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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1997
[ ] 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)
Registrant's Telephone Number, Including Area Code: (612) 832-9800
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $68,751,531 based on the closing sale price of the
Company's Common Stock as reported on the Nasdaq National Market on March 9,
1998: $2.75
The number of shares outstanding of the registrant's common stock, as of March
9, 1998: 25,000,557 shares.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held on April 30, 1998, are incorporated by reference into Part III of
this report.
(2) Portions of the registration statement on Form S-1 which was declared
effective December 12, 1993, are incorporated by reference into Part III
of this report.
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PART I
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS FORM 10-K ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES, INCLUDING THE POSSIBILITY THAT A SUBSTANTIAL MARKET FOR
MOBILE DATA SYSTEMS WILL NOT DEVELOP IN THE TIME FRAMES ANTICIPATED BY THE
COMPANY, THE COMPETITIVE ENVIRONMENT FOR CUSTOMER SPENDING FOR TECHNOLOGY,
WHICH INCLUDES SPENDING FOR YEAR 2000 INITIATIVES, THE POSSIBILITY THAT
PRICING FOR WIRELESS COMPUTING SERVICES AND TECHNOLOGY WILL NOT BE AT A LEVEL
NEEDED TO SUSTAIN LONG-TERM FINANCIAL SUCCESS, AND THE OTHER RISKS DETAILED
BELOW AND FROM TIME TO TIME IN THE COMPANY'S OTHER REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE ACTUAL RESULTS THAT THE COMPANY
ACHIEVES MAY MATERIALLY DIFFER FROM ANY FORWARD-LOOKING STATEMENTS DUE TO
SUCH RISKS AND UNCERTAINTIES.
ITEM 1. BUSINESS
Racotek, Inc. ("Racotek" or the "Company") is a systems integrator for
mobile data communication systems. Racotek's objective is to become a leading
provider of mobile data communications services and technologies to businesses
that have mobile workers engaged in on-site customer service. The service and
technology offerings of the Company are focused on extending enterprise
information systems to mobile workers, through the use of mobile computing
software and systems integration services provided by the Company that provide
connectivity from host computer applications across multiple wireless and
wireline networks. The Company also provides post-installation support services
designed to maximize the business benefits made possible by mobile
communications systems.
Services provided by the Company include business case evaluation,
requirements consulting, system design and planning, application software
development, systems integration, training, installation, and organizational
change management. The Company also derives revenue from licenses of its
KeyWare-TM- software product. The ability to utilize KeyWare over many
different configurations of wireless networks and with different types of
hardware allows Racotek the flexibility to make independent recommendations
regarding its clients' wireless network configurations as it helps clients
choose the hardware and software components of their wireless wide area network.
In the first quarter of 1996, the Company decided to discontinue the
production, purchase and distribution of specialized mobile radio ("SMR")
technologies. The Company completely exited from the SMR hardware production and
distribution business in the third quarter of 1997.
BACKGROUND
The Company believes that 8 million of the estimated 38 million mobile
workers in the United States are engaged in on-site customer service, and these
mobile workforces are the principal potential market for Racotek's technologies
and services. The market for mobile data communications services and
technologies remains relatively undeveloped, and many mobile workers do not use
wireless communication at the present time. The Company believes that the
principal reason that the market for mobile data services has been slow to
develop is the complexity of integrating wireless data communication into
existing field service software applications.
Implementation of a wireless data solution requires a significant
amount of work to integrate the wireless application to the client's legacy
systems, which usually also requires the client to significantly change its
business processes. Existing field service software applications include
functions such as accounting, inventory control, scheduling, load efficiency,
dispatching, collection of shipment and inventory data, destination
addressing and routing information. Since few of these application programs
are able to exchange messages or data directly with mobile workers, mobile
workers typically either collect information in written form for later
physical delivery to the base office, or communicate with the base office by
voice communications. In either case, the information is not transmitted in
a form that is immediately accessible by a computer. The information must
instead be entered manually, which often results in delays and increases the
likelihood of inaccuracies. Mobile workers face similar obstacles in
obtaining timely and accurate information from the base office and typically
are unable to access the base office applications. The Company's services
and technologies are intended to alleviate these difficulties, by changing
the client's business processes to give the mobile worker access to on-line
real-time data communication with the client's host computer systems.
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THE RACOTEK SOLUTION
Racotek seeks to be a leader in helping clients enhance the
productivity and value of their mobile workers. This includes understanding
and quantifying the potential business benefits associated with implementing
a mobile communication system, assisting the client in the selection of the
appropriate components, integrating third party or its own application
software, identifying and implementing process change, and measuring the
resulting benefits against the expected benefits.
CORE TECHNOLOGIES AND SERVICES
TECHNOLOGY. The Company's technologies include its KeyWare middleware
technology and other standard commercial software developed by the Company, such
as database interface software, as well as application software customized by
the Company for individual clients. The Company's technology also includes
certain network management software tools that the Company has developed in
order to identify and diagnose problems arising with clients' wireless network
configurations.
KeyWare was introduced to the market in the first quarter of 1995.
KeyWare is a wireless networking software product referred to as
"middleware," and is built upon an open client/server architecture. This
design allows KeyWare's service agents to perform important functions on
behalf of host and portable applications including, among others, Global Name
Management, store and forward, file transfer and network management. KeyWare
is designed to be interoperable with existing information systems to provide
broad wireless and wireline connectivity and to enable integration of
existing applications. For the years ended December 31, 1997, 1996, and
1995, revenues from software licenses was 3%, 10%, and 3% of total revenues,
respectively.
In the third quarter of 1997, the Company decided to no longer sell
KeyWare as a stand-alone product. Instead, the Company will sell KeyWare
only in conjunction with sales of the Company's services, such as application
development and systems integration, in situations where the client and the
Company agree that KeyWare is the appropriate solution for the client's
wireless data communication needs. The Company decided to sell KeyWare only
in conjunction with sales of the Company's services because third party
application software providers, systems integrators and end users faced
significant difficulties deploying complete solutions using any of the mobile
computing middleware currently available. These difficulties arise, in part,
because of the immaturity of the component technologies involved in
developing mobile data solutions, the vast number of choices of components
that must be made in a successful project, and these parties' lack of a
systems integration process tailored to the complexities of mobile computing.
PROFESSIONAL SERVICES. The Company offers its clients certain
consulting services, project management and implementation services including
business process review, requirements consulting, system design and planning,
software development, systems integration, training, installation management,
and organizational change management. Racotek's professional services
usually start with business case evaluations, extend to process improvement,
and often include implementation of a wireless mobile data system. The
Company's professional services can be priced on either a time and materials
or fixed bid basis based on pre-approved statements of work. The Company
commenced providing these types of services in 1995. For the years ended
December 31, 1997, 1996, and 1995, revenue generated from these services
accounted for 60%, 52%, and 29% of total revenues, respectively.
MANAGED NETWORK SERVICES. The Company's managed network services
group monitors a client's wireless system performance to detect potential
problems and resolve issues affecting overall system availability. This
service provides clients a single point of contact in a multi-vendor
environment. The Company has developed diagnostic tools to detect errors in
a wireless system. Managed network services are typically billed monthly on
a fixed basis. For the years ended December 31, 1997, 1996, and 1995,
revenues from these services amounted to 12%, 10%, and 1% of total revenues,
respectively.
TRANSMISSION SERVICES. The Company has agreements with SMR
transmission operators in many locations in the United States that allow
transmission service, principally suited for metropolitan, in-vehicle users.
With the release of KeyWare and certain marketing agreements, the Company
also can remarket
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transmission service on ARDIS, RAM and certain Cellular Digital Packet Data
("CDPD") providers. Revenues generated from these services accounted for 12%,
10% and 16% of total revenues for the years ended December 31, 1997, 1996 and
1995, respectively.
OTHER DEVELOPMENTS. In 1996, the Company obtained a United States
patent for a technology involving a spectral overlay on cellular systems that
could deliver LAN-like performance over a wide area wirelessly. In 1997, the
Company performed further simulations regarding implementing and using the
technology. In the first quarter of 1998, certain of the Company's research
and development personnel were assigned to work full-time on the overlay,
with the intention of forming a subsidiary and seeking strategic partners to
further develop the technology. Competition for this technology may come
from third-generation cellular personal communication service ("PCS")
technologies, such as the broadband Code Division Multiple Access ("CDMA")
currently being reviewed by international standards bodies.
CLIENT FOCUS
Racotek is concentrating its efforts on reaching the segments of the
mobile communication market that the Company believes has a need for
industry-specific, mission-critical mobile applications. Racotek has
targeted field service for its initial focus, since the Company has a
detailed knowledge and understanding of that segment of the market. The
dispatcher in a field service organization receives service requests, enters
orders and dispatches field service technicians. At present, most
dispatchers communicate with the field service technicians using standard
telephone or two-way voice radio. The dispatcher reads the work assignment,
special instructions and any relevant information he or she may have about
the service request. The service technician takes notes and proceeds to the
assignment. Each dispatcher is generally responsible for 20 or more
technicians. While the dispatcher handles one technician's queries, a number
of other field technicians may have to wait for information or assignment.
This wait time is a significant inefficiency within the field service
industry.
Current users of Racotek core technologies and services have
implemented systems that provide continuous data flow to and from field
service technicians in an effort to increase customer service and
productivity. The Company's technologies and services may enhance the
productivity of mobile workers by providing more information about the
assignment, such as warranty, service history and parts availability.
Wireless data communication is intended to allow the mobile technician to
access the computers residing at the base office without requiring as much
time and preventing the level of misunderstanding that may result from
person-to-person communication.
BACKLOG
To date, the Company typically has operated with little order backlog.
Most of its revenues in each quarter result from orders booked in each quarter.
The Company's typical payment terms are net 30 days from invoice date.
PRODUCT DEVELOPMENT
Although the Company no longer offers KeyWare as a stand-alone product,
the Company will continue to develop enhancements to KeyWare as they are
required for specific clients.
For the years ended December 31, 1997, 1996, and 1995, the Company's
research and development expenses were approximately $3,286,000, $4,211,000 and
$4,170,000, respectively. Included in the 1995 expense was a $742,000 charge
for the acquisition of certain technologies of Business Partners Solutions, Inc.
("BPSI"). The Company expects research and development costs to decrease
further in 1998, and that product enhancements to KeyWare will be directly
funded by clients.
COMPETITION
Competition in the mobile communications industry is intense. The
Company currently faces direct competition in the market for mobile
networking consulting services from larger companies such as IBM and Andersen
Consulting. Also, major software development companies, such as Novell,
Oracle, and Microsoft, as well as computer and communications companies, such
as AT&T and the regional Bell operating companies, are possible sources of
future direct competition for the Company's core
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technologies and services. Certain application software developers,
including Mobile Data Solutions, Inc., have expanded their software to
provide mobile data solutions. In addition, wireless network providers and
hardware manufacturers that the Company seeks to work with as partners could
attempt to provide services for mobile data systems, thereby becoming
competitors, as could providers of field service application software to
field service companies.
Many of the Company's direct, indirect and potential future
competitors have financial, technical, marketing, sales, manufacturing,
distribution and other resources substantially greater than those of the
Company. Some of these competitors have established market positions and
established trade names, trademarks, patents and intellectual property rights
and substantial technological capabilities. The Company faces competition
not only from these established companies, but also from start-up companies
that can actively develop and market new communications technologies and
services. In addition, the Company is likely to face competition in the
future from companies that develop technology comparable or superior to the
Company's technology and offer similar mobile data services to the Company's
actual and prospective clients. Any of these competitive developments could
adversely affect the Company's business, results of operations and financial
condition.
PROPRIETARY RIGHTS
The Company relies on a combination of copyright, trade secret,
patent and trademark laws, and employee and third-party nondisclosure
agreements to protect its intellectual property rights and technologies. The
Company maintains trademark registrations for its principal trademarks in the
U.S. and selected foreign countries.
The Company does not copy-protect or register the copyrights in its
software but does license it principally pursuant to negotiated license
agreements. The Company believes that technical software copy-protection
devices generally can be circumvented and often interfere with a customer's
legitimate use of the software. The Company does not register the copyrights
in its software because registration is not a condition of copyright
protection. The laws of certain countries in which the Company's technologies
are or may be distributed may not protect the Company's technologies and
intellectual property rights to the same extent as the laws of the U.S. It
may be possible for unauthorized third parties to copy the Company's software
or to reverse engineer or obtain and use information that the Company regards
as proprietary. There can be no assurance that the Company's competitors
will not independently develop technologies that are substantially equivalent
or superior to the Company's technologies.
The Company believes that its technologies, intellectual property
and other proprietary rights do not infringe on the proprietary rights of
third parties. From time to time, however, third parties may assert exclusive
patent, copyright and other intellectual property rights to technologies that
are important to the Company. If the Company is unable to license protected
technology used in the Company's technologies, the Company could be
prohibited from manufacturing and marketing such technologies. Litigation,
which could result in substantial cost to and diversion of resources of the
Company, may be necessary to enforce patents or other intellectual property
rights of the Company or to defend the Company against claimed infringement
of the rights of others. The Company also could incur substantial costs to
redesign its technologies, to defend any legal action taken against it or to
pay damages for infringement.
MANUFACTURING
The Company duplicates software and related documentation and
configures clients' mobile data communications systems at the Company's
facilities in suburban Minneapolis, Minnesota. The Company does not
manufacture any of the hardware used by its clients in a mobile data network,
but this hardware is readily available from various sources.
EMPLOYEES
As of December 31, 1997, the Company had 41 full-time employees,
including 10 in corporate services and administration, 6 in business
development, 4 in managed network services, 8 in new platforms and 13 in
systems integration. The employees and the Company are not parties to any
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collective bargaining agreements, and the Company believes that its relations
with its employees are good.
The Company's success depends to a significant degree upon the
continued contributions of its key management, sales and technical personnel.
The Company's success also depends upon its ability to attract and retain
highly qualified personnel. Competition for such personnel is intense, and
there can be no assurance that the Company will be successful in hiring or
retaining qualified personnel.
ITEM 2. PROPERTIES
The Company's headquarters consists of approximately 19,200 square
feet located in a multi-story building in suburban Minneapolis, Minnesota.
The facility is leased pursuant to an agreement that expires in August 2000.
The Company has certain expansion rights under its lease to increase facility
size. The Company also has a sales office in Larkspur, California. The
Company believes that its facilities are adequate to meet its anticipated
level of operations for the foreseeable future. For additional information
concerning the Company's lease obligations, see Note 3 to the Company's
financial statements included in this Annual Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the Company's shareholders was held on January
7, 1998. The sole proposal considered at the meeting was to (i) increase the
pool of stock options available for grant under the Company's 1993 Equity
Incentive Plan (the "Plan") from 3,200,000, to 5,700,000 shares, (ii)
increase the maximum number of shares of Common Stock that may be received
under the Plan from 750,000 shares over the term of the Plan to 750,000
shares per calendar year, and (iii) make this maximum grant limitation
applicable to all employees of the Company participating in the Plan. The
shareholders approved the increase, with 13,703,543 votes cast in favor of
the increase, 1,075,102 votes cast against the increase, 22,978 abstentions,
and no broker non-votes.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
COMMON STOCK (UNAUDITED):
The Company's common stock began trading on December 10, 1993, on the NASDAQ
National Market under the symbol "RACO," in connection with its initial
public offering. A summary of the range of high and low closing prices for
the Company's common stock for the period from December 10, 1993, through
December 31, 1997, is presented below. These prices reflect interdealer
prices and do not include retail markups, markdowns or commissions.
<TABLE>
HIGH LOW
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<S> <C> <C>
1995
First Quarter 7.25 3.13
Second Quarter 6.50 4.38
Third Quarter 7.88 5.25
Fourth Quarter 6.75 5.00
1996
First Quarter 5.50 4.25
Second Quarter 7.00 3.88
Third Quarter 6.25 3.50
Fourth Quarter 6.38 3.75
1997
First Quarter 4.88 3.25
Second Quarter 3.50 2.13
Third Quarter 2.63 1.50
Fourth Quarter 2.06 1.00
</TABLE>
The Company has never paid cash dividends on its capital stock and does not
anticipate declaring or paying any cash dividends in the foreseeable future.
The Company intends to retain future earnings, if any, for the development of
its business.
As of March 9, 1998, the Company had 380 stockholders of record.
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ITEM 6. SELECTED FINANCIAL DATA.
STATEMENTS OF OPERATIONS DATA (for the years ended December 31)
(In thousands, except per share data)
<TABLE>
1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Net revenues:
Services $ 4,744 $ 4,977 $ 2,790 $ 847 $ 106
Products 876 1,906 3,298 3,106 2,313
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Total revenues 5,620 6,883 6,088 3,953 2,419
Cost and expenses:
Cost of services 4,227 3,499 1,314 370 83
Cost of products 1,266 2,027 3,001 2,953 2,754
Research and
development 3,286 4,211 4,170 3,035 1,848
Sales and marketing 4,149 6,249 9,045 7,647 4,599
General and
administrative 2,463 2,000 2,240 2,920 1,142
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Loss from operations (9,771) (11,103) (13,682) (12,972) (8,007)
Interest income 427 859 1,335 1,447 347
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Net loss $(9,344) ($10,244) ($12,347) ($11,525) ($7,660)
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Net loss per share -
basic and diluted ($0.37) ($0.42) ($0.52) ($0.49) ($1.79)
Weighted average
common shares
outstanding (1) 24,932 24,372 23,765 23,443 4,273
</TABLE>
BALANCE SHEET DATA (at December 31)
(In thousands)
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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Cash and cash equivalents
and short-term investments $5,336 $11,947 $15,042 $27,407 $46,430
Working capital 5,132 12,693 16,781 29,486 46,118
Total assets 7,237 16,919 27,116 38,070 50,097
Total common
stockholders' equity 6,277 15,381 25,378 36,613 47,404
</TABLE>
(1) As required by Securities and Exchange Commission regulations, common and
common equivalent shares issued by the Company during the twelve month period
immediately preceding the filing of an initial public offering have been
included in the calculation of shares used in computing the 1993 net loss per
share as if they were outstanding for all periods through December 31, 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Racotek provides solutions to clients throughout the United
States, that enable clients to increase the productivity and value of their
mobile workers, by providing wireless system integration services including
consulting services, wireless networking and application software and network
management support. During 1997, the Company reduced its workforce from
approximately 95 employees to approximately 40 employees; consolidated and
closed several facilities; and reduced the carrying value of certain assets
no longer expected to be used in operations. As a result of these actions,
the Company recorded one-time charges totaling approximately $1,900,000
during the third quarter. The Company took these actions because of slower
than expected market and
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related revenue growth. Although these actions reduced the Company's expected
operating expense level to less than $2,000,000 per quarter, the Company
expects to incur losses into 1998. The Company must increase its revenue in
order to reach profitability. The Company currently derives most of its
revenue from systems integration services including business case evaluation,
system planning and design, software development, training, installation and
change management. In the long-term, the Company believes that the recurring
revenue from providing monthly network support will constitute a substantial
source of revenue.
RESULTS OF OPERATIONS
NET REVENUES
Service revenues were $4,744,000, $4,977,000 and $2,790,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. The revenue
increased between 1995 and 1996 as the Company allocated more resources and
focused more on generating revenues from systems integration services. In
1997, the Company began to shift the focus of its business from performing
small, technical roles within larger projects to providing its clients with
management and implementation assistance for those projects. These larger
opportunities require longer sales development time than do technical
assistance, and the transition to this mode of sales required a significant
amount of time and attention from the Company's management and key personnel.
The Company derives a substantial amount of its revenues from a small number
of clients. Accordingly, the timing and amount of integration services
performed for these clients has caused the Company's service revenues to
fluctuate. The Company expects this volatility in service revenues to
continue in 1998.
In 1996, the Company made the decision to discontinue the
production, purchase and distribution of SMR products. In 1997, the Company
completed the exit from its SMR hardware operations and continued its
transition to focusing on the sale of its system integration services instead
of selling stand-alone software products. As a result of these decisions,
product revenues were $876,000, $1,906,000 and $3,298,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. The Company expects product
revenues, which will consist primarily of wireless networking and application
software, to be significantly less during 1998 as a result of the Company's
focus on deriving revenues from system integration services rather than
product sales.
COST OF REVENUES
Cost of service revenues were $4,227,000, $3,499,000 and
$1,314,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The increases in costs resulted primarily from the cost of
recruiting personnel with the skills to deliver large systems integration
projects, and the transfer and utilization of certain research and
development and sales and marketing personnel into the systems integration
services group. The one-time charges recorded during the third quarter of
1997 included approximately $211,000 of severance and related costs
associated with eliminating personnel with specializations in areas no longer
pertinent to the Company's systems integration offerings.
Cost of product revenues were $1,266,000, $2,027,000 and
$3,001,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The decrease from 1996 to 1997 is primarily due to a $900,000
charge recorded in the first quarter of 1996, resulting from the Company's
decision to write-down the remaining SMR inventories to their net realizable
values at that time. The Company recorded several one-time charges in the
third quarter of 1997, including approximately $425,000 of costs incurred to
complete the Company's exit from SMR hardware production and distribution.
The Company expects the cost of product revenues to be significantly less
during 1998, as a result of the Company's focus on deriving revenues from
system integration services, rather than product sales.
RESEARCH AND DEVELOPMENT
Research and development expenses were $3,286,000, $4,211,000 and
$4,170,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. As a result of the focus on systems integration services rather
than product sales, the research and development staff was reduced during the
third quarter of 1997. Research and development expenses were lower than in
previous years and are expected to decline further during 1998 as software
product development and
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existing product enhancement activities decline in connection with the
Company's transition to primarily providing systems integration services.
SALES AND MARKETING
Sales and marketing expenses were $4,149,000, $6,249,000 and
$9,045,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. In connection with the Company's focus on systems integration
services, a charge of approximately $202,000 was recorded in the third
quarter of 1997 for severance and facility consolidation costs in the sales
and marketing area. Despite this charge, sales and marketing expenses were
lower than in previous years and are expected to decline further during 1998.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $2,463,000, $2,000,000
and $2,240,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The increase in 1997 is primarily due to approximately $803,000
of facility and relocation charges recorded in the third quarter of 1997.
The Company expects general and administrative expense levels to decline
further in 1998 as a result of previous cost-reduction measures implemented
by the Company.
INTEREST INCOME
Interest income was $427,000, $859,000 and $1,335,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. The decreases
are primarily the result of a decrease in investments, which were used to
fund operating activities during 1997.
Liquidity and Capital Resources
As of December 31, 1997, the Company had no significant capital
spending or purchase commitments and had cash and investments totaling
$5,336,000 and working capital of $5,132,000. For the years ended December
31, 1997, 1996 and 1995 the Company used $6,709,000, $8,376,000 and
$10,823,000, respectively of cash for operating activities. The amount of
cash used in operating activities during 1997 and 1996 decreased as a result
of cost-reduction efforts. These cost reductions will reduce the amount of
cash that the Company anticipates will be required to fund operating
activities in 1998. The cash provided from investing activities in 1997,
1996 and 1995 was primarily from investments that matured in those years. No
significant financing activities occurred in 1997, 1996 or 1995.
With the implementation of the cost-reduction measures during
1996 and 1997, the Company believes its existing capital resources will be
sufficient to meet its cash requirements into 1999.
NEW ACCOUNTING STANDARDS
In October 1997, the AICPA's Accounting Standards Executive
Committee issued Statement of Position (SOP) 97-2, "Software Revenue
Recognition," which must be adopted by the Company effective January 1, 1998.
Management does not anticipate that the adoption of this SOP will have a
significant impact on the Company's financial position or results of
operations.
Effective at year-end 1998, the Company will adopt Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which requires disclosure of segment
data in a manner consistent with that used by an enterprise for internal
management reporting and decision making. The Company believes that it will
report its operations as a single segment under SFAS No. 131.
FACTORS THAT MAY AFFECT FUTURE RESULTS
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. The Company derives a substantial
part of its revenues from a small number of clients whom, after evaluating
the Company's capabilities, decide whether to engage the Company to create
business case evaluations, consult on change management practices and, in
some cases, to design, implement and deploy their mobile computing systems.
A decision by any one of these clients to delay a mobile computing project
may have a material adverse effect on the Company's business and results of
operations.
10
<PAGE>
The Company has decided to focus its efforts in the near term on
selling its system integration services to clients in a small number of
vertical markets, such as field service. Although the Company believes that
such specialization will increase its effectiveness, it also means that the
Company's failure in any one of these areas will have a significant adverse
impact on overall Company performance.
In order for the Company's revenues from consulting and
integration services to grow, the Company must continue to add more clients
and larger projects to plan, design and implement mobile computing systems.
The Company's inability to obtain clients for large-scale consulting and
integration services or the Company's inability to leverage its consulting
and integration services to obtain additional revenues from its software
licenses and network support services could materially and adversely affect
the growth of its business.
Competition in the mobile computing industry is intense. Major
software development companies, as well as computer, database and
communication companies, are possible sources of future direct competition
for the Company'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 the factors listed above, actual results could
vary materially from the foregoing forward-looking statements due to the
Company's inability to hire and retain qualified personnel, the risk that the
Company may need to enhance products and services beyond what is currently
planned, the levels of promotion and marketing required to promote the
Company's products and services so as to attain a competitive position in the
marketplace, or other risks and uncertainties identified in this Annual
Report and the Company's other filings with the SEC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE.
The following Financial Statements, Supplemental Schedule and Independent
Accountants Report thereon are included herein (page numbers refer to pages
in this Report):
<TABLE>
Page
----
<S> <C>
Report of Independent Accountants 16
Balance Sheets as of December 31, 1997 and 1996 17
Statements of Operations for the years ended December 31, 1997,
1996 and 1995 18
Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995 19
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995 20
Notes to Financial Statements 21 - 27
Supplemental Schedule - Schedule II Valuation and Qualifying Accounts 28
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the Company's directors and executive officers and
compliance with Section 16(a) required by this item is contained in the sections
entitled "Nominees" in Proposal No. 1, "Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance," appearing in the Company's Proxy
Statement to be delivered to stockholders in connection with the Annual Meeting
of Stockholders to be held on April 30, 1998 (Proxy Statement"). Such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is contained in the sections entitled
"Director Compensation" in Proposal No. 1, "Executive Compensation," and
"Compensation Committee Interlocks and Insider Participation," appearing in the
Company's Proxy Statement. Such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is contained in the section entitled
"Security Ownership of Certain Beneficial Owners and Management" appearing in
the Company's Proxy Statement. Such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is contained in the section entitled
"Certain Transactions" appearing in the Company's Proxy Statement. Such
information is incorporated herein by reference.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a)(3) and (c) Exhibits
2.01 Asset Purchase Agreement dated October 23, 1995 between the
Registrant and Business Partner Solutions, Inc.(7)
3.01 Registrant's Third Amended and Restated Certificate of
Incorporation.(2)
3.02 Certificate of Designation specifying the terms of the Series A
Junior Participating Preferred Stock of the Registrant as filed
with the Delaware Secretary of State on September 14, 1994.(4)
3.03 Registrant's Bylaws, as amended.(4)
4.01 Form of specimen certificate for Registrant's Common Stock.(1)
4.02 Rights Agreement dated September 12, 1994 between the
Registrant and Norwest Bank Minnesota, N.A., as Rights Agent,
which includes as exhibits thereto the form of rights
certificate and the summary of rights to purchase preferred
shares.(4)
10.01** Registrant's 1989 Stock Option Plan, as amended, and related
documents.(1)
10.02 Registrant's 1993 Equity Incentive Plan and related documents,
as amended through January 10, 1998.
10.03** Registrant's 1993 Directors Stock Plan, as amended, and related
documents, as amended through November 14, 1995.(7)
10.04** Registrant's 1994 Officer's Option Plan.(6)
10.05 Stock Purchase Agreement, Series D Convertible Preferred
Shares, between the Registrant and various investors dated
July 29, 1993.(1)
10.06 Form of Warrant as Issued to certain Stockholders of the
Registrant.(1)
10.07* Agreement by and between the Registrant and Motorola, Inc.
dated February 28, 1992 and Amendment Number One dated June 10,
1993.(1)
10.08 Technology License Agreement by and between the Registrant and
E.F. Johnson Company dated November 16, 1990.(1)
10.09 Software License Agreement by and between the Registrant and
E.F. Johnson Company dated July 24, 1990.(1)
10.10 Ramp Agreement (and related Software License Agreement, Demo/
Development Kit Loan Addendum, RacoNet Services Agreement and
Mutual Non-Disclosure Agreement) by and between the Registrant
and American Freightways dated May 1993.(1)
10.11 Lease Agreement by and between the Registrant and Southmark
Prime Plus, L.P. dated February 17, 1992, for premises at 7401
Metro Boulevard, Edina, MN 55439.(1)
10.12 Lease Agreement by and between the Registrant and Hamilton
Associates dated August 10, 1993, for premises at 6421 Cecilia
Circle, Bloomington, MN 5439.(1)
10.13 Form of Indemnification Agreement entered into by the
Registrant and each of its directors and executive officers.(1)
10.14** Letter Agreement by and between Registrant and William D. Baker
dated August 29, 1993.(1)
10.15** Employment Agreement by and between Registrant and Michael
Fabiaschi dated July 23, 1991.(1)
13
<PAGE>
10.16** Employment Agreement by and between Registrant and Richard A.
Cortese dated March 14, 1994.(2)
10.17 Investment Management Agreement between the Registrant and
Investment Advisers, Inc. dated December 10, 1991.(1)
10.18 Memo of Understanding by and between the Registrant and
Lenbrook, Inc. dated March 24, 1992, as amended.(1)
10.19 Memo of Understanding by and between the Registrant and
Lenbrook, Inc. dated May 1993.(1)
10.20 Agreement by and between the Registrant and Quicksilver Express
Courier, Inc. dated January 14, 1992, including Letter
Agreement dated July 19, 1991, as amended.(1)
10.21 Letter Agreement by and between the Registrant and NW Transport
Service, Inc. dated September 17, 1991.(1)
10.22 Bulk Reseller Agreement by and between the Registrant and
ARDIS, dated December 23, 1993.(2)
10.23 Lease Agreement by and between the Registrant and Connecticut
General Life Insurance Company dated May 2, 1994 for premises
at 7301 Ohms Lane, Edina, MN 55439.(3)
10.24 Amendment dated September 30, 1994 to Technology License
Agreement by and between the Registrant and E.F. Johnson
Company.(5)
10.25 Sublease agreement dated October 27, 1994 by and between the
Registrant and Information Advantages, Inc. for premises at
7401 Metro Blvd., Edina, MN 55439.(5)
10.26 Value-Added Reseller Agreement by and between the Registrant
and RAM Mobile Data USA Limited Partnership dated October 10,
1994.(5)
10.27** Separation Agreement dated November 7, 1994 by and between the
Registrant and William D. Baker.(6)
10.28 License Agreement by and between the Registrant and Ericsson GE
Mobile Communications Inc. dated November 29, 1994.(6)
10.29** Amendment to Amended Employment Agreement dated February 29,
1996 by and between the Registrant and Richard A. Cortese.(7)
10.30** Amended Employment Agreement dated February 29, 1996 by and
between the Registrant and Michael A. Fabiaschi.(7)
10.31** Letter Agreement between the Registrant and Emmett Hume dated
January 3, 1995.(7)
10.32** Amendments to Amended Employment Agreement by and between
Registrant and Richard A. Cortese dated June 6, 1996 and
September 24, 1996.(8)
10.33** Letter agreement by and between Registrant and Steve Swantek
dated April 9, 1997.(9)
10.34** Letter agreement by and between Registrant and Isaac Shpantzer
dated April 4, 1997.(9)
10.35** Letter agreement by and between Registrant and Norm Smith dated
June 30, 1997.(9)
10.36** Letter agreement by and between Registrant and Norm Smith dated
September 29, 1997.(10)
10.37** Letter agreement by and between Registrant and Vladi Kelman
dated September 25, 1997.(10)
10.38** Letter agreement by and between Registrant and Dave Maenke
dated September 25, 1997.(10)
10.39** Letter agreement by and between Registrant and Paul Edelhertz
dated September 25, 1997.(10)
14
<PAGE>
10.40 Sublease Agreement dated November 18, 1997, by and between
Registrant and ATIO Corporation USA, Inc. for premises at 7301
Ohms Lane, Edina, MN 55439.
10.41 Change in Control Employment and Severance Agreement dated
March 10, 1998, by and between Registrant and Michael A.
Fabiaschi.
10.42 Change in Control Employment and Severance Agreement dated
March 10, 1998, by and between Registrant and Steve Swantek.
10.43 Change in Control Employment and Severance Agreement dated
March 10, 1998, by and between Registrant and Paul Edelhertz.
23.01 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
* Confidential treatment has been obtained for certain portions
of this agreement.
** Management contract or compensatory plan required to be filed
as an exhibit to Form 10-K.
(1) Filed as an Exhibit to the Company's Registration Statement
on Form S-1 (No. 33-70728), that was declared effective
December 9, 1993 and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Form 10-K for the year
ended December 31, 1993 and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Form 10-Q for the
quarterly period ended June 30, 1994 and incorporated herein
by reference.
(4) Filed as an Exhibit to the Company's Report on Form 8-K that
was filed with the Securities and Exchange Commission on
September 15, 1994 and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Form 10-Q for the
quarterly period ended September 30, 1994 and incorporated
herein by reference.
(6) Filed as an Exhibit to the Company's Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference.
(7) Filed as an Exhibit to the Company's Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Form 10-Q for the
quarterly period ended September 30, 1996 and incorporated
herein by reference.
(9) Filed as an Exhibit to the Company's Form 10-Q for the
quarterly period ended June 30, 1997 and incorporated herein
by reference.
(10) Filed as an Exhibit to the Company's Form 10-Q for the
quarterly period ended September 30, 1997 and incorporated
herein by reference.
Item 14(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Racotek, Inc.:
We have audited the financial statements and financial statement schedule of
Racotek, Inc. included on pages 17 to 28 of this Form 10-K. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Racotek, Inc. as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as whole, presents fairly, in all material
respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
January 12, 1998
16
<PAGE>
RACOTEK, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
ASSETS
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,103 $ 2,956
Short-term investments 2,233 8,991
Accounts receivable, net 561 1,616
Inventories - 374
Prepaid expenses and other current assets 195 294
-------- --------
Total current assets 6,092 14,231
Property and equipment, net 786 1,932
Restricted cash 355 470
Capitalized software development costs, net - 121
Other long-term assets 4 165
-------- --------
Total assets $ 7,237 $ 16,919
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 6 656
Accrued expenses 651 808
Deferred revenue 303 74
-------- --------
Total current liabilities 960 1,538
-------- --------
Commitments (Note 3)
Stockholders' equity:
Common stock, $0.01 par value, 35,000,000
shares authorized, 24,998,558 and 24,740,293
issued and outstanding at December 31,
and 1996, respectively 250 247
Additional paid-in capital 71,265 70,878
Accumulated deficit (65,088) (55,744)
Promissory note receivable from stockholder (150) -
-------- --------
Total stockholders' equity 6,277 15,381
-------- --------
Total liabilities and stockholders' equity $ 7,237 $ 16,919
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
RACOTEK, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
1997 1996 2995
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues:
Services $ 4,744 $ 4,977 $ 2,790
Products 876 1,906 3,298
----------- ----------- -----------
5,620 6,883 6,088
Cost and expenses:
Cost of services 4,227 3,499 1,314
Cost of products 1,266 2,027 3,001
Research and development 3,286 4,211 4,170
Sales and marketing 4,149 6,249 9,045
General and administrative 2,463 2,000 2,240
----------- ----------- -----------
Loss from operations (9,771) (11,103) (13,682)
Interest income 427 859 1,335
----------- ----------- -----------
Net loss $ (9,344) $ (10,244) $ (12,347)
----------- ----------- -----------
----------- ----------- -----------
Net loss per share - basic and diluted $ (0.37) $ (0.42) $ (0.52)
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares outstanding 24,931,750 24,372,464 23,764,673
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
RACOTEK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
COMMON STOCK
----------------------------------------
ADDITIONAL PROMISSORY TOTAL
$0.01 PAR PAID-IN ACCUMULATED NOTE STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT RECEIVABLE EQUITY
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 23,414,260 $234 $69,532 $(33,153) $ - $ 36,613
Exercise of incentive stock options 501,423 5 479 - - 484
Exercise of warrants 12,872 - 25 - - 25
Shares issued in exchange for
acquisition of technology 114,891 1 602 - - 603
NET LOSS - - - (12,347) - (12,347)
- --------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1995 24,043,446 240 70,638 (45,500) - 25,378
Exercise of incentive stock options 696,847 7 240 - - 247
Net loss - - - (10,244) - (10,244)
- --------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1996 24,740,293 247 70,878 (55,744) - 15,381
Exercise of incentive stock options 258,265 2 241 - - 243
Stock options issued to consultants - 1 146 - - 147
Net loss - - - (9,344) - (9,344)
Promissory note receivable - - - - (150) (150)
- --------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997 24,998,558 $250 $71,265 $(65,088) $(150) $ 6,277
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
RACOTEK, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(9,344) $(10,244) $(12,347)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,011 969 817
Write-down of fixed assets 519
Provision for bad debts 118 233 180
Write-down of inventories 207 1,110 569
Amortization of premiums (discounts) on 8 (94) (236)
Stock issued for consulting services 147 - -
Stock consideration (Note 5) - - 603
Changes in operating assets and liabilities:
Accounts receivable 937 (195) (477)
Inventories 167 (179) 31
Prepaid expenses and other current assets 99 224 (244)
Current liabilities (578) (200) 281
------- -------- --------
Net cash used in operating activities (6,709) (8,376) (10,823)
Cash flows from investing activities:
Purchase of investments (2,250) (18,712) (15,685)
Proceeds from maturity of investments 9,000 25,512 27,889
Purchase of property and equipment (105) (313) (693)
Acquisition of assets (Note 4) - - (223)
Other 3 86 (49)
------- -------- --------
Net cash provided from investing activities 6,648 6,573 11,239
Cash flows from financing activities:
Proceeds from exercises of options and warrants 243 247 509
Changes in restricted cash 115 115 115
Advance to stockholder (150) - -
------- -------- --------
Net cash provided from financing activities 208 362 624
------- -------- --------
Net increase (decrease) in cash and cash equivalents 147 (1,441) 1,040
Cash and cash equivalents, beginning of period 2,956 4,397 3,357
------- -------- --------
Cash and cash equivalents, end of period $ 3,103 $ 2,956 $ 4,397
------- -------- --------
------- -------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
RACOTEK, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS DESCRIPTION:
Racotek, Inc. provides solutions to clients throughout the United States,
designed to enable clients to increase the productivity and value of their
mobile workers by providing wireless system integration services including
consulting services, wireless networking and application software and network
management support.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant areas
which require the use of management estimates relate to the allowances for
inventory obsolescence and doubtful accounts as well as determinations
concerning establishment of technological feasibility of software products and
assessments of recoverability of capitalized software development costs.
CASH EQUIVALENTS AND INVESTMENTS:
The Company considers all highly liquid investments in money market funds or
other investments with initial maturities of three months or less to be cash
equivalents. Investments with original maturities in excess of three months are
classified as short-term or long-term investments based on their remaining
maturities.
The Company's investments as of December 31, 1997 and 1996, are considered by
management to be "held to maturity," and therefore are reported at their
amortized cost. Amortization of premiums or discounts are included in results
of operations.
REVENUE RECOGNITION:
Revenues from consulting services are recognized as the services are performed.
Customer support revenues are recognized ratably over the term of the underlying
support agreements.
Revenue from software sold under license agreements is recognized as revenue
upon shipment if there are no post-delivery obligations, and if the terms of
the agreement are such that the payment of the obligation is non-cancelable
and non-refundable. Generally, other product revenue is recognized upon
shipment.
In October 1997, the AICPA's Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition," which the
Company is required to adopt effective January 1, 1998. Management does not
anticipate that the adoption of this SOP will change the Company's revenue
recognition practices or otherwise impact the Company's financial position or
results of operations.
INVENTORIES:
Inventories were stated at the lower of cost or market, with cost determined
using the first-in, first-out method.
RESEARCH AND DEVELOPMENT COSTS:
The Company capitalizes software development costs incurred in developing a
product once technological feasibility of the product has been determined. The
establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs requires considerable judgment by management with
respect to certain external factors, including, but not limited to, anticipated
future gross product revenue, estimated economic life and changes in software
and hardware technology. Amortization of
21
<PAGE>
RACOTEK, INC.
NOTES TO FINANCIAL STATEMENTS
capitalized software development costs begins when the product is available for
general release to customers and is computed on the basis of each product's
projected revenues, but not less than on a straight-line basis over the
remaining estimated economic life of the product of approximately five years.
There were no software development costs capitalized during 1997 or 1996.
Software development costs capitalized during 1995 were $110. Amortization
expense of $121, $120 and $123 relating to capitalized costs was recognized for
the years ended December 31, 1997, 1996 and 1995, respectively.
All other research and development expenditures are charged to expense as
incurred.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Significant additions or
improvements extending asset lives are capitalized; normal maintenance and
repair costs are expensed as incurred. Depreciation is determined using the
straight-line method over the estimated useful lives of the assets which
range from two to seven years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the estimated useful lives of the
assets or the underlying lease term (approximately five years). The cost and
related accumulated depreciation or amortization of assets sold or disposed
of are removed from the accounts and the resulting gain or loss is included
in operations.
INCOME TAXES:
The Company utilizes the asset and liability method of accounting for income
taxes whereby deferred taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the years in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the sum of
the tax currently payable and the change in the deferred tax assets and
liabilities during the period.
STOCK-BASED COMPENSATION:
The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. The
Company accounts for stock-based compensation to non-employees using the fair
value method prescribed by Statements of Financial Accounting Standards (SFAS)
No. 123. Accordingly, compensation costs for stock options granted to employees
is measured as the excess, if any, of the value of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
Compensation cost for stock options granted to non-employees is measured as the
fair value of the option at the date of grant. Such compensation costs, if any,
are amortized on a straight-line basis over the underlying option vesting terms.
NET LOSS PER SHARE:
Basic and diluted net loss per share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding during the period.
Common stock equivalents were excluded from the net loss per share computation
as their effect is antidilutive. Common stock options could potentially dilute
basic earnings per share in future periods if the Company generates net income.
BUSINESS SEGMENTS:
Effective at year-end 1998, the Company will adopt SFAS No. 131, "Disclosure
About Segments of an Enterprise and Related Information," which requires
disclosure of segment data in a manner consistent with that used by an
enterprise for internal management reporting and decision making. The Company
believes that it will report its operations as a single segment under SFAS No.
131.
22
<PAGE>
RACOTEK, INC.
NOTES TO FINANCIAL STATEMENTS
2. SELECTED BALANCE SHEET INFORMATION:
<TABLE>
December 31,
---------------------------
1997 1996
-------- --------
<S> <C> <C>
Accounts Receivable, Net:
Accounts receivable $ 785 $ 1,956
Less allowance for doubtful accounts (224) (340)
------- -------
$ 561 $ 1,616
------- -------
------- -------
Inventories:
Components $ - $ 60
Finished goods - 314
------- -------
$ - $ 374
------- -------
------- -------
Property and Equipment, Net:
Computer equipment $ 1,453 $ 3,064
Furniture and equipment 679 816
Leasehold improvements 106 213
------- -------
2,238 4,093
Less accumulated depreciation
and amortization (1,452) (2,161)
------- -------
$ 786 $ 1,932
------- -------
------- -------
</TABLE>
In the third quarter of 1997, the Company wrote-off approximately $519 of
property and equipment in connection with a reduction in the number of employees
and the consolidation and closing of facilities.
<TABLE>
<S> <C> <C>
Accrued Expenses:
Compensation and relocation $169 $236
Vacation 120 186
Deferred rent 101 141
Accrued legal 55 24
Other 206 221
---- ----
$651 $808
---- ----
---- ----
</TABLE>
INVESTMENTS:
The Company's investments consisted of $2,233 and $8,991 of U.S. Government and
agency debt securities as of December 31, 1997 and 1996, respectively, including
unamortized discounts of $17 as of December 31, 1997, and premiums and discounts
of $14 and $23 as of December 31, 1996, respectively. Investments held as of
December 31, 1997, have various maturity dates through April 1998. As of
December 31, 1997, the Company's investments had an aggregate fair market value,
based on quoted market prices, of $2,243.
3. LEASE COMMITMENTS:
The Company leases office facilities under terms of a noncancelable operating
lease which expires in August 2000. This lease requires the Company to pay a
pro rata share of the lessor's operating costs.
The lease requires the Company to maintain a restricted cash balance as
collateral for the lessor which declines throughout the lease term. Total rent
expense, including a pro rata share of the lessor's operating costs, were $767,
$642 and $581, for the years ended December 31, 1997, 1996 and 1995,
respectively.
In 1996 and 1997, the Company recorded accruals of $40 and $93, respectively, to
recognize costs to be incurred under terms of a prior lease agreement for other
premises in excess of estimated sublease income to be earned under terms of the
sublease agreement for those premises.
23
<PAGE>
RACOTEK, INC.
NOTES TO FINANCIAL STATEMENTS
Future minimum lease payments under noncancelable operating leases are as
follows:
<TABLE>
Year Ending December 31 Operating Leases
----------------------- ----------------
<S> <C>
1998 $381
1999 289
2000 169
</TABLE>
4. ACQUISITION:
On December 27, 1995, the Company acquired certain assets, including certain
technologies from Business Partners Solutions, Inc. in exchange for $362 cash
and $603 of Racotek common stock (114,891 shares). The acquisition was
accounted for as a purchase. Accordingly, the purchase price was allocated to
the acquired assets based upon their relative fair values. The acquisition also
resulted in a $742 charge to research and development expense in the fourth
quarter of 1995.
5. STOCKHOLDERS' EQUITY:
The Company's Stock Incentive and Option Plans (the Plans) provide for grants of
stock options and stock awards. The number of common shares available for grant
pursuant to the Plans were 621,753, 420,611 and 1,195,205 as of December 31,
1997, 1996 and 1995, respectively.
Options become exercisable over periods of up to four years from the date of
grant and expire within ten years from date of grant.
The following table details option activity:
<TABLE>
Weighted
Price Per Average Exercise
Options Option Price
--------- ------------ ----------------
<S> <C> <C> <C>
Balances, December 31, 1994 2,559,973 $0.05-12.625 $2.08
Granted 873,803 3.125-7.625 3.79
Exercised (501,423) 0.05-4.63 0.11
Canceled (98,428) 0.20-12.625 5.26
Balances, December 31, 1995 2,833,925 $0.10-12.625 $2.08
Granted 1,215,346 3.625-6.00 5.35
Exercised (696,847) 0.10-4.75 0.96
Canceled (440,752) 0.40-12.625 4.90
Balances, December 31, 1996 2,911,672 $0.10-12.625 $3.04
Granted 2,078,572 1.50-4.3125 2.37
Exercised (255,265) 0.20-3.88 1.16
Canceled (1,284,714) 0.10-12.625 5.06
Balances, December 31, 1997 3,450,265 $0.20-12.625 $2.69
Options exercisable at December 31, 1997 1,068,906 $0.20-12.625 $3.11
</TABLE>
On October 20, 1997, the Company allowed employees to reprice outstanding stock
options to the market value of the Company's stock as of October 20, 1997. In
connection with the repricing of outstanding stock options, all repriced options
started vesting on October 20, 1997, and will become exercisable over periods of
up to four years from October 20, 1997. Eligible employees elected to reprice
approximately 293,000 options, with original exercise prices ranging from $2.25
to $12.625, to $1.50. The Company's officers and directors elected not to
reprice any of their options.
24
<PAGE>
RACOTEK, INC.
NOTES TO FINANCIAL STATEMENTS
5. STOCKHOLDERS' EQUITY, CONTINUED:
STOCK-BASED COMPENSATION:
No compensation cost has been recognized for stock options granted to employees
or directors under the 1989 Stock Option Plan, the 1993 Equity Incentive Plan or
the 1993 Directors Option Plan (collectively referred to as "the Plans"). Had
compensation cost for the Plans been determined based on the fair value of
options at the grant date for awards in 1997, 1996 and 1995, the Company's net
loss and net loss per share would have increased to the pro forma amounts
indicated below:
<TABLE>
(In thousands, except per share amounts)
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C> <C>
Net loss As reported $ (9,344) $(10,244) $(12,347)
Pro forma (10,508) (11,180) (12,632)
Net loss per share - As reported $ (.37) $ (.42) $ (.52)
basic and diluted Pro forma (.42) (.46) (.54)
</TABLE>
The pro forma effect on the net loss for 1997, 1996 and 1995 is not fully
representative of the pro forma affect on net earnings (loss) in future years
because these years do not take into consideration pro forma compensation
expense related to grants made prior to 1995. In addition, during 1997 the
Company recognized $37 of pro forma compensation expense as a result of the
option repricing described previously.
The aggregate fair value of options granted during 1997, 1996 and 1995,
respectively, was $881, $1,671 and $1,602 for the 1993 Equity Incentive Plan and
$193, $328 and $52 for the 1993 Directors Option Plan. The aggregate fair value
was calculated by using the fair value of each option grant on the date of
grant, utilizing the Black-Scholes option-pricing model and the following key
assumptions for the Plans:
<TABLE>
Assumptions 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rates 5.27% - 6.77% 5.27% - 6.77% 5.46% - 7.75%
Volatility 35.789% 50% 50%
Expected lives (months) 60 60 60
- -------------------------------------------------------------------------------
</TABLE>
The Company does not anticipate paying dividends in the near future.
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1997:
<TABLE>
Options Outstanding Options Exercisable
----------------------------------- ---------------------------------
Number Weighted- Number
Outstanding at Average Weighted- Exercisable at Weighted-
Range of December 31, Remaining Average Exercise December 31, Average Exercise
Exercise Prices 1997 Contractual Life Price 1997 Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.20 - .55 267,350 47 $0.21 267,350 $0.21
1.50 - 3.00 1,791,481 112 1.83 62,500 1.69
3.125 - 4.6875 876,428 95 3.78 418,117 3.60
4.75 - 12.625 515,006 97 5.13 320,939 5.18
- -----------------------------------------------------------------------------------------------------------
</TABLE>
PREFERRED STOCK:
The Company's certificate of incorporation authorizes issuance of up to
5,000,000 preferred shares with a par value of $0.01 and allows the Company's
Board of Directors, without obtaining the stockholders' approval, to issue
preferred stock. There were no preferred shares issued or outstanding as of
December 31, 1997 or 1996.
WARRANTS:
In connection with notes payable issued to stockholders in 1991, warrants were
issued for the purchase of 364,207 shares of Series C convertible preferred
stock at $2.00 per share. These warrants were immediately exercisable and
expired five years from the date of issuance. All unexercised warrants to
25
<PAGE>
RACOTEK, INC.
NOTES TO FINANCIAL STATEMENTS
purchase 231,618 shares of preferred stock were converted to warrants for the
purchase of 231,618 shares of common stock when the Company completed its
initial public offering in December 1993. The warrantholders exercised warrants
for the purchase of 12,872 shares in 1995. There are no warrants outstanding as
of December 31, 1997.
STOCKHOLDER RIGHTS PLAN:
On September 7, 1994, the Board of Directors adopted a Stockholder Rights Plan.
Under this plan, the Board of Directors declared a dividend of one preferred
share purchase right (a "Right") for each share of common stock outstanding as
of September 28, 1994 (the "Record Date"). In addition, one Right will be
issued with each share of common stock that becomes outstanding after the Record
Date, except in certain circumstances. All Rights will expire on September 12,
2004, unless the Company extends the expiration date, redeems the Rights or
exchanges the Rights for common stock.
The Rights are initially attached to the Company's Common Stock and will not
trade separately. If a person or a group acquires 20 percent or more of the
Company's common stock (an "Acquiring Person") or announces an intention to make
a tender offer for 20 percent or more of the Company's common stock, then the
Rights will be distributed (the "Distribution Date") and will thereafter trade
separately from the common stock. Upon the Distribution Date, each Right may be
exercised for 1/100th of a share of a newly designated Series A Junior
Participating Preferred Stock at an exercise price of $25.00.
Upon a person or group becoming an Acquiring Person, holders of the Rights
(other than the Acquiring Person) will have the right to acquire shares of the
Company's common stock at a substantially discounted price in lieu of the
preferred stock. Additionally, if, after the Distribution Date, the Company
merges into or engages in certain other business combination transactions with
an Acquiring Person or 50 percent or more of its assets are sold in a
transaction with an Acquiring Person, the holders of Rights (other than the
Acquiring Person) will have the right to receive shares of common stock of the
acquiring corporation at a substantially discounted price.
After a person or a group has become an Acquiring Person, the Company's Board of
Directors may, at its option, require the exchange of outstanding Rights (other
than those held by the Acquiring Person) for common stock at an exchange ratio
of one share of the Company's common stock per Right. The board also has the
right to redeem outstanding Rights at any time prior to the Distribution Date
(or later in certain circumstances) at a price of $0.005 per Right. The terms
of the Rights, including the period to redeem the Rights, may be amended by the
Company's Board of Directors in certain circumstances.
6. INCOME TAXES:
As of December 31, 1997, the Company had generated net operating loss
carryforwards of approximately $66,989 for tax reporting purposes that may be
offset against future taxable income through 2012. In addition, the Company had
approximately $447 of future deductible temporary differences as of December 31,
1997, relating primarily to allowances for bad debts, approximately $731 of
research and development charges recognized immediately for financial reporting
purposes (Note 4) that are amortizable over 15 years for tax reporting purposes,
and approximately $537 of research and development tax credit carryovers
available to reduce future income taxes. These credits expire from 2005 through
2012. The Company also had approximately $103 of future taxable temporary
differences related primarily to accelerated depreciation for tax reporting
purposes. Valuation allowances have been established for the entire tax benefit
associated with the carryforwards and net future deductible temporary
differences as of December 31, 1997 and 1996.
Certain stock transactions, including sales of stock and granting of options and
warrants to purchase stock, caused a change in the Company's ownership which,
under the Internal Revenue Code, will limit the amount of net operating loss
carryforwards which may be utilized on an annual basis to offset taxable income
in future periods.
26
<PAGE>
RACOTEK, INC.
NOTES TO FINANCIAL STATEMENTS
7. EMPLOYEE SAVINGS PLAN:
The Company offers a 401(k) defined contribution benefit plan which covers
employees who have attained 21 years of age and have been employed by the
Company for at least three months. Participants may contribute up to 20% of
their compensation in any plan year subject to an annual limitation. Employer
contributions may be made at the discretion of the Company's Board of Directors.
No Company contributions have been made to the Plan.
8. MAJOR CUSTOMER AND EXPORT SALES:
A portion of the Company's revenues have been derived from major clients for the
years ended December 31, 1997, 1996 and 1995 as follows:
<TABLE>
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Customer 1 8% 11% 18%
Customer 2 7% 5% 15%
Customer 3 - 1% 12%
</TABLE>
27
<PAGE>
RACOTEK, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------- ---------------------------------------------------------------------
BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING OF CHARGED TO FROM END OF
DESCRIPTION PERIOD EXPENSE ALLOWANCE PERIOD
- --------------------------------------------------------- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful accounts (deducted
from accounts receivable)......................... $340 $ 118 $ (234) $224
Inventory obsolescence reserve (deducted
from inventories)................................. 856 207 (1,063) 0
Year ended December 31, 1996
Allowance for doubtful accounts (deducted
from accounts receivable)......................... 197 233 (90) 340
Inventory obsolescence reserve (deducted
from inventories)................................. 353 1,110 (607) 856
Year ended December 31, 1995
Allowance for doubtful accounts (deducted
from accounts receivable)......................... 150 180 (133) 197
Inventory obsolescence reserve (deducted
from inventories)................................. 389 569 (605) 353
</TABLE>
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and 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.
Dated: March 19, 1998 By /s/ Michael A. Fabiaschi
------------------------------------
Michael A. Fabiaschi,
President and Chief Executive Officer
Each person whose signature appears below constitutes and appoints Michael A.
Fabiaschi and, jointly and severally, his true and lawful attorneys-in-fact,
each with the power of substitution, for him in any and all capacities, to
sign amendments to this Report on Form 10-K, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or his substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
Name Title Date
- ---- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ Michael Fabiaschi President and Chief March 19, 1998
- ---------------------------- Executive Officer and
Michael Fabiaschi Acting Chief Financial Officer
OTHER DIRECTORS:
/s/ Joseph B. Costello Chairman of the Board March 19, 1998
- ----------------------------
Joseph B. Costello
/s/ Dixon R. Doll Director March 19, 1998
- ----------------------------
Dixon R. Doll
/s/ James L. Osborn Director March 19, 1998
- ----------------------------
James L. Osborn
/s/ Norman D. Smith Chief Operating Officer March 19, 1998
- ----------------------------
Norman D. Smith
</TABLE>
29
<PAGE>
ANNUAL MEETING
The Racotek, Inc. annual stockholders' meeting will be held at the
Marriott City Center, 30 South Seventh Street, Minneapolis, Minnesota, 55402,
at 11:00 a.m. C.S.T. on Thursday, April 30, 1998.
SHAREHOLDER INFORMATION
Racotek common stock trades on the Nasdaq National Market under the
symbol RACO. Stockholders and prospective investors are welcome to call,
write or fax Racotek with questions or requests for additional information.
Copies of Racotek's Annual Report on Form 10-K for the year ended December
31, 1997, may be obtained without charge by directing inquiries to:
<TABLE>
<S> <C> <C>
RACOTEK, INC. DIRECTORS CORPORATE OFFICERS
INVESTOR RELATIONS Joseph B. Costello Michael A. Fabiaschi
7301 OHMS LANE, SUITE 200 Chairman of the Board President, Chief
MINNEAPOLIS, MN 55439 Racotek, Inc. Executive Officer
TEL: 612-832-9800 and Acting Chief
FAX: 612-832-9383 Michael Fabiaschi Financial Officer
WEBSITE: http:\\www.racotek.com President and Chief Executive Officer
Racotek, Inc. Norman D. Smith
Norwest Bank Minnesota, N.A. Executive Vice
Stock Transfer Department Dixon R. Doll President and Chief
161 North Concord Exchange Founder and Chairman Operating Officer
P.O. Box 738 The DMW Group
South St. Paul, MN 55075-0738 Paul Edelhertz
Tel: 612-450-4101 James L. Osborn Vice President of
Fax: 612-450-4078 General Manager of Customer Solutions
International iDEN Infrastructure
Independent Accountants Division of Motorola's Land Steve Swantek
Coopers & Lybrand L.L.P. Mobile Products Sector Vice President of
Minneapolis, MN Division of Motorola's Land Sales and Marketing
Mobile Products Sector
Corporate Counsel Isaac Shpantzer
Cooley & Godward Norman D. Smith Fellow and Senior
Palo Alto, CA Executive Vice President and Vice President of
Chief Operating Officer Technology
COMMITTEES OF THE BOARD Vladi Kelman
Vice President
AUDIT COMMITTEE of Product
Joseph B. Costello Development
James L. Osborn
COMPENSATION COMMITTEE
Joseph B. Costello
Dixon R. Doll
</TABLE>
30
<PAGE>
EXHIBIT 10.02
RACOTEK, INC.
1993 EQUITY INCENTIVE PLAN
As Adopted October 21, 1993
As Amended December 22, 1995
As Amended February 19, 1997
As Amended November 11, 1997
As Amended January 10, 1998
1. PURPOSE. The purpose of the Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parents, Subsidiaries and
Affiliates, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 24.
2. SHARES SUBJECT TO THE PLAN.
2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and 18, the
total number of Shares reserved and available for grant and issuance pursuant to
the Plan shall be five million seven hundred thousand (5,700,000) Shares. Any
Shares issuable upon exercise of options granted pursuant to the 1989 Stock
Option Plan (the "Prior Plan") that expire or become unexercisable for any
reason without having been exercised in full shall no longer be available for
distribution under the Prior Plan, but shall be available for distribution under
this Plan. Subject to Sections 2.2 and 18, Shares shall again be available for
grant and issuance in connection with future Awards under the Plan that: (a) are
subject to issuance upon exercise of an Option but cease to be subject to such
Option for any reason other than exercise of such Option, (b) are subject to an
Award granted hereunder but are forfeited or are repurchased by the Company at
the original issue price, or (c) are subject to an Award that otherwise
terminates without Shares being issued.
2.2 ADJUSTMENT OF SHARES. In the event that the number of
outstanding Shares is changed, a stock dividend, recapitalization, stock split,
reverse stock split, subdivision, combination, reclassification or similar
change in the capital structure of the Company without consideration, then (a)
the number of Shares reserved for issuance under the Plan, (b) the Exercise
Prices of and number of Shares subject to outstanding Options, and (c) the
number of Shares subject to other outstanding Awards shall be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share shall not be issued but shall either be paid in cash at
Fair Market Value or shall be rounded up to the nearest Share, as determined by
the Committee; and provided, further, that the Exercise Price of any Option may
not be decreased to below the par value of the Shares.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisers of the Company or any Parent, Subsidiary or Affiliate of the
Company; provided such consultants, contractors and advisers render bona fide
services not in connection with the offer and sale of securities in a capital-
raising transaction. Employees shall each be eligible to receive up to an
aggregate maximum of seven hundred fifty thousand (750,000) Shares each
calendar year. A person may be granted more than one Award under the Plan.
4. ADMINISTRATION.
4.1 COMMITTEE AUTHORITY. The Plan shall be administered by the
Committee or the Board acting as the Committee. Subject to the general
purposes, terms and conditions of the Plan, and to the direction of the Board,
the Committee shall have full power to implement and carry out the Plan. The
Committee shall have the authority to:
(a) construe and interpret the Plan, any Award Agreement and any
other agreement or document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and regulations relating
to the Plan;
(c) select persons to receive Awards;
<PAGE>
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination, in tandem, in replacement of, or as alternatives to, other Awards
under the Plan or any other incentive or compensation plan of the Company or any
Parent, Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of the Plan.
4.2 COMMITTEE DISCRETION. Any determination made by the Committee
with respect to any Award shall be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of the Plan
or Award, at any later time, and such determination shall be final and binding
on the Company and all persons having an interest in any Award under the Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under the Plan to Participants who are not Insiders of the
Company.
4.3 EXCHANGE ACT REQUIREMENTS. If two or more members of the Board
are Outside Directors, the Committee shall be comprised of at least two members
of the Board, all of whom are Outside Directors and Disinterested Persons. The
Company will take appropriate steps to comply with the disinterested
administration requirements of Section 16(b) of the Exchange Act, which shall
consist of the appointment by the Board of a Committee consisting of not less
than two members of the Board, each of whom is a Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible persons and
shall determine whether such Options shall be Incentive Stock Options within the
meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under the Plan shall
be evidenced by an Award Agreement which shall expressly identify the Option as
an ISO or NQSO ("Stock Option Agreement"), and be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
shall from time to time approve, and which shall comply with and be subject to
the terms and conditions of the Plan.
5.2 DATE OF GRANT. The date of grant of an Option shall be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
the Plan will be delivered to the Participant within a reasonable time after the
granting of the Option.
5.3 EXERCISE PERIOD. Options shall be exercisable within the times
or upon the events determined by the Committee as set forth in the Stock Option
Agreement; provided, however, that no Option shall be exercisable after the
expiration of one hundred twenty (120) months from the date the Option is
granted, and provided further that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%)of the total combined voting power
of all classes of stock of the Company or any Parent or Subsidiary of the
Company ("Ten Percent Stockholder") shall be exercisable after the expiration of
five (5) years from the date the Option is granted. The Committee also may
provide for the exercise of Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number or percentage as the
Committee determines.
5.4 EXERCISE PRICE. The Exercise Price shall be determined by the
Committee when the Option is granted and may be not less than 85% of the Fair
Market Value of the Shares on the date of grant; provided that (i) the Exercise
Price of an ISO shall be not less than 100% of the Fair Market Value of the
Shares on
<PAGE>
the date of grant and (ii) the Exercise price of any ISO granted to a Ten
Percent Stockholder shall not be less than 110% of the Fair Market Value of
the Shares on the date of grant. Payment for the Shares purchased may be made
in accordance with Section 8 of the Plan.
5.5 METHOD OF EXERCISE. Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the "Exercise
Agreement") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares, if any, and such representations and
agreements regarding Participant's investment intent and access to information,
if any, as may be required or desirable by the Company to comply with applicable
securities laws, together with payment in full of the Exercise Price for the
number of Shares being purchased.
5.6 TERMINATION. Notwithstanding the exercise periods set forth in
the Stock Option Agreement, exercise of an Option shall always be subject to the
following:
(a) If the Participant is Terminated for any reason except death
or Disability, then Participant may exercise such Participant's Options only to
the extent that such Options would have been exercisable upon the Termination
Date no later than ninety (90) days after the Termination Date (or such shorter
time period as may be specified in the Stock Option Agreement), but in any
event, no later than the expiration date of the Options.
(b) If the Participant is terminated because of death or
Disability (or the Participant dies within three months of such termination),
then Participant's Options may be exercised only to the extent that such Options
would have been exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date (or such
shorter time period as may be specified in the Stock Option Agreement), but in
any event no later than the expiration date of the Options.
5.7 LIMITATIONS ON EXERCISE. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 LIMITATIONS ON ISOS. The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year under the Plan or
under any other incentive stock option plan of the Company or any Affiliate,
Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year shall be ISOs and the Options for the amount
in excess of $ 100,000 that become exercisable in that calendar year shall be
NQSOs. In the event that the Code or the regulations promulgated thereunder are
amended after the Effective Date of the Plan to provide for a different limit on
the Fair Market Value of Shares permitted to be subject to ISOs, such different
limit shall be automatically incorporated herein and shall apply to any Options
granted after the effective date of such amendment.
5.9 MODIFICATION EXTENSION OR RENEWAL. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of Participant, impair any of Participant's rights under any
Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of the Plan for Options
granted on the date the action is taken to reduce the Exercise Price; provided,
further, that the Exercise Price shall not be reduced below the par value of the
Shares, if any.
5.10 NO DISQUALIFICATION. Notwithstanding any other provision in the
Plan, no term of the Plan relating to ISOs shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to restrictions. The
Committee shall determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which
<PAGE>
the Shares shall be subject, and all other terms and conditions of the
Restricted Stock Award, subject to the following:
6.1 FORM OF RESTRICTED STOCK AWARD. All purchases under a Restricted
Stock Award made pursuant to the Plan shall be evidenced by an Award Agreement
("Restricted Stock Purchase Agreement") that shall be in such form (which need
not be the same for each Participant) as the Committee shall from time to time
approve, and shall comply with and be subject to the terms and conditions of the
Plan. The offer of Restricted Stock shall be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full investment for the Shares to the Company within thirty (30) days, then the
offer shall terminate, unless otherwise .determined by the Committee.
6.2 PURCHASE PRICE. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award shall be determined by the Committee and shall be at
least 85% of the Fair Market Value of the Shares when the Restricted Stock Award
is granted, except in the case of a sale to a Ten Percent Stockholder, in which
case the Purchase Price shall be 100% of the Fair Market Value. Payment of the
Purchase Price may be made in accordance with Section 8 of the Plan.
6.3 RESTRICTIONS. Restricted Stock Awards shall be subject to such
restrictions as the Committee may impose. The Committee may provide for the
lapse of such restrictions in installments and may accelerate or waive such
restrictions, in whole or part, based on length of service, performance or such
other factors or criteria as the Committee may determine.
7. STOCK BONUSES.
7.1 AWARDS OF STOCK BONUSES. A Stock Bonus is an award of Shares
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may be
awarded for past services already rendered to the Company, or any Parent,
Subsidiary or Affiliate of the Company pursuant to an Award Agreement (the
"Stock Bonus Agreement") that shall be in such form (which need not be the same
for each Participant) as the Committee shall from time to time approve, and
shall comply with and be subject to the terms and conditions of the Plan. A
Stock Bonus may be awarded upon satisfaction of such performance goals as are
set out in advance in Participant's individual Award Agreement (the "Performance
Stock Bonus Agreement") that shall be in such form (which need not be the same
for each Participant) as the Committee shall from time to time approve, and
shall comply with and be subject to the terms and conditions of the Plan. Stock
Bonuses may vary from Participant to Participant and between groups of
Participants, and may be based upon the achievement of the Company, Parent,
Subsidiary or Affiliate and/or individual performance factors or upon such other
criteria as the Committee may determine.
7.2 TERMS OF STOCK BONUSES. The Committee shall determine the number
of Shares to be awarded to the Participant and whether such Shares shall be
Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of
performance goals pursuant to a Performance Stock Bonus Agreement, then the
Committee shall determine: (a) the nature, length and starting date of any
period during which performance is to be measured (the "Performance Period") for
each Stock Bonus; (b) the performance goals and criteria to be used to measure
the performance, if any; (c) the number of Shares that may be awarded to the
Participant; and (d) the extent to which such Stock Bonuses have been earned.
Performance Periods may overlap and Participants may participate simultaneously
with respect to Stock Bonuses that are subject to different Performance Periods
and different performance goals and other criteria. The number of Shares may be
fixed or may vary in accordance with such performance goals and criteria as may
be determined by the Committee. The Committee may adjust the performance goals
applicable to the Stock Bonuses to take into account changes in law and
accounting or tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the impact of extraordinary or unusual
items, events or circumstances to avoid windfalls or hardships.
7.3 FORM OF PAYMENT. The earned portion of a Stock Bonus may be paid
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash,
whole Shares, including Restricted Stock, or a combination thereof, either in a
lump sum payment or in installments, all as the Committee shall determine.
7.4 TERMINATION DURING PERFORMANCE PERIOD. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
shall be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Stock Bonus only to the extent earned as of the date of Termination in
accordance with the Performance Stock Bonus Agreement, unless the Committee
shall determine otherwise.
<PAGE>
8. PAYMENT FOR SHARE PURCHASES.
8.1 PAYMENT. Payment for Shares purchased pursuant to the Plan may
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of Shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for within the
meaning of SEC Rule 144 (and, if such shares were purchased from the Company by
use of a promissory note, such note has been fully paid with respect to such
Shares); or (2) were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and 1274 of the
Code; provided, however, that Participants who are not employees of the Company
shall not be entitled to purchase Shares with a promissory note unless the note
is adequately secured by collateral other than the Shares; provided, further,
that the portion of the Purchase Price equal to the par value of the Shares, if
any, must be paid in cash;
(d) by waiver of compensation due or accrued to Participant for
services rendered;
(e) by tender of property;
(f) with respect only to purchases upon exercise of an Option,
and provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from Participant
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; or
(2) through a "margin" commitment from Participant and an
NASD Dealer whereby Participant irrevocably elects to exercise the Option and to
pledge the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company; or
(g) by any combination of the foregoing.
8.2 LOAN GUARANTEES. The Committee may help the Participant pay for
Shares purchased under the Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued in
satisfaction of Awards granted under the Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for Shares. Whenever, under the Plan, payments in
satisfaction of Awards are to be made in cash, such payment shall be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 STOCK WITHHOLDING. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may allow the
Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date"). All elections by a Participant to have Shares withheld for
this purpose shall be made in writing in a form acceptable to the Committee and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
<PAGE>
(b) once made, then except as provided below, the election shall
be irrevocable as to the particular Shares as to which the election is made;
(c) all elections shall be subject to the consent or disapproval
of the Committee;
(d) if the Participant is an Insider and if the Company is
subject to Section 16(b) of the Exchange Act: (1) the election may not be made
within six (6) months of the date of grant of the Award, except as otherwise
permitted by SEC Rule 16b-3(e) under the Exchange Act, and (2) either (A) the
election to use stock withholding must be irrevocably made at least six (6)
months prior to the Tax Date (although such election may be revoked at any time
at least six (6) months prior to the Tax Date) or (B) the exercise of the Option
or election to use stock withholding must be made in the ten (10) day period
beginning on the third day following the release of the Company's quarterly or
annual summary statement of sales or earnings; provided, that, prior to the date
the Company elects to comply with the requirements of Rule 16b-3, as amended
effective May l, 1992, the provisions of former Rule 16b-3(e) of the Exchange
Act shall apply with respect to any such elections; and
(e) in the event that the Tax Date is deferred until six (6)
months after the delivery of Shares under Section 83(b) of the Code, the
Participant shall receive the full number of Shares with respect to which the
exercise occurs, but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 VOTING: AND DIVIDENDS. No Participant shall have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
shall be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company shall be subject to the same restrictions as
the Restricted Stock; provided, further, that the Participant shall have no
right to retain such dividends or distributions with respect to Shares that are
repurchased at the Participant's original Purchase Price pursuant to Section 12.
10.2 FINANCIAL STATEMENTS. The Company shall provide financial
statements to each Participant prior to such Participant's purchase of Shares
under the Plan, and to each Participant annually during the period such
Participant has Options outstanding; provided, however, the Company shall not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under the Plan, and any interest
therein, shall not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as consistent with the specific
Plan and Award Agreement provisions relating thereto. During the lifetime of
the Participant an Award shall be exercisable only by the Participant, and any
elections with respect to an Award, may be made only by the Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement (a)
a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, and/or (b) a
right to repurchase a portion of or all Shares held by a Participant following
such Participant's Termination at any time within ninety (90) days after the
later of Participant's Termination Date and the date Participant purchases
Shares under the Plan, for cash or cancellation of purchase money indebtedness,
at: (A) with respect to Shares that are "Vested" (as defined in the Award
Agreement), the higher of: (1) Participant's original Purchase Price, or (2) the
Fair Market Value of such Shares on Participant's Termination Date, provided,
such right of repurchase terminates when the Company's securities become
publicly traded; or (B) with respect to Shares that are not "Vested" (as defined
in the Award Agreement), at the Participant's original Purchase Price, provided,
that the right to repurchase at the original Purchase Price lapses at the rate
of at least 20% per year over 5 years from the date the Shares were purchased,
and if the right to repurchase is assignable, the assignee must pay the Company,
upon assignment of the right to repurchase, cash equal to the excess of the Fair
Market Value of the Shares over the original Purchase Price.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under the Plan shall be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations
<PAGE>
and other requirements of the SEC or any stock exchange or automated quotation
system upon which the Shares may be listed.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates, together with stock powers or other instruments of transfer
approved by the Committee, appropriately endorsed in blank, with the Company or
an agent designated by the Company to hold in escrow until such restrictions
have lapsed or terminated, and the Committee may cause a legend or legends
referencing such restrictions to be placed on the certificates. Any Participant
who is permitted to execute a promissory note as partial or full consideration
for the purchase of Shares under the Plan shall be required to pledge and
deposit with the Company all or part of the Shares so purchased as collateral to
secure the Payment of Participant's obligation to the Company under the
promissory note; provided, however, that the Committee may require or accept
other or additional forms of collateral to secure the payment of such obligation
and, in any event, the Company shall have full recourse against the Participant
under the promissory note notwithstanding any pledge of the Participant's Shares
or other collateral. In connection with any pledge of the Shares, Participant
shall be required to execute and deliver a written pledge agreement in such form
as the Committee shall from time to time approve. The Shares purchased with the
promissory note may be released from the pledge on a prorata basis as the
promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant shall agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed, as they are in effect on the date of grant of the
Award and also on the date of exercise or other issuance. Notwithstanding any
other provision in the Plan, the Company shall have no obligation to issue or
deliver certificates for Shares under the Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) completion of any registration or other qualification
of such shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
shall have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted
under the Plan shall confer or be deemed to confer on any Participant any right
to continue in the employ of, or other relationship with, the Company or any
Parent, Subsidiary or Affiliate of the Company or limit in any way the right of
the Company or any Parent, Subsidiary or Affiliate of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
18.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. In the event
of a Change in Control, then: (i) any surviving or acquiring corporation shall
assume Options outstanding under the Plan or shall substitute similar options
(including an option to acquire the same consideration paid to stockholders in
the transaction described in this Section 18) for those outstanding under the
Plan, or (ii) in the event any surviving or acquiring corporation refuses to
assume such Options or to substitute similar options for those outstanding under
the Plan, (A) with respect to Participants who are not Terminated, the vesting
of such Options and the time during which such Options may be exercised shall be
accelerated prior to such event and the Options terminated if not exercised
after such acceleration and at or prior to such event, and (B) with respect to
any other Options outstanding under the Plan, such Options shall be terminated
if not exercised prior to such event.
18.2 OTHER TREATMENT OF AWARDS. Subject to any greater rights granted
to Participants under the foregoing provisions of this Section 18, in the event
of the occurrence of any transaction described in Section 18.1, any outstanding
Awards shall be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
18.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Award under the Plan in substitution of
such other
<PAGE>
company's award, or (b) assuming such award as if it had been granted under
the Plan if the terms of such assumed award could be applied to an Award
granted under the Plan. Such substitution or assumption shall be permissible
if the holder of the substituted or assumed award would have been eligible to
be granted an Award under the Plan if the other company had applied the rules
of the Plan to such grant. In the event the Company assumes an award grated
by another company, the terms and conditions of such award shall remain
unchanged (except that the exercise price and the number and nature of Shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option
may be granted with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. The Plan shall become effective on
the date that it is adopted by the Board (the "Effective Date"). The Plan shall
be approved by the stockholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve months before or
after the Effective Date. Upon the Effective Date, the Board may grant Awards
pursuant to the Plan; provided, however, that: (a) no Option may be exercised
prior to initial stockholder approval of the Plan; (b) no Option granted
pursuant to an increase in the number of Shares approved by the Board shall be
exercised prior to the time such increase has been approved by the stockholders
of the Company; and (c) in the event that stockholder approval is not obtained
within the time period provided herein, all Awards granted hereunder shall be
canceled, any Shares issued pursuant to any Award shall be canceled and any
purchase of Shares hereunder shall be rescinded. After the Company becomes
subject to Section 16(b) of the Exchange Act, the Company will comply with the
requirements of Rule 16b-3 (or its successor), as amended, with respect to
stockholder approval.
20. TERM OF PLAN. The Plan will terminate ten (10) years from the
Effective Date or, if earlier, the date of stockholder approval.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend the Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to the Plan; provided, however, that the Board shall not, without the approval
of the stockholders of the Company, amend the Plan in any manner that requires
such stockholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act
or Rule 16b-3 (or its successor), as amended, thereunder.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board, the submission of the Plan to the stockholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. GOVERNING LAW. The Plan and all agreements, documents and instruments
entered into pursuant to the Plan shall be governed by and construed in
accordance with the internal laws of the State of Minnesota except to the extent
required to be governed under the General Corporation Law of the State of
Delaware.
24. DEFINITIONS. As used in the Plan, the following terms shall have the
following meanings:
"AFFILIATE" means any corporation that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
"AWARD" means any award under the Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" shall mean willful conduct that is materially harmful to the
business of the Company, any Affiliate of the Company, or any successors
thereto.
"CHANGE IN CONTROL" shall mean the consummation of any one of the
following events: (i) a sale of all or substantially all of the assets of the
Company; (ii) a merger or consolidation in which the Company is not the
<PAGE>
surviving corporation (other than a transaction the principal purpose of which
is to change the state of the Company's incorporation or a transaction in which
the voting securities of the Company are exchanged for beneficial ownership of
at least fifty percent (50%) of the voting securities of the controlling
acquiring corporation); (iii) a merger or consolidation in which the Company is
the surviving corporation and less than fifty percent (50%) of the voting
securities of the Company which are outstanding immediately after the
consummation of such transaction are beneficially owned, directly or indirectly,
by the persons who owned such voting securities immediately prior to such
transaction; (iv) any transaction or series of related transactions after which
any person (as such term is used in Section 13(d)(3) of the Exchange Act), other
than any employee benefit plan (or related trust) sponsored or maintained by the
Company or any subsidiary of the Company, becomes the beneficial owner of voting
securities of the Company representing fifty percent (50%) or more of the
combined voting power of all of the voting securities of the Company; or (v) the
liquidation or dissolution of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer
the Plan, or if no committee is appointed, the Board.
"COMPANY" means Racotek, Inc., a corporation organized under the laws
of the State of Delaware, or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"DISINTERESTED PERSON" shall have the meaning set forth in Rule
16b-3(c)(2)(i) as promulgated by the SEC under Section 16(b) of the Exchange
Act, as such rule is amended from time to time and as interpreted by the SEC.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) of such Common Stock is then quoted on the NASDAQ National
Market System, its last reported sale price on the NASDAQ National Market System
or, if no such reported sale takes place on such date, the average of the
closing bid and asked prices;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, the last reported sale price or, if no such
reported sale takes place on such date, the average of the closing bid and asked
prices on the principal national securities exchange on which the Common Stock
is listed or admitted to trading;
(c) if such Common Stock is publicly traded but is not quoted on
the NASDAQ National Market System nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and asked prices on
such date, as reported by The Wall Street Journal, for the over-the-counter
market; or
(d) if none of the foregoing is applicable, by the Board of
Directors of the Company in good faith.
"GOOD REASON" shall mean that any one of the following actions has
been taken without the Participant's express written consent and such action has
not been promptly reversed within thirty (30) days following written notice from
the Participant to the recipient of such Participant's services: (i) a material
reduction in the Participant's job responsibilities given the Participant's
prior position and responsibilities with the Company; (ii) any reduction in the
Participant's compensation and aggregate benefits as in effect immediately prior
to such reduction; (iii) relocation of the Participant's workplace to a facility
or location more than twenty-five (25) miles from the Participant's workplace
immediately prior to such relocation; or (iv) any Termination which is not
effected by reason of death, disability, or Cause.
<PAGE>
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
"OUTSIDE DIRECTOR" shall mean any director who is not (i) a current
employee of the Company or any Parent, Subsidiary or Affiliate of the Company,
(ii) a former employee of the Company or any Parent, Subsidiary or Affiliate of
the Company who is receiving compensation for prior services (other than
benefits under a tax-qualified pension plan), (iii) a current or former officer
of the Company or any Parent, Subsidiary or Affiliate of the Company or (iv)
currently receiving compensation for personal services in any capacity, other
than as a director, from the Company or any Parent, Subsidiary or Affiliate of
the Company; provided, however, that at such time as the term "Outside
Director", as used in Section 162(m) is defined in regulations promulgated under
Section 162(m) of the Code, "Outside Director" shall have the meaning set forth
in such regulations, as amended from time to time and as interpreted by the
Internal Revenue Service.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if at the time of the granting of
an Award under the Plan, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under the Plan.
"PLAN" means this Racotek, Inc. 1993 Equity Incentive Plan, as amended
from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock, $0.01 par value,
reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and 15,
and any successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Award, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
"TERMINATION" or "TERMINATED" means, for purposes of the Plan with
respect to a Participant, that the Participant has ceased to provide services as
an employee, director, consultant, independent contractor or adviser, to the
Company or a Parent, Subsidiary or Affiliate of the Company, except in the case
of sick leave, military leave, or any other leave of absence approved by the
Committee, provided, that such leave is for a period of not more than ninety
(90) days, or reinstatement upon the expiration of such leave is guaranteed by
contract or statute. The Committee shall have sole discretion to determine
whether a Participant has ceased to provide services and the effective date on
which the Participant ceased to provide services (the "TERMINATION DATE").
<PAGE>
EXHIBIT 10.40
SUBLEASE
THIS SUBLEASE, made and entered into this 18th day of November between RACOTEK,
INC., a Delaware corporation, ("Sublessor") and ATIO CORPORATION USA, INC., a
Minnesota corporation ("Sublessee").
RECITALS:
A. A lease ("Prime Lease") dated May 2, 1994, was made and entered into
between Connecticut General Life Insurance Company, on behalf of its Closed
End Real Estate Fund I, as Landlord, and Racotek, Inc., as Tenant, pertaining
to Premises consisting of the entire second and sixth floors at 7301 Ohms
Lane, City of Edina, County of Hennepin, State of Minnesota and is attached
hereto as Exhibit B.
B. The parties hereto desire that the Sublessor sublet to the Sublessee
and that the Sublessee take from the Sublessor that portion of the sixth
floor of the Premises leased under the Prime Lease containing approximately
13,494 square feet of rentable area (hereinafter referred to as the "Sublet
Area" and designated "Suite 600") as depicted on Exhibit A, attached hereto.
C. As an inducement to Sublessor to enter into this Sublease,
Sublessee's parent, Venturian Corp., a Minnesota corporation, has agreed to
guarantee Sublessee's performance under this Sublease.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants hereinafter contained, but subject to the consent thereto by
Landlord, the Sublessor does hereby sublet to the Sublessee and the Sublessee
does hereby rent and take from Sublessor, the Sublet Area, subject to the
following terms and conditions:
1. Except for those portions of Articles 5, 6 and 13 contained in the
Addendum to the Prime Lease and Articles 4, 34, 35, 36 and 37 of the Prime
Lease (hereinafter collectively referred to as the "Excluded Provisions")
which shall not apply to this Sublease, all other applicable terms and
conditions of the Prime Lease are incorporated into and made a part of this
Sublease as if the Sublessor were the Landlord under the Prime Lease, the
Sublessee was the Tenant under the Prime Lease, and the Sublet Area were the
Premises under the Prime Lease. Sublessee hereby assumes and agrees to be
bound by all terms, covenants, and conditions of the Prime Lease except for
the Excluded Provisions and except as otherwise provided for herein.
2. The term of this Sublease shall commence November 24, 1997, and
shall terminate July 31, 2000.
3. The Sublessee shall pay to Landlord on behalf of Sublessor $7,872
per month from January 1, 1998, to July 31, 1998, and 8,434 per month from
August 1, 1998, to July 31, 2000, as Minimum Rent for the Sublet Area, due
and payable on the first day of each month during the entire term of this
Sublease. Commencing January 1, 1998, Sublessee shall also pay to Landlord
on behalf of Sublessor, as Additional Rent, its share of Real Estate Taxes
and Operating Expenses pursuant to Article 6 of the Prime Lease based on
13,494 rentable square feet for the term of this Sublease. Sublessee shall
initially pay estimated 1998 Real Estate Taxes and Operating Expenses in the
amount of $9,828 per month ($8.74 per rentable square foot per year) subject
to adjustment at the end of 1998 as provided for in said Article 6.
All rent shall be paid to the Landlord at the address and in the manner
set forth in the Prime Lease for the payment of rentals or at such other
address and/or to such other party as the Landlord may from time to time
elect by giving not less that ten (10) days advance written notice thereof to
the Sublessee. All such payments shall be credited against the obligations of
Sublessor under the Prime Lease.
4. The Sublessee may use the Sublet Area for the purpose stated in the
Prime Lease and for no other purposes whatsoever.
5. The Sublessee will notify the Landlord forthwith in the event of any
default that occurs under the provisions of this Sublease, such notice to be
given to the Landlord by United States Mail, registered or certified, postage
prepaid, at the address provided for Landlord in the Prime Lease or as such
other address as Tenant shall be advised to use by Landlord.
<PAGE>
6. Any notice provided for herein shall be deemed to be duly given if
made in writing and delivered in person to an office of such party or mailed
by first class registered or certified mail, postage prepaid, addressed as
follows:
If to Sublessor: If to Sublessee:
Racotek, Inc. ATIO Corporation USA, Inc.
7301 Ohms Lane, Suite 200 7301 Ohms Lane/Suite 600
Edina, Minnesota 55439 Edina, Minnesota 55439
or to such other address with respect to either party hereto as such party shall
notify the other party hereto in writing. Any notice so given, if mailed as
aforesaid, shall be deemed received the second (2nd) day after it is deposited
in the United States Mail.
7. Sublessee shall, at its expense, during the term of this Sublease,
maintain public liability insurance and such other insurance coverages in the
amount required under Article 24 of the Prime Lease in one or more companies
acceptable to Sublessor and Landlord, naming Sublessor, Landlord and
Landlord's manager of the Building as additional insureds. No policy of
insurance obtained by the Sublessee in compliance with the Prime Lease may be
canceled or terminated except upon not less that ten (10) days written notice
to Sublessor and Landlord. True and correct copies of each policy or such
insurance, and renewals thereof, obtained by the Sublessee in compliance with
the Prime Lease shall be delivered to the Sublessor and to Landlord.
8. Sublessor agrees to pay United Properties Brokerage Company
("United") a leasing commission in the amount of $60,723 payable in full upon
full execution of this Sublease. United has agreed under separate agreement
that upon receipt thereof from Sublessor, that it shall pay half of said
commission to Sublessee's agent, Towle Real Estate Company. It is hereby
agreed that United shall be deemed a third-party beneficiary of Sublessor's
agreement to pay the leasing commission specified above. In no event shall
Sublessee have any liability whatsoever with respect to fees or commissions
as a result of this Sublease.
9. In all respects, Sublessee accepts the Sublet Area in its "as-is"
condition. Sublessee agrees that it shall make no alterations or improvements
to the Sublet Area except as are consented to in writing by Sublessor and by
Landlord as to the nature of such alterations or improvements and the manner
of doing the work as provided for under the Prime Lease.
10. Sublessee agrees that upon the full execution of this Sublease, that
in order to provide security to Sublessor for the payment of rent and the
performance by Sublessee of all of the terms of this Sublease, that Sublessee
will deposit $18,000 with Landlord (the "Security Deposit"). The Parties
agree that upon the occurrence of a default by Sublessee under this Sublease
(beyond any applicable period of cure), that Landlord shall have the
authority to utilize such portion of the Security Deposit as is necessary to
cure such default. Sublessee agrees that in the event any portion of the
Security Deposit is so utilized to cure any such default, that Sublessee will
immediately deposit with Landlord an amount sufficient to maintain the
required $18,000 balance. Sublessee agrees to indemnify, defend and hold
Sublessor harmless from any damage which may be suffered by Sublessor as a
result of any default by Sublessee under the terms of this sublease including
any failure by Sublessee to pay when due any of the rentals provided for
under Paragraph 3 of this Sublease. Notwithstanding anything to the contrary
contained herein, Sublessee acknowledges that its liability under this
Sublease is not limited to the Security Deposit and that the use of any
portion of the Security Deposit shall not constitute a waiver but shall be in
addition to any other remedies available to Sublessor under this Sublease,
available to Landlord under the Prime Lease, and available to either party
under law. The parties agree that so long as no such default exists as of
the expiration of this Sublease, that Landlord shall return to Sublessee the
entire remaining balance of the Security Deposit, without interest.
11. Not withstanding anything contained in this Sublease to the contrary,
a default (beyond any applicable period of cure) by Sublessee under that
certain Personal Property, Installment, Sale and Security Agreement dated of
even date herewith and by and between Sublessor and Sublessee shall
constitute a default under this Sublease.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused their presence
to be duly executed as of the day and year first above written.
SUBLESSOR: SUBLESSEE:
RACOTEK, INC. ATIO CORPORATION USA, INC.
BY: /s/ BY: /s/
Ian L. Nemerov Patrick O. Collette
Its: Secretary and Attorney Chief Financial Officer
CONSENT OF LANDLORD
A. The undersigned Landlord does hereby consent to the above Sublease provided,
however, in no event shall: (i) the Tenant under the Prime Lease be in any
way whatsoever relieved of its obligations to keep and perform promptly each
of the terms, covenants or conditions to be kept or performed by it under
the Prime Lease, or (ii) the terms, covenants or conditions of the Prime
Lease be, in any manner whatsoever, amended or otherwise changed or (iii)
the undersigned be deemed to consent to any further subletting or
assignment under the Prime Lease, or (iv) the acceptance of rent by
Landlord be deemed to create privity of contract by and between Sublessee
and Landlord. This consent shall not be effective unless Sublessee
delivers to Landlord, prior to taking possession of the Sublet Area,
evidence that Sublessee is in full compliance with all insurance
requirements of the Prime Lease including but not limited to the
requirement that Landlord and Landlord's manager of the Building are
named as an additional insured in all insurance policies required under
the Prime Lease.
B. Landlord agrees that so long as Sublessee makes the payments of Minimum
Rent and Additional Rent directly to Landlord as required pursuant to
Paragraph 3 of the Sublease and performs all of the other terms,
conditions, covenants and agreements on Sublessee's part to be observed
and performed under the Sublease, Sublessee may peaceably and quietly
enjoy the Sublet Area for the uses permitted under the Sublease even
though Tenant may be in default under one or more of the terms,
conditions, covenants or agreements on Tenant's part to be observed and
performed under the Prime Lease. Such agreement to allow Sublessee to
peaceably and quietly enjoy the Sublet Area in the event of a default by
Tenant under the Prime Lease shall be contingent upon Landlord continuing
to hold the Security Deposit provided for under Paragraph 10 of this
Sublease and Paragraph 10 to cure any default by Sublessee. The previous
agreements to the contrary notwithstanding, nothing herein shall be
construed so as to prohibit Landlord from requiring Tenant to observe and
perform all of the terms, conditions, covenants and agreements of Tenant
under the Prime Lease and/or to pursue any and all remedies under the
Prime Lease against Tenant for a breach or default thereunder. Landlord
acknowledges that any payments of Minimum Rent and Additional Rent made
by Sublessee directly to Landlord pursuant to the Sublease shall be
credited against the obligations of Tenant under the Prime Lease.
LANDLORD:
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
On behalf of its Closed End Real Estate Fund 1
By: CIGNA Investments, Inc.
By: /s/ James H. Rogers
Its: Managing Director
<PAGE>
SUBLEASE AND SECURITY AGREEMENT GUARANTEE
FOR VALUE RECEIVED, and consideration for, and as an inducement to
RACOTEK, INC. a Delaware corporation (hereinafter referred to as "SUBLESSOR")
to enter into that certain Personal Property, Sale and Security Agreement,
dated November 19, 1997 ("SECURITY AGREEMENT") and that certain Sublease
pertaining to a Sublet Area consisting of approximately 13,494 rentable
square feet on the sixth floor at 7301 Ohms Lane in Edina, Minnesota
("Sublease") (hereafter the Sublease and Security Agreement shall be
collectively referred to as the "SUBLEASE AND AGREEMENT") which Sublease and
Agreement are between Sublessor and ATIO Corporation USA, Inc., a Minnesota
corporation (hereinafter referred to as "SUBLESSEE"), the undersigned hereby
absolutely, unconditionally and irrevocably guarantee to Sublessor the full
and complete performance of all of the Sublessee's covenants and obligations
under each of said Sublease and Agreement and the full payment by Sublessee
of all rentals, and other charges and amounts required to be paid thereunder,
and the undersigned will pay all Sublessors's expenses, including attorney's
fees, incurred in enforcing the obligations of Sublessee under each of said
Sublease and Agreement or incurred in enforcing this Guarantee. The
undersigned further represent to Sublessor as an inducement for Sublessor to
make both of said Sublease and Agreement, that the execution and delivery of
this Guarantee is not in contravention of any other lease, mortgage, loan
agreement or other agreement to which the undersigned is party. This
Guarantee shall be binding upon the undersigned for obligations which accrue
during the original term of each of the Sublease and Agreement. The
undersigned acknowledge and covenant to Sublessor that the undersigned has a
beneficial interest in Sublessee and, accordingly, has a direct financial
interest in the making of the Sublease and Agreement.
The undersigned does hereby waive all requirements of notice of the
acceptance of this Guarantee and all requirements of notice of breach or
non-performance by Sublessee. The undersigneds' obligations hereunder shall
remain fully binding although Sublessor may have waived one or more defaults by
Sublessee, extended the time of performance by Sublessee, released, returned or
misapplied other collateral given later as additional security (including other
guaranties) or released Sublessee from the performance of its obligation under
either of such Sublease and Agreement. The undersigned further agree that the
undersigneds' liability under this Guarantee shall be primary, and that in any
right of action which shall accrue to Sublessor under said Sublease and
Agreement, Sublessor may, at Sublessor's option, proceed against the undersigned
and Sublessee, jointly or severally, or may proceed against the undersigned
without having commenced any action against or having obtained any judgment
against Sublesse. The undersigneds' obligations hereunder shall remain fully
binding, notwithstanding any course of dealings between Sublessor and Sublessee
and notwithstanding that Sublessee may assign either the Sublease or Security
Agreement or sublet all or part of the Sublet Area to third parties. Without
notice to or consent by the undersigned, Sublessor and Sublessee may at any
time, modify, amend, or make other covenants respecting either the Sublease or
the Security Agreement as they may deem appropriate. The undersigned shall not
be released, but shall continue to be fully liable for payment and performance
of all liabilities, obligations, and duties of Sublease under both the Sublease
and Agreement as modified, amended or assigned (provided modifications or
amendments do not materially increase gross rentals contemplated in the
Sublease).
This Guarantee shall be binding upon the undersigned, their respective
heirs, executors, administrators, representatives, successors and assigns. This
Guarantee may be enforced by Sublessor or the successors or assigns of Sublessor
under the Sublease or the Security Agreement respectively. The foregoing
notwithstanding, the guarantee of Venturian Corp. and the guarantee of Atio
Corporation International Inc. shall each be limited to one-half of the amount
of any default by Atio USA in the initial term of the Sublease. The undersigned
agree (i) that any obligations arising out of this Guarantee shall be paid in
U.S. dollars; (ii) that this guarantee shall be governed under the laws of the
State of Minnesota; (iii) that any legal action arising out of this guarantee
shall be in District Court in the County of Hennepin, State of Minnesota; and
(iv) that Sublessor may rely upon copies of signatures transmitted via
facsimile.
IN WITNESS WHEREOF, the undersigned guarantor(s) have caused this Guarantee
to be executed this 4th day of December, 1997.
GUARANTOR(S):
ATIO CORPORATION INTERNATIONAL INC. VENTURIAN CORP.,
a Delaware corporation a Minnesota corporation
By: /s/ Willem Ellis By: /s/ Gary B. Rappaport
Its: Chairman & C.E.O. President and Chief Executive Officer
<PAGE>
Exhibit 10.41
CHANGE IN CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT
This Change in Control Employment and Severance Agreement (the "AGREEMENT")
is entered into this 10th day of March 1998 between Michael A. Fabiaschi
("Executive") and Racotek, Inc., a Delaware corporation (the "COMPANY"). This
Agreement is intended to provide Executive with the compensation and benefits
described herein upon the occurrence of specific events following a Change in
Control (as hereinafter defined).
Certain capitalized terms used in this Agreement are defined in Article
VII.
The Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT BY THE COMPANY
1.1 Executive is currently employed as the President and Chief Executive
Officer of the Company.
1.2 This Agreement shall become effective upon the occurrence of a Change
in Control.
1.3 The Company and Executive each agree and acknowledge that Executive is
employed by the Company as an "at will" employee and that either Executive or
the Company has the right at any time to terminate Executive's employment with
the Company, with or without cause or advance notice, for any reason or for no
reason. The Company and Executive wish to set forth the compensation and
benefits which Executive shall be entitled to receive in the event that
Executive's employment with the Company terminates under the circumstances
described in Article II of this Agreement.
1.4 The duties and obligations of the Company to Executive under this
Agreement shall be in consideration for Executive's past services to the
Company, Executive's continued employment with the Company and Executive's
execution of the general waiver and release described in Section 4.3.
ARTICLE II
TRIGGERING EVENTS
2.1 Involuntary Termination of Employment During Term
(a) If Executive's employment is involuntarily terminated by the
Company without Cause during the Term, such termination of employment will
be a Triggering Event, and the Company shall pay or provide Executive the
compensation and benefits described in Article III.
(b) If Executive's employment is involuntarily terminated by the
Company for Cause during the Term, such termination of employment will
NOT be a Triggering Event, and Executive will NOT be entitled to receive
any compensation or benefits under the provisions of this Agreement
except as otherwise specifically set forth herein.
2.2 Voluntary Termination of Employment During Term.
(a) Executive may voluntarily terminate his employment with the
Company at any time during the Term. If Executive voluntarily
terminates his employment for Good Reason during the Term, such
termination of employment will be a Triggering Event, and the Company
shall pay or provide Executive the compensation and benefits described
in Article III.
<PAGE>
(b) If Executive voluntarily terminates his employment for any
reason other than Good Reason during the Term, such termination of
employment will NOT be a Triggering Event, and Executive will NOT be
entitled to receive any compensation or benefits under the provisions of
this Agreement except as otherwise specifically set forth herein.
2.3 Death or Disability During Term. If Executive's employment with the
Company terminates on account of death or disability during the Term, such
termination of employment will be a Triggering Event, and the Company shall pay
or provide Executive the compensation and benefits described in Article III.
2.4 Employment Through Term. If Executive's employment continues through
the end of the Term, such continuation of employment will be a Triggering Event,
and the Company shall pay Executive the compensation and benefits described in
Article III.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Right to Benefits. If a Triggering Event occurs, Executive shall be
entitled to receive the compensation and benefits described in this Agreement
subject to the restrictions and limitations set forth in Article IV. If a
Triggering Event does not occur, Executive shall not be entitled to receive any
compensation and benefits described in this Agreement, except as otherwise
specifically set forth herein.
3.2 Severance Payment. Upon the occurrence of a Triggering Event or, if
later, upon the termination of Executive's employment with the Company following
a Triggering Event, Executive shall receive a lump sum severance payment equal
to the sum of (a) the amount of Executive's Base Salary that would have been
paid with respect to the period beginning on the date of the Triggering Event
and ending with the last day of the Term plus (b) six (6) months of Base Salary.
Such lump sum amount shall be paid no later than thirty (30) days following the
date of the Triggering Event or, if later, the date of termination of
Executive's employment with the Company and shall be subject to all applicable
tax withholding.
3.3 Health Insurance Coverage. Upon the occurrence of a Triggering Event
or, if later, upon the termination of Executive's employment with the Company
following a Triggering Event, to the extent permitted by the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the Company's group
health insurance policy, Executive and his covered dependents will be eligible
to continue their health insurance benefits at their own expense. If Executive
elects COBRA continuation coverage, the Company shall pay Executive's and
covered dependents' COBRA continuation premiums for six (6) months following the
date Executive's coverage as an active employee under the Company's group health
policy ceases, provided that the Company's obligation to make such payments
shall terminate immediately if Executive becomes eligible for other health
insurance benefits at the expense of a new employer. Executive agrees to notify
the Company, in writing, immediately upon acceptance of any employment which
provides health insurance benefits. This Section 3.3 provides only for the
Company's payment of COBRA continuation premiums for the period specified above.
This Section 3.3 is not intended to affect, nor does it affect, the rights of
Executive, or Executive's covered dependents, under any applicable law with
respect to health insurance continuation coverage.
3.4 Stock Option Acceleration. Executive's stock options under the
Company's 1993 Equity Incentive Plan which are outstanding as of the date of the
Triggering Event (the "Stock Options") shall become fully vested and exercisable
upon the occurrence of a Triggering Event or upon the termination of Executive's
employment during the Term which does not otherwise constitute a Triggering
Event, notwithstanding the then existing provisions of the relevant Stock Option
agreements, which provisions are expressly modified by this Agreement. The
period of time during which the Stock Options shall remain exercisable, and all
other terms and conditions of the Stock Options, shall be as specified in the
relevant Stock Option agreements.
3.5 Mitigation. Except as otherwise specifically provided herein,
Executive shall not be required to mitigate damages or the amount of any payment
provided under this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement be reduced by
any compensation earned by Executive as a result of employment by another
employer or by retirement benefits after the date of the Triggering Event, or
otherwise.
<PAGE>
ARTICLE IV
LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT
4.1 Other Severance Benefits; Withholding of Taxes. The benefits provided
under this Agreement are in lieu of any other benefit provided under any
employment contract or severance plan of the Company in effect at the time of a
Triggering Event. The Company shall withhold appropriate federal, state or
local income and employment taxes from any payments hereunder.
4.2 Obligations of Executive. During the Term, Executive agrees not to
personally solicit any of the Company's employees to become employed elsewhere
or provide the names of such employees to any other company which Executive has
reason to believe will solicit such employees.
4.3 Employee Agreement and Release Prior to Receipt of Certain Benefits.
Prior to the receipt of any benefits under Section 3.2 above, Executive shall
execute an effective employee agreement and release in the form attached hereto
as Exhibit A. Such employee agreement and release shall specifically relate to
all of Executive's rights and claims in existence at the time of its execution.
It is understood that Executive has twenty-one (21) days to consider whether to
execute such employee agreement and release and Executive may revoke such
employee agreement and release within seven (7) days after execution of such
employee agreement and release. If Executive does not execute such employee
agreement and release within the twenty-one (21) day period, or if Executive
revokes such employee agreement and release within the seven (7) day period, no
benefits shall be payable under Section 3.2 above. Nothing in this Agreement
shall limit the scope or time of applicability of such employee agreement and
release once it is executed and not timely revoked.
4.4 Certain Additional Payments. If it shall be determined, either by the
Company or by a final determination of the Internal Revenue Service, that any
payment or distribution by the Company to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement (including, without limitation, the value ascribed to option
acceleration pursuant to Section 3.4 above) or otherwise (the "Payments"), would
cause Executive to become subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), then the Company shall pay to Executive, within the
later of ninety (90) days of the date of the Triggering Event or ninety (90)
days of the date of determination referred to above, an additional amount (the
"Gross-Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax and any federal (and state and local) income and
employment taxes on the Gross-Up Payment, shall be equal to the Payments. For
purposes of determining the amount of the Gross-Up Payment, Executive shall be
deemed to pay federal, state and local income taxes at the highest nominal
marginal rate of federal, state and local income taxation in the calendar year
in which the Gross-Up Payment is made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes. If the Excise Tax is subsequently determined, whether by the Company or
by a final determination of the Internal Revenue Service, to be less than the
amount taken into account to determine the amount of the Gross-Up Payment, then
Executive shall repay to the Company at that time the portion of the Gross-Up
Payment attributable to such reduction (plus an amount equal to any tax
reduction, whether of the Excise Tax, any applicable income tax, or any
applicable employment tax, which Executive may enjoy as a result of such initial
repayment). If the Excise Tax is subsequently determined, whether by the
Company or by a final determination of the Internal Revenue Service, to be more
than the amount taken into account to determine the amount of the Gross-Up
Payment, then the Company shall pay to Executive an additional amount, which
shall be determined using the same methods as were used for calculating the
Gross-Up Payment, with respect to such excess. For purposes of this Section
4.4, a determination of the Internal Revenue Service as to the amount of Excise
Tax for which Executive is liable shall not be treated as final until the time
that either (i) the Company agrees to acquiesce in the determination of the
Internal Revenue Service or (ii) the determination of the Internal Revenue
Service has been upheld in a court of competent jurisdiction and the Company
decides not to appeal such judicial decision or such decision is not appealable.
If the Company chooses to contest the determination of the Internal Revenue
Service, then all costs, attorneys' fees, and other expenses shall be paid by
the Company.
4.5 Amendment or Termination. On and after the effective date of a Change
in Control, this Agreement may be amended or terminated only upon the mutual
written consent of the Company and Executive. Prior to the effective date of a
Change in Control, this Agreement may be amended or terminated by the Company
without the consent of Executive.
<PAGE>
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may otherwise qualify, nor shall anything herein limit or
otherwise affect such rights as Executive may have under any stock option or
other agreements with the Company; PROVIDED, HOWEVER, that in accordance with
Section 4.1 above, any benefits provided hereunder shall be in lieu of any other
severance payments to which Executive may otherwise be entitled, including,
without limitation, under any employment contract or severance plan, and
benefits under this Agreement shall be offset to the extent necessary to give
effect to this proviso. Except as otherwise expressly provided herein, amounts
which are vested benefits or which Executive is otherwise entitled to receive
under any plan, policy, practice or program of the Company at or subsequent to
the effective date of a Change in Control shall be payable in accordance with
such plan, policy, practice or program.
5.2 Employment Status. This Agreement does not constitute a contract of
employment, nor does it impose on Executive any obligation to remain as an
employee or on the Company any obligation (i) to retain Executive as an
employee, (ii) to change the status of Executive as an at will employee, or
(iii) to change the Company's policies regarding termination of employment.
ARTICLE VI
NON-ALIENATION OF BENEFITS
No benefit hereunder shall be subject to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, and any attempt to do so
shall be void.
ARTICLE VII
DEFINITIONS
For purposes of the Agreement, the following terms shall have the meanings
set forth below:
7.1 "Agreement" means this Change in Control Severance Agreement.
7.2 "Base Salary" means Executive's salary (excluding bonus, any other
incentive or other payments and stock option exercises) at the rate paid by the
Company in consideration for Executive's service on the day prior to the
effective date of a Change in Control or at such higher rate as may be in effect
during the Term and which is includable in the gross income of Executive for
federal income tax purposes or which would have been includable in gross income
except for an election either under Section 125 or 402(e)(3) of the Code or
under the terms of a nonqualified deferred compensation arrangement sponsored by
the Company.
7.3 "Cause" means either of the following: (i) an act by Executive causing
material harm to the Company or (ii) Executive's conviction of, or plea of
"guilty" or "no contest" to, a felony.
7.4 "Change in Control" means the consummation of any one of the following
events on or before January 10, 2000: (i) a sale of all or substantially all of
the assets of the Company; (ii) a merger or consolidation in which the Company
is not the surviving corporation (other than a transaction the principal purpose
of which is to change the state of the Company's incorporation or a transaction
in which the voting securities of the Company are exchanged for beneficial
ownership of at least fifty percent (50%) of the voting securities of the
controlling acquiring corporation); (iii) a merger or consolidation in which the
Company is the surviving corporation and less than fifty percent (50%) of the
voting securities of the Company which are outstanding immediately after the
consummation of such transaction are beneficially owned, directly or indirectly,
by the persons who owned such voting securities immediately prior to such
transaction; (iv) any transaction or series of related transactions after which
any person (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934), other than any employee benefit plan (or related trust) sponsored
or maintained by the Company or any subsidiary of the Company, becomes the
beneficial owner of voting securities of the Company representing fifty percent
(50%) or more of the combined voting power of all of the voting securities of
the Company; or (v) the liquidation or dissolution of the Company.
<PAGE>
None of such events occurring after January 10, 2000 shall constitute a Change
in Control; accordingly, as provided in Section 1.2, this Agreement shall not
become effective upon the occurrence of any such events after January 10, 2000.
7.5 "Code" means the Internal Revenue Code of 1986, as amended.
7.6 "Company" means Racotek, Inc., a Delaware corporation, and any
successor thereto.
7.7 "Disability" means a disability which qualifies Executive as
disabled for purposes of receiving benefits under the Company's long term
disability plan applicable to Executive.
7.8 "Good Reason" means that any one of the following actions has been
taken by the Company without Executive's express written consent and such
action has not been promptly reversed within thirty (30) days following
written notice from Executive to the Company: (i) a material reduction in
Executive's job responsibilities given Executive's prior position and
responsibilities with the Company; (ii) any reduction in Executive's
compensation and aggregate benefits as in effect immediately prior to such
reduction; (iii) relocation of Executive's workplace to a facility or
location more than twenty-five (25) miles from Executive's workplace
immediately prior to such relocation; (iv) any purported termination of
Executive's employment which is not effected by reason of death, disability,
or Cause; (v) the failure or refusal of a successor to the Company to assume
the Company's obligations under this Agreement, as provided in Section 8.7
below; or (vi) a material breach by the Company or any successor to the
Company of any of the material provisions of this Agreement
7.9 "Term" means the period beginning on the effective date of a Change
in Control and ending thirteen (13) months thereafter.
7.10 "Triggering Event" means an event described in Section 2.1(a),
2.2(a), 2.3 or 2.4 above. No other event shall be a Triggering Event for
purposes of this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Notices. Any notices provided hereunder must be in writing and such
notices or any other written communication shall be deemed effective upon the
earlier of personal delivery (including personal delivery by telex or facsimile)
or the third day after mailing by first class mail, to the Company at its
primary office location and to Executive at his address as listed in the
Company's payroll records. Any payments made by the Company to Executive under
the terms of this Agreement shall be delivered to Executive either in person or
at his address as listed in the Company's payroll records.
8.2 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
8.3 Waiver. If either party should waive any breach of any provisions of
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
8.4 Complete Agreement. This Agreement, including Exhibit A, constitutes
the entire agreement between Executive and the Company and it is the complete,
final, and exclusive embodiment of their agreement with regard to this subject
matter. It is entered into without reliance on any promise or representation
other than those expressly contained herein.
<PAGE>
8.5 Counterparts. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
8.6 Headings. The headings of the Articles and Sections hereof are
inserted for convenience only and shall neither be deemed to constitute a part
hereof nor to affect the meaning thereof.
8.7 Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive and the Company, and their
respective successors, assigns, heirs, executors and administrators, except that
Executive may not delegate any of his duties hereunder and he may not assign any
of his rights hereunder without the written consent of the Company, which
consent shall not be withheld unreasonably.
8.8 Attorneys' Fees. If either party hereto brings any action to enforce
his or its rights hereunder, the prevailing party in any such action shall be
entitled to recover his or its reasonable attorneys' fees and costs incurred in
connection with such action.
8.9 Choice of Law. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State of
Minnesota.
8.10 Non-Publication. The parties mutually agree not to disclose publicly
the terms of this Agreement except to the extent that disclosure is mandated by
applicable law.
8.11 Construction of Plan. In the event of a conflict between the text of
the Agreement and any summary, description or other information regarding the
Agreement, the text of the Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year written above.
RACOTEK, INC., /s/ Michael A. Fabiaschi
a Delaware corporation
BY: /s/ IAN NEMEROV MICHAEL A. FABIASCHI
Name: Ian Nemerov
Title: Secretary and Attorney
Exhibit A: Employee Agreement and Release
<PAGE>
EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I understand and agree completely to the terms set forth in the foregoing
agreement.
Except as otherwise set forth in this Agreement, I hereby release, acquit
and forever discharge the Company, its parents and subsidiaries, and their
officers, directors, agents, servants, employees, shareholders, successors,
assigns and affiliates, of and from any and all claims, liabilities, demands,
causes of action, costs, expenses, attorneys fees, damages, indemnities and
obligations of every kind and nature, in law, equity, or otherwise, known and
unknown, suspected and unsuspected, disclosed and undisclosed (other than any
claim for indemnification I may have as a result of any third party action
against me based on my employment with the Company), arising out of or in any
way related to agreements, events, acts or conduct at any time prior to and
including the date I sign this Agreement, including but not limited to: all
such claims and demands directly or indirectly arising out of or in any way
connected with my employment with the Company or the termination of that
employment, including but not limited to, claims of intentional and negligent
infliction of emotional distress, any and all tort claims for personal injury,
claims or demands related to salary, bonuses, commissions, stock, stock options,
or any other ownership interests in the Company, vacation pay, fringe benefits,
expense reimbursements, severance pay, or any other form of compensation; claims
pursuant to any federal, state or local law or cause of action including, but
not limited to, the federal Civil Rights Act of 1964, as amended; the federal
Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal
Americans with Disabilities Act of 1990; state laws comparable to the foregoing
federal laws; tort law; contract law; wrongful discharge; discrimination; fraud;
defamation; emotional distress; and breach of the implied covenant of good faith
and fair dealing; provided, however, that nothing in this paragraph shall be
construed in any way to release the Company from its obligation to indemnify me
pursuant to the Company's Indemnification Agreement.
I acknowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under the ADEA. I also acknowledge that the consideration
given for the waiver and release in the preceding paragraph hereof is in
addition to anything of value to which I was already entitled. I further
acknowledge that I have been advised by this writing, as required by the ADEA,
that: (A) my waiver and release do not apply to any rights or claims that may
arise after the date I sign this Agreement; (B) I have the right to consult with
an attorney prior to executing this Agreement; (C) I have twenty-one (21) days
to consider this Agreement (although I may choose to voluntarily execute this
Agreement earlier); (D) I have seven (7) days following the execution of this
Agreement by the parties to revoke the Agreement; and (E) this Agreement shall
not be effective until the date upon which the revocation period has expired,
which shall be the eighth day after this Agreement is executed by me, provided
that the Company has also executed this Agreement by that date ("Effective
Date").
By:
-------------------------------
Date:
-----------------------------
<PAGE>
Exhibit 10.42
CHANGE IN CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT
This Change in Control Employment and Severance Agreement (the "AGREEMENT")
is entered into this 10th day of March 1998 between Steve Swantek ("Executive")
and Racotek, Inc., a Delaware corporation (the "COMPANY"). This Agreement is
intended to provide Executive with the compensation and benefits described
herein upon the occurrence of specific events following a Change in Control (as
hereinafter defined).
Certain capitalized terms used in this Agreement are defined in Article
VII.
The Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT BY THE COMPANY
1.1 Executive is currently employed as the Vice President of Sales and
Marketing of the Company.
1.2 This Agreement shall become effective upon the occurrence of a Change
in Control.
1.3 The Company and Executive each agree and acknowledge that Executive is
employed by the Company as an "at will" employee and that either Executive or
the Company has the right at any time to terminate Executive's employment with
the Company, with or without cause or advance notice, for any reason or for no
reason. The Company and Executive wish to set forth the compensation and
benefits which Executive shall be entitled to receive in the event that
Executive's employment with the Company terminates under the circumstances
described in Article II of this Agreement.
1.4 The duties and obligations of the Company to Executive under this
Agreement shall be in consideration for Executive's past services to the
Company, Executive's continued employment with the Company and Executive's
execution of the general waiver and release described in Section 4.3.
ARTICLE II
TRIGGERING EVENTS
2.1 Involuntary Termination of Employment During Term
(a) If Executive's employment is involuntarily terminated by the
Company without Cause during the Term, such termination of employment will
be a Triggering Event, and the Company shall pay or provide Executive the
compensation and benefits described in Article III.
(b) If Executive's employment is involuntarily terminated by the
Company for Cause during the Term, such termination of employment will
NOT be a Triggering Event, and Executive will NOT be entitled to receive
any compensation or benefits under the provisions of this Agreement
except as otherwise specifically set forth herein.
2.2 Voluntary Termination of Employment During Term.
(a) Executive may voluntarily terminate his employment with the
Company at any time during the Term. If Executive voluntarily
terminates his employment for Good Reason during the Term, such
termination of employment will be a Triggering Event, and the Company
shall pay or provide Executive the compensation and benefits described
in Article III.
<PAGE>
(b) If Executive voluntarily terminates his employment for any
reason other than Good Reason during the Term, such termination of
employment will NOT be a Triggering Event, and Executive will NOT be
entitled to receive any compensation or benefits under the provisions of
this Agreement except as otherwise specifically set forth herein.
2.3 Death or Disability During Term. If Executive's employment with the
Company terminates on account of death or disability during the Term, such
termination of employment will be a Triggering Event, and the Company shall pay
or provide Executive the compensation and benefits described in Article III.
2.4 Employment Through Term. If Executive's employment continues through
the end of the Term, such continuation of employment will be a Triggering Event,
and the Company shall pay Executive the compensation and benefits described in
Article III.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Right to Benefits. If a Triggering Event occurs, Executive shall be
entitled to receive the compensation and benefits described in this Agreement
subject to the restrictions and limitations set forth in Article IV. If a
Triggering Event does not occur, Executive shall not be entitled to receive any
compensation and benefits described in this Agreement, except as otherwise
specifically set forth herein.
3.2 Severance Payment. Upon the occurrence of a Triggering Event or, if
later, upon the termination of Executive's employment with the Company following
a Triggering Event, Executive shall receive a lump sum severance payment equal
to the sum of (a) the amount of Executive's Base Salary that would have been
paid with respect to the period beginning on the date of the Triggering Event
and ending with the last day of the Term plus (b) six (6) months of Base Salary.
Such lump sum amount shall be paid no later than thirty (30) days following the
date of the Triggering Event or, if later, the date of termination of
Executive's employment with the Company and shall be subject to all applicable
tax withholding.
3.3 Health Insurance Coverage. Upon the occurrence of a Triggering Event
or, if later, upon the termination of Executive's employment with the Company
following a Triggering Event, to the extent permitted by the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the Company's group
health insurance policy, Executive and his covered dependents will be eligible
to continue their health insurance benefits at their own expense. If Executive
elects COBRA continuation coverage, the Company shall pay Executive's and
covered dependents' COBRA continuation premiums for six (6) months following the
date Executive's coverage as an active employee under the Company's group health
policy ceases, provided that the Company's obligation to make such payments
shall terminate immediately if Executive becomes eligible for other health
insurance benefits at the expense of a new employer. Executive agrees to notify
the Company, in writing, immediately upon acceptance of any employment which
provides health insurance benefits. This Section 3.3 provides only for the
Company's payment of COBRA continuation premiums for the period specified above.
This Section 3.3 is not intended to affect, nor does it affect, the rights of
Executive, or Executive's covered dependents, under any applicable law with
respect to health insurance continuation coverage.
3.4 Stock Option Acceleration. Executive's stock options under the
Company's 1993 Equity Incentive Plan which are outstanding as of the date of the
Triggering Event (the "Stock Options") shall become fully vested and exercisable
upon the occurrence of a Triggering Event or upon the termination of Executive's
employment during the Term which does not otherwise constitute a Triggering
Event, notwithstanding the then existing provisions of the relevant Stock Option
agreements, which provisions are expressly modified by this Agreement. The
period of time during which the Stock Options shall remain exercisable, and all
other terms and conditions of the Stock Options, shall be as specified in the
relevant Stock Option agreements.
3.5 Mitigation. Except as otherwise specifically provided herein,
Executive shall not be required to mitigate damages or the amount of any payment
provided under this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement be reduced by
any compensation earned by Executive as a result of employment by another
employer or by retirement benefits after the date of the Triggering Event, or
otherwise.
<PAGE>
ARTICLE IV
LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT
4.1 Other Severance Benefits; Withholding of Taxes. The benefits provided
under this Agreement are in lieu of any other benefit provided under any
employment contract or severance plan of the Company in effect at the time of a
Triggering Event. The Company shall withhold appropriate federal, state or
local income and employment taxes from any payments hereunder.
4.2 Obligations of Executive. During the Term, Executive agrees not to
personally solicit any of the Company's employees to become employed elsewhere
or provide the names of such employees to any other company which Executive has
reason to believe will solicit such employees.
4.3 Employee Agreement and Release Prior to Receipt of Certain Benefits.
Prior to the receipt of any benefits under Section 3.2 above, Executive shall
execute an effective employee agreement and release in the form attached hereto
as Exhibit A. Such employee agreement and release shall specifically relate to
all of Executive's rights and claims in existence at the time of its execution.
It is understood that Executive has twenty-one (21) days to consider whether to
execute such employee agreement and release and Executive may revoke such
employee agreement and release within seven (7) days after execution of such
employee agreement and release. If Executive does not execute such employee
agreement and release within the twenty-one (21) day period, or if Executive
revokes such employee agreement and release within the seven (7) day period, no
benefits shall be payable under Section 3.2 above. Nothing in this Agreement
shall limit the scope or time of applicability of such employee agreement and
release once it is executed and not timely revoked.
4.4 Certain Additional Payments. If it shall be determined, either by the
Company or by a final determination of the Internal Revenue Service, that any
payment or distribution by the Company to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement (including, without limitation, the value ascribed to option
acceleration pursuant to Section 3.4 above) or otherwise (the "Payments"), would
cause Executive to become subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), then the Company shall pay to Executive, within the
later of ninety (90) days of the date of the Triggering Event or ninety (90)
days of the date of determination referred to above, an additional amount (the
"Gross-Up Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax and any federal (and state and local) income and
employment taxes on the Gross-Up Payment, shall be equal to the Payments. For
purposes of determining the amount of the Gross-Up Payment, Executive shall be
deemed to pay federal, state and local income taxes at the highest nominal
marginal rate of federal, state and local income taxation in the calendar year
in which the Gross-Up Payment is made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes. If the Excise Tax is subsequently determined, whether by the Company or
by a final determination of the Internal Revenue Service, to be less than the
amount taken into account to determine the amount of the Gross-Up Payment, then
Executive shall repay to the Company at that time the portion of the Gross-Up
Payment attributable to such reduction (plus an amount equal to any tax
reduction, whether of the Excise Tax, any applicable income tax, or any
applicable employment tax, which Executive may enjoy as a result of such initial
repayment). If the Excise Tax is subsequently determined, whether by the
Company or by a final determination of the Internal Revenue Service, to be more
than the amount taken into account to determine the amount of the Gross-Up
Payment, then the Company shall pay to Executive an additional amount, which
shall be determined using the same methods as were used for calculating the
Gross-Up Payment, with respect to such excess. For purposes of this Section
4.4, a determination of the Internal Revenue Service as to the amount of Excise
Tax for which Executive is liable shall not be treated as final until the time
that either (i) the Company agrees to acquiesce in the determination of the
Internal Revenue Service or (ii) the determination of the Internal Revenue
Service has been upheld in a court of competent jurisdiction and the Company
decides not to appeal such judicial decision or such decision is not appealable.
If the Company chooses to contest the determination of the Internal Revenue
Service, then all costs, attorneys' fees, and other expenses shall be paid by
the Company.
4.5 Amendment or Termination. On and after the effective date of a Change
in Control, this Agreement may be amended or terminated only upon the mutual
written consent of the Company and Executive. Prior to the effective date of a
Change in Control, this Agreement may be amended or terminated by the Company
without the consent of Executive.
<PAGE>
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may otherwise qualify, nor shall anything herein limit or
otherwise affect such rights as Executive may have under any stock option or
other agreements with the Company; PROVIDED, HOWEVER, that in accordance with
Section 4.1 above, any benefits provided hereunder shall be in lieu of any other
severance payments to which Executive may otherwise be entitled, including,
without limitation, under any employment contract or severance plan, and
benefits under this Agreement shall be offset to the extent necessary to give
effect to this proviso. Except as otherwise expressly provided herein, amounts
which are vested benefits or which Executive is otherwise entitled to receive
under any plan, policy, practice or program of the Company at or subsequent to
the effective date of a Change in Control shall be payable in accordance with
such plan, policy, practice or program.
5.2 Employment Status. This Agreement does not constitute a contract of
employment, nor does it impose on Executive any obligation to remain as an
employee or on the Company any obligation (i) to retain Executive as an
employee, (ii) to change the status of Executive as an at will employee, or
(iii) to change the Company's policies regarding termination of employment.
ARTICLE VI
NON-ALIENATION OF BENEFITS
No benefit hereunder shall be subject to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, and any attempt to do so
shall be void.
ARTICLE VII
DEFINITIONS
For purposes of the Agreement, the following terms shall have the meanings
set forth below:
7.1 "Agreement" means this Change in Control Severance Agreement.
7.2 "Base Salary" means Executive's salary (excluding bonus, any other
incentive or other payments and stock option exercises) at the rate paid by the
Company in consideration for Executive's service on the day prior to the
effective date of a Change in Control or at such higher rate as may be in effect
during the Term and which is includable in the gross income of Executive for
federal income tax purposes or which would have been includable in gross income
except for an election either under Section 125 or 402(e)(3) of the Code or
under the terms of a nonqualified deferred compensation arrangement sponsored by
the Company.
7.3 "Cause" means either of the following: (i) an act by Executive causing
material harm to the Company or (ii) Executive's conviction of, or plea of
"guilty" or "no contest" to, a felony.
7.4 "Change in Control" means the consummation of any one of the following
events on or before January 10, 2000: (i) a sale of all or substantially all of
the assets of the Company; (ii) a merger or consolidation in which the Company
is not the surviving corporation (other than a transaction the principal purpose
of which is to change the state of the Company's incorporation or a transaction
in which the voting securities of the Company are exchanged for beneficial
ownership of at least fifty percent (50%) of the voting securities of the
controlling acquiring corporation); (iii) a merger or consolidation in which the
Company is the surviving corporation and less than fifty percent (50%) of the
voting securities of the Company which are outstanding immediately after the
consummation of such transaction are beneficially owned, directly or indirectly,
by the persons who owned such voting securities immediately prior to such
transaction; (iv) any transaction or series of related transactions after which
any person (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934), other than any employee benefit plan (or related trust) sponsored
or maintained by the Company or any subsidiary of the Company, becomes the
beneficial owner of voting securities of the Company representing fifty percent
(50%) or more of the combined voting power of all of the voting securities of
the Company; or (v) the liquidation or dissolution of the Company.
<PAGE>
None of such events occurring after January 10, 2000 shall constitute a Change
in Control; accordingly, as provided in Section 1.2, this Agreement shall not
become effective upon the occurrence of any such events after January 10, 2000.
7.5 "Code" means the Internal Revenue Code of 1986, as amended.
7.6 "Company" means Racotek, Inc., a Delaware corporation, and any
successor thereto.
7.7 "Disability" means a disability which qualifies Executive as
disabled for purposes of receiving benefits under the Company's long term
disability plan applicable to Executive.
7.8 "Good Reason" means that any one of the following actions has been
taken by the Company without Executive's express written consent and such
action has not been promptly reversed within thirty (30) days following
written notice from Executive to the Company: (i) a material reduction in
Executive's job responsibilities given Executive's prior position and
responsibilities with the Company; (ii) any reduction in Executive's
compensation and aggregate benefits as in effect immediately prior to such
reduction; (iii) relocation of Executive's workplace to a facility or
location more than twenty-five (25) miles from Executive's workplace
immediately prior to such relocation; (iv) any purported termination of
Executive's employment which is not effected by reason of death, disability,
or Cause; (v) the failure or refusal of a successor to the Company to assume
the Company's obligations under this Agreement, as provided in Section 8.7
below; or (vi) a material breach by the Company or any successor to the
Company of any of the material provisions of this Agreement
7.9 "Term" means the period beginning on the effective date of a Change
in Control and ending thirteen (13) months thereafter.
7.10 "Triggering Event" means an event described in Section 2.1(a),
2.2(a), 2.3 or 2.4 above. No other event shall be a Triggering Event for
purposes of this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Notices. Any notices provided hereunder must be in writing and such
notices or any other written communication shall be deemed effective upon the
earlier of personal delivery (including personal delivery by telex or facsimile)
or the third day after mailing by first class mail, to the Company at its
primary office location and to Executive at his address as listed in the
Company's payroll records. Any payments made by the Company to Executive under
the terms of this Agreement shall be delivered to Executive either in person or
at his address as listed in the Company's payroll records.
8.2 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
8.3 Waiver. If either party should waive any breach of any provisions of
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
8.4 Complete Agreement. This Agreement, including Exhibit A, constitutes
the entire agreement between Executive and the Company and it is the complete,
final, and exclusive embodiment of their agreement with regard to this subject
matter. It is entered into without reliance on any promise or representation
other than those expressly contained herein.
<PAGE>
8.5 Counterparts. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
8.6 Headings. The headings of the Articles and Sections hereof are
inserted for convenience only and shall neither be deemed to constitute a part
hereof nor to affect the meaning thereof.
8.7 Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive and the Company, and their
respective successors, assigns, heirs, executors and administrators, except that
Executive may not delegate any of his duties hereunder and he may not assign any
of his rights hereunder without the written consent of the Company, which
consent shall not be withheld unreasonably.
8.8 Attorneys' Fees. If either party hereto brings any action to enforce
his or its rights hereunder, the prevailing party in any such action shall be
entitled to recover his or its reasonable attorneys' fees and costs incurred in
connection with such action.
8.9 Choice of Law. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State of
Minnesota.
8.10 Non-Publication. The parties mutually agree not to disclose publicly
the terms of this Agreement except to the extent that disclosure is mandated by
applicable law.
8.11 Construction of Plan. In the event of a conflict between the text of
the Agreement and any summary, description or other information regarding the
Agreement, the text of the Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year written above.
RACOTEK, INC., /s/ Steve Swantek
a Delaware corporation
BY: /s/ IAN NEMEROV STEVE SWANTEK
Name: Ian Nemerov
Title: Secretary and Attorney
Exhibit A: Employee Agreement and Release
<PAGE>
EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I understand and agree completely to the terms set forth in the
foregoing agreement.
Except as otherwise set forth in this Agreement, I hereby release,
acquit and forever discharge the Company, its parents and subsidiaries, and
their officers, directors, agents, servants, employees, shareholders,
successors, assigns and affiliates, of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys fees,
damages, indemnities and obligations of every kind and nature, in law,
equity, or otherwise, known and unknown, suspected and unsuspected, disclosed
and undisclosed (other than any claim for indemnification I may have as a
result of any third party action against me based on my employment with the
Company), arising out of or in any way related to agreements, events, acts or
conduct at any time prior to and including the date I sign this Agreement,
including but not limited to: all such claims and demands directly or
indirectly arising out of or in any way connected with my employment with the
Company or the termination of that employment, including but not limited to,
claims of intentional and negligent infliction of emotional distress, any and
all tort claims for personal injury, claims or demands related to salary,
bonuses, commissions, stock, stock options, or any other ownership interests
in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of compensation; claims pursuant to any
federal, state or local law or cause of action including, but not limited to,
the federal Civil Rights Act of 1964, as amended; the federal Age
Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal
Americans with Disabilities Act of 1990; state laws comparable to the
foregoing federal laws; tort law; contract law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the
implied covenant of good faith and fair dealing; provided, however, that
nothing in this paragraph shall be construed in any way to release the
Company from its obligation to indemnify me pursuant to the Company's
Indemnification Agreement.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under the ADEA. I also acknowledge that the
consideration given for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to which I was already entitled.
I further acknowledge that I have been advised by this writing, as required
by the ADEA, that: (A) my waiver and release do not apply to any rights or
claims that may arise after the date I sign this Agreement; (B) I have the
right to consult with an attorney prior to executing this Agreement; (C) I
have twenty-one (21) days to consider this Agreement (although I may choose
to voluntarily execute this Agreement earlier); (D) I have seven (7) days
following the execution of this Agreement by the parties to revoke the
Agreement; and (E) this Agreement shall not be effective until the date upon
which the revocation period has expired, which shall be the eighth day after
this Agreement is executed by me, provided that the Company has also executed
this Agreement by that date ("Effective Date").
By:
----------------------------------
Date:
--------------------------------
<PAGE>
Exhibit 10.43
CHANGE IN CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT
This Change in Control Employment and Severance Agreement (the
"AGREEMENT") is entered into this 10th day of March 1998 between Paul
Edelhertz ("Executive") and Racotek, Inc., a Delaware corporation (the
"COMPANY"). This Agreement is intended to provide Executive with the
compensation and benefits described herein upon the occurrence of specific
events following a Change in Control (as hereinafter defined).
Certain capitalized terms used in this Agreement are defined in Article
VII.
The Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT BY THE COMPANY
1.1 Executive is currently employed as the Vice President of
Customer Solutions of the Company.
1.2 This Agreement shall become effective upon the occurrence
of a Change in Control.
1.3 The Company and Executive each agree and acknowledge that
Executive is employed by the Company as an "at will" employee and that either
Executive or the Company has the right at any time to terminate Executive's
employment with the Company, with or without cause or advance notice, for any
reason or for no reason. The Company and Executive wish to set forth the
compensation and benefits which Executive shall be entitled to receive in the
event that Executive's employment with the Company terminates under the
circumstances described in Article II of this Agreement.
1.4 The duties and obligations of the Company to Executive
under this Agreement shall be in consideration for Executive's past services
to the Company, Executive's continued employment with the Company and
Executive's execution of the general waiver and release described in Section
4.3.
ARTICLE II
TRIGGERING EVENTS
2.1 Involuntary Termination of Employment During Term
(a) If Executive's employment is involuntarily terminated
by the Company without Cause during the Term, such termination of
employment will be a Triggering Event, and the Company shall pay
or provide Executive the compensation and benefits described in
Article III.
(b) If Executive's employment is involuntarily terminated
by the Company for Cause during the Term, such termination of
employment will NOT be a Triggering Event, and Executive will NOT
be entitled to receive any compensation or benefits under the
provisions of this Agreement except as otherwise specifically set
forth herein.
2.2 Voluntary Termination of Employment During Term.
(a) Executive may voluntarily terminate his employment with
the Company at any time during the Term. If Executive voluntarily
terminates his employment for Good Reason during the Term, such
termination of employment will be a Triggering Event, and the
Company shall pay or provide Executive the compensation and benefits
described in Article III.
<PAGE>
(b) If Executive voluntarily terminates his employment for
any reason other than Good Reason during the Term, such termination
of employment will NOT be a Triggering Event, and Executive will NOT
be entitled to receive any compensation or benefits under the
provisions of this Agreement except as otherwise specifically set
forth herein.
2.3 Death or Disability During Term. If Executive's employment
with the Company terminates on account of death or disability during the
Term, such termination of employment will be a Triggering Event, and the
Company shall pay or provide Executive the compensation and benefits
described in Article III.
2.4 Employment Through Term. If Executive's employment
continues through the end of the Term, such continuation of employment will
be a Triggering Event, and the Company shall pay Executive the compensation
and benefits described in Article III.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 Right to Benefits. If a Triggering Event occurs, Executive
shall be entitled to receive the compensation and benefits described in this
Agreement subject to the restrictions and limitations set forth in Article
IV. If a Triggering Event does not occur, Executive shall not be entitled to
receive any compensation and benefits described in this Agreement, except as
otherwise specifically set forth herein.
3.2 Severance Payment. Upon the occurrence of a Triggering
Event or, if later, upon the termination of Executive's employment with the
Company following a Triggering Event, Executive shall receive a lump sum
severance payment equal to the sum of (a) the amount of Executive's Base
Salary that would have been paid with respect to the period beginning on the
date of the Triggering Event and ending with the last day of the Term plus
(b) six (6) months of Base Salary. Such lump sum amount shall be paid no
later than thirty (30) days following the date of the Triggering Event or, if
later, the date of termination of Executive's employment with the Company and
shall be subject to all applicable tax withholding.
3.3 Health Insurance Coverage. Upon the occurrence of a
Triggering Event or, if later, upon the termination of Executive's employment
with the Company following a Triggering Event, to the extent permitted by the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the
Company's group health insurance policy, Executive and his covered dependents
will be eligible to continue their health insurance benefits at their own
expense. If Executive elects COBRA continuation coverage, the Company shall
pay Executive's and covered dependents' COBRA continuation premiums for six
(6) months following the date Executive's coverage as an active employee
under the Company's group health policy ceases, provided that the Company's
obligation to make such payments shall terminate immediately if Executive
becomes eligible for other health insurance benefits at the expense of a new
employer. Executive agrees to notify the Company, in writing, immediately
upon acceptance of any employment which provides health insurance benefits.
This Section 3.3 provides only for the Company's payment of COBRA
continuation premiums for the period specified above. This Section 3.3 is
not intended to affect, nor does it affect, the rights of Executive, or
Executive's covered dependents, under any applicable law with respect to
health insurance continuation coverage.
3.4 Stock Option Acceleration. Executive's stock options under
the Company's 1993 Equity Incentive Plan which are outstanding as of the date
of the Triggering Event (the "Stock Options") shall become fully vested and
exercisable upon the occurrence of a Triggering Event or upon the termination
of Executive's employment during the Term which does not otherwise constitute
a Triggering Event, notwithstanding the then existing provisions of the
relevant Stock Option agreements, which provisions are expressly modified by
this Agreement. The period of time during which the Stock Options shall
remain exercisable, and all other terms and conditions of the Stock Options,
shall be as specified in the relevant Stock Option agreements.
3.5 Mitigation. Except as otherwise specifically provided
herein, Executive shall not be required to mitigate damages or the amount of
any payment provided under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this
Agreement be reduced by any compensation earned by Executive as a result of
employment by another employer or by retirement benefits after the date of
the Triggering Event, or otherwise.
<PAGE>
ARTICLE IV
LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT
4.1 Other Severance Benefits; Withholding of Taxes. The
benefits provided under this Agreement are in lieu of any other benefit
provided under any employment contract or severance plan of the Company in
effect at the time of a Triggering Event. The Company shall withhold
appropriate federal, state or local income and employment taxes from any
payments hereunder.
4.2 Obligations of Executive. During the Term, Executive
agrees not to personally solicit any of the Company's employees to become
employed elsewhere or provide the names of such employees to any other
company which Executive has reason to believe will solicit such employees.
4.3 Employee Agreement and Release Prior to Receipt of Certain
Benefits. Prior to the receipt of any benefits under Section 3.2 above,
Executive shall execute an effective employee agreement and release in the
form attached hereto as Exhibit A. Such employee agreement and release shall
specifically relate to all of Executive's rights and claims in existence at
the time of its execution. It is understood that Executive has twenty-one
(21) days to consider whether to execute such employee agreement and release
and Executive may revoke such employee agreement and release within seven (7)
days after execution of such employee agreement and release. If Executive
does not execute such employee agreement and release within the twenty-one
(21) day period, or if Executive revokes such employee agreement and release
within the seven (7) day period, no benefits shall be payable under Section
3.2 above. Nothing in this Agreement shall limit the scope or time of
applicability of such employee agreement and release once it is executed and
not timely revoked.
4.4 Certain Additional Payments. If it shall be determined,
either by the Company or by a final determination of the Internal Revenue
Service, that any payment or distribution by the Company to or for the
benefit of Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement (including, without limitation, the
value ascribed to option acceleration pursuant to Section 3.4 above) or
otherwise (the "Payments"), would cause Executive to become subject to the
excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the
Company shall pay to Executive, within the later of ninety (90) days of the
date of the Triggering Event or ninety (90) days of the date of determination
referred to above, an additional amount (the "Gross-Up Payment") such that
the net amount retained by Executive, after deduction of any Excise Tax and
any federal (and state and local) income and employment taxes on the Gross-Up
Payment, shall be equal to the Payments. For purposes of determining the
amount of the Gross-Up Payment, Executive shall be deemed to pay federal,
state and local income taxes at the highest nominal marginal rate of federal,
state and local income taxation in the calendar year in which the Gross-Up
Payment is made, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes. If the
Excise Tax is subsequently determined, whether by the Company or by a final
determination of the Internal Revenue Service, to be less than the amount
taken into account to determine the amount of the Gross-Up Payment, then
Executive shall repay to the Company at that time the portion of the Gross-Up
Payment attributable to such reduction (plus an amount equal to any tax
reduction, whether of the Excise Tax, any applicable income tax, or any
applicable employment tax, which Executive may enjoy as a result of such
initial repayment). If the Excise Tax is subsequently determined, whether by
the Company or by a final determination of the Internal Revenue Service, to
be more than the amount taken into account to determine the amount of the
Gross-Up Payment, then the Company shall pay to Executive an additional
amount, which shall be determined using the same methods as were used for
calculating the Gross-Up Payment, with respect to such excess. For purposes
of this Section 4.4, a determination of the Internal Revenue Service as to
the amount of Excise Tax for which Executive is liable shall not be treated
as final until the time that either (i) the Company agrees to acquiesce in
the determination of the Internal Revenue Service or (ii) the determination
of the Internal Revenue Service has been upheld in a court of competent
jurisdiction and the Company decides not to appeal such judicial decision or
such decision is not appealable. If the Company chooses to contest the
determination of the Internal Revenue Service, then all costs, attorneys'
fees, and other expenses shall be paid by the Company.
4.5 Amendment or Termination. On and after the effective date
of a Change in Control, this Agreement may be amended or terminated only upon
the mutual written consent of the Company and Executive. Prior to the
effective date of a Change in Control, this Agreement may be amended or
terminated by the Company without the consent of Executive.
<PAGE>
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Nonexclusivity. Nothing in the Agreement shall prevent or
limit Executive's continuing or future participation in any benefit, bonus,
incentive or other plans, programs, policies or practices provided by the
Company and for which Executive may otherwise qualify, nor shall anything
herein limit or otherwise affect such rights as Executive may have under any
stock option or other agreements with the Company; PROVIDED, HOWEVER, that in
accordance with Section 4.1 above, any benefits provided hereunder shall be
in lieu of any other severance payments to which Executive may otherwise be
entitled, including, without limitation, under any employment contract or
severance plan, and benefits under this Agreement shall be offset to the
extent necessary to give effect to this proviso. Except as otherwise
expressly provided herein, amounts which are vested benefits or which
Executive is otherwise entitled to receive under any plan, policy, practice
or program of the Company at or subsequent to the effective date of a Change
in Control shall be payable in accordance with such plan, policy, practice or
program.
5.2 Employment Status. This Agreement does not constitute a
contract of employment, nor does it impose on Executive any obligation to
remain as an employee or on the Company any obligation (i) to retain
Executive as an employee, (ii) to change the status of Executive as an at
will employee, or (iii) to change the Company's policies regarding
termination of employment.
ARTICLE VI
NON-ALIENATION OF BENEFITS
No benefit hereunder shall be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge, and
any attempt to do so shall be void.
ARTICLE VII
DEFINITIONS
For purposes of the Agreement, the following terms shall have the
meanings set forth below:
7.1 "Agreement" means this Change in Control Severance
Agreement.
7.2 "Base Salary" means Executive's salary (excluding bonus,
any other incentive or other payments and stock option exercises) at the rate
paid by the Company in consideration for Executive's service on the day prior
to the effective date of a Change in Control or at such higher rate as may be
in effect during the Term and which is includable in the gross income of
Executive for federal income tax purposes or which would have been includable
in gross income except for an election either under Section 125 or 402(e)(3)
of the Code or under the terms of a nonqualified deferred compensation
arrangement sponsored by the Company.
7.3 "Cause" means either of the following: (i) an act by
Executive causing material harm to the Company or (ii) Executive's conviction
of, or plea of "guilty" or "no contest" to, a felony.
7.4 "Change in Control" means the consummation of any one of
the following events on or before January 10, 2000: (i) a sale of all or
substantially all of the assets of the Company; (ii) a merger or
consolidation in which the Company is not the surviving corporation (other
than a transaction the principal purpose of which is to change the state of
the Company's incorporation or a transaction in which the voting securities
of the Company are exchanged for beneficial ownership of at least fifty
percent (50%) of the voting securities of the controlling acquiring
corporation); (iii) a merger or consolidation in which the Company is the
surviving corporation and less than fifty percent (50%) of the voting
securities of the Company which are outstanding immediately after the
consummation of such transaction are beneficially owned, directly or
indirectly, by the persons who owned such voting securities immediately prior
to such transaction; (iv) any transaction or series of related transactions
after which any person (as such term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934), other than any employee benefit plan (or
related trust) sponsored or maintained by the Company or any subsidiary of
the Company, becomes the beneficial owner of voting securities of the Company
representing fifty percent (50%) or more of the combined voting power of all
of the voting securities of the Company; or (v) the liquidation or
dissolution of the Company.
<PAGE>
None of such events occurring after January 10, 2000 shall constitute a
Change in Control; accordingly, as provided in Section 1.2, this Agreement
shall not become effective upon the occurrence of any such events after
January 10, 2000.
7.5 "Code" means the Internal Revenue Code of 1986, as amended.
7.6 "Company" means Racotek, Inc., a Delaware corporation, and
any successor thereto.
7.7 "Disability" means a disability which qualifies Executive
as disabled for purposes of receiving benefits under the Company's long term
disability plan applicable to Executive.
7.8 "Good Reason" means that any one of the following actions
has been taken by the Company without Executive's express written consent and
such action has not been promptly reversed within thirty (30) days following
written notice from Executive to the Company: (i) a material reduction in
Executive's job responsibilities given Executive's prior position and
responsibilities with the Company; (ii) any reduction in Executive's
compensation and aggregate benefits as in effect immediately prior to such
reduction; (iii) relocation of Executive's workplace to a facility or
location more than twenty-five (25) miles from Executive's workplace
immediately prior to such relocation; (iv) any purported termination of
Executive's employment which is not effected by reason of death, disability,
or Cause; (v) the failure or refusal of a successor to the Company to assume
the Company's obligations under this Agreement, as provided in Section 8.7
below; or (vi) a material breach by the Company or any successor to the
Company of any of the material provisions of this Agreement
7.9 "Term" means the period beginning on the effective date of
a Change in Control and ending thirteen (13) months thereafter.
7.10 "Triggering Event" means an event described in Section
2.1(a), 2.2(a), 2.3 or 2.4 above. No other event shall be a Triggering Event
for purposes of this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Notices. Any notices provided hereunder must be in writing
and such notices or any other written communication shall be deemed effective
upon the earlier of personal delivery (including personal delivery by telex
or facsimile) or the third day after mailing by first class mail, to the
Company at its primary office location and to Executive at his address as
listed in the Company's payroll records. Any payments made by the Company to
Executive under the terms of this Agreement shall be delivered to Executive
either in person or at his address as listed in the Company's payroll records.
8.2 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or any other jurisdiction, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provisions had never been contained
herein.
8.3 Waiver. If either party should waive any breach of any
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision
of this Agreement.
8.4 Complete Agreement. This Agreement, including Exhibit A,
constitutes the entire agreement between Executive and the Company and it is
the complete, final, and exclusive embodiment of their agreement with regard
to this subject matter. It is entered into without reliance on any promise
or representation other than those expressly contained herein.
<PAGE>
8.5 Counterparts. This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
8.6 Headings. The headings of the Articles and Sections hereof
are inserted for convenience only and shall neither be deemed to constitute a
part hereof nor to affect the meaning thereof.
8.7 Successors and Assigns. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive and the Company,
and their respective successors, assigns, heirs, executors and
administrators, except that Executive may not delegate any of his duties
hereunder and he may not assign any of his rights hereunder without the
written consent of the Company, which consent shall not be withheld
unreasonably.
8.8 Attorneys' Fees. If either party hereto brings any action
to enforce his or its rights hereunder, the prevailing party in any such
action shall be entitled to recover his or its reasonable attorneys' fees and
costs incurred in connection with such action.
8.9 Choice of Law. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of
the State of Minnesota.
8.10 Non-Publication. The parties mutually agree not to
disclose publicly the terms of this Agreement except to the extent that
disclosure is mandated by applicable law.
8.11 Construction of Plan. In the event of a conflict between
the text of the Agreement and any summary, description or other information
regarding the Agreement, the text of the Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year written above.
RACOTEK, INC., /s/ Paul Edelhertz
a Delaware corporation
By: Ian Nemerov Paul Edelhertz
Name: Ian Nemerov
Title: Secretary and Attorney
Exhibit A: Employee Agreement and Release
<PAGE>
EXHIBIT A
EMPLOYEE AGREEMENT AND RELEASE
I understand and agree completely to the terms set forth in the
foregoing agreement.
Except as otherwise set forth in this Agreement, I hereby release,
acquit and forever discharge the Company, its parents and subsidiaries, and
their officers, directors, agents, servants, employees, shareholders,
successors, assigns and affiliates, of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys fees,
damages, indemnities and obligations of every kind and nature, in law,
equity, or otherwise, known and unknown, suspected and unsuspected, disclosed
and undisclosed (other than any claim for indemnification I may have as a
result of any third party action against me based on my employment with the
Company), arising out of or in any way related to agreements, events, acts or
conduct at any time prior to and including the date I sign this Agreement,
including but not limited to: all such claims and demands directly or
indirectly arising out of or in any way connected with my employment with the
Company or the termination of that employment, including but not limited to,
claims of intentional and negligent infliction of emotional distress, any and
all tort claims for personal injury, claims or demands related to salary,
bonuses, commissions, stock, stock options, or any other ownership interests
in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of compensation; claims pursuant to any
federal, state or local law or cause of action including, but not limited to,
the federal Civil Rights Act of 1964, as amended; the federal Age
Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal
Americans with Disabilities Act of 1990; state laws comparable to the
foregoing federal laws; tort law; contract law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the
implied covenant of good faith and fair dealing; provided, however, that
nothing in this paragraph shall be construed in any way to release the
Company from its obligation to indemnify me pursuant to the Company's
Indemnification Agreement.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under the ADEA. I also acknowledge that the
consideration given for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to which I was already entitled.
I further acknowledge that I have been advised by this writing, as required
by the ADEA, that: (A) my waiver and release do not apply to any rights or
claims that may arise after the date I sign this Agreement; (B) I have the
right to consult with an attorney prior to executing this Agreement; (C) I
have twenty-one (21) days to consider this Agreement (although I may choose
to voluntarily execute this Agreement earlier); (D) I have seven (7) days
following the execution of this Agreement by the parties to revoke the
Agreement; and (E) this Agreement shall not be effective until the date upon
which the revocation period has expired, which shall be the eighth day after
this Agreement is executed by me, provided that the Company has also executed
this Agreement by that date ("Effective Date").
By:
----------------------------------
Date:
--------------------------------
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Racotek, Inc. on Form S-8 (File Nos. 33-73456, 333-45077, and 333-35595) of our
report dated January 12, 1998, on our audits of the financial statements and
financial statement schedule of Racotek, Inc. as of December 31, 1997 and 1996,
and for the years ended December 31, 1997, 1996 and 1995, which report is
included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 19, 1998
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