U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(x) Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
( ) TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 0-11038
BOATRACS, INC.
(Exact name of small business issuer as specified in its charter)
California 33-0644381
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
6440 Lusk Blvd., Suite D201, San Diego, CA 92121
(Address of Principal Executive Offices)
(619) 587-1981
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes X No __
APPLICABLE ONLY TO CORPORATE FILERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 15,504,310 shares of
common stock as of November 12, 1997.
Transitional Small Business Disclosure Format (check one): Yes __ No X
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOATRACS, INC.
Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
REVENUES:
Communications systems $788,844 $384,734 $1,924,192 $1,259,240
Data transmission & messaging 678,414 546,588 1,955,847 1,480,380
TOTAL REVENUES 1,467,258 931,322 3,880,039 2,739,620
COSTS AND EXPENSES:
Communications systems 459,022 236,953 1,214,405 812,991
Data transmission & messaging 338,772 285,226 985,552 801,236
Selling, general and
administrative 647,547 642,730 1,847,908 1,809,860
TOTAL COSTS AND
EXPENSES 1,445,341 1,164,909 4,047,865 3,424,087
GAIN/(LOSS) FROM OPERATIONS 21,917 (233,587) (167,826) (684,467)
Interest income 3,109 12,806 9,303 49,155
Interest expense 0 (255) (2,060) (2,418)
NET INCOME/(LOSS) $25,026 ($221,036) ($160,583) ($637,730)
NET EARNINGS/(LOSS) PER SHARE $.00 ($.02) ($.01) ($.05)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 12,604,093 12,602,310 12,602,911 12,595,845
See Notes to Financial Statements
<PAGE>
BOATRACS, INC.
BALANCE SHEETS
September 30, December 31,
ASSETS 1997 1996
(Unaudited)
CURRENT ASSETS:
Cash & cash equivalents $393,448 $103,144
Investment Securities 0 425,852
Accounts receivable -net 711,304 557,246
Inventories 130,140 92,118
Prepaid expenses and other assets 72,224 73,710
TOTAL CURRENT ASSETS 1,307,116 1,252,070
PROPERTY, at cost 138,170 120,731
NOTES RECEIVABLE 282,463 208,463
TOTAL $1,727,749 $1,581,264
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses $1,112,238 $796,666
Note payable--stockholder 10,129
Short-term margin loan on securities 139,268
Deferred compensation- net 45,129
TOTAL CURRENT LIABILITIES 1,122,367 981,063
STOCKHOLDERS' EQUITY:
Preferred stock, no par value;
1,000,000 shares authorized,
no shares issued
Common stock, no par value;
100,000,000 shares authorized,
12,604,310 and 12,602,310 shares
issued and outstanding in 1997
and 1996, respectively 4,212,925 4,210,925
Accumulated deficit (3,349,885) (3,189,302)
Note receivable for common
stock issued (257,658) (421,422)
TOTAL STOCKHOLDERS' EQUITY 605,382 600,201
TOTAL $1,727,749 $1,581,264
See Notes to Financial Statements
<PAGE>
BOATRACS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
1997 1996
Operating activities:
Net loss ($160,583) ($637,730)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation 40,440 26,719
Write-off of equipment 4,264
Changes in assets & liabilities:
Accounts receivable, net (154,058) (287,166)
Inventories (38,022) (27,943)
Prepaid expenses & other assets 1,486 (34,815)
Accounts payable and accrued
expenses 315,572 179,357
Net cash provided by (used in)
operating activities 9,099 (781,578)
Investing activities:
Capital expenditures (62,143) (61,682)
Net maturities of investment
securities 425,852 833,189
Net cash provided by investing
activities 363,709 771,507
Financing activities:
Payments received on note
receivable issued for common stock 163,764 144,683
Short-term margin loan on securities (139,268)
Common stock issued for stock options 2,000
Issuance of notes receivable (74,000) (283,527)
Payments on long-term debt and capital
lease obligation (35,000) (708)
Net cash used in financing activities (82,504) (139,552)
Net increase (decrease) in cash 290,304 (149,623)
Cash at beginning of period 103,144 151,728
Cash at end of period $393,448 $2,105
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Common stock issued for services rendered $0 $24,600
See Notes to Financial Statements
<PAGE>
BOATRACS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements at September 30, 1997 and 1996
as of and for the nine months then ended are unaudited and have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to
Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for
any other interim period or for the year ending December 31, 1997.
NOTE 2 - NET EARNINGS PER SHARE
Net Earnings per share amounts are calculated by dividing net earnings
by the weighted-average number of common shares outstanding during each
period including common stock equivalents. Net Earnings per share is
unchanged on a fully diluted basis for all periods presented.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." This statement specifies the computation, presentation, and
disclosure requirements for earnings per share for entities with publicly
held common stock. The Company will be required to adopt the new method
of reporting EPS for the year ending December 31, 1997. If SFAS No. 128
had been adopted as of January 1, 1997, there would be no change in the
EPS calculation as presented on the Statement of Operations as of and for
the period ended September 30, 1997.
NOTE 3 - BALANCE SHEET DETAILS
September 30, December 31,
1997 1996
(Unaudited)
Accounts Receivable $ 724,168 $ 570,780
Less allowance for doubtful accounts (12,864) (13,534)
$ 711,304 $ 557,246
Property- at cost:
Computers and equipment $ 230,684 $ 226,650
Leasehold Improvements 37,656 _______
Sub-total $ 268,340 $ 226,650
Less accumulated depreciation (130,170) (105,919)
$ 138,170 $ 120,731
Deferred Compensation - Officer (Note 4) $369,230
Less Note Receivable - Officer (Note 4) (324,101)
$ 45,129
Depreciation expense was $40,440 for the nine months ended
September 30, 1997 and $44,420 for the year ended December 31, 1996.
NOTE 4 - NOTES RECEIVABLE
Canadian Company - The Company has a demand note receivable agreement with
a Canadian company that provides for periodic advances. Outstanding advances
on the note bear interest at 9.0% and are due on demand. Advances on the
note totaled $282,463 and $208,463 at September 30, 1997 and December 31,
1996, respectively. The note receivable has been classified as long-term
based upon the Company's intent not to request payment prior to
October 1, 1998.
In September 1996, the Company entered into an agreement with the Canadian
company whereby the Canadian company, through its subsidiary, will act as
the sole representative for marketing, distribution and sale of the BOATRACS
system, and any related business in certain specified Canadian territory.
Stockholder - During 1995, the Company entered into a note receivable
agreement with an individual who is an officer, director and majority
stockholder of the Company under which it agreed to advance up to $369,230.
Advances were secured by an agreed upon offset to related deferred
compensation. The advances bore interest at 5.5% and were due on demand.
Advances under the agreement totaled $310,000 at December 31, 1996, plus
accrued interest. Terms of the note receivable agreement allow satisfaction
of the balance as an offset to related deferred compensation. In the first
quarter of 1997, the note was offset against the deferred compensation and
the remaining $45,129 was reclassified as a short-term note payable to the
stockholder. The balance at September 30, 1997 was $10,129.
NOTE 5 - AGREEMENTS WITH QUALCOMM INCORPORATED
On March 31, 1995, the Company entered into a Subscription Agreement and an
Amendment (#6) to the License and Distribution Agreement with QUALCOMM
Incorporated, the Company's supplier of OmniTRACS Satellite-based
communications and tracking equipment. Through these two agreements QUALCOMM
acquired 1,112,265 shares, or approximately 9%, of the Company's common stock.
The shares were issued for a total consideration of $737,000, which will be
paid by providing discounts on future purchases of OmniTRACS equipment and
data transmission and messaging from QUALCOMM. The transaction was recorded
as a note receivable for shares issued which is reduced as discounts are
earned. During the third quarter of 1997, a total of $57,804 in discounts
had been earned reducing the receivable balance to $257,658, compared to the
third quarter of the prior year when $48,526 of discounts were earned
reducing the receivable balance to $460,296.
NOTE 6 - SELLING STOCKHOLDER REGISTRATION WITH THE SECURITIES AND
EXCHANGE COMMISSION
On May 13, 1997, a Registration Statement on Form SB-2 was accepted by the
Securities & Exchange Commission which provides for registration of 5,490,956
shares of common stock on behalf of certain selling stockholders, including
(1) certain stockholders of the predecessor company to BOATRACS;
(2) QUALCOMM, Inc., the Company's sole supplier; (3) shares received by a
director on conversion of a note; and (4) shares issued in a private
placement in the last quarter of 1995. The Company did not receive any
proceeds from the transaction.
NOTE 7 - STOCK OPTIONS
Under the 1996 Stock Option Plan ("the Plan"), the Company may grant
incentive and non-qualified options to purchase up to 1,000,000 shares of
common stock to employees, directors and consultants at prices that are not
less than 100% (85% for non-qualified) of fair market value on the date the
options are granted. Options issued under the Plan expire seven years after
the options are granted and generally become exercisable ratably over a
five-year period following the date of grant. At September 30, 1997, there
were 576,500 options outstanding.
The Company applies Accounting Principles Board of Opinion no. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its Plan. Accordingly, no compensation expense has been
recognized for its stock-based compensation plan. Had compensation cost
been determined based upon the fair value at the grant date for awards under
the Plan consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and pro forma net loss for the period
ended December 31, 1996 would have been increased by approximately $166,000,
or $0.0l per share.
Under FASB 123, the fair value of the options granted during 1996 is
estimated as approximately $830,000 on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
no dividend yield, expected volatility of 344%, risk-free interest rate of
6.5%, and expected life of seven years.
NOTE 8 - SALARY REDUCTION SIMPLIFIED EMPLOYER PLAN (SAR-SEP)
During September 1996, the Company approved the adoption of a Salary
Reduction Simplified Employer Plan (SAR-SEP) allowing eligible employees to
contribute savings on a pretax basis effective January 1996. Employees may
contribute up to 15% of their salary, not to exceed $9,500 annually.
A discretionary contribution is determined each year by the Company.
As of the quarter ended September 30, 1997, the Company elected not to
contribute to the Plan.
NOTE 9 - SUBSEQUENT EVENT
During October 1997, Jon Gilbert was nominated to the Board of Directors
and also named President and Chief Executive Officer. Mr. Gilbert entered
into a Restricted Stock Purchase Agreement with the Company by which he will
purchase 2,900,000 shares of newly issued common stock for a total purchase
price of $2,320,000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company has distribution rights in the United States for marine
application of the OmniTRACS system of satellite-based communications
and tracking systems manufactured by QUALCOMM Incorporated ("QUALCOMM").
The OmniTRACS system provides confidential two-way communications between
vessels at sea and base stations on land or with other vessels and is
effective while a vessel is within the satellite's "footprint," which
extends roughly 200 to 400 miles offshore of the continental United States.
The system also allows for hourly position tracking, monitoring, and data
transmission and, using supplementary products, can provide engine
performance and fuel consumption monitoring.
Statements within this 10-QSB which are not historical facts, including
statements about strategies and expectations for new and existing products,
technologies, and opportunities, are forward-looking statements that
involve risks and uncertainties. The Company wishes to caution readers to
the risk factors inherent to the business including, but not limited to,
the continuing reliance upon QUALCOMM, Inc., the sole supplier of equipment
sold by the Company, and reliance upon QUALCOMM's Network Management Facility
through which the Company's message transmissions are formatted and processed.
These and other risks are described fully in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1996.
For the three months ended September 30, 1997 and 1996
Total revenues for the quarter ended September 30, 1997, were $1,467,258,
an increase of $535,936 or 57.6% as compared to total revenues of $931,322
for the quarter ended September 30, 1996.
Communications systems revenues, which consists of revenues from the sale
of BOATRACS systems and related software, were $788,844 or 53.8% of total
revenues, an increase of $404,110 or 105.0% compared to $384,734 or 41.3%
of total revenues in the third quarter of 1996. The increase
in communication systems revenues primarily reflects increased sales of
communication units to vessels in Europe and Canada and an increase in
FuelMate and software revenues compared to the same period in 1996.
Data transmission and messaging revenues were $678,414 or 46.2% of total
revenues, an increase of $131,826 or 24.1% compared to $546,588 or 58.7%
of total revenues in the third quarter of 1996. The increase in revenues
reflects an overall increase in data transmission and messaging services
provided by the Company as a result of growth in the number of BOATRACS
systems installed on vessels and increased usage by some customers.
Communications systems expenses were $459,022 or 58.2% of communications
systems revenues for the quarter ended September 30, 1997, an increase
of $222,069 or 93.7%, compared to $236,953 which represented 61.6% of
communications systems revenues in the corresponding quarter of the prior
year. The dollar increase in expenses primarily reflects the increase in
sales of BOATRACS systems. The decrease in communication systems expenses
as a percentage of communication systems revenues primarily reflects a
decrease in price from the Company's supplier. Data transmission and
messaging expenses were $338,772 or 49.9% of data transmission and messaging
revenues for the quarter ended September 30, 1997, an increase of $53,546 or
18.8%, compared to $285,226 which represented 52.2% of data transmission and
messaging revenues in the corresponding quarter of the prior year.
The dollar increase in costs reflects increased data transmission and
messaging services rendered due to increased BOATRACS systems installed on
vessels. The decrease in data transmission and messaging costs as a
percentage of data transmission and messaging revenues is due to the
continuing increase in revenues over the relatively fixed costs of
providing this service and a continuing change in the customer mix.
Selling, general and administrative expenses were $647,547 or 44.1% of
total revenues for the quarter ended September 30, 1997, an increase of
$4,817 or .1%, compared to $642,730 or 69.0% of total revenues in the
prior corresponding quarter. The increased dollar amount is primarily
attributable to increases in commissions, U.S. travel and the write-off
of certain prepaid consulting expenses, offset by a reduction in expenses
incurred, primarily certain general operating expenses, legal expenses and
costs associated with the European office, including consultant fees and
travel expenses. In addition, the Company incurred costs in the development
of software to facilitate customer operations, which were also reduced
during the third quarter compared to the third quarter of the prior year.
The software development costs are written off as incurred. A breakdown of
operating results for the third quarter 1997 on a geographical basis
reflects a pretax profit of approximately $305,000 for U.S. operations
before research and development expenses.
Interest income of $3,109 in the quarter ended September 30, 1997, represents
interest earned on investments. This represents a decrease of $9,697 or
75.7%, compared to interest income of $12,806 in the third quarter of 1996.
For the nine months ended September 30, 1997 and 1996
Total revenues for the nine months ended September 30, 1997, were
$3,880,039, an increase of $1,140,419 or 41.6% as compared to total
revenues of $2,739,620 for the nine months ended September 30, 1996.
Communications systems revenues, which consists of revenues from the
sale of the BOATRACS system and related software, were $1,924,192 or
49.6% of total revenues, an increase of $664,952 or 52.8% compared to
$1,259,240 or 46.0% of total revenues in the same period of 1996.
The increase in communication systems revenues primarily reflects
increased sales of communication units to vessels in Europe and Canada
and an increase in software and FuelMate sales in the first nine months
of 1997 compared to the same period in 1996. Data transmission and
messaging revenues were $1,955,847 or 50.4% of total revenues, an
increase of $475,467 or 32.1% compared to $1,480,380 or 54.0% of total
revenues in the same period of 1996. The increase in revenues reflects
an overall increase in data transmission and messaging services provided
by the Company as a result of growth in the number of BOATRACS systems
installed on vessels and increased usage by some customers.
Communications systems expenses were $1,214,405 or 63.1% of communications
systems revenues for the nine months ended September 30, 1997, an increase
of $401,414 or 49.4%, compared to $812,991 which represented 64.6% of
communications systems revenues in the corresponding period of the prior year.
The dollar increase in expenses primarily reflects the increase in sales of
BOATRACS systems. The decrease in communications systems expenses as a
percentage of communications systems revenues is primarily due to less volume
discounts given to customers in 1997, compared to 1996, and a decrease in
the cost from the supplier commencing at the end of the second quarter.
Data transmission and messaging expenses were $985,552 or 50.4% of data
transmission and messaging revenues for the nine months ended
September 30, 1997, an increase of $184,316 or 23.0%, compared to
$801,236 which represented 54.1% of data transmission and messaging
revenues in the corresponding period of the prior year. The dollar increase
in costs reflects increased data transmission and messaging services
rendered due to increased BOATRACS systems installed on vessels.
The decrease in data transmission and messaging costs as a percentage of
data transmission and messaging revenues is due to the continuing increase
in revenues over the relatively fixed costs of providing this service.
Selling, general and administrative expenses were $1,847,908 or 47.6% of
total revenues for the nine months ended September 30, 1997, an increase of
$38,048 or 2.1%, compared to $1,809,860 or 66.1% of total revenues in the
prior corresponding period. The increased dollar amount is primarily
attributable to additional expenses incurred, including commissions paid on
the sale of communication units, increases in certain office expenses and
the write-off of certain prepaid consulting expenses, offset by a reduction
in travel, telephone and legal expenses. In addition, the Company has
incurred a small increase in costs pursuing the commencement of operations
in Europe, including opening and maintaining a data transmission and
messaging center in The Netherlands, and payment to various consultants
offset by a reduction in travel expenses compared to the prior period.
The Company also incurred costs in the development of software to
facilitate customer operations; however, these costs were reduced for the
nine months ending September 30, 1997, compared to the same period of the
prior year. The costs are written off as incurred. A breakdown of operating
results for the nine months ended September 30, 1997 on a geographical basis
reflects a pretax profit of approximately $643,000 for U.S. operations before
research and development expenses.
Interest income of $9,303 in the nine months ended September 30, 1997,
represents interest earned on cash invested. This represents a decrease of
$39,852 or 81.1%, compared to interest income of $49,155 in the same period
of 1996.
Interest expense for the nine months ended September 30, 1997, was $2,060
or .05% of total revenues, a decrease of $358 compared to $2,418 which was
.09% of total revenues in the prior corresponding period.
Liquidity and Capital Resources
The Company's cash balance at September 30, 1997 was $393,448, an increase
of $290,304 over the December 31, 1996 cash balance of $103,144. At
September 30, 1997, working capital was $184,749, a decrease of $86,258
from the working capital of $271,007 at December 31, 1996. Cash of $9,099
was provided by operating activities, cash of $365,709 was provided by
investing activities and cash of $84,504 was used in financing activities
in the first nine months of 1997.
Net accounts receivable increased $154,058 at September 30, 1997, compared
to December 31, 1996, due to the increased sales and data transmission and
messaging charges in the third quarter not yet paid for. Inventory
increased $38,022 at September 30, 1997, compared to year-end primarily
due to the purchase of units for sale to potential European customers.
Prepaid expenses decreased by $1,486 primarily due to prepaid expenses to
consultants, which were written off in the third quarter of 1997, offset by
a deposit paid on a future sale. Notes receivable increased $74,000 at
September 30, 1997, compared to year- end due to monies loaned in connection
with Promissory Notes (see note 4). Accounts payable and other accrued
expenses increased $315,572 at September 30, 1997, compared to year end
primarily due to an increase of payables due to the supplier of BOATRACS
communications and messaging systems. Reduction of note receivable for
common stock issued in the amount of $163,764 relates to discounts
received on purchases of equipment and data transmission and messaging
from the supplier as provided in accordance with the terms of the Note
(see note 5.)
The Company anticipates making capital expenditures in excess of
$100,000 during 1997. To date the Company has financed its working capital
needs through private loans, the issuance of stock (see note 9, Subsequent
Event) and cash generated from operations. Expansion of the Company's
business may require a commitment of additional funds. To the extent that
the net proceeds of recent private financing activities and internally
generated funds are insufficient to fund the Company's operating
requirements, it may be necessary for the Company to seek additional
funding, either through collaborative arrangements or through public or
private financing. There can be no assurance that additional financing
will be available on acceptable terms or at all. If additional funds are
raised by issuing equity securities, dilution to the existing shareholders
may result. If adequate funds are not available, the Company's business
would be adversely affected.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Inapplicable
ITEM 2. CHANGES IN SECURITIES
Inapplicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable
ITEM 5. OTHER INFORMATION
Inapplicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item
(a)(1) Exhibit 11 - Computation of Net Earnings per share
(filed herewith).
10.10 Restricted Stock Purchase Agreement between
Boatracs, Inc. and Jon Gilbert dated October 15, 1997
10.11 Pledge Agreement between Boatracs, Inc. and Jon
Gilbert dated October 15, 1997
10.12 Promissory Note between Boatracs, Inc. and
Jon Gilbert dated October 15, 1997
SIGNATURES
In accordance with the requirements of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf
by the Undersigned, thereunto duly authorized.
BOATRACS, Inc.
Registrant
November 13, 1997 /S/ MICHAEL SILVERMAN
Date Michael Silverman
Chairman of the Board
November 13, 1997 /S/ DALE FISHER
Date Dale Fisher
Chief Financial Officer
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except earnings per share data)
Primary and Fully Diluted
Earnings per Share:
Three Months ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Net income/(loss) $25 ($221) ($161) ($638)
Net income/(loss) per share $.00 ($.02) ($.01) ($.05)
Weighted average common
shares outstanding 12,604 12,602 12,603 12,596
EXHIBIT 10.10
RESTRICTED STOCK PURCHASE AGREEMENT
This RESTRICTED STOCK PURCHASE AGREEMENT (this "Agreement"),
dated as of October 15, 1997, is made by and between Boatracs, Inc.,
a California corporation ("Company"), and Jon Gilbert ("Executive"),
with reference to the following facts:
A. Company has appointed Executive as the Chief Executive
Officer of the Company.
B. Company desires to grant to Executive the ability to
purchase and own up to 2,900,000 shares of Company's common
stock on the terms and conditions hereafter set forth
in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Restricted Stock.
(a) Purchase of Restricted Stock. In consideration
of Executive's current and future services during employment with Company,
Company irrevocably agrees to sell, and Executive irrevocably agrees to
purchase, on the date of this Agreement at a purchase price of eighty cents
($0.80) per share, a total of 2,900,000 shares (the "Restricted Shares") of
the Company's common stock, no par value (the "Common Stock"), upon the terms
and conditions set forth in this Agreement, for a total purchase price of two
million three hundred twenty thousand dollars ($2,320,000)
(the "Total Purchase Price").
(b) Consideration to Company. In consideration of the
execution of this Agreement by Company, Executive agrees to render faithful
and efficient services to Company. Nothing in this Agreement shall confer
upon Executive any right to continue in the employ of Company or shall
interfere with or restrict in any way the rights of Executive to resign at
any time or the rights of the Company to discharge Executive at any time for
any reason whatsoever, with or without cause, in any employment agreement
between the Company and Executive.
(c) Payment of Total Purchase Price. The payment of
the Total Purchase Price shall be made on the date hereof and shall be paid
as follows:
(i) Executive shall pay to Company by personal
check an amount equal to three hundred eighty six thousand six hundred
sixty-eight dollars and no cents ($386,668.00), which amount represents
payment in full for four hundred eighty-three thousand three hundred
thirty-five (483,335) Restricted Shares (the "Paid Restricted Shares"),
which shall be fully paid and nonassessable and not subject to the Company's
repurchase obligation described herein below;
(ii) Executive shall pay to Company by personal
check an amount equal to two thousand four hundred sixteen dollars and
sixty-seven cents
($2,416.67), which amount represents payment of one one-thousandth of one
cent ($0.001) per share for two million four hundred sixteen thousand six
hundred sixty-five (2,416,665) Restricted Shares;
(iii) Executive shall execute and deliver to Company
a full recourse
promissory note (the "Promissory Note"), substantially in the form of the
attached Exhibit A, with respect to the balance of the Total Purchase Price,
in an original principal amount of one million nine hundred thirty thousand
nine hundred fifteen dollars and thirty-three cents ($1,930,915.33).
The Promissory Note shall be secured by a security interest in the unvested
Restricted Shares pursuant to a Pledge Agreement, substantially in the form
of Exhibit B hereto, as the same may be amended, modified and supplemented
from time to time (the "Pledge Agreement"); and
(iv) Executive shall pay to Company by personal
check an amount
equal to the amounts which, under federal, state, or local tax law, Company
is required to withhold upon the purchase of Restricted Shares pursuant to
this Agreement.
(d) Issuance of Stock Certificates. Upon execution of this
Agreement and
payment of the Total Purchase Price for the Restricted Shares as described
above, the Company shall issue and deliver to Executive one or more
certificates representing the Paid Restricted Shares. The Company shall also
issue to Executive one or more additional certificates representing the
Unvested Shares (as hereinafter defined), which certificates shall
immediately be delivered to and held by the Company as collateral pursuant to
the Pledge Agreement and shall be released to Executive as provided therein.
All certificates shall bear the legend described in Section 2 below.
2. Investment Representation, Warranties and Acknowledgements of
Executive. Executive represents and warrants to Company as follows:
(a) That Executive is acquiring the Restricted Shares for
investment and for
his own account and not with a present view to, or for sale or any disposition
in connection with, any distribution or other transfer thereof, nor with any
present intention of selling or otherwise transferring the Restricted Shares.
(b) That Executive has such knowledge and experience in
financial and
business matters that he is capable of evaluating the merits and risks of
his investment hereunder, and that he understands and has taken cognizance
of all of the risk factors related thereto.
(c) That Executive's financial condition is such that he
can afford to
bear the economic risk of holding the unregistered Restricted Shares for an
indefinite period of time and suffer a complete loss of his investment
hereunder.
(d) That Executive has been given adequate opportunities
(i) to obtain any
additional information and documents relating to his investment in the
Restricted Shares and (ii) to ask questions and receive answers about such
documents, the Company and its business and prospects; and that these
opportunities have provided the Executive with all additional
information necessary or desirable to an evaluation of the merits and risks
related to his investment hereunder.
(e) Executive acknowledges the following:
(i) That the Restricted Shares have not been
registered under the
Securities Act or under the securities laws of any state and that the Company
is under no obligation to register any of the Restricted Shares except as
provided herein.
(ii) That the certificates representing the Unvested
Shares shall be
held by the Company as collateral for the Promissory Note and only certificates
representing Vested Shares shall be delivered to the Executive.
(iii) That the certificates representing any of the
Restricted Shares
shall bear a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION
OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF
A RESTRICTED STOCK PURCHASE AGREEMENT DATED AS OF
OCTOBER 15, 1997 (A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY). IF TRANSFER IS PERMITTED
BY THE TERMS OF SUCH AGREEMENT, NO TRANSFER, SALE,
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR (B) IF
THE COMPANY HAS BEEN FURNISHED WITH A
SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION IS (1) AN EXEMPT
TRANSACTION UNDER THE ACT OR THE RULES AND
REGULATIONS IN EFFECT THEREUNDER AND (2) AN EXEMPT
TRANSACTION UNDER THE APPLICABLE SECURITIES LAWS
OF ANY STATE."
(f) That this Agreement and Executive's employment
agreement with the
Company will not cause or require Executive to breach any obligation to, or
agreement with, any other party.
3. Vesting of Rights to Restricted Shares.
(a) Definitions. For purposes of this Agreement, the
following terms shall
have the meanings provided:
(i) "Cause" means (A) the conviction of a felony
or a crime
involving moral turpitude or fraud; (B) substantial and repeated failure to
perform duties as reasonably directed by the Board of Directors of the
Company; or (C) gross negligence or wilful misconduct which brings the
Company into substantial public disgrace or disrepute.
(ii) "Good Reason" means the occurrence of any of
the following
events without Executive's express written consent: (A) any material adverse
change in Executive's title of Chief Executive Officer, authorities or
responsibilities which were in effect immediately prior to such change;
(B) a reduction by the Company in the base compensation paid to Executive;
(C) the failure by the Company to provide to Executive compensation and
benefits (including without limitation, incentive, bonus and other
compensation plans and any vacation, medical, hospitalization, life
insurance, dental or disability benefit plan), on similar terms and
conditions which are made available to other senior managerial employees of
the Company; or (D) any material breach of this Agreement by the Company
which has not been cured within seven (7) days after notice of such breach
has been delivered by Executive to the Company.
(iii) "Permanent Disability" means the inability of
Executive to
reasonably perform his duties and responsibilities for a period of six (6)
consecutive months due to a medical or mental disability.
(iv) "Unvested Shares" means any Restricted Shares
which are not Vested Shares.
(v) "Vested Shares" means, as of any date, any
Restricted Shares
which have vested on or prior to such date pursuant to the provisions of
Section 3(b).
(b) Vesting. The Unvested Shares shall vest in accordance
with the
following provisions (the "Vesting Schedule"):
(i) On the date of this Agreement and upon payment
therefor as
described in Section 1(c)(i), the Paid Restricted Shares shall become Vested
Shares;
(ii) on the date which is six (6) months after the
date of this
Agreement and upon payment of the first Installment (as defined in the
Promissory Note), an additional four hundred eighty-three thousand three
hundred thirty-three (483,333) Unvested Shares shall become Vested Shares;
(iii) on the date which is twelve (12) months after
the date of this
Agreement and upon payment of the second Installment (as defined in the
Promissory Note), an additional four hundred eighty-three thousand three
hundred thirty-three (483,333) Unvested Shares shall become Vested Shares;
(iv) on the date which is eighteen (18) months
after the date of this
Agreement and upon payment of the third Installment (as defined in the
Promissory Note), an additional four hundred eighty-three thousand three
hundred thirty-three (483,333) Unvested Shares shall become Vested Shares;
(v) on the date which is twenty-four (24) months
after the date of this
Agreement and upon payment of the fourth Installment (as defined in the
Promissory Note), an additional four hundred eighty-three thousand three
hundred thirty-three (483,333) Unvested Shares shall become Vested Shares;
and
(vi) on the date which is thirty (30) months after
the date of this
Agreement and upon payment of the fifth Installment (as defined in the
Promissory Note), the remaining four hundred eighty-three thousand three
hundred thirty-three (483,333) Unvested Shares shall become Vested Shares.
(c) Employment Termination: Option to Repurchase. In the
event
Executive's employment with the Company is terminated (i) by the Company for
Cause; or (ii) due to Executive's voluntary resignation without Good Reason;
the Company shall have the option (the "Company Option") to repurchase all
Unvested Shares from Executive, which option must be exercised within thirty
(30) days of the date of such employment termination. In the event the
Company elects to exercise the Company Option, the repurchase price for the
Unvested Shares shall be equal to the outstanding principal balance and all
accrued but unpaid interest under the Promissory Note as of the date of
exercise of the Company Option, which shall be paid though the cancellation
of the Promissory Note and a deemed satisfaction of all amounts due
thereunder, including without limitation outstanding principal and all accrued
interest. In the event the Company does not exercise the Company Option as
provided herein, the Unvested Shares shall continue to vest in Executive in
accordance with the vesting schedule set forth in Section 3(b) above.
(d) Employment Termination: Executive's Option. In the event
Executive's
employment with the Company is terminated (i) by the Company without Cause;
(ii) by Executive for Good Reason; (iii) due to Executive's death; or
(iv) by the Company due to Executive's Permanent Disability, Executive shall
have the option (the "Executive Option"), exercisable at any time within
ninety (90) days after such termination of employment (the "Executive Option
Period"), to accelerate the vesting of all Unvested Shares by paying all
outstanding principal under the Promissory Note and the accrued but unpaid
interest thereon, calculated to the date the Executive Option is exercised;
provided, however, that in the event of any termination of employment due to
Executive's death or Permanent Disability, the Executive Option shall only
be exercisable if (x) the per share fair market value of the
Common Stock is greater than or equal to three dollars ($3.00) per share
and (y) such termination of employment occurs one (1) year or more after the
date of this Agreement (the foregoing conditions are collectively referred
to as the "Threshold Conditions"). Upon the payment of all principal and
interest under the Promissory Note in accordance with the previous sentence,
all remaining Unvested Shares shall become Vested Shares. In the event
that the Executive Option is not exercised within the Executive Option
Period, or upon written notice from Executive that Executive will not
exercise the Executive Option (the "Executive Notice"), whichever occurs
first, the Company shall have the obligation to repurchase all
Unvested Shares as described in Section 4 below.
4. Obligation to Repurchase Unvested Shares. (i) In the event of
any
termination of Executive's employment with the Company due to Executive's
death or Permanent Disability and the Threshold Conditions have not been met
as of the date of such employment termination, or (ii) in the event the
Executive Option is not exercised by Executive within the Executive Option
Period, Company shall have the obligation ("Repurchase Obligation"), to
repurchase all of the Unvested Shares from Executive. The Repurchase
Obligation shall become effective (the "Repurchase Obligation Effective
Date") immediately upon the earlier of (i) any termination of Executive's
employment with the Company described in Section 3(d) above, (ii) receipt
of the Executive Notice, or (iii) Executive's non-exercise of the Executive
Option within the Executive Option Period. The repurchase price for the
Unvested Shares shall be equal to the outstanding principal balance and all
accrued but unpaid interest under the Promissory Note as of the Repurchase
Obligation Effective Date, which shall be paid though the cancellation of
the Promissory Note and a deemed satisfaction of all amounts due
thereunder, including without limitation outstanding principal and all
accrued interest.
5. Acceleration of Vesting. Anything to the contrary herein
notwithstanding, upon the occurrence of any (i) merger or consolidation
involving the Company whereby the Company is not the surviving entity;
(ii) sale of all or substantially all of the assets of the Company or 50%
or more of the Company's then outstanding voting securities; or (iii) the
liquidation or dissolution of the Company (collectively, "Acceleration
Event"); at Executive's option all Unvested Shares shall become Vested
Shares and all amounts due under the Promissory Note shall become due and
payable as of the date of the closing of the Acceleration Event.
6. Rights as to Unvested Shares. Effective as of the date of this
Agreement,
Executive shall have full rights of ownership with respect to all of the
Restricted Shares, except as expressly limited by the terms of the Pledge
Agreement. Such rights shall include without limitation (i) voting rights
on all matters which the holders of Common Stock are entitled to vote
thereon, and (ii) rights to receive dividends and all distributions of any
type or description made with respect to Common Stock.
7. Registration Rights.
(a) Definitions. For purposes of this Agreement, the
following terms shall have the meanings provided:
(i) "Registrable Securities" means all Vested
Shares
held by Executive and all other shares of the Company's Common Stock held by
Executive
which are not subject to a repurchase right or option held by a third party.
(ii) "SEC" means the Securities and Exchange
Commission.
(iii) "Securities Act" means the Securities Act of
1933, as amended
from time to time.
(b) Demand Registrations. At any time subsequent to
the first anniversary
of the date of this Agreement, Executive shall have the right to make a
written request to the Company for registration under and in accordance
with the provisions of the Securities Act of all or part of the Registrable
Securities held by Executive (a "Demand Registration"). Such written
request shall specify the aggregate amount of Registrable Securities to be
registered and shall also specify the intended method or methods of
disposition thereof. Within one hundred eighty (180) days of receipt of
such written request, the Company shall make a registration under this
Section 6 on such appropriate registration form of the SEC (x) as shall
be selected by the Company and as shall be reasonably acceptable to
Executive, and (y) as shall permit the disposition of such Registrable
Securities in accordance with the intended method or methods of disposition
specified in the written request for such registration. Executive shall
have the right to make up to and including two (2) Demand Registrations.
(i) Expenses. The Company will pay any and all
costs, fees and
expenses relating or incident to the performance of the Company's obligations
pursuant to Demand Registrations; provided, however, that any underwriters
commission or discount shall be borne pro-rata by all holders of securities
being registered under such Demand Registration.
(ii) Effective Registration Statement. The Company
shall be deemed
to have effected a Demand Registration if the registration statement relating
to such Demand Registration is declared effective by the SEC; provided,
however, that no Demand Registration shall be deemed to have been effected
if (x) such registration, after it has become effective, is interfered with
by any stop order, injunction or other order or requirement of the SEC or
other governmental agency or court by reason of an act or omission by the
Company or (y) the conditions to closing specified in the purchase agreement
or underwriting agreement entered into in connection with such
registration are not satisfied because of an act or omission by the Company.
(c) Piggyback Registrations. If, at any time, the Company
determines to
register, whether for its own account or pursuant to a request by any third
party, any of its equity securities (including securities convertible into
equity securities), other than a registration on Form S-4 or S-8 or any
successor form to such Forms, for its own account or for the account of
others under the Securities Act, the Company shall, at each such time,
promptly give Executive written notice of such determination (the "Initial
Notice") and Executive shall be entitled to include in such registration
statement the Registrable Securities held by Executive ("Piggyback
Registration"). The Company shall include in such registration
statement such shares of Registrable Securities for which the Company has
received written requests to register such shares within 15 days after the
date of the Initial Notice. If the total amount of securities that are to
be included by either the Company for its own account or any other person
who is entitled to include securities held by such person in the proposed
registration, exceeds the amount of securities that the underwriters
reasonably believe compatible with the success of the offering, then the
Company will include in such registration only the number of securities
which in the opinion of such underwriters can be sold, selected
from the securities to be registered by the Company and the securities
requested to be included by Executive and all other persons holding
securities to be registered pro rata based on the number of securities which
each of them proposes to register. The Company will pay all any
and all costs, fees and expenses relating or incident to the performance of
the Company's obligations pursuant to Piggyback Registrations; provided,
however, that any underwriters commission or discount shall be borne
pro-rata by all holders of securities being registered
under such Piggyback Registration.
8. Restrictions on Transfer. Executive acknowledges and agrees
that any
transfer of the Restricted Shares by Executive shall comply with the
requirements of the Securities Act of 1933, as amended, and the terms and
conditions of this Agreement.
9. Right of First Refusal. If, at any time prior to April 13,
2000,
Executive desires to sell and transfer any Restricted Shares to any person
other than (i) any trust or custodianship, the beneficiaries of which
include only Executive, his spouse, or his lineal
descendants, provided that Executive shall exercise control over such trust
or custodial arrangement; (ii) a corporation or limited liability company or
other entity under the sole control of Executive; (iii) the Company pursuant
to the terms of this Agreement; or (iv) pursuant to the laws of devise and
descent; and further provided in each case that the transferee acknowledges
and agrees to be bound by the terms of this Agreement, Executive
shall give notice of such sale and transfer (the "Transfer Notice") to the
Company. The
Transfer Notice shall state the terms and conditions of such transaction,
including the name of
the prospective purchaser, the number of shares of such Restricted Shares to
be transferred (the
"Offered Shares"), the proposed purchase price for the Offered Shares (the
"Offer Price"),
payment terms and the type of disposition. The Transfer Notice shall further
state that the
Company has the option to acquire, in accordance with the provisions of this
Agreement, any
of the Offered Shares in accordance with the terms and conditions set forth in
the Transfer
Notice, except that (x) the Company may not purchase any of such Offered Shares
unless the
Company purchases all of such Offered Shares, and (y) the Company shall be
extended the
benefits of any credit terms contained in the Transfer Notice provided that the
Company has
substantially the same credit rating as the offeror or the Company posts
security reasonably
acceptable to Executive. The Company shall have a period of fifteen (15)
business days after
receipt of the Transfer Notice (the "Option Period") in which to close the
purchase of Offered
Shares and pay the Offer Price. In the event the Company elects not to exercise
the foregoing
option or if the closing does not take place within the Option Period, Executive
may sell and
transfer such Restricted Shares pursuant to the terms of the Transfer Notice;
provided,
however, that the closing of such sale and transfer must occur within sixty (60)
days of the
date of the Transfer Notice. In the event such closing does not occur within
said period, the
Offered Shares must be re-offered to the Company in the manner described above.
10. Notices. Any notice to be given under the terms of this
Agreement to
Company
shall be addressed to the Secretary of the Company at 6440 Lusk Blvd., Suite
D-201, San
Diego, California 92121, and any notice to be given to Executive shall be
addressed to him at
the address given beneath his signature hereto. By a notice given pursuant to
this Section,
either party may hereafter designate a different address for notices to be given
to him. Any
notice shall be deemed duly given: at the time delivered by hand, if personally
delivered; 3
business days after being deposited in the United States mail, first class
postage prepaid, if
mailed; when receipt acknowledged by addressee, if by facsimile transmission;
and on the next
business day if timely delivered to an air courier guaranteeing overnight
delivery.
11. Covenant Regarding 83(b) Election. Executive hereby covenants
and agrees
that he will make an election provided pursuant to Treasury Regulation 1.83-2
with respect to
the purchase of Restricted Shares hereunder; and Executive further covenants and
agrees that
Executive will furnish Company with copies of the forms of election Executive
files with the
Internal Revenue Service within 30 days after the date of such purchase. For
purposes of such
election and any tax returns filed by the Company or Executive relating thereto,
Company and
Executive agree that the fair market value of the Restricted Shares on the date
of this
Agreement is eighty cents ($0.80) per share.
12. Waiver. No provision of this Agreement may be modified, waived or
discharged unless such modification, waiver or discharge is agreed to in writing
by the party
against whom enforcement is sought. No waiver by either party hereto at any
time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject
matter hereof have been made by either party which are not expressly set forth
in this
Agreement.
13. Severability. Whenever possible, each provision of this
Agreement shall
be
interpreted in such manner as to be valid and effective under applicable law,
but if any
provision of this Agreement is found to be prohibited or invalid under
applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity
without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
14. Entire Agreement. This Agreement, the Promissory Note and the
Pledge
Agreement constitute the entire agreement between the parties hereto and
supersedes all prior
agreement, understandings and arrangements, oral or written between the parties
hereto with
respect to the subject matter hereof.
15. Governing Law. This Agreement shall be governed by and
interpreted in
accordance with the internal laws, excluding conflicts and choice of laws, of
the State of
California.
16. Attorneys' Fees. If any party to this Agreement brings an
action to
enforce its
rights under this Agreement, the prevailing party shall be entitled to recover
its costs and
expenses, including without limitation reasonable attorneys' fees, incurred in
connection with
such action, including any appeal of such action.
17. Counterparts. This Agreement may be executed in several
counterparts,
each of
which shall be deemed to be an original but all of which together will
constitute one and the
same instrument.
18. Captions and Section Headings. Captions and section headings
used herein
are
for convenience only, are not a part hereof and shall not be used in construing
this Agreement.
IN WITNESS WHEREOF, this Restricted Stock Purchase Agreement
has been executed and delivered by the parties hereto as of
the date first written above.
Company: BOATRACS, INC.
a California corporation
By: /S/ MICHAEL SILVERMAN
Name: Michael Silverman
Title: Chairman
Executive: Signature: /S/ JON GILBERT
Name: Jon Gilbert
Address: 2572 Calle Del Oro
La Jolla, Ca 92037
EXHIBIT 10.11
PLEDGE AGREEMENT
This PLEDGE AGREEMENT ("Agreement") is entered into effective as of October
15, 1997 ("Effective Date") by and between Jon Gilbert ("Pledgor") and Boatracs,
Inc., a
California corporation ("Pledgee"), with reference to the following facts.
A. The Pledgor and the Pledgee have entered into a Restricted Stock
Purchase
Agreement of even date herewith (the "Stock Purchase Agreement") whereby the
Pledgee has
agreed to issue and sell certain shares of its Common Stock (the "Stock") to the
Pledgor.
B. In partial payment of the purchase price of the Stock, the
Pledgor is
delivering
to the Pledgee the Pledgor's Promissory Note of even date herewith (the "Note").
C. The Pledgor wishes to grant further security and assurance to
the Pledgee
in
order to secure the payment of the principal and interest on the Note and to
that effect to
pledge to the Pledgee the Stock to be acquired by him pursuant the Stock
Purchase Agreement
as described herein.
NOW, THEREFORE, in consideration of the foregoing and for other
good and
valuable consideration, the receipt and adequacy are hereby acknowledged, the
parties hereto
agree as follows:
1. Creation of Security Interest. As security for the payment of
the principal
of
and interest on the Note, and further in order to secure the Pledgor's
obligations under the
Stock Purchase Agreement, the Note and this Pledge Agreement, the Pledgor hereby
grants to
the Pledgee a security interest in all of the Pledgor's right, title and
interest in and to the
Collateral (as defined in Section 2) and hereby delivers, pledges and assigns
the Collateral to
the Pledgee.
2. Collateral. The Collateral under this Pledge Agreement is:
(a) The Unvested Shares, as such term is defined in the
Stock Purchase
Agreement, as of the Effective Date;
(b) All securities, certificates and instruments
representing or evidencing
ownership of the Collateral hereunder, and all proceeds and products of any
Collateral
hereunder, including, without limitation, stock, cash, property or other
dividends, securities,
rights and other property now or hereafter at any time or from time to time
received,
receivable or otherwise distributed or distributable in respect of or in
exchange for any or all
of such Collateral; provided, however, that any cash distribution shall be
applied in accordance
with Section 5; and
(c) Any substituted or additional Collateral required to
be supplied under
the
terms of this Pledge Agreement.
3. Release of Collateral. The Pledgee hereby agrees that any
shares of Stock
pledged as Collateral which become Vested Shares under and pursuant to the
provisions of the
Stock Purchase Agreement shall be automatically released from the security
interest created in
this Agreement unless as of the date of such release an Event of Default (as
defined in the
Note) shall have occurred and is continuing. The Pledgee also agrees to
promptly
deliver to the
Pledgor a certificate or certificates representing the Stock so released,
which
certificate or
certificates shall bear only the legend described in Section 2(e)(iii) of the
Stock Purchase
Agreement.
4. Covenants of Pledgor. The Pledgor covenants that:
(a) The Pledgor will deliver to the Pledgee each
item of Collateral
hereunder immediately upon the Pledgor's acquisition thereof, and will defend
the
Collateral against all claims and demands of all persons claiming the same or
any
interest therein;
(b) The Pledgor will, promptly upon request by the
Pledgee, procure
or execute and deliver any documents, deliver to the Pledgee any instruments,
give any
notices, execute any proxies, execute and file any financing statements or
other
documents, all in form satisfactory to the Pledgee, and take any other actions
which are
necessary or, in the judgment of the Pledgee, desirable to perfect or continue
the
perfection and first priority of the Pledgee's security interest in the
Collateral, to
protect the Collateral against the rights, claims or interests of third persons
or to effect
the purposes of this Pledge Agreement, and will pay all costs incurred in
connection
therewith.
(c) The Pledgor will not, without the prior
written consent of the
Pledgee, in any way hypothecate or create or permit to exist any lien, security
interest
or encumbrance on or other interest in the Collateral except that created by
this Pledge
Agreement, nor will the Pledgor sell, transfer, assign, exchange or otherwise
dispose
of the Collateral or any interest therein. If any Collateral, or any interest
therein, is
sold, transferred, assigned, exchanged or otherwise disposed of in violation of
these
provisions, the security interest of the Pledgee shall continue in such
Collateral or part
thereof notwithstanding such sale, transfer, assignment, exchange or other
disposition,
and the Pledgor will hold the proceeds thereof in a separate account for the
Pledgee's
benefit. The Pledgor will, at the Pledgee's request, transfer such proceeds to
the
Pledgee in kind.
(d) The Pledgor will pay and discharge all taxes,
assessments and
governmental charges or levies against the Collateral prior to the delinquency
thereof
and will keep the Collateral free of all unpaid charges whatsoever.
(e) If, while this Pledge Agreement is in effect,
any stock dividend,
stock split, reclassification, readjustment, reorganization, merger,
consolidation or
other change in the capital structure, including the creation of any
subscription or other
rights or other Collateral, is made or declared, or proposed to be made or
declared, by
the Pledgee or any issuer of the Collateral, all substituted and additional
securities
issued with respect to the Collateral and received by Pledgor shall be endorsed
in blank
by the Pledgor promptly upon receipt thereof or otherwise appropriately
transferred to
the Pledgee in negotiable form, and all certificates and instruments evidencing
such
securities shall be delivered to the Pledgee to be held under the terms of this
Pledge
Agreement in the same manner as and as a part of the Collateral.
5. Cash Distributions. So long as no Event of Default (as defined
in the
Note),
and no condition or event which with notice or lapse of time, or both, would
constitute an
Event of Default, shall have occurred or exist under this Pledge Agreement, the
Pledgor shall
be entitled to receive all cash dividends and distributions with respect to the
Collateral. Upon
the occurrence of an Event of Default or any condition or event which with
notice or lapse of
time, or both, would constitute an Event of Default, the Pledgee shall
thereafter apply all cash
dividends and distributions against the indebtedness secured hereunder.
6. Defaults. The occurrence of any one or more of the following
events or
conditions effecting the Pledgor shall constitute a default under this Pledge
Agreement:
(a) The Pledgor fails to pay any indebtedness, perform any
obligation
required to be performed by him, or discharge any liability to the Pledgee in
accordance with the terms upon which such indebtedness, obligation or liability
was
incurred or created.
(b) Any lien (other than for property taxes which are not
delinquent) or
encumbrance other than that created by this Pledge Agreement is placed on or any
levy
is made on the Collateral or the Collateral or any portion thereof is seized or
attached
pursuant to legal process, unless such lien, encumbrance, levy, seizure or
attachment is
removed or released within thirty (30) days from the time such lien or
encumbrance
was placed thereon or such levy, seizure or attachment was effected.
7. Remedies. Upon the occurrence of a default hereunder, the
Pledgee may, at
its
option, without notice to or demand upon the Pledgor, do any one or more of the
following:
(a) Declare all advances made by the Pledgee to the Pledgor
hereunder and
all other indebtedness of the Pledgor to the Pledgee to be immediately due and
payable,
whereupon all unpaid principal and interest on said advances and all other
indebtedness
shall become and be immediately due and payable.
(b) Take possession of all items of Collateral hereunder
not then in its
possession.
(c) Exercise any or all of the rights and remedies provided
for by the
applicable Uniform Commercial Code.
Neither failure nor delay on the part of the Pledgee to exercise any right,
remedy, power or
privilege provided for herein or by statute or at law or in equity shall
operate as a waiver
thereof, nor shall any single or partial exercise of any such right, remedy,
power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, remedy,
power or privilege.
8. Pledgor's Obligations Not Affected. The obligations of the
Pledgor under
this
Pledge Agreement shall remain in full force and effect without regard to, and
shall not be
impaired or affected by:
(a) Any subordination, amendment or modification of or
addition or
supplement to the Stock Purchase Agreement or the Note, or any assignment or
transfer
of either thereof;
(b) Any exercise or non-exercise by the Pledgee of any
right, remedy,
power or privilege under or in respect of this Agreement, the Stock Purchase
Agreement or the Note, or any waiver of any such right, remedy, power or
privilege;
(c) Any waiver, consent, extension, indulgence or other
action or inaction in
respect of this Agreement, the Stock Purchase Agreement or the Note; or
(d) Any bankruptcy, insolvency, reorganization, arrangement,
readjustment,
composition, liquidation or the like of the Pledgee or its successor whether or
not the
Pledgor shall have notice or knowledge of any of the foregoing.
9. Transfer by Pledgor. The Pledgor shall not sell, assign,
transfer or
otherwise
dispose of, grant any option with respect to, or mortgage, pledge or otherwise
encumber the
Collateral or any interest therein except as provided in the Stock Purchase
Agreement. If the
Pledgor shall transfer any shares of the Stock in accordance with the Stock
Purchase
Agreement, the Collateral shall remain subject to the terms of this Agreement.
10. Attorney-In-Fact. The Pledgee or its successors is hereby
appointed the
attorney-in-fact of the Pledgor for the purpose of carrying out the provisions
of this Pledge
Agreement, collecting any Collateral, conveying any item of Collateral to any
purchaser
thereof and taking any action and executing any instrument which the Pledgee
reasonably may
deem necessary or advisable to accomplish the purposes hereof, including without
limitation
the execution of any applications or other instruments necessary for the
disposition of the
Collateral. The appointment of the Pledgee as the Pledgor's attorney-in-fact is
irrevocable as
one coupled with an interest.
11. Termination. Upon payment in full of the principal of and
interest on the
Note,
this Agreement shall terminate and the Pledgor shall be entitled to the return
of such of the
Collateral as has not theretofore been released or otherwise applied pursuant to
the provisions
of this Agreement.
12. Notices. All notices or other communications required or
permitted to be
given
hereunder shall be made or delivered as provided in the Stock Purchase
Agreement.
13. Waiver. No provision of this Agreement may be modified, waived
or
discharged unless such modification, waiver or discharge is agreed to in
writing by the party
against whom enforcement is sought. No waiver by either party hereto at any
time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject
matter hereof have been made by either party which are not expressly set forth
in this
Agreement.
14. Severability. Whenever possible, each provision of this
Agreement shall
be
interpreted in such manner as to be valid and effective under applicable law,
but if any
provision of this Agreement is found to be prohibited or invalid under
applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity
without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
15. Entire Agreement. This Agreement, the Promissory Note and the
Stock
Purchase Agreement constitute the entire agreement between the parties hereto
and supersedes
all prior agreement, understandings and arrangements, oral or written between
the parties
hereto with respect to the subject matter hereof.
16. Governing Law. This Agreement shall be governed by and
interpreted in
accordance with the internal laws, excluding conflicts and choice of laws, of
the State of
California.
17. Attorneys' Fees. If any party to this Agreement brings an
action to
enforce its
rights under this Agreement, the prevailing party shall be entitled to
recover its costs and
expenses, including without limitation reasonable attorneys' fees, incurred in
connection with
such action, including any appeal of such action.
18. Counterparts. This Agreement may be executed in several
counterparts,
each of
which shall be deemed to be an original but all of which together will
constitute one and the
same instrument.
19. Captions and Section Headings. Captions and section headings
used herein
are
for convenience only, are not a part hereof and shall not be used in construing
this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be executed and delivered as of the date set forth above.
Pledgor: BOATRACS, INC.
a California corporation
By: /S/ MICHAEL SILVERMAN
Name: Michael Silverman
Title: Chairman
Pledgee: /S/ JON GILBERT
Jon Gilbert
EXHIBIT 10.12
PROMISSORY NOTE
$1,930,915.33 October 15, 1997
FOR VALUE RECEIVED, the undersigned, Jon Gilbert, ("Borrower"),
hereby
promises to pay to Boatracs, Inc., a California corporation ("Company"), or
order, the
principal sum of one million nine hundred thirty thousand nine hundred fifteen
dollars and
thirty-three cents ($1,930,915.33) with interest from the date hereof at the
rate of 5.77% per
annum (on the basis of a 365 day year and the actual number of days elapsed).
All payments
under this Note shall be made to Company or its order in lawful money of the
United States of
America at the offices of Company at its then principal place of business (or
at such other
place as the holder hereof shall notify Borrower in writing).
If the date set for payment of principal hereunder is a
Saturday, Sunday or
legal
holiday, then such payment shall be made on the next succeeding business day.
This Note has been delivered in partial payment for the purchase
of shares of
the Common Stock of the Company in accordance with the terms of that certain
Restricted
Stock Purchase Agreement, of even date herewith, between Company and Borrower
(the
"Restricted Stock Agreement"), and this Note is the promissory note referred to
in Section
1(c)(ii) of the Restricted Stock Agreement. Pursuant to the Restricted Stock
Agreement,
Borrower has purchased Common Stock of Company. Capitalized terms not defined
herein
shall have the same meaning as in the Restricted Stock Agreement unless the
context requires
otherwise. Payment of the principal of and interest on this Note is secured
pursuant to the
terms of the Pledge Agreement. This Note is subject to the following further
terms and
conditions:
Section 1. Installments. Payment of all outstanding principal
amounts under
this Note and accrued interest thereon shall be made in five equal amounts
(each, an
"Installment") due and payable in accordance with the following schedule:
Payment Date Amount of Payment
First Installment April 15, 1998 $420,240.75
Second Installment October 15, 1998 $420,240.75
Third Installment April 15, 1999 $420,240.75
Fourth Installment October 15, 1999 $420,240.75
Fifth Installment April 15, 2000 All remaining principal
and accrued but unpaid
interest on this Note.
Section 2. Acceleration. This Note shall become due and
payable in
accordance with the terms and conditions of Section 3(d) of the Restricted Stock
Agreement in
the event the Executive Option is exercised. In the event the Company Option is
exercised or
if the Repurchase Obligation is effective, all accrual of interest under this
Note shall cease as
provided in the Restricted Stock Agreement and all of Borrower's obligations
under this Note,
including without limitation the repayment of principal and interest and any
other amounts due
hereunder, shall be extinguished.
Section 3. Voluntary Prepayments. Borrower may prepay this
Note in whole
or in part any time or from time to time without penalty or premium. Any
voluntary
prepayment shall be applied first to accrued and unpaid interest on this Note
and second to the
outstanding principal amount of this Note. If full payment of the unpaid
principal of this Note
is made, this Note shall be cancelled.
Section 4. Events of Default. Upon the failure to make any
payment of
principal or interest of this Note when due, which shall remain unremedied for
ten days after
written notice thereof shall have been given to Borrower ("Event of Default"),
then, and in
such event, the Company may declare, by notice of default given to Borrower,
the entire
principal amount of this Note to be forthwith due and payable, whereupon the
entire principal
amount of this Note outstanding shall become due and payable without
presentment, demand,
protest and notices of any kind or of dishonor, all of which are hereby
expressly waived. If
any interest payable hereunder is not paid when due, such interest shall be
added to the unpaid
principal hereunder and shall bear interest until paid, provided however, that
in no event shall
Borrower be required to pay any interest hereunder in excess of the maximum
legal rate. If an
Event of Default shall occur hereunder, Borrower shall pay costs of collection,
including
reasonable attorneys' fees, incurred by the holder in the enforcement hereof.
No delay or failure by the Company in the exercise of any right or remedy
shall
constitute a waiver thereof, and no right and no single or partial exercise by
the holder hereof
of any right or remedy shall preclude other or future exercise thereof or the
exercise of any
other right or remedy.
Section 5. Miscellaneous.
(a) The provisions of this Note shall be governed by
and construed in
accordance with the laws of the State of California, without regard to the
conflicts of
law rules thereof.
(b) All notices and other communications hereunder
shall be in writing
and will be deemed to have been duly given if delivered or mailed in accordance
with the Restricted Stock Agreement.
(c) This Note is a full recourse promissory note;
provided, however, the
Company shall be required to first foreclose on any collateral securing
Borrower's
obligations under this Note pursuant to the Pledge Agreement before recourse may
be
made to any other assets or property of Borrower.
(d) The paragraph headings contained in this Note are
for reference
purposes only and shall not affect in any way the meaning or interpretation of
the
provisions hereof.
(e) If any party to this Note brings an action to
enforce its rights under
this Note, the prevailing party shall be entitled to recover its costs and
expenses,
including without limitation reasonable attorneys' fees, incurred in connection
with
such action, including any appeal of such action.
IN WITNESS WHEREOF, this Note has been duly executed and
delivered by
Borrower on the date first above written.
/S/ JON GILBERT
Jon Gilbert
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 393,448
<SECURITIES> 0
<RECEIVABLES> 724,168
<ALLOWANCES> 12,864
<INVENTORY> 130,140
<CURRENT-ASSETS> 1,307,116
<PP&E> 268,340
<DEPRECIATION> 130,170
<TOTAL-ASSETS> 1,727,749
<CURRENT-LIABILITIES> 1,122,367
<BONDS> 0
<COMMON> 4,212,925
0
0
<OTHER-SE> (3,607,543)
<TOTAL-LIABILITY-AND-EQUITY> 1,727,749
<SALES> 3,880,039
<TOTAL-REVENUES> 3,880,039
<CGS> 2,199,957
<TOTAL-COSTS> 2,199,957
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,060
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160,583)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
