-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KVOHB40o6ab+xwW88aFQa3qTVXQtgxtuOF59xgV3cADXtZKZ1p+0YvSxw+L4ruaj Z/M1AHR/Qevyr8aPzlKemQ== 0001047469-98-010564.txt : 19980323 0001047469-98-010564.hdr.sgml : 19980323 ACCESSION NUMBER: 0001047469-98-010564 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980319 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RACOTEK INC CENTRAL INDEX KEY: 0000883741 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 411636021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22718 FILM NUMBER: 98569074 BUSINESS ADDRESS: STREET 1: 7301 OHMS LANE STE 200 CITY: MINNEAPOLIS STATE: MN ZIP: 55439 BUSINESS PHONE: 6128329800 MAIL ADDRESS: STREET 1: 7301 OHMS LANE STREET 2: STE 200 CITY: MINNEAPOLIS STATE: MN ZIP: 55439 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to ___________. Commission File Number 0-22718 RACOTEK, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 41-1636021 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 7301 OHMS LANE, SUITE 200, MINNEAPOLIS, MINNESOTA 55439 (Address of Principal Executive Offices, including Zip Code) Registrant's Telephone Number, Including Area Code: (612) 832-9800 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.01 PAR VALUE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $68,751,531 based on the closing sale price of the Company's Common Stock as reported on the Nasdaq National Market on March 9, 1998: $2.75 The number of shares outstanding of the registrant's common stock, as of March 9, 1998: 25,000,557 shares. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 1998, are incorporated by reference into Part III of this report. (2) Portions of the registration statement on Form S-1 which was declared effective December 12, 1993, are incorporated by reference into Part III of this report. 1 PART I EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN THIS FORM 10-K ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THE POSSIBILITY THAT A SUBSTANTIAL MARKET FOR MOBILE DATA SYSTEMS WILL NOT DEVELOP IN THE TIME FRAMES ANTICIPATED BY THE COMPANY, THE COMPETITIVE ENVIRONMENT FOR CUSTOMER SPENDING FOR TECHNOLOGY, WHICH INCLUDES SPENDING FOR YEAR 2000 INITIATIVES, THE POSSIBILITY THAT PRICING FOR WIRELESS COMPUTING SERVICES AND TECHNOLOGY WILL NOT BE AT A LEVEL NEEDED TO SUSTAIN LONG-TERM FINANCIAL SUCCESS, AND THE OTHER RISKS DETAILED BELOW AND FROM TIME TO TIME IN THE COMPANY'S OTHER REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE ACTUAL RESULTS THAT THE COMPANY ACHIEVES MAY MATERIALLY DIFFER FROM ANY FORWARD-LOOKING STATEMENTS DUE TO SUCH RISKS AND UNCERTAINTIES. ITEM 1. BUSINESS Racotek, Inc. ("Racotek" or the "Company") is a systems integrator for mobile data communication systems. Racotek's objective is to become a leading provider of mobile data communications services and technologies to businesses that have mobile workers engaged in on-site customer service. The service and technology offerings of the Company are focused on extending enterprise information systems to mobile workers, through the use of mobile computing software and systems integration services provided by the Company that provide connectivity from host computer applications across multiple wireless and wireline networks. The Company also provides post-installation support services designed to maximize the business benefits made possible by mobile communications systems. Services provided by the Company include business case evaluation, requirements consulting, system design and planning, application software development, systems integration, training, installation, and organizational change management. The Company also derives revenue from licenses of its KeyWare-TM- software product. The ability to utilize KeyWare over many different configurations of wireless networks and with different types of hardware allows Racotek the flexibility to make independent recommendations regarding its clients' wireless network configurations as it helps clients choose the hardware and software components of their wireless wide area network. In the first quarter of 1996, the Company decided to discontinue the production, purchase and distribution of specialized mobile radio ("SMR") technologies. The Company completely exited from the SMR hardware production and distribution business in the third quarter of 1997. BACKGROUND The Company believes that 8 million of the estimated 38 million mobile workers in the United States are engaged in on-site customer service, and these mobile workforces are the principal potential market for Racotek's technologies and services. The market for mobile data communications services and technologies remains relatively undeveloped, and many mobile workers do not use wireless communication at the present time. The Company believes that the principal reason that the market for mobile data services has been slow to develop is the complexity of integrating wireless data communication into existing field service software applications. Implementation of a wireless data solution requires a significant amount of work to integrate the wireless application to the client's legacy systems, which usually also requires the client to significantly change its business processes. Existing field service software applications include functions such as accounting, inventory control, scheduling, load efficiency, dispatching, collection of shipment and inventory data, destination addressing and routing information. Since few of these application programs are able to exchange messages or data directly with mobile workers, mobile workers typically either collect information in written form for later physical delivery to the base office, or communicate with the base office by voice communications. In either case, the information is not transmitted in a form that is immediately accessible by a computer. The information must instead be entered manually, which often results in delays and increases the likelihood of inaccuracies. Mobile workers face similar obstacles in obtaining timely and accurate information from the base office and typically are unable to access the base office applications. The Company's services and technologies are intended to alleviate these difficulties, by changing the client's business processes to give the mobile worker access to on-line real-time data communication with the client's host computer systems. 2 THE RACOTEK SOLUTION Racotek seeks to be a leader in helping clients enhance the productivity and value of their mobile workers. This includes understanding and quantifying the potential business benefits associated with implementing a mobile communication system, assisting the client in the selection of the appropriate components, integrating third party or its own application software, identifying and implementing process change, and measuring the resulting benefits against the expected benefits. CORE TECHNOLOGIES AND SERVICES TECHNOLOGY. The Company's technologies include its KeyWare middleware technology and other standard commercial software developed by the Company, such as database interface software, as well as application software customized by the Company for individual clients. The Company's technology also includes certain network management software tools that the Company has developed in order to identify and diagnose problems arising with clients' wireless network configurations. KeyWare was introduced to the market in the first quarter of 1995. KeyWare is a wireless networking software product referred to as "middleware," and is built upon an open client/server architecture. This design allows KeyWare's service agents to perform important functions on behalf of host and portable applications including, among others, Global Name Management, store and forward, file transfer and network management. KeyWare is designed to be interoperable with existing information systems to provide broad wireless and wireline connectivity and to enable integration of existing applications. For the years ended December 31, 1997, 1996, and 1995, revenues from software licenses was 3%, 10%, and 3% of total revenues, respectively. In the third quarter of 1997, the Company decided to no longer sell KeyWare as a stand-alone product. Instead, the Company will sell KeyWare only in conjunction with sales of the Company's services, such as application development and systems integration, in situations where the client and the Company agree that KeyWare is the appropriate solution for the client's wireless data communication needs. The Company decided to sell KeyWare only in conjunction with sales of the Company's services because third party application software providers, systems integrators and end users faced significant difficulties deploying complete solutions using any of the mobile computing middleware currently available. These difficulties arise, in part, because of the immaturity of the component technologies involved in developing mobile data solutions, the vast number of choices of components that must be made in a successful project, and these parties' lack of a systems integration process tailored to the complexities of mobile computing. PROFESSIONAL SERVICES. The Company offers its clients certain consulting services, project management and implementation services including business process review, requirements consulting, system design and planning, software development, systems integration, training, installation management, and organizational change management. Racotek's professional services usually start with business case evaluations, extend to process improvement, and often include implementation of a wireless mobile data system. The Company's professional services can be priced on either a time and materials or fixed bid basis based on pre-approved statements of work. The Company commenced providing these types of services in 1995. For the years ended December 31, 1997, 1996, and 1995, revenue generated from these services accounted for 60%, 52%, and 29% of total revenues, respectively. MANAGED NETWORK SERVICES. The Company's managed network services group monitors a client's wireless system performance to detect potential problems and resolve issues affecting overall system availability. This service provides clients a single point of contact in a multi-vendor environment. The Company has developed diagnostic tools to detect errors in a wireless system. Managed network services are typically billed monthly on a fixed basis. For the years ended December 31, 1997, 1996, and 1995, revenues from these services amounted to 12%, 10%, and 1% of total revenues, respectively. TRANSMISSION SERVICES. The Company has agreements with SMR transmission operators in many locations in the United States that allow transmission service, principally suited for metropolitan, in-vehicle users. With the release of KeyWare and certain marketing agreements, the Company also can remarket 3 transmission service on ARDIS, RAM and certain Cellular Digital Packet Data ("CDPD") providers. Revenues generated from these services accounted for 12%, 10% and 16% of total revenues for the years ended December 31, 1997, 1996 and 1995, respectively. OTHER DEVELOPMENTS. In 1996, the Company obtained a United States patent for a technology involving a spectral overlay on cellular systems that could deliver LAN-like performance over a wide area wirelessly. In 1997, the Company performed further simulations regarding implementing and using the technology. In the first quarter of 1998, certain of the Company's research and development personnel were assigned to work full-time on the overlay, with the intention of forming a subsidiary and seeking strategic partners to further develop the technology. Competition for this technology may come from third-generation cellular personal communication service ("PCS") technologies, such as the broadband Code Division Multiple Access ("CDMA") currently being reviewed by international standards bodies. CLIENT FOCUS Racotek is concentrating its efforts on reaching the segments of the mobile communication market that the Company believes has a need for industry-specific, mission-critical mobile applications. Racotek has targeted field service for its initial focus, since the Company has a detailed knowledge and understanding of that segment of the market. The dispatcher in a field service organization receives service requests, enters orders and dispatches field service technicians. At present, most dispatchers communicate with the field service technicians using standard telephone or two-way voice radio. The dispatcher reads the work assignment, special instructions and any relevant information he or she may have about the service request. The service technician takes notes and proceeds to the assignment. Each dispatcher is generally responsible for 20 or more technicians. While the dispatcher handles one technician's queries, a number of other field technicians may have to wait for information or assignment. This wait time is a significant inefficiency within the field service industry. Current users of Racotek core technologies and services have implemented systems that provide continuous data flow to and from field service technicians in an effort to increase customer service and productivity. The Company's technologies and services may enhance the productivity of mobile workers by providing more information about the assignment, such as warranty, service history and parts availability. Wireless data communication is intended to allow the mobile technician to access the computers residing at the base office without requiring as much time and preventing the level of misunderstanding that may result from person-to-person communication. BACKLOG To date, the Company typically has operated with little order backlog. Most of its revenues in each quarter result from orders booked in each quarter. The Company's typical payment terms are net 30 days from invoice date. PRODUCT DEVELOPMENT Although the Company no longer offers KeyWare as a stand-alone product, the Company will continue to develop enhancements to KeyWare as they are required for specific clients. For the years ended December 31, 1997, 1996, and 1995, the Company's research and development expenses were approximately $3,286,000, $4,211,000 and $4,170,000, respectively. Included in the 1995 expense was a $742,000 charge for the acquisition of certain technologies of Business Partners Solutions, Inc. ("BPSI"). The Company expects research and development costs to decrease further in 1998, and that product enhancements to KeyWare will be directly funded by clients. COMPETITION Competition in the mobile communications industry is intense. The Company currently faces direct competition in the market for mobile networking consulting services from larger companies such as IBM and Andersen Consulting. Also, major software development companies, such as Novell, Oracle, and Microsoft, as well as computer and communications companies, such as AT&T and the regional Bell operating companies, are possible sources of future direct competition for the Company's core 4 technologies and services. Certain application software developers, including Mobile Data Solutions, Inc., have expanded their software to provide mobile data solutions. In addition, wireless network providers and hardware manufacturers that the Company seeks to work with as partners could attempt to provide services for mobile data systems, thereby becoming competitors, as could providers of field service application software to field service companies. Many of the Company's direct, indirect and potential future competitors have financial, technical, marketing, sales, manufacturing, distribution and other resources substantially greater than those of the Company. Some of these competitors have established market positions and established trade names, trademarks, patents and intellectual property rights and substantial technological capabilities. The Company faces competition not only from these established companies, but also from start-up companies that can actively develop and market new communications technologies and services. In addition, the Company is likely to face competition in the future from companies that develop technology comparable or superior to the Company's technology and offer similar mobile data services to the Company's actual and prospective clients. Any of these competitive developments could adversely affect the Company's business, results of operations and financial condition. PROPRIETARY RIGHTS The Company relies on a combination of copyright, trade secret, patent and trademark laws, and employee and third-party nondisclosure agreements to protect its intellectual property rights and technologies. The Company maintains trademark registrations for its principal trademarks in the U.S. and selected foreign countries. The Company does not copy-protect or register the copyrights in its software but does license it principally pursuant to negotiated license agreements. The Company believes that technical software copy-protection devices generally can be circumvented and often interfere with a customer's legitimate use of the software. The Company does not register the copyrights in its software because registration is not a condition of copyright protection. The laws of certain countries in which the Company's technologies are or may be distributed may not protect the Company's technologies and intellectual property rights to the same extent as the laws of the U.S. It may be possible for unauthorized third parties to copy the Company's software or to reverse engineer or obtain and use information that the Company regards as proprietary. There can be no assurance that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies. The Company believes that its technologies, intellectual property and other proprietary rights do not infringe on the proprietary rights of third parties. From time to time, however, third parties may assert exclusive patent, copyright and other intellectual property rights to technologies that are important to the Company. If the Company is unable to license protected technology used in the Company's technologies, the Company could be prohibited from manufacturing and marketing such technologies. Litigation, which could result in substantial cost to and diversion of resources of the Company, may be necessary to enforce patents or other intellectual property rights of the Company or to defend the Company against claimed infringement of the rights of others. The Company also could incur substantial costs to redesign its technologies, to defend any legal action taken against it or to pay damages for infringement. MANUFACTURING The Company duplicates software and related documentation and configures clients' mobile data communications systems at the Company's facilities in suburban Minneapolis, Minnesota. The Company does not manufacture any of the hardware used by its clients in a mobile data network, but this hardware is readily available from various sources. EMPLOYEES As of December 31, 1997, the Company had 41 full-time employees, including 10 in corporate services and administration, 6 in business development, 4 in managed network services, 8 in new platforms and 13 in systems integration. The employees and the Company are not parties to any 5 collective bargaining agreements, and the Company believes that its relations with its employees are good. The Company's success depends to a significant degree upon the continued contributions of its key management, sales and technical personnel. The Company's success also depends upon its ability to attract and retain highly qualified personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be successful in hiring or retaining qualified personnel. ITEM 2. PROPERTIES The Company's headquarters consists of approximately 19,200 square feet located in a multi-story building in suburban Minneapolis, Minnesota. The facility is leased pursuant to an agreement that expires in August 2000. The Company has certain expansion rights under its lease to increase facility size. The Company also has a sales office in Larkspur, California. The Company believes that its facilities are adequate to meet its anticipated level of operations for the foreseeable future. For additional information concerning the Company's lease obligations, see Note 3 to the Company's financial statements included in this Annual Report on Form 10-K. ITEM 3. LEGAL PROCEEDINGS The Company is not currently a party to any litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A special meeting of the Company's shareholders was held on January 7, 1998. The sole proposal considered at the meeting was to (i) increase the pool of stock options available for grant under the Company's 1993 Equity Incentive Plan (the "Plan") from 3,200,000, to 5,700,000 shares, (ii) increase the maximum number of shares of Common Stock that may be received under the Plan from 750,000 shares over the term of the Plan to 750,000 shares per calendar year, and (iii) make this maximum grant limitation applicable to all employees of the Company participating in the Plan. The shareholders approved the increase, with 13,703,543 votes cast in favor of the increase, 1,075,102 votes cast against the increase, 22,978 abstentions, and no broker non-votes. 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. COMMON STOCK (UNAUDITED): The Company's common stock began trading on December 10, 1993, on the NASDAQ National Market under the symbol "RACO," in connection with its initial public offering. A summary of the range of high and low closing prices for the Company's common stock for the period from December 10, 1993, through December 31, 1997, is presented below. These prices reflect interdealer prices and do not include retail markups, markdowns or commissions. HIGH LOW - ---------------------------------------------------------- 1995 First Quarter 7.25 3.13 Second Quarter 6.50 4.38 Third Quarter 7.88 5.25 Fourth Quarter 6.75 5.00 1996 First Quarter 5.50 4.25 Second Quarter 7.00 3.88 Third Quarter 6.25 3.50 Fourth Quarter 6.38 3.75 1997 First Quarter 4.88 3.25 Second Quarter 3.50 2.13 Third Quarter 2.63 1.50 Fourth Quarter 2.06 1.00
The Company has never paid cash dividends on its capital stock and does not anticipate declaring or paying any cash dividends in the foreseeable future. The Company intends to retain future earnings, if any, for the development of its business. As of March 9, 1998, the Company had 380 stockholders of record. 7 ITEM 6. SELECTED FINANCIAL DATA. STATEMENTS OF OPERATIONS DATA (for the years ended December 31) (In thousands, except per share data) 1997 1996 1995 1994 1993 ---------------------------------------------------- Net revenues: Services $ 4,744 $ 4,977 $ 2,790 $ 847 $ 106 Products 876 1,906 3,298 3,106 2,313 - ------------------------------------------------------------------------------- Total revenues 5,620 6,883 6,088 3,953 2,419 Cost and expenses: Cost of services 4,227 3,499 1,314 370 83 Cost of products 1,266 2,027 3,001 2,953 2,754 Research and development 3,286 4,211 4,170 3,035 1,848 Sales and marketing 4,149 6,249 9,045 7,647 4,599 General and administrative 2,463 2,000 2,240 2,920 1,142 - ------------------------------------------------------------------------------- Loss from operations (9,771) (11,103) (13,682) (12,972) (8,007) Interest income 427 859 1,335 1,447 347 - ------------------------------------------------------------------------------- Net loss $(9,344) ($10,244) ($12,347) ($11,525) ($7,660) - ------------------------------------------------------------------------------- Net loss per share - basic and diluted ($0.37) ($0.42) ($0.52) ($0.49) ($1.79) Weighted average common shares outstanding (1) 24,932 24,372 23,765 23,443 4,273
BALANCE SHEET DATA (at December 31) (In thousands) 1997 1996 1995 1994 1993 ------------------------------------------------- Cash and cash equivalents and short-term investments $5,336 $11,947 $15,042 $27,407 $46,430 Working capital 5,132 12,693 16,781 29,486 46,118 Total assets 7,237 16,919 27,116 38,070 50,097 Total common stockholders' equity 6,277 15,381 25,378 36,613 47,404
(1) As required by Securities and Exchange Commission regulations, common and common equivalent shares issued by the Company during the twelve month period immediately preceding the filing of an initial public offering have been included in the calculation of shares used in computing the 1993 net loss per share as if they were outstanding for all periods through December 31, 1993. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Racotek provides solutions to clients throughout the United States, that enable clients to increase the productivity and value of their mobile workers, by providing wireless system integration services including consulting services, wireless networking and application software and network management support. During 1997, the Company reduced its workforce from approximately 95 employees to approximately 40 employees; consolidated and closed several facilities; and reduced the carrying value of certain assets no longer expected to be used in operations. As a result of these actions, the Company recorded one-time charges totaling approximately $1,900,000 during the third quarter. The Company took these actions because of slower than expected market and 8 related revenue growth. Although these actions reduced the Company's expected operating expense level to less than $2,000,000 per quarter, the Company expects to incur losses into 1998. The Company must increase its revenue in order to reach profitability. The Company currently derives most of its revenue from systems integration services including business case evaluation, system planning and design, software development, training, installation and change management. In the long-term, the Company believes that the recurring revenue from providing monthly network support will constitute a substantial source of revenue. RESULTS OF OPERATIONS NET REVENUES Service revenues were $4,744,000, $4,977,000 and $2,790,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The revenue increased between 1995 and 1996 as the Company allocated more resources and focused more on generating revenues from systems integration services. In 1997, the Company began to shift the focus of its business from performing small, technical roles within larger projects to providing its clients with management and implementation assistance for those projects. These larger opportunities require longer sales development time than do technical assistance, and the transition to this mode of sales required a significant amount of time and attention from the Company's management and key personnel. The Company derives a substantial amount of its revenues from a small number of clients. Accordingly, the timing and amount of integration services performed for these clients has caused the Company's service revenues to fluctuate. The Company expects this volatility in service revenues to continue in 1998. In 1996, the Company made the decision to discontinue the production, purchase and distribution of SMR products. In 1997, the Company completed the exit from its SMR hardware operations and continued its transition to focusing on the sale of its system integration services instead of selling stand-alone software products. As a result of these decisions, product revenues were $876,000, $1,906,000 and $3,298,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The Company expects product revenues, which will consist primarily of wireless networking and application software, to be significantly less during 1998 as a result of the Company's focus on deriving revenues from system integration services rather than product sales. COST OF REVENUES Cost of service revenues were $4,227,000, $3,499,000 and $1,314,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The increases in costs resulted primarily from the cost of recruiting personnel with the skills to deliver large systems integration projects, and the transfer and utilization of certain research and development and sales and marketing personnel into the systems integration services group. The one-time charges recorded during the third quarter of 1997 included approximately $211,000 of severance and related costs associated with eliminating personnel with specializations in areas no longer pertinent to the Company's systems integration offerings. Cost of product revenues were $1,266,000, $2,027,000 and $3,001,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The decrease from 1996 to 1997 is primarily due to a $900,000 charge recorded in the first quarter of 1996, resulting from the Company's decision to write-down the remaining SMR inventories to their net realizable values at that time. The Company recorded several one-time charges in the third quarter of 1997, including approximately $425,000 of costs incurred to complete the Company's exit from SMR hardware production and distribution. The Company expects the cost of product revenues to be significantly less during 1998, as a result of the Company's focus on deriving revenues from system integration services, rather than product sales. RESEARCH AND DEVELOPMENT Research and development expenses were $3,286,000, $4,211,000 and $4,170,000 for the years ended December 31, 1997, 1996 and 1995, respectively. As a result of the focus on systems integration services rather than product sales, the research and development staff was reduced during the third quarter of 1997. Research and development expenses were lower than in previous years and are expected to decline further during 1998 as software product development and 9 existing product enhancement activities decline in connection with the Company's transition to primarily providing systems integration services. SALES AND MARKETING Sales and marketing expenses were $4,149,000, $6,249,000 and $9,045,000 for the years ended December 31, 1997, 1996 and 1995, respectively. In connection with the Company's focus on systems integration services, a charge of approximately $202,000 was recorded in the third quarter of 1997 for severance and facility consolidation costs in the sales and marketing area. Despite this charge, sales and marketing expenses were lower than in previous years and are expected to decline further during 1998. GENERAL AND ADMINISTRATIVE General and administrative expenses were $2,463,000, $2,000,000 and $2,240,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The increase in 1997 is primarily due to approximately $803,000 of facility and relocation charges recorded in the third quarter of 1997. The Company expects general and administrative expense levels to decline further in 1998 as a result of previous cost-reduction measures implemented by the Company. INTEREST INCOME Interest income was $427,000, $859,000 and $1,335,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The decreases are primarily the result of a decrease in investments, which were used to fund operating activities during 1997. Liquidity and Capital Resources As of December 31, 1997, the Company had no significant capital spending or purchase commitments and had cash and investments totaling $5,336,000 and working capital of $5,132,000. For the years ended December 31, 1997, 1996 and 1995 the Company used $6,709,000, $8,376,000 and $10,823,000, respectively of cash for operating activities. The amount of cash used in operating activities during 1997 and 1996 decreased as a result of cost-reduction efforts. These cost reductions will reduce the amount of cash that the Company anticipates will be required to fund operating activities in 1998. The cash provided from investing activities in 1997, 1996 and 1995 was primarily from investments that matured in those years. No significant financing activities occurred in 1997, 1996 or 1995. With the implementation of the cost-reduction measures during 1996 and 1997, the Company believes its existing capital resources will be sufficient to meet its cash requirements into 1999. NEW ACCOUNTING STANDARDS In October 1997, the AICPA's Accounting Standards Executive Committee issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which must be adopted by the Company effective January 1, 1998. Management does not anticipate that the adoption of this SOP will have a significant impact on the Company's financial position or results of operations. Effective at year-end 1998, the Company will adopt Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosure About Segments of an Enterprise and Related Information," which requires disclosure of segment data in a manner consistent with that used by an enterprise for internal management reporting and decision making. The Company believes that it will report its operations as a single segment under SFAS No. 131. FACTORS THAT MAY AFFECT FUTURE RESULTS There can be no assurance that the Company's business will grow as anticipated or that the Company will achieve or sustain profitability on a quarterly or annual basis in the future. The Company derives a substantial part of its revenues from a small number of clients whom, after evaluating the Company's capabilities, decide whether to engage the Company to create business case evaluations, consult on change management practices and, in some cases, to design, implement and deploy their mobile computing systems. A decision by any one of these clients to delay a mobile computing project may have a material adverse effect on the Company's business and results of operations. 10 The Company has decided to focus its efforts in the near term on selling its system integration services to clients in a small number of vertical markets, such as field service. Although the Company believes that such specialization will increase its effectiveness, it also means that the Company's failure in any one of these areas will have a significant adverse impact on overall Company performance. In order for the Company's revenues from consulting and integration services to grow, the Company must continue to add more clients and larger projects to plan, design and implement mobile computing systems. The Company's inability to obtain clients for large-scale consulting and integration services or the Company's inability to leverage its consulting and integration services to obtain additional revenues from its software licenses and network support services could materially and adversely affect the growth of its business. Competition in the mobile computing industry is intense. Major software development companies, as well as computer, database and communication companies, are possible sources of future direct competition for the Company's products and services. Many of the Company's current and possible direct competitors have financial, technical, marketing, sales, manufacturing, distribution and other resources substantially greater than those of the Company. In addition to the factors listed above, actual results could vary materially from the foregoing forward-looking statements due to the Company's inability to hire and retain qualified personnel, the risk that the Company may need to enhance products and services beyond what is currently planned, the levels of promotion and marketing required to promote the Company's products and services so as to attain a competitive position in the marketplace, or other risks and uncertainties identified in this Annual Report and the Company's other filings with the SEC. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE. The following Financial Statements, Supplemental Schedule and Independent Accountants Report thereon are included herein (page numbers refer to pages in this Report): Page ---- Report of Independent Accountants 16 Balance Sheets as of December 31, 1997 and 1996 17 Statements of Operations for the years ended December 31, 1997, 1996 and 1995 18 Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 19 Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 20 Notes to Financial Statements 21 - 27 Supplemental Schedule - Schedule II Valuation and Qualifying Accounts 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information concerning the Company's directors and executive officers and compliance with Section 16(a) required by this item is contained in the sections entitled "Nominees" in Proposal No. 1, "Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance," appearing in the Company's Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on April 30, 1998 (Proxy Statement"). Such information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is contained in the sections entitled "Director Compensation" in Proposal No. 1, "Executive Compensation," and "Compensation Committee Interlocks and Insider Participation," appearing in the Company's Proxy Statement. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is contained in the section entitled "Security Ownership of Certain Beneficial Owners and Management" appearing in the Company's Proxy Statement. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is contained in the section entitled "Certain Transactions" appearing in the Company's Proxy Statement. Such information is incorporated herein by reference. 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K. (a)(3) and (c) Exhibits 2.01 Asset Purchase Agreement dated October 23, 1995 between the Registrant and Business Partner Solutions, Inc.(7) 3.01 Registrant's Third Amended and Restated Certificate of Incorporation.(2) 3.02 Certificate of Designation specifying the terms of the Series A Junior Participating Preferred Stock of the Registrant as filed with the Delaware Secretary of State on September 14, 1994.(4) 3.03 Registrant's Bylaws, as amended.(4) 4.01 Form of specimen certificate for Registrant's Common Stock.(1) 4.02 Rights Agreement dated September 12, 1994 between the Registrant and Norwest Bank Minnesota, N.A., as Rights Agent, which includes as exhibits thereto the form of rights certificate and the summary of rights to purchase preferred shares.(4) 10.01** Registrant's 1989 Stock Option Plan, as amended, and related documents.(1) 10.02 Registrant's 1993 Equity Incentive Plan and related documents, as amended through January 10, 1998. 10.03** Registrant's 1993 Directors Stock Plan, as amended, and related documents, as amended through November 14, 1995.(7) 10.04** Registrant's 1994 Officer's Option Plan.(6) 10.05 Stock Purchase Agreement, Series D Convertible Preferred Shares, between the Registrant and various investors dated July 29, 1993.(1) 10.06 Form of Warrant as Issued to certain Stockholders of the Registrant.(1) 10.07* Agreement by and between the Registrant and Motorola, Inc. dated February 28, 1992 and Amendment Number One dated June 10, 1993.(1) 10.08 Technology License Agreement by and between the Registrant and E.F. Johnson Company dated November 16, 1990.(1) 10.09 Software License Agreement by and between the Registrant and E.F. Johnson Company dated July 24, 1990.(1) 10.10 Ramp Agreement (and related Software License Agreement, Demo/ Development Kit Loan Addendum, RacoNet Services Agreement and Mutual Non-Disclosure Agreement) by and between the Registrant and American Freightways dated May 1993.(1) 10.11 Lease Agreement by and between the Registrant and Southmark Prime Plus, L.P. dated February 17, 1992, for premises at 7401 Metro Boulevard, Edina, MN 55439.(1) 10.12 Lease Agreement by and between the Registrant and Hamilton Associates dated August 10, 1993, for premises at 6421 Cecilia Circle, Bloomington, MN 5439.(1) 10.13 Form of Indemnification Agreement entered into by the Registrant and each of its directors and executive officers.(1) 10.14** Letter Agreement by and between Registrant and William D. Baker dated August 29, 1993.(1) 10.15** Employment Agreement by and between Registrant and Michael Fabiaschi dated July 23, 1991.(1) 13 10.16** Employment Agreement by and between Registrant and Richard A. Cortese dated March 14, 1994.(2) 10.17 Investment Management Agreement between the Registrant and Investment Advisers, Inc. dated December 10, 1991.(1) 10.18 Memo of Understanding by and between the Registrant and Lenbrook, Inc. dated March 24, 1992, as amended.(1) 10.19 Memo of Understanding by and between the Registrant and Lenbrook, Inc. dated May 1993.(1) 10.20 Agreement by and between the Registrant and Quicksilver Express Courier, Inc. dated January 14, 1992, including Letter Agreement dated July 19, 1991, as amended.(1) 10.21 Letter Agreement by and between the Registrant and NW Transport Service, Inc. dated September 17, 1991.(1) 10.22 Bulk Reseller Agreement by and between the Registrant and ARDIS, dated December 23, 1993.(2) 10.23 Lease Agreement by and between the Registrant and Connecticut General Life Insurance Company dated May 2, 1994 for premises at 7301 Ohms Lane, Edina, MN 55439.(3) 10.24 Amendment dated September 30, 1994 to Technology License Agreement by and between the Registrant and E.F. Johnson Company.(5) 10.25 Sublease agreement dated October 27, 1994 by and between the Registrant and Information Advantages, Inc. for premises at 7401 Metro Blvd., Edina, MN 55439.(5) 10.26 Value-Added Reseller Agreement by and between the Registrant and RAM Mobile Data USA Limited Partnership dated October 10, 1994.(5) 10.27** Separation Agreement dated November 7, 1994 by and between the Registrant and William D. Baker.(6) 10.28 License Agreement by and between the Registrant and Ericsson GE Mobile Communications Inc. dated November 29, 1994.(6) 10.29** Amendment to Amended Employment Agreement dated February 29, 1996 by and between the Registrant and Richard A. Cortese.(7) 10.30** Amended Employment Agreement dated February 29, 1996 by and between the Registrant and Michael A. Fabiaschi.(7) 10.31** Letter Agreement between the Registrant and Emmett Hume dated January 3, 1995.(7) 10.32** Amendments to Amended Employment Agreement by and between Registrant and Richard A. Cortese dated June 6, 1996 and September 24, 1996.(8) 10.33** Letter agreement by and between Registrant and Steve Swantek dated April 9, 1997.(9) 10.34** Letter agreement by and between Registrant and Isaac Shpantzer dated April 4, 1997.(9) 10.35** Letter agreement by and between Registrant and Norm Smith dated June 30, 1997.(9) 10.36** Letter agreement by and between Registrant and Norm Smith dated September 29, 1997.(10) 10.37** Letter agreement by and between Registrant and Vladi Kelman dated September 25, 1997.(10) 10.38** Letter agreement by and between Registrant and Dave Maenke dated September 25, 1997.(10) 10.39** Letter agreement by and between Registrant and Paul Edelhertz dated September 25, 1997.(10) 14 10.40 Sublease Agreement dated November 18, 1997, by and between Registrant and ATIO Corporation USA, Inc. for premises at 7301 Ohms Lane, Edina, MN 55439. 10.41 Change in Control Employment and Severance Agreement dated March 10, 1998, by and between Registrant and Michael A. Fabiaschi. 10.42 Change in Control Employment and Severance Agreement dated March 10, 1998, by and between Registrant and Steve Swantek. 10.43 Change in Control Employment and Severance Agreement dated March 10, 1998, by and between Registrant and Paul Edelhertz. 23.01 Consent of Coopers & Lybrand L.L.P. 27 Financial Data Schedule * Confidential treatment has been obtained for certain portions of this agreement. ** Management contract or compensatory plan required to be filed as an exhibit to Form 10-K. (1) Filed as an Exhibit to the Company's Registration Statement on Form S-1 (No. 33-70728), that was declared effective December 9, 1993 and incorporated herein by reference. (2) Filed as an Exhibit to the Company's Form 10-K for the year ended December 31, 1993 and incorporated herein by reference. (3) Filed as an Exhibit to the Company's Form 10-Q for the quarterly period ended June 30, 1994 and incorporated herein by reference. (4) Filed as an Exhibit to the Company's Report on Form 8-K that was filed with the Securities and Exchange Commission on September 15, 1994 and incorporated herein by reference. (5) Filed as an Exhibit to the Company's Form 10-Q for the quarterly period ended September 30, 1994 and incorporated herein by reference. (6) Filed as an Exhibit to the Company's Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. (7) Filed as an Exhibit to the Company's Form 10-K for the year ended December 31, 1995 and incorporated herein by reference. (8) Filed as an Exhibit to the Company's Form 10-Q for the quarterly period ended September 30, 1996 and incorporated herein by reference. (9) Filed as an Exhibit to the Company's Form 10-Q for the quarterly period ended June 30, 1997 and incorporated herein by reference. (10) Filed as an Exhibit to the Company's Form 10-Q for the quarterly period ended September 30, 1997 and incorporated herein by reference. Item 14(b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter. 15 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Racotek, Inc.: We have audited the financial statements and financial statement schedule of Racotek, Inc. included on pages 17 to 28 of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Racotek, Inc. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as whole, presents fairly, in all material respects, the information required to be included therein. /s/ COOPERS & LYBRAND L.L.P. ---------------------------- COOPERS & LYBRAND L.L.P. Minneapolis, Minnesota January 12, 1998 16 RACOTEK, INC. BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ASSETS 1997 1996 -------- -------- Current assets: Cash and cash equivalents $ 3,103 $ 2,956 Short-term investments 2,233 8,991 Accounts receivable, net 561 1,616 Inventories - 374 Prepaid expenses and other current assets 195 294 -------- -------- Total current assets 6,092 14,231 Property and equipment, net 786 1,932 Restricted cash 355 470 Capitalized software development costs, net - 121 Other long-term assets 4 165 -------- -------- Total assets $ 7,237 $ 16,919 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 6 656 Accrued expenses 651 808 Deferred revenue 303 74 -------- -------- Total current liabilities 960 1,538 -------- -------- Commitments (Note 3) Stockholders' equity: Common stock, $0.01 par value, 35,000,000 shares authorized, 24,998,558 and 24,740,293 issued and outstanding at December 31, and 1996, respectively 250 247 Additional paid-in capital 71,265 70,878 Accumulated deficit (65,088) (55,744) Promissory note receivable from stockholder (150) - -------- -------- Total stockholders' equity 6,277 15,381 -------- -------- Total liabilities and stockholders' equity $ 7,237 $ 16,919 -------- -------- -------- --------
The accompanying notes are an integral part of the financial statements. 17 RACOTEK, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1997 1996 2995 ----------- ----------- ----------- Net revenues: Services $ 4,744 $ 4,977 $ 2,790 Products 876 1,906 3,298 ----------- ----------- ----------- 5,620 6,883 6,088 Cost and expenses: Cost of services 4,227 3,499 1,314 Cost of products 1,266 2,027 3,001 Research and development 3,286 4,211 4,170 Sales and marketing 4,149 6,249 9,045 General and administrative 2,463 2,000 2,240 ----------- ----------- ----------- Loss from operations (9,771) (11,103) (13,682) Interest income 427 859 1,335 ----------- ----------- ----------- Net loss $ (9,344) $ (10,244) $ (12,347) ----------- ----------- ----------- ----------- ----------- ----------- Net loss per share - basic and diluted $ (0.37) $ (0.42) $ (0.52) ----------- ----------- ----------- ----------- ----------- ----------- Weighted average common shares outstanding 24,931,750 24,372,464 23,764,673 ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of the financial statements. 18 RACOTEK, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) COMMON STOCK ---------------------------------------- ADDITIONAL PROMISSORY TOTAL $0.01 PAR PAID-IN ACCUMULATED NOTE STOCKHOLDERS' SHARES VALUE CAPITAL DEFICIT RECEIVABLE EQUITY ----------------------------------------------------------------------------------------- Balances at December 31, 1994 23,414,260 $234 $69,532 $(33,153) $ - $ 36,613 Exercise of incentive stock options 501,423 5 479 - - 484 Exercise of warrants 12,872 - 25 - - 25 Shares issued in exchange for acquisition of technology 114,891 1 602 - - 603 NET LOSS - - - (12,347) - (12,347) - -------------------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1995 24,043,446 240 70,638 (45,500) - 25,378 Exercise of incentive stock options 696,847 7 240 - - 247 Net loss - - - (10,244) - (10,244) - -------------------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1996 24,740,293 247 70,878 (55,744) - 15,381 Exercise of incentive stock options 258,265 2 241 - - 243 Stock options issued to consultants - 1 146 - - 147 Net loss - - - (9,344) - (9,344) Promissory note receivable - - - - (150) (150) - -------------------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1997 24,998,558 $250 $71,265 $(65,088) $(150) $ 6,277 - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 19 RACOTEK, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS) 1997 1996 1995 ------- -------- -------- Cash flows from operating activities: Net loss $(9,344) $(10,244) $(12,347) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,011 969 817 Write-down of fixed assets 519 Provision for bad debts 118 233 180 Write-down of inventories 207 1,110 569 Amortization of premiums (discounts) on 8 (94) (236) Stock issued for consulting services 147 - - Stock consideration (Note 5) - - 603 Changes in operating assets and liabilities: Accounts receivable 937 (195) (477) Inventories 167 (179) 31 Prepaid expenses and other current assets 99 224 (244) Current liabilities (578) (200) 281 ------- -------- -------- Net cash used in operating activities (6,709) (8,376) (10,823) Cash flows from investing activities: Purchase of investments (2,250) (18,712) (15,685) Proceeds from maturity of investments 9,000 25,512 27,889 Purchase of property and equipment (105) (313) (693) Acquisition of assets (Note 4) - - (223) Other 3 86 (49) ------- -------- -------- Net cash provided from investing activities 6,648 6,573 11,239 Cash flows from financing activities: Proceeds from exercises of options and warrants 243 247 509 Changes in restricted cash 115 115 115 Advance to stockholder (150) - - ------- -------- -------- Net cash provided from financing activities 208 362 624 ------- -------- -------- Net increase (decrease) in cash and cash equivalents 147 (1,441) 1,040 Cash and cash equivalents, beginning of period 2,956 4,397 3,357 ------- -------- -------- Cash and cash equivalents, end of period $ 3,103 $ 2,956 $ 4,397 ------- -------- -------- ------- -------- --------
The accompanying notes are an integral part of the financial statements. 20 RACOTEK, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BUSINESS DESCRIPTION: Racotek, Inc. provides solutions to clients throughout the United States, designed to enable clients to increase the productivity and value of their mobile workers by providing wireless system integration services including consulting services, wireless networking and application software and network management support. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant areas which require the use of management estimates relate to the allowances for inventory obsolescence and doubtful accounts as well as determinations concerning establishment of technological feasibility of software products and assessments of recoverability of capitalized software development costs. CASH EQUIVALENTS AND INVESTMENTS: The Company considers all highly liquid investments in money market funds or other investments with initial maturities of three months or less to be cash equivalents. Investments with original maturities in excess of three months are classified as short-term or long-term investments based on their remaining maturities. The Company's investments as of December 31, 1997 and 1996, are considered by management to be "held to maturity," and therefore are reported at their amortized cost. Amortization of premiums or discounts are included in results of operations. REVENUE RECOGNITION: Revenues from consulting services are recognized as the services are performed. Customer support revenues are recognized ratably over the term of the underlying support agreements. Revenue from software sold under license agreements is recognized as revenue upon shipment if there are no post-delivery obligations, and if the terms of the agreement are such that the payment of the obligation is non-cancelable and non-refundable. Generally, other product revenue is recognized upon shipment. In October 1997, the AICPA's Accounting Standards Executive Committee issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which the Company is required to adopt effective January 1, 1998. Management does not anticipate that the adoption of this SOP will change the Company's revenue recognition practices or otherwise impact the Company's financial position or results of operations. INVENTORIES: Inventories were stated at the lower of cost or market, with cost determined using the first-in, first-out method. RESEARCH AND DEVELOPMENT COSTS: The Company capitalizes software development costs incurred in developing a product once technological feasibility of the product has been determined. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenue, estimated economic life and changes in software and hardware technology. Amortization of 21 RACOTEK, INC. NOTES TO FINANCIAL STATEMENTS capitalized software development costs begins when the product is available for general release to customers and is computed on the basis of each product's projected revenues, but not less than on a straight-line basis over the remaining estimated economic life of the product of approximately five years. There were no software development costs capitalized during 1997 or 1996. Software development costs capitalized during 1995 were $110. Amortization expense of $121, $120 and $123 relating to capitalized costs was recognized for the years ended December 31, 1997, 1996 and 1995, respectively. All other research and development expenditures are charged to expense as incurred. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Significant additions or improvements extending asset lives are capitalized; normal maintenance and repair costs are expensed as incurred. Depreciation is determined using the straight-line method over the estimated useful lives of the assets which range from two to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the underlying lease term (approximately five years). The cost and related accumulated depreciation or amortization of assets sold or disposed of are removed from the accounts and the resulting gain or loss is included in operations. INCOME TAXES: The Company utilizes the asset and liability method of accounting for income taxes whereby deferred taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the sum of the tax currently payable and the change in the deferred tax assets and liabilities during the period. STOCK-BASED COMPENSATION: The Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. The Company accounts for stock-based compensation to non-employees using the fair value method prescribed by Statements of Financial Accounting Standards (SFAS) No. 123. Accordingly, compensation costs for stock options granted to employees is measured as the excess, if any, of the value of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Compensation cost for stock options granted to non-employees is measured as the fair value of the option at the date of grant. Such compensation costs, if any, are amortized on a straight-line basis over the underlying option vesting terms. NET LOSS PER SHARE: Basic and diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Common stock equivalents were excluded from the net loss per share computation as their effect is antidilutive. Common stock options could potentially dilute basic earnings per share in future periods if the Company generates net income. BUSINESS SEGMENTS: Effective at year-end 1998, the Company will adopt SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," which requires disclosure of segment data in a manner consistent with that used by an enterprise for internal management reporting and decision making. The Company believes that it will report its operations as a single segment under SFAS No. 131. 22 RACOTEK, INC. NOTES TO FINANCIAL STATEMENTS 2. SELECTED BALANCE SHEET INFORMATION: December 31, --------------------------- 1997 1996 -------- -------- Accounts Receivable, Net: Accounts receivable $ 785 $ 1,956 Less allowance for doubtful accounts (224) (340) ------- ------- $ 561 $ 1,616 ------- ------- ------- ------- Inventories: Components $ - $ 60 Finished goods - 314 ------- ------- $ - $ 374 ------- ------- ------- ------- Property and Equipment, Net: Computer equipment $ 1,453 $ 3,064 Furniture and equipment 679 816 Leasehold improvements 106 213 ------- ------- 2,238 4,093 Less accumulated depreciation and amortization (1,452) (2,161) ------- ------- $ 786 $ 1,932 ------- ------- ------- -------
In the third quarter of 1997, the Company wrote-off approximately $519 of property and equipment in connection with a reduction in the number of employees and the consolidation and closing of facilities. Accrued Expenses: Compensation and relocation $169 $236 Vacation 120 186 Deferred rent 101 141 Accrued legal 55 24 Other 206 221 ---- ---- $651 $808 ---- ---- ---- ----
INVESTMENTS: The Company's investments consisted of $2,233 and $8,991 of U.S. Government and agency debt securities as of December 31, 1997 and 1996, respectively, including unamortized discounts of $17 as of December 31, 1997, and premiums and discounts of $14 and $23 as of December 31, 1996, respectively. Investments held as of December 31, 1997, have various maturity dates through April 1998. As of December 31, 1997, the Company's investments had an aggregate fair market value, based on quoted market prices, of $2,243. 3. LEASE COMMITMENTS: The Company leases office facilities under terms of a noncancelable operating lease which expires in August 2000. This lease requires the Company to pay a pro rata share of the lessor's operating costs. The lease requires the Company to maintain a restricted cash balance as collateral for the lessor which declines throughout the lease term. Total rent expense, including a pro rata share of the lessor's operating costs, were $767, $642 and $581, for the years ended December 31, 1997, 1996 and 1995, respectively. In 1996 and 1997, the Company recorded accruals of $40 and $93, respectively, to recognize costs to be incurred under terms of a prior lease agreement for other premises in excess of estimated sublease income to be earned under terms of the sublease agreement for those premises. 23 RACOTEK, INC. NOTES TO FINANCIAL STATEMENTS Future minimum lease payments under noncancelable operating leases are as follows: Year Ending December 31 Operating Leases ----------------------- ---------------- 1998 $381 1999 289 2000 169
4. ACQUISITION: On December 27, 1995, the Company acquired certain assets, including certain technologies from Business Partners Solutions, Inc. in exchange for $362 cash and $603 of Racotek common stock (114,891 shares). The acquisition was accounted for as a purchase. Accordingly, the purchase price was allocated to the acquired assets based upon their relative fair values. The acquisition also resulted in a $742 charge to research and development expense in the fourth quarter of 1995. 5. STOCKHOLDERS' EQUITY: The Company's Stock Incentive and Option Plans (the Plans) provide for grants of stock options and stock awards. The number of common shares available for grant pursuant to the Plans were 621,753, 420,611 and 1,195,205 as of December 31, 1997, 1996 and 1995, respectively. Options become exercisable over periods of up to four years from the date of grant and expire within ten years from date of grant. The following table details option activity: Weighted Price Per Average Exercise Options Option Price --------- ------------ ---------------- Balances, December 31, 1994 2,559,973 $0.05-12.625 $2.08 Granted 873,803 3.125-7.625 3.79 Exercised (501,423) 0.05-4.63 0.11 Canceled (98,428) 0.20-12.625 5.26 Balances, December 31, 1995 2,833,925 $0.10-12.625 $2.08 Granted 1,215,346 3.625-6.00 5.35 Exercised (696,847) 0.10-4.75 0.96 Canceled (440,752) 0.40-12.625 4.90 Balances, December 31, 1996 2,911,672 $0.10-12.625 $3.04 Granted 2,078,572 1.50-4.3125 2.37 Exercised (255,265) 0.20-3.88 1.16 Canceled (1,284,714) 0.10-12.625 5.06 Balances, December 31, 1997 3,450,265 $0.20-12.625 $2.69 Options exercisable at December 31, 1997 1,068,906 $0.20-12.625 $3.11
On October 20, 1997, the Company allowed employees to reprice outstanding stock options to the market value of the Company's stock as of October 20, 1997. In connection with the repricing of outstanding stock options, all repriced options started vesting on October 20, 1997, and will become exercisable over periods of up to four years from October 20, 1997. Eligible employees elected to reprice approximately 293,000 options, with original exercise prices ranging from $2.25 to $12.625, to $1.50. The Company's officers and directors elected not to reprice any of their options. 24 RACOTEK, INC. NOTES TO FINANCIAL STATEMENTS 5. STOCKHOLDERS' EQUITY, CONTINUED: STOCK-BASED COMPENSATION: No compensation cost has been recognized for stock options granted to employees or directors under the 1989 Stock Option Plan, the 1993 Equity Incentive Plan or the 1993 Directors Option Plan (collectively referred to as "the Plans"). Had compensation cost for the Plans been determined based on the fair value of options at the grant date for awards in 1997, 1996 and 1995, the Company's net loss and net loss per share would have increased to the pro forma amounts indicated below: (In thousands, except per share amounts) 1997 1996 1995 --------- --------- --------- Net loss As reported $ (9,344) $(10,244) $(12,347) Pro forma (10,508) (11,180) (12,632) Net loss per share - As reported $ (.37) $ (.42) $ (.52) basic and diluted Pro forma (.42) (.46) (.54)
The pro forma effect on the net loss for 1997, 1996 and 1995 is not fully representative of the pro forma affect on net earnings (loss) in future years because these years do not take into consideration pro forma compensation expense related to grants made prior to 1995. In addition, during 1997 the Company recognized $37 of pro forma compensation expense as a result of the option repricing described previously. The aggregate fair value of options granted during 1997, 1996 and 1995, respectively, was $881, $1,671 and $1,602 for the 1993 Equity Incentive Plan and $193, $328 and $52 for the 1993 Directors Option Plan. The aggregate fair value was calculated by using the fair value of each option grant on the date of grant, utilizing the Black-Scholes option-pricing model and the following key assumptions for the Plans: Assumptions 1997 1996 1995 - ------------------------------------------------------------------------------- Risk-free interest rates 5.27% - 6.77% 5.27% - 6.77% 5.46% - 7.75% Volatility 35.789% 50% 50% Expected lives (months) 60 60 60 - -------------------------------------------------------------------------------
The Company does not anticipate paying dividends in the near future. The following table summarizes information about fixed-price stock options outstanding at December 31, 1997: Options Outstanding Options Exercisable ----------------------------------- --------------------------------- Number Weighted- Number Outstanding at Average Weighted- Exercisable at Weighted- Range of December 31, Remaining Average Exercise December 31, Average Exercise Exercise Prices 1997 Contractual Life Price 1997 Price - ----------------------------------------------------------------------------------------------------------- $0.20 - .55 267,350 47 $0.21 267,350 $0.21 1.50 - 3.00 1,791,481 112 1.83 62,500 1.69 3.125 - 4.6875 876,428 95 3.78 418,117 3.60 4.75 - 12.625 515,006 97 5.13 320,939 5.18 - -----------------------------------------------------------------------------------------------------------
PREFERRED STOCK: The Company's certificate of incorporation authorizes issuance of up to 5,000,000 preferred shares with a par value of $0.01 and allows the Company's Board of Directors, without obtaining the stockholders' approval, to issue preferred stock. There were no preferred shares issued or outstanding as of December 31, 1997 or 1996. WARRANTS: In connection with notes payable issued to stockholders in 1991, warrants were issued for the purchase of 364,207 shares of Series C convertible preferred stock at $2.00 per share. These warrants were immediately exercisable and expired five years from the date of issuance. All unexercised warrants to 25 RACOTEK, INC. NOTES TO FINANCIAL STATEMENTS purchase 231,618 shares of preferred stock were converted to warrants for the purchase of 231,618 shares of common stock when the Company completed its initial public offering in December 1993. The warrantholders exercised warrants for the purchase of 12,872 shares in 1995. There are no warrants outstanding as of December 31, 1997. STOCKHOLDER RIGHTS PLAN: On September 7, 1994, the Board of Directors adopted a Stockholder Rights Plan. Under this plan, the Board of Directors declared a dividend of one preferred share purchase right (a "Right") for each share of common stock outstanding as of September 28, 1994 (the "Record Date"). In addition, one Right will be issued with each share of common stock that becomes outstanding after the Record Date, except in certain circumstances. All Rights will expire on September 12, 2004, unless the Company extends the expiration date, redeems the Rights or exchanges the Rights for common stock. The Rights are initially attached to the Company's Common Stock and will not trade separately. If a person or a group acquires 20 percent or more of the Company's common stock (an "Acquiring Person") or announces an intention to make a tender offer for 20 percent or more of the Company's common stock, then the Rights will be distributed (the "Distribution Date") and will thereafter trade separately from the common stock. Upon the Distribution Date, each Right may be exercised for 1/100th of a share of a newly designated Series A Junior Participating Preferred Stock at an exercise price of $25.00. Upon a person or group becoming an Acquiring Person, holders of the Rights (other than the Acquiring Person) will have the right to acquire shares of the Company's common stock at a substantially discounted price in lieu of the preferred stock. Additionally, if, after the Distribution Date, the Company merges into or engages in certain other business combination transactions with an Acquiring Person or 50 percent or more of its assets are sold in a transaction with an Acquiring Person, the holders of Rights (other than the Acquiring Person) will have the right to receive shares of common stock of the acquiring corporation at a substantially discounted price. After a person or a group has become an Acquiring Person, the Company's Board of Directors may, at its option, require the exchange of outstanding Rights (other than those held by the Acquiring Person) for common stock at an exchange ratio of one share of the Company's common stock per Right. The board also has the right to redeem outstanding Rights at any time prior to the Distribution Date (or later in certain circumstances) at a price of $0.005 per Right. The terms of the Rights, including the period to redeem the Rights, may be amended by the Company's Board of Directors in certain circumstances. 6. INCOME TAXES: As of December 31, 1997, the Company had generated net operating loss carryforwards of approximately $66,989 for tax reporting purposes that may be offset against future taxable income through 2012. In addition, the Company had approximately $447 of future deductible temporary differences as of December 31, 1997, relating primarily to allowances for bad debts, approximately $731 of research and development charges recognized immediately for financial reporting purposes (Note 4) that are amortizable over 15 years for tax reporting purposes, and approximately $537 of research and development tax credit carryovers available to reduce future income taxes. These credits expire from 2005 through 2012. The Company also had approximately $103 of future taxable temporary differences related primarily to accelerated depreciation for tax reporting purposes. Valuation allowances have been established for the entire tax benefit associated with the carryforwards and net future deductible temporary differences as of December 31, 1997 and 1996. Certain stock transactions, including sales of stock and granting of options and warrants to purchase stock, caused a change in the Company's ownership which, under the Internal Revenue Code, will limit the amount of net operating loss carryforwards which may be utilized on an annual basis to offset taxable income in future periods. 26 RACOTEK, INC. NOTES TO FINANCIAL STATEMENTS 7. EMPLOYEE SAVINGS PLAN: The Company offers a 401(k) defined contribution benefit plan which covers employees who have attained 21 years of age and have been employed by the Company for at least three months. Participants may contribute up to 20% of their compensation in any plan year subject to an annual limitation. Employer contributions may be made at the discretion of the Company's Board of Directors. No Company contributions have been made to the Plan. 8. MAJOR CUSTOMER AND EXPORT SALES: A portion of the Company's revenues have been derived from major clients for the years ended December 31, 1997, 1996 and 1995 as follows: 1997 1996 1995 ------------------------------------------- Customer 1 8% 11% 18% Customer 2 7% 5% 15% Customer 3 - 1% 12%
27 RACOTEK, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - --------------------------------------------------------- --------------------------------------------------------------------- BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT BEGINNING OF CHARGED TO FROM END OF DESCRIPTION PERIOD EXPENSE ALLOWANCE PERIOD - --------------------------------------------------------- --------------------------------------------------------------------- Year ended December 31, 1997 Allowance for doubtful accounts (deducted from accounts receivable)......................... $340 $ 118 $ (234) $224 Inventory obsolescence reserve (deducted from inventories)................................. 856 207 (1,063) 0 Year ended December 31, 1996 Allowance for doubtful accounts (deducted from accounts receivable)......................... 197 233 (90) 340 Inventory obsolescence reserve (deducted from inventories)................................. 353 1,110 (607) 856 Year ended December 31, 1995 Allowance for doubtful accounts (deducted from accounts receivable)......................... 150 180 (133) 197 Inventory obsolescence reserve (deducted from inventories)................................. 389 569 (605) 353
28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RACOTEK, INC. Dated: March 19, 1998 By /s/ Michael A. Fabiaschi ------------------------------------ Michael A. Fabiaschi, President and Chief Executive Officer Each person whose signature appears below constitutes and appoints Michael A. Fabiaschi and, jointly and severally, his true and lawful attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date - ---- ----- ---- PRINCIPAL EXECUTIVE OFFICER: /s/ Michael Fabiaschi President and Chief March 19, 1998 - ---------------------------- Executive Officer and Michael Fabiaschi Acting Chief Financial Officer OTHER DIRECTORS: /s/ Joseph B. Costello Chairman of the Board March 19, 1998 - ---------------------------- Joseph B. Costello /s/ Dixon R. Doll Director March 19, 1998 - ---------------------------- Dixon R. Doll /s/ James L. Osborn Director March 19, 1998 - ---------------------------- James L. Osborn /s/ Norman D. Smith Chief Operating Officer March 19, 1998 - ---------------------------- Norman D. Smith
29 ANNUAL MEETING The Racotek, Inc. annual stockholders' meeting will be held at the Marriott City Center, 30 South Seventh Street, Minneapolis, Minnesota, 55402, at 11:00 a.m. C.S.T. on Thursday, April 30, 1998. SHAREHOLDER INFORMATION Racotek common stock trades on the Nasdaq National Market under the symbol RACO. Stockholders and prospective investors are welcome to call, write or fax Racotek with questions or requests for additional information. Copies of Racotek's Annual Report on Form 10-K for the year ended December 31, 1997, may be obtained without charge by directing inquiries to: RACOTEK, INC. DIRECTORS CORPORATE OFFICERS INVESTOR RELATIONS Joseph B. Costello Michael A. Fabiaschi 7301 OHMS LANE, SUITE 200 Chairman of the Board President, Chief MINNEAPOLIS, MN 55439 Racotek, Inc. Executive Officer TEL: 612-832-9800 and Acting Chief FAX: 612-832-9383 Michael Fabiaschi Financial Officer WEBSITE: http:\\www.racotek.com President and Chief Executive Officer Racotek, Inc. Norman D. Smith Norwest Bank Minnesota, N.A. Executive Vice Stock Transfer Department Dixon R. Doll President and Chief 161 North Concord Exchange Founder and Chairman Operating Officer P.O. Box 738 The DMW Group South St. Paul, MN 55075-0738 Paul Edelhertz Tel: 612-450-4101 James L. Osborn Vice President of Fax: 612-450-4078 General Manager of Customer Solutions International iDEN Infrastructure Independent Accountants Division of Motorola's Land Steve Swantek Coopers & Lybrand L.L.P. Mobile Products Sector Vice President of Minneapolis, MN Division of Motorola's Land Sales and Marketing Mobile Products Sector Corporate Counsel Isaac Shpantzer Cooley & Godward Norman D. Smith Fellow and Senior Palo Alto, CA Executive Vice President and Vice President of Chief Operating Officer Technology COMMITTEES OF THE BOARD Vladi Kelman Vice President AUDIT COMMITTEE of Product Joseph B. Costello Development James L. Osborn COMPENSATION COMMITTEE Joseph B. Costello Dixon R. Doll
30 EX-10.02 2 EXHIBIT 10.02 EXHIBIT 10.02 RACOTEK, INC. 1993 EQUITY INCENTIVE PLAN As Adopted October 21, 1993 As Amended December 22, 1995 As Amended February 19, 1997 As Amended November 11, 1997 As Amended January 10, 1998 1. PURPOSE. The purpose of the Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parents, Subsidiaries and Affiliates, by offering them an opportunity to participate in the Company's future performance through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text are defined in Section 24. 2. SHARES SUBJECT TO THE PLAN. 2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and 18, the total number of Shares reserved and available for grant and issuance pursuant to the Plan shall be five million seven hundred thousand (5,700,000) Shares. Any Shares issuable upon exercise of options granted pursuant to the 1989 Stock Option Plan (the "Prior Plan") that expire or become unexercisable for any reason without having been exercised in full shall no longer be available for distribution under the Prior Plan, but shall be available for distribution under this Plan. Subject to Sections 2.2 and 18, Shares shall again be available for grant and issuance in connection with future Awards under the Plan that: (a) are subject to issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option, (b) are subject to an Award granted hereunder but are forfeited or are repurchased by the Company at the original issue price, or (c) are subject to an Award that otherwise terminates without Shares being issued. 2.2 ADJUSTMENT OF SHARES. In the event that the number of outstanding Shares is changed, a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under the Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options, and (c) the number of Shares subject to other outstanding Awards shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share shall not be issued but shall either be paid in cash at Fair Market Value or shall be rounded up to the nearest Share, as determined by the Committee; and provided, further, that the Exercise Price of any Option may not be decreased to below the par value of the Shares. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants, independent contractors and advisers of the Company or any Parent, Subsidiary or Affiliate of the Company; provided such consultants, contractors and advisers render bona fide services not in connection with the offer and sale of securities in a capital- raising transaction. Employees shall each be eligible to receive up to an aggregate maximum of seven hundred fifty thousand (750,000) Shares each calendar year. A person may be granted more than one Award under the Plan. 4. ADMINISTRATION. 4.1 COMMITTEE AUTHORITY. The Plan shall be administered by the Committee or the Board acting as the Committee. Subject to the general purposes, terms and conditions of the Plan, and to the direction of the Board, the Committee shall have full power to implement and carry out the Plan. The Committee shall have the authority to: (a) construe and interpret the Plan, any Award Agreement and any other agreement or document executed pursuant to the Plan; (b) prescribe, amend and rescind rules and regulations relating to the Plan; (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination, in tandem, in replacement of, or as alternatives to, other Awards under the Plan or any other incentive or compensation plan of the Company or any Parent, Subsidiary or Affiliate of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission, or reconcile any inconsistency in the Plan, any Award or any Award Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of the Plan. 4.2 COMMITTEE DISCRETION. Any determination made by the Committee with respect to any Award shall be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Award under the Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under the Plan to Participants who are not Insiders of the Company. 4.3 EXCHANGE ACT REQUIREMENTS. If two or more members of the Board are Outside Directors, the Committee shall be comprised of at least two members of the Board, all of whom are Outside Directors and Disinterested Persons. The Company will take appropriate steps to comply with the disinterested administration requirements of Section 16(b) of the Exchange Act, which shall consist of the appointment by the Board of a Committee consisting of not less than two members of the Board, each of whom is a Disinterested Person. 5. OPTIONS. The Committee may grant Options to eligible persons and shall determine whether such Options shall be Incentive Stock Options within the meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 FORM OF OPTION GRANT. Each Option granted under the Plan shall be evidenced by an Award Agreement which shall expressly identify the Option as an ISO or NQSO ("Stock Option Agreement"), and be in such form and contain such provisions (which need not be the same for each Participant) as the Committee shall from time to time approve, and which shall comply with and be subject to the terms and conditions of the Plan. 5.2 DATE OF GRANT. The date of grant of an Option shall be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of the Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 EXERCISE PERIOD. Options shall be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement; provided, however, that no Option shall be exercisable after the expiration of one hundred twenty (120) months from the date the Option is granted, and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%)of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company ("Ten Percent Stockholder") shall be exercisable after the expiration of five (5) years from the date the Option is granted. The Committee also may provide for the exercise of Options to become exercisable at one time or from time to time, periodically or otherwise, in such number or percentage as the Committee determines. 5.4 EXERCISE PRICE. The Exercise Price shall be determined by the Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that (i) the Exercise Price of an ISO shall be not less than 100% of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise price of any ISO granted to a Ten Percent Stockholder shall not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 8 of the Plan. 5.5 METHOD OF EXERCISE. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "Exercise Agreement") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares, if any, and such representations and agreements regarding Participant's investment intent and access to information, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased. 5.6 TERMINATION. Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option shall always be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than ninety (90) days after the Termination Date (or such shorter time period as may be specified in the Stock Option Agreement), but in any event, no later than the expiration date of the Options. (b) If the Participant is terminated because of death or Disability (or the Participant dies within three months of such termination), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter time period as may be specified in the Stock Option Agreement), but in any event no later than the expiration date of the Options. 5.7 LIMITATIONS ON EXERCISE. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 LIMITATIONS ON ISOS. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year under the Plan or under any other incentive stock option plan of the Company or any Affiliate, Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds $100,000, the Options for the first $100,000 worth of Shares to become exercisable in such calendar year shall be ISOs and the Options for the amount in excess of $ 100,000 that become exercisable in that calendar year shall be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of the Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit shall be automatically incorporated herein and shall apply to any Options granted after the effective date of such amendment. 5.9 MODIFICATION EXTENSION OR RENEWAL. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of Participant, impair any of Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered shall be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of the Plan for Options granted on the date the action is taken to reduce the Exercise Price; provided, further, that the Exercise Price shall not be reduced below the par value of the Shares, if any. 5.10 NO DISQUALIFICATION. Notwithstanding any other provision in the Plan, no term of the Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to restrictions. The Committee shall determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the "Purchase Price"), the restrictions to which the Shares shall be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 FORM OF RESTRICTED STOCK AWARD. All purchases under a Restricted Stock Award made pursuant to the Plan shall be evidenced by an Award Agreement ("Restricted Stock Purchase Agreement") that shall be in such form (which need not be the same for each Participant) as the Committee shall from time to time approve, and shall comply with and be subject to the terms and conditions of the Plan. The offer of Restricted Stock shall be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full investment for the Shares to the Company within thirty (30) days, then the offer shall terminate, unless otherwise .determined by the Committee. 6.2 PURCHASE PRICE. The Purchase Price of Shares sold pursuant to a Restricted Stock Award shall be determined by the Committee and shall be at least 85% of the Fair Market Value of the Shares when the Restricted Stock Award is granted, except in the case of a sale to a Ten Percent Stockholder, in which case the Purchase Price shall be 100% of the Fair Market Value. Payment of the Purchase Price may be made in accordance with Section 8 of the Plan. 6.3 RESTRICTIONS. Restricted Stock Awards shall be subject to such restrictions as the Committee may impose. The Committee may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or part, based on length of service, performance or such other factors or criteria as the Committee may determine. 7. STOCK BONUSES. 7.1 AWARDS OF STOCK BONUSES. A Stock Bonus is an award of Shares (which may consist of Restricted Stock) for services rendered to the Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may be awarded for past services already rendered to the Company, or any Parent, Subsidiary or Affiliate of the Company pursuant to an Award Agreement (the "Stock Bonus Agreement") that shall be in such form (which need not be the same for each Participant) as the Committee shall from time to time approve, and shall comply with and be subject to the terms and conditions of the Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in Participant's individual Award Agreement (the "Performance Stock Bonus Agreement") that shall be in such form (which need not be the same for each Participant) as the Committee shall from time to time approve, and shall comply with and be subject to the terms and conditions of the Plan. Stock Bonuses may vary from Participant to Participant and between groups of Participants, and may be based upon the achievement of the Company, Parent, Subsidiary or Affiliate and/or individual performance factors or upon such other criteria as the Committee may determine. 7.2 TERMS OF STOCK BONUSES. The Committee shall determine the number of Shares to be awarded to the Participant and whether such Shares shall be Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee shall determine: (a) the nature, length and starting date of any period during which performance is to be measured (the "Performance Period") for each Stock Bonus; (b) the performance goals and criteria to be used to measure the performance, if any; (c) the number of Shares that may be awarded to the Participant; and (d) the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. 7.3 FORM OF PAYMENT. The earned portion of a Stock Bonus may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be made in the form of cash, whole Shares, including Restricted Stock, or a combination thereof, either in a lump sum payment or in installments, all as the Committee shall determine. 7.4 TERMINATION DURING PERFORMANCE PERIOD. If a Participant is Terminated during a Performance Period for any reason, then such Participant shall be entitled to payment (whether in Shares, cash or otherwise) with respect to the Stock Bonus only to the extent earned as of the date of Termination in accordance with the Performance Stock Bonus Agreement, unless the Committee shall determine otherwise. 8. PAYMENT FOR SHARE PURCHASES. 8.1 PAYMENT. Payment for Shares purchased pursuant to the Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of Shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such Shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees of the Company shall not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; provided, further, that the portion of the Purchase Price equal to the par value of the Shares, if any, must be paid in cash; (d) by waiver of compensation due or accrued to Participant for services rendered; (e) by tender of property; (f) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or (g) by any combination of the foregoing. 8.2 LOAN GUARANTEES. The Committee may help the Participant pay for Shares purchased under the Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 9. WITHHOLDING TAXES. 9.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued in satisfaction of Awards granted under the Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for Shares. Whenever, under the Plan, payments in satisfaction of Awards are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 9.2 STOCK WITHHOLDING. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). All elections by a Participant to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Committee and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, then except as provided below, the election shall be irrevocable as to the particular Shares as to which the election is made; (c) all elections shall be subject to the consent or disapproval of the Committee; (d) if the Participant is an Insider and if the Company is subject to Section 16(b) of the Exchange Act: (1) the election may not be made within six (6) months of the date of grant of the Award, except as otherwise permitted by SEC Rule 16b-3(e) under the Exchange Act, and (2) either (A) the election to use stock withholding must be irrevocably made at least six (6) months prior to the Tax Date (although such election may be revoked at any time at least six (6) months prior to the Tax Date) or (B) the exercise of the Option or election to use stock withholding must be made in the ten (10) day period beginning on the third day following the release of the Company's quarterly or annual summary statement of sales or earnings; provided, that, prior to the date the Company elects to comply with the requirements of Rule 16b-3, as amended effective May l, 1992, the provisions of former Rule 16b-3(e) of the Exchange Act shall apply with respect to any such elections; and (e) in the event that the Tax Date is deferred until six (6) months after the delivery of Shares under Section 83(b) of the Code, the Participant shall receive the full number of Shares with respect to which the exercise occurs, but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 10. PRIVILEGES OF STOCK OWNERSHIP. 10.1 VOTING: AND DIVIDENDS. No Participant shall have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant shall be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company shall be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant shall have no right to retain such dividends or distributions with respect to Shares that are repurchased at the Participant's original Purchase Price pursuant to Section 12. 10.2 FINANCIAL STATEMENTS. The Company shall provide financial statements to each Participant prior to such Participant's purchase of Shares under the Plan, and to each Participant annually during the period such Participant has Options outstanding; provided, however, the Company shall not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information. 11. TRANSFERABILITY. Awards granted under the Plan, and any interest therein, shall not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as consistent with the specific Plan and Award Agreement provisions relating thereto. During the lifetime of the Participant an Award shall be exercisable only by the Participant, and any elections with respect to an Award, may be made only by the Participant. 12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement (a) a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, and/or (b) a right to repurchase a portion of or all Shares held by a Participant following such Participant's Termination at any time within ninety (90) days after the later of Participant's Termination Date and the date Participant purchases Shares under the Plan, for cash or cancellation of purchase money indebtedness, at: (A) with respect to Shares that are "Vested" (as defined in the Award Agreement), the higher of: (1) Participant's original Purchase Price, or (2) the Fair Market Value of such Shares on Participant's Termination Date, provided, such right of repurchase terminates when the Company's securities become publicly traded; or (B) with respect to Shares that are not "Vested" (as defined in the Award Agreement), at the Participant's original Purchase Price, provided, that the right to repurchase at the original Purchase Price lapses at the rate of at least 20% per year over 5 years from the date the Shares were purchased, and if the right to repurchase is assignable, the assignee must pay the Company, upon assignment of the right to repurchase, cash equal to the excess of the Fair Market Value of the Shares over the original Purchase Price. 13. CERTIFICATES. All certificates for Shares or other securities delivered under the Plan shall be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed. 14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant's Shares, the Committee may require the Participant to deposit all certificates, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under the Plan shall be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the Payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company shall have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant shall be required to execute and deliver a written pledge agreement in such form as the Committee shall from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a prorata basis as the promissory note is paid. 15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant shall agree. 16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in the Plan, the Company shall have no obligation to issue or deliver certificates for Shares under the Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) completion of any registration or other qualification of such shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company shall be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company shall have no liability for any inability or failure to do so. 17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted under the Plan shall confer or be deemed to confer on any Participant any right to continue in the employ of, or other relationship with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 18. CORPORATE TRANSACTIONS. 18.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. In the event of a Change in Control, then: (i) any surviving or acquiring corporation shall assume Options outstanding under the Plan or shall substitute similar options (including an option to acquire the same consideration paid to stockholders in the transaction described in this Section 18) for those outstanding under the Plan, or (ii) in the event any surviving or acquiring corporation refuses to assume such Options or to substitute similar options for those outstanding under the Plan, (A) with respect to Participants who are not Terminated, the vesting of such Options and the time during which such Options may be exercised shall be accelerated prior to such event and the Options terminated if not exercised after such acceleration and at or prior to such event, and (B) with respect to any other Options outstanding under the Plan, such Options shall be terminated if not exercised prior to such event. 18.2 OTHER TREATMENT OF AWARDS. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any transaction described in Section 18.1, any outstanding Awards shall be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, sale of assets or other "corporate transaction." 18.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (a) granting an Award under the Plan in substitution of such other company's award, or (b) assuming such award as if it had been granted under the Plan if the terms of such assumed award could be applied to an Award granted under the Plan. Such substitution or assumption shall be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under the Plan if the other company had applied the rules of the Plan to such grant. In the event the Company assumes an award grated by another company, the terms and conditions of such award shall remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 19. ADOPTION AND STOCKHOLDER APPROVAL. The Plan shall become effective on the date that it is adopted by the Board (the "Effective Date"). The Plan shall be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to the Plan; provided, however, that: (a) no Option may be exercised prior to initial stockholder approval of the Plan; (b) no Option granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the stockholders of the Company; and (c) in the event that stockholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be canceled, any Shares issued pursuant to any Award shall be canceled and any purchase of Shares hereunder shall be rescinded. After the Company becomes subject to Section 16(b) of the Exchange Act, the Company will comply with the requirements of Rule 16b-3 (or its successor), as amended, with respect to stockholder approval. 20. TERM OF PLAN. The Plan will terminate ten (10) years from the Effective Date or, if earlier, the date of stockholder approval. 21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend the Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to the Plan; provided, however, that the Board shall not, without the approval of the stockholders of the Company, amend the Plan in any manner that requires such stockholder approval pursuant to the Code or the regulations promulgated thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder. 22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board, the submission of the Plan to the stockholders of the Company for approval, nor any provision of the Plan shall be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 23. GOVERNING LAW. The Plan and all agreements, documents and instruments entered into pursuant to the Plan shall be governed by and construed in accordance with the internal laws of the State of Minnesota except to the extent required to be governed under the General Corporation Law of the State of Delaware. 24. DEFINITIONS. As used in the Plan, the following terms shall have the following meanings: "AFFILIATE" means any corporation that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, another corporation, where "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to cause the direction of the management and policies of the corporation, whether through the ownership of voting securities, by contract or otherwise. "AWARD" means any award under the Plan, including any Option, Restricted Stock or Stock Bonus. "AWARD AGREEMENT" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award. "BOARD" means the Board of Directors of the Company. "CAUSE" shall mean willful conduct that is materially harmful to the business of the Company, any Affiliate of the Company, or any successors thereto. "CHANGE IN CONTROL" shall mean the consummation of any one of the following events: (i) a sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a transaction the principal purpose of which is to change the state of the Company's incorporation or a transaction in which the voting securities of the Company are exchanged for beneficial ownership of at least fifty percent (50%) of the voting securities of the controlling acquiring corporation); (iii) a merger or consolidation in which the Company is the surviving corporation and less than fifty percent (50%) of the voting securities of the Company which are outstanding immediately after the consummation of such transaction are beneficially owned, directly or indirectly, by the persons who owned such voting securities immediately prior to such transaction; (iv) any transaction or series of related transactions after which any person (as such term is used in Section 13(d)(3) of the Exchange Act), other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, becomes the beneficial owner of voting securities of the Company representing fifty percent (50%) or more of the combined voting power of all of the voting securities of the Company; or (v) the liquidation or dissolution of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the committee appointed by the Board to administer the Plan, or if no committee is appointed, the Board. "COMPANY" means Racotek, Inc., a corporation organized under the laws of the State of Delaware, or any successor corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, within the meaning of Section 22(e)(3) of the Code, as determined by the Committee. "DISINTERESTED PERSON" shall have the meaning set forth in Rule 16b-3(c)(2)(i) as promulgated by the SEC under Section 16(b) of the Exchange Act, as such rule is amended from time to time and as interpreted by the SEC. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) of such Common Stock is then quoted on the NASDAQ National Market System, its last reported sale price on the NASDAQ National Market System or, if no such reported sale takes place on such date, the average of the closing bid and asked prices; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, the last reported sale price or, if no such reported sale takes place on such date, the average of the closing bid and asked prices on the principal national securities exchange on which the Common Stock is listed or admitted to trading; (c) if such Common Stock is publicly traded but is not quoted on the NASDAQ National Market System nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on such date, as reported by The Wall Street Journal, for the over-the-counter market; or (d) if none of the foregoing is applicable, by the Board of Directors of the Company in good faith. "GOOD REASON" shall mean that any one of the following actions has been taken without the Participant's express written consent and such action has not been promptly reversed within thirty (30) days following written notice from the Participant to the recipient of such Participant's services: (i) a material reduction in the Participant's job responsibilities given the Participant's prior position and responsibilities with the Company; (ii) any reduction in the Participant's compensation and aggregate benefits as in effect immediately prior to such reduction; (iii) relocation of the Participant's workplace to a facility or location more than twenty-five (25) miles from the Participant's workplace immediately prior to such relocation; or (iv) any Termination which is not effected by reason of death, disability, or Cause. "INSIDER" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "OPTION" means an award of an option to purchase Shares pursuant to Section 5. "OUTSIDE DIRECTOR" shall mean any director who is not (i) a current employee of the Company or any Parent, Subsidiary or Affiliate of the Company, (ii) a former employee of the Company or any Parent, Subsidiary or Affiliate of the Company who is receiving compensation for prior services (other than benefits under a tax-qualified pension plan), (iii) a current or former officer of the Company or any Parent, Subsidiary or Affiliate of the Company or (iv) currently receiving compensation for personal services in any capacity, other than as a director, from the Company or any Parent, Subsidiary or Affiliate of the Company; provided, however, that at such time as the term "Outside Director", as used in Section 162(m) is defined in regulations promulgated under Section 162(m) of the Code, "Outside Director" shall have the meaning set forth in such regulations, as amended from time to time and as interpreted by the Internal Revenue Service. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Award under the Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PARTICIPANT" means a person who receives an Award under the Plan. "PLAN" means this Racotek, Inc. 1993 Equity Incentive Plan, as amended from time to time. "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Common Stock, $0.01 par value, reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and 15, and any successor security. "STOCK BONUS" means an award of Shares, or cash in lieu of Shares, pursuant to Section 7. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of the Plan with respect to a Participant, that the Participant has ceased to provide services as an employee, director, consultant, independent contractor or adviser, to the Company or a Parent, Subsidiary or Affiliate of the Company, except in the case of sick leave, military leave, or any other leave of absence approved by the Committee, provided, that such leave is for a period of not more than ninety (90) days, or reinstatement upon the expiration of such leave is guaranteed by contract or statute. The Committee shall have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). EX-10.40 3 EXHIBIT 10.40 EXHIBIT 10.40 SUBLEASE THIS SUBLEASE, made and entered into this 18th day of November between RACOTEK, INC., a Delaware corporation, ("Sublessor") and ATIO CORPORATION USA, INC., a Minnesota corporation ("Sublessee"). RECITALS: A. A lease ("Prime Lease") dated May 2, 1994, was made and entered into between Connecticut General Life Insurance Company, on behalf of its Closed End Real Estate Fund I, as Landlord, and Racotek, Inc., as Tenant, pertaining to Premises consisting of the entire second and sixth floors at 7301 Ohms Lane, City of Edina, County of Hennepin, State of Minnesota and is attached hereto as Exhibit B. B. The parties hereto desire that the Sublessor sublet to the Sublessee and that the Sublessee take from the Sublessor that portion of the sixth floor of the Premises leased under the Prime Lease containing approximately 13,494 square feet of rentable area (hereinafter referred to as the "Sublet Area" and designated "Suite 600") as depicted on Exhibit A, attached hereto. C. As an inducement to Sublessor to enter into this Sublease, Sublessee's parent, Venturian Corp., a Minnesota corporation, has agreed to guarantee Sublessee's performance under this Sublease. NOW, THEREFORE, in consideration of the foregoing premises and of the mutual covenants hereinafter contained, but subject to the consent thereto by Landlord, the Sublessor does hereby sublet to the Sublessee and the Sublessee does hereby rent and take from Sublessor, the Sublet Area, subject to the following terms and conditions: 1. Except for those portions of Articles 5, 6 and 13 contained in the Addendum to the Prime Lease and Articles 4, 34, 35, 36 and 37 of the Prime Lease (hereinafter collectively referred to as the "Excluded Provisions") which shall not apply to this Sublease, all other applicable terms and conditions of the Prime Lease are incorporated into and made a part of this Sublease as if the Sublessor were the Landlord under the Prime Lease, the Sublessee was the Tenant under the Prime Lease, and the Sublet Area were the Premises under the Prime Lease. Sublessee hereby assumes and agrees to be bound by all terms, covenants, and conditions of the Prime Lease except for the Excluded Provisions and except as otherwise provided for herein. 2. The term of this Sublease shall commence November 24, 1997, and shall terminate July 31, 2000. 3. The Sublessee shall pay to Landlord on behalf of Sublessor $7,872 per month from January 1, 1998, to July 31, 1998, and 8,434 per month from August 1, 1998, to July 31, 2000, as Minimum Rent for the Sublet Area, due and payable on the first day of each month during the entire term of this Sublease. Commencing January 1, 1998, Sublessee shall also pay to Landlord on behalf of Sublessor, as Additional Rent, its share of Real Estate Taxes and Operating Expenses pursuant to Article 6 of the Prime Lease based on 13,494 rentable square feet for the term of this Sublease. Sublessee shall initially pay estimated 1998 Real Estate Taxes and Operating Expenses in the amount of $9,828 per month ($8.74 per rentable square foot per year) subject to adjustment at the end of 1998 as provided for in said Article 6. All rent shall be paid to the Landlord at the address and in the manner set forth in the Prime Lease for the payment of rentals or at such other address and/or to such other party as the Landlord may from time to time elect by giving not less that ten (10) days advance written notice thereof to the Sublessee. All such payments shall be credited against the obligations of Sublessor under the Prime Lease. 4. The Sublessee may use the Sublet Area for the purpose stated in the Prime Lease and for no other purposes whatsoever. 5. The Sublessee will notify the Landlord forthwith in the event of any default that occurs under the provisions of this Sublease, such notice to be given to the Landlord by United States Mail, registered or certified, postage prepaid, at the address provided for Landlord in the Prime Lease or as such other address as Tenant shall be advised to use by Landlord. 6. Any notice provided for herein shall be deemed to be duly given if made in writing and delivered in person to an office of such party or mailed by first class registered or certified mail, postage prepaid, addressed as follows: If to Sublessor: If to Sublessee: Racotek, Inc. ATIO Corporation USA, Inc. 7301 Ohms Lane, Suite 200 7301 Ohms Lane/Suite 600 Edina, Minnesota 55439 Edina, Minnesota 55439 or to such other address with respect to either party hereto as such party shall notify the other party hereto in writing. Any notice so given, if mailed as aforesaid, shall be deemed received the second (2nd) day after it is deposited in the United States Mail. 7. Sublessee shall, at its expense, during the term of this Sublease, maintain public liability insurance and such other insurance coverages in the amount required under Article 24 of the Prime Lease in one or more companies acceptable to Sublessor and Landlord, naming Sublessor, Landlord and Landlord's manager of the Building as additional insureds. No policy of insurance obtained by the Sublessee in compliance with the Prime Lease may be canceled or terminated except upon not less that ten (10) days written notice to Sublessor and Landlord. True and correct copies of each policy or such insurance, and renewals thereof, obtained by the Sublessee in compliance with the Prime Lease shall be delivered to the Sublessor and to Landlord. 8. Sublessor agrees to pay United Properties Brokerage Company ("United") a leasing commission in the amount of $60,723 payable in full upon full execution of this Sublease. United has agreed under separate agreement that upon receipt thereof from Sublessor, that it shall pay half of said commission to Sublessee's agent, Towle Real Estate Company. It is hereby agreed that United shall be deemed a third-party beneficiary of Sublessor's agreement to pay the leasing commission specified above. In no event shall Sublessee have any liability whatsoever with respect to fees or commissions as a result of this Sublease. 9. In all respects, Sublessee accepts the Sublet Area in its "as-is" condition. Sublessee agrees that it shall make no alterations or improvements to the Sublet Area except as are consented to in writing by Sublessor and by Landlord as to the nature of such alterations or improvements and the manner of doing the work as provided for under the Prime Lease. 10. Sublessee agrees that upon the full execution of this Sublease, that in order to provide security to Sublessor for the payment of rent and the performance by Sublessee of all of the terms of this Sublease, that Sublessee will deposit $18,000 with Landlord (the "Security Deposit"). The Parties agree that upon the occurrence of a default by Sublessee under this Sublease (beyond any applicable period of cure), that Landlord shall have the authority to utilize such portion of the Security Deposit as is necessary to cure such default. Sublessee agrees that in the event any portion of the Security Deposit is so utilized to cure any such default, that Sublessee will immediately deposit with Landlord an amount sufficient to maintain the required $18,000 balance. Sublessee agrees to indemnify, defend and hold Sublessor harmless from any damage which may be suffered by Sublessor as a result of any default by Sublessee under the terms of this sublease including any failure by Sublessee to pay when due any of the rentals provided for under Paragraph 3 of this Sublease. Notwithstanding anything to the contrary contained herein, Sublessee acknowledges that its liability under this Sublease is not limited to the Security Deposit and that the use of any portion of the Security Deposit shall not constitute a waiver but shall be in addition to any other remedies available to Sublessor under this Sublease, available to Landlord under the Prime Lease, and available to either party under law. The parties agree that so long as no such default exists as of the expiration of this Sublease, that Landlord shall return to Sublessee the entire remaining balance of the Security Deposit, without interest. 11. Not withstanding anything contained in this Sublease to the contrary, a default (beyond any applicable period of cure) by Sublessee under that certain Personal Property, Installment, Sale and Security Agreement dated of even date herewith and by and between Sublessor and Sublessee shall constitute a default under this Sublease. IN WITNESS WHEREOF, each of the parties hereto has caused their presence to be duly executed as of the day and year first above written. SUBLESSOR: SUBLESSEE: RACOTEK, INC. ATIO CORPORATION USA, INC. BY: /s/ BY: /s/ Ian L. Nemerov Patrick O. Collette Its: Secretary and Attorney Chief Financial Officer CONSENT OF LANDLORD A. The undersigned Landlord does hereby consent to the above Sublease provided, however, in no event shall: (i) the Tenant under the Prime Lease be in any way whatsoever relieved of its obligations to keep and perform promptly each of the terms, covenants or conditions to be kept or performed by it under the Prime Lease, or (ii) the terms, covenants or conditions of the Prime Lease be, in any manner whatsoever, amended or otherwise changed or (iii) the undersigned be deemed to consent to any further subletting or assignment under the Prime Lease, or (iv) the acceptance of rent by Landlord be deemed to create privity of contract by and between Sublessee and Landlord. This consent shall not be effective unless Sublessee delivers to Landlord, prior to taking possession of the Sublet Area, evidence that Sublessee is in full compliance with all insurance requirements of the Prime Lease including but not limited to the requirement that Landlord and Landlord's manager of the Building are named as an additional insured in all insurance policies required under the Prime Lease. B. Landlord agrees that so long as Sublessee makes the payments of Minimum Rent and Additional Rent directly to Landlord as required pursuant to Paragraph 3 of the Sublease and performs all of the other terms, conditions, covenants and agreements on Sublessee's part to be observed and performed under the Sublease, Sublessee may peaceably and quietly enjoy the Sublet Area for the uses permitted under the Sublease even though Tenant may be in default under one or more of the terms, conditions, covenants or agreements on Tenant's part to be observed and performed under the Prime Lease. Such agreement to allow Sublessee to peaceably and quietly enjoy the Sublet Area in the event of a default by Tenant under the Prime Lease shall be contingent upon Landlord continuing to hold the Security Deposit provided for under Paragraph 10 of this Sublease and Paragraph 10 to cure any default by Sublessee. The previous agreements to the contrary notwithstanding, nothing herein shall be construed so as to prohibit Landlord from requiring Tenant to observe and perform all of the terms, conditions, covenants and agreements of Tenant under the Prime Lease and/or to pursue any and all remedies under the Prime Lease against Tenant for a breach or default thereunder. Landlord acknowledges that any payments of Minimum Rent and Additional Rent made by Sublessee directly to Landlord pursuant to the Sublease shall be credited against the obligations of Tenant under the Prime Lease. LANDLORD: CONNECTICUT GENERAL LIFE INSURANCE COMPANY On behalf of its Closed End Real Estate Fund 1 By: CIGNA Investments, Inc. By: /s/ James H. Rogers Its: Managing Director SUBLEASE AND SECURITY AGREEMENT GUARANTEE FOR VALUE RECEIVED, and consideration for, and as an inducement to RACOTEK, INC. a Delaware corporation (hereinafter referred to as "SUBLESSOR") to enter into that certain Personal Property, Sale and Security Agreement, dated November 19, 1997 ("SECURITY AGREEMENT") and that certain Sublease pertaining to a Sublet Area consisting of approximately 13,494 rentable square feet on the sixth floor at 7301 Ohms Lane in Edina, Minnesota ("Sublease") (hereafter the Sublease and Security Agreement shall be collectively referred to as the "SUBLEASE AND AGREEMENT") which Sublease and Agreement are between Sublessor and ATIO Corporation USA, Inc., a Minnesota corporation (hereinafter referred to as "SUBLESSEE"), the undersigned hereby absolutely, unconditionally and irrevocably guarantee to Sublessor the full and complete performance of all of the Sublessee's covenants and obligations under each of said Sublease and Agreement and the full payment by Sublessee of all rentals, and other charges and amounts required to be paid thereunder, and the undersigned will pay all Sublessors's expenses, including attorney's fees, incurred in enforcing the obligations of Sublessee under each of said Sublease and Agreement or incurred in enforcing this Guarantee. The undersigned further represent to Sublessor as an inducement for Sublessor to make both of said Sublease and Agreement, that the execution and delivery of this Guarantee is not in contravention of any other lease, mortgage, loan agreement or other agreement to which the undersigned is party. This Guarantee shall be binding upon the undersigned for obligations which accrue during the original term of each of the Sublease and Agreement. The undersigned acknowledge and covenant to Sublessor that the undersigned has a beneficial interest in Sublessee and, accordingly, has a direct financial interest in the making of the Sublease and Agreement. The undersigned does hereby waive all requirements of notice of the acceptance of this Guarantee and all requirements of notice of breach or non-performance by Sublessee. The undersigneds' obligations hereunder shall remain fully binding although Sublessor may have waived one or more defaults by Sublessee, extended the time of performance by Sublessee, released, returned or misapplied other collateral given later as additional security (including other guaranties) or released Sublessee from the performance of its obligation under either of such Sublease and Agreement. The undersigned further agree that the undersigneds' liability under this Guarantee shall be primary, and that in any right of action which shall accrue to Sublessor under said Sublease and Agreement, Sublessor may, at Sublessor's option, proceed against the undersigned and Sublessee, jointly or severally, or may proceed against the undersigned without having commenced any action against or having obtained any judgment against Sublesse. The undersigneds' obligations hereunder shall remain fully binding, notwithstanding any course of dealings between Sublessor and Sublessee and notwithstanding that Sublessee may assign either the Sublease or Security Agreement or sublet all or part of the Sublet Area to third parties. Without notice to or consent by the undersigned, Sublessor and Sublessee may at any time, modify, amend, or make other covenants respecting either the Sublease or the Security Agreement as they may deem appropriate. The undersigned shall not be released, but shall continue to be fully liable for payment and performance of all liabilities, obligations, and duties of Sublease under both the Sublease and Agreement as modified, amended or assigned (provided modifications or amendments do not materially increase gross rentals contemplated in the Sublease). This Guarantee shall be binding upon the undersigned, their respective heirs, executors, administrators, representatives, successors and assigns. This Guarantee may be enforced by Sublessor or the successors or assigns of Sublessor under the Sublease or the Security Agreement respectively. The foregoing notwithstanding, the guarantee of Venturian Corp. and the guarantee of Atio Corporation International Inc. shall each be limited to one-half of the amount of any default by Atio USA in the initial term of the Sublease. The undersigned agree (i) that any obligations arising out of this Guarantee shall be paid in U.S. dollars; (ii) that this guarantee shall be governed under the laws of the State of Minnesota; (iii) that any legal action arising out of this guarantee shall be in District Court in the County of Hennepin, State of Minnesota; and (iv) that Sublessor may rely upon copies of signatures transmitted via facsimile. IN WITNESS WHEREOF, the undersigned guarantor(s) have caused this Guarantee to be executed this 4th day of December, 1997. GUARANTOR(S): ATIO CORPORATION INTERNATIONAL INC. VENTURIAN CORP., a Delaware corporation a Minnesota corporation By: /s/ Willem Ellis By: /s/ Gary B. Rappaport Its: Chairman & C.E.O. President and Chief Executive Officer EX-10.41 4 EXHIBIT 10.41 Exhibit 10.41 CHANGE IN CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT This Change in Control Employment and Severance Agreement (the "AGREEMENT") is entered into this 10th day of March 1998 between Michael A. Fabiaschi ("Executive") and Racotek, Inc., a Delaware corporation (the "COMPANY"). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events following a Change in Control (as hereinafter defined). Certain capitalized terms used in this Agreement are defined in Article VII. The Company and Executive hereby agree as follows: ARTICLE I EMPLOYMENT BY THE COMPANY 1.1 Executive is currently employed as the President and Chief Executive Officer of the Company. 1.2 This Agreement shall become effective upon the occurrence of a Change in Control. 1.3 The Company and Executive each agree and acknowledge that Executive is employed by the Company as an "at will" employee and that either Executive or the Company has the right at any time to terminate Executive's employment with the Company, with or without cause or advance notice, for any reason or for no reason. The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event that Executive's employment with the Company terminates under the circumstances described in Article II of this Agreement. 1.4 The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive's past services to the Company, Executive's continued employment with the Company and Executive's execution of the general waiver and release described in Section 4.3. ARTICLE II TRIGGERING EVENTS 2.1 Involuntary Termination of Employment During Term (a) If Executive's employment is involuntarily terminated by the Company without Cause during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. (b) If Executive's employment is involuntarily terminated by the Company for Cause during the Term, such termination of employment will NOT be a Triggering Event, and Executive will NOT be entitled to receive any compensation or benefits under the provisions of this Agreement except as otherwise specifically set forth herein. 2.2 Voluntary Termination of Employment During Term. (a) Executive may voluntarily terminate his employment with the Company at any time during the Term. If Executive voluntarily terminates his employment for Good Reason during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. (b) If Executive voluntarily terminates his employment for any reason other than Good Reason during the Term, such termination of employment will NOT be a Triggering Event, and Executive will NOT be entitled to receive any compensation or benefits under the provisions of this Agreement except as otherwise specifically set forth herein. 2.3 Death or Disability During Term. If Executive's employment with the Company terminates on account of death or disability during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. 2.4 Employment Through Term. If Executive's employment continues through the end of the Term, such continuation of employment will be a Triggering Event, and the Company shall pay Executive the compensation and benefits described in Article III. ARTICLE III COMPENSATION AND BENEFITS 3.1 Right to Benefits. If a Triggering Event occurs, Executive shall be entitled to receive the compensation and benefits described in this Agreement subject to the restrictions and limitations set forth in Article IV. If a Triggering Event does not occur, Executive shall not be entitled to receive any compensation and benefits described in this Agreement, except as otherwise specifically set forth herein. 3.2 Severance Payment. Upon the occurrence of a Triggering Event or, if later, upon the termination of Executive's employment with the Company following a Triggering Event, Executive shall receive a lump sum severance payment equal to the sum of (a) the amount of Executive's Base Salary that would have been paid with respect to the period beginning on the date of the Triggering Event and ending with the last day of the Term plus (b) six (6) months of Base Salary. Such lump sum amount shall be paid no later than thirty (30) days following the date of the Triggering Event or, if later, the date of termination of Executive's employment with the Company and shall be subject to all applicable tax withholding. 3.3 Health Insurance Coverage. Upon the occurrence of a Triggering Event or, if later, upon the termination of Executive's employment with the Company following a Triggering Event, to the extent permitted by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the Company's group health insurance policy, Executive and his covered dependents will be eligible to continue their health insurance benefits at their own expense. If Executive elects COBRA continuation coverage, the Company shall pay Executive's and covered dependents' COBRA continuation premiums for six (6) months following the date Executive's coverage as an active employee under the Company's group health policy ceases, provided that the Company's obligation to make such payments shall terminate immediately if Executive becomes eligible for other health insurance benefits at the expense of a new employer. Executive agrees to notify the Company, in writing, immediately upon acceptance of any employment which provides health insurance benefits. This Section 3.3 provides only for the Company's payment of COBRA continuation premiums for the period specified above. This Section 3.3 is not intended to affect, nor does it affect, the rights of Executive, or Executive's covered dependents, under any applicable law with respect to health insurance continuation coverage. 3.4 Stock Option Acceleration. Executive's stock options under the Company's 1993 Equity Incentive Plan which are outstanding as of the date of the Triggering Event (the "Stock Options") shall become fully vested and exercisable upon the occurrence of a Triggering Event or upon the termination of Executive's employment during the Term which does not otherwise constitute a Triggering Event, notwithstanding the then existing provisions of the relevant Stock Option agreements, which provisions are expressly modified by this Agreement. The period of time during which the Stock Options shall remain exercisable, and all other terms and conditions of the Stock Options, shall be as specified in the relevant Stock Option agreements. 3.5 Mitigation. Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by retirement benefits after the date of the Triggering Event, or otherwise. ARTICLE IV LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT 4.1 Other Severance Benefits; Withholding of Taxes. The benefits provided under this Agreement are in lieu of any other benefit provided under any employment contract or severance plan of the Company in effect at the time of a Triggering Event. The Company shall withhold appropriate federal, state or local income and employment taxes from any payments hereunder. 4.2 Obligations of Executive. During the Term, Executive agrees not to personally solicit any of the Company's employees to become employed elsewhere or provide the names of such employees to any other company which Executive has reason to believe will solicit such employees. 4.3 Employee Agreement and Release Prior to Receipt of Certain Benefits. Prior to the receipt of any benefits under Section 3.2 above, Executive shall execute an effective employee agreement and release in the form attached hereto as Exhibit A. Such employee agreement and release shall specifically relate to all of Executive's rights and claims in existence at the time of its execution. It is understood that Executive has twenty-one (21) days to consider whether to execute such employee agreement and release and Executive may revoke such employee agreement and release within seven (7) days after execution of such employee agreement and release. If Executive does not execute such employee agreement and release within the twenty-one (21) day period, or if Executive revokes such employee agreement and release within the seven (7) day period, no benefits shall be payable under Section 3.2 above. Nothing in this Agreement shall limit the scope or time of applicability of such employee agreement and release once it is executed and not timely revoked. 4.4 Certain Additional Payments. If it shall be determined, either by the Company or by a final determination of the Internal Revenue Service, that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement (including, without limitation, the value ascribed to option acceleration pursuant to Section 3.4 above) or otherwise (the "Payments"), would cause Executive to become subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Company shall pay to Executive, within the later of ninety (90) days of the date of the Triggering Event or ninety (90) days of the date of determination referred to above, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax and any federal (and state and local) income and employment taxes on the Gross-Up Payment, shall be equal to the Payments. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal, state and local income taxes at the highest nominal marginal rate of federal, state and local income taxation in the calendar year in which the Gross-Up Payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. If the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be less than the amount taken into account to determine the amount of the Gross-Up Payment, then Executive shall repay to the Company at that time the portion of the Gross-Up Payment attributable to such reduction (plus an amount equal to any tax reduction, whether of the Excise Tax, any applicable income tax, or any applicable employment tax, which Executive may enjoy as a result of such initial repayment). If the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be more than the amount taken into account to determine the amount of the Gross-Up Payment, then the Company shall pay to Executive an additional amount, which shall be determined using the same methods as were used for calculating the Gross-Up Payment, with respect to such excess. For purposes of this Section 4.4, a determination of the Internal Revenue Service as to the amount of Excise Tax for which Executive is liable shall not be treated as final until the time that either (i) the Company agrees to acquiesce in the determination of the Internal Revenue Service or (ii) the determination of the Internal Revenue Service has been upheld in a court of competent jurisdiction and the Company decides not to appeal such judicial decision or such decision is not appealable. If the Company chooses to contest the determination of the Internal Revenue Service, then all costs, attorneys' fees, and other expenses shall be paid by the Company. 4.5 Amendment or Termination. On and after the effective date of a Change in Control, this Agreement may be amended or terminated only upon the mutual written consent of the Company and Executive. Prior to the effective date of a Change in Control, this Agreement may be amended or terminated by the Company without the consent of Executive. ARTICLE V OTHER RIGHTS AND BENEFITS NOT AFFECTED 5.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company and for which Executive may otherwise qualify, nor shall anything herein limit or otherwise affect such rights as Executive may have under any stock option or other agreements with the Company; PROVIDED, HOWEVER, that in accordance with Section 4.1 above, any benefits provided hereunder shall be in lieu of any other severance payments to which Executive may otherwise be entitled, including, without limitation, under any employment contract or severance plan, and benefits under this Agreement shall be offset to the extent necessary to give effect to this proviso. Except as otherwise expressly provided herein, amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company at or subsequent to the effective date of a Change in Control shall be payable in accordance with such plan, policy, practice or program. 5.2 Employment Status. This Agreement does not constitute a contract of employment, nor does it impose on Executive any obligation to remain as an employee or on the Company any obligation (i) to retain Executive as an employee, (ii) to change the status of Executive as an at will employee, or (iii) to change the Company's policies regarding termination of employment. ARTICLE VI NON-ALIENATION OF BENEFITS No benefit hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. ARTICLE VII DEFINITIONS For purposes of the Agreement, the following terms shall have the meanings set forth below: 7.1 "Agreement" means this Change in Control Severance Agreement. 7.2 "Base Salary" means Executive's salary (excluding bonus, any other incentive or other payments and stock option exercises) at the rate paid by the Company in consideration for Executive's service on the day prior to the effective date of a Change in Control or at such higher rate as may be in effect during the Term and which is includable in the gross income of Executive for federal income tax purposes or which would have been includable in gross income except for an election either under Section 125 or 402(e)(3) of the Code or under the terms of a nonqualified deferred compensation arrangement sponsored by the Company. 7.3 "Cause" means either of the following: (i) an act by Executive causing material harm to the Company or (ii) Executive's conviction of, or plea of "guilty" or "no contest" to, a felony. 7.4 "Change in Control" means the consummation of any one of the following events on or before January 10, 2000: (i) a sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a transaction the principal purpose of which is to change the state of the Company's incorporation or a transaction in which the voting securities of the Company are exchanged for beneficial ownership of at least fifty percent (50%) of the voting securities of the controlling acquiring corporation); (iii) a merger or consolidation in which the Company is the surviving corporation and less than fifty percent (50%) of the voting securities of the Company which are outstanding immediately after the consummation of such transaction are beneficially owned, directly or indirectly, by the persons who owned such voting securities immediately prior to such transaction; (iv) any transaction or series of related transactions after which any person (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934), other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, becomes the beneficial owner of voting securities of the Company representing fifty percent (50%) or more of the combined voting power of all of the voting securities of the Company; or (v) the liquidation or dissolution of the Company. None of such events occurring after January 10, 2000 shall constitute a Change in Control; accordingly, as provided in Section 1.2, this Agreement shall not become effective upon the occurrence of any such events after January 10, 2000. 7.5 "Code" means the Internal Revenue Code of 1986, as amended. 7.6 "Company" means Racotek, Inc., a Delaware corporation, and any successor thereto. 7.7 "Disability" means a disability which qualifies Executive as disabled for purposes of receiving benefits under the Company's long term disability plan applicable to Executive. 7.8 "Good Reason" means that any one of the following actions has been taken by the Company without Executive's express written consent and such action has not been promptly reversed within thirty (30) days following written notice from Executive to the Company: (i) a material reduction in Executive's job responsibilities given Executive's prior position and responsibilities with the Company; (ii) any reduction in Executive's compensation and aggregate benefits as in effect immediately prior to such reduction; (iii) relocation of Executive's workplace to a facility or location more than twenty-five (25) miles from Executive's workplace immediately prior to such relocation; (iv) any purported termination of Executive's employment which is not effected by reason of death, disability, or Cause; (v) the failure or refusal of a successor to the Company to assume the Company's obligations under this Agreement, as provided in Section 8.7 below; or (vi) a material breach by the Company or any successor to the Company of any of the material provisions of this Agreement 7.9 "Term" means the period beginning on the effective date of a Change in Control and ending thirteen (13) months thereafter. 7.10 "Triggering Event" means an event described in Section 2.1(a), 2.2(a), 2.3 or 2.4 above. No other event shall be a Triggering Event for purposes of this Agreement. ARTICLE VIII GENERAL PROVISIONS 8.1 Notices. Any notices provided hereunder must be in writing and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex or facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed in the Company's payroll records. Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at his address as listed in the Company's payroll records. 8.2 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein. 8.3 Waiver. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 8.4 Complete Agreement. This Agreement, including Exhibit A, constitutes the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein. 8.5 Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. 8.6 Headings. The headings of the Articles and Sections hereof are inserted for convenience only and shall neither be deemed to constitute a part hereof nor to affect the meaning thereof. 8.7 Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not delegate any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably. 8.8 Attorneys' Fees. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action. 8.9 Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Minnesota. 8.10 Non-Publication. The parties mutually agree not to disclose publicly the terms of this Agreement except to the extent that disclosure is mandated by applicable law. 8.11 Construction of Plan. In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year written above. RACOTEK, INC., /s/ Michael A. Fabiaschi a Delaware corporation BY: /s/ IAN NEMEROV MICHAEL A. FABIASCHI Name: Ian Nemerov Title: Secretary and Attorney Exhibit A: Employee Agreement and Release EXHIBIT A EMPLOYEE AGREEMENT AND RELEASE I understand and agree completely to the terms set forth in the foregoing agreement. Except as otherwise set forth in this Agreement, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I sign this Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; state laws comparable to the foregoing federal laws; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's Indemnification Agreement. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Agreement; (B) I have the right to consult with an attorney prior to executing this Agreement; (C) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (D) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (E) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date ("Effective Date"). By: ------------------------------- Date: ----------------------------- EX-10.42 5 EXHIBIT 10.42 Exhibit 10.42 CHANGE IN CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT This Change in Control Employment and Severance Agreement (the "AGREEMENT") is entered into this 10th day of March 1998 between Steve Swantek ("Executive") and Racotek, Inc., a Delaware corporation (the "COMPANY"). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events following a Change in Control (as hereinafter defined). Certain capitalized terms used in this Agreement are defined in Article VII. The Company and Executive hereby agree as follows: ARTICLE I EMPLOYMENT BY THE COMPANY 1.1 Executive is currently employed as the Vice President of Sales and Marketing of the Company. 1.2 This Agreement shall become effective upon the occurrence of a Change in Control. 1.3 The Company and Executive each agree and acknowledge that Executive is employed by the Company as an "at will" employee and that either Executive or the Company has the right at any time to terminate Executive's employment with the Company, with or without cause or advance notice, for any reason or for no reason. The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event that Executive's employment with the Company terminates under the circumstances described in Article II of this Agreement. 1.4 The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive's past services to the Company, Executive's continued employment with the Company and Executive's execution of the general waiver and release described in Section 4.3. ARTICLE II TRIGGERING EVENTS 2.1 Involuntary Termination of Employment During Term (a) If Executive's employment is involuntarily terminated by the Company without Cause during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. (b) If Executive's employment is involuntarily terminated by the Company for Cause during the Term, such termination of employment will NOT be a Triggering Event, and Executive will NOT be entitled to receive any compensation or benefits under the provisions of this Agreement except as otherwise specifically set forth herein. 2.2 Voluntary Termination of Employment During Term. (a) Executive may voluntarily terminate his employment with the Company at any time during the Term. If Executive voluntarily terminates his employment for Good Reason during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. (b) If Executive voluntarily terminates his employment for any reason other than Good Reason during the Term, such termination of employment will NOT be a Triggering Event, and Executive will NOT be entitled to receive any compensation or benefits under the provisions of this Agreement except as otherwise specifically set forth herein. 2.3 Death or Disability During Term. If Executive's employment with the Company terminates on account of death or disability during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. 2.4 Employment Through Term. If Executive's employment continues through the end of the Term, such continuation of employment will be a Triggering Event, and the Company shall pay Executive the compensation and benefits described in Article III. ARTICLE III COMPENSATION AND BENEFITS 3.1 Right to Benefits. If a Triggering Event occurs, Executive shall be entitled to receive the compensation and benefits described in this Agreement subject to the restrictions and limitations set forth in Article IV. If a Triggering Event does not occur, Executive shall not be entitled to receive any compensation and benefits described in this Agreement, except as otherwise specifically set forth herein. 3.2 Severance Payment. Upon the occurrence of a Triggering Event or, if later, upon the termination of Executive's employment with the Company following a Triggering Event, Executive shall receive a lump sum severance payment equal to the sum of (a) the amount of Executive's Base Salary that would have been paid with respect to the period beginning on the date of the Triggering Event and ending with the last day of the Term plus (b) six (6) months of Base Salary. Such lump sum amount shall be paid no later than thirty (30) days following the date of the Triggering Event or, if later, the date of termination of Executive's employment with the Company and shall be subject to all applicable tax withholding. 3.3 Health Insurance Coverage. Upon the occurrence of a Triggering Event or, if later, upon the termination of Executive's employment with the Company following a Triggering Event, to the extent permitted by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the Company's group health insurance policy, Executive and his covered dependents will be eligible to continue their health insurance benefits at their own expense. If Executive elects COBRA continuation coverage, the Company shall pay Executive's and covered dependents' COBRA continuation premiums for six (6) months following the date Executive's coverage as an active employee under the Company's group health policy ceases, provided that the Company's obligation to make such payments shall terminate immediately if Executive becomes eligible for other health insurance benefits at the expense of a new employer. Executive agrees to notify the Company, in writing, immediately upon acceptance of any employment which provides health insurance benefits. This Section 3.3 provides only for the Company's payment of COBRA continuation premiums for the period specified above. This Section 3.3 is not intended to affect, nor does it affect, the rights of Executive, or Executive's covered dependents, under any applicable law with respect to health insurance continuation coverage. 3.4 Stock Option Acceleration. Executive's stock options under the Company's 1993 Equity Incentive Plan which are outstanding as of the date of the Triggering Event (the "Stock Options") shall become fully vested and exercisable upon the occurrence of a Triggering Event or upon the termination of Executive's employment during the Term which does not otherwise constitute a Triggering Event, notwithstanding the then existing provisions of the relevant Stock Option agreements, which provisions are expressly modified by this Agreement. The period of time during which the Stock Options shall remain exercisable, and all other terms and conditions of the Stock Options, shall be as specified in the relevant Stock Option agreements. 3.5 Mitigation. Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by retirement benefits after the date of the Triggering Event, or otherwise. ARTICLE IV LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT 4.1 Other Severance Benefits; Withholding of Taxes. The benefits provided under this Agreement are in lieu of any other benefit provided under any employment contract or severance plan of the Company in effect at the time of a Triggering Event. The Company shall withhold appropriate federal, state or local income and employment taxes from any payments hereunder. 4.2 Obligations of Executive. During the Term, Executive agrees not to personally solicit any of the Company's employees to become employed elsewhere or provide the names of such employees to any other company which Executive has reason to believe will solicit such employees. 4.3 Employee Agreement and Release Prior to Receipt of Certain Benefits. Prior to the receipt of any benefits under Section 3.2 above, Executive shall execute an effective employee agreement and release in the form attached hereto as Exhibit A. Such employee agreement and release shall specifically relate to all of Executive's rights and claims in existence at the time of its execution. It is understood that Executive has twenty-one (21) days to consider whether to execute such employee agreement and release and Executive may revoke such employee agreement and release within seven (7) days after execution of such employee agreement and release. If Executive does not execute such employee agreement and release within the twenty-one (21) day period, or if Executive revokes such employee agreement and release within the seven (7) day period, no benefits shall be payable under Section 3.2 above. Nothing in this Agreement shall limit the scope or time of applicability of such employee agreement and release once it is executed and not timely revoked. 4.4 Certain Additional Payments. If it shall be determined, either by the Company or by a final determination of the Internal Revenue Service, that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement (including, without limitation, the value ascribed to option acceleration pursuant to Section 3.4 above) or otherwise (the "Payments"), would cause Executive to become subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Company shall pay to Executive, within the later of ninety (90) days of the date of the Triggering Event or ninety (90) days of the date of determination referred to above, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax and any federal (and state and local) income and employment taxes on the Gross-Up Payment, shall be equal to the Payments. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal, state and local income taxes at the highest nominal marginal rate of federal, state and local income taxation in the calendar year in which the Gross-Up Payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. If the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be less than the amount taken into account to determine the amount of the Gross-Up Payment, then Executive shall repay to the Company at that time the portion of the Gross-Up Payment attributable to such reduction (plus an amount equal to any tax reduction, whether of the Excise Tax, any applicable income tax, or any applicable employment tax, which Executive may enjoy as a result of such initial repayment). If the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be more than the amount taken into account to determine the amount of the Gross-Up Payment, then the Company shall pay to Executive an additional amount, which shall be determined using the same methods as were used for calculating the Gross-Up Payment, with respect to such excess. For purposes of this Section 4.4, a determination of the Internal Revenue Service as to the amount of Excise Tax for which Executive is liable shall not be treated as final until the time that either (i) the Company agrees to acquiesce in the determination of the Internal Revenue Service or (ii) the determination of the Internal Revenue Service has been upheld in a court of competent jurisdiction and the Company decides not to appeal such judicial decision or such decision is not appealable. If the Company chooses to contest the determination of the Internal Revenue Service, then all costs, attorneys' fees, and other expenses shall be paid by the Company. 4.5 Amendment or Termination. On and after the effective date of a Change in Control, this Agreement may be amended or terminated only upon the mutual written consent of the Company and Executive. Prior to the effective date of a Change in Control, this Agreement may be amended or terminated by the Company without the consent of Executive. ARTICLE V OTHER RIGHTS AND BENEFITS NOT AFFECTED 5.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company and for which Executive may otherwise qualify, nor shall anything herein limit or otherwise affect such rights as Executive may have under any stock option or other agreements with the Company; PROVIDED, HOWEVER, that in accordance with Section 4.1 above, any benefits provided hereunder shall be in lieu of any other severance payments to which Executive may otherwise be entitled, including, without limitation, under any employment contract or severance plan, and benefits under this Agreement shall be offset to the extent necessary to give effect to this proviso. Except as otherwise expressly provided herein, amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company at or subsequent to the effective date of a Change in Control shall be payable in accordance with such plan, policy, practice or program. 5.2 Employment Status. This Agreement does not constitute a contract of employment, nor does it impose on Executive any obligation to remain as an employee or on the Company any obligation (i) to retain Executive as an employee, (ii) to change the status of Executive as an at will employee, or (iii) to change the Company's policies regarding termination of employment. ARTICLE VI NON-ALIENATION OF BENEFITS No benefit hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. ARTICLE VII DEFINITIONS For purposes of the Agreement, the following terms shall have the meanings set forth below: 7.1 "Agreement" means this Change in Control Severance Agreement. 7.2 "Base Salary" means Executive's salary (excluding bonus, any other incentive or other payments and stock option exercises) at the rate paid by the Company in consideration for Executive's service on the day prior to the effective date of a Change in Control or at such higher rate as may be in effect during the Term and which is includable in the gross income of Executive for federal income tax purposes or which would have been includable in gross income except for an election either under Section 125 or 402(e)(3) of the Code or under the terms of a nonqualified deferred compensation arrangement sponsored by the Company. 7.3 "Cause" means either of the following: (i) an act by Executive causing material harm to the Company or (ii) Executive's conviction of, or plea of "guilty" or "no contest" to, a felony. 7.4 "Change in Control" means the consummation of any one of the following events on or before January 10, 2000: (i) a sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a transaction the principal purpose of which is to change the state of the Company's incorporation or a transaction in which the voting securities of the Company are exchanged for beneficial ownership of at least fifty percent (50%) of the voting securities of the controlling acquiring corporation); (iii) a merger or consolidation in which the Company is the surviving corporation and less than fifty percent (50%) of the voting securities of the Company which are outstanding immediately after the consummation of such transaction are beneficially owned, directly or indirectly, by the persons who owned such voting securities immediately prior to such transaction; (iv) any transaction or series of related transactions after which any person (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934), other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, becomes the beneficial owner of voting securities of the Company representing fifty percent (50%) or more of the combined voting power of all of the voting securities of the Company; or (v) the liquidation or dissolution of the Company. None of such events occurring after January 10, 2000 shall constitute a Change in Control; accordingly, as provided in Section 1.2, this Agreement shall not become effective upon the occurrence of any such events after January 10, 2000. 7.5 "Code" means the Internal Revenue Code of 1986, as amended. 7.6 "Company" means Racotek, Inc., a Delaware corporation, and any successor thereto. 7.7 "Disability" means a disability which qualifies Executive as disabled for purposes of receiving benefits under the Company's long term disability plan applicable to Executive. 7.8 "Good Reason" means that any one of the following actions has been taken by the Company without Executive's express written consent and such action has not been promptly reversed within thirty (30) days following written notice from Executive to the Company: (i) a material reduction in Executive's job responsibilities given Executive's prior position and responsibilities with the Company; (ii) any reduction in Executive's compensation and aggregate benefits as in effect immediately prior to such reduction; (iii) relocation of Executive's workplace to a facility or location more than twenty-five (25) miles from Executive's workplace immediately prior to such relocation; (iv) any purported termination of Executive's employment which is not effected by reason of death, disability, or Cause; (v) the failure or refusal of a successor to the Company to assume the Company's obligations under this Agreement, as provided in Section 8.7 below; or (vi) a material breach by the Company or any successor to the Company of any of the material provisions of this Agreement 7.9 "Term" means the period beginning on the effective date of a Change in Control and ending thirteen (13) months thereafter. 7.10 "Triggering Event" means an event described in Section 2.1(a), 2.2(a), 2.3 or 2.4 above. No other event shall be a Triggering Event for purposes of this Agreement. ARTICLE VIII GENERAL PROVISIONS 8.1 Notices. Any notices provided hereunder must be in writing and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex or facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed in the Company's payroll records. Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at his address as listed in the Company's payroll records. 8.2 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein. 8.3 Waiver. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 8.4 Complete Agreement. This Agreement, including Exhibit A, constitutes the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein. 8.5 Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. 8.6 Headings. The headings of the Articles and Sections hereof are inserted for convenience only and shall neither be deemed to constitute a part hereof nor to affect the meaning thereof. 8.7 Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not delegate any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably. 8.8 Attorneys' Fees. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action. 8.9 Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Minnesota. 8.10 Non-Publication. The parties mutually agree not to disclose publicly the terms of this Agreement except to the extent that disclosure is mandated by applicable law. 8.11 Construction of Plan. In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year written above. RACOTEK, INC., /s/ Steve Swantek a Delaware corporation BY: /s/ IAN NEMEROV STEVE SWANTEK Name: Ian Nemerov Title: Secretary and Attorney Exhibit A: Employee Agreement and Release EXHIBIT A EMPLOYEE AGREEMENT AND RELEASE I understand and agree completely to the terms set forth in the foregoing agreement. Except as otherwise set forth in this Agreement, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I sign this Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; state laws comparable to the foregoing federal laws; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's Indemnification Agreement. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Agreement; (B) I have the right to consult with an attorney prior to executing this Agreement; (C) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (D) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (E) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date ("Effective Date"). By: ---------------------------------- Date: -------------------------------- EX-10.43 6 EXHIBIT 10.43 Exhibit 10.43 CHANGE IN CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT This Change in Control Employment and Severance Agreement (the "AGREEMENT") is entered into this 10th day of March 1998 between Paul Edelhertz ("Executive") and Racotek, Inc., a Delaware corporation (the "COMPANY"). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events following a Change in Control (as hereinafter defined). Certain capitalized terms used in this Agreement are defined in Article VII. The Company and Executive hereby agree as follows: ARTICLE I EMPLOYMENT BY THE COMPANY 1.1 Executive is currently employed as the Vice President of Customer Solutions of the Company. 1.2 This Agreement shall become effective upon the occurrence of a Change in Control. 1.3 The Company and Executive each agree and acknowledge that Executive is employed by the Company as an "at will" employee and that either Executive or the Company has the right at any time to terminate Executive's employment with the Company, with or without cause or advance notice, for any reason or for no reason. The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event that Executive's employment with the Company terminates under the circumstances described in Article II of this Agreement. 1.4 The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive's past services to the Company, Executive's continued employment with the Company and Executive's execution of the general waiver and release described in Section 4.3. ARTICLE II TRIGGERING EVENTS 2.1 Involuntary Termination of Employment During Term (a) If Executive's employment is involuntarily terminated by the Company without Cause during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. (b) If Executive's employment is involuntarily terminated by the Company for Cause during the Term, such termination of employment will NOT be a Triggering Event, and Executive will NOT be entitled to receive any compensation or benefits under the provisions of this Agreement except as otherwise specifically set forth herein. 2.2 Voluntary Termination of Employment During Term. (a) Executive may voluntarily terminate his employment with the Company at any time during the Term. If Executive voluntarily terminates his employment for Good Reason during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. (b) If Executive voluntarily terminates his employment for any reason other than Good Reason during the Term, such termination of employment will NOT be a Triggering Event, and Executive will NOT be entitled to receive any compensation or benefits under the provisions of this Agreement except as otherwise specifically set forth herein. 2.3 Death or Disability During Term. If Executive's employment with the Company terminates on account of death or disability during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. 2.4 Employment Through Term. If Executive's employment continues through the end of the Term, such continuation of employment will be a Triggering Event, and the Company shall pay Executive the compensation and benefits described in Article III. ARTICLE III COMPENSATION AND BENEFITS 3.1 Right to Benefits. If a Triggering Event occurs, Executive shall be entitled to receive the compensation and benefits described in this Agreement subject to the restrictions and limitations set forth in Article IV. If a Triggering Event does not occur, Executive shall not be entitled to receive any compensation and benefits described in this Agreement, except as otherwise specifically set forth herein. 3.2 Severance Payment. Upon the occurrence of a Triggering Event or, if later, upon the termination of Executive's employment with the Company following a Triggering Event, Executive shall receive a lump sum severance payment equal to the sum of (a) the amount of Executive's Base Salary that would have been paid with respect to the period beginning on the date of the Triggering Event and ending with the last day of the Term plus (b) six (6) months of Base Salary. Such lump sum amount shall be paid no later than thirty (30) days following the date of the Triggering Event or, if later, the date of termination of Executive's employment with the Company and shall be subject to all applicable tax withholding. 3.3 Health Insurance Coverage. Upon the occurrence of a Triggering Event or, if later, upon the termination of Executive's employment with the Company following a Triggering Event, to the extent permitted by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the Company's group health insurance policy, Executive and his covered dependents will be eligible to continue their health insurance benefits at their own expense. If Executive elects COBRA continuation coverage, the Company shall pay Executive's and covered dependents' COBRA continuation premiums for six (6) months following the date Executive's coverage as an active employee under the Company's group health policy ceases, provided that the Company's obligation to make such payments shall terminate immediately if Executive becomes eligible for other health insurance benefits at the expense of a new employer. Executive agrees to notify the Company, in writing, immediately upon acceptance of any employment which provides health insurance benefits. This Section 3.3 provides only for the Company's payment of COBRA continuation premiums for the period specified above. This Section 3.3 is not intended to affect, nor does it affect, the rights of Executive, or Executive's covered dependents, under any applicable law with respect to health insurance continuation coverage. 3.4 Stock Option Acceleration. Executive's stock options under the Company's 1993 Equity Incentive Plan which are outstanding as of the date of the Triggering Event (the "Stock Options") shall become fully vested and exercisable upon the occurrence of a Triggering Event or upon the termination of Executive's employment during the Term which does not otherwise constitute a Triggering Event, notwithstanding the then existing provisions of the relevant Stock Option agreements, which provisions are expressly modified by this Agreement. The period of time during which the Stock Options shall remain exercisable, and all other terms and conditions of the Stock Options, shall be as specified in the relevant Stock Option agreements. 3.5 Mitigation. Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by retirement benefits after the date of the Triggering Event, or otherwise. ARTICLE IV LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT 4.1 Other Severance Benefits; Withholding of Taxes. The benefits provided under this Agreement are in lieu of any other benefit provided under any employment contract or severance plan of the Company in effect at the time of a Triggering Event. The Company shall withhold appropriate federal, state or local income and employment taxes from any payments hereunder. 4.2 Obligations of Executive. During the Term, Executive agrees not to personally solicit any of the Company's employees to become employed elsewhere or provide the names of such employees to any other company which Executive has reason to believe will solicit such employees. 4.3 Employee Agreement and Release Prior to Receipt of Certain Benefits. Prior to the receipt of any benefits under Section 3.2 above, Executive shall execute an effective employee agreement and release in the form attached hereto as Exhibit A. Such employee agreement and release shall specifically relate to all of Executive's rights and claims in existence at the time of its execution. It is understood that Executive has twenty-one (21) days to consider whether to execute such employee agreement and release and Executive may revoke such employee agreement and release within seven (7) days after execution of such employee agreement and release. If Executive does not execute such employee agreement and release within the twenty-one (21) day period, or if Executive revokes such employee agreement and release within the seven (7) day period, no benefits shall be payable under Section 3.2 above. Nothing in this Agreement shall limit the scope or time of applicability of such employee agreement and release once it is executed and not timely revoked. 4.4 Certain Additional Payments. If it shall be determined, either by the Company or by a final determination of the Internal Revenue Service, that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement (including, without limitation, the value ascribed to option acceleration pursuant to Section 3.4 above) or otherwise (the "Payments"), would cause Executive to become subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Company shall pay to Executive, within the later of ninety (90) days of the date of the Triggering Event or ninety (90) days of the date of determination referred to above, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax and any federal (and state and local) income and employment taxes on the Gross-Up Payment, shall be equal to the Payments. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal, state and local income taxes at the highest nominal marginal rate of federal, state and local income taxation in the calendar year in which the Gross-Up Payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. If the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be less than the amount taken into account to determine the amount of the Gross-Up Payment, then Executive shall repay to the Company at that time the portion of the Gross-Up Payment attributable to such reduction (plus an amount equal to any tax reduction, whether of the Excise Tax, any applicable income tax, or any applicable employment tax, which Executive may enjoy as a result of such initial repayment). If the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be more than the amount taken into account to determine the amount of the Gross-Up Payment, then the Company shall pay to Executive an additional amount, which shall be determined using the same methods as were used for calculating the Gross-Up Payment, with respect to such excess. For purposes of this Section 4.4, a determination of the Internal Revenue Service as to the amount of Excise Tax for which Executive is liable shall not be treated as final until the time that either (i) the Company agrees to acquiesce in the determination of the Internal Revenue Service or (ii) the determination of the Internal Revenue Service has been upheld in a court of competent jurisdiction and the Company decides not to appeal such judicial decision or such decision is not appealable. If the Company chooses to contest the determination of the Internal Revenue Service, then all costs, attorneys' fees, and other expenses shall be paid by the Company. 4.5 Amendment or Termination. On and after the effective date of a Change in Control, this Agreement may be amended or terminated only upon the mutual written consent of the Company and Executive. Prior to the effective date of a Change in Control, this Agreement may be amended or terminated by the Company without the consent of Executive. ARTICLE V OTHER RIGHTS AND BENEFITS NOT AFFECTED 5.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company and for which Executive may otherwise qualify, nor shall anything herein limit or otherwise affect such rights as Executive may have under any stock option or other agreements with the Company; PROVIDED, HOWEVER, that in accordance with Section 4.1 above, any benefits provided hereunder shall be in lieu of any other severance payments to which Executive may otherwise be entitled, including, without limitation, under any employment contract or severance plan, and benefits under this Agreement shall be offset to the extent necessary to give effect to this proviso. Except as otherwise expressly provided herein, amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company at or subsequent to the effective date of a Change in Control shall be payable in accordance with such plan, policy, practice or program. 5.2 Employment Status. This Agreement does not constitute a contract of employment, nor does it impose on Executive any obligation to remain as an employee or on the Company any obligation (i) to retain Executive as an employee, (ii) to change the status of Executive as an at will employee, or (iii) to change the Company's policies regarding termination of employment. ARTICLE VI NON-ALIENATION OF BENEFITS No benefit hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. ARTICLE VII DEFINITIONS For purposes of the Agreement, the following terms shall have the meanings set forth below: 7.1 "Agreement" means this Change in Control Severance Agreement. 7.2 "Base Salary" means Executive's salary (excluding bonus, any other incentive or other payments and stock option exercises) at the rate paid by the Company in consideration for Executive's service on the day prior to the effective date of a Change in Control or at such higher rate as may be in effect during the Term and which is includable in the gross income of Executive for federal income tax purposes or which would have been includable in gross income except for an election either under Section 125 or 402(e)(3) of the Code or under the terms of a nonqualified deferred compensation arrangement sponsored by the Company. 7.3 "Cause" means either of the following: (i) an act by Executive causing material harm to the Company or (ii) Executive's conviction of, or plea of "guilty" or "no contest" to, a felony. 7.4 "Change in Control" means the consummation of any one of the following events on or before January 10, 2000: (i) a sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a transaction the principal purpose of which is to change the state of the Company's incorporation or a transaction in which the voting securities of the Company are exchanged for beneficial ownership of at least fifty percent (50%) of the voting securities of the controlling acquiring corporation); (iii) a merger or consolidation in which the Company is the surviving corporation and less than fifty percent (50%) of the voting securities of the Company which are outstanding immediately after the consummation of such transaction are beneficially owned, directly or indirectly, by the persons who owned such voting securities immediately prior to such transaction; (iv) any transaction or series of related transactions after which any person (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934), other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, becomes the beneficial owner of voting securities of the Company representing fifty percent (50%) or more of the combined voting power of all of the voting securities of the Company; or (v) the liquidation or dissolution of the Company. None of such events occurring after January 10, 2000 shall constitute a Change in Control; accordingly, as provided in Section 1.2, this Agreement shall not become effective upon the occurrence of any such events after January 10, 2000. 7.5 "Code" means the Internal Revenue Code of 1986, as amended. 7.6 "Company" means Racotek, Inc., a Delaware corporation, and any successor thereto. 7.7 "Disability" means a disability which qualifies Executive as disabled for purposes of receiving benefits under the Company's long term disability plan applicable to Executive. 7.8 "Good Reason" means that any one of the following actions has been taken by the Company without Executive's express written consent and such action has not been promptly reversed within thirty (30) days following written notice from Executive to the Company: (i) a material reduction in Executive's job responsibilities given Executive's prior position and responsibilities with the Company; (ii) any reduction in Executive's compensation and aggregate benefits as in effect immediately prior to such reduction; (iii) relocation of Executive's workplace to a facility or location more than twenty-five (25) miles from Executive's workplace immediately prior to such relocation; (iv) any purported termination of Executive's employment which is not effected by reason of death, disability, or Cause; (v) the failure or refusal of a successor to the Company to assume the Company's obligations under this Agreement, as provided in Section 8.7 below; or (vi) a material breach by the Company or any successor to the Company of any of the material provisions of this Agreement 7.9 "Term" means the period beginning on the effective date of a Change in Control and ending thirteen (13) months thereafter. 7.10 "Triggering Event" means an event described in Section 2.1(a), 2.2(a), 2.3 or 2.4 above. No other event shall be a Triggering Event for purposes of this Agreement. ARTICLE VIII GENERAL PROVISIONS 8.1 Notices. Any notices provided hereunder must be in writing and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex or facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed in the Company's payroll records. Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at his address as listed in the Company's payroll records. 8.2 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein. 8.3 Waiver. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 8.4 Complete Agreement. This Agreement, including Exhibit A, constitutes the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein. 8.5 Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. 8.6 Headings. The headings of the Articles and Sections hereof are inserted for convenience only and shall neither be deemed to constitute a part hereof nor to affect the meaning thereof. 8.7 Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not delegate any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably. 8.8 Attorneys' Fees. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action. 8.9 Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Minnesota. 8.10 Non-Publication. The parties mutually agree not to disclose publicly the terms of this Agreement except to the extent that disclosure is mandated by applicable law. 8.11 Construction of Plan. In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year written above. RACOTEK, INC., /s/ Paul Edelhertz a Delaware corporation By: Ian Nemerov Paul Edelhertz Name: Ian Nemerov Title: Secretary and Attorney Exhibit A: Employee Agreement and Release EXHIBIT A EMPLOYEE AGREEMENT AND RELEASE I understand and agree completely to the terms set forth in the foregoing agreement. Except as otherwise set forth in this Agreement, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I sign this Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; state laws comparable to the foregoing federal laws; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's Indemnification Agreement. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Agreement; (B) I have the right to consult with an attorney prior to executing this Agreement; (C) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (D) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (E) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date ("Effective Date"). By: ---------------------------------- Date: -------------------------------- EX-23.01 7 EXHIBIT 23.01 Exhibit 23.01 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Racotek, Inc. on Form S-8 (File Nos. 33-73456, 333-45077, and 333-35595) of our report dated January 12, 1998, on our audits of the financial statements and financial statement schedule of Racotek, Inc. as of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and 1995, which report is included in this Annual Report on Form 10-K. /s/ COOPERS & LYBRAND L.L.P. ---------------------------- COOPERS & LYBRAND L.L.P. Minneapolis, Minnesota March 19, 1998 EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 3,103 2,233 785 (224) 0 6,092 2,238 (1,452) 7,237 960 0 0 0 71,515 (150) 7,237 876 5,620 1,266 5,493 9,780 118 0 (9,334) 0 (9,344) 0 0 0 (9,334) (.37) (.37)
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