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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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WALL DATA INCORPORATED
(NAME OF SUBJECT COMPANY)
WALL DATA INCORPORATED
(NAME OF PERSON(S) FILING STATEMENT)
COMMON SHARES, NO PAR VALUE
(TITLE OF CLASS OF SECURITIES)
932045107
(CUSIP NUMBER OF CLASS OF SECURITIES)
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KEVIN B. VITALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WALL DATA INCORPORATED
11332 N.E. 122ND WAY
KIRKLAND, WASHINGTON, 98034
(425) 814-9255
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH A COPY TO:
ANDREW BOR
PERKINS COIE LLP
1201 THIRD AVENUE, SUITE 4800
SEATTLE, WASHINGTON 98101
(206) 583-8500
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Wall Data Incorporated, a Washington
corporation (the "Company"). The address of the principal executive offices of
the Company is 11332 N.E. 122nd Way, Kirkland, Washington 98034. The class of
equity securities to which this Solicitation/Recommendation Statement on
Schedule 14D-9 (this "Statement" or this "Schedule 14D-9") relates is common
stock, no par value (the "Common Stock"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer (the "Offer") disclosed in
a Tender Offer Statement on Schedule 14D-1 dated October 27, 1999 (the "Schedule
14D-1"), of NetManage, Inc., a Delaware corporation ("Parent"), and its
wholly-owned subsidiary, NetManage Acquisition Corporation, a Washington
corporation ("NetManage" or "Purchaser"), to purchase all of the outstanding
shares of Common Stock of the Company (the "Shares") at a price of $9.00 per
Share, net to the seller in cash and without interest thereon, upon the terms
and subject to the conditions set forth in the Offer to Purchase dated October
27, 1999 (the "Offer to Purchase") and the related Letter of Transmittal (which
together constitute the "Offer Documents"). The Offer is being made pursuant to
an Agreement and Plan of Merger dated as of October 20, 1999 (the "Merger
Agreement") by and among the Company, Parent and Purchaser, pursuant to which,
at the effective time of the merger (the "Effective Time") Purchaser will be
merged with and into the Company (the "Merger"). A copy of the Merger Agreement
is filed as Exhibit 3 hereto and is incorporated herein by reference.
According to the Schedule 14D-1, the address of the principal executive
offices of Parent and Purchaser is 10725 N. DeAnza Blvd., Cupertino, California
95014.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above.
(b) Except as described in this Statement, or in Annex B hereto, to the
knowledge of the Company, as of the date hereof, there are no material
contracts, agreements, arrangements or understandings, or any actual or
potential conflicts of interest between the Company or its affiliates, the
Company, its executive officers, directors or affiliates, or Parent, the
Purchaser or their respective executive officers, directors or affiliates.
In January 1999, the Company entered into an Employment and Change of
Control Agreement with Kerry D. Palmer, the Company's Controller. The agreement
provides that Mr. Palmer will be employed by the Company for a term of two
years, with an automatic renewal for successive one-year terms unless cancelled
upon twelve months' notice. Termination without cause entitles the Mr. Palmer to
receive (1) one times his base salary, (2) a percentage of base salary equal to
the Executive Incentive Plan (as defined in the agreement) percentage for the
prior fiscal year and (3) COBRA (as defined in the agreement) premiums for
eighteen months. In the event of termination due to change of control, Mr.
Palmer will receive the benefits above, except that the salary multiple for Mr.
Palmer is one and one-half. A copy of Mr. Palmer's Employment and Change of
Control Agreement is filed as Exhibit 4 hereto and is incorporated herein by
reference. Certain other contracts, agreements, arrangements or understandings
between the Company or its affiliates and certain of its directors and executive
officers are described in Annex B hereto.
The Company has granted to certain directors and executive officers of the
Company options to acquire Common Stock, pursuant to the Company's Restated 1993
Stock Option Plan, (the "1993 Plan") and the Restated 1993 Stock Option Plan for
Non-Employee Directors (the "Non-Employee Director Plan") (together with the
1993 Plan, the "Plans"), filed herewith as Exhibits 5 and 6 respectively, and
incorporated in this Statement by reference. The Non-Employee Director Plan
provides, generally, that upon a merger, consolidation or acquisition of
property or stock as a result of which shareholders of the Company receive cash,
stock or other property in exchange for their shares of the Company's Common
Stock, the vesting of each option outstanding under the Non-Employee Director
Plan will accelerate and will become immediately
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exercisable in full under the terms of such plan immediately prior to the
Effective Time. The 1993 Plan provides, generally, that upon a merger,
consolidation or acquisition of property or stock, as a result of which
shareholders of the Company receive cash, stock, or other property in exchange
for their shares of Common Stock, any option granted under the 1993 Plan, unless
assumed, will terminate, but the optionee has the right to exercise all of his
or her options, whether or not vested, prior to the consummation of such merger.
Under the terms of the Merger Agreement, neither Parent nor Purchaser will
assume or continue any outstanding stock options under the Plans, or substitute
any additional options for such outstanding options. Consequently, immediately
prior to the Effective Time, such options will vest and become exercisable in
full.
Each executive officer and director of the Company will be entitled to the
same benefits and will be subject to the same restrictions as all other
optionees holding options pursuant to the Plans. However, at the request of
Parent and Purchaser, Kevin B. Vitale, President and Chief Executive Officer of
the Company, Richard P. Fox, Vice President and Chief Financial Officer of the
Company, Craig E. Shank, the Vice President and General Counsel of the Company,
and Kerry D. Palmer, the Company's Controller have entered into agreements with
the Company and Parent which supercede their existing change of control
agreements and employment agreements (the "New Agreements"). The New Agreements
in each case provide that the officer agrees to the termination of all options
that would otherwise accelerate upon consummation of the Merger and agrees not
to claim a constructive termination that he is entitled to under his existing
agreement, and instead, to continue his employment with the Company following
the Effective Time. In exchange, Parent has agreed to pay each officer the
severance amount he is otherwise entitled to under his existing agreement, in
twelve substantially equal semi-monthly installments plus an amount equal to (x)
$9.00 minus (y) the exercise price multiplied by (z) the number of shares
subject to accelerated option vesting. The payments terminate if the officer
resigns other than for a valid reason or is terminated for cause. The New
Agreements also provide that the officer's base pay will not be reduced and that
he will be eligible to participate in the Parent's bonus plan and employee stock
option plan at levels comparable to those of senior officers of other divisions
of the Parent.
The foregoing summary of the New Agreements is qualified in its entirety by
reference to the complete text of the New Agreements, copies of which are filed
as Exhibits 7 through 10 hereto and are incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of The Board of Directors
The Board of Directors of the Company (the "Board") has unanimously
approved the Merger Agreement and the Offer, and has determined that the Merger
Agreement, the Offer and the Merger are fair to and in the best interest of the
Company's shareholders (the "Shareholders"), and unanimously recommends that the
Shareholders accept the Offer.
A press release announcing the execution of the Merger Agreement is filed
herewith as Exhibit 11 and is incorporated herein by reference.
(b) Background; Reasons For The Board's Recommendation
In 1996, James Simpson, a former CEO and Chairman of the Board of the
Company, John Wall, the Company's former Chief Executive Officer and Kevin
Vitale, the Company's then Chief Operating Officer, met with Zvi Alon, President
and Chief Executive Officer of NetManage and the Chief Financial Officer and
Vice President of Human Resources of NetManage, and held preliminary discussions
about a possible business combination of NetManage and the Company. No further
discussions were held at that time.
In the late summer of 1998, Mr. Alon contacted Mr. Wall by telephone to
find out whether the Company was interested in pursuing discussions regarding a
possible business combination. No further discussions were held in response to
the call.
In December 1998, the Board determined that the Company's RUMBA and
Cyberprise businesses required different sales processes, different customer
contacts and distinct market positioning. The Company
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also faced challenges in allocating resources and prioritizing activities
between its RUMBA and Cyberprise businesses. As a result, the Board concluded
that it should evaluate strategic alternatives to enhance shareholder value. At
that time, the Company engaged Bear Stearns & Co. Inc. ("Bear Stearns") to
identify and evaluate potential strategic alternatives for the Company and its
two businesses, including: (i) a possible spin-off of the Cyberprise business
(ii) a sale of the RUMBA business, (iii) or a sale of the Company. Beginning in
March of 1999 and continuing through May of 1999 Bear Stearns contacted 24
entities regarding their interest in a transaction involving the Company. The
Company received indications of interest from five of these parties, including
NetManage.
On March 12, 1999, Mr. Wall contacted Mr. Alon by telephone. Mr. Alon and
Mr. Wall engaged in discussions about the Company's RUMBA business. Both parties
expressed an interest in having NetManage be among the potential partners the
Company was evaluating in its analysis with Bear Stearns.
On April 29, 1999, NetManage entered into a nondisclosure agreement with
the Company.
In May and June 1999, Mr. Wall and Mr. Alon spoke by telephone regarding
NetManage's interest in acquiring the RUMBA business.
On July 1, 1999, members of NetManage's senior management team, including
Mr. Alon, Gary Anderson, Pat Linehan, Peter Havart-Simkin and Judy Somerville,
met with John Wall, Kevin Vitale, Rick Fox and Craig Shank of the Company in
Bellevue, Washington to discuss the Company's business and possible partnering
between the Company and NetManage.
On July 14, 1999, Mr. Vitale and Mr. Fox met with Mr. Alon and Mr. Anderson
to discuss potential organizational structures and potential cost synergies in a
merger of NetManage and the Company.
On July 16, 1999, NetManage presented the Company with a written
acquisition proposal in which NetManage would acquire all of the Company's
outstanding capital stock in exchange for NetManage stock. Mr. Vitale and Mr.
Alon spoke by telephone several times to review the terms and valuation
described in the letter.
On July 19, 1999, NetManage submitted a revised proposal, and Mr. Vitale
and Mr. Alon continued to communicate by telephone to review the terms and
potential cost synergies.
From July 28, 1999 through August 4, 1999, members of the Company's senior
management team traveled to Cupertino, California to meet with NetManage senior
management, conduct mutual due diligence, review potential cost synergies and
negotiate merger agreement issues.
On August 4, 1999, after failing to reach agreement on valuation, NetManage
and the Company agreed to discontinue discussions about an acquisition of the
Company until the parties had an opportunity to review valuation with their
respective financial advisors.
During the week of August 9, 1999, Mr. Alon and Mr. Vitale communicated by
telephone to determine whether there was continued interest in a potential
transaction.
In August 1999, NetManage delivered a new proposal for a potential
acquisition of the Company. Mr. Vitale and Mr. Alon held several discussions by
telephone to review the proposal.
On August 26, 1999, the Board met to discuss offers the Company had
received. The Board determined that based on the value of the proposals
received, the Company should continue to operate independently, and that the
Company should terminate the analysis of strategic alternatives with Bear
Stearns unless a potential partner offered a substantially higher value for the
Company.
On August 27, 1999, Mr. Vitale telephoned Mr. Alon to notify Mr. Alon that
the Company had terminated its analysis of strategic alternatives with Bear
Stearns and would continue to operate independently. Mr. Vitale also told Mr.
Alon that the Board had rejected the most recent offer from NetManage and
confirmed to Mr. Alon that based on the proposed valuations, the Company would
move forward independently and was no longer interested in NetManage's merger
proposal.
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On August 30, 1999, the Company announced publicly that it had terminated
the analysis of strategic alternatives with Bear Stearns and would continue to
operate independently.
In early September 1999, Mr. Vitale and Mr. Alon spoke by telephone
regarding the parties' differences in valuation. Mr. Vitale confirmed that the
Company was not soliciting offers, had terminated the analysis of strategic
alternatives the Bear Stearns process and would not take proposals to the Board
of Directors unless they represented a substantially different value than those
made during August. Mr. Alon had similar conversations directly with Bear
Stearns.
On October 1, 1999, the Company received an unsolicited offer to purchase
all of the Company capital stock for cash from a third party, subject to certain
conditions. In a subsequent telephone call, this third party indicated that it
intended to proceed with a transaction even if it could not reach an agreement
with the Company.
In order to determine how to respond to this unsolicited offer, on October
5, 1999 the Company and Bear Stearns contacted four of the parties that had been
contacted over the summer to determine whether they would be interested in a
cash offer for the Company's shares. During the course of the next 10 days, the
Company received preliminary proposals from three of the four parties, including
NetManage.
On October 11, 1999, the Company received a proposal from NetManage to
purchase the Company for a value higher than in the unsolicited offer.
Indications of value from the other parties were substantially lower than
NetManage.
On October 14, 1999, the Company received a draft proposal from the same
party that submitted the initial unsolicited offer to purchase the Company for a
value potentially in excess of NetManage's proposal. Mr. Vitale telephoned
NetManage and others to notify them that their offers had been exceeded.
On October 15, 1999, NetManage delivered an offer to the Company to
purchase the Company for $9.00 per share, which was higher than any other offer.
The Company notified other participants by telephone and letter that best and
final offers needed to be delivered to the Company by noon of that same day. No
additional offers were received. In the afternoon of October 15th, the Company
and NetManage agreed to enter into exclusive negotiations until October 20,
1999. This agreement was later extended to October 21, 1999.
On October 16, 1999, Messrs. Vitale, Fox and Shank met with Messrs. Alon,
Anderson, Havart-Simkin, Linehan and Moore and Ms. Somerville to conduct a
review of the Company's current and prospective business, synergies and due
diligence.
From October 17 through October 20, the Company, NetManage and their
respective counsel negotiated and completed the Merger Agreement.
On October 20, 1999, the Company's Board approved the offer submitted by
NetManage and the Merger Agreement, and the parties executed the Merger
Agreement. Prior to October 20, 1999, Mr. Vitale discussed the status of
communications with NetManage with the Board of Directors at meetings held on
July 25, 1999, August 5, 1999, August 26, 1999 and October 5, 1999 and gave
periodic updates to individual Directors in the interim.
On the morning of October 21, 1999, the parties publicly announced the
signing of the Agreement.
In approving the Merger Agreement, the Offer and the Merger and in
recommending that shareholders of the Company tender their Shares pursuant to
the Offer, the Board considered a number of factors, including the following:
(i) the Board's familiarity with, and information provided by the
Company's management as to the business, financial condition, results of
operations, prospects for employee and management retention and recruiting,
current business strategy and future prospects of the Company, and
alternatives to organic growth of the Company, as well as the risks
involved in achieving the prospects and objectives in light of the current
market for the Company's products and services, and the historical and
current market price for the Shares;
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(ii) the unsolicited proposal from a third party to purchase the
Shares, as well as the impact of such a proposal on employee morale and
customer buying patterns, and the resulting impact on the Company's
financial condition and results of operations if the third party pursued an
unsolicited offer;
(iii) the terms of the Merger Agreement, including (a) the proposed
structure of the Offer cash tender offer, and (b) that financing is not a
condition to the Offer and the Acquisition, thereby enabling Shareholders
to obtain cash for their Shares quickly;
(iv) the per share price contemplated by the Merger Agreement at $9.00
represented a significant premium of approximately 58% to the closing price
of the Shares the day before the Board's approval of the Merger Agreement
and a 58% premium to the closing price of the shares during the five
trading days immediately prior to the Board's approval of the Merger
Agreement;
(v) the price contemplated by the Merger Agreement was higher than any
cash price proposed by any of the other parties with whom the Company or
Bear Stearns had discussions since December of 1998, the commencement of
Bear Stearns' analysis.
(vi) the process engaged in by the Company's management and Bear
Stearns, and the range of values indicated by potential transaction
partners;
(vii) the presentation of Bear Stearns at the October 20, 1999 Board
meeting and the opinion of Bear Stearns to the effect that, as of such
date, and based on the factors set forth therein, the consideration to be
paid by the Purchaser to the holders of the Shares in the Offer and the
Acquisition was fair to such holders from a financial point of view.
(viii) the Merger Agreement permits the Company to furnish nonpublic
information to, and to participate in negotiations with, any third party
that has submitted an unsolicited bona fide Acquisition Proposal (as
defined in the Merger Agreement) that constitutes, or is reasonably likely
to lead to, a Superior Proposal (as defined in the Merger Agreement), if
the Board determines in good faith that taking such action is necessary in
the exercise of its fiduciary obligations under applicable law and the
Merger Agreement permits the Board to terminate the Merger Agreement in
certain circumstances in the exercise of its fiduciary duties;
(ix) the termination provisions of the Merger Agreement, which under
certain circumstances could obligate the Company to pay a termination fee
of U.S. $5,000,000, and the Board's belief that such fee provisions would
not deter a higher offer and are consistent with similar transactions;
(x) the likelihood that the transaction would be consummated,
including the conditions to the Offer, and Parent's financial strength,
including its undertaking to provide Purchaser with all necessary funds to
purchase the Shares; and
(xi) a consideration of alternatives to the sale of the Company,
including without limitation, continuing to operate the Company as a public
company and not engaging in any extraordinary transaction, together with
the risks associated with such alternatives. Among the risks identified
were the following: risk of failing to achieve the Company's objectives as
a result of changes in the marketplace, failure to retain key employees or
failing to execute the Company's plans; risk that even if the Company
achieved its performance objectives it would not substantially increase
shareholder value; and the risk that capital markets decline particularly
in the small-capitalization technology stocks.
The foregoing discussion addresses the material information and factors
considered by the Board in its consideration of the Offer. In view of the
variety of factors and the amount of information considered, the Board did not
find it practicable to provide specific assessments of, quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. The determination to recommend that Shareholders accept the Offer
was made after consideration of all of the factors taken as a whole. In
addition, individual members of the Board may have given different weights to
different factors.
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained Bear Stearns to render financial advisory services to
the Company in connection with a review of the Company's strategic alternatives
and to act as the exclusive financial advisor with respect to a sale of the
Company or any equity offerings by the Company. Pursuant to an engagement letter
dated December 18, 1998, as amended on June 3, 1999 the Company agreed to pay
Bear Stearns (a) an initial fee of $200,000 and (b) in connection with the sale
of the Company, a fee equal to 1.75% of the amount paid for the Company. The
Company also agreed to reimburse Bear Stearns for its reasonable out-of-pocket
costs and expenses, and to indemnify Bear Stearns against certain liabilities in
connection with the engagement.
Except as disclosed in this Statement, neither the Company nor any person
acting on its behalf currently intends to employ, retain or compensate any other
person to make solicitations or recommendations to security holders on its
behalf concerning the Offer of the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past 60 days, the following individuals engaged in
transactions in the Shares: (i) Richard P. Fox, Vice President, Chief Financial
Officer and a member of the Board purchased 2,000 shares of Common Stock on
September 22, 1999, (ii) Robert J. Frankenberg, Chairman of the Board, purchased
5,000 shares of Common Stock on September 28, 1999, (iii) Bettie A. Steiger, a
member of the Board, purchased 3,000 shares of Common Stock on September 30,
1999, and (iv) Kevin B. Vitale, President and Chief Executive Officer and a
member of the Board, purchased 3,000 shares of Common Stock on September 22,
1999. The price per share for each of these transactions ranged from a low of
$5.31 to a high of $5.62 per share.
Also, during the past 60 days, options to purchase shares were granted on
September 22, 1999 at an option exercise price of $5.50 per share pursuant to
the terms and conditions of the Plans to the following persons: (i) Robert J.
Frankenberg, 7,500 option shares, (ii) Jeffrey A. Heimbuck, 7,500 options
shares, (iii) Henry N. Lewis, 7,500 option shares, (iv) David F. Millet, 7,500
option shares, (v) Steve Sarich, Jr., 7,500 option shares, (vi) Bettie A.
Steiger, 7,500 option shares, (vii) Kevin B. Vitale, 160,000 option shares,
(viii) Richard P. Fox, 60,000 option shares, (ix) Craig E. Shank, 60,000 option
shares, (x) Roger C. Fairchild, 40,000 option shares, (xi) Kerry D. Palmer,
20,000 option shares.
(b) To the Company's knowledge, each executive officer, director and
affiliate of the Company currently intends to tender all Shares to Purchaser
over which he or she has sole dispositive power as of the expiration date of the
Offer, unless to do so would subject such person to liability under Section
16(b) of the Securities Exchange Act of 1934, as amended.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any subsidiary of the Company, (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company, (iii)
a tender offer for or other acquisition of securities by or of the Company or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as set forth herein, there are no transactions, Board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred to
in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) THE WASHINGTON TAKEOVER ACT. The Washington Takeover Act (Chapter 19 of
the Washington Business Corporation Act) provides that if a target corporation
has an "acquiring person" as a shareholder, the target corporation may not
engage in any of the defined "significant business transactions" for a period of
five years following the time of the acquiring person's share acquisition unless
the significant business transaction
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or the purchase of shares by the acquiring person is approved prior to the
acquiring person's share acquisition by a majority of the members of the board
of directors of the target corporation. An "acquiring person" is a person who
beneficially owns 10% or more of the outstanding voting shares of the target
corporation. After the Washington Takeover Act's five-year moratorium, a
"significant business transaction" may proceed only if (i) it compiles with the
"fair price" provisions of the statute requiring that holders of common stock
receive value per share at least equal to the higher of two specified formulas,
or (ii) such transaction is approved at a shareholders meeting (by the majority
of shares entitled to vote excluding those shares held by the acquiring person)
held at least five years after the acquiring person purchased its shares.
Therefore, unless the board of directors (as it was composed before the
acquiring person acquired its shares) approves of either the transaction or the
acquisition by the acquiror of its shares, the Washington Takeover Act imposes a
five-year moratorium prohibiting the corporation from effecting any of the
enumerated significant business transactions even if its current board wants to
do so.
The "significant business transactions" covered by the Washington Takeover
Act include:
(i) a merger, share exchange or consolidation of the target
corporation with an acquiring person;
(ii) the sale, lease, exchange, mortgage, pledge, transfer or other
disposition or encumbrance of the target's assets to or with an acquiring
person over a threshold aggregate market value;
(iii) the termination, as a result of the acquiring person's
acquisition of at least 10% of the shares of the target corporation, of at
least 5% of the target corporation's (or a subsidiary's) employees employed
in Washington State over the five-year period following the share
acquisition time;
(iv) the issuance or transfer of shares, options, warrants or rights
to acquire its shares to, or the redemption from, an acquiring person by
the target corporation, except under limited circumstances;
(v) the liquidation or dissolution of the target proposed by or
pursuant to an agreement with an acquiring person;
(vi) the reclassification of securities of the target proposed by or
pursuant to an agreement with an acquiring person that increases the
proportionate share of the outstanding shares of a class or series of
voting shares or securities convertible into voting shares of a target
corporation that is directly or indirectly owned by an acquiring person,
except as the result of immaterial changes due to fractional shares
adjustments; or
(vii) receipt by an acquiring person of the direct or indirect
benefit, except proportionately as a shareholder of the target corporation,
of loans, advances, guarantees, pledges or other financial assistance or
tax credits or other tax advantages.
The moratorium provisions of the Washington Takeover Act do not apply to
the Offer or the Merger because the Board has approved the Offer and the Merger.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
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Exhibit 1. Offer to Purchase, dated October 27, 1999.+
Exhibit 2. Letter of Transmittal.+
Exhibit 3. Agreement and Plan of Merger, dated as of October 20, 1999,
by and among the Company, Parent and Purchaser.+
Exhibit 4. Employment and Change In Control Agreement, dated January
21, 1999 between the Company and Kerry D. Palmer.*
Exhibit 5. Restated 1993 Stock Option Plan, as amended.*
Exhibit 6. Restated 1993 Stock Option Plan for Non-Employee Directors,
as amended.*
Exhibit 7. Employment Agreement, dated as of October 20, 1999, by and
among the Company, Parent and Kevin B. Vitale.+
Exhibit 8. Employment Agreement, dated as of October 20, 1999, by and
among the Company, Parent and Richard P. Fox.+
Exhibit 9. Employment Agreement, dated as of October 20, 1999, by and
among the Company, Parent and Craig E. Shank.+
Exhibit 10. Employment Agreement, dated as of October 20, 1999, by and
among the Company, Parent and Kerry D. Palmer.+
Exhibit 11. Press Release, issued by Parent and the Company on October
21, 1999.+
Exhibit 12. Opinion of Bear Stearns, dated October 20, 1999 (attached
hereto as Annex A).*
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* Filed herewith.
+ Filed as an exhibit to Parent's and Purchaser's Tender Offer Statement on
Schedule 14D-1, dated October 27, 1999, and incorporated herein by reference.
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After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: October 27, 1999
WALL DATA INCORPORATED
By: /s/ KEVIN B. VITALE
------------------------------------
Name: Kevin B. Vitale
Title: President and Chief Executive
Officer
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ANNEX A
[BEAR STEARNS LETTERHEAD]
October 20, 1999
The Board of Directors
Wall Data Incorporated
11332 NE 122nd Way
Kirkland, WA 98034-6931
Gentlemen:
We understand that Wall Data Incorporated ("Wall"), NetManage, Inc.
("NetManage") and NetManage Acquisition Corporation propose to enter into an
Acquisition Agreement dated October 20, 1999 (the "Agreement") pursuant to which
all outstanding shares of common stock of Wall will be exchanged for $9.00 in
cash per share (the "Consideration") by means of a tender offer (the "Tender
Offer") followed by a subsequent merger with NetManage Acquisition Corporation
(the "Merger"). The Agreement also provides for the cashing out of each
outstanding option to acquire Wall common stock at a price equal to the
Consideration less the applicable exercise price for such option (such series of
transactions herein collectively referred to as the "Transaction").
You have asked us to render our opinion as to whether the Consideration is
fair, from a financial point of view, to the shareholders of Wall.
In the course of performing our review and analyses for rendering this
opinion, we have:
- reviewed the Agreement;
- reviewed Wall's Annual Report to Shareholders on Form 10-K for the fiscal
year ended April 30, 1999 and its Quarterly Report on Form 10-Q for the
period ended July 31, 1999;
- reviewed certain operating and financial information, including
projections, provided to us by Wall's management relating to Wall's
businesses and prospects;
- met with certain members of Wall's senior management to discuss Wall's
businesses, operations, historical and projected financial results and
future prospects;
- reviewed the historical prices, valuation parameters and trading volume
of the common shares of Wall;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which we deemed generally
comparable to Wall;
- reviewed the terms of recent acquisitions of companies which we deemed
generally comparable to Wall and the Transaction; and
- conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation the projections provided to us by Wall. With respect to
Wall's projected financial results, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the senior management of Wall as to the expected future
performance of Wall. We have not assumed any responsibility for the independent
verification of any such information or of the projections provided to us, and
we have further relied upon the assurances of the senior managements of Wall
that they are unaware of any facts that would make the information, including
the projections, provided to us incomplete or misleading.
A-1
12
In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities of Wall, nor have we been
furnished with any such appraisals. During the course of our engagement, we were
asked by the Board of Directors to solicit indications of interest from various
third parties regarding a transaction with Wall, and we have considered the
results of such solicitation in rendering our opinion. Our opinion is
necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof.
We have acted as a financial advisor to Wall in connection with the
Transaction and will receive a fee for such services. In the ordinary course of
business, Bear Stearns may actively trade the equity securities of Wall and/or
NetManage for our own account and for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of Wall and does not constitute a recommendation to the
Board of Directors of Wall or any holders of Wall common stock as to whether to
tender their shares in the tender offer or how to vote their shares in
connection with the Merger. This opinion does not address Wall's underlying
business decision to pursue the Transaction. This letter is not to be used for
any other purpose, or reproduced, disseminated, quoted to or referred to at any
time, in whole or in part, without our prior written consent; provided, however,
that this letter may be included in its entirety in any tender offer document or
proxy statement to be distributed to the holders of Wall common stock in
connection with the Transaction.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration is fair, from a financial point of view, to the
shareholders of Wall.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ EDWARD RIMLAND
------------------------------------
Managing Director
A-2
13
ANNEX B
WALL DATA INCORPORATED
11223 N.E. 122ND WAY
KIRKLAND, WASHINGTON 98304
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
The following information is being furnished to holders of the common
stock, no par value (the "Common Stock"), of Wall Data Incorporated, a
Washington corporation (the "Company"), in connection with the possible
designation by NetManage, Inc., a Delaware corporation ("NetManage"), of at
least a majority of the board of directors of the Company pursuant to the terms
of an Agreement and Plan of Merger, dated as of October 20, 1999 (the "Merger
Agreement"), by and among the Company, NetManage and NetManage Acquisition
Corporation, a Washington corporation and wholly owned subsidiary of NetManage
(the "Purchaser"). THIS INFORMATION IS BEING PROVIDED SOLELY FOR INFORMATIONAL
PURPOSES AND NOT IN CONNECTION WITH A VOTE OF THE COMPANY'S STOCKHOLDERS.
Pursuant to the Merger Agreement, the Purchaser has commenced a tender
offer (the "Offer") to purchase all of the outstanding shares of the Common
Stock. The Merger Agreement provides that promptly following the acquisition by
the Purchaser pursuant to the Offer of not less than fifty-one percent (51%) of
the shares of Common Stock outstanding on a fully diluted basis, NetManage shall
be entitled to designate a majority of the members of the Company's Board of
Directors. In addition, pursuant to the terms of the Merger Agreement, the
Company has agreed to, upon the request of NetManage, increase the size of its
Board of Directors and/or secure resignations to enable NetManage's designees to
be elected to the Board of Directors.
The information contained in this Annex B concerning the Purchaser has been
furnished to the Company by NetManage, and the Company assumes no responsibility
for the accuracy or completeness of any such information.
VOTING SECURITIES OF THE COMPANY
As of October 25, 1999 there were issued and outstanding 10,189,969 shares
of Common Stock, each of which entitles the holder to one vote.
B-1
14
BOARD OF DIRECTORS,
ACQUISITION DESIGNEES AND EXECUTIVE OFFICERS
BOARD BIOGRAPHICAL INFORMATION
Certain information concerning directors of the Company as of October 25,
1999 is set forth below:
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
Robert J. Frankenberg.................. 52 Chairman of the Board of Directors Wall
Data; President and Chief Executive
Officer of Encanto Networks, Inc.
Jeffrey A. Heimbuck.................... 53 Former President and Chief Executive
Officer of Inmac Corporation
Henry N. Lewis......................... 60 Managing Director and Principal of
Computer Ventures Group Limited
David F. Millet........................ 55 Managing Director of Gemini Investments
Steve Sarich, Jr....................... 78 President of 321 Investment Co. and
President of C.S.S. Management Co.
Bettie A. Steiger...................... 65 President and Founder of Steiger
Associates
Kevin B. Vitale........................ 41 President and Chief Executive Officer
Richard P. Fox......................... 52 Vice President Finance, Chief Financial
Officer and Treasurer
Robert J. Frankenberg has been Chairman of the Board since August 1997 and
a Director of the Company since December 1996. Since June 1997, Mr. Frankenberg
has been President and Chief Executive Officer of Encanto Networks, Inc., a
company that develops and markets Internet products. Mr. Frankenberg was Chief
Executive Officer and President of Novell, Inc. from April 1994 to August 1996,
and Chairman of the Board of Novell, Inc. from August 1994 to August 1996. From
February 1991 to April 1994 he was Vice President, General Manager of
Hewlett-Packard Company's ("H-P") Personal Information Products Group. Prior to
February 1991 he led H-P's Information Networks Group and Information Systems
Group. Mr. Frankenberg currently serves on the Board of Directors of Caere
Corporation, Daw Technologies, Inc., Electroglas, Inc., National Semiconductor
Corporation and Secure Computing Corporation. Mr. Frankenberg also serves on the
advisory board of the Sundance Film Festival and the Board of Trustees of
Westminster College.
Jeffrey A. Heimbuck has been a Director of the Company since December 1996.
From July 1992 through July 1996, Mr. Heimbuck was President and Chief Executive
Officer of Inmac Corporation. Prior to Inmac Corporation, he was President of
Quantum Commercial Products, a division of Quantum Corporation, manufacturer of
Winchester disk drives.
Henry N. Lewis has been a Director of the Company since January 1993. Since
1976, Mr. Lewis has been a Managing Director and a principal in Computer
Ventures Group Limited, a London-based investment company investing primarily in
the computer industry. Mr. Lewis is also a director of Action Computer Supplies
Limited, Action Computer Supplies Holdings, p.1.c. and CVG Investments Limited.
David F. Millet has been a Director of the Company since October 1992.
Since 1997, he has served as Managing Director of Gemini Investors, a private
investment firm, and since 1988, he has also served as President of Chatham
Venture Corporation, an investment advisory company. He is also President and a
director of Thomas Emery & Sons, LLC, a private investment company, and Chairman
of Holographix, Inc., a manufacturer of holographic optical components and
systems. Mr. Millet is also a director of View Tech, Inc., National
Telemanagement Corporation and Mohawk Metal Products.
Steve Sarich, Jr. has been a Director of the Company since June 1991. He
has been President of 321 Investment Co., a venture capital company, since 1980
and President of C.S.S. Management Co., a
B-2
15
management company, since 1986. Mr. Sarich is also a director of Cyclopss
Corporation and Flo Scan Instrument Company.
Bettie A. Steiger has been a Director of the Company since May 1995. She is
President and Founder of Steiger Associates, a consulting firm which specializes
in business management and strategic marketing. From June 1988, Ms. Steiger
served in various capacities at Xerox Corporation ("Xerox"). She served as a
Principal for Xerox's Market and Technology Innovation Group ("MTI") from June
1992 until July 1998. MTI sponsors new business initiatives for Xerox based on
emerging technologies invented at Xerox. From December 1990 to June 1992, Ms.
Steiger was Worldwide Marketing Resident at Xerox's Palo Alto Research Center.
Formerly, Ms. Steiger was Vice President, Videotex, of the Gartner Group and the
Executive Director of the Association for Information and Image Management. She
is a founding member of Source Telecomputing Corporation ("The Source"). Ms.
Steiger is also a director of Alumnae Resources, ISIM, Inc., PubWeb.com, Inc.,
and B-Linked, Inc.
Kevin B. Vitale has been a Director and Chief Operating Officer of the
Company since July 1997. Mr. Vitale served as Executive Vice President of the
Company from April 1996 to July 1997 and Vice President, Operations and Services
from July 1993 to April 1996. Prior to joining the Company, Mr. Vitale was Vice
President, Corporate Quality and Customer Service of NetFRAME Systems
Incorporated from July 1989 to July 1993. Mr. Vitale also serves as a director
and the chairman of the Long Range Planning Committee for the Washington
Software Association. He is also a founding member of the Technical Support
Alliance Network ("TSANet"), where he served as a board member and Treasurer for
the past four years.
Mr. Fox has been a director since September 1999 and Vice President
Finance, Chief Financial Officer and Treasurer of the Company since April 1998.
Immediately prior to joining the Company, Mr. Fox was Senior Vice President of
PACCAR Inc. from March 1997 to January 1998. Prior to that, he was with Ernst &
Young LLP, becoming a partner in 1979. His last position was managing partner of
the firm's Seattle office. Mr. Fox serves on the Board of Trustees of the
Seattle Repertory Theatre and the Seattle Repertory Theatre Foundation.
RIGHT TO DESIGNATE DIRECTORS; PARENT DESIGNEES
The Merger Agreement provides that promptly upon the purchase by the
Purchaser pursuant to the Offer of such number of Shares which satisfies the
Minimum Condition (as defined in the Merger Agreement), NetManage shall be
entitled to designate a majority of the number of members of the Board. The
Company will, upon request of NetManage, promptly increase the size of the Board
and/or secure the resignations of such number of its incumbent directors as is
necessary to enable the nominees designated by NetManage to be elected to the
Board.
To date, NetManage has not provided the Company with the names of those
people it intends to nominate. It is expected that the NetManage designees may
assume office at any time following the purchase by Purchaser of such number of
shares which satisfies the Minimum Condition, which purchase cannot be earlier
than November 24, 1999, and that, upon assuming office, the NetManage designees
will thereafter constitute at least a majority of the Board.
BOARD COMMITTEES AND MEETINGS
During the last fiscal year, there were six meetings of the Board of
Directors. All Directors attended at least 75% of the meetings of the Board of
Directors and of the committees of which they were members.
The Board of Directors has established an Acquisition Committee, an Audit
Committee, a Compensation Committee and a Nominating Committee. Each of these
committees is responsible to the full Board of Directors. The functions
performed by these committees are summarized below.
Acquisition Committee. The Acquisition Committee formulates the Company's
acquisition strategy for review and approval by the Board of Directors. The
members of this committee are Mr. Frankenberg, Mr. Fox and Mr. Vitale. The
Acquisition Committee met once in the last fiscal year.
B-3
16
Audit Committee. The Audit Committee reviews the scope and results of the
annual independent audit of the Company's books and records and reviews the
Company's finance and accounting policies. The members of this committee are Mr.
Lewis, Mr. Heimbuck and Mr. Millet. The Audit Committee met four times in the
last fiscal year.
Compensation Committee. The Compensation Committee administers certain of
the Company's incentive compensation plans and establishes certain policies
relating to such plans and other compensation and benefit matters. This
committee also establishes salaries, incentives and other forms of compensation
for executive officers. The members of this committee are Ms. Steiger, Mr.
Frankenberg, Mr. Millet and Mr. Sarich. The Compensation Committee met six times
in the last fiscal year.
Nominating Committee. The Nominating Committee makes recommendations to the
Board of Directors regarding the size and composition of the Board of Directors
and nominees for Director. The members of this committee are Mr. Lewis and Ms.
Steiger. The Nominating Committee met once in the last fiscal year. The
Nominating Committee does not consider nominees recommended by security holders.
DIRECTORS' COMPENSATION
Directors who are employees of the Company do not receive any fee for their
services as Directors. Directors who are not employees of the Company are paid a
$10,000 annual retainer plus $1,000 per meeting and $500 per telephonic meeting
of the Board of Directors and are reimbursed for their expenses incurred in
attending meetings. Non-employee Directors who are members of a committee of the
Board are paid $1,000 per committee meeting and $500 per telephonic meeting and
are reimbursed for their expenses incurred in attending committee meetings. In
addition, Mr. Frankenberg receives an annual cash retainer of $50,000 per year
for his services as Chairman of the Board.
Non-employee Directors are compensated for service on the Boards of
Directors of subsidiaries of the Company. They are paid an annual retainer of
$10,000 and $1,000 per day for attending subsidiary Board or committee meetings
that are not held on the same day as a Company Board or Committee meeting at
which the Director is in attendance. The Company compensates Directors for
services rendered at the request of the Company other than at or in preparation
for Board of Directors meetings or Committee meetings at the rate of $1,000 per
diem. In the fiscal year ending April 30, 1999, no payments were made for such
services.
Non-employee Directors also receive stock option grants under the Company's
1993 Stock Option Plan for Non-Employee Directors (the "Directors Plan"). Each
new non-employee Director upon election or appointment to the Board of Directors
receives an initial option to purchase 10,000 shares of Common Stock at an
exercise price equal to the fair market value per share of Common Stock on the
grant date. In addition, each non-employee Director automatically receives an
annual grant of options to purchase 2,500 shares of Common Stock at each annual
meeting of shareholders at which he or she is reelected or continues as a
Director at an exercise price per share equal to the fair market value per share
of Common Stock on the grant date. Options granted to non-employee Directors
upon their initial appointment or election will become fully vested and
exercisable four years from the date of grant, with 25% of the total option
becoming fully vested and exercisable on the first anniversary date of the grant
and 2.0833% becoming fully vested and exercisable each month thereafter. The
annual options granted as of each annual meeting of shareholders (including the
1999 Annual Meeting) will vest and become exercisable upon the date of the next
annual meeting of shareholders. Options granted under the Directors Plan
generally expire five years from the grant date.
In addition, in consideration of Mr. Frankenberg's assumption of the
position of Chairman of the Board, Mr. Frankenberg received a one-time option
under the Directors Plan to purchase 30,000 shares of Common Stock at an
exercise price equal to the fair market value per share of Common Stock on
October 28, 1997, the grant date. This option vests over three years, one-third
at each anniversary date, so long as Mr. Frankenberg continues serving as
Chairman of the Board. This option terminates six years from the date of grant,
except that early termination shall be based on Mr. Frankenberg's service as the
Company's outside Chairman of the Board rather than on his service as a
director.
B-4
17
EXECUTIVE OFFICERS
Certain information concerning executive officers of the Company as of
October 25, 1999 is set forth below:
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
Kevin B. Vitale........................ 42 President and Chief Executive Officer
Richard P. Fox......................... 52 Vice President Finance, Chief Financial
Officer and Treasurer
Craig E. Shank......................... 40 Vice President, General Counsel and
Secretary
Roger C. Fairchild..................... Vice President, Worldwide Sales and
Service
Kerry D. Palmer........................ 47 Corporate Controller and Assistant
Secretary
Mr. Vitale has been a Director and Chief Operating Officer of the Company
since July 1997. He served as Executive Vice President of the Company from April
1996 to July 1997 and Vice President, Operations and Services from July 1993 to
April 1996. Prior to joining the Company, Mr. Vitale was Vice President,
Corporate Quality and Customer Service of NetFRAME Systems Incorporated from
July 1989 to July 1993. Mr. Vitale also serves as a director and the chairman of
the Long Range Planning Committee for the Washington Software Association. He is
also a founding member of the Technical Support Alliance Network, where he
served as a board member and Treasurer for the past five years.
Mr. Fox has been a director since September 1999 and Vice President
Finance, Chief Financial Officer and Treasurer of the Company since April 1998.
Immediately prior to joining the Company, Mr. Fox was Senior Vice President of
PACCAR Inc. from March 1997 to January 1998. Prior to that, he was with Ernst &
Young LLP, becoming a partner in 1979. His last position was managing partner of
the firm's Seattle office. Mr. Fox serves on the Board of Trustees of the
Seattle Repertory Theatre Foundation.
Mr. Shank joined the Company as General Counsel in March 1998 and was
elected Vice President, General Counsel and Secretary of the Company in May
1998. Prior to joining the Company, he was a lawyer with the Perkins Coie LLP
law firm from November 1986 to May 1998, becoming a partner in January 1993.
Mr. Fairchild has been Vice President, Worldwide Sales and Service since
September 1999. Prior to that, he held positions of Vice President, Customer
Service and Vice President, Internet Business Development since joining the
Company in October 1997. From September 1994 through September 1997, Mr.
Fairchild was Vice President, Sales and Marketing at Muzak Limited Partnership.
Mr. Palmer joined the Company in December 1988 and has served as Corporate
Controller and Assistant Secretary since October 1994.
B-5
18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information, as of October 25, 1999,
known to the Company regarding the beneficial ownership of Common Stock by (i)
each person known to the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock; (ii) each director of the Company; (iii) each of
the Company's executive officers who earned in excess of $100,000 from the
Company during fiscal 1998 (together, the "Named Officers"); and (iv) all
directors and executive officers as a group. The business address of each of the
following persons is 11332 N.E. 122nd Way, Kirkland, Washington 98034. The
following table does not reflect the effect of accelerated vesting as a result
of the Offer. See "Item 3: Identity and Background" in the accompanying Schedule
14D-9.
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING(2)
------------------------------------ ------------ --------------
State of Wisconsin Investment Board(3)
P.O. Box 7842
Madison, WI 53707......................................... 1,200,700 11.8%
George B. Bjurman & Associates and
Owen Thomas Barry III(4)
10100 Santa Monica Blvd
Los Angeles, CA 90067..................................... 632,868 6.2%
Dimensional Fund Advisors, Inc.(5)
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401.................................... 522,500 5.1%
Robert J. Frankenberg(6).................................... 35,989 *
Jeffrey A. Heimbuck(7)...................................... 10,989 *
Henry N. Lewis(8)........................................... 47,573 *
David F. Millet(9).......................................... 12,239 *
Steve Sarich, Jr.(10)....................................... 148,109 1.5%
Bettie A. Steiger(11)....................................... 13,989 *
Kevin B. Vitale(12)......................................... 129,000 1.3%
Richard P. Fox(13).......................................... 54,232 *
Craig E. Shank(14).......................................... 17,266 *
All directors and officers as a group (11 persons)(15)...... 2,845,112 27.2%
- ---------------
* Less than 1%.
(1) Based on publicly available information as of October 25, 1999.
(2) Percentage ownership is based upon 10,189,969 shares of Common Stock
outstanding as of October 25, 1999.
(3) Based on publicly available information as of October 25, 1999.
(4) Based on publicly available information as of October 25, 1999. George B.
Bjurman & Associates, George Andrew Bjurman and Owen Thomas Barry III share
voting and dispositive power of the 632,868 shares and are beneficial
owners of those shares.
(5) Based on publicly available information as of October 25, 1999.
(6) Represents options for 30,989 shares of Common Stock that are exercisable
within 60 days of October 25, 1999.
(7) Represents options for 10,989 shares of Common Stock that are exercisable
within 60 days of October 25, 1999.
(8) Includes 40,334 shares of Common Stock held of record by CVG Investments
Limited, a substantial majority of the capital stock of which is owned by
Mr. Lewis and members of his family. Also includes options for 7,239 shares
of Common Stock that are exercisable within 60 days of October 25, 1999.
B-6
19
(9) Includes 5,000 shares of Common Stock held of record by Chatham Venture
Corporate Profit Sharing Plan & trust, held indirectly by Mr. Lewis. Also
includes options for 7,239 shares of Common Stock that are exercisable
within 60 days of October 25, 1999.
(10) Includes options for 7,239 shares of Common Stock that are exercisable
within 60 days of October 25, 1999.
(11) Represents options for 10,989 shares of Common Stock that are exercisable
within 60 days of October 25, 1999.
(12) Represents options for 126,000 shares of Common Stock that are exercisable
within 60 days of October 25, 1999.
(13) Includes options for 30,045 shares of Common Stock that are exercisable
within 60 days of October 25, 1999, and 2,187 shares of Common Stock
purchased pursuant to the Company's Employee Stock Purchase Plan.
(14) Includes options for 16,666 shares of Common Stock that are exercisable
within 60 days of October 25, 1999.
(15) Includes options for 265,330 shares of Common Stock that are exercisable
within 60 days of October 25, 1999.
B-7
20
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation received by the Named
Officers for the following periods: (1) the fiscal year ended April 30, 1999
("Fiscal 1999"), (2) the four-month period from January 1, 1998 transitioning
the Company's fiscal year from a calendar year to a fiscal year ending April 30
(the "1998 Four-Month Period"), (3) the fiscal year ended December 31, 1997
("Fiscal 1997") and (4) the fiscal year ended December 31, 1996 ("Fiscal 1996").
This information includes the dollar values of base salaries, bonus awards, the
number of stock options granted and certain other compensation, if any, whether
paid or deferred. The Company does not grant stock appreciation rights and has
no long-term compensation benefits other than stock options.
LONG-TERM
COMPENSATION
AWARDS
1998 FOUR-MONTH PERIOD AND ------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) (#) ($)(2)
--------------------------- ----- -------- ------- ------------ ------------
Kevin B. Vitale............................ 1999 $280,417 $ 101 74,000 $1,112
President and Chief Executive Officer 4 mos 70,000 -0- -0- 602
1997 203,750 37,976 65,000 306
1996 175,000 55,000 30,000 198
John R. Wall............................... 1999 333,333 101 117,000 1,112
President and Chief Executive Officer(3) 4 mos 75,000 -0- -0- 602
1997 218,750 40,689 80,000 306
1996 193,750 55,000 52,500(4) 198
Richard P. Fox............................. 1999 200,000 101 10,000 1,671
Vice President Finance, 4 mos 43,747 -0- -0- 64
Chief Financial Officer and Treasurer(5)
Barry Horn................................. 1999 154,799 81,947 -0- 1,694
Vice President Worldwide Sales(6) 4 mos 58,333 -0- 10,000 950
1997 43,750 32,108 40,000 216
Craig E. Shank............................. 1999 185,000 101 -0- 234
Vice President, General Counsel 4 mos 54,110 -0- 40,000 602
and Secretary(7)
- ---------------
(1) In 1999, for all officers except Mr. Horn, such amounts represent payments
under the Company's Holiday Bonus Program, in which all of the Company's
employees participate; with respect to Mr. Horn, $81,896 represents sales
incentive bonuses and $101 represents a holiday bonus. With respect to prior
periods, such bonus amounts represent payments under the Company's
Management Incentive Plan.
(2) For all officers, amounts represent group term life premiums paid by the
Company during Fiscal 1999, the 1998 Four-Month Period, Fiscal 1997 and
Fiscal 1996, a $500 travel benefit for each of the officers' spouses during
the 1998 Four-Month Period and a $777 travel benefit for each of the
officers' spouses, with the exception of Mr. Shank's spouse, during Fiscal
1999.
(3) Mr. Wall resigned his position as President and Chief Executive and resigned
from the board of directors in August, 1999.
(4) Options granted in 1996 include the repricing of options granted in 1994
that were canceled in connection with an exchange of options with exercise
prices in excess of the then fair market value for new options with exercise
prices equal to the then fair market value.
(5) Mr. Fox's employment with the Company commenced April 8, 1998.
(6) Mr. Horn's employment with the Company commenced on October 3, 1997 and
terminated on February 26, 1999.
(7) Mr. Shank's employment with the Company commenced March 30, 1998.
B-8
21
STOCK OPTION GRANTS DURING FISCAL 1999
The following table sets forth information concerning the grant of stock
options during Fiscal 1999 to the named executive officers.
OPTION GRANTS DURING FISCAL 1999
INDIVIDUAL GRANTS
-----------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL FAIR AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS MARKET STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE VALUE ON FOR OPTION TERM(4)(5)
OPTIONS EMPLOYEES IN PRICE DATE OF EXPIRATION ---------------------------
NAME GRANTED(#) FISCAL 1999 ($/SH) GRANT DATE 5%($) 10%($)
---- ---------- ------------ -------- -------- ---------- ------------ ------------
John R. Wall............... 75,000(1) 9.1% $13.69 -- -- $ 645,718 $1,636,375
42,000(2) 5.1 13.69 -- -- 1,097,488 2,088,145
Kevin B. Vitale............ 50,000(1) 6.0 13.69 -- -- 430,478 1,090,917
24,000(2) 2.9 13.69 -- -- 786,418 1,446,857
Richard P. Fox............. 10,000(3) 1.2 13.69 -- -- 86,096 218,183
Barry Horn................. -- -- -- -- -- -- --
Craig E. Shank............. -- -- -- -- -- -- --
- ---------------
(1) Option becomes fully vested and exercisable four years from December 16,
1998, with 25% of the total option becoming fully vested and exercisable on
December 16, 1999 and 2.0833% becoming fully vested and exercisable each
month thereafter so long as employment with the Company continues. Upon the
occurrence of certain business combination transactions, the exercisability
of the options is accelerated.
(2) Option becomes fully vested and exercisable four years from May 20, 1998,
with 25% of the total option becoming fully vested and exercisable on May
20, 1999 and 2.0833% becoming fully vested and exercisable each month
thereafter so long as employment with the Company continues. Upon the
occurrence of certain business combination transactions, the exercisability
of the options is accelerated.
(3) Option becomes fully vested and exercisable four years from April 8, 1998,
with 25% of the total option becoming fully vested and exercisable on April
8, 1999 and 2.0833% becoming fully vested and exercisable each month
thereafter so long as employment with the Company continues. Upon the
occurrence of certain business combination transactions, the exercisability
of the options is accelerated.
(4) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates required by applicable regulations of the SEC and are
therefore not intended to forecast possible future appreciation, if any, of
the Common Stock price. Assumes all options are exercised at the end of
their respective 10-year terms. Actual gains, if any, on stock option
exercises depend on the future performance of the Common Stock and overall
stock market conditions, as well as the option holders' continued employment
through the vesting period. The amounts reflected in this table may not be
achieved.
(5) The increase in the market value of the holdings of all of the Company's
shareholders over a 10-year period, based on 10,151,162 shares of Common
Stock outstanding as of April 30, 1999, at assumed annual rates of
appreciation of 5% and 10% from a base price of $15.625 per share (the
closing market price as of April 30, 1999), would be $99,750,176 and $252,
786, 530, respectively.
B-9
22
OPTION EXERCISES DURING FISCAL 1999
The following table sets forth information concerning the exercise of stock
options during Fiscal 1999 by the named executive officers, and their options
outstanding at the end of Fiscal 1999.
AGGREGATED OPTION EXERCISES DURING FISCAL 1999
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
John R. Wall............... 225,000 $3,076,875 62,499 227,834 $48,590 $397,364
Kevin B. Vitale............ -0- -0- 68,276 168,976 48,025 285,498
Richard P. Fox............. -0- -0- 18,750 56,250 11,953 35,859
Barry Horn................. -0- -0- 13,332 36,668 -0- 4,375
Craig E. Shank............. -0- -0- 10,833 29,167 4,739 12,761
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(1) Amounts equal the closing price of the Common Stock on April 30, 1999
($15.625 per share), less the option exercise price, multiplied by the
number of shares exercisable or unexercisable.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee, which is comprised of four non-employee Directors. The
Compensation Committee works with management to develop compensation plans for
the Company and is responsible for determining the compensation of each
executive officer and reporting such compensation to the Board of Directors.
The Company's executive compensation program is designed to align executive
compensation with the Company's business objectives and the executive's
individual performance, and to enable the Company to attract, retain and reward
executive officers who contribute, and are expected to continue to contribute,
to the Company's long-term success. In establishing executive compensation, the
Compensation Committee is guided by the following principles: (i) the total
compensation for executive officers should be sufficiently competitive with the
compensation paid by other high-growth companies in the software industry for
officers in comparable positions so that the Company can attract and retain
qualified executives and (ii) individual compensation should include components
that reflect the financial performance of the Company and the performance of the
individual.
The compensation of the Company's executive officers consists of a
combination of base salary, bonuses and equity-based compensation. In general,
the Company's compensation program favors bonuses based on operating profit and
individual merit as opposed to salary increases. The Compensation Committee
believes that executive compensation should be designed to motivate executives
to increase shareholder value, and further believes that executive officers can
best increase shareholder value through the Company's operating profit by
conceiving, developing and positioning the best products in the Company's chosen
markets. The Compensation Committee has also focused on maintaining total
compensation packages that are adequate to retain executives for the Company.
Compensation payments in excess of $1 million to the Chief Executive
Officer or the other four most highly compensated executive officers are subject
to a limitation on deductibility for the Company under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). Certain performance-
based compensation is not subject to the limitation on deductibility. The
Compensation Committee does not expect cash compensation in fiscal 1999 to its
Chief Executive Officer or any other executive officer to be in excess of $1
million. The Company's 1993 Plan is designed to qualify for the
performance-based exception to the $1 million limitation on deductibility of
compensation payments.
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Base Salary. The Compensation Committee sets the base salary for executive
officers by reviewing the salaries for comparable positions in high-growth
companies in the Company's industry, the historical compensation levels of the
Company's executives and the executive's individual performance in the preceding
year (based on the factors discussed under "Merit Bonus Program" below). The
Compensation Committee utilizes salary surveys for reference purposes, but its
salary determinations are not subject to specific criteria. For 1995 and 1996,
base salary for Mr. Wall also reflected the Company's obligations under his
employment agreement. See "Employment Contracts, Termination of Employment and
Change of Control Arrangements." In fiscal 1999, the base salaries of the
executive officers as a group were increased, based in part on the individual
contributions of the executives and in part on the need to retain key
executives, at an average rate of approximately 16.6%.
Merit Bonus Program. Each year the Compensation Committee adopts a
management incentive plan that reflects the Compensation Committee's belief that
a portion of each executive officer's and other manager-level participant's
compensation should be tied to the achievement by the Company of its profit
goals and by each executive officer of his or her individual performance goals.
The 1999 Executive Incentive Plan (the "1999 Incentive Plan"), set operating
profit goals and a merit bonus pool. In addition, the 1999 Incentive Plan
provided for both an increase and a decrease in the merit bonus pool as a
function of the Company's actual operating profit. Under the 1997 Incentive
Plan, executive officers are entitled to receive a bonus of between 40% and 50%
of base salary if the Company achieved its profit goals for Fiscal 1999 and the
individual executive met or exceeded his or her performance expectations. Based
on the Company's performance during Fiscal 1999, the bonus pool was not funded
and the executive officers did not receive a bonus.
Stock-Based Compensation. Awards of stock options under the Company's stock
option plans are designed to more closely tie the long-term interests of the
Company's executives with those of its shareholders and to assist in the
retention of executives. The Compensation Committee selects the executive
officers, if any, to receive stock options and determines the number of shares
subject to each option. The Compensation Committee's determination of the size
of option grants is generally intended to reflect an executive's position with
the Company and his or her contributions to the Company. Options generally have
a four-year vesting period to encourage key employees to continue in the
Company's employ. The Compensation Committee reviews the outstanding unvested
options of the key executives from time to time and may grant additional options
to encourage the retention of key executives. In fiscal 1999, a total of 201,000
options were granted to the executive officers.
Chief Executive Officer Compensation. The compensation for Mr. Wall, the
Company's former Chief Executive Officer, was determined based on the same
policies and criteria as the compensation for the other executive officers. The
Compensation Committee reviewed Mr. Wall's base salary and increased it to
$325,000 from its 1998 level of $219,000. The Compensation Committee continued
to utilize the 1999 Incentive Plan to tie Mr. Wall's compensation to shareholder
value by encouraging him to meet and exceed the goals set forth in the Company's
operating profit plan. The Compensation Committee also granted to Mr. Wall
options to purchase 117,000 shares in fiscal 1999.
The Compensation Committee
Bettie A. Steiger
Robert J. Frankenberg
David F. Millet
Steve Sarich, Jr.
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STOCK PRICE PERFORMANCE
The graph set forth below compares the cumulative total return on the
Common Stock with the cumulative total returns of the NASDAQ Total U.S. Index
and the NASDAQ Computer and Data Processing Index, resulting from an initial
assumed investment of $100 in each and assuming the reinvestment of any
dividends, for the period beginning on the date of the Company's initial public
offering on March 15, 1993 and ending on April 30, 1999. Stock price performance
shown in the Performance Graph for the Common Stock is historical and not
necessarily indicative of future price performance.
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
WALL DATA, NASDAQ TOTAL U.S. INDEX AND
NASDAQ COMPUTER AND DATA PROCESSING INDEX
NASDAQ COMPUTER AND
DATA PROCESSING INDEX NASDAQ TOTAL U.S. INDEX WALL DATA
--------------------- ----------------------- ---------
3/15/93 100.00 100.00 100.00
12/31/93 100.00 112.00 176.00
12/31/94 122.00 109.00 175.00
12/31/95 185.00 155.00 73.00
12/31/96 229.00 190.00 66.00
12/31/97 281.00 233.00 60.00
4/30/98 374.00 277.00 68.00
4/30/99 571.00 376.00 69.00
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
In January 1999, the Company entered into Employment and Change of Control
Agreements with each of Messrs. Wall, Vitale, Fox and Shank (the "Executives").
Each agreement provides that the Executive will be employed by the Company for a
term of two years, with an automatic renewal for successive one-year terms
unless cancelled upon twelve months' notice. Termination without cause or for
good reason entitles the Executives to receive (1) two times base salary for
Messrs. Wall and Vitale and one times base salary for Messrs. Fox and Shank, (2)
a percentage of base salary equal to the Executive Incentive Plan percentage for
the prior fiscal year and (3) COBRA premiums for eighteen months. In the event
of termination due to change of control, the Executives will receive the
benefits above, except that the salary multiple for Messrs. Wall and Vitale is
two and one-half and for Messrs. Fox and Shank is one and one-half.
Upon a merger (other than a merger of the Company in which the holders of
Common Stock immediately prior to the merger have the same proportionate
ownership of common stock in the surviving corporation immediately after the
merger), consolidation, acquisition of property or stock, separation,
reorganization (other than a mere reincorporation or the creation of a holding
company) or liquidation of the Company, as a result of which the Company's
shareholders receive cash, stock or other property in exchange for or in
connection with their shares of Common Stock, options granted under the 1983 and
the 1993 Amended and Restated Stock Option Plans will terminate (with certain
exceptions), but the optionee will
B-12
25
have the right immediately prior to any such merger, consolidation, acquisition
of property or stock, separation, reorganization or liquidation to exercise his
or her option in whole or in part whether or not the vesting requirements set
forth in the option agreement have been satisfied.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 14, 1999, the Company loaned $860,000 to John R. Wall, the
Company's former CEO, which loan is to be repaid by Mr. Wall in accordance with
the terms of a promissory note by Mr. Wall in favor of the Company (the "Note").
The Note accrues interest at a rate of 5.28% per year. The accrued interest is
due on April 15, 2000, April 15, 2001 and April 15, 2002, and the principal
amount of the Note and any unpaid interest is due on April 15, 2003. The Note
will become due and immediately payable upon any disposition by Mr. Wall of his
shares of the Company's Common Stock. As of August 18, 1999, the entire
principal amount remained outstanding.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's securities, to file with the SEC initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, Directors and greater-than-10% shareholders are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that, during the year ended December
31, 1998, its executive officers, Directors and greater-than-10% shareholders
complied with all Section 16(a) filing requirements.
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------
Exhibit 1. Offer to Purchase, dated October 27, 1999.+
Exhibit 2. Letter of Transmittal.+
Exhibit 3. Agreement and Plan of Merger, dated as of October 20, 1999,
by and among the Company, Parent and Purchaser.+
Exhibit 4. Employment and Change in Control Agreement, dated January
21, 1999 between the Company and Kerry D. Palmer.*
Exhibit 5. Restated 1993 Stock Option Plan, as amended.*
Exhibit 6. Restated 1993 Stock Option Plan for Non-Employee Directors,
as amended.*
Exhibit 7. Employment Agreement, dated as of October 20, 1999, by and
among the Company, Parent and Kevin B. Vitale.+
Exhibit 8. Employment Agreement, dated as of October 20, 1999, by and
among the Company, Parent and Richard P. Fox.+
Exhibit 9. Employment Agreement, dated as of October 20, 1999, by and
among the Company, Parent and Craig E. Shank.+
Exhibit 10. Employment Agreement, dated as of October 20, 1999, by and
among the Company, Parent and Kerry D. Palmer.+
Exhibit 11. Press Release, issued by Parent and the Company on October
21, 1999.+
Exhibit 12. Opinion of Bear Stearns, dated October 20, 1999 (attached
hereto as Annex A).*
- ---------------
* Filed herewith.
+ Filed as an exhibit to Parent's and Purchaser's Tender Offer Statement on
Schedule 14D-1, dated October 27, 1999, and incorporated herein by reference.