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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
for the fiscal year ended January 2, 2000
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 000-22221
FIELDWORKS, INCORPORATED
Minnesota
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(State or other jurisdiction of incorporation or organization)
7631 Anagram Drive, Eden Prairie, Minnesota
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(Address of principal executive offices)
Title of each class
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None
41-1731723
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(I.R.S. Employer Identification No.)
55344
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(Zip Code)
Name of each exchange on which registered
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None
(952) 974-7000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
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 the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on March 29,
2000 as reported on the Nasdaq National Market, was approximately $28,352,820.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. The determination of affiliate status
for purposes of this paragraph is not necessarily a conclusive determination for
other purposes.
The number of shares of the registrant's Common Stock, $.001 par value,
outstanding as of March 29, 2000 was 8,894,426.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 2000 Annual Meeting of
Shareholders to be held May 15, 2000 are incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
The Company. FieldWorks, Incorporated ("FieldWorks" or "the Company") was
incorporated in Minnesota in 1992 and began as a company dedicated to the
development and sale of rugged mobile computing platforms. Over the past several
years, the Company has evolved its strategy to focus on designing and providing
complete customer-specific field technology solutions. The Company believes that
its strongest opportunity for growth and differentiation is integrating
FieldWorks hardware together with open architecture software, both
Company-designed and externally sourced where available.
The Company's solutions address business needs in a wide variety of rugged
applications in the trucking, field technology, heavy equipment and public
service markets. Complete solutions can include hardware, software, peripherals,
service and support--thus, FieldWorks is a sophisticated systems supplier and
integration company. The Company also offers customers a high level of end-user
industry expertise in service and support. FieldWorks' professional services
capabilities include consultation and/or management of solution
conceptualization, design, development, implementation and support.
Platforms are designed for demanding field environments, meeting military
standards for shock, vibration, moisture and temperature extremes. Features
include daylight-readable color displays and a pointing device that is
impervious to dirt and can be used with a glove. The Company's platforms also
offer a high level of expandability. Expansion paths include desktop-like ISA
and PCI expansion slots, PC card slots, serial ports, universal serial bus and
custom modules. As a result, all platforms are flexible "electronic toolboxes"
that integrate the end-user's application-specific tools and technologies into
one custom, rugged mobile solution. Lastly, because of their modular system
architecture, the Company's platforms can be upgraded to incorporate new central
processing units, display technologies and peripheral technologies, such as
wireless communication. Such upgradeability contributes to a long solution life
span and reduces the total cost of ownership for the customer.
The Field Solutions Market. Due to technological advances over the past several
years, organizations have become increasingly dependent on mobile computing and
communications devices, such as portable computers, pagers and cellular
telephones, to enhance workforce productivity. Organizations are increasingly
seeking to computerize field personnel. Such computerization can provide
sophisticated field diagnostic and analytic capabilities, enhance field access
to data and on-line information, eliminate paperwork and improve communication.
Industries such as trucking, field technologies, heavy equipment and public
services have recognized the need for computerization and automation in the
field. However, the effectiveness of field force computerization and automation
efforts has often been limited by the nature of the products that have been
available. Solutions are now required for use in the field to perform a wide
range of tasks, but both off-the-shelf, consumer portable computers and
custom-designed portable computers have significant shortcomings that limit
their use by field personnel. In part as a result of these limitations, some
companies still prefer to employ only
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single-purpose diagnostic and data collection machines in the field, foregoing
the benefits of full computerization.
The field force automation markets for the Company's products consist of
those businesses and other entities that are seeking effective mobile platforms
for field personnel and functions. Users of the Company's field computing
platforms and their demands vary widely, and include: (i)
transportation/trucking, which requires diagnostic service applications in a
single PC-based tool with integrated software modules and hardware peripherals,
(ii) utilities and telecommunications test crews, which require electronic
toolboxes that can perform data acquisition, diagnostic, communications and
analysis tasks to expedite installation, repair and troubleshooting, (iii)
public safety personnel, which use computers as mobile data terminals that link
into central dispatch, and (iv) the military, which needs mobile units capable
of withstanding battlefield conditions chiefly for communication and field data
acquisition purposes. FieldWorks has focused on service bay, test and
measurement, and mobile communication solutions for trucking, public services
(which includes police, fire and utility companies), heavy equipment and
government/military industries.
Strategy. The Company's vision is to be "THE field solutions company". To be the
worldwide leader in providing solutions for demanding field environments, the
Company's strategy consists of the following key components:
Penetrate Key Vertical Markets. The Company mainly targets key vertical
markets including trucking, public services, heavy equipment and
government/military. The Company develops specialized product features and
functions to address the special needs of a particular vertical market and
provides consultation services to support the requirements of its customers. The
Company's strategy is to be a key provider of information tools and services to
facilitate standardization in service bay, test and measurement and mobile
communication applications. Applications addressed by the company are typically
characterized by the opportunity to sell significant units based on a single
application solution.
Enhance Solutions and Professional Services Offerings. The Company intends
to position itself as a professional service and system integration company
whose uniqueness is its market application expertise and customer support
regarding the use of the technology it provides. In 1998, the Company
established a professional services organization focused on this initiative.
Reduce Product Costs. The Company is in the final stages of outsourcing
work where value is not recognized and rewarded by its customers. Specifically
it has partnered with two outsource manufacturers who will be performing the
procurement and manufacturing process for the Company's products. Additionally,
the Company is focused on product cost reductions through significant product
re-design initiatives incorporating embedded systems in the design. It is
anticipated that these initiatives, along with outsourcing will reduce overall
product costs, improve inventory management and enhance the Company's
competitive position.
Solution Platform Series. The Company's solution platform series consist of the
following:
8000 Series Field WorkStation(R) Platform. The 8000 Series is the next
generation platform replacing the flagship 7000 Series platform. The Company
will continue to market the 7000 Series while supplies last and expects to be in
full production of
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the 8000 Series by the second quarter of 2000. The 8000 Series offers
significant expansion capacity and is targeted at the high end of the rugged
field computing platform market. The structure of this rugged portable
workstation platform is based on a high-strength cast magnesium alloy external
housing. Internal components that are sensitive to shock and vibration are
contained within this housing and isolated with special tuned shock absorbing
polymers, while a shock absorbing bushing system suspends all drives and the
CPU. The 8000 Series incorporates the Company's backplane/card cage design,
which provides up to six ISA/PCI expansion card slots within the housing,
permitting the integration of instrumentation, data acquisition, test and
measurement and communications capabilities. Also contained within the housing
are PCMCIA expansion capability, integrated AC/DC power, battery capability,
desktop ISA/PCI slots, integrated CD-ROM, and an optional dual removable hard
drive system. The 8000 Series is targeted at test and measurement and data
acquisition applications primarily within field technology / military markets.
5000 Series Field WorkStation(R) Platform. The 5000 Series is a smaller,
more lightweight toolbox with less expandability. The structure of this notebook
computing platform is based on an internal frame cast from a high-strength
magnesium alloy. The skeleton and rubber coating protect internal sub-systems
from shock and vibration. Virtually all of the electronics of the 5000 Series
are contained in a "technology module" that has been designed for easy removal,
making it possible for customers to service the units themselves and simplifying
upgrades. In addition, all 5000 Series platforms have four universal bays in two
sizes. The two larger bays can house batteries, CD-ROM and DVD drives, hard
drives or floppy drives. The two smaller bays can house removable drives and/or
PCMCIA slots. Sales of the 5000 Series are primarily focused on service bay
applications within the trucking and heavy equipment markets.
2000 Series Mobile Data Server (MDS). A new solution platform available in
the third quarter of 1999, FieldWorks' MDS is a three-piece onboard vehicle
computer that includes a server component, a high-bright display and a back-lit
keyboard. FieldWorks--along with original equipment manufacturers (OEMs) and
systems integrators--can customize the system by adding wireless technology,
Global Positioning System (GPS) technology, data radios and other devices
through two embedded PC card slots and three open serial ports. Via cabling, the
floppy and CD-ROM devices can be connected to the server, which can then be
mounted in a remote location up to 15 feet away. The MDS is ideally suited for
fixed in-vehicle computing and communication applications including logistics
management. Application examples include computer-aided dispatch and Geographic
Information Systems/Global Positioning System mapping and are targeted for sale
within the public services, trucking and military markets.
Professional Services. The Company differentiates itself by providing
value-added solutions and services along with the products it sells to gain a
competitive advantage in the rugged mobile computing market. The Company
maintains a professional services and support program for the benefit of its
customers, including consulting relating to workflow and business needs
assessment, product application, technical support, project management, product
implementation and troubleshooting on post-installation questions. The Company
provides a standard one-year warranty program under which the Company agrees to
diagnose, repair and
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test any product, and also offers limited warranty programs for extended
periods. The Company also provides replacement unit pools for large volume
customers to minimize downtime. Software integration, including loading and
testing of multiple software applications, can be provided to manage potential
communications conflicts. The Company can also provide on-site product training
and consultation services tailored to customer requirements.
In conceiving a solution, FieldWorks applies a business needs-analysis
process and evaluates the customer's current and potential needs to ensure a
three- to five-year solution life span. FieldWorks can develop custom software
and/or integrate third-party software. Implementation services include customer
training, project management and support services, including dedicated telephone
support, and software update and platform upgrade programs. Support services are
aimed at maintaining customer productivity.
Manufacturing. The Company has partnered with two contract manufacturers for
outsourcing of manufacturing activities and will complete implementation and
transition in the first quarter of 2000. The Company will initially outsource
the final assembly process for the hardware platform with the intent of
improving design for manufacturability and inventory management. Final
integration work will remain at the Company, as deemed appropriate, which
enables the Company to provide computing platforms and services that satisfy
each customer's specific field requirements.
The Company employs extensive quality control systems and has a quality
assurance department. The Company received ISO 9001 quality assurance
certification in March 1996 and was re-certified in January 1999.
Sales and Marketing / Customers. The Company's sales and marketing efforts are
focused on channels specific to each of its vertical markets. The Company's
direct sales force focuses its efforts on establishing and maintaining
relationships with large-volume key accounts. Other segments of the market are
addressed by sales through value-added resellers and systems integrators that
typically sell systems that have been configured for specific end-user
applications through the addition of hardware, software or services. Resellers
and integrators generally target large- to mid-size accounts, with the exception
of military integrators, or prime contractors, which target large military
accounts. Additionally, the Company sells platforms to the U.S. government via
the General Services Administration (GSA) schedule.
FieldWorks' sales strategy is to partner with key-account customers to
identify the customers' workflow requirements and then design and develop
customer-specific solutions that FieldWorks can later package and standardize
for sale to large, mid and mass accounts. Professional services are tailored to
unique customer requirements.
For international sales, the Company maintains a network of international
distributors. To date, the Company's international sales have been principally
in Europe.
For the year ended January 2, 2000, sales in excess of 10% of total
revenues included one customer, Ryder Transportation Services, which represented
26% of net sales. In 1998 and 1997, sales to Navistar International represented
10% and 13% of net sales, respectively.
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Backlog. The Company believes that backlog is not a meaningful indicator of its
future business prospects due to the potentially long customer sales cycle and
significant variations in the size and delivery schedules of orders received by
the Company. As a result, the Company does not believe that backlog at any
particular date is necessarily indicative of future results.
Competition. The Company believes that it currently occupies a niche in the
field force automation market because it is unique in providing field solutions
platforms as well as services. The Company's platforms face direct competition
from companies producing portable computers intended for field use such as Dolch
Computer Systems; Getac Corp.; Itronix Corp.; Kontron Elektronik Corp.; Paravant
Computer Systems, Inc.; Motorola, Inc.; Melard Technologies, Inc.; WPI Husky
Computers Inc.; Intermec Technologies Corp. and Panasonic Personal Computer
Company. The Company believes its primary competitive factors relate to product
design and feature differentiation, product pricing, functionality, product
dimensions and technology enhancements. To the extent the Company and its direct
competitors expand and develop this market niche, other manufacturers may turn
their attention to this niche and begin to develop products and services
directly competitive with those offered by the Company. The Company's computing
platforms also face indirect competition from a variety of different companies
and products, including consumer portable personal computers, customized
portable personal computers and single-purpose diagnostic and data collection
instruments.
Research and Development. The Company designs, in conjunction with outside
engineering sources, many of the aspects and components of its computing
platforms and software applications. The Company believes that its efforts in
this area have provided it with advantages and the Company intends to continue
to focus research and development efforts on expanded products and services
incorporating embedded systems that address broader customer preferences by
providing a greater range of expandability, features and price. The Company's
research and development efforts also involve developing customized solutions
for its customers who have unique, specialized requirements. Significant product
re-design initiatives are underway with outside engineering sources with the
specific intent of product cost reduction. Research and development expenses
were $1.9 million in 1997, $3.2 million in 1998 and $3.4 million in 1999.
Intellectual Property. The Company uses the following marks in connection with
its products: FieldWorks, FieldWorks with Design, Field MousePad, Field
WorkStation, and Technology Module. Registrations have been issued in the U.S.
Patent and Trademark Office with respect to FieldWorks with Design, Field
MousePad, Field WorkStation and Technology Module. FieldWorks with Design is
registered on the Principal Register. The remaining registrations are registered
on the Supplemental Register. Supplemental Registrations do not confer the same
rights as Principal Registrations. Specifically, Supplemental Registrations do
not serve as prima facie evidence of the validity of the registered mark, the
registration of the mark, the registrant's ownership of the mark, or the
registrant's exclusive right to use the mark. In addition, the filing date of
the application does not confer any right of
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priority and does not constitute notice of the registrant's claim of ownership
of the mark. The Company is aware that there are third parties that have claimed
and may claim superior rights, in certain territories in the United States, to
the use of certain of the marks in which the Company claims rights.
Employees. As of January 2, 2000, the Company employed 114 full-time employees,
of whom 36 were engaged primarily in operations, 34 were engaged primarily in
sales and marketing, 24 were engaged primarily in engineering and research and
development, and 20 were engaged primarily in administration. The Company also
employs part-time, temporary employees, and contract employees, as necessary. No
employees are represented by any labor union or other collective bargaining
unit. The Company believes that its relations with its employees are good.
ITEM 2. PROPERTIES
The Company's main operations are conducted in Eden Prairie, Minnesota, at a
leased site of approximately 53,000 square feet. The lease term is November 1998
through November 2004. Due to outsourcing certain aspects of design and
manufacturing, the Company is looking at sublease alternatives for its current
site. The Company's main operations had previously been conducted at another
leased site of approximately 24,000 square feet in Eden Prairie, Minnesota. This
space, the lease for which expired in June 1999, was subleased for the period
after the Company relocated to its current location.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal actions in the ordinary course of its business.
Although the Company cannot predict the outcome of any such legal actions,
management believes that there is no pending legal proceeding against or
involving the Company for which the outcome is likely to have a material adverse
effect upon the Company's financial position, results of operations or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
Company's fourth quarter ended January 2, 2000. A special shareholders' meeting
was held on February 7, 2000. See Item 14(b) Reports on Form 8-K.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information. The following financial data is filed as part of this
report: Footnote #10 in the Notes to Consolidated Financial Statements, Page 33.
Shareholders. As of March 29, 2000, there were 156 holders of record of the
Company's Common Stock.
Dividends. The Company has not paid any cash dividends since inception and does
not anticipate paying cash dividends in the foreseeable future. Any such payment
would require prior approval under the Company's current line of credit
agreement and Securities Purchase Agreement with Industrial-Works Holding Co.,
LLC, a wholly owned subsidiary of Glenmount International LP.
Use of Proceeds. The Company's registration statement on Form S-1, file number
333-18335, was declared effective on March 19, 1997. The Company registered an
aggregate of 2,443,750 shares of common stock, $.001 par value (including
316,250 shares covered by a registration statement filed pursuant to Rule 462(m)
on March 20, 1997, file number 333-23637) with R.J. Steichen & Company as the
managing underwriter. On March 25, 1997, the Company closed on aggregate
proceeds of $13,812,500 from the sale of 2,125,000 of these shares. The
remainder of the shares registered were subject to an underwriters'
over-allotment option that subsequently expired unexercised.
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ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Statements of Operations Data:
<TABLE>
<CAPTION>
Year Ended
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January 2, January 3, January 4, January 5, December 31
(in thousands, except per share amounts) 2000 1999 1998 1997 1995
<S> <C> <C> <C> <C> <C>
Net sales $25,329 $20,002 $23,815 $13,111 $8,242
Cost of sales 17,950 14,200 14,620 7,930 4,777
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Gross profit 7,379 5,802 9,195 5,181 3,465
Operating expenses:
Sales and marketing 5,633 5,482 5,043 3,616 1,726
General and administrative 2,998 2,915 3,034 2,232 1,169
Research and development 3,414 3,214 1,884 1,896 948
Product upgrade and restructuring costs 400 1,473 -- -- --
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Total operating expenses 12,445 13,084 9,961 7,744 3,843
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Operating loss (5,066) (7,282) (766) (2,563) (378)
Interest expense and other, net (314) 158 (258) (356) (69)
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Net loss from continuing operations (5,380) (7,124) (1,024) (2,919) (447)
Loss from discontinued operation(1) -- -- -- (377) (180)
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Net loss $(5,380) $(7,124) $(1,024) $(3,296) $ (627)
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Basic and diluted loss per common share:
Net loss per common share from
continuing operations $ (.61) $ (.81) $ (.12) $ (.45) $ (.07)
Loss per common share from
discontinued operation(1) -- -- -- (.06) (.03)
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Net loss per common share $ (.61) $ (.81) $ (.12) $ (.51) $ (.10)
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Weighted average common shares outstanding 8,874 8,799 8,242 6,442 6,131
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</TABLE>
Selected Consolidated Balance Sheet Data:
<TABLE>
<CAPTION>
January 2, January 3, January 4, January 5,December 31,
(in thousands, except per share amounts) 2000 1999 1998 1997 1995
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 87 $ 1,690 $ 3,219 $ 2,132 $ 113
Working capital 1,829 4,077 11,517 1,042 1,685
Total assets 12,014 10,956 16,120 9,906 4,559
Notes payable, net 2,228 -- -- -- --
Capital lease obligations 80 110 70 124 101
Total debt 2,308 110 70 6,150 1,254
Accumulated deficit (19,832) (14,452) (7,327) (6,303) (2,805)
Total shareholders' equity 1,403 5,793 12,799 1,813 2,132
</TABLE>
(1) In November 1996, the Company's Board of Directors approved the distribution
of all of the issued and outstanding shares of the common stock of the Company's
wholly-owned subsidiary, Paragon, as a dividend to shareholders of record of the
Company as of November 15, 1996. Paragon's results of operations for the years
ended December 31, 1995 and January 5, 1997, as well as the estimated loss from
disposition, have been presented as a discontinued operation in the above
Statements of Operations Data.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements. This report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. When used in this report, the words or phrases "believes,"
"anticipates," "expects," "intends," "estimates," or similar expressions are
intended to identify forward-looking statements, but are not the exclusive means
of identifying such statements. These forward-looking statements involve risks
and uncertainties that may cause the Company's actual results to differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such differences include, but are not limited to, the
following: risks associated with the development of new products, market
acceptance of new products and services, technological obsolescence, dependence
on third-party manufacturers and suppliers, risks associated with the Company's
dependence on proprietary technology and the long customer sales cycle. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances after the date of such statements. Readers are
urged to carefully review the various disclosures made by the Company in this
report, including in particular Exhibit 99.1 to this report, and in other
reports filed with the Securities and Exchange Commission that advise interested
parties of the risks and factors that may affect the Company's business.
Operating Results. The following table sets forth certain financial data
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
For the Years Ended January 2, 2000 January 3, 1999 January 4, 1998
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<S> <C> <C> <C>
Net sales 100% 100% 100%
Cost of sales 71 71 61
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Gross profit 29 29 39
Operating expenses:
Sales and marketing 22 27 21
General and administrative 12 15 13
Research and development 13 16 8
Product upgrade and restructuring costs 2 8 --
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Total operating expenses 49 66 42
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Operating loss (20) (37) (3)
Interest income (expense) and other, net (1) 1 (1)
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Net loss (21)% (36)% (4)%
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</TABLE>
Market Trends. The worldwide market for computing solutions continues to expand.
The availability of high-powered portable computer technology coupled with
application specific technologies and the proliferation of wireless
communications contributes to the increased demand. The Company expects
increased requirements to improve the efficiency in field based work forces and
link field workers into corporate information systems.
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The Company targets markets which require portable computing platforms that
can perform multiple functions including diagnostics, data acquisition and
electronic testing, communication and monitoring. Specifically, the Company is
targeting Trucking, Public Services, including Utilities and Public Safety,
Heavy Equipment and Field Technologies including Military. Each of these
vertical markets continues to experience growth in field service solutions
requirements.
COMPARISON OF YEARS ENDED JANUARY 2, 2000
AND JANUARY 3, 1999
Net Sales. Net sales for 1999 were $25.3 million, an increase of $5.3 million or
27% from 1998 net sales of $20.0 million. The increase in sales was attributable
to professional services and solutions revenue and the introduction of the 2000
Series Mobile Data Server product. The increase was also due to significant
customer contracts for the 5000 Series Service Bay Tool, offset by a decrease in
sales of the 7000 Series Workstation. The decrease is due to customers delaying
purchases in anticipation of the 8000 Series product, a technologically enhanced
and updated product replacing the 7000 Series Workstation. Unit volumes of the
5000 Series increased from 38% in 1998 to 42% in 1999 due to significant sales
of the Service Bay Tool in both the trucking and heavy equipment markets. Unit
volumes of the 7000 Series decreased from 62% in 1998 to 39% in 1999. Sales of
the 2000 Series Mobile Data Server represented 19% of total units in 1999.
Production of the 2000 Series began in mid-1999 and, therefore, there were no
comparable sales in 1998. Professional services revenue accounted for $3.3
million, or 13% of net sales, in 1999. Professional services revenue was not
significant in 1998.
International sales decreased from $5.6 million, or 28% of net sales for
1998, to $3.7 million, or 14% of net sales in 1999. The reduction is due to the
delayed introduction of the 8000 Series Workstation. The majority of
international sales are in Europe, including $2.8 million in 1999 and $4.0
million in 1998. The Company believes that international sales as a percentage
of net sales for the year 2000 will be in the mid-teen to 20% range with little
impact on the Company's results of operations and liquidity.
The Company expects sales growth in the year 2000 due to expansion of its
solutions and professional services offerings, increased penetration of key
vertical markets, introduction of the 8000 Series Workstation and expanded sales
of the 2000 Series Mobile Data Server introduced in 1999. The Company is
targeting sales in trucking, heavy equipment, public services and field
technologies and has aligned its sales and marketing efforts to focus on these
markets. The 8000 Series Workstation is anticipated to be in full production in
the second quarter of 2000. The 8000 Series, the successor of the 7000 Series,
is an updated and technologically enhanced product. Additionally, management
believes that providing customer specific solutions, including hardware,
software, consultation, business needs assessment, training and software
integration, will increase future sales opportunities.
Delays in the introduction of the 8000 Series Workstation and/or increased
costs due to delays in outsourcing implementation could reduce the Company's
projected 2000 sales or increase product costs. In addition, the Company expects
revenue growth to fluctuate due to potentially long customer sales cycles.
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Gross Profit. Gross profit increased $1.6 million from $5.8 million in 1998 to
$7.4 million in 1999. Gross profit margins, as a percentage of net sales,
remained consistent at 29%. Gross profit was negatively impacted by a $1.0
million write down of inventory in the second quarter of 1998. This write down
related to excess and obsolete inventory due to product changes in response to
technological developments and market needs. In 1999, gross margin was
negatively impacted by high volume customer contracts, which include volume
discounts, and start-up costs associated with the introduction of the 2000
Series Mobile Data Server. Additionally, gross margin was negatively impacted by
disposition of previously identified obsolete inventory during 1999, for which
recovery on disposition was less than anticipated. The Company's gross profit
margin will fluctuate as a result of a number of factors, including mix of
products sold, inventory obsolescence, the proportion of international sales,
large customer contracts (with the associated volume discounts) and outsourcing
expenses.
The Company has partnered with contract manufacturers for outsourcing of
certain manufacturing activities and expects complete implementation in the
first quarter of 2000. The Company will initially outsource the final assembly
process with the intent of improving design for manufacturability. Final
integration work will remain at the Company, as deemed appropriate. The Company
anticipates outsourcing will moderately reduce future materials costs, inventory
write-offs and certain other operating expenses. Additionally, the Company has
initiated re-design efforts to reduce product costs and incorporate embedded
systems. The Company believes gross profit margins should be in the low 30%
range in the near future with additional improvement upon completion of the
re-design efforts.
Sales and Marketing. Sales and marketing expenses include salaries, incentive
compensation, commissions, travel, trade shows, technical support and
professional services personnel and general advertising and promotion. These
expenses also include the labor and material costs related to maintaining the
Company's standard one-year warranty program. Sales and marketing expenses were
$5.6 million in 1999, an increase of $0.1 million as compared to $5.5 million in
1998. As a percentage of net sales, sales and marketing expenses decreased from
27% in 1998 to 22% in 1999. The increase in expenses was primarily due to
expansion of the sales force including establishing the professional services
group. The Company intends to continue expanding its sales force and resale
channels primarily through expanding its value-added reseller program as well as
moderately increasing its advertising and promotion costs within its target
markets. The Company anticipates growth of sales and marketing expenses to be
less than the growth of sales in the future.
General and Administrative. General and administrative expenses include the
Company's executive, finance, information services and human resources
departments. These expenses increased slightly from $2.9 million in 1998 to $3.0
million in 1999. As a percentage of net sales, general and administrative
expenses decreased from 15% in 1998 to 12% in 1999. The Company anticipates
continuing to hold the growth of general and administrative expenses relatively
constant and to remain at a level less than the growth of sales in the near
future.
12
<PAGE>
Research and Development. Research and development expenses are incurred in the
design, development and testing of new or enhanced products, services and
customized computing platforms. All research and development costs are expensed
as incurred. These expenses increased from $3.2 million in 1998 to $3.4 million
in 1999. As a percentage of net sales, research and development expenses
decreased from 16% in 1998 to 13% in 1999. The increase was primarily due to the
development of new products, including the 2000 Series Mobile Data Server and
8000 Series Workstation, and engineering support of customer-specific
applications including the Company's Service Bay Tool. The Company expects
research and development expenses to increase in the future due to completion of
the 8000 Series Workstation and re-design efforts that are expected to result in
product cost reductions. Research and development expenses are anticipated to
remain consistent as a percentage of net sales in the near future to support
expanded products, software integration and engineering support, and solutions
offerings.
Product Upgrade and Restructuring Costs. Product upgrade and restructuring costs
were $1.5 million, or 8% of net sales, in 1998 as compared to $0.4 million, or
2% of net sales in 1999. In 1999, these costs were due to severance charges from
reorganization efforts related to outsourcing the manufacturing and design of
products. In 1998, these costs related to the discontinuation of the 5000 Series
I, as well as other expenses relating to restructuring and severance costs.
Interest Expense and Other, Net. Net interest income of $158,000 was recorded in
1998 as compared to net interest expense of $314,000 in 1999. The increase in
interest expense is due to borrowings on the Company's line of credit and
interest payments to subordinated noteholders. The Company anticipates continued
interest expense from its line of credit, interest payments on notes, and
amortization of financing costs of warrants related to the subordinated note
issuance. The Company anticipates recording net interest expense for the
foreseeable future.
COMPARISON OF YEARS ENDED JANUARY 3, 1999
AND JANUARY 4, 1998
Net Sales. Net sales for 1998 were $20.0 million, a decrease of $3.8 million or
16% from 1997 net sales of $23.8 million. The decrease was primarily
attributable to factors relating to the 5000 Series product. During mid-1998,
the 5000 Series II product was released, which provided technology upgrades,
lower pricing and improved performance and reliability. Sales of the 5000 Series
products represented 38% and 46% of net sales, or $7.6 million and $10.9 million
in 1998 and 1997, respectively. Sales of the 7000 Series product were comparable
in 1998 and 1997. International sales decreased slightly to $5.6 million, or 28%
of net sales for 1998, from $6.0 million, or 25% of net sales in 1997.
Gross Profit. Gross profit decreased $3.4 million from $9.2 million, or 39% of
net sales in 1997, to $5.8 million, or 29% of net sales in 1998. The decrease
was the result of the impact of fixed manufacturing costs allocated over reduced
production volume in 1998 and a $1.0 million write down of inventory in the
second quarter of 1998. During 1998, certain warranty-related costs were
reclassified from cost of sales to sales and marketing expense. The impact
increased gross profit by $458,000, or 2% of net sales in 1998 and by $774,500,
or 3% of net sales in 1997.
13
<PAGE>
Sales and Marketing. Sales and marketing expenses were $5.5 million, or 27% of
net sales in 1998, as compared to $5.0 million, or 21% of net sales in 1997. The
increase was primarily due to expansion of the sales force including the
addition of the professional services group.
General and Administrative. General and administrative expenses decreased
slightly from $3.0 million in 1997 to $2.9 million in 1998. As a percentage of
net sales, general and administrative expenses increased from 13% in 1997 to 15%
in 1998.
Research and Development. Research and development expenses increased from $1.9
million or 8% of net sales in 1997 to $3.2 million or 16% of net sales in 1998.
The increase was primarily attributable to the introduction of the 5000 Series
II product and development of the 2000 Series Mobile Data Server.
Interest Expense and Other, Net. Net interest income of $158,000 was recorded in
1998 as compared to net interest expense of $258,000 in 1997. Proceeds from the
initial public offering were used to repay debt in March and April of 1997, with
interest income earned on remaining proceeds for the rest of the year.
LIQUIDITY AND CAPITAL RESOURCES
On February 22, 2000, the Company completed a $4.25 million equity
investment by Industrial-Works Holding Co., LLC, a wholly owned subsidiary of
Glenmount International L.P. In exchange for the $4.25 million investment, the
Company issued 4,250,000 shares of Series B Preferred Stock (each share of which
is initially convertible into one share of Common Stock). Industrial-Works
Holding Co., LLC, also received 500,000 common stock warrants exercisable at
$1.00 per share. The transaction was approved at a special shareholders' meeting
on February 7, 2000. The Company intends to use the net proceeds for market
expansion and new product development as well as for working capital and general
corporate purposes.
In September 1999, the Company completed a private placement of $3.0
million in subordinated notes. The notes bear interest at 11% per annum and
mature in September 2001. Noteholders also received warrants to purchase 1.5
million shares of common stock exercisable at $1.00 per share. The warrants are
exercisable for five years, and were recorded at their estimated fair value of
$882,000 at the date of issuance.
In November 1998, the Company entered into a two-year $3.0 million line of
credit agreement. Borrowings bear interest at the greater of 4% over prime or
9%. The interest rate changed from 3% over prime to 4% over prime in the third
quarter of 1999 due to default on the Company's profitability covenant. The line
of credit balance was $1.8 million as of January 2, 2000, and $0.7 million at
January 3, 1999. The borrowing base consists of 75% of eligible receivables plus
the lesser of $600,000 or 30% of eligible inventories as defined in the
agreement. Availability based on the borrowing base calculation, including
accounts receivable and inventories, was $3.0 million as of January 2, 2000, and
$1.7 million, including only accounts receivable, as of January 3, 1999. The
agreement contains a covenant requiring cumulative year-to-date profit on a
quarterly basis. The Company was out of compliance with the covenant as of
January 2, 2000, and has received a written waiver of default. Failure to comply
with this covenant in the future could result in default and accelerated
repayment requirements. The Company intends to renew this agreement upon
expiration or pursue a replacement source of financing. However, there can be no
assurances that a credit agreement will be available to the Company.
14
<PAGE>
The Company's cash balance as of January 2, 2000 was $0.1 million as
compared to the January 3, 1999 balance of $1.7 million. Cash used for operating
activities totaled $5.2 million in 1999 and $1.2 million in 1998. The Company's
accounts receivable increased from $3.9 million at January 3, 1999 to $5.1
million at January 2, 2000. The increase in accounts receivable was due to the
timing of shipments at year-end. Net inventories increased from $3.4 million at
January 3, 1999 to $4.5 million at January 2, 2000. This increase was due to
purchases for anticipated sales and expansion of the Company's product offerings
with introduction of the 2000 Series Mobile Data Server. Deferred revenue
increased from $0.8 million at January 3, 1999 to $1.0 million at January 2,
2000, attributable to the sales of extended warranties. Prepaid expenses
increased from $0.1 million at January 3, 1999 to $0.5 million at January 2,
2000, due to prepaid deposits related to long lead time purchases with an
outsourcing contract manufacturer. Accounts payable increased from $1.8 million
at January 3, 1999 to $3.8 million at January 2, 2000. The increase was due to
purchasing inventory for customer orders in the fourth quarter of 1999 and
anticipated sales in the first quarter of 2000. Accrued liabilities increased
from $0.3 million at January 3, 1999 to $0.5 million at January 2, 2000, due to
timing of payments at year end.
The Company purchased $0.6 million of property, plant and equipment in 1999
as compared to $1.1 million in 1998. The 1999 expenditures related primarily to
tooling expenditures for the 2000 Series Mobile Data Server and 8000 Series
Workstation. The Company anticipates purchases of property, plant and equipment
in 2000 will remain consistent with 1999.
The Company is currently pursuing alternative equity sources to demonstrate
sustained compliance with the Nasdaq National Market minimum net tangible asset
listing requirements and to provide additional cash for operating activities.
The Company currently anticipates that the proceeds from its February 2000
preferred stock issuance, together with line of credit availability, and
anticipated operating cash flows and proceeds from the alternative equity
sources it is pursuing, should be sufficient to fund its cash flow needs in
2000. Cash requirements for future periods depend on a number of factors
including the demand for the Company's products, profitability, cash management
operations, growth rate and acquisition strategies, among other factors. There
can be no assurances that additional financing will be available at all or that
it, if available, will be obtainable on terms favorable to the Company and would
not be dilutive to existing shareholders.
YEAR 2000 COMPLIANCE
The Company did not experience any significant business related
interruptions with its products, its internal computer systems and non-computer
operations, its production processes, key vendors, vital business partners or
critical customers. The Company is continuing to monitor potential problems, but
does not expect any major impact during the year. The cost of the Year 2000
initiatives was approximately $150,000, and was expensed as incurred. The
Company is not aware of any residual Year 2000 risks; however, there can be no
assurance that such issues do not exist.
15
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates on
borrowings under the Company's line of credit agreement. The line of credit
bears interest based on the Prime Lending Rate. At January 2, 2000, the Company
had $1.8 million outstanding. Based on analysis, interest rate shifts would have
an immaterial impact on the Company.
The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents. The Company invests any excess
cash and cash equivalents in money market instruments. The Company had $0.1
million in cash and cash equivalents at January 2, 2000. Based on analysis,
shifts in money market rates would have an immaterial impact on the Company.
All of the Company's transactions are conducted and accounts are
denominated in United States dollars and as such, the Company does not currently
have exposure to foreign currency risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Consolidated Balance Sheets as of January 2, 2000 and January 3, 1999 21
Consolidated Statements of Operations for the years ended January 2,
2000, January 3, 1999 and January 4, 1998 22
Consolidated Statements of Shareholders' Equity for the years ended
January 2, 2000, January 3, 1999 and January 4, 1998 23
Consolidated Statements of Cash Flows for the years ended January 2,
2000, January 3, 1999 and January 4, 1998 24
Notes to Consolidated Financial Statements 25
Report of Independent Public Accountants 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is set forth in the Proxy Statement under the
heading Election of Directors and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is set forth in the Proxy Statement under the
heading Executive Compensation and is incorporated herein by reference.
16
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is set forth in the Proxy Statement under the
heading Security Ownership of Certain Beneficial Owners and Management and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth in the Proxy Statement under the
heading Certain Transactions and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report:
1. Financial Statement Schedule: The following financial statement schedule
of FieldWorks, Incorporated for the fiscal years ended January 2, 2000, January
3, 1999, and January 4, 1998, is filed as part of this Report and should be read
in conjunction with the Consolidated Financial Statements of FieldWorks,
Incorporated.
o Schedule II - Valuation and Qualifying Accounts
o Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set
forth therein is included in the Consolidated Financial Statements or
Notes thereto.
2. Exhibits: The Exhibits listed on the accompanying Index to Exhibits are
filed as part of, or incorporated by reference into, this Report.
(b) Reports on Form 8-K: One report on Form 8-K was filed by the Company during
the fiscal quarter ended January 2, 2000. The report, dated November 24, 1999,
stated that the Company signed a Securities Purchase Agreement with
Industrial-Works Holding Corp. (a wholly owned subsidiary of Glenmount
International L.P.) regarding the issuance of convertible preferred stock. One
report on Form 8-K was filed in the Year 2000 at the time of this filing. The
report, dated February 23, 2000, stated that the Company completed its $4.25
million equity transaction with Industrial-Works Holding Corp. (a wholly owned
subsidiary of Glenmount International L.P.). The transaction was approved at a
special shareholders' meeting on February 7, 2000.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FieldWorks, Incorporated
/s/ David G. Mell
--------------------------------------
David G. Mell
President and Chief Executive Officer
Dated: April 3, 2000
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>
<CAPTION>
Signature Title Date
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ David G. Mell President and Chief Executive Officer April 3, 2000
- -------------------------------------------------------------------------------------------------------------------
David G. Mell
/s/ Karen L. Engebretson Chief Financial Officer, Vice President of Finance April 3, 2000
- -------------------------------------------------------------------------------------------------------------------
Karen L. Engebretson (principal financial and accounting officer)
/s/ David C. Malmberg Chairman of the Board April 3, 2000
- -------------------------------------------------------------------------------------------------------------------
David C. Malmberg
/s/ James A. Bernards Director April 3, 2000
- -------------------------------------------------------------------------------------------------------------------
James A. Bernards
/s/ Richard J. Boyle Director April 3, 2000
- -------------------------------------------------------------------------------------------------------------------
Richard J. Boyle
/s/ Robert D.D. Forbes Director April 3, 2000
- -------------------------------------------------------------------------------------------------------------------
Robert D.D. Forbes
/s/ Marvin W. Goldstein Director April 3, 2000
- -------------------------------------------------------------------------------------------------------------------
Marvin W. Goldstein
/s/ Michael E. Johnson Director April 3, 2000
- -------------------------------------------------------------------------------------------------------------------
Michael E. Johnson
</TABLE>
18
<PAGE>
INDEX TO EXHIBITS
Exhibit
No Description
- -------------------------------------------------------------------------------
3.1 Second Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to the exhibit 3.1 filed with the Company's
Registration Statement filed on Form S-1, File No. 333-18335)
3.2 Second Amended and Restated Bylaws of the Company (incorporated by
reference to the exhibit 3.4 filed with the Company's Registration
Statement filed on Form S-1, File No. 333-18335)
4.1 Form of Certificate for Common Stock (incorporated by reference to the
exhibit 4.1 filed with the Company's Registration Statement filed on
Form S-1, File No. 333-18335)
10.1 Form of Warrant to purchase Shares of Common Stock, including
registration rights provisions (incorporated by reference to the
exhibit 10.1 filed with the Company's Registration Statement filed on
Form S-1, File No. 333-18335)
10.2 Warrant, dated as of June 19, 1996, between the Company and
Brightstone Capital, Ltd. (incorporated by reference to the exhibit
10.3 filed with the Company's Registration Statement filed on Form
S-1, File No. 333-18335)
10.3 Form of Warrant (July 1996) (incorporated by reference to the exhibit
10.6 filed with the Company's Registration Statement filed on Form
S-1, File No. 333-18335)
10.4 Warrant, dated as of July 29, 1996, issued to Network General
Corporation (incorporated by reference to the exhibit 10.8 filed with
the Company's Registration Statement filed on Form S-1, File No.
333-18335)
10.5 Form of Warrant (September 1996) (incorporated by reference to the
exhibit 10.12 filed with the Company's Registration Statement filed on
Form S-1, File No. 333-18335)
10.6 Amendment to Warrant, dated October 15, 1996, between the Company and
Brightstone Capital, Ltd. (incorporated by reference to the exhibit
10.13 filed with the Company's Registration Statement filed on Form
S-1, File No. 333-18335)
10.7 Agreement to Extend Promissory Notes and Amendment to Warrants, dated
as of October 15, 1996, between the Company and Brightstone Fund VI,
Brightstone Fund VII and Brightstone Capital, Ltd. (incorporated by
reference to the exhibit 10.14 filed with the Company's Registration
Statement filed on Form S-1, File No. 333-18335)
10.8 Agreement to Extend Promissory Note and Amendment to Warrant, dated as
of October 15, 1996, between the Company and Stephen L. Becher
(incorporated by reference to the exhibit 10.15 filed with the
Company's Registration Statement filed on Form S-1, File No.
333-18335)
10.9 Amendment to Warrant, dated as of October 15, 1996, between the
Company and Brightbridge Fund I L.P. (incorporated by reference to the
exhibit 10.16 filed with the Company's Registration Statement filed on
Form S-1, File No. 333-18335)
10.10 Form of Warrant (December 1996) (incorporated by reference to the
exhibit 10.19 filed with the Company's Registration Statement filed on
Form S-1, File No. 333-18335)
10.11 Office/Warehouse Lease, dated May 10, 1994, by and between The
Northwestern Mutual Life Insurance Company and the Company
(incorporated by reference to the exhibit 10.20 filed with the
Company's Registration Statement filed on Form S-1, File No.
333-18335)
10.12 Amendment to Lease, dated May 22, 1996, between the Company and The
Northwestern Mutual Life Insurance Company (incorporated by reference
to the exhibit 10.21 filed with the Company's Registration Statement
filed on Form S-1, File No. 333-18335)
10.13 Lease Agreement dated April 7, 1995, by and between Ronald C. Devine
and the Company (incorporated by reference to the exhibit 10.22 filed
with the Company's Registration Statement filed on Form S-1, File No.
333-18335)
10.14 1994 Long Term Incentive and Stock Option Plan, as amended, including
forms of option agreements (incorporated by reference to the exhibit
10.24 filed with the Company's Registration Statement filed on Form
S-1, File No. 333-18335)
10.15 Directors' Stock Option Plan (incorporated by reference to the
exhibit 10.25 filed with the Company's Registration Statement filed on
Form S-1, File No. 333-18335)
10.16 Form of Mutual Confidentiality Agreement for use with third parties
(incorporated by reference to the exhibit 10.26 filed with the
Company's Registration Statement filed on Form S-1, File No.
333-18335)
19
<PAGE>
Exhibit
No Description
- -------------------------------------------------------------------------------
10.17 Form of Employee Disclosure and Assignment Agreement (incorporated by
reference to the exhibit 10.27 filed with the Company's Registration
Statement filed on Form S-1, File No. 333-18335)
10.18 Form of Extended Limited Warranty Agreement (incorporated by
reference to the exhibit 10.31 filed with the Company's Registration
Statement filed on Form S-1, File No. 333-18335)
10.19 Lease Agreement, dated November 11, 1996, by and between OMNI
Offices/Woodlawn Hills and the Company (incorporated by reference to
the exhibit 10.32 filed with the Company's Registration Statement
filed on Form S-1, File No. 333-18335)
10.20 Option Agreement, dated as of January 21, 1997, by and between the
Company and David C. Malmberg (incorporated by reference to the
exhibit 10.33 filed with the Company's Registration Statement filed on
Form S-1, File No. 333-18335)
10.21 Warrant dated March 25, 1997, issued to R.J. Steichen & Company
(incorporated by reference to the exhibit 10.1 filed with the
Company's Report on Form 10-Q for the fiscal quarter ended April 6,
1997)
10.22 Employment Agreement with Ronald E. Lewis dated September 18, 1997
(incorporated by reference to the exhibit 10.1 filed with the
Company's Report on Form 10-Q for the fiscal quarter ended October 5,
1997)
10.23 Lease Agreement, dated May 16, 1997, by and between CSM Properties,
Inc. and the Company (incorporated by reference to the exhibit 10.35
filed with the Company's Report on Form 10-K for the fiscal year ended
January 4, 1998)
10.24 Addendum to Lease, dated as of December 30, 1997, between the Company
and CSM Properties, Inc. (incorporated by reference to the exhibit
10.36 filed with the Company's Report on Form 10-K for the fiscal year
ended January 4, 1998)
10.25 Sublease Agreement, dated November 6, 1997, by and between Golf
Galaxy and the Company (incorporated by reference to the exhibit 10.37
filed with the Company's Report on Form 10-K for the fiscal year ended
January 4, 1998)
10.26 Sublease Agreement, dated December 5, 1997, by and between LSC, Inc.
and the Company (incorporated by reference to the exhibit 10.38 filed
with the Company's Report on Form 10-K for the fiscal year ended
January 4, 1998)
10.27 Sublease Agreement, dated January 6, 1998, by and between Apartment
Search and the Company (incorporated by reference to the exhibit 10.39
filed with the Company's Report on Form 10-K for the fiscal year ended
January 4, 1998)
10.28 General Credit and Security Agreement, dated November 19, 1998, by
and between Spectrum Commercial Services and the Company (incorporated
by reference to the exhibit 10.31 filed with the Company's Report on
Form 10-K for the fiscal year ended January 3, 1999)
10.29 Promissory Note, dated November 19, 1998, by and between Spectrum
Commercial Services and the Company (incorporated by reference to the
exhibit 10.31 filed with the Company's Report on Form 10-K for the
fiscal year ended January 3, 1999)
10.30 Securities Purchase Agreement between the Company and
Industrial-Works Holding Corp. dated November 20, 1999 (incorporated
by reference to Appendix A filed with the Company's Proxy Statement
dated January 18, 2000)
10.31 Form of Founders Non-Competition and Non-Solicitation Agreement
(filed herewith)
10.32 Form of Mutual Non-disclosure Agreement (filed herewith)
10.33 Form of Non-disclosure Agreement (filed herewith)
10.34 Form of International Distributor Agreement (filed herewith)
10.35 Form of Product Evaluation Agreement (filed herewith)
10.36 Form of OEM Agreement (filed herewith)
10.37 Form of Sales Representative Agreement (filed herewith)
21.1 Subsidiaries of the Company (incorporated by reference to the exhibit
21.1 filed with the Company's Registration Statement filed on Form
S-1, File No. 333-18335) 23.1 Consent of Arthur Andersen LLP (filed
herewith)
27.1 Financial Data Schedule for the year ended January 2, 2000 (filed
herewith)
99.1 Cautionary Statement (filed herewith)
20
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 2, 2000 January 3, 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 86,786 $ 1,690,469
Accounts receivable, net of allowance for
doubtful accounts of $259,600 and $269,800 5,060,928 3,930,366
Inventories 4,513,664 3,400,744
Prepaid expenses and other 509,574 121,780
- -------------------------------------------------------------------------------------------------------------------
Total current assets 10,170,952 9,143,359
- -------------------------------------------------------------------------------------------------------------------
Property and Equipment:
Computers and equipment 2,213,933 1,620,455
Furniture and fixtures 1,093,232 1,109,895
Leasehold improvements 435,813 458,216
Less: Accumulated depreciation (2,076,345) (1,393,342)
- -------------------------------------------------------------------------------------------------------------------
Property and equipment, net 1,666,633 1,795,224
Deposits and Other Assets, net 175,958 17,385
- -------------------------------------------------------------------------------------------------------------------
$12,013,543 $10,955,968
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 1,761,731 $ 681,981
Accounts payable 3,763,468 1,804,186
Accrued warranty and product upgrade 649,894 1,102,798
Accrued compensation and benefits 668,309 376,932
Other accrued liabilities 497,117 321,532
Deferred revenue 961,593 765,184
Current maturities of capitalized lease obligations 40,229 13,548
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 8,342,341 5,066,161
Capitalized Lease Obligations, less current maturities 39,571 96,868
Subordinated Notes Payable:
Notes payable 3,000,000 --
Less: Discount on notes payable (771,750) --
- -------------------------------------------------------------------------------------------------------------------
Notes payable, net 2,228,250 --
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 10,610,162 5,163,029
- -------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 9)
Shareholders' Equity:
Common stock, $.001 par value, 30,000,000 shares
authorized; 8,894,426 and 8,823,926 issued and outstanding 8,894 8,824
Common stock warrants 1,039,422 150,640
Additional paid-in capital 20,186,659 20,085,011
Accumulated deficit (19,831,594) (14,451,536)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,403,381 5,792,939
- -------------------------------------------------------------------------------------------------------------------
$12,013,543 $10,955,968
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
January 2, 2000 January 3, 1999 January 4, 1998
<S> <C> <C> <C>
Product Sales $22,016,599 $20,001,787 $23,815,045
Services Sales 3,312,593 -- --
- -------------------------------------------------------------------------------------------------------------------
Total Sales 25,329,192 20,001,787 23,815,045
Cost of Product Sales 15,907,467 14,199,526 14,620,121
Cost of Services Sales 2,042,830 -- --
- -------------------------------------------------------------------------------------------------------------------
Total Cost of Sales 17,950,297 14,199,526 14,620,121
- -------------------------------------------------------------------------------------------------------------------
Gross profit 7,378,895 5,802,261 9,194,924
- -------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Sales and marketing 5,632,785 5,482,216 5,042,543
General and administrative 2,998,141 2,914,871 3,034,670
Research and development 3,413,955 3,214,164 1,884,128
Product upgrade and restructuring costs399,978 1,472,530 --
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 12,444,859 13,083,781 9,961,341
- -------------------------------------------------------------------------------------------------------------------
Operating loss (5,065,964) (7,281,520) (766,417)
Interest Expense and Other, net (314,094) 157,333 (257,561)
- -------------------------------------------------------------------------------------------------------------------
Net Loss $ (5,380,058) $ (7,124,187) $ (1,023,978)
- -------------------------------------------------------------------------------------------------------------------
Basic and Diluted Loss Per Share:
Net loss per common share $ (.61) $ (.81) $ (.12)
- -------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding8,874,473 8,799,031 8,242,434
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A
Convertible Common Additional Total Share-
Preferred Stock Common Stock Stock Paid-in Accumulated holders'
Shares Amount Shares Amount Warrants Capital Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 5, 1997 300,000 $300 5,880,736 $5,881 $231,985 $ 7,878,591 $(6,303,371) $ 1,813,386
Issuance of common stock,
net of offering costs
of $2,042,200 -- -- 2,125,000 2,125 -- 11,768,207 -- 11,770,332
Conversion of preferred
stock (300,000) (300) 576,923 577 -- (277) -- --
Exercise of stock options -- -- 61,422 61 -- 157,472 -- 157,533
Exercise of common
stock warrants -- -- 81,345 81 (81,345) 162,609 -- 81,345
Net loss -- -- -- -- -- -- (1,023,978) (1,023,978)
- ---------------------------------------------------------------------------------------------------------------------
Balance, January 4, 1998 -- -- 8,725,426 8,725 150,640 19,966,602 (7,327,349) 12,798,618
Exercise of stock options -- -- 98,500 99 -- 118,409 -- 118,508
Net loss -- -- -- -- -- -- (7,124,187) (7,124,187)
- ---------------------------------------------------------------------------------------------------------------------
Balance, January 3, 1999 -- -- 8,823,926 8,824 150,640 20,085,011 (14,451,536) 5,792,939
Exercise of stock options -- -- 70,500 70 -- 70,430 -- 70,500
Expiration of warrants -- -- -- -- (31,218) 31,218 -- --
Issuance of warrants -- -- -- -- 920,000 -- -- 920,000
- ---------------------------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- -- (5,380,058) (5,380,058)
- ---------------------------------------------------------------------------------------------------------------------
Balance, January 2, 2000 -- $ -- 8,894,426 $8,894 $1,039,422 $20,186,659 $(19,831,594) $ 1,403,381
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
January 2, 2000 January 3, 1999 January 4, 1998
<S> <C> <C> <C>
Operating Activities:
Net loss $ (5,380,058) $(7,124,187) $(1,023,978)
Adjustments to reconcile net loss to net cash used
for operating activities-
Depreciation and amortization 683,086 692,332 747,717
Product upgrade and restructuring costs (326,876) 846,876 --
Non-cash financing and other expenses 148,250 -- --
Change in operating items:
Accounts receivable (1,130,562) 2,471,657 (4,393,330)
Inventories (1,112,920) 1,608,393 (591,815)
Prepaid expenses and other (546,450) 70,104 236,117
Accounts payable 1,959,282 314,204 378,456
Accrued expenses 340,934 160,291 1,477,288
Deferred revenue 196,409 (202,089) (547,156)
- -------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities (5,168,905) (1,162,419) (3,716,701)
- -------------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of property and equipment (554,412) (1,118,974) (886,829)
Repayment of loan to related party -- -- 92,175
- -------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (554,412) (1,118,974) (794,654)
- -------------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from issuance of notes 3,000,000 -- --
Proceeds from issuance of common stock 70,500 118,508 12,009,210
Net line of credit borrowings 1,079,750 681,981 --
Payment of notes payable -- -- (5,000,000)
Payment of notes payable to related parties -- -- (1,350,000)
Payment of capitalized lease obligations (30,616) (47,386) (61,185)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,119,634 753,103 5,598,025
- -------------------------------------------------------------------------------------------------------------------
Change In Cash and Cash Equivalents (1,603,683) (1,528,290) 1,086,670
Cash and Cash Equivalents, beginning of year 1,690,469 3,218,759 2,132,089
- -------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of year $ 86,786 $ 1,690,469 $ 3,218,759
===================================================================================================================
Supplemental Cash Flow Disclosure:
Cash paid for interest $ 236,212 $ 12,191 $ 266,858
===================================================================================================================
Noncash Investing and Financing Activities:
Property and equipment acquired under capital leases $ -- $ 87,700 $ 7,154
- -------------------------------------------------------------------------------------------------------------------
Issuance of warrants $ 920,000 $ -- $ --
- -------------------------------------------------------------------------------------------------------------------
Expiration of warrants $ 31,218 $ -- $ --
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Operating Activities. FieldWorks provides complete customer-specific mobile
computing solutions for rugged, portable computer platforms for use in demanding
field environments. The Company's portable computing platforms have been
designed to meet military standards for ruggedness and to function despite
exposure to extreme temperature, mechanical shock, vibration and moisture. The
Company's products have been designed with a modular system configuration that
allows a user to easily upgrade the central processing unit, processor or any of
the other technological components without purchasing a new computer. The
Company's computing platforms are expandable through multiple expansion slots to
provide a flexible electronic "toolbox" that can integrate a user's
application-specific, multi-media and communications needs into one portable,
rugged device.
FieldWorks' focus is providing solutions addressing service bay, test and
measurement, and logistics management applications in its targeted vertical
markets. FieldWorks provides professional services including solution
conceptualization, design, development, implementation and support. FieldWorks
provides solutions containing hardware, software and design, tailored to its
computer platforms, and provides training, specialized support and product
upgrades to enhance customer productivity.
The Company's future operations are dependent upon the attainment of
certain objectives, including further penetration of vertical markets, enhancing
solutions and professional services offerings and reducing product costs.
Additionally, the attainment of these objectives is subject to the availability
of sufficient cash and/or financing. Financing needs will be contingent upon
demand for the Company's products, profitability, cash management operations and
other factors.
The Company is currently pursuing alternative equity sources to demonstrate
sustained compliance with the Nasdaq National Market minimum net tangible asset
listing requirements and to provide additional cash for operating activities.
The Company currently anticipates that the proceeds from its February 2000
preferred stock issuance, together with line of credit availability, and
anticipated operating cash flows and proceeds from the alternative equity
sources it is pursuing, should be sufficient to fund its cash flow needs in
2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year. Beginning in fiscal 1996, the Company changed to a 52/53-week
fiscal year. Fiscal years subsequent to 1996 end on the Sunday closest to
December 31st. All references herein to "1999", "1998" and "1997" represent the
fiscal years ended January 2, 2000, January 3, 1999, and January 4, 1998,
respectively. The Company believes that this change does not affect
comparability of the financial statements.
Principles of Consolidation. The consolidated financial statements of the
Company include the accounts of the Company and its wholly owned subsidiary. All
intercompany accounts and transactions have been eliminated in consolidation.
Earnings (Loss) Per Common Share. The Company presents earnings (loss) per share
(EPS) data in accordance with the requirements of the Statement of Financial
Accounting Standards No. 128. Under SFAS No. 128, basic EPS is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the period. No dilution for potentially dilutive securities
is included. Diluted EPS is calculated using the treasury stock method and
reflects the dilutive effect of outstanding options, warrants and other
securities. In the Company's calculations, the impact of common stock
equivalents has been excluded from the
25
<PAGE>
computation of weighted average common shares outstanding, except as follows, as
the effect would be antidilutive.
A reconciliation of EPS calculations under is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss $(5,380,058) $(7,124,187) $(1,023,978)
===================================================================================================================
Weighted average common shares outstanding 8,874,473 8,799,031 8,125,147
Effect of conversion of preferred stock -- -- 117,287
- -------------------------------------------------------------------------------------------------------------------
Common and common equivalent shares outstanding 8,874,473 8,799,031 8,242,434
===================================================================================================================
Basic and diluted loss per share $ (.61) $ (.81) $ (.12)
===================================================================================================================
</TABLE>
Cash and Cash Equivalents. Cash and cash equivalents consist of amounts held in
the Company's checking accounts and money market funds with original maturities
of 90 days or less. The carrying value of these instruments approximates fair
value.
Inventories. Inventories are stated at the lower of cost or market value, as
determined by the first-in, first-out cost method, and consisted of the
following:
<TABLE>
<CAPTION>
January 2, 2000 January 3, 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $3,159,548 $2,478,662
Work in process 575,694 173,791
Finished goods 778,422 748,291
- -------------------------------------------------------------------------------------------------------------------
Total $4,513,664 $3,400,744
===================================================================================================================
</TABLE>
Property and Equipment. Property and equipment are recorded at cost. Repair and
maintenance costs which do not significantly extend the lives of the respective
assets are expensed as incurred. Depreciation is computed using the
straight-line method over the related assets' useful lives, ranging from two to
seven years.
Warranties. The Company provides a one-year warranty on its products from the
date of sale. Warranty costs, including parts and labor, are estimated based on
historical experience. These estimated costs are accrued in the period in which
the related revenue is recognized. Actual warranty costs may differ from such
estimates.
Revenue Recognition. The Company recognizes product revenue, net of estimated
returns, at the time of product shipment. Services revenue is recognized as
earned. Revenues related to separately priced extended warranties sold to
customers are recorded as deferred revenue and recognized over the periods
covered by the extended warranties.
Significant Customers, Export Sales and Sales by Product Line. For the year
ended January 2, 2000, sales to Ryder Transportation Services represented 26% of
net sales. For the years ended January 3, 1999 and January 4, 1998, sales to one
customer, Navistar International, represented 10% and 13%, respectively, of net
sales.
26
<PAGE>
Export sales by major location were as follows:
1999 1998 1997
- ------------------------------------------------------------------------------
Europe $2,815,000 $3,988,000 $3,396,000
Middle East/Africa 450,000 565,000 183,000
Russia 108,000 123,000 --
Americas 104,000 709,000 1,875,000
Australia 95,000 120,000 93,000
Asia 90,000 119,000 416,000
- ------------------------------------------------------------------------------
$3,662,000 $5,624,000 $5,963,000
==============================================================================
Sales by product line were as follows:
1999 1998 1997
- ------------------------------------------------------------------------------
7000 Series $9,037,000 $12,445,000 $12,860,000
5000 Series 9,279,000 7,547,000 10,955,000
2000 Series 3,700,000 10,000 --+
Professional Services 3,313,000 --* --*
- ------------------------------------------------------------------------------
$25,329,000 $20,002,000 $23,815,000
==============================================================================
* Professional Services was not significant in 1998 or 1997.
+ The 2000 Series product was introduced in 1998.
Research and Development. Research and development costs are charged to expense
as incurred.
Concentrations of Credit Risk. At January 2, 2000, receivables in excess of 10%
of outstanding net receivables included one customer, TRW Inc., which
represented 36% of net receivables. The Company received payment for this
receivable in January 2000. The Company's exposure to concentrations of credit
risk relates primarily to trade receivables. This exposure is limited due to the
large number of customers and their vast dispersion across several vertical
markets and geographies. The Company controls potential credit risk by
performing credit evaluations for all customers and requires letters of credit,
bank guarantees and advance payments, if deemed necessary. Bad debt write-offs
through 1999 have not been material.
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
disclosures of contingent assets and liabilities as of the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the periods presented. Estimates are used for such items as allowances
for doubtful accounts, inventory reserves, useful lives of property and
equipment and warranty costs. Ultimate results could differ from those
estimates.
27
<PAGE>
3. PRODUCT UPGRADE AND RESTRUCTURING COSTS
During the third quarter of 1999, the Company incurred restructuring costs due
to severance charges from reorganization efforts related to outsourcing certain
aspects of the manufacturing and design of products. In 1998, these costs
related to the discontinuation of the 5000 Series I Workstation, as well as
other internal reorganization efforts. The components of the restructuring and
product upgrade costs were as follows:
1999 1998
- -------------------------------------------------------------------------------
Product upgrade costs -- $1,025,000
Employee severance and associated costs 399,978 447,530
- -------------------------------------------------------------------------------
Total $399,978 $1,472,530
===============================================================================
The reserves remaining at January 2, 2000 and January 3, 1999, were $520,000 and
$850,000, respectively.
4. INCOME TAXES
The Company accounts for income taxes under the liability method, which
requires recognition of deferred income tax assets and liabilities for the
expected future income tax consequences under enacted tax laws of temporary
differences between the financial reporting and tax bases of assets and
liabilities.
A reconciliation of the Company's statutory tax rate to the effective rate
is as follows:
1999 1998 1997
- -------------------------------------------------------------------------------
Federal statutory rate 34% 34% 34%
State taxes, net of federal tax benefit 4 4 4
Valuation allowance (38) (38) (38)
- -------------------------------------------------------------------------------
--% --% --%
===============================================================================
As of January 2, 2000, the Company had approximately $15,975,000 of net
operating loss carryforwards for federal income tax purposes that are available
to offset future taxable income through the year 2020. Certain restrictions
caused by changes in ownership resulting from sales of stock may limit annual
utilization of the net operating loss carryforwards.
The components of the Company's deferred tax asset are as follows:
1999 1998 1997
- -------------------------------------------------------------------------------
Net operating loss carryforwards $ 6,070,000 $ 4,112,000 $ 1,666,000
Timing differences 1,556,000 1,439,000 1,074,000
Valuation allowance (7,626,000) (5,551,000) (2,740,000)
- -------------------------------------------------------------------------------
$ -- $ -- $ --
===============================================================================
28
<PAGE>
5. LINE OF CREDIT AND SUBORDINATED NOTES PAYABLE
Line of Credit. In November 1998, the Company entered into a two-year $3,000,000
line-of-credit agreement. Borrowings bear interest at the greater of 4% over
prime or 9%. The borrowing base is 75% of eligible receivables plus the lesser
of $600,000 or 30% of eligible inventories as defined in the agreement. The
availability based on the borrowing base calculation, including accounts
receivable and inventories, was $3.0 million as of January 2, 2000 and $1.7
million, including only accounts receivable as of January 3, 1999. Personal
validity guarantees were provided on accounts receivable by three executive
officers or directors of the Company. The agreement contains a covenant
requiring cumulative year-to-date profit calculated on a quarterly basis. The
Company was out of compliance with the fourth quarter 1999 net profit covenant,
and has received a written waiver of default. Outstanding borrowings under this
line of credit were $1.8 million at January 2, 2000, and $682,000 at January 3,
1999. The Company intends to renew this agreement upon expiration or pursue a
replacement source of financing. However, there can be no assurances that a
credit agreement will be available to the Company.
The following information relates to this credit facility for 1999 and for
the period since inception of the agreement in 1998:
1999 1998
- -------------------------------------------------------------------------------
Maximum amount outstanding during the period $ 1,800,000 $ 682,000
Average borrowings during the period 817,000 341,000
Weighted average interest rate during the period 11.77% 10.75%
Interest rate at end of year 12.50% 10.75%
- -------------------------------------------------------------------------------
Subordinated Notes Payable. In September 1999, the Company completed a
private placement of $3.0 million in subordinated notes. The notes bear interest
at 11% per annum and mature in September 2001. Noteholders also received
warrants to purchase 1.5 million shares of common stock exercisable at $1.00 per
share. The warrants are exercisable for five years, and were recorded at their
estimated fair value of $882,000 at the date of issuance.
6. SHAREHOLDERS' EQUITY
In March 1997, the Company completed an initial public offering (IPO) of
2,125,000 shares of common stock with proceeds of approximately $11.8 million,
net of related offering costs. The Company used $6.4 million of the proceeds to
repay bridge financing arrangements and the remaining proceeds were used to fund
capital expenditures and for working capital. In connection with the IPO, the
Company granted warrants for the purchase of 212,500 shares to the underwriter.
These warrants have an exercise price of $7.80 and expire in March 2002. At the
completion of the IPO, the Company's articles of incorporation were amended to
authorize 30 million shares of common stock, $.001 par value, and five million
shares of undesignated preferred stock, $.001 par value.
29
<PAGE>
7. WARRANTS
Warrants to purchase 2,233,054 and 692,054 shares of the Company's common
stock were outstanding at January 2, 2000 and January 3, 1999, respectively. The
warrants are exercisable at various times through September 2004 at prices
ranging from $1.00 to $7.80.
8. STOCK OPTION AND 401(K) PLANS
Stock Option Plan In June 1994, the Company adopted the 1994 Long-Term Incentive
and Stock Option Plan (the Plan). Under the Plan, options are granted at an
exercise price equal to the fair market value of the common stock at the date of
grant. Incentive stock options are granted to employees, and vest over varying
periods not to exceed ten years.
The Plan is authorized to issue up to 2,500,000 shares of common stock for
such options. At January 2, 2000 and January 3, 1999, 1,204,450 and 192,977
shares were available for future grants.
In December 1996, the Company's board of directors approved the
Non-Employee Directors' Stock Option Plan (the Directors' Plan), which was
approved at a shareholder meeting held on January 20, 1997. Under the Directors'
Plan, each nonemployee director will receive 25,000 nonqualified options upon
election and 10,000 options at each reelection date. The Directors' Plan
authorizes the issuance of up to 300,000 shares of common stock for these
options. At January 2, 2000, 125,000 shares were available for future grants.
On August 4, 1999, the Board of Directors approved the repricing of all
outstanding incentive stock options for non-director employees with an exercise
price greater than $1.25. The new exercise price of such options is $1.25, an
amount greater than the fair market value of the Company's common stock on that
date. A total of 819,050 options with exercise prices of $1.53 to $6.40 were
cancelled and reissued under the terms described above. Due to the recent
interpretation of APB 25, the Company will be required to account for this plan
under variable plan accounting.
Shares subject to option are summarized as follows:
<TABLE>
<CAPTION>
Incentive Weighted average Non-qualified Weighted average
stock options exercise price stock options exercise price
<S> <C> <C> <C> <C>
Balance, January 5, 1997 655,900 $ 3.47 122,500 $ 3.04
Options granted 449,800 5.33 181,000 6.07
Options canceled (50,678) 5.40 -- --
Options exercised (31,422) 3.36 (30,000) 1.00
- --------------------------------------------------------------------------------------------------------
Balance, January 4, 1998 1,023,600 4.19 273,500 5.27
Options granted 1,170,900 2.54 106,750 3.63
Options canceled (762,050) 5.05 (25,000) 5.13
Options exercised (63,500) 1.05 (35,000) 1.57
- --------------------------------------------------------------------------------------------------------
Balance, January 3, 1999 1,368,950 2.75 320,250 5.14
Options granted 1,533,300 1.48 240,000 1.62
Options canceled (1,536,200) 2.29 -- --
Options exercised (70,500) 1.00 -- --
- --------------------------------------------------------------------------------------------------------
Balance, January 2, 2000 1,295,550 $ 1.69 560,250 $ 3.63
========================================================================================================
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Options exercisable at:
January 4, 1998 536,683 $ 3.22 162,678 $ 4.82
- -------------------------------------------------------------------------------------------------------------------
January 3, 1999 534,000 $ 2.54 241,500 $ 5.01
- -------------------------------------------------------------------------------------------------------------------
January 2, 2000 336,000 $ 2.54 425,150 $ 3.52
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Additional information regarding options outstanding at January 2, 2000 is
as follows:
<TABLE>
<CAPTION>
Weighted average
Number of Exercise Weighted average remaining
Type of option options price range exercise price contractual life
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Incentive 944,000 $1.00-$1.25 $1.23 6.6 years
Incentive 245,250 $1.26-$3.00 1.98 5.1 years
Incentive 106,300 $3.01-$6.50 5.08 1.3 years
- -----------------------------------------------------------------------------------------
1,295,550
=========================================================================================
Nonqualified 293,750 $1.22-$3.00 $1.82 7.3 years
Nonqualified 95,500 $3.01-$5.00 4.54 7.0 years
Nonqualified 171,000 $5.01-$6.50 6.24 6.8 years
- -----------------------------------------------------------------------------------------
560,250
=========================================================================================
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized in
the accompanying consolidated statements of operations. Had compensation cost
been recognized based on the fair values of options at the grant dates
consistent with the provisions of SFAS No. 123, `'Accounting for Stock-Based
Compensation," the Company's net loss and net loss per common share would have
been increased to the following pro forma amounts:
1999 1998 1997
- -------------------------------------------------------------------------------
Net loss
As reported $(5,380,058) $(7,124,187) $(1,023,978)
Pro forma (5,819,960) (7,606,187) (2,083,978)
Net loss per common share
As reported $(.61) $(.81) $(.12)
Pro forma (.66) (.86) (.25)
The weighted average fair values of options granted were as follows:
Incentive Nonqualified
stock options stock options
1999 grants $1.28 $1.50
1998 grants 2.33 3.24
1997 grants 3.47 4.43
31
<PAGE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997:
1999 1998 1997
- -----------------------------------------------------------------------------
Risk-free interest rate 6.10% 4.80% 6.35%
Expected life of incentive options 7 years 5 years 5 years
Expected life of nonqualified options 7 years 7 years 7 years
Expected volatility 117% 114% 72%
Expected dividend yield -- -- --
401(k) Profit-Sharing Plan. Effective January 1, 1996, the Company adopted a
401(k) profit-sharing plan (the 401(k) Plan) covering substantially all
employees. Eligible employees may elect to defer up to 15% of their eligible
compensation. Beginning in 1998, the Company accrued matching contributions of
50% on the first 4% of each plan participant's eligible contributions. The
Company's matching contributions were $83,100 and $69,600 for 1999 and 1998,
respectively.
9. COMMITMENTS AND CONTINGENCIES
Leases. The Company leases its current headquarters office facilities under an
operating lease which expires November 30, 2004. The Company subleased its
previous office facilities under an operating lease that expired in June of
1999. The Company also leases equipment under capital leases which expire at
various dates through December 2001. Property and equipment under capital leases
at January 2, 2000 totaled $124,200.
The following is a schedule of future minimum lease payments as of January
2, 2000:
<TABLE>
<CAPTION>
Capital leases Operating leases
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 49,731 $491,900
2001 41,981 476,700
2002 -- 490,500
2003 -- 482,300
2004 -- 442,100
Thereafter -- --
- ----------------------------------------------------------------------------------------------------
Total minimum capital lease payments 91,712
Less-
Amount representing interest (11,912)
Current maturities (40,229)
- ----------------------------------------------------------------------------------------------------
Noncurrent portion of minimum capital lease payments $ 39,571
====================================================================================================
</TABLE>
Legal Proceedings. The Company is involved in legal actions in the ordinary
course of its business. Although the outcome of any such legal actions cannot be
predicted, management believes that there is no pending legal proceeding against
or involving the Company for which the outcome is likely to have a material
adverse effect upon the Company's financial position, results of operations or
cash flows.
32
<PAGE>
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
(in thousands) 1999 1998 1999 1998 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $6,409 $5,386 $ 7,119 $ 3,834 $ 4,785 $ 4,412 $ 7,016 $6,370
Gross profit 2,063 2,172 1,909 72 1,246 1,443 2,161 2,115
Net loss $ (474) $ (756) $(1,266) $(4,194) $(2,274) $(1,462) $(1,366) $ (712)
- -----------------------------------------------------------------------------------------------------------------
Basic and diluted
loss per common
share $(.05) $ (.09) $ (.14) $ (.48) $ (.26) $ (.17) $ (.15) $ (.08)
- -------------------------------------------------------------------------------------------------------------------
Price range of
common stock(1):
High 3 1/2 5 9/16 2 5/8 4 1 11/16 3 5/8 1 1/2 4 1/4
Low 2 3 3/8 1 3/8 2 1/4 15/16 1 9/16 7/8 2 9/16
</TABLE>
(1) FieldWorks, Incorporated common stock is traded on the Nasdaq National
Market System under the symbol "FWRX".
11. SUBSEQUENT EVENT (UNAUDITED)
On February 22, 2000, the Company completed a $4.25 million equity
investment by Industrial-Works Holding Co., LLC, a wholly owned subsidiary of
Glenmount International LP. Industrial-Works purchased 4,250,000 shares of the
Company's convertible preferred stock for $1.00 per share. Additionally,
Industrial-Works received warrants to purchase 500,000 shares of common stock
with an exercise price of $1.00 per share. The transaction was approved at a
special shareholders' meeting on February 7, 2000.
On November 24, 1999, Nasdaq notified the Company that it was no longer in
compliance with the net tangible asset requirement of $4,000,000 for continued
listing of shares of the Company's Common Stock on the Nasdaq National Market.
As a result of the Company's failure to meet the requirements for continued
listing, Nasdaq reviewed the Company's eligibility for continued listing on the
Nasdaq National Market, including the effect following the $4.25 million equity
investment by Industrial-Works Holding Co, LLC. The Company appealed the
delisting determination to a Nasdaq listing qualifications panel on February 24,
2000. As of the date of this filing, the results of the hearing have not yet
been provided to the Company.
33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FieldWorks, Incorporated: We have audited the accompanying consolidated
balance sheets of FieldWorks, Incorporated (a Minnesota corporation) and
Subsidiary as of January 2, 2000 and January 3, 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended January 2, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 FieldWorks, Incorporated and
Subsidiary as of January 2, 2000 and January 3, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 2, 2000 in conformity with accounting principles generally accepted in
the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule of Valuation and Qualifying
Accounts included in Item 14 of the Company's Form 10-K is presented for
purposes of complying with the Securities and Exchange Commission rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 8, 2000
34
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Additions Deductions -
----------- ---------- ------------
Fiscal Beginning of Charged to Write-Offs of Balance at End
- ------ ------------ ---------- ------------- --------------
Year Year Expense Accounts of Year
- ---- ---- ------- -------- -------
<S> <C> <C> <C> <C> <C>
1999 Allowance for Doubtful Accounts 269,800 10,200 20,400 259,600
Accrued Severance and Restructuring
Costs 16,100 400,000 186,100 230,000
1998 Allowance for Doubtful Accounts 384,600 1,600 116,400 269,800
Accrued Severance and Restructuring
Costs 0 447,500 431,400 16,100
1997 Allowance for Doubtful Accounts 201,400 236,500 53,300 384,600
</TABLE>
<PAGE>
Exhibit 10.31
FOUNDERS
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
THIS AGREEMENT is between FieldWorks, Inc., a Minnesota corporation (the
"Company") and __________________, a resident of Minnesota (the "Employee").
DEFINITIONS:
A. "Company" means FieldWorks, Inc., and any existing or future subsidiaries,
owned or controlled, directly or indirectly, by FieldWorks, Inc.
B. "Confidential Information" means information of or about the Company, its
products, services or customers which is not generally known to persons
outside the Company. Confidential Information includes information relating
to the Company's products, processes, research, development, manufacture,
purchasing, accounting, marketing, merchandising, selling, servicing,
customers, finance and business systems.
C. "Conflicting Product" means any product, process, system or service, in
existence or under development, which is similar to or competes with a
product, process, system or service upon which Employee shall have worked
(in either a sales or a non-sales capacity) during the three (3) years
prior to the termination of the Employee's employment with the Company, or
about which the Employee acquires Confidential Information.
D. "Conflicting Organization" means any person or organization which is
engaged in or about to become engaged in, research, development,
production, marketing, selling or servicing related to a Conflicting
Product.
E. "Good Cause" means: (a) any failure to carry out a reasonable directive of
the Company, after receipt of written notice thereof from the Board of
Directors of the Company and a reasonable opportunity (not to exceed five
business days) to so perform such directive; (b) any act of dishonesty that
causes or can reasonably be expected to cause harm to the Company; (c) any
gross or persistent neglect in performing the Employee's job duties, after
receipt of written notice thereof from the Board of Directors of the
Company and a reasonable opportunity (not to exceed five business days) to
remedy such neglect and to perform his job duties; or (d) death or
disability of Employee.
EMPLOYEE IS EMPLOYED BY THE COMPANY IN A SPECIAL CAPACITY IN WHICH EMPLOYEE HAS
RECEIVED AND CONTRIBUTED, AND MAY RECEIVE OR CONTRIBUTE, TO CONFIDENTIAL
INFORMATION; AND EMPLOYEE DESIRES TO OBTAIN THE RIGHT TO RECEIVE THE BENEFITS
DESCRIBED IN SECTION 2B BELOW. IN CONSIDERATION OF THE GRANT OF SUCH RIGHT TO
RECEIVE THE BENEFITS DESCRIBED IN SECTION 2B BELOW, AND IN CONSIDERATION OF
BEING GIVEN ACCESS TO CONFIDENTIAL INFORMATION, ALL OF WHICH CONSIDERATION
EMPLOYEE EXPRESSLY ACKNOWLEDGES IS VALUABLE TO EMPLOYEE, EMPLOYEE AGREES THAT:
1
<PAGE>
1. NON-DISCLOSURE. Any Confidential Information received as a result of the
Employee's employment with the Company shall be the property of the
Company. Except as required in connection with the Employee's duties to the
Company, the Employee shall not, either during the Employee's employment
with the Company or at any time thereafter, use or disclose any
Confidential Information.
2. TERMINATION.
A. Upon termination of the Employee's employment with the Company (for
any reason or by either the Company or the Employee), all Company
property, records, equipment and any items which disclose or contain
Confidential Information, including all copies, shall be left with the
Company.
B. Upon any termination of the Employee's employment by the Company
without Good Cause or upon any voluntary resignation of the Employee
after the six month anniversary of the date hereof, Employee shall be
entitled to continue to receive his base salary (at the level in
existence immediately prior to such termination) for a period of
twelve (12) months after such termination, subject to Employee's
compliance with the provisions of this Agreement. If Employee fails to
comply with the provisions of this Agreement following termination
without Good Cause, the Company shall not be obligated to make any
further payments under this Section 2B, Employee shall be obligated to
return any payments under this Section 2B previously received, and the
Company shall be entitled to all other remedies available in law or
equity, including injunctive relief against Employee as described in
Section 10 below.
C. If the Employee voluntarily resigns his employment with the Company
prior to the six month anniversary of the date hereof or if the
Company terminates the Employee's employment for Good Cause, Employee
shall not be entitled to any further compensation for periods after
the date of such resignation or termination.
3. NON-COMPETE. For a period of twelve (12) months after termination of the
Employee's employment with the Company (whether as a result of resignation,
termination by the Company for Good Cause or termination by the Company
without Good Cause): (i) the Employee will immediately inform the Company
of any new employment or business association which may conflict, or
reasonably might in the future conflict, with the Employee's obligations
under this Agreement; (ii) the Employee will inform such new employer or
business associate of this Agreement and provide the employer or associate
with a copy of this Agreement; and (iii) the Employee will not, directly or
indirectly, either as an employee, proprietor, partner, or agent:
A. Sell or solicit orders for any Conflicting Product to or from any
customer or client whom, within the three (3) year period immediately
preceding the termination of the Employee's employment with the
Company, the Employee solicited or serviced or in connection with whom
the Employee managed or supervised the Company's solicitation or
servicing.
2
<PAGE>
B. Sell or solicit orders for any Conflicting Product in any territory in
which, within the three (3) year period immediately preceding
termination of the Employee's employment with the Company, the
Employee was working or which the Employee managed or supervised for
the Company.
C. Manage, operate, or render service, as an employee or otherwise, to
any Conflicting Organization anywhere within the territory in which,
within the three (3) year period immediately preceding the Employee's
termination of the Employee's employment with the Company, the
Employee was working or which the Employee managed or supervised for
the Company.
D. Induce, either directly or indirectly, any employee, agent,
independent contractor, supplier, customer, or any other person or
organization to terminate or alter its relationship with the Company.
4. BINDING EFFECT. All of the Employee's obligations under this Agreement
except for Section 3 shall be binding upon the Employee's heirs and legal
representatives.
5. SEVERABILITY. The Employee agrees that if any provision of this Agreement
or part thereof is held invalid, illegal or unenforceable, such provision
or part thereof shall be deleted from this Agreement, or, if possible,
narrowed to the achieve the objective of this Agreement to the maximum
extent allowed by law, and the enforceability of the remainder of this
Agreement shall be unaffected.
6. ENFORCEMENT. The Employee agrees that in the event that the provisions set
forth in Sections 2 and/or 3 of this Agreement are determined in any court
proceedings to be overboard or unreasonably restrictive in any respect,
then these provisions shall nevertheless be enforced to the extent
determined by the court or other adjudicator to be reasonable.
7. GOVERNING LAW. This Agreement shall in all aspects be governed by the laws
of the State of Minnesota.
8. AMENDMENTS. The parties agree that no modification of the Agreement may be
made except by means of a written agreement or memorandum signed by the
parties.
9. TERMINATION. This Agreement is not an employment agreement. The Employee
understands that either the Company or Employee may terminate the
Employee's employment at any time, for any reason, with or without cause or
notice. In addition, this Agreement may be terminated (a) by Employee if
the Securities Purchase Agreement dated on or about the date hereof between
the Company and Industrial-Works Holding Corp. is terminated and the
closing of the transactions contemplated thereby does not occur, or (b) by
the Company at any time after December 31, 2000.
10. INJUNCTIVE RELIEF. The Employee acknowledges that immediate and irreparable
harm will result to the Company in the event the Employee breaches Sections
2 or 3 of this Agreement and that it would be difficult to compensate the
Company fully for damages
3
<PAGE>
incurred for any violation of those provisions. The Employee agrees that
the Company shall be entitled to temporary and permanent injunctive relief
if the Employee breaches this Agreement. The Company's right to obtain
injunctive relief will not diminish in any way the right of the Company to
claim and recover damages, in addition to injunctive relief.
11. ACCEPTANCE. The Employee agrees that this Agreement shall become effective
upon acceptance and execution of it by the Company.
Dated:
------------------ --------------------------------------
Employee
Accepted for the Company
By:
----------------------------------
Its:
---------------------------------
4
<PAGE>
Exhibit 10.32
[FIELDWORKS LETTERHEAD]
MUTUAL NON-DISCLOSURE AGREEMENT
(FieldWorks, Inc. disclosing and receiving information)
This Agreement is made as of the date of execution by FieldWorks ("Execution
Date"), by and between FieldWorks, INC., a Minnesota Corporation, (hereinafter
"FieldWorks"), located at 7631 Anagram Drive, Eden Prairie, MN 55344-7310, Phone
612/974-7000, Fax 612/974-7099 and
Company:
-------------------------------------------
Address:
-------------------------------------------
-------------------------------------------
Telephone: Voice:
-----------------------------------
FAX:
-----------------------------------
(hereinafter the "COMPANY").
WHEREAS, FieldWorks has and may acquire certain company confidential information
which it desires to disclose to COMPANY, and COMPANY is willing to accept such
information confidentially and as limited herein; and,
WHEREAS COMPANY, has and may acquire certain company confidential information
which it desires to disclose to FieldWorks, and FieldWorks is willing to accept
such information confidentially and as limited herein:
NOW, THEREFORE, the parties agree as follows:
"Confidential information" is any information disclosed in any form whatsoever,
tangible or intangible including, but not limited to, a device, sample,
material, product, graphic, printed, written, drawing, chart, diagram, sketch,
notes, figure, machine-recognizable form including data stored in electronic
storage devices of all types, or other tangible form, audio disks, tapes and
cassettes, video disks, tapes and cassettes, electronic transmission of all
types, including radio, television, satellite, cable, telephone, or information
disclosed orally or visually, or information disclosed in other forms, or
information disclosed in other forms developed in the future to the receiving
party (either COMPANY or FieldWorks) areas and that is marked, designated,
labeled or identified at the time of disclosure as being confidential or its
equivalent.
Confidential information that is disclosed orally will be confirmed in writing
by the disclosing party within thirty (30) days after such disclosure. The
parties agree that such written confirmation when mailed by the disclosing
party, will form a part of this Agreement.
1.1. It is agreed that confidential information may include
information which is acquired by the disclosing party based at least in
part on the disclosing party's testing, evaluating, or analyzing certain
goods, samples, products, devices, equipment or apparatus which may be
provided by the receiving party.
2. Unless otherwise expressly authorized by the disclosing party, the
receiving party agrees to retain the confidential information in confidence for
the "Confidential Period" defined in paragraph number 3 below, during which
period the receiving party shall not disclose the confidential information to
any third party, and shall not use the confidential information for any purpose
other than the aforesaid purposes.
2.1. Further, the receiving party agrees to use at least the same
degree of care to avoid disclosure of such confidential information as the
receiving party uses with respect to its own proprietary or confidential
information of like importance.
3. The "Confidential Period" shall mean two (2) years from the date of
receipt of the confidential information or until such time as the information no
longer qualifies as confidential information pursuant to paragraph number 5
below.
4. The receiving party shall limit dissemination of the confidential
information to such of its employees or agents who have a need to know for the
aforesaid purposes.
4.1. Further, the receiving party agrees to instruct all such
employees and agents not to disclose such confidential information to third
parties. Each such employee and agent shall be individually bound by this
Agreement.
5. Notwithstanding any other provisions of this Agreement, confidential
information shall not include any information which:
(a) Is or becomes publicly known through no wrongful act of the
receiving party; or
(b) Is, at the time of disclosure under this Agreement, already known
to the receiving party without restriction on disclosure; or
Page 1 of 2
<PAGE>
(c) Is, or subsequently becomes, rightfully and without breach of this
Agreement, in the receiving party's possession without any obligation
restricting disclosure; or
(d) Is independently developed by the receiving party without breach
of this Agreement; or
(e) Is explicitly approved for release by written authorization of the
disclosing party.
6. All confidential information shall remain the property of the disclosing
party. Further, the receiving party agrees to return to the disclosing party,
upon request, any information disclosed in any tangible form, all copies
thereof, containing any of the confidential information referred to in paragraph
number 1 above.
7. It is agreed that nothing in this Agreement shall be construed as
granting to the receiving party any rights, by license or otherwise, in the
confidential information except to use the information as expressly authorized
by this Agreement.
7.1. This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns. This Agreement
shall not be assignable by either party without the written consent of the
other party, and any purported assignment not permitted hereunder shall be
void. This document constitutes the entire agreement between the parties
with respect to the subject matter hereof, and shall supersede all previous
communications, representations, understandings and agreements, whether
oral or written, between the parties or any official or representative
thereof.
8. Each party hereby affirms that it is not prohibited by the Office of
Export Administration for the U.S. Department of Commerce from receiving
technical information, know-how, data or other information and each party agrees
not to export such information, or products incorporating it, to any prohibited
country.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives below
<TABLE>
<S> <C>
FieldWorks Incorporated
------------------------------------------------ -------------------------------------------------
(name of COMPANY)
------------------------------------------------ -------------------------------------------------
(signature of Authorized Representative) (signature of Authorized Representative)
------------------------------------------------ -------------------------------------------------
(print Authorized Representative name) (print Authorized Representative name)
------------------------------------------------ -------------------------------------------------
(title) (title)
------------------------------------------------ -------------------------------------------------
(Execution Date) (date)
</TABLE>
Page 2 of 2
<PAGE>
Exhibit 10.33
[FIELDWORKS LETTERHEAD]
NON-DISCLOSURE AGREEMENT
(FieldWorks, Inc. disclosing information)
This Agreement is made as of the date of execution by FieldWorks ("Execution
Date"), by and between FieldWorks, Inc., a Minnesota Corporation, (hereinafter
"FieldWorks"), located at 7631 Anagram Drive, Eden Prairie, MN 55344, Phone
612/974-7000, Fax 612/974-7099 and
Company:
-------------------------------------------
Address:
-------------------------------------------
-------------------------------------------
Telephone: Voice:
-----------------------------------
FAX:
-----------------------------------
(hereinafter the "COMPANY").
FieldWorks or its affiliates intend to disclose to Company certain Confidential
Information for use only in discussions with FieldWorks and otherwise as
FieldWorks specifies. Both parties wish to clarify their confidential
relationship, and agree as follows:
1. "Confidential Information" means information which FieldWorks considers
confidential and secret including without limitation: FieldWorks research,
development, software, purchasing, accounting, engineering, marketing
merchandising, selling, leasing, servicing, finance and business systems and
techniques, which are not generally known outside FieldWorks or its subsidiaries
or affiliates. All information Company obtains relating to FieldWorks which
Company has reasonable basis to believe to be Confidential Information or which
is treated by FieldWorks as being Confidential Information shall be presumed to
be Confidential Information. Confidential Information shall not include
information Company had prior to receiving Confidential Information from
FieldWorks or information in the public domain.
2. FieldWorks may provide blueprints, specifications, drawings, materials,
software listings, schematics, financial information, or other data or documents
to Company which FieldWorks considers to be Confidential Information. Company
acknowledges that FieldWorks is the owner of the Confidential Information.
Company agrees to keep such Confidential Information secret and confidential and
agrees not to disclose it to third parties without FieldWorks prior written
permission. Company further agrees that it will not disclose the Confidential
Information to anyone within its company other than those people with a need to
know it and Company will not use any Confidential Information for any purpose,
other than discussions or business dealings with FieldWorks, without FieldWorks
prior written permission.
3. All written information delivered by FieldWorks to Company pursuant to
this agreement shall remain the property of FieldWorks, and Company shall
promptly return to FieldWorks all such written information and any copies of it
upon FieldWorks request or termination of this Agreement.
4. Nothing contained in this Agreement shall be construed as granting or
conferring any rights by license or otherwise to Company, whether express or
implied, for any Confidential Information, invention, discovery, or improvement.
5. This Agreement shall be governed by the laws of the State of Minnesota.
This Agreement may not be amended except in writing and signed by both parties.
6. This Agreement shall cover disclosures FieldWorks makes to Company
within two (2) years after the Execution Date. The restrictions on an item of
Confidential Information set forth in paragraph 2 shall continue until the
earlier of five (5) years after FieldWorks discloses such item of Confidential
Information to Company or such Confidential Information becomes generally
available to the public through no fault of the Company.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives below.
<TABLE>
<S> <C>
FieldWorks Incorporated
------------------------------------------------ -------------------------------------------------
(name of COMPANY)
------------------------------------------------ -------------------------------------------------
(signature of Authorized Representative) (signature of Authorized Representative)
------------------------------------------------ -------------------------------------------------
(print Authorized Representative name) (print Authorized Representative name)
------------------------------------------------ -------------------------------------------------
(title) (title)
</TABLE>
Page 1 of 2
<PAGE>
MUTUAL NON-DISCLOSURE AGREEMENT
(FieldWorks, Inc. disclosing and receiving information)
<TABLE>
<S> <C>
------------------------------------------------ -------------------------------------------------
(Execution Date) (date)
</TABLE>
Page 2 of 2
<PAGE>
Exhibit 10.34
[FIELDWORKS LETTERHEAD]
INTERNATIONAL DISTRIBUTOR AGREEMENT
This International Distributorship Agreement ("Agreement") is made as of
the date of execution by FieldWorks, as recorded on Page 7, ("Execution Date")
by and between FieldWorks, Incorporated, a corporation organized under the laws
of the State of Minnesota, USA, having an office at 7631 Anagram Drive, Eden
Prairie, MN 55344 USA (hereinafter "FieldWorks"), and
Company Name:
Address:
Address:
Address:
Phone: FAX:
Type of company (i.e., corporation, etc.):
Organized under the laws of:
(hereinafter "Distributor").
WITNESSETH:
WHEREAS, FieldWorks manufactures and sells the Products as hereinafter defined;
and
WHEREAS, Distributor is engaged in business in the Territory as hereinafter
defined and wishes to distribute the Products in the Territory, and FieldWorks
is willing to authorize Distributor to do so, all on the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, FieldWorks and Distributor hereby agree as follows:
1. Appointment
1.1 FieldWorks hereby appoints and authorizes Distributor as an authorized
distributor for the products listed on Annex A ("Products") attached hereto
and made a part hereof, in the Territory described on Annex B ("Territory")
attached hereto and made a part hereof and Distributor accepts such
appointment, all subject to the terms and conditions of this Agreement.
1.2 During the term of this Agreement, FieldWorks shall refer inquiries it
receives from the Territory regarding Products to Distributor.
2. Undertakings of Distributor
2.1 During the term of this Agreement, Distributor: (i) shall not
manufacture or distribute goods which compete with the Products; (ii) shall
obtain the Products for resale only from FieldWorks; and (iii) shall
refrain, outside the Territory and in relation to the Products, from
seeking customers, from establishing any branch, and from establishing any
distribution depot without prior written approval of FieldWorks.
Page 1 of 7
<PAGE>
INTERNATIONAL DISTRIBUTOR AGREEMENT
3. Term of Agreement
3.1 This agreement shall commence as of the Execution Date and shall
terminate in one (1) year. This agreement may be renewed for an additional
one (1) year term upon written agreement of the parties. If the parties
fail to agree in writing upon a renewal of this agreement prior to the
expiration of this agreement, this agreement shall automatically terminate.
3.2 Either party may terminate this agreement, with or without cause, on a
thirty (30) days prior written notice. In the event of termination,
FieldWorks agrees to grant Distributor the right to sell off all existing
inventory of FieldWorks products.
3.3 Upon cancellation or termination FieldWorks shall permit Distributor to
sell Distributor's existing inventory of Products during a period of three
(3) months following the date of cancellation or termination. Upon such
cancellation or termination FieldWorks shall have no further obligation
toward Distributor other than delivery of Products pursuant to orders by
Distributor accepted by FieldWorks prior to the effective date of the
cancellation or termination, and Distributor hereby agrees to assert no
claim beyond that.
4. Distributor's Status and Responsibility
4.1 Distributor is an independent contractor and is not an agent, employee
or legal representative of FieldWorks and all persons engaged by
Distributor shall be Distributor's employees, legal representatives or
agents but not those of FieldWorks. Distributor is not authorized to do
business in FieldWorks' name or to otherwise obligate FieldWorks in any
way.
4.2 Distributor shall use its best efforts in the development, promotion,
sale and service of FieldWorks' Products in the Territory.
4.3 Distributor will provide and maintain at its own expense facilities and
qualified personnel sufficient to provide a high standard of service to its
customers in selling, and providing maintenance service for, Products in
the Territory.
4.4 Distributor will maintain in the Territory an adequate inventory of
service parts for Products to promptly perform maintenance service for its
customers; and will provide warranty service for the Products in the
Territory.
4.5 Distributor will promote the Products to inform Distributor's customers
and potential customers of the application, kind, quality and manufacturer
of the Products and will cooperate with FieldWorks in any advertising or
promotion programs undertaken by FieldWorks with respect to the Products.
Page 2 of 7
<PAGE>
INTERNATIONAL DISTRIBUTOR AGREEMENT
4.6 Products subject to this Agreement shall either be: (i) purchased by
Distributor from FieldWorks for resale by Distributor in the original
packages in which they were received from FieldWorks; or (ii) purchased by
Distributor from FieldWorks and repackaged by Distributor provided that
written authorization is obtained from FieldWorks in advance of repackaging
and sale and the parties mutually agree on the packaging to be utilized by
Distributor.
4.7 The parties will consult to develop a written marketing plan for
marketing Products in the Territory; and Distributor will use its best
efforts to comply with such marketing plan in its sales of Products in
Territory.
4.8 Distributor will make no representations or warranties with respect to
the Products except as expressly authorized in writing by FieldWorks.
4.9 Distributor agrees to furnish sales forecasts, market surveys, reports
of competitive conditions, and any other data reasonably requested by
FieldWorks which are pertinent to proper development of the market.
Distributor shall maintain records of its sales of Products, and permit
FieldWorks to have access to those records upon FieldWorks' request.
4.10 Distributor will avoid activities or practices that may injure the
reputation of FieldWorks or the Products.
4.11 Distributor will comply with all applicable laws and regulations
during the course of performance of this Agreement and in related
activities.
4.12 Distributor will defend, indemnify and hold harmless FieldWorks from
any and all claims, demands, suits or liability arising out of any acts or
omissions of Distributor, its employees, appointees, legal representatives
and agents, whether based upon breach of contract, negligence, strict
liability or otherwise.
5. Price and Payment Terms
5.1 FieldWorks shall sell the Products to the Distributor at FieldWorks'
then current list price (EXW FieldWorks' United States factory or
warehouse) as set forth on the then current price list, less the discount
set forth on Annex C attached hereto and made a part hereof, or as
otherwise quoted to Distributor.
5.2 Distributor to pay for products purchased under this agreement at the
then current FieldWorks International Price List minus the discount set
forth under Annex C. Payment terms are Net 45 from date of shipment by
FieldWorks to Distributor upon approved credit by FieldWorks.
5.3 Unless otherwise mutually agreed, Distributor shall pay for Products in
US currency by means of an irrevocable letter of credit, payable against
shipping documents, issued or confirmed by a bank satisfactory to
FieldWorks.
Page 3 of 7
<PAGE>
INTERNATIONAL DISTRIBUTOR AGREEMENT
5.4 Distributor shall pay any applicable sales tax, export tax, import tax,
value added tax, duties and any similar taxes and charges; and shall be
responsible for shipment of Products and all expenses thereof after they
are delivered to Distributor EXW FieldWorks' United States factory or
warehouse.
5.5 Distributor's sole compensation hereunder shall consist of the
difference between Distributor's purchase price paid to FieldWorks and the
selling price received from its customers.
6. Technical and Sales Assistance
6.1 FieldWorks will furnish Distributor with samples of technical and sales
information in the English language regarding the Products.
6.2 FieldWorks shall provide training classes from time to time at its
facility in Eden Prairie, Minnesota, USA for Distributor's personnel. Such
classes shall be free of charge, but Distributor shall pay all costs of
attendance, including travel and lodging.
6.3 If, pursuant to this Agreement, FieldWorks discloses to Distributor
information which is designated as confidential, Distributor shall retain
such information in strict confidence and not use it or disclose it except
as expressly agreed in writing by FieldWorks or except if and to the extent
that it becomes generally known through no fault of Distributor.
7. Orders and Warranty
7.1 Orders will be binding upon FieldWorks only when accepted and approved
in writing by an authorized representative of FieldWorks. All such orders
will be for delivery EXW FieldWorks' factory or warehouse in the USA and
will be subject to FieldWorks' standard terms and conditions in effect as
of date of shipment, to the extent that such terms and conditions do not
disagree or conflict with this Agreement, in which case this Agreement
shall govern.
7.2 FieldWorks shall extend to Distributor its published limited warranties
for Products as the same may be modified by FieldWorks from time to time,
and makes no other warranty, express or implied. Distributor's sole remedy
against FieldWorks with respect to Products shall be their repair or
replacement in accordance with FieldWorks' applicable limited warranty
policy.
8. Patents and Industrial Property Rights
8.1 FieldWorks reserves the right to suspend performance or to cancel this
Agreement if it believes that the manufacture, sale or use of any Products
sold hereunder may infringe any United States or foreign patent, or other
industrial property right.
Page 4 of 7
<PAGE>
INTERNATIONAL DISTRIBUTOR AGREEMENT
9. Trademarks and Trade Names
9.1 Distributor agrees to submit to FieldWorks for prior approval examples
of promotional literature, advertising, and technical narrative in which
any FieldWorks trademark, trade name, slogan, or logo is used. Distributor
shall not register or use any of FieldWorks' trademarks, trade name,
slogans, logos or packaging designs (or any similar trademarks, trade
names, slogans, logos or packaging designs) except as specifically
authorized in writing in advance. Sale by Distributor of Products in the
packages in which they were shipped shall not be considered use for this
purpose.
9.2 In the event that it becomes necessary or desirable for FieldWorks to
prove use of any of its trademarks, trade names, slogans, or logos which
appear on the Products, Distributor will cooperate with FieldWorks in
obtaining such proof, and upon request will provide FieldWorks with such
evidence of use as the authorities in the Territory may require. For this
purpose, Distributor shall retain such evidence of use for at least three
(3) years from the date of receipt or origination of such evidence by
Distributor. Distributor shall assign to FieldWorks, without compensation,
all rights of record or otherwise that Distributor has obtained or may
obtain with respect to any FieldWorks trademark, trade name, slogan, logo
or packaging design and shall take such other action as FieldWorks may
require in order to confirm FieldWorks' ownership thereof.
9.3 Upon cancellation or termination of this Agreement, Distributor shall
immediately stop using any of FieldWorks' trademarks, trade names, slogans,
logos or packaging designs and any language stating or suggesting that
Distributor is a distributor for the Products.
10. Excuses for Nonperformance
10.1 No liability shall result from the delay in performance or
nonperformance (other than the obligation to pay for Products shipped)
caused by force majeure or circumstances beyond the reasonable control of
the party affected, including, but not limited to, Acts of God, fire,
flood, war, embargo, any United States or foreign government regulation,
direction or request, accident, labor trouble, or shortage of, or inability
to obtain material, equipment, or transport.
11. Cancellation
11.1 Either party may cancel this Agreement upon at least thirty (30) days
written notice should the other breach any of the provisions of this
Agreement and fail to cure such breach within thirty (30) days of receiving
written notice thereof.
11.2 If Distributor fails to meet or establish agreed upon quarterly sales
goals or if Distributor fails to promptly follow up on any and all sales
leads and report to FieldWorks the outcome of such follow up, FieldWorks
may cancel this Agreement by written notice.
Page 5 of 7
<PAGE>
INTERNATIONAL DISTRIBUTOR AGREEMENT
11.3 If Distributor enters or is placed in bankruptcy, receivership or
liquidation, is nationalized, becomes insolvent or makes an assignment for
the benefit of its creditors, FieldWorks may cancel this Agreement by
written notice.
11.4 FieldWorks may immediately cancel this Agreement upon a change in the
ownership, management or geographical location of Distributor which
FieldWorks, in its sole discretion, deems adverse to its interests.
11.5 Neither party, by reason of the cancellation or termination of this
Agreement in conformity with the terms thereof or the non-renewal of this
Agreement for any or all of the Products, shall be liable to the other
party for compensation, reimbursement or damages because of the loss of
goodwill, anticipated sales or prospective profits, or because of
expenditures, investments or other matters related to the performance
hereunder or to the business of the parties.
11.6 Neither cancellation nor termination shall relieve either party from
the duty to discharge in full all obligations accrued or due prior to the
date thereof.
12. Assignability
12.1 Except as otherwise provided herein, neither party may assign this
Agreement or any right or obligation under this Agreement and any purported
assignment shall be void and ineffective. FieldWorks may assign its rights
and delegate its performance hereunder, in whole or in part, to any
affiliated company or to any successor in interest or transferee of that
portion of FieldWorks' business that is directly involved in the
performance of this Agreement.
13. Applicable Law and Arbitration
13.1 The construction, performance and completion of this Agreement shall
be governed by the laws of the State of Minnesota, USA, including the
Uniform Commercial Code in effect on the Execution Date of this agreement.
The UN Convention on Contracts for the International Sale of Goods shall
not apply to this Agreement.
13.2 Any dispute arising out of or relating to this Agreement shall be
submitted to arbitration pursuant to the Commercial Arbitration Rules of
the American Arbitration Association by three arbitrators appointed in
accordance with those Rules. The decision of the arbitrators shall be
binding and conclusive upon each party and may be enforced in any court of
competent jurisdiction. The arbitration will be conducted in English and
the arbitrators shall apply the substantive law of the jurisdiction in
Article 13.1 above, except that this arbitration provision shall be
governed by the United States Federal Arbitration Act. The site of
arbitration shall be in Minneapolis, Minnesota, USA. The costs and expenses
of any such arbitration, including reasonable attorneys' fees, shall be
borne as determined by the arbitrators.
Page 6 of 7
<PAGE>
INTERNATIONAL DISTRIBUTOR AGREEMENT
14. Notice
14.1 Any notice required or permitted herein may be hand delivered, sent by
facsimile transmission, or sent by postage prepaid registered airmail -
return receipt requested, properly addressed to the party to be notified at
the address set forth above or at the last known address given by such
party to the other party and shall be deemed delivered when hand delivered
or transmitted by facsimile, or when sent by registered airmail, on the
earlier of the date received or ten (10) days after the date mailed.
15. General Conditions
15.1 This Agreement shall be executed in duplicate but shall not be binding
upon FieldWorks until a copy, signed by the Distributor, is executed by
FieldWorks.
15.2 If registration of this Agreement with governmental authorities is
required by the laws of the Territory, Distributor shall timely comply with
such registration requirements and provide proof of such compliance to
FieldWorks.
15.3 This Agreement supersedes all existing agreements or arrangements by
and between FieldWorks and Distributor relating to the subject matter
hereof, whether written or oral, and all such prior agreements or
arrangements are hereby deemed terminated by mutual consent of the parties.
15.4 A waiver of a breach of any of the provisions of this Agreement shall
not be deemed to be a waiver of any succeeding breach of the same or any
other provision of this Agreement.
15.5 This Agreement is entered into in the English language. If a
translation of this Agreement into any other language is required or
desired for any reason, the English text shall govern in all matters
involving the interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives below.
<TABLE>
<S> <C>
FIELDWORKS INCORPORATED
------------------------------------------------ -------------------------------------------------
(Distributor name)
------------------------------------------------ -------------------------------------------------
(signature of Authorized Representative) (signature of Authorized Representative)
------------------------------------------------ -------------------------------------------------
(print Authorized Representative name) (print Authorized Representative name)
------------------------------------------------ -------------------------------------------------
(title) (title)
------------------------------------------------ -------------------------------------------------
(Execution Date) (date)
</TABLE>
Page 7 of 7
<PAGE>
INTERNATIONAL DISTRIBUTOR AGREEMENT
ANNEX A
THE PRODUCTS
<PAGE>
INTERNATIONAL DISTRIBUTOR AGREEMENT
ANNEX B
TERRITORY
<PAGE>
INTERNATIONAL DISTRIBUTOR AGREEMENT
ANNEX C
PRICING
<PAGE>
INTERNATIONAL DISTRIBUTOR AGREEMENT
ANNEX D
Modifications, Amendments, and/or Waivers
The modifications, amendments, and/or waivers, as delineated below, shall apply
to this Agreement:
(Reference Section numbers (e.g., "Section 1.2", "Section 2.1 (last
sentence)", Section 2.3 (3rd sentence, etc.), and describe changes in terms
of "Add:", "Replace:", "Delete:", "Change to read:", "Add at the end of
Section:", etc.).
<PAGE>
Exhibit 10.35
[FIELDWORKS LETTERHEAD]
PRODUCT EVALUATION AGREEMENT
This Product Evaluation Agreement (the "Agreement") is made as of the Effective
Date between FieldWorks, Incorporated ("FieldWorks") located at 7631 Anagram
Drive, Eden Prairie, Minnesota 55344 and
Company:
-------------------------------------------
Address:
-------------------------------------------
-------------------------------------------
Telephone: Voice:
-----------------------------------
FAX:
-----------------------------------
(the "Customer").
FieldWorks and Customer hereby agree as follows:
1. TERM; EVALUATION OF PRODUCT; TAXES. Customer shall use the FieldWorks
WorkStation and items listed on Exhibit A ("Product") solely for the purpose of
making an internal evaluation of the Product with the intent to make a
purchasing determination and for no other purpose. The loan of Product is made
on a no-charge basis, but Customer shall be responsible for all applicable taxes
(if any), insurance and return shipping charges. Customer will promptly return
the Product to FieldWorks, or ship to destination as directed by FieldWorks, at
the end of the evaluation period.
2. PRODUCT (including items listed on Exhibit A).
Description:
-----------------------------------------
-----------------------------------------
Quantity: 1 Value: $
----------- ----------------
Serial No: RMA No:
----------------- ----------
3. CONTROL AND TITLE. Customer warrants that it will remain in sole possession,
custody and control of the Product at all times while it is on loan from
FieldWorks, and Customer will not allow any third party to use, access, or
control it without prior written consent of FieldWorks. Title and all
proprietary rights to the Product will remain solely in FieldWorks unless and
until Customer has purchased the Product. Customer shall not grant a security
interest or otherwise encumber the Product.
4. SHIPPING CHARGES. FieldWorks' standard shipping and insurance costs for
delivery of the Product to Customer will be paid by FieldWorks. Customer will be
responsible for non-standard shipping and insurance costs for delivery, and for
insurance and shipping costs for the return of the Product at the end of the
evaluation period.
5. DELIVERY; RISK OF LOSS AND RETURN. Subject to availability, FieldWorks shall
deliver the Product to the Customer's location listed above. Customer shall bear
all risk of loss for the Product during the term hereof. Customer shall insure
the Product at Customer's own expense, for all loss, at the value stated in
paragraph 2. If the Product is damaged, lost or stolen while with Customer, or
if Customer does not return the Product at the end of the evaluation period,
Customer agrees to purchase the Product at FieldWorks' then current commercial
price. When shipping the Product to FieldWorks, Customer must mark the outside
of the shipping containers with the RMA number recorded in paragraph 2.
6. WARRANTY. The Product is provided to Customer on an "as is" basis, without
any warranties of any kind, express or implied, including, but not limited to,
any warranties of merchantability or fitness for a particular purpose.
7. ADDITIONS AND ATTACHMENTS. Customer may integrate software and/or hardware
into the Product solely for the purpose of evaluation with the intent to make a
purchasing decision and for no other purpose. If Customer integrates software
and/or hardware in the Product, Customer shall remove the same and restore the
Product to its original condition prior to its return.
8. CUSTOMER'S INDEMNITY. Customer shall defend, indemnify and hold FieldWorks
harmless from any and all claims based on or related to the use of the Product
or any portion thereof, or to this Agreement, including, but not limited to,
liability for property damage and claims of third parties.
9. GENERAL. This Agreement shall be governed by and interpreted under the laws
of Minnesota.
End of evaluation period:
-----------------------
(Product Return Date)
- -----------------------------------------------------------
(print Customer's company name)
- -----------------------------------------------------------
(sign name)
- ---------------------------------------- ---------------
(print name) (Effective
Date)
- ----------------------------------------
(print title)
Customer, please sign the Agreement and Fax to FieldWorks Sales Support at F:
(612) 949-2791, at which time FieldWorks will schedule shipment of the Product.
- --------------------------------------------------------------------------------
Page 1 of 2
<PAGE>
[LOGO OF FIELDWORKS, INC.]
Exhibit A
The follow listed items where shipped with the FieldWorks WorkStation
listed on page 1, and are subject to all terms and conditions that apply to
Product:
- --------------------------------------------------------------------------------
Page 2 of 2
<PAGE>
Exhibit 10.36
[FIELDWORKS LETTERHEAD]
OEM AGREEMENT
This non-exclusive OEM Agreement ("Agreement") is made as of the date of
execution by FieldWorks, as recorded on Page 6, ("Execution Date") by and
between
Company Name:
Address:
City, State, Zip Code:
Voice: FAX:
("OEM"), and FieldWorks, Incorporated, located at 7631 Anagram Drive, Eden
Prairie, MN 55344-7310 ("FieldWorks").
OEM desires to sell certain products manufactured and sold by FieldWorks
and FieldWorks desires to have OEM act as its non-exclusive OEM in the sale of
such products. In consideration of these promises and the covenants contained in
this Agreement, the parties agree as follows.
1. Appointment of OEM
1.1 FieldWorks hereby appoints OEM as a non-exclusive OEM for
FieldWorks' products set forth on Exhibit A (the "Products") as FieldWorks
may amend from time to time upon notice to OEM. OEM shall be entitled to
sell the Products only in the territory and/or markets defined in Exhibit
B.
1.2 OEM agrees to use its best efforts to promote, sell, support and
maintain the Products as provided in this Agreement and agrees to abide by
all reasonable rules and regulations FieldWorks establishes for its OEM
from time to time. OEM shall sell the Products only as bundled with
additional application software or system hardware.
2. Ordering, Delivery, Prices and Payments
2.1 OEM shall purchase such number of Products to meet the annual
minimum quota set forth in Exhibit C. The failure to meet such annual
minimum quota shall be a material breach of this Agreement.
2.2 OEM shall purchase the Products on the annual ship schedule set
forth as Exhibit C. Any change to the annual ship schedule shall be subject
to the prior written approval of FieldWorks. OEM shall be entitled to use
its standard form of purchase order for such orders; however, any terms in
addition or contrary to the terms of this Agreement shall not apply. All
orders shall be in minimum lot sizes of five (5) units.
2.3 The prices to be paid by OEM for Products purchased under this
Agreement shall be the prices established by FieldWorks defined in Exhibit
D. The prices are to be determined by the annual minimum quota outlined in
Exhibit C. FieldWorks may increase prices at any time by providing OEM with
at least (30) days prior written notice.
Page 1 of 6
<PAGE>
OEM AGREEMENT
2.4 All deliveries of Products shall be FOB FieldWorks' facilities by
a carrier of FieldWorks' choice, unless otherwise agreed in writing by
FieldWorks and OEM. Title to the Products and risk of loss shall pass to
OEM upon delivery to such carrier. FieldWorks shall not be responsible for
any delay in shipping the Products.
3. Marketing and Business Obligations
3.1 OEM shall provide all after sales support for its customers for
any Products or repairs that are not covered by FieldWorks' warranty. OEM
shall maintain a sufficient staff trained to support and maintain the
Products.
3.2 OEM shall communicate regularly with FieldWorks regarding its
sales and marketing activities relating to the Products, including
providing, on a monthly basis or as requested by FieldWorks, inventory and
sales status, and the name, address, and phone number of all sales to
customers along with the corresponding serial number, model number and date
of unit purchase. OEM shall assist FieldWorks in tracing and locating
Products upon request. To facilitate communications, OEM shall maintain at
its facilities an industry-standard facsimile unit.
3.3 OEM shall perform its obligations under this Agreement in
compliance with all applicable laws. OEM shall not conduct sales or
marketing activity outside the territory/market defined in Exhibit B and
nor make any representation or warranty relating to any Product or to
FieldWorks, except as authorized by FieldWorks. OEM shall not export the
Products (or knowingly permit any third party to do so) outside of the
United States without the prior written consent of FieldWorks.
3.4 Except as permitted in Section 1.2, OEM shall not modify the
Products in any manner and shall maintain Products in its inventory in a
clean, safe and professional condition. OEM shall not reverse engineer,
decompile or disassemble the Products and shall not knowingly allow any
other person to do so.
3.5 OEM agrees to, and hereby does, indemnify FieldWorks, its
officers, directors, employees and agents against and hold each of them
harmless from any and all claims, causes of action, damages, liabilities,
costs and expenses (including attorneys fees) arising from any breach by
OEM of any provision of this Agreement.
3.6 FieldWorks may from time to time review OEM's performance under
this Agreement. Upon request by FieldWorks, OEM shall provide FieldWorks
with relevant records and/or access to OEM's facility (during normal
business hours) to perform such review.
4. Warranty
4.1 FieldWorks warrants the Products to OEM and its customer for a
period of one (1) year from the date of shipment to OEM pursuant to the
terms of FieldWorks' then current standard product warranty. In order for
the warranty to transfer to the customer, OEM must provide to FieldWorks
the customer identification information identified in Section 3.2.
Page 2 of 6
<PAGE>
OEM AGREEMENT
4.2 The warranty set forth in Section 4.1 is intended for the benefit
of OEM and OEM's customers. All claims made hereunder shall be made by OEM
or by OEM's customer through OEM.
4.3 THE WARRANTY SET FORTH IN SECTION 4.1 AND IN FIELDWORKS' STANDARD
WARRANTY ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE
HEREBY DISCLAIMED AND EXCLUDED BY FIELDWORKS, INCLUDING WITHOUT LIMITATION
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE
AND ALL OBLIGATIONS OR LIABILITIES ON THE PART OF FIELDWORKS FOR DAMAGES
ARISING OUT OF OR IN CONNECTION WITH THE DISTRIBUTION, USE, REPAIR OR
PERFORMANCE OF THE PRODUCTS.
5. Trademarks
5.1 FieldWorks grants to OEM a non-exclusive, nontransferable,
royalty-free license to use FieldWorks' trademarks and trade names solely
in connection with the distribution, promotion, advertising and maintenance
of the Products and in accordance with FieldWorks' standards and
instructions. OEM shall not use any other marks or trade names in
connection with the marketing and distribution of the Products without the
prior written consent of FieldWorks. All use of FieldWorks' trademarks and
tradenames shall be subject to FieldWorks' prior written approval and
FieldWorks may, from time to time, inspect and monitor OEM's use of the
FieldWorks trademarks.
5.2 OEM is not granted any right, title or interest in such trademarks
other than the foregoing limited license, and OEM shall not use any
FieldWorks trademarks as part of OEM's corporate or trade name or permit
any third party to do so. OEM shall not register FieldWorks' trademarks or
trade names without FieldWorks' prior written authorization, nor adopt, use
or register any words, phrases or symbols which are identical to or
confusingly similar to any of FieldWorks' trademarks. Upon termination or
expiration of this Agreement, OEM shall cease and desist from use of
FieldWorks' trademarks and trade names in any manner.
5.3 OEM shall not remove or alter any patent numbers, trade names,
trade marks, notices, serial numbers, labels, tags, copyright notices or
other identifying marks, symbols or legends affixed to any Products,
documentation, containers or packages, without the prior written consent of
FieldWorks.
5.4 OEM shall promptly notify FieldWorks in writing of any
unauthorized use of FieldWorks' trademarks or similar marks which may
constitute an infringement or passing off of FieldWorks' trademarks and
shall cooperate with FieldWorks in any legal action taken by FieldWorks.
FieldWorks reserves the right in its sole discretion to institute any
proceedings against such third party infringers.
Page 3 of 6
<PAGE>
OEM AGREEMENT
6. Term and Termination
6.1 Unless earlier terminated as provided in this Agreement, this
Agreement shall commence as of the Execution Date and shall terminate one
(1) year thereafter. This agreement may be renewed for additional one (1)
year terms upon written agreement of the parties which agreement must
include mutual agreement as to the annual minimum sales quota and the ship
forecast for such renewal term. If the parties fail to agree in writing
upon a renewal of this Agreement prior to the expiration of this Agreement,
this Agreement shall automatically expire and terminate without further
notice to either party.
6.2 Either party can terminate this Agreement, with or without cause,
on a thirty (30) days' prior written notice to the other party.
6.3 Within thirty (30) days of the termination of this Agreement, OEM
shall provide to FieldWorks:
o A list of all OEM's customers and the destination of all Products
sold, and
o Complete information regarding any negotiations ongoing for the
sale of Products, and
o A list of all OEM's customers whose units are still under
warranty.
6.4 Upon termination or expiration of this Agreement, unless
FieldWorks terminates for OEM's material breach, OEM shall have the right
to distribute its then existing inventory of Products during the three (3)
month period following such termination or expiration, and OEM shall
thereafter cease selling, leasing or distributing the Products. If this
Agreement is terminated for OEM's material breach, OEM shall cease selling,
leasing or distributing the Products as of the effective date of such
termination. Sections 3.3, 4 and 7 shall survive any termination or
expiration of this Agreement.
7. Confidentiality
7.1 OEM agrees that in the course of business dealings with
FieldWorks, certain valuable, proprietary and confidential information of
FieldWorks is likely to become known to OEM, including, without limitation,
such information as equipment and software design information,
documentation, prospect and customer lists, key employee names, pricing,
discount, and commission structures, production volumes, and similar
information (hereinafter "proprietary information"). OEM agrees that the
proprietary information is the sole and exclusive property of FieldWorks
and shall be treated as confidential. OEM shall not disclose the
proprietary information in any manner to any third party without the prior
written approval of FieldWorks and shall take reasonable measures to
prevent any unauthorized disclosure by its employees, agents, contractors
or consultants during the term hereof including appropriate individual
nondisclosure agreements. OEM may use the proprietary information during
the term of this Agreement only as permitted or required for OEM's
performance hereunder.
Page 4 of 6
<PAGE>
OEM AGREEMENT
7.2 The obligations set forth in Section 7.1 shall not apply to any
information which is or becomes known to the general public, or which OEM
can prove by written records was known to OEM at the time of its receipt
thereof from FieldWorks, or which has been rightfully obtained by OEM from
a third party. The provisions of this Section 7, shall survive any
termination or expiration of this Agreement.
8. General
8.1 This Agreement, including the Exhibits hereto which are
incorporated herein by reference, constitute the entire Agreement between
the parties and supersedes all prior and contemporaneous Agreements,
understandings, negations and discussions, whether written or oral.
8.2 Any dispute between the parties arising out of or in connection
with this Agreement, if not resolved by mutual agreement between the
parties, shall be settled by binding arbitration under the rules of the
American Arbitration Association. In the event of any such dispute or
difference, either party may give to the other party written notice that
the matter shall be settled by arbitration. Such arbitration shall be
conducted in Hennepin County, Minnesota, USA. An award by arbitration may
be entered as final judgment in any court having jurisdiction in the matter
or application may be made to such a court for acceptance of the award and
for an order of compliance.
8.3 This Agreement shall be governed by and interpreted under the laws
of the State of Minnesota, USA, excluding its choice of law rules.
8.4 OEM shall pay all expenses incidental to the performance of its
duties hereunder, including payroll taxes, salaries, wages or commissions
for employees, transportation and travel expenses and the expense of
maintaining such office as OEM shall deem desirable.
8.5 All modifications, amendments, and/or waivers to this Agreement,
less exhibits, shall be in writing and signed by both parties. No failure
by either party to take any action or assert any right hereunder shall be
deemed to be a waiver of such right in the event of the continuation or
repetition of the circumstances giving rise to such right.
8.6 In no event shall FieldWorks be liable to OEM, any of OEM's
customers or any other party for loss of profits, indirect, special,
consequential or incidental damages arising out of this Agreement, even if
FieldWorks shall have been advised of the possibility of such potential
loss or damage by OEM or OEM's customers. In no event shall FieldWorks be
liable for any damages in excess of the aggregate amounts actually paid by
OEM to FieldWorks under this Agreement.
8.7 OEM may not assign, delegate or transfer any of its rights or
obligations under this Agreement, without the prior written consent of
FieldWorks. Any attempted assignment, delegation or transfer by OEM without
such consent shall be void.
8.8 If any provision of this Agreement is found invalid or
unenforceable, such provision shall be deemed stricken from the Agreement
and the remainder of the Agreement shall continue in full force and effect.
Page 5 of 6
<PAGE>
OEM AGREEMENT
8.9 This Agreement does not make either party the employee, agent or
legal representative of the other for any purpose whatsoever. Neither party
is granted any right or authority to assume or to create any obligation or
responsibility, express or implied, on behalf of or in the name of the
other party. Each party is acting as an independent contractor.
8.10 Notices permitted or required to be given hereunder shall be
deemed sufficient if given by (a) registered or certified mail, postage
prepaid, return receipt requested, (b) private courier service, or (c)
facsimile addressed to the respective addresses of the parties as first
above written or at such other addresses as the respective parties may
designate by like notice from time to time. Notices so given shall be
effective upon (1) receipt by the party to which notice is given, or (2) on
the fifth (5th) day following mailing, whichever occurs first.
8.11 If the performance of this Agreement or any obligation hereunder
(other than the payment of moneys due owing hereunder) is prevented,
restricted or interfered with by reason of any event or condition beyond
the reasonable control of such party (including without limitation acts of
State or governmental action, riots, disturbance, war, strikes, lockouts,
slowdowns, prolonged shortage of energy or other supplies, epidemics, fire,
flood, hurricane, typhoon, earthquake, lightning and explosion,), the party
so affected shall be excused from such performance, only for so long as and
to the extent that such a force prevents, restricts or interferes with the
party's performance and provided that the party affected gives notice
thereof to the other party and uses diligent efforts to remedy such event
or conditions.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives below.
<TABLE>
<S> <C>
FIELDWORKS INCORPORATED
------------------------------------------------ -------------------------------------------------
(OEM Company Name)
------------------------------------------------ -------------------------------------------------
(signature of Authorized Representative) (signature of Authorized Representative)
------------------------------------------------ -------------------------------------------------
(print Authorized Representative name) (print Authorized Representative name)
------------------------------------------------ -------------------------------------------------
(title) (title)
------------------------------------------------ -------------------------------------------------
(Execution Date) (date)
</TABLE>
Page 6 of 6
<PAGE>
OEM AGREEEMENT
EXHIBIT A
THE PRODUCTS
The products to be sold by OEM include:
<PAGE>
OEM AGREEMENT
EXHIBIT B
TERRITORY/MARKET BOUNDARIES
The Products described in Exhibit A may only be sold and shipped by OEM to the
following geographic territory and markets:
Inclusions:
The Territory includes:
The Market Segment includes:
Exclusions:
<PAGE>
OEM AGREEMENT
EXHIBIT C
ONE YEAR SHIP QUOTA
For the twelve (12) month period following the Execution Date, the total
Units bought by OEM from FieldWorks, Inc. is
UNITS
-----------------------
and assigned as minimum sales quota for the period.
Ship schedule for the period is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------- --------- --------- -------- --------- --------- --------- -------- --------- --------- --------- --------
Jan Feb Mar April May June July Aug Sept Oct Nov Dec
- ----------- --------- --------- -------- --------- --------- --------- -------- --------- --------- --------- --------
- ----------- --------- --------- -------- --------- --------- --------- -------- --------- --------- --------- --------
</TABLE>
OEM may, with FieldWorks written approval, make changes to the above ship
schedule provided the total unit commitment for the period is met.
<PAGE>
OEM AGREEMENT
EXHIBIT D
PRICE SCHEDULE
Pricing for the Products listed in Exhibit A is as follows:
Maintenance Contracts:
<PAGE>
OEM AGREEMENT
EXHIBIT E
Modifications, Amendments, and/or Waivers
The modifications, amendments, and/or waivers, as delineated below, shall apply
to this Agreement:
(Reference Section numbers (e.g., "Section 1.2", "Section 2.1 (last
sentence)", Section 2.3 (3rd sentence, etc.), and describe changes in terms
of "Add:", "Replace:", "Delete:", "Change to read:", "Add at the end of
Section:", etc.).
<PAGE>
Exhibit 10.37
[FIELDWORKS LETTERHEAD]
SALES REPRESENTATIVE AGREEMENT
This non-exclusive Sales Representative Agreement ("Agreement") is made as
of the date of execution by FieldWorks, as recorded on Page 6, ("Execution
Date") by and between
Company Name:
Address:
City, State, Zip Code:
Voice: FAX:
("Representative"), and FieldWorks, Incorporated, located at 7631 Anagram Drive,
Eden Prairie, MN 55344-7310 ("FieldWorks").
Representative desires to promote the sales of certain products
manufactured and sold by FieldWorks and FieldWorks desires to have
Representative act as its representative in the sale of such products. In
consideration of these promises and the covenants contained in this Agreement,
the parties agree as follows.
1. Appointment of Representative
1.1 FieldWorks hereby appoints Representative as a non-exclusive sales
representative for FieldWorks' products set forth on Exhibit A ("Products")
as FieldWorks may amend from time to time upon notice of Representative.
Representative shall be entitled to promote the sale of the Products only
in the territory and/or markets as defined in Exhibit B.
1.2 Representative agrees to use its best efforts to promote the sale
of the Products and agrees to abide by all reasonable rules and regulations
FieldWorks establishes for its sales representatives from time to time.
Representative agrees that, during the term of this Agreement,
Representative will not sell, promote or offer for sale, products which
directly compete with or substitute for the Products.
1.3 Representative will solicit and take orders for the Products and
transmit the orders in writing to FieldWorks in the format approved by
FieldWorks. FieldWorks reserves the right to accept, reject, modify or
cancel in whole or in part any or all orders received and/or accepted for
the Products, in its sole discretion. Representative's authority under this
Agreement is limited to the solicitation and transmission to FieldWorks of
orders, and Representative has no right or authority to make binding
quotations, to accept any orders or to enter into any contracts or
agreements whatsoever for or on behalf of FieldWorks. Representative is an
independent contractor and not an agent or employee of FieldWorks.
1.4 Representative understands that FieldWorks' Products will be
marketed to and used by a wide variety of customers and in various market
segments. Representative understands that other sales organizations may be
operating in the same territory and/or markets as Representative.
Page 1
<PAGE>
SALE REPRESENTATIVE AGREEMENT
2. Commissions
2.1 For sales made by Representative for delivery within
Representative's territory and/or market, FieldWorks shall pay
Representative the commission rate set forth in Exhibit D. The commission
shall become due and payable on the last day of the calendar month
following the month in which FieldWorks received payment in full for the
Product.
2.2 Representative's commission rate and schedule, set forth in
Exhibit D, is based on the Net Sales Price of the Products sold. As used
herein, "Net Sales Price" shall mean the actual price received by
FieldWorks after any adjustments for credits, returns, pricing adjustments,
discounts, allowances, taxes, shipping charges, non-recurring or other
factors which reduce the amount actually received by FieldWorks.
Non-discountable items defined in the then current FieldWorks Commercial
Price List are also non-commissionable. Commission will be paid only once
on each Product that is sold.
2.3 In the event of any dispute respecting commissions, commission
splitting, or any other commission issue, final resolution of the matter
shall be determined by FieldWorks' Sales Management. Shares of the full
commission shall be awarded by FieldWorks based on the determination of the
Sales Management, in his/her sole discretion, based upon the sales and
support efforts of the parties involved.
2.4 On sales of any Products, Representative's commission is set forth
in Exhibit D. In the case of sales more than $400,000 USD per single
Purchase Order, FieldWorks in its sole discretion is entitled to increase
customer discount only in order to get customer sale. In such cases,
agreements on the amount of commission must be made prior to FieldWorks'
acceptance of the applicable order. In the event no written agreement is
reached prior to acceptance of the order, the commission will be awarded at
a minimum rate of 5%.
2.5 Sales to federal government organizations under FieldWorks' GSA
Authorized ADP Schedule Pricelist will be commissioned at a rate defined in
Exhibit D.
2.6 Representative acknowledges that FieldWorks may, in its sole
discretion, pay commissions to Representative prior to receiving full and
final payment from the customer. Representative agrees that, should
FieldWorks not receive full payment for related Product shipped (such as
returns or charge backs), FieldWorks shall be entitled to deduct such
commission paid from other commissions to be paid to Representative, at
FieldWorks' sole discretion. In the event that there is no commission for
FieldWorks to deduct from, FieldWorks is entitled to seek full
reimbursement. Representative agrees to cooperate and work with FieldWorks
and the customer to secure the business and payment.
Page 2
<PAGE>
SALES REPRESENTATIVE AGREEMENT
3. Sales Objective
3.1 Representative understands and agrees that the establishment and
achievement of a Sales Quota is the essence of this Agreement, and that
failure by Representative to satisfy its obligation under this Section
shall constitute a material breach of this Agreement, entitling FieldWorks
to terminate this Agreement. As a result, Representative agrees that it
will obtain orders which are accepted by FieldWorks in which the dollar
amount received by FieldWorks totals at least the corresponding dollar
amount specified in Exhibit C, as may be revised by the parties for renewal
terms of this Agreement.
4. Marketing and Business Obligations
4.1 Representative agrees (a) to submit quarterly to FieldWorks a six
month rolling sales forecast by model, (b) to follow up on leads supplied
by FieldWorks within 5 days from the receipt thereof, (c) to actively sell
and promote FieldWorks products.
4.2 Representative agrees to initially purchase or lease one or more
model of the FW7000 Series or FW5000 Series to be used in sales and the
promotion of the Products. Representative and FieldWorks will split 50-50
the costs for the up-keep of the demonstration equipment which includes
cosmetic appearance, factory upgrades and any other product revisions that
may occur during the term of this Agreement.
4.3 Representative agrees (d) to employ sufficient appropriately
trained personnel at Representative's expense to represent and sell the
Product adequately, and (e) to maintain Products in a clean, safe and
professional condition.
4.4 Representative agrees to, and hereby does, indemnify FieldWorks,
its officers, directors, employees and agents against and hold each of
them harmless from any and all claims, causes of action, damages,
liabilities, costs and expenses (including attorneys fees) arising from
any breach by Representative of any provision of this Agreement.
5. Term and Termination
5.1 Unless earlier terminated as provided in this Agreement, this
Agreement shall commence as of the Execution Date and shall terminate one
(1) year thereafter. This Agreement may be renewed for additional one (1)
year terms upon written agreement of the parties which agreement must
include mutual agreement as to the Sales Quota applicable to such renewal
term. If the parties fail to agree in writing upon a renewal of this
Agreement prior to the expiration of this Agreement, this Agreement shall
automatically expire and terminate without further notice to either party.
5.2 Either party can terminate this Agreement, with or without cause,
on a thirty (30) days prior written notice to the other party.
Page 3
<PAGE>
SALES REPRESENTATIVE AGREEMENT
5.3 If either party defaults in the performance of any material
provision of this Agreement, then the non-defaulting party may give written
notice to the defaulting party and, if the default is not remedied within
thirty (30) days following receipt of such notice, the Agreement will be
terminated (material breaches of this Agreement shall include, without
limitation, failure to meet the sales quota).
5.4 FieldWorks shall pay Representative commission on sales of
Products resulting from orders taken by Representative during the 30-day
notice period provided for in Section 5.2, provided that FieldWorks has
received payment in full for such orders within three months after the date
of termination hereof. Section 6 shall survive any termination or
expiration of this Agreement.
6. Confidentiality
6.1 Representative agrees that in the course of business dealings with
FieldWorks, certain valuable, proprietary and confidential information of
FieldWorks is likely to become known to Representative, including, without
limitation, such information as equipment and software design information,
documentation, prospect and customer lists, key employee names, pricing,
discount, and commission structures, production volumes, and similar
information (hereinafter "Proprietary Information"). Representative agrees
that the Proprietary Information is the sole and exclusive property of
FieldWorks and shall be treated as confidential. Representative shall not
disclose the Proprietary Information in any manner without the prior
written approval of FieldWorks and shall take reasonable measures to
prevent any unauthorized disclosure by its employees, agents, contractors
or consultants during the term hereof including appropriate individual
nondisclosure agreements. Representative may use the Proprietary
Information during the term of this Agreement only as permitted or required
for Representative's performance hereunder.
6.2 The obligations set forth in Section 6.1 shall not apply to any
information which is or becomes known to the general public through no
fault of Representative, or which Representative can prove by written
records was known to Representative at the time of its receipt thereof from
FieldWorks, or which has been rightfully obtained by Representative from a
third party. The provisions of Section 6 shall survive any termination or
expiration of this Agreement.
Page 4
<PAGE>
SALES REPRESENTATIVE AGREEMENT
7. General
7.1 This Agreement, including the Exhibits hereto which are
incorporated herein by reference, constitute the entire Agreement between
the parties and supersedes all prior and contemporaneous Agreements,
understandings, negations and discussions, whether written or oral.
7.2 Any dispute between the parties arising out of or in connection
with this Agreement, if not resolved by mutual agreement between the
parties, shall be settled by binding arbitration under the rules of the
Commercial Arbitration Rules of the American Arbitration Association. In
the event of any such dispute or difference, either party may give to the
other party written notice that the matter shall be settled by arbitration.
Such arbitration shall be conducted in Hennepin County, Minnesota. An award
by arbitration may be entered as final judgment in any court having
jurisdiction in the matter or application may be made to such a court for
acceptance of the award and for an order of compliance.
7.3 Representative shall pay all expenses incidental to the
performance of its duties hereunder, including payroll taxes, salaries,
wages or commissions for employees, transportation and travel expenses and
the expense of maintaining such office as Representative shall deem
desirable.
7.4 All modifications, amendments, and/or waivers to this Agreement,
less exhibits, shall be in writing and signed by both parties. No failure
by either party to take any action or assert any right hereunder shall be
deemed to be a waiver of such right in the event of the continuation or
repetition of the circumstances giving rise to such right.
7.5 In no event shall FieldWorks be liable to Representative, a
customer or any other party for loss of profits, indirect, special,
consequential or incidental damages arising out of this Agreement even if
FieldWorks shall have been advised of the possibility of such potential
loss or damage by Representative or Representative's customers. In no event
shall FieldWorks be liable for any damages in excess of the aggregate
amounts actually paid by Representative to FieldWorks under this Agreement.
7.6 Representative may not assign, delegate or transfer any of its
rights or obligations under this Agreement, without the prior written
consent of FieldWorks. Any attempted assignment, delegation or transfer by
Representative without such consent shall be void.
7.7 If any provision of this Agreement is declared by a court of
competent jurisdiction to be invalid or unenforceable, such provision shall
be deemed stricken from the Agreement and the remainder of the Agreement
shall continue in full force and effect.
7.8 This Agreement does not make either party the employee, agent or
legal representative of the other for any purpose whatsoever. Neither party
is granted any right or authority to assume or to create any obligation or
responsibility, express or implied, on behalf of or in the name of the
other party. Each party is acting as an independent contractor.
Page 5
<PAGE>
SALES REPRESENTATIVE AGREEMENT
7.9 Notices permitted or required to be given hereunder shall be
deemed sufficient if given by (a) registered or certified mail, postage
prepaid, return receipt requested, (b) private courier service, or (c)
facsimile addressed to the respective addresses of the parties as first
above written or at such other addresses as the respective parties may
designate by like notice from time to time. Notices so given shall be
effective upon (1) receipt by the party to which notice is given, or (2) on
the fifth (5th) day following mailing, whichever occurs first.
7.10 If the performance of this Agreement or any obligation hereunder
(other than the payment of monies due owing hereunder) is prevented,
restricted or interfered with by reason of any event or condition beyond
the reasonable control of such party (including without limitation acts of
State or governmental action, riots, disturbance, war, strikes, lockouts,
slowdowns, prolonged shortage of energy or other supplies, epidemics, fire,
flood, hurricane, typhoon, earthquake, lightning and explosion), the party
so affected shall be excused from such performance, only for so long as and
to the extent that such a force prevents, restricts or interferes with the
party's performance and provided that the party affected gives notice
thereof to the other party and uses diligent efforts to remedy such event
or conditions.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives below.
<TABLE>
<S> <C>
FIELDWORKS INCORPORATED
------------------------------------------------ -------------------------------------------------
(Representative Company Name)
------------------------------------------------ -------------------------------------------------
(signature of Authorized Representative) (signature of Authorized Representative)
------------------------------------------------ -------------------------------------------------
(print Authorized Representative name) (print Authorized Representative name)
------------------------------------------------ -------------------------------------------------
(title) (title)
------------------------------------------------ -------------------------------------------------
(Execution Date) (date)
</TABLE>
Page 6
<PAGE>
SALES REPRESENTATIVE AGREEMENT
EXHIBIT A
The Products
Agreement includes
<PAGE>
SALES REPRESENTATIVE AGREEMENT
EXHIBIT B
Territory/Market Boundaries
The Products described in Exhibit A may only be sold and shipped by SR to the
following geographic territory and/or markets:
Inclusions:
The Territory includes:
The Market Segment includes:
Exclusions:
All OEM sales are excluded under the commission schedule shown in EXHIBIT C
under this Agreement. Any other applicable market segments found by
Representative are to be discussed with FieldWorks as they arise for
consideration for representation.
<PAGE>
SALES REPRESENTATIVE AGREEMENT
EXHIBIT C
Sales Quota
For the consecutive Twelve (12) month period beginning on the Execution
Date, the total U.S. Dollar amount sold by Representative and assigned as Quota
for the period is
$
------------------------------------
The Quota is distributed throughout the period as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------ ------------------ ------------------- ------------------ ----------------------
QTR - QTR - QTR - QTR - QTR - Quota Total
- --------------------- ------------------ ------------------ ------------------- ------------------ ----------------------
$ $ $ $ $ $
- --------------------- ------------------ ------------------ ------------------- ------------------ ----------------------
</TABLE>
Example: The following illustrates how to complete the Quota commitment table
for an agreement with an Execution Date of April 25th, 1999 with a Quota total
of $400,000:
Record the appropriate calendar quarters (1, 2, 3, 4) beginning at
| the Execution Date.
|
| /--------- Record the corresponding year.
| /
/ /
------/---/- ------------ ------------ ------------ ------------ -------------
/ /
QTR 2 -1999 QTR 3 -1999 QTR 4 -1999 QTR 1 -2000 QTR 2 -2000 Quota Total
------------ ------------ ------------ ------------ ------------ -------------
$ 70,000 $ 90,000 $ 110,000 $ 100,000 $ 30,000 $ 400,000
----/------- ------------ ------------ ------------ ------------ ---------\---
/ \
| Record the total quota commitment for the agreement period.--------
|
Record the dollar amount of the Quota Commitment for the corresponding quarter.
<PAGE>
SALES REPRESENTATIVE AGREEMENT
EXHIBIT D
Commission/Discount Schedule
Quantity for End Users is per single Purchase Order, or written volume
purchase commitment over defined period of time.
<TABLE>
<S> <C> <C>
=====================================================================================================================
FW2000 Series *
======================================================================================================================
Sales to End Users
- ---------------------------------------- -------------------------------------- --------------------------------------
Quantity Customer Discount Representative Commission
- ---------------------------------------- -------------------------------------- --------------------------------------
1-9 0% 6%
- ---------------------------------------- --------------------------------------
10-24 7%
- ---------------------------------------- --------------------------------------
25-49 9%
- ---------------------------------------- --------------------------------------
50-99 12%
- ---------------------------------------- -------------------------------------- --------------------------------------
100+ (quote) (Negotiable)
======================================================================================================================
Sales to System Integrators/Resellers
- ---------------------------------------- -------------------------------------- --------------------------------------
(any quantity) 15% 5%
======================================== ====================================== ======================================
======================================================================================================================
FW5000 Series *
======================================================================================================================
Sales to End Users
- ---------------------------------------- -------------------------------------- --------------------------------------
Quantity Customer Discount Representative Commission
- ---------------------------------------- -------------------------------------- --------------------------------------
1-9 0% 6%
- ---------------------------------------- --------------------------------------
10-24 7%
- ---------------------------------------- --------------------------------------
25-49 9%
- ---------------------------------------- --------------------------------------
50-99 12%
- ---------------------------------------- -------------------------------------- --------------------------------------
100-249 (quote) (Negotiable)
======================================================================================================================
Sales to System Integrators/Resellers
- ---------------------------------------- -------------------------------------- --------------------------------------
(any quantity) 15% 5%
======================================== ====================================== ======================================
======================================================================================================================
FW7000 Series **
======================================================================================================================
Sales to End Users
- ---------------------------------------- -------------------------------------- --------------------------------------
Quantity Customer Discount Representative Commission
- ---------------------------------------- -------------------------------------- --------------------------------------
1-9 0% 10%
- ---------------------------------------- --------------------------------------
10-24 7%
- ---------------------------------------- --------------------------------------
25-49 9%
- ---------------------------------------- --------------------------------------
50-99 12%
- ---------------------------------------- -------------------------------------- --------------------------------------
100-249 14% (Negotiable)
======================================================================================================================
Sales to System Integrators/Resellers
- ---------------------------------------- -------------------------------------- --------------------------------------
(any quantity) 15% 5%
======================================== ====================================== ======================================
</TABLE>
* Representative Commission is 6% on GSA Orders for FW2000 & FW5000 Series
product.
** Representative Commission is 10% on GSA Orders for FW7000 Series product.
<PAGE>
SALES REPRESENTATIVE AGREEMENT
EXHIBIT E
Modifications, Amendments, and/or Waivers
The modifications, amendments, and/or waivers, as delineated below, shall apply
to this Agreement:
(Reference Section numbers (e.g., "Section 1.2", "Section 2.1 (last
sentence)", Section 2.3 (3rd sentence, etc.), and describe changes in terms
of "Add:", "Replace:", "Delete:", "Change to read:", "Add at the end of
Section:", etc.)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registration Statement File No. 333-26297.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
April 3, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIELDWORKS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JAN-02-2000
<CASH> 86,786
<SECURITIES> 0
<RECEIVABLES> 5,060,928
<ALLOWANCES> 0
<INVENTORY> 4,513,664
<CURRENT-ASSETS> 10,170,952
<PP&E> 3,742,978
<DEPRECIATION> 2,076,345
<TOTAL-ASSETS> 12,013,543
<CURRENT-LIABILITIES> 8,342,341
<BONDS> 0
0
0
<COMMON> 8,894
<OTHER-SE> 1,394,487
<TOTAL-LIABILITY-AND-EQUITY> 12,013,543
<SALES> 25,329,192
<TOTAL-REVENUES> 25,329,192
<CGS> 17,950,297
<TOTAL-COSTS> 17,950,297
<OTHER-EXPENSES> 3,413,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 314,094
<INCOME-PRETAX> (5,380,058)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,380,058)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,380,058)
<EPS-BASIC> (.61)
<EPS-DILUTED> (.61)
</TABLE>
<PAGE>
EXHIBIT 99.1
CAUTIONARY STATEMENT
FieldWorks, Incorporated ("we" or "us"), or persons acting on our behalf,
or outside reviewers we have retained who are making statements on our behalf,
or underwriters, from time to time, may make, in writing or orally,
"forward-looking statements" as defined under the Private Securities Litigation
Reform Act of 1995 (the "Act") and incorporated in Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. This Cautionary Statement is for the purpose of qualifying for the
"safe harbor" provisions of the Act and is intended to be a readily available
written document that contains factors which could cause results to differ
materially from those projected in the forward-looking statements. These factors
are in addition to any other cautionary statements, written or oral, which may
be made or referred to in connection with any forward-looking statement.
The following matters, among others, may have a material adverse effect on
our business, financial condition, liquidity, results of operations or
prospects, financial or otherwise. Reference to this Cautionary Statement in the
context of a forward-looking statement shall be deemed to be a statement that
any one or more of the following factors may cause actual results to differ
materially from those that we have projected, forecast, estimated or budgeted in
any forward-looking statement or statements:
Risks Related to Our Operations
We have a history of losses and expect to continue to generate losses in the
future.
As of January 2, 2000, we had an accumulated deficit of $19.8 million. We
have not achieved profitability and, as the result of computing solution
development and initiatives to reduce the cost of our products, we expect to
continue to incur net losses through at least 2000. We expect to continue to
incur significant operating expenses and, as a result, will need to generate
significant revenues to achieve profitability, which may not occur. Even if we
do achieve profitability, we may be unable to sustain or increase profitability
on a quarterly or annual basis in the future.
We cannot assure you that we will generate sufficient sales to allow us to
operate profitably
The market for the kind of computing platforms and solutions we sell is
relatively new and limited. The rugged computing platforms that we use are both
heavier and more expensive than most consumer portable personal computers. Our
success will depend upon our ability to expand the professional services and
solutions we offer, penetrate our key vertical markets of
transportation/trucking, heavy equipment, public service and
government/military, and increase the market acceptance of our solutions and
products. We cannot assure you that our current or new products will gain
widespread acceptance or that we will generate sufficient sales to allow us to
operate profitably. We will in particular suffer adverse effects if the market
for the kind of computing solutions and products we sell does not expand.
Our ability to develop solutions around our rugged platforms will influence our
ability to compete in the marketplace
In the past year we have begun to shift our business focus from producing
hardware to designing and implementing full computing solutions. These computing
solutions are intended for use in service bay, test and measurement, and
logistics management applications in the trucking, public services, heavy
equipment and government/military industries worldwide. To produce these
solutions, we combine appropriate hardware, software and peripherals and also
provide service and support. To succeed with this new approach, we will need to
design, develop, conceptualize and support computing solutions that address the
needs of these vertical markets. We cannot guarantee that we will be able to do
this in a timely, cost-effective manner or that our target markets will accept
the solutions that we do introduce.
<PAGE>
We have only limited experience with our solutions-based business model
We began to shift our business focus in early 1999. For us, this means that
we have only limited experience in operating a solutions-based business from
which to evaluate our business prospects and analyze the risks and uncertainties
that we face. For you, this means that you have limited historical information
from which to evaluate our prospects.
We depend on third-party manufacturers to produce our products
We depend on third-party manufacturers to manufacture and assemble our
products. This results in dependence on the timely delivery of high quality
products from these manufacturers and may leave us with less flexibility and
control over the manufacturing process than if we conducted these operations
internally. These manufacturers (including the manufacturers of subassemblies
included in our final products) may not timely deliver the items they are
expected to produce. Any occurrence of this sort could compromise our ability to
deliver our products and solutions in a timely fashion. It could also require us
to make alternative arrangements, which might not be available on acceptable
terms or on a timely basis. If we were unable to make alternative arrangements,
our business and financial condition could suffer.
We have only recently changed from internally manufacturing our final
products to employing third parties to do so. Therefore we do not have
long-standing relationships or experience with our third-party manufacturers.
Our business may suffer if we do not design and implement appropriate new sales
and marketing strategies in a timely manner
As we shift our business focus from producing hardware to designing and
implementing full computing solutions, we are also working to build our internal
sales organization, retrain our sales personnel and refine our sales and
marketing strategies. Our business may suffer if we do not design and implement
appropriate strategies in a timely manner. Our business may also suffer if, as a
result of the change in our business focus, we are required to replace
significant numbers of our current sales personnel.
Our failure to anticipate or rapidly respond to changing customer demands could
adversely affect our market position
Both the computer industry and the diagnostic and data collection
instrument industry are characterized by rapid technological change, including
changes in customer requirements, frequent new product introductions and
enhancements, and evolving industry standards. Our success will depend in part
on our ability to keep pace with technological developments and emerging
industry standards and to respond to customer requirements by enhancing our
current products and developing and introducing new solutions and products. Our
market position will be adversely affected if we do not adequately anticipate or
rapidly respond to changes of this type. Technological advances may also
increase the level of competition in our market niche.
Intense competition could reduce our market share and harm our financial
performance
We occupy a niche in the portable computer market. In this niche, we
currently face direct competition from companies that produce portable computers
intended for field use such as Dolch Computer Systems; Getac Corp.; Itronix
Corp.; Kontron Elektronik Corp., Paravant Computer Systems, Inc.; Motorola,
Inc.; Melard Technologies, Inc.; WPI Husky Computers Inc.; Intermec Technologies
Corp. and Panasonic Personal Computer Company. Our computing platforms also face
indirect competition from a variety of different companies and products,
including consumer portable personal computers, customized portable personal
computers and single-purpose diagnostic and data collection instruments.
Both the computer industry and the diagnostic and data collection
instrument industry are intensely competitive. To the extent that we and our
current direct competitors expand and develop the market niche that we currently
service, other manufacturers may turn their attention to it and begin to produce
products directly competitive with those we offer. Many of the companies that
produce or may produce devices that compete or may compete, directly or
indirectly, with ours have greater name recognition, larger client bases and
substantially more
2
<PAGE>
financial, technological and marketing resources than we do. These factors may
provide them with significant advantages over us. Among other things, these
factors may allow them to adapt more rapidly and effectively to changes in
technology or in the market or to develop or market products that will be more
widely accepted. Competitive pressures could result in reduced market share,
price reductions, reduced margins and increased spending on marketing and
product development, any of which could adversely affect our business.
If we do not adequately manage our inventory we may be required to make
write-offs in the future
In the past, we have written off portions of our parts inventory that have
become obsolete. If our current policies aimed at preventing a recurrence prove
ineffective, we may be required to do so again. Any significant future
write-offs could have an adverse effect on our financial condition. Our current
effort to outsource all of our assembly operations may increase the risk of an
additional build-up of excess or obsolete inventory that leads to a write-off.
Our business may suffer if we fail to manage growth effectively
To grow successfully we must increase our professional services and
solutions offerings and also improve the efficiency of our operations. If we
succeed in this, it will place significant strain on our managerial, operational
and financial systems and resources. We may not be able to successfully plan for
or manage increased production and marketing of our products and services. If we
grow, we may encounter difficulties, including:
o problems with our manufacturing partners;
o disrupted quality control and assurance;
o decreased product reliability;
o increased costs;
o difficulties maintaining internal accounting controls;
o malfunctioning of existing and new equipment;
o insufficient or untimely component supplies; and
o personnel shortages.
If we are unable to manage growth effectively, our business could suffer.
We may not succeed in attracting and retaining the personnel we need for our
business
Our future success depends substantially on our ability to attract and
retain the personnel we need for our business. Our personnel needs include
highly trained personnel for management, sales and engineering. Qualified
individuals in these areas are in high demand and are often subject to competing
employment opportunities. In recent years there has been great demand for
qualified employees in the Minneapolis area, where our headquarters are located.
We may not succeed in attracting and retaining the personnel we need for our
business.
We have experienced a high turn-over rate in some of our significant
management positions over the past three years. In that period we have had four
Chief Executive Officers, three Vice Presidents of Sales and Marketing and two
Vice Presidents of Engineering/Operations. Continued high turn-over in these or
similar positions could have an adverse effect on our operations and business.
3
<PAGE>
Adverse events with respect to our international sales could have an adverse
effect on our business and financial condition
In the year ended January 2, 2000, international sales represented
approximately 14% of our net sales. International sales are subject to inherent
risks, including:
o longer payment cycles;
o greater difficulty or delay in accounts receivable collection;
o U.S. and foreign import and export restrictions and tariffs;
o the burdens of complying with a variety of foreign laws;
o potentially adverse tax consequences;
o potentially inadequate protection of intellectual property rights;
o restrictions on repatriation of earnings; and
o exposure to increased political and economic instability.
All of our export sales are currently denominated in United States dollars.
An increase in the value of the United States dollar relative to foreign
currencies could make our products more expensive and, therefore, potentially
less competitive in foreign markets. In the future, if we were to denominate our
export sales in foreign currencies, our financial condition and results of
operations would become subject to foreign currency translations and the
possibility of currency exchange or price controls or other restrictions on
foreign currencies. If any of these events occurred, or if we lost a key foreign
distributor or were unable to maintain our foreign distribution network, it
could have an adverse effect on our business and financial condition.
We depend on resellers for our product distribution
We distribute a substantial portion of our products through independent
sales representatives and distributors. We also sell our products to
value-added-resellers (known as VARs), distributors and systems integrators. Our
success depends in large part upon the performance of these resellers and on our
ability to attract new resellers. Many of our resellers also carry - and may
have incentives to encourage purchase of - competitive products. Most of our
resellers may terminate their written agreements with us with or without cause
by giving us 30 days' written notice. The loss of any of our major resellers or
a failure to make acceptable arrangements with resellers in new markets could
have a material adverse effect on us.
We obtain a number of our components from single sources
Our rugged computing platforms employ a number of components not generally
used in off-the-shelf personal computers, such as special hard disk drives,
CD-ROM drives, floppy disk drives, displays and power supplies. We currently
obtain a number of these components from single sources. It could create
uncertainty and be costly and time-consuming if we had to change suppliers. If
we could not obtain adequate or timely quantities of necessary components from
our current suppliers, we might not be able to identify or access alternative
sources within a reasonable period of time, on acceptable terms, or at all. Some
of our current vendors use tools that have been designed for us and are our
property. If we were required to change suppliers for these components, we would
need either to move the necessary tools or to obtain new tools, either of which
could entail significant cost and delay. Moreover, our buying power may be
limited by our small volume and we may receive less favorable allocations and
other terms such as price, timing or other factors than larger companies buying
from the same suppliers. Any of these factors or a significant increase in the
price of components could have a material adverse effect on our ability to
manufacture and market our products.
4
<PAGE>
Potential fluctuations in our quarterly financial results make financial
forecasting difficult
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside our control.
These factors include:
o long customer sales cycles (especially for customers that are
government agencies or large corporations);
o changes in customer buying patterns;
o orders from significant customers in one quarter that are
disproportionate in size or value compared to our other orders;
o the timing and nature of customer returns;
o the timing of the introduction of new products by us or our
competitors;
o our competitors' tactics;
o technological developments; and
o the overall strength of the economy.
All of these factors, along with the uncertainties associated with the
introduction of any new product or product enhancement, in gauging ultimate
customer demand, and in predicting general trends in the market for our
products, solutions and services, may limit our ability to plan for production
and to forecast quarterly results of operations accurately. We believe that
quarter-to-quarter comparisons of our operating results may not be a good
indication of our future performance. Stockholders should not rely on our
operating results for any particular quarter as an indication of our future
operating results.
Risks Related to Intellectual Property
Failure to protect our intellectual property rights could harm our brand and our
ability to compete effectively
We rely on a combination of unpatented trade secrets and know-how and on
the expertise of our employees. We do not rely on patented processes or
technologies. The protective steps we have taken may be inadequate to deter
misappropriation of our proprietary information. We may be unable to detect the
unauthorized use of, or take appropriate steps to enforce, our intellectual
property rights. Effective trade secret protection may not be available in every
country in which we offer or intend to offer our products and services.
Likewise, others may independently develop or otherwise acquire unpatented
and/or patented technologies or products similar or superior to ours. We claim
trademark rights in five marks we use in connection with our products in the
United States. We are aware that there are third parties that have claimed or
may claim superior rights, in some U.S. territories, to use marks in which we
claim rights. One or more of these third parties may contest our right to use or
register our trademarks. We do not know whether any of the trademarks covered by
our applications for registration will be found registrable, that registrations
will issue, or that we can support the cost of defense of our trademarks.
Failure to protect our intellectual property adequately could harm our brand and
affect our ability to compete effectively. Defending our intellectual property
rights could also result in the expenditure of significant financial and
managerial resources, which could materially adversely affect our business.
Loss of software licenses could have an adverse effect on us
We license some of the software that we include in our products from third
parties. If any licensor terminated any of these licenses, we might not be able
to license similar software from another party in a timely fashion, on
acceptable terms, or at all.
5
<PAGE>
We may have to defend against intellectual property infringement claims, which
could have an adverse effect on us whether or not we prevailed
Disputes over intellectual property are frequent in the high technology
area. Although we believe that our business activities do not infringe the
intellectual property rights of others, other parties may assert infringement
claims against us or claim that we have violated a patent or other proprietary
right belonging to them. Likewise, disputes may arise in the future with respect
to ownership of technology developed by employees who were previously employed
by other companies. Infringement claims, even if not meritorious, could result
in the expenditure of significant financial and managerial resources. An adverse
determination could subject us to significant liabilities, require us to seek
licenses from or pay royalties to third parties or require us to develop
appropriate alternative technology. We might not be able to do any of these
things on acceptable terms, at an acceptable price, or at all. Any of these
results could materially adversely affect our business.
Risks Related to Our Financial Condition
When our line of credit expires in November 2000 we may be unable to renew or
replace it with alternative financing
Since 1998 we have depended on our line of credit for many of our operating
capital needs. This line of credit expires in November 2000. We may be unable to
renew or replace it on acceptable terms. If this happened, we would have to
repay all amount outstanding at the time (as of March 30, 2000 we had $550,000
outstanding). We might not be able to do so. If we were able to repay all
outstanding amounts, those amounts, coupled with the loss of access to our
credit facility, could adversely affect our financial condition.
We have outstanding $3,000,000 of subordinated notes that mature in September
2001
We have $3,000,000 of subordinated notes outstanding. These notes mature in
September 2001. We may not be able to refinance these notes when they mature,
thus requiring us to repay them in full. If we are able to do so, the need to
use cash in that manner could adversely affect our financial condition.
Failure to satisfy the covenants under our line of credit would give the lender
the right to require immediate repayment
Our line of credit facility requires us to satisfy a number of covenants
during fiscal year 2000, including the requirement that we achieve a quarterly
net profit before income tax on a year-to-date basis. If we do not satisfy these
covenants, the lender may request immediate payment of all amounts outstanding
($550,000 as of March 30, 2000). If the lender were to do so, we might not be
able to repay the amounts. Even if we were able to do so, the need to use cash
in that manner, coupled with the loss of access to our credit facility, could
adversely affect our financial condition.
The Nasdaq National Market has initiated delisting proceedings against us
By means of a letter dated November 24, 1999, the Nasdaq National Market
notified us that we did not meet the continued listing requirement with respect
to net tangible assets. On February 24, 2000, we attended an oral hearing before
a panel authorized by the Nasdaq Stock Market's board of directors at which we
stated our belief that, based on our recent capital raising efforts, we should
satisfy those requirements. Nasdaq has not yet informed us of its final decision
on this matter. If Nasdaq delists our common stock from the National Market, it
may be more difficult for shareholders to trade our common stock. In addition,
it may make future capital-raising efforts on our part more expensive and
time-consuming.
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We expect to need to raise cash during 2000 but may not be able to do so
To meet our needs during and beyond the end of 2000 and to maintain our net
tangible assets for continued listing on the Nasdaq National Market, we expect
to need to raise additional capital. We may not, however, be able to access
sufficient capital when required on favorable terms, if at all. If we raise
additional funds by issuing equity securities, existing shareholders may
experience dilution in their ownership interest. If we raise additional funds by
issuing debt securities, we may incur significant interest expense and become
subject to covenants that could limit our ability to operate and fund our
business. If we cannot obtain additional funds when required, we may be unable
to realize our current plans and may even be forced to cease operations.
Our subordinated notes and our agreement with Industrial-Works Holding Co.,
LLC. (the holder of our Series B preferred stock) contain covenants that limit
our ability to incur indebtedness. These covenants may restrict our options for
future financing.
Risks Related to Our Corporate Structure
One of our shareholders owns a significant percentage of our outstanding stock
and by virtue of that ownership and various contractual rights has significant
influence over our operations and strategic direction
One of our shareholders, Industrial-Works Holding Co., LLC (which is
wholly-owned by Glenmount, International, LP), owns or has the right to acquire
up to approximately 27% of our outstanding common stock on a fully diluted basis
(assuming exercise of warrants that Industrial-Works owns and the conversion of
all its outstanding shares of preferred stock). Under the agreement under which
Industrial-Works invested in us, Industrial-Works nominated three of the current
members of our board of directors and in the future has the right to nominate
three people for election. In addition, since we have failed to meet financial
goals specified in the agreement, Industrial-Works may increase the number of
members of our board of directors by two and nominate the two additional
members. Finally, Industrial-Works and shareholders holding approximately 21% of
our outstanding common stock have entered into a voting agreement pursuant to
which those shareholders have agreed, until February 2003, to vote all of their
shares in favor of the election of the nominees designated by Industrial-Works.
These arrangements give Industrial-Works significant influence on our operations
and strategic direction. Industrial-Works' ownership may also have the effect of
delaying, deterring or preventing a change in control or a change in the
composition of our board of directors.
Our charter documents and Minnesota law may discourage a takeover of our company
Provisions of our articles of incorporation, bylaws and Minnesota law could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our shareholders.
We do not intend to pay dividends
We currently intend to retain any earnings for use in the operation and
expansion of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future.
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