cause beyond Employee's control, unless Employee is granted a leave of absence by the Board of Directors of Employer. Employee and Employer hereby acknowledge that the duties specified in Section 1 hereof are essential to Employee's position and that Employee's ability to perform those duties is the essence of this Agreement. 6.4. NOTICE The term "Notice of Termination" shall mean at least 30 days' written notice of termination of Employee's employment, during which period Employee's employment and performance of services will continue; provided, however, that Employer may, upon notice to Employee and without reducing Employee's compensation during such period, excuse Employee from any or all of his duties during such period. The effective date of the termination of Employee's employment hereunder shall be the date on which such 30-day period expires. -3- 4 7. TERMINATION PAYMENTS In the event of termination of Employee's employment, all compensation and benefits set forth in this Agreement shall terminate, except as specifically provided in this Section 7: 7.1. TERMINATION BY EMPLOYER If Employer terminates Employee's employment without Cause prior to the end of the term of this Agreement, Employee shall be entitled to receive (a) severance payments equal to (i) one times Employee's annual base salary for the year in which such termination occurred, plus (ii) a percentage of such annual base salary equal to the percentage paid under Employer's Executive Incentive Plan (or any successor plan) for the prior fiscal YEAR, (b) any unpaid annual base salary which has accrued for services already performed as of the date termination of Employee's employment becomes effective and any compensation previously deferred by Employee (together with accrued interest or earnings thereon, if any) and any accrued vacation pay which would be payable under Employer's standard policy, in each case to the extent not theretofore paid, and (c) for 18 months from the termination date, premiums for health insurance benefit continuation for Employee and his family members, if applicable, which Employer provides to Employee under the provisions of the federal Comprehensive Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), to the extent that Employer would have paid such premiums had Employee remained employed by Employer. If employment is terminated by Employer for Cause, Employee shall not be entitled to receive any of the foregoing benefits, other than those set forth in clause (b) above. 7.2. TERMINATION BY EMPLOYEE In the case of termination of Employee's employment for Good Reason, Employee shall be entitled to receive those payments set forth in Sections 7.1(a), (b) and (c) hereof. In the case of the termination of Employee's employment by Employee other than for Good Reason, Employee shall not be entitled to any payments hereunder, other than those set forth in Section 7.1(b) hereof. 7.3. DEATH AND TOTAL DISABILITY In the case of a termination of Employee's employment as a result of the Employee's death or Employee's Total Disability, Employee shall not be entitled to receive any payments hereunder, other than those set forth in Section 7.1(b) hereof. -4- 5 7.4. TERMINATION IN CONNECTION WITH A CHANGE OF CONTROL Employee and Employer shall enter into a Change of Control Agreement, in the form attached hereto as Exhibit A. Notwithstanding Sections 7.1 and 7.2 hereof and in full substitution of all payments otherwise due thereunder, if a Change of Control (as defined in such agreement) of Employer occurs, this Agreement shall terminate and the relationship between Employee and Employer shall be governed in all respects by the Change of Control Agreement. 7.5. PAYMENT SCHEDULE All payments under this Section 7 shall be made to Employee within thirty working days of the effective date of termination except that payments for COBRA premiums pursuant to Section 7.1(c) shall be made on a monthly basis. 7.6. CAUSE Wherever reference is made in this Agreement to termination being with or without Cause, "Cause" is limited to the occurrence of one or more of the following events: (a) Failure or refusal to carry out the lawful duties of Employee described in Section 1 hereof or any directions of the Board of Directors of Employer, which directions are reasonably consistent with the duties herein set forth to be performed by Employee; (b) Violation by Employee of a state or federal criminal law involving the commission of a crime against Employer or any of its subsidiaries; (c) Deception, fraud, misrepresentation or dishonesty by Employee; any incident materially compromising Employee's reputation or ability to represent Employer with the public; any act or omission by Employee which substantially impairs Employer's business, good will or reputation; or (d) Any other material violation of any provision of this Agreement. 7.7. GOOD REASON Wherever reference is made in this Agreement to termination being with or without Good Reason, "Good Reason" is limited to the occurrence of one or more of the following events: (a) the reduction in Employee's annual base salary as specified in Section 4.1 hereof or the reduction in the value of bonus payments that Employee -5- 6 is eligible to receive under Section 4.2 hereof (provided, however, that Good Reason shall not exist under this Section 7.7(a), in the event Employee does not actually realize such values because of failure to satisfy performance or other criteria applicable to such bonus payments or equity awards); (b) the material and substantial diminution or reduction without his consent of Employee's title, authority, duties or responsibilities; (c) Employer requiring Employee without his consent to be based at any offices or locations outside of King County, Washington; or (d) any breach by Employer of any other material provision of this Agreement. 8. REPRESENTATIONS AND WARRANTIES In order to induce Employer to enter into this Agreement, Employee represents and warrants to Employer that neither the execution nor the performance of this Agreement by Employee will violate or conflict in any way with any other agreement by which Employee may be bound, or with any other duties imposed upon Employee by corporate or other statutory or common law. 9. NOTICE AND CURE OF BREACH Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than pursuant to the definition of Cause set forth in Section 7.6 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least 20 days' prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the 20-day period. 10. CONFIDENTIALITY AGREEMENT Employer and Employee agree that the Confidential Information, Inventions and Nonsolicitation Agreement, dated March 31, 1998, between Employer and Employee and attached hereto as Exhibit B shall remain in full force and effect and survive the termination of Employee's employment. -6- 7 11. FORM OF NOTICE All notices given hereunder shall be given in writing, shall specifically refer to this Agreement and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by reputable overnight courier, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof. Such notice shall be effective upon receipt or upon refusal of the addressee to accept delivery. If to Employee: Craig E. Shank 7863 NE 10th St. Medina, WA 98039 If to Employer: Wall Data Incorporated 11332 NE 122nd Way Kirkland, WA 98034-6931 Attn: General Counsel Phone: (425) 814-9255 Facsimile: (425) 814-4372 Copy to: Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, WA 98101-3099 Attn: L. Michelle Wilson Phone: (206) 583-8888 Facsimile: (206) 583-8500 12. ASSIGNMENT This Agreement is personal to Employee and shall not be assignable by Employee. Employer may assign its rights hereunder to (a) any corporation resulting from any merger, consolidation, spin-off or other reorganization to which Employer is a party or (b) any corporation, partnership, association or other person to which Employer may transfer all or substantially all the assets and business of Employer existing at such time. All the terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 13. WAIVERS No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver -7- 8 by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 14. AMENDMENTS IN WRITING No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by Employer and Employee, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by Employer and Employee. 15. ARBITRATION Any dispute arising under this Agreement shall be subject to arbitration. The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA Rules") then in effect, conducted by one arbitrator either mutually agreed upon or selected in accordance with the AAA Rules, except that the parties thereto shall have any right to discovery as would be permitted by the Federal Rules of Civil Procedure for a period of 90 days following the commencement of such arbitration and the arbitrator thereof shall resolve any dispute which arises in connection with such discovery. The arbitration shall be conducted in King County, Washington under the jurisdiction of the Seattle office of the American Arbitration Association. The arbitrator shall have authority only to interpret and apply the provisions of this Agreement and shall have no authority to add to, subtract from, or otherwise modify the terms of this Agreement. Any demand for arbitration must be made within 60 days of the event(s) giving rise to the claim that this Agreement has been breached. The arbitrator's decision shall be final and binding, and each party agrees to be bound by the arbitrator's award subject, only to an appeal therefrom in accordance with the laws of state of Washington. Either party may obtain judgment upon the arbitrator's award in the Superior Court of King County, Washington. -8- 9 16. APPLICABLE LAW This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the state of Washington, without regard to any rules governing conflicts of laws. 17. SEVERABILITY If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, then, to the full extent permitted by law (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 18. HEADINGS All headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. 19. COUNTERPARTS This Agreement, and any amendment or modification entered into pursuant to Section 14 hereof, may be executed in any number of counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same instrument. 20. ENTIRE AGREEMENT This Agreement on and as of the date hereof constitutes the entire agreement between Employer and Employee with respect to the subject matter hereof and all prior or contemporaneous oral or written communications, understandings or agreements between Employer and Employee with respect to such subject matter are hereby superseded and nullified in their entireties. -9- 10 IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the date set forth above. EMPLOYEE: /s/ Craig E. Shank ---------------------------------------- Craig E. Shank EMPLOYER: WALL DATA INCORPORATED By /s/ Robert J. Frankenberg -------------------------------------- Robert J. Frankenberg Chairman of the Board -10- 11 EXHIBIT A CHANGE OF CONTROL AGREEMENT 12 EXHIBIT B CONFIDENTIAL INFORMATION, INVENTIONS AND NONSOLICITATION AGREEMENT 13 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (this "Agreement"), dated as of January 21, 1999, is between WALL DATA INCORPORATED, a Washington corporation (the "Company"), and CRAIG E. SHANK (the "Employee"). RECITAL The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 1.1 hereof) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Employee arising from the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Employee with reasonable compensation and benefit arrangements upon a Change of Control. AGREEMENT In order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. 1. DEFINITIONS 1.1 CHANGE OF CONTROL "Change of Control" shall have the definition set forth in Appendix A to this Agreement, which is hereby incorporated by reference. 1.2 CHANGE OF CONTROL DATE "Change of Control Date" shall mean the first date on which a Change of Control occurs. 1.3 EMPLOYMENT PERIOD "Employment Period" shall mean the two-year period commencing on the Change of Control Date and ending on the second anniversary of such date. 14 2. TERM The term of this Agreement ("Term") shall be for the Initial Term and any Renewal Term, as such terms are defined in the Employment Agreement, dated the date hereof, between the Company and the Employee; provided, however, that if a Change of Control occurs during the Term, the Term shall automatically extend for the duration of the Employment Period. 3. EMPLOYMENT 3.1 EMPLOYMENT PERIOD During the Employment Period, the Company hereby agrees to continue the Employee in its employ or in the employ of its affiliated companies, and the Employee hereby agrees to remain in the employ of the Company or its affiliated companies, in accordance with the terms and provisions of this Agreement; provided, however, that either the Company or the Employee may terminate the employment relationship subject to the terms of this Agreement. 3.2 POSITION AND DUTIES During the Employment Period, the Employee's title, position, authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Change of Control Date. 3.3 LOCATION During the Employment Period, the Employee's services shall be performed at the Company's headquarters on the Change of Control Date or any office which is subsequently designated as the headquarters of the Company and is located in King County, Washington. 3.4 TERMINATION PRIOR TO CHANGE OF CONTROL If prior to the Change of Control Date, the Employee's employment with the Company or its affiliated companies terminates for any reason, then the Employee shall have no further rights under this Agreement; provided, however, that the Company may not avoid liability for any termination payments which would have been required during the Employment Period pursuant to Section 8 hereof by terminating the Employee prior to the Employment Period where such termination is carried out in anticipation of a Change of Control and the principal motivating purpose is to avoid liability for such termination payments. -2- 15 4. ATTENTION AND EFFORT During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee will devote all his productive time, ability, attention and effort to the business and affairs of the Company and the discharge of the responsibilities assigned to him hereunder, and he will use his reasonable best efforts to perform faithfully and efficiently such responsibilities. It shall not be a violation of this Agreement for the Employee to (a) serve on corporate, civic or charitable boards or committees approved in advance by the Company's President, (b) deliver lectures, fulfill speaking engagements or teach at educational institutions, (c) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities in accordance with this Agreement and (d) other activities approved in advance by the Company. It is expressly understood and agreed that to the extent any such activities have been conducted by the Employee prior to the Employment Period, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) during the Employment Period shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. 5. COMPENSATION As long as the Employee remains employed by the Company during the Employment Period, the Company agrees to pay or cause to be paid to the Employee, and the Employee agrees to accept in exchange for the services rendered hereunder by him, the following compensation: 5.1 SALARY The Employee shall receive an annual base salary (the "Annual Base Salary") at least equal to the annual salary established by the Board or a committee of the Board (the "Compensation Committee") for the fiscal year in which the Change of Control Date occurs. The Annual Base Salary shall be paid in substantially equal installments and at the same intervals as the salaries of other employees of the Company are paid. The Board or the Compensation Committee shall review the Annual Base Salary at least annually and shall determine in good faith and consistent with any generally applicable Company policy any increases for future years. 5.2 BONUS In addition to Annual Base Salary, the Employee shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average annualized (for any fiscal year consisting -3- 16 of less than 12 full months) bonus paid or payable, including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Change of Control Date occurs. Each such Annual Bonus shall be paid no later than 90 days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus. 6. BENEFITS 6.1 INCENTIVE, RETIREMENT AND WELFARE BENEFIT PLANS; VACATION During the Employment Period, the Employee shall be entitled to participate, subject to and in accordance with applicable eligibility requirements, in such fringe benefit programs as shall be generally made available to other employees of the Company and its affiliated companies from time to time during the Employment Period by action of the Board (or any person or committee appointed by the Board to determine fringe benefit programs and other emoluments), including, without limitation, paid vacations; any stock purchase, savings or retirement plan, practice, policy or program; and all welfare benefit plans, practices, policies or programs (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans or programs). 6.2 EXPENSES During the Employment Period, the Employee shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by him in accordance with the policies, practices and procedures of the Company and its affiliated companies in effect for the employees of the Company and its affiliated companies during the Employment Period. 7. TERMINATION During the Employment Period, employment of the Employee may be terminated as follows: 7.1 BY THE COMPANY OR THE EMPLOYEE At any time during the Employment Period, the Company may terminate the employment of the Employee with or without Cause (as defined below), and the Employee may terminate his employment for Good Reason (as defined below) or for any reason, upon giving Notice of Termination (as defined below). -4- 17 7.2 AUTOMATIC TERMINATION This Agreement and the Employee's employment during the Employment Period shall terminate automatically upon the death or Total Disability of the Employee. The term "Total Disability" as used herein shall mean the Employee's inability (with such accommodation as may be required by law and which places no undue burden on the Company), as determined by a physician selected by the Company and acceptable to the Employee, to perform the duties set forth in Section 3.2 hereof for a period or periods aggregating 120 calendar days in any 12-month period as a result of physical or mental illness, loss of legal capacity or any other cause beyond the Employee's control, unless the Employee is granted a leave of absence by the Board. The Employee and the Company hereby acknowledge that the duties specified in Section 3.2 hereof are essential to the Employee's position and that Employee's ability to perform those duties is the essence of this Agreement. 7.3 NOTICE OF TERMINATION Any termination by the Company or by the Employee during the Employment Period shall be communicated by Notice of Termination to the other party given in accordance with Section 11 hereof. The term "Notice of Termination" shall mean a written notice which (a) indicates the specific termination provision in this Agreement relied upon and (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated. The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder. 7.4 DATE OF TERMINATION During the Employment Period, "Date of Termination" means (a) if the Employee's employment is terminated by reason of death, at the end of the calendar month in which the Employee's death occurs, (b) if the Employee's employment is terminated by reason of Total Disability, immediately upon a determination by the Company of the Employee's Total Disability, and (c) in all other cases, five days after the effective date of notice pursuant to Section 11 hereof. The Employee's employment and performance of services will continue during such five-day period; provided, however, that the Company may, upon notice to the Employee and without -5- 18 reducing the Employee's compensation during such period, excuse the Employee from any or all of his duties during such period. 8. TERMINATION PAYMENTS In the event of termination of the Employee's employment during the Employment Period, all compensation and benefits set forth in this Agreement shall terminate, except as specifically provided in this Section 8. 8.1 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE EMPLOYEE FOR GOOD REASON If during the Employment Period the Company terminates the Employee's employment other than for Cause or the Employee terminates his employment for Good Reason, the Employee shall be entitled to: (a) receive payment of the following accrued obligations (the "Accrued Obligations"): (i) the Employee's Annual Base Salary through the Date of Termination to the extent not theretofore paid; and (ii) any compensation previously deferred by the Employee (together with accrued interest or earnings thereon, if any) and any accrued vacation pay which would be payable under the Company's standard policy, in each case to the extent not theretofore paid; (b) for 18 months after the Date of Termination, Employee's premiums for health insurance benefit continuation for Employee and his family members, if applicable, which the Company provides to the Employee under the provisions of the federal Comprehensive Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), to the extent that the Company would have paid such premiums had the Employee remained employed by the Company; and (c) an amount as severance pay equal to one and one-half times the Annual Base Salary for the fiscal year in which the Date of Termination occurs, plus a percentage of such Annual Base Salary equal to the percentage paid under the Company's Executive Incentive Plan (or any successor plan) for the prior fiscal year (the "Severance Obligation"). -6- 19 8.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON If during the Employment Period the Employee's employment shall be terminated by the Company for Cause or by the Employee for other than Good Reason, this Agreement shall terminate without further obligation on the part of the Company to the Employee, other than the Company's obligation to pay the Employee (a) his Annual Base Salary through the Date of Termination, (b) the amount of any compensation previously deferred by the Employee, and (c) any accrued vacation pay which would be payable under the Company's standard policy, in each case to the extent theretofore unpaid. 8.3 EXPIRATION OF TERM In the case of a termination of the Employee's employment as a result of the expiration of the Term of this Agreement, this Agreement shall terminate without further obligation on the part of the Company to the Employee, other than the Company's obligation to pay the Employee the Accrued Obligations. 8.4 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY If during the Employment Period the Employee's employment is terminated by reason of the Employee's death or Total Disability, this Agreement shall terminate automatically without further obligation on the part of the Company to the Employee or his legal representatives under this Agreement, other than the Company's obligation to pay the Employee the Accrued Obligations (which shall be paid to the Employee's estate or beneficiary, as applicable in the case of the Employee's death). 8.5 PAYMENT SCHEDULE All payments of the Accrued Obligations and the Severance Obligation, or any portion thereof payable pursuant to this Section 8, shall be made to the Employee within thirty working days of the Date of Termination, except that payments for COBRA premiums pursuant to Section 8.1(b) shall be made on a monthly basis. 8.6 CAUSE For purposes of this Agreement, "Cause" means cause given by the Employee to the Company and shall be limited to the occurrence of one or more of the following events: (a) A clear refusal to carry out any material lawful duties of the Employee or any directions of the Board, all reasonably consistent with the duties -7- 20 described in Section 3.2 hereof, provided the Employee has been given reasonable notice and opportunity to correct any such failure; (b) Violation by the Employee of a state or federal criminal law involving the commission of a crime against the Company or any of its subsidiaries; (c) Deception, fraud, misrepresentation or dishonesty by the Employee; any incident materially compromising the Employee's reputation or ability to represent the Company with investors, customers or the public; or (d) Any other material violation of any provision of this Agreement by the Employee, subject to the notice and opportunity to cure requirements of Section 10. 8.7 GOOD REASON For purposes of this Agreement, "Good Reason" means (a) The assignment to the Employee of any duties materially inconsistent with the Employee's title, position, authority, duties or responsibilities as contemplated by Section 3.2 hereof or any other action by the Company which results in a material diminution in such title, position, authority, duties or responsibilities; (b) Any failure by the Company to comply with any of the provisions of Section 5 or 6 hereof; (c) The Company's requiring the Employee to be based at any office or location other than that described in Section 3.3 hereof; (d) Any failure by the Company to comply with and satisfy Section 12 hereof, provided that the Company's successor has received at least ten days' prior written notice from the Company or the Employee of the requirements of Section 12 hereof; or (e) Any other material violation of any provision of this Agreement by the Company. 8.8 EXCESS PARACHUTE LIMITATION If either the Company or the Employee receives confirmation from the Company's independent tax counsel or its certified public accounting firm, or such other accounting firm retained as independent certified public accountants for the Company (the "Tax Advisor"), that any payment by the Company to the Employee -8- 21 under this Agreement or otherwise would be considered to be an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, or any successor statute then in effect (the "Code"), then the aggregate payments by the Company pursuant to this Agreement shall be reduced to the highest amount that may be paid to the Employee by the Company under this Agreement without having any portion of any amount payable to the Employee by the Company or a related entity under this Agreement or otherwise treated as such an "excess parachute payment," and, if permitted by applicable law and without adverse tax consequence, such reduction shall be made to the last payment due hereunder. Any payments made by the Company to the Employee under this Agreement which are later confirmed by the Tax Advisor to be "excess parachute payments" shall be considered by all parties to have been a loan by the Company to the Employee, which loan shall be repaid by the Employee upon demand, together with interest calculated at the lowest interest rate authorized for such loans under the Code, without a requirement that further interest be imputed. 9. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS In order to induce the Company to enter into this Agreement, the Employee represents and warrants to the Company that neither the execution nor the performance of this Agreement by the Employee will violate or conflict in any way with any other agreement by which the Employee may be bound or with any other duties imposed upon Employee by corporate or other statutory or common law. 10. NOTICE AND CURE OF BREACH Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than pursuant to the definition of Cause set forth in Section 8.6 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least ten days' prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the ten-day period. 11. FORM OF NOTICE All notices given hereunder shall be given in writing, shall specifically refer to this Agreement and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by reputable overnight courier, at the address set forth below or at such other address as may hereafter be designated by notice given in -9- 22 compliance with the terms hereof. Such notice shall be effective upon receipt or upon refusal of the addressee to accept delivery. If to Employee: Craig E. Shank 7863 NE 10th St. Medina, WA 98039 If to Company: Wall Data Incorporated 11332 NE 122nd Way Kirkland, WA 98034-6931 Attn: General Counsel Phone: (425) 814-9255 Facsimile: (425) 814-4372 Copy to: Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, WA 98101-3099 Attn: L. Michelle Wilson Phone: (206) 583-8888 Facsimile: (206) 583-8500 12. ASSIGNMENT This Agreement is personal to the Employee and shall not be assignable by the Employee. The Company shall assign to and require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean Wall Data Incorporated and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. 13. WAIVERS No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or -10- 23 circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies. 14. AMENDMENTS IN WRITING No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the Company and the Employee, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Employee. 15. APPLICABLE LAW This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the state of Washington, without regard to any rules governing conflicts of laws. 16. ARBITRATION Any dispute arising under this Agreement shall be subject to arbitration. The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA Rules") then in effect, conducted by one arbitrator either mutually agreed upon or selected in accordance with the AAA Rules, except that the parties thereto shall have any right to discovery as would be permitted by the Federal Rules of Civil Procedure for a period of 90 days following the commencement of such arbitration and the arbitrator thereof shall resolve any dispute which arises in connection with such discovery. The arbitration shall be conducted in King County, Washington under the jurisdiction of the Seattle office of the American Arbitration Association. The arbitrator shall have authority only to interpret and apply the provisions of this Agreement and shall have no authority to add to, subtract from, or otherwise modify the terms of this Agreement. Any demand for arbitration must be made within 60 days of the event(s) giving rise to the claim that this Agreement has been breached. The arbitrator's decision shall be final and binding, and each party agrees to be bound by the arbitrator's award subject, only to an appeal therefrom in accordance with the laws of -11- 24 the state of Washington. Either party may obtain judgment upon the arbitrator's award in the Superior Court of King County, Washington. 17. SEVERABILITY If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law. 18. ENTIRE AGREEMENT This Agreement on and as of the date hereof constitutes the entire agreement between the Company and the Employee with respect to the subject matter hereof and all prior or contemporaneous oral or written communications, understandings or agreements between the Company and the Employee with respect to such subject matter are hereby superseded and nullified in their entireties, except that the Confidential Information, Inventions and Nonsolicitation Agreement between the Employee and the Company, dated March 31, 1998, shall continue in full force and effect and survive the termination of the Employee's employment. 19. COUNTERPARTS This Agreement may be executed in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. 20. HEADINGS All headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. -12- 25 IN WITNESS WHEREOF, the parties have executed and entered into this Agreement effective on the date first set forth above. EMPLOYEE: /s/ Craig E. Shank ---------------------------------------- Craig E. Shank EMPLOYER: WALL DATA INCORPORATED By /s/ Robert J. Frankenberg -------------------------------------- Robert J. Frankenberg Chairman of the Board -13- 26 APPENDIX A TO CHANGE OF CONTROL AGREEMENT BETWEEN WALL DATA INCORPORATED AND CRAIG E. SHANK For purposes of this Agreement, a "Change of Control" shall mean: (a) A "Board Change" which, for purposes of this Agreement, shall have occurred if a majority (excluding vacant seats) of the seats on the Company's Board are occupied by individuals who were neither (i) nominated by a majority of the Incumbent Directors nor (ii) appointed by directors so nominated. An "Incumbent Director" is a member of the Board who has been either (i) nominated by a majority of the directors of the Company then in office or (ii) appointed by directors so nominated, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person (as hereinafter defined) other than the Board; or (b) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (i) more than 50% of either (i) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (z) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Appendix A are satisfied; or 27 (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, immediately following such reorganization, merger or consolidation, (i) more than 50% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportion as their ownership immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 33% or more of the Outstanding Company Common Stock or the Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were the Incumbent Directors at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all the assets of the Company, other than to a corporation with respect to which immediately following such sale or other disposition, (A) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company -2- 28 or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 33% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 33% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were approved by a majority of the Incumbent Directors at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. -3- EX-27 6 FINANCIAL DATA SCHEDULE
5 1000 9-MOS APR-30-1999 MAY-01-1998 JAN-31-1999 64702 0 42422 0 195 118549 38384 28083 152842 48737 0 0 0 61027 39936 152842 119579 119579 24741 89852 0 0 0 7160 1807 5353 0 0 0 5353 0.54 0.53
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