<PAGE>
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- -------- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
COMMISSION FILE NUMBER 0-22718
-------
RACOTEK, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE #41-1636021
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7301 OHMS LANE, SUITE 200, MINNEAPOLIS, MINNESOTA, 55439
(Address of principal executive offices, including zip code)
(612) 832-9800
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES X NO _____
------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the lastest practicable date.
Outstanding at
Class September 30, 1996
----- ------------------
Common Stock, $.01 par value 24,509,847
=============================================================================
THIS REPORT CONSISTS OF 18 SEQUENTIALLY NUMBERED PAGES. THE EXHIBIT INDEX
APPEARS ON SEQUENTIALLY NUMBERED PAGE 14.
<PAGE>
RACOTEK, INC.
INDEX
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
--------
Statements of Operations
Three Months Ended September 30, 1996 and 1995
and Nine Months Ended September 30, 1996 and 1995 3
Balance Sheets
September 30, 1996 and December 31, 1995 4
Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II -- OTHER INFORMATION
Items
1-5. Not applicable 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RACOTEK, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues:
Products $548 $910 $1,240 $2,604
Services 1,326 1,028 3,891 1,874
-------- -------- -------- --------
1,874 1,938 5,131 4,478
Cost and expenses:
Cost of products 358 836 1,865 2,435
Cost of services 865 472 2,708 860
Research and development 1,149 848 3,197 2,600
Sales and marketing 1,253 2,074 4,795 6,594
General and administrative 402 595 1,581 1,664
------- ------- ------- -------
Loss from operations (2,153) (2,887) (9,015) (9,675)
Interest Income 181 287 615 1,017
------- ------- ------- -------
Net loss ($1,972) ($2,600) ($8,400) ($8,658)
-------- -------- -------- --------
-------- -------- -------- --------
Net loss per share ($0.08) ($0.11) ($0.35) ($0.37)
-------- -------- -------- --------
-------- -------- -------- --------
Number of shares used in
computation 24,473 23,840 24,276 23,719
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
RACOTEK, INC.
BALANCE SHEETS
(In thousands, except per share amount)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $4,001 $4,397
Short-term investments 8,461 10,645
Accounts receivable, net 1,566 1,654
Inventories 295 1,305
Prepaid expenses and other current assets 210 518
----------- -----------
Total current assets 14,533 18,519
Long-term investments 1,002 5,052
Property and equipment, net 2,039 2,316
Restricted cash 470 585
Capitalized software development costs, net 151 241
Other long-term assets 305 403
----------- -----------
Total assets $18,500 $27,116
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $230 $638
Accrued expenses 1,158 1,100
----------- -----------
Total current liabilities 1,388 1,738
----------- -----------
Commitments
Stockholders' equity :
Common stock, $.01 par value, 35,000 shares
authorized, 24,510 and 24,043 issued and
outstanding at Sep. 30, 1996 and Dec. 31, 1995,
respectively 245 240
Additional paid-in capital 70,767 70,638
Accumulated deficit (53,900) (45,500)
----------- -----------
Total stockholders' equity 17,112 25,378
----------- -----------
Total liabilities and stockholders' equity $18,500 $27,116
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
RACOTEK, INC.
Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1996 1995
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($8,400) ($8,658)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 678 637
Provision for bad debts 237 165
Provision for write-down of inventories 900
Amortization of discounts on held to maturity investments (33) (215)
Changes in operating assets and liabilities:
Accounts receivable (149) (400)
Inventories 110 482
Prepaid expenses and other current assets 308 (59)
Accounts payable and accrued expenses (350) 179
-------- ---------
Net cash used in operating activities (6,699) (7,869)
Cash flows from investing activities:
Purchase of held to maturity investments (15,746) (13,671)
Proceeds from maturity of held to maturity investments 22,013 20,920
Purchase of property and equipment (213) (533)
Capitalized software development costs (90)
Other 64
-------- -----------
Net cash provided from investing activities 6,054 6,690
Cash flows from financing activities:
Proceeds from exercises of options 134 467
Changes in restricted cash 115 115
-------- -----------
Net cash provided from financing activities 249 582
-------- -----------
Net change in cash and cash equivalents (396) (597)
Cash and cash equivalents, beginning of period 4,397 3,357
-------- ------------
Cash and cash equivalents, end of period $4,001 $2,760
-------- ------------
-------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE A. BASIS OF PRESENTATION:
The unaudited financial statements of Racotek, Inc. (the "Company") as of
September 30, 1996 and for the periods ended September 30, 1996 and 1995
reflect, in the opinion of management, all adjustments (which, except as noted
below, include only normal recurring adjustments) necessary to fairly state the
financial position at September 30, 1996 and the results of operations and cash
flows for the reported periods. The results of operations for any interim
period are not necessarily indicative of the results to be expected for any
other interim period or for the full year. The year-end condensed balance sheet
data was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. These
financial statements should be read in conjunction with the Company's audited
financial statements and related notes for the year ended December 31, 1995,
which were included in the Company's 1995 Annual Report and incorporated by
reference in its 1995 Form 10-K. The preparation of these financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses during the reported periods. Actual results
could differ from those estimates. The most significant areas which require the
use of management estimates relate to allowances for inventory obsolescence and
doubtful accounts and the warranty accrual.
NOTE B. SELECTED BALANCE SHEET INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(Unaudited)
<S> <C> <C>
ACCOUNTS RECEIVABLE, NET:
Accounts receivable $1,943 $1,851
Less allowance for doubtful accounts (377) (197)
------ ------
$1,566 $1,654
------ ------
INVENTORIES:
Components $32 $104
Finished Goods 263 1,201
------ ------
$295 $1,305
------ ------
</TABLE>
During the first quarter of 1996, the Company recorded a $900,000 charge to cost
of products to effect a write-down of its SMR-related inventories to their
estimated net realizable values. The decrease in the estimated net realizable
values of these inventories resulted from the Company's decision to discontinue
the purchase and distribution of these products.
<TABLE>
<S> <C> <C>
PROPERTY AND EQUIPMENT, NET:
Computer equipment $2,902 $2,732
Furniture and equipment 878 835
Leasehold improvements 213 213
------- ------
3,993 3,780
Less accumulated depreciation and
amortization (1,954) (1,464)
------- -------
$2,039 $2,316
------- -------
------- -------
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company was founded in March 1989. With the completion and initial
commercial shipments of its KeyWare-TM- product in the second quarter of 1995,
the Company emerged from its development stage. The Company expects to continue
to incur losses into 1997 due to later-than-expected customer implementations of
wireless mobile data systems. The delays in customer implementations have
resulted from limited commercial availability and geographic coverage of
wireless networks such as cellular digital packet data ("CDPD") and low-earth
orbit satellite ("LEO"), delays in completion of wireless application software
integration and significant capital costs required for mobile computing
devices. The Company believes that the commercial availability and coverage
of wireless networks are increasing and that capital costs are beginning to
decline. The Company also believes that it can accelerate customers'
decisions to implement mobile data by providing needed expertise through
the Company's consulting services. However, actual results could vary
materially from the foregoing forward-looking statements, due to decisions
by wireless network providers not to deploy or extend their networks,
decisions by manufacturers of mobile computing devices to modify or
discontinue relevant product lines, competitive conditions facing wireless
network providers and computing device manufactures, and other risks and
uncertainties identified in this Form 10-Q and in the Company's other
SEC filings. There can be no assurance that the Company's business
will grow as anticipated or that the Company will achieve or sustain
profitability on a quarterly or annual basis in the future.
Most prospective customers wish to test Racotek's products and services
during an evaluation period before implementing mobile data communications
throughout their user base. This reduces the amount of revenues the Company
can expect to receive in the near term. The Company continues to add new
customers. However, substantial growth in revenues requires a significant
number of new customers and a broader rollout of mobile data to work forces by
asignificant number of existing customers. The Company believes that the
recurring revenues from providing monthly support, software maintenance and
transmission services to customers will constitute a substantial source of
revenue in the long term.
An increasing proportion of the Company's net revenues have been derived
from professional services, including system planning, software development,
system integration, training and installation management. The Company believes
that its extensive experience in building, enabling and supporting mobile data
systems will continue to contribute to growth in professional service revenues,
and that customers who purchase Racotek's professional services may become
purchasers of Racotek's other products and services. Actual results could vary
materially from the foregoing forward-looking statements, however, due to
continuing reluctance on the part of prospective customers to implement mobile
data, the Company's inability to retain and recruit qualified personnel, the
success of the Company's competitors, and other risks and uncertainties
identified in this Form 10-Q and in the Company's other SEC filings.
RESULTS OF OPERATIONS
NET REVENUES
Product revenues decreased from $910,000 for the quarter ended September
30, 1995 to $548,000 for the quarter ended September 30, 1996. Product revenues
decreased from $2,604,000 for the nine months ended September 30, 1995 to
$1,240,000 for the nine months ended September 30, 1996. The decrease in
product revenues resulted from a change in the product revenue mix from
primarily hardware in 1995 to software in 1996. The product revenue mix changed
with the introduction of the Company's
7
<PAGE>
KeyWare software product. KeyWare does not require the use of proprietary
Racotek hardware, thereby reducing the company's hardware sales. Product
revenues will continue to fluctuate based on product mix, initial customer
shipments and the timing of customer rollouts to their total user base.
Service revenues increased from $1,028,000 for the quarter ended September
30, 1995 to $1,326,000 for the quarter ended September 30, 1996. Service
revenues increased from $1,874,000 for the nine months ended September 30, 1995
to $3,891,000 for the nine months ended September 30, 1996. These increases are
primarily due to the Company increasing its consulting service revenues,
although transmission and support services also increased along with the
aggregrate number of product users in 1996 as compared to 1995. For the quarter
ended September 30, 1996, the Company earned $968,000 in revenues from
consulting services as compared to $760,000 for the quarter ended September 30,
1995. The Company anticipates that service revenues will continue to increase
as a percentage of total revenues in future periods.
COST OF REVENUES
Cost of product revenues decreased from $836,000 for the quarter ended
September 30, 1995 to $358,000 for the quarter ended September 30, 1996. Cost
of product revenues decreased from $2,435,000 for the nine months ended
September 30, 1995 to $1,865,000 for the nine months ended September 30, 1996.
Gross margins for the third quarter increased from 8% in 1995 to 35% in 1996,
but fell from 6% for the nine month period ended September 30, 1995 to (50)% for
the corresponding nine month period in 1996. The third quarter 1996 margin
increase resulted primarily from an increasing proportion of revenues from
higher margin software sales. Cost of products for the nine months ended
September 30, 1996 includes a charge of $900,000 resulting from the write-down
of the Company's remaining specialized mobile radio related inventories to their
net realizable values. The decrease in the estimated net realizable values of
these inventories resulted from the Company's first quarter decision to
discontinue the production, purchase and distribution of these products. The
Company believes product margins will improve in the future with the change in
the product mix to higher margin software license sales and a reduction in
hardware sales. However, actual results could vary materially from the
foregoing forward-looking statements if the Company fails to achieve the volume
of sales anticipated or due to other risks and uncertainties identified in this
Form 10-Q and in the Company's other SEC filings.
Cost of services increased from $472,000 for the quarter ended September
30, 1995 to $865,000 for the quarter ended September 30, 1996. Cost of services
increased from $860,000 for the nine months ended September 30, 1995 to
$2,708,000 for the nine months ended September 30, 1996. The increase in the
cost of services resulted primarily from an increase in the volume of services
performed and a related increase in consulting personnel. Service margins were
35% and 54% for the quarters ended September 30, 1996 and 1995 respectively, and
30% and 54% for the nine month periods ended September 30, 1996 and 1995,
respectively. The decrease in the service margin percentage in 1996 resulted
from a change in service mix to include a greater proportion of consulting
services, which typically generates a lower margin than transmission and support
services.
RESEARCH AND DEVELOPMENT
Research and development expenses increased from $848,000 for the quarter
ended September 30, 1995 to $1,149,000 for the quarter ended September 30,
1996. Research and development expenses increased from $2,600,000 for the
nine months ended September 30, 1995 to $3,197,000 for the nine months
ended September 30, 1996. These increases were primarily due to additional
engineering personnel hired to assist with the development of new versions
of current software products and other product features.
8
<PAGE>
SALES AND MARKETING
Sales and marketing expenses decreased from $2,074,000 for the quarter
ended September 30, 1995 to $1,253,000 for the quarter ended September 30,
1996. Sales and marketing expenses decreased from $6,594,000 for the nine
months ended September 30, 1995 to $4,795,000 for the nine months ended
September 30, 1996. The decrease in these expenses was primarily the result
of recharacterizing certain expenses as the cost of services in 1996 when
the Company began billing for these services. In 1995, these services were
performed as part of sales and marketing activities.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased from $595,000 for the quarter
ended September 30, 1995 to $402,000 for the quarter ended September 30, 1996.
General and administrative expenses decreased from $1,664,000 for the nine
months ended September 30, 1995 to $1,581,000 for the nine months ended
September 30, 1996.
INTEREST INCOME
Interest income decreased from $287,000 for the quarter ended September 30,
1995 to $181,000 for the quarter ended September 30, 1996. Interest income
decreased from $1,017,000 for the nine months ended September 30, 1995 to
$615,000 for the nine months ended September 30, 1996. These decreases are
primarily a result of a decrease in cash and investments in 1996 from 1995
levels.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had no significant capital spending
or purchase commitments and had cash and investments totaling $13,464,000 and
working capital of $13,145,000. For the nine months ended September 30, 1996,
the Company used $6,699,000 of cash in its operating activities, compared to
$7,869,000 of cash for the nine months ended September 30, 1995. The Company
expects to continue to incur substantial negative cash flows from operating
activities and therefore to have significant working capital needs into 1997.
Net cash of $6,054,000 provided by investing activities during the nine months
ended September 30, 1996 resulted from maturities of held-to-maturity
investments, net of investment purchases and the acquisition of property and
equipment. The Company generated $249,000 of cash from financing activities for
the nine months ended September 30, 1996 from the exercise of stock options and
from a reduction in restricted cash.
The Company believes that its existing capital resources will be sufficient
to meet the Company's cash requirements into 1997. However, actual results
could vary materially from the foregoing forward-looking statements due to many
factors, including the market acceptance of the Company's products, the levels
of promotion and marketing required to launch and sell its products and services
and to attain a competitive position in the marketplace, the extent to which the
Company invests in research and development with respect to existing and future
technology, including research and development with respect to additional
product features and product enhancements and other factors identified in this
Form 10-Q and in the Company's other SEC filings.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Delays in the commercial availability and geographic coverage of new
wireless networks may continue to impede or prevent substantial growth of the
Company's business. Prospective customers are reluctant to make company wide
implementation decisions until they have an opportunity to compare presently
available services to the services offered by new wireless networks, such as
CDPD and LEO
9
<PAGE>
satellites. There can be no assurance that the new wireless networks will
attain commercial availability, or that they will be available in a significant
number of metropolitan areas, or that they will provide a scope of geographic
coverage that is attractive to customers in the metropolitan areas in which they
are available. The Company's inability to offer products and services to
customers on new wireless networks could have a material adverse effect on the
Company's business.
The Company's ability to provide communication services is dependent upon
contractual relationships with wireless network providers. There can be no
assurance that the Company will be able to enter into or maintain relationships
with wireless network providers, that any such relationships will be on
economically favorable terms or that wireless network providers may not choose
to compete against rather than cooperate with the Company. Furthermore, there
can be no assurance that wireless network providers will have the capacity,
ability and FCC authorization to provide high-quality airtime to the Company's
customers on a continuous basis. The Company's inability to obtain high-
quality, reliable, continuous airtime from or maintain cooperative relationships
with wireless network providers would adversely affect the Company's business.
The Company depends on application software developers to help create a
market for the Company's products by writing their application software programs
so that the programs implement mobile data transmission through KeyWare. There
can be no assurance that the applications software developers will choose to
make their computer programs compatible with KeyWare. Furthermore, there can be
no assurance that the application software developers who implement mobile data
transmission through KeyWare will be successful in developing and marketing
their Racotek-compatible products or will continue to use the Company's products
in their business. In addition, delays by these developers in completing their
wireless application software integration is impeding the Company's efforts to
persuade existing and prospective customers to implement the products across
their entire fleets. Continuing delays in wireless application software
integration could have a material adverse impact on the Company's business.
Many large companies retain system integrators to select and implement
communications systems for their mobile workforces. The Company's ability to
obtain large companies as customers depends in part on establishing and
maintaining cooperative relationships with system integrators so that the system
integrators will recommend and purchase Racotek products and services for their
clients. The Company's inability to persuade system integrators to recommend
and purchase Racotek products and services for their clients could prevent the
Company from securing such clients as customers, which could have a material
adverse effect on the Company's business. In addition, to the extent system
integrators develop application software programs, the Company depends on them
to write their application software programs so that the programs implement
mobile data transmission through KeyWare. Continuing delays in wireless
application software integration by system integrators could have a material
adverse impact on the Company's business.
The Company depends on third-party hardware manufacturers to develop and
maintain computer hardware devices that are suitable for mobile data
applications, such as handheld and vehicle-mounted devices, and to make these
devices available to customers at attractive prices. The Company's ability to
sell its products would be diminished if hardware manufacturers cease developing
such devices. Unless dependable and fully-featured KeyWare-compatible mobile
devices are available at competitive prices, customers will be reluctant to
implement mobile data systems and become Racotek customers, which would
adversely affect the Company's business.
10
<PAGE>
A substantial portion of the Company's revenues derived from providing
consulting services to mobile data users. Consulting services cannot be
standardized and mass-marketed as readily as software, and they may not provide
a consistent source of recurring revenue compared to the Company's expectations
of transmission services. In order for the Company's revenues from consulting
services to continue to grow, the Company must continue to add more customers
and larger projects to build, enable and support data mobility systems. The
Comapny's inability to find customers for its large-scale consulting services,
and/or the Company's inability to use its consulting services to obtain
additional customers for its software licenses, support and transmission
services could adversely affect the growth of its business.
The Company derives a substantial part of its revenue from a small number
of customers who, after evaluating the Company's products, proceed to install
the Company's products throughout their entire fleet of vehicles. A decision by
any one of these customers to delay or abandon roll-out of the Company's
products across an entire fleet may have a material adverse effect on the
Company's business and results of operations.
Competition in the communication industry is intense. Major software
development companies, as well as computer, database and communications
companies, are possible sources of future direct competition for Racotek's
products and services. Many of the Company's current and possible direct
competitors have financial, technical, marketing, sales, manufacturing,
distribution and other resources substantially greater than those of the
Company. In addition to direct competitors, the Company presently faces
competition from providers of other mobile communication services that customers
might view as substitutes for wireless data transmission, such as cellular
telephone, paging and conventional two-way voice radio.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See attached Exhibit Index.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1996.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RACOTEK, INC.
By: Michael Fabiaschi
-------------------------------------
Michael Fabiaschi
President and Chief Executive Officer
By: David J. Maenke
-------------------------------------
David J. Maenke
Chief Financial Officer and Secretary
Dated: November 7, 1996
13
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER TITLE SEQUENTIALLY
NUMBERED PAGE
10.01** Amendments to Amended Employment Agreement by
and between Registant and Richard A. Cortese
dated June 6, 1996 and September 24, 1996 15
** Management contract or copmenstation plan.
14
<PAGE>
September 24, 1996
Mr. Richard Cortese
1692 County Road 245
Durango, CO 81301
Re: Termination of Employment
Dear Mr. Cortese:
This letter confirms our agreement that your employment by Racotek, Inc.
(the "Company") will terminate effective October 4, 1996.
The consequences of this termination are set out in a certain letter
agreement dated March 14, 1994, as amended by letters dated
February 29, 1996 and June 6, 1996.
On behalf of the Company,. I would like to take this opportunity to
thank you for your services to the Company.
Very truly yours,
RACOTEK, INC.
By: Michael A. Fabiaschi
-------------------------------------
Michael A. Fabiaschi
President and Chief Executive Officer
Agreed to and confirmed as of September 25, 1996
Richard A. Cortese
-------------------------------------
Richard A. Cortese
<PAGE>
June 6, 1996
Mr. Richard Cortese
Racotek, Inc.
7301 Ohms Lane, Suite 200
Minneapolis, MN 55439
RE: CHANGES TO EMPLOYMENT RELATIONSHIP
Dear Mr. Cortese:
On behalf of the Board of Directors, I would like to confirm the changes to
our agreement with you concerning your employment by Racotek, Inc. (the
"Company"). This letter amends a certain letter agreement dated March 14,
1994 addressed to you from me, as amended by a letter dated February 29,
1996 addressed to you from me (the "Original Agreement").
1. Section 2 of the Original Agreement is amended to read in full as follows:
"2. DUTIES. You will report to the Company's President and Chief
Executive Officer and perform such duties as he or she may request
from time to time. You will not be an executive officer of the
Company."
2. Section 4 of the Original Agreement is amended to read in full as follows:
"4. TERM. Your employment with the Company is on an at-will basis.
Provisions for termination of your employment by you or the Company are set
forth in Section 8. This agreement expires on January 15, 1997, provided
that if at the time of such expiration the Company is making payments to
you under Section 8, the Company will continue to make such payments to you
according to that provision."
3. Section 7.3 of the Original Agreement is amended to read in full as
follows:
"7.3 HEALTH INSURANCE. The Company will continue to provide health
insurance benefits to you and your family at the Company's expense until
December 31, 1998. From January 1, 1999 until the earlier of (i) December
31, 2006, or (ii) when you become eligible for health insurance benefits
under another plan, the Company will continue to provide health insurance
benefits to you and Cindy Cortese at your expense and upon reimbursement by
you of the monthly cost. This obligation will survive the expiration or
termination of this Agreement for any reason.
"7.4 EQUITY COMPENSATION. The option granted to you on December 19,
1994 has been canceled with respect to 112,500 shares. The option granted
to you on November 5, 1991 for 70,883 shares is hereby amended to add the
following sentence as the second paragraph of Section 2: "In the event
that your employment with the Company is terminated for any reason, whether
voluntarily or involuntarily, prior to September 3, 1996, this Option shall
immediately become exercisable in full."
4. Section 8 of the Original Agreement is amended to read in full as
follows:
"8. TERMINATION OF EMPLOYMENT. If your employment terminates
for any reason, whether voluntarily or involuntarily, the Company will
continue to pay you your Base Salary and benefits under Sections 5 and 7
above through January 15, 1997."
<PAGE>
5. Section 11.2 of the Original Agreement is amended to read in full as
follows:
"11.2 COVENANT NOT TO COMPETE. For so long as the Company is making
payments to you under Section 8, you agree that:
(a) you will inform any new employer, prior to accepting employment,
of the existence of this Agreement and provide such employer with
a copy hereof;
(b) you will not render services, (including research, consulting
or sales services) to any Conflicting Organization in connection
with the development, manufacture, marketing, sale, merchandising,
leasing, servicing, or promotion of any Conflicting Product that is
sold or intended for use or sale in any geographic area in which the
Company actively markets a Company Product or in good faith intends
as of the date of your termination, to actively market a Company
Product of the same general functions; and
(c) you will not directly or indirectly employ or attempt to employ,
or conspire with others to employ, in competition with the Company,
any of the Company's other employees.
Your obligations under Section 11.2 are hereinafter referred to as the
"Covenant Not to Compete."
6. Sections 11.3 and 11.4 are deleted in their entirety.
7. The references in Section 13 to Sections 8.1 and 8.2(a) are changed to a
reference to Section 8.
Except as amended by this letter, the terms of the Original Agreement remain
in full force and effect.
<PAGE>
Please confirm that this letter is in accordance with your understanding and
that you have received a copy of this letter by signing and returning to us
the enclosed duplicate of this letter.
Very truly yours,
RACOTEK, INC.
By Yuval Almog
-------------------------
Yuval Almog, on behalf of
the Board of Directors
Agreed to and confirmed as of June 6, 1996.
Richard A. Cortese
---------------------------
Richard A. Cortese
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIRD
QUARTER FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,001
<SECURITIES> 8,461
<RECEIVABLES> 1,943
<ALLOWANCES> (377)
<INVENTORY> 295
<CURRENT-ASSETS> 14,533
<PP&E> 3,993
<DEPRECIATION> (1,954)
<TOTAL-ASSETS> 18,500
<CURRENT-LIABILITIES> 1,388
<BONDS> 0
0
0
<COMMON> 71,012
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,500
<SALES> 1,240
<TOTAL-REVENUES> 5,131
<CGS> 1,865
<TOTAL-COSTS> 4,573
<OTHER-EXPENSES> 9,573
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,400
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
</TABLE>
