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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER 0-22718
RACOTEK, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE #41-1636021
(State or Other Jurisdiction (I.R.S. Employer
of Identification No.)
Incorporation or Organization)
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, $.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 $70,514,000 based on the closing sale price of the
Company's Common Stock as reported on the Nasdaq National Market on March 17,
1997.
The number of shares outstanding of the registrant's common stock, as of March
17, 1997: 24,871,870 shares.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Racotek, Inc. 1996 Annual Report to Stockholders for the
year ended December 31, 1996, are incorporated by reference into Parts I, II
and IV of this report.
(2) Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on May 13, 1997, are incorporated by reference into Part III of this
report.
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This report consists of 50 sequentially numbered pages. The exhibit index begins
on sequentially numbered page 21.
PART I
ITEM 1. BUSINESS
Racotek, Inc. (the "Company") develops, markets and supports software and
provides services for mobile data systems. Racotek's objective is to become a
leading provider of mobile data communications products and services to
businesses that have mobile workers. The Company's products are focused on
extending enterprise information systems to mobile workers, through the use of
Company-developed software that provides connectivity from host computer
applications across multiple wireless and wireline networks to mobile computers
used by a mobile work force. The Company seeks broad adoption of its products by
mobile application developers and large account customers to establish itself as
the market-leading communications software solution for mobile workforces. The
Company provides a wide range of consulting services to facilitate and increase
adoption of mobile workforce technologies, as well as post-installation support
services designed to maximize the integration of mobile systems.
The Company made its initial commercial shipments of its KeyWare-TM- product
in the second quarter of 1995 and has experienced growth in both KeyWare license
revenues and related customer support services revenue. KeyWare facilitates the
two-way exchange of data through the use of distributed computing services. The
KeyWare Wireless Distributed Computing environment is modeled after network
standards defined by Open Software Foundation ("OSF") known as the Distributed
Computing Environment ("DCE"). KeyWare is designed as an open system, allowing
customers the flexibility to make independent wireless network configuration
decisions as they choose the hardware and software components of their wireless
wide area network ("WAN"). Racotek is continuing to research and develop the
compatibility of KeyWare with other wireless networks as they become available.
In the first quarter of 1996, the Company decided to discontinue the
production, purchase and distribution of specialized mobile radio ("SMR")
products. As a result of this decision, the Company wrote-down the remaining SMR
inventories to their net realizable values.
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 development of a substantial market for mobile data
systems, the availability and reliability of wireless networks used with the
Company's products, the Company's ability to develop and maintain advantageous
relationships with providers of other components of a complete mobile data
system (such as hardware and applications software), the impact of competitive
products and pricing 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.
BACKGROUND
The Company believes that 21 million of the estimated 38 million mobile
workers in the United States are engaged in customer service, sales/order entry
and transportation activities. These mobile workers are the principal potential
market for Racotek's products and services. However, the market for mobile data
services is new and undeveloped. Mobile workers who currently have wireless
communication facilities communicate using private dispatch radio, paging
systems, private data systems on dedicated frequencies, cellular telephone and
SMR voice services. A number of mobile workers have no wireless communication
facilities at the present time.
The Company believes that the principal reasons that the market for mobile
data services has been slow to develop are the limited commercial availability
and geographic coverage of wireless networks, cost, technical readiness and
ergonomics of ruggedized mobile computing devices and delays in wireless
application integration. The Company believes that the commercial availability
and geographic coverage of wireless networks are increasing, transmission fees
on wireless networks are declining and that capital costs are beginning to
decline.
2
Application software that does not contain mobile data transmission
capability is generally available for businesses in the field service and
transportation industries, and includes functions such as accounting, inventory
control, scheduling, load efficiency, dispatching, collection of shipment and
inventory data, destination addressing and routing information. Because 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.
While the development of application software for mobile workers is somewhat
limited, there are many different wireless networks that could be used to
service mobile workers. These networks have been developed at substantial
expense and provide significant data transmission capacity. For example, ARDIS
grew out of the network originally designed for IBM's field service workers and
provides coverage within buildings to portable computer hardware. In addition,
RAM continues to build a high-capacity nationwide wireless packet data system.
In addition, new technologies are being developed and implemented to offer
additional coverage and feature options, including Cellular Digital Packet Data
("CDPD"), Enhanced Specialized Mobile Radio ("ESMR"), low-earth orbit satellite
("LEO"), digital cellular and Personal Communication Services ("PCS"). See
"Technology."
Hardware and software designed to be used on one of the wireless networks
typically requires changes in the software. Developers of application software
therefore must rewrite a significant portion of their software programs for each
wireless network that they wish to access, and the Company believes that
developers have been reluctant to commit the resources necessary to accomplish
this task. Similarly, the Company believes that the existence of multiple
incompatible wireless networks has made prospective users of mobile data
transmission services reluctant to invest in the hardware, software and training
necessary to implement a mobile data communication system. There is a risk that
certain networks currently available will not survive the competition with other
networks. A network that is optimal for a user's needs today might not continue
to be optimal as the user's needs change. For example, a business that presently
needs metropolitan coverage may at a later stage of its growth require
nationwide coverage. Moreover, as the technology develops, there is the
possibility that a superior network might be introduced that will render one or
more existing networks obsolete. Finally, the hardware used in mobile data
systems, both in-vehicle and at the home office, can be mutually incompatible
and is continuously evolving. Potential customers seek assurance that their
investment in hardware will continue to provide benefits even as standards and
systems evolve.
For these reasons, the Company believes that the lack of a standard
consistent application development environment, as well as the lack of a
consistent interface to different wireless networks, have limited the growth of
the mobile data industry. The Company believes that a link between wireless
networks and business application software is needed to enable significant
growth. Racotek seeks to provide that link with its products.
THE RACOTEK SOLUTION
Racotek has developed its products and services to facilitate development of
mobile data application software by providing a consistent application
development environment to access multiple wireless networks. Racotek offers
technical support and training for the development of mobile data software
applications. The Company believes that its products and services can
significantly facilitate both the adaptation of existing application programs to
include wireless data transmission capabilities and the development of new
software applications designed specially to use wireless networks. The Company's
products insulate application developers from the interface requirements of
various wireless transmission networks and handle such matters as flow control,
message buffering and processor connectivity. Accordingly, applications can be
used on different types of base office computers and mobile computers and over
multiple wireless networks,
3
without change to the applications. The Company's software products are
compatible with a wide variety of third party hardware devices. The Company is
committed to develop and support interfaces to the leading mobile and stationary
computing devices.
COMPANY STRATEGY
Racotek's objective is to become a leading provider of mobile data
communication products and services to businesses that have mobile workers. The
Company's strategy includes the following elements:
ENABLE MOBILE APPLICATION SOFTWARE DEVELOPMENT. To encourage acceptance of
its products as the standard operating system for wireless data communication,
Racotek incorporates features and functions that add value for application
developers. These features include providing a client/server development
environment, insulating application programs from the many types of mobile
computers and wireless networks and managing the difficulties of data
transmission in a wireless environment. The Company is committed to increasing
the functionality and performance of its products and to providing the most
robust application development environment possible for mobile data
applications.
PROVIDE PROFESSIONAL SERVICES EXPERTISE. The Company has gained extensive
experience in all phases of wireless mobile data implementations through its
development period and thereafter. The Company is now positioned to provide
these services to customers on a fee basis. Professional Service activities
include project management and implementation services including requirements
consulting, system design and planning, software development, systems
integration, training and installation management.
PROVIDE ACCESS TO MULTIPLE WIRELESS NETWORKS AND HARDWARE DEVICES. The
Company's KeyWare product provides access to multiple wireless networks without
modification to the application software. Racotek believes this will encourage
application software developers to write programs that use Racotek's products,
thereby making it the most efficient way to serve the largest number of
potential users without committing to a single wireless network. Similarly,
KeyWare protects the customer's investment in application software by providing
access to multiple networks. As the customer's needs change or new wireless
networks are introduced, the same application can be used on different networks.
Finally, KeyWare's compatibility with multiple hardware devices provides
customers with the flexibility to upgrade their systems in whole or in part as
new hardware is developed and existing hardware evolves.
FOCUS ON VERTICAL MARKETS. 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, as opposed to
horizontal applications such as electronic mail. Racotek has targeted the field
service, sales/order entry, transportation, utility, insurance, road side
assistance and home health care markets for its initial focus.
PROVIDE MANAGED NETWORK SERVICES. The Company's KeyWare product, resident
expertise in wireless systems and applications, and internally developed
diagnostic tools enable it to provide post-installation support services such as
end-to-end problem identification and resolution. The principal benefits to
customers from this suite of services include higher system reliability, a
single source for problem resolution, and lower support costs.
MAINTAIN DIRECT RELATIONSHIP WITH END USERS. The Company believes that a
direct relationship with end users enhances brand awareness and provides a
channel for customer input. Although the Company might not bill its KeyWare
customers directly for transmission services, the Company intends to maintain a
direct relationship with all of its customers by providing managed network
services, system integration services and on-going maintenance and support.
GENERATE RECURRING REVENUES. The Company believes its managed network
services, KeyWare software subscription program and transmission services, which
are all billed on a monthly basis, provide a recurring revenue stream for the
Company.
4
DEVELOP STRATEGIC RELATIONSHIPS. Racotek believes its strategic
relationships with providers of components of a mobile data communication system
significantly enhance its efforts to establish Racotek products as the standard
mobile network operating system. Racotek has established formal relationships
with wireless network providers, computer hardware providers, Value Added
Resellers ("VARs") and system integrators. See "Strategic Relationships."
PRODUCTS AND SERVICES
KEYWARE MOBILE NETWORKING SOFTWARE. The Company announced, in the first
quarter of 1995, the creation of KeyWare, a wireless networking software product
that encompasses the development efforts of RacoNet and a broad range of
extensions. KeyWare is built upon an open client/server server/client
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, Systemwide Synchronization, store and forward, file
transfer and network management. KeyWare is a Wireless Distributed Computing
environment that is designed to be interoperable with many customers' existing
information systems to provide broad wireless and wireline connectivity and to
allow rapid integration of existing applications. KeyWare customers are able to
select ARDIS, CDPD, RAM, paging, circuit switched cellular and satellite
networks for data transmissions. In addition to KeyWare, the Company offers
KeyBuilder, a software development tool, KeyScript, a forms-based mobile
application development software product and KeyWare Database Agent, which
allows database programmers to access wireless data communication services
through KeyWare. For the years ended December 31, 1996 and 1995, revenue from
the sale of software amounted to 10% and 3% of total revenues, respectively.
PROFESSIONAL SERVICES. The Company offers its customers certain consulting
services, project management and implementation services including requirements
consulting, system design and planning, software development, systems
integration, training and installation management. Racotek's professional
services supplement the Company's product offerings by assisting customers in
the 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 preapproved statements of work. The Company commenced providing these types
of services in 1995. For the years ended December 31, 1996 and 1995, revenue
generated from these services accounted for 52% and 29% of total revenues,
respectively.
MANAGED NETWORK SERVICES. The Company's managed network services group
monitors a customer's wireless system performance to detect potential problems
and resolve issues affecting overall system availability. This service provides
customers a single point of contact in a multi-vendor environment. The Company
has developed diagnostic tools in connection with its KeyWare product line to
detect errors in a wireless system. Managed network services are typically
billed on a fixed monthly basis. For the years ended December 31, 1996 and 1995,
revenue from these services amounted to 10% and 1% of total revenues,
respectively.
RACOTEK TRANSMISSION SERVICES. The Company has agreements with SMR
transmission operators in over 15,000 cities in the United States and Canada
that allow transmission service, principally suitable for metropolitan,
in-vehicle users. With the release of KeyWare and certain marketing agreements,
the Company also can remarket transmission service on ARDIS, RAM and certain
CDPD providers. Revenue generated from these services accounted for 10%, 16% and
18% of total revenue for the years ended December 31, 1996, 1995 and 1994,
respectively.
In addition to the above products and services, other components of a
wireless data system include:
MOBILE WORKGROUP SERVER. The mobile workgroup server is a network gateway
located at the customer's base office that provides message storage, flow
control and connectivity between the host computer, the wireless network and the
mobile computers. The mobile workgroup server employs an industry standard
5
Intel-based computer and a real-time, multi-tasking communications front-end
processor. The mobile workgroup server is configured from standard hardware that
can be purchased from Racotek or third party suppliers.
RADIO/MODEM. The Radio/Modem provides the wireless transmission between the
mobile computing device and the wireless network. Radio/modems are now available
from several vendors in PCMCIA standard form factors and compatibilities,
enabling embedded wireless connectivity, or wireless connectivity using
available external PCMCIA slots. The development of smaller and lower cost
radio/modems that are well-integrated into ruggedized mobile computing devices
designed on standard platforms, such as DOS or Windows, is critical to
wide-scale adoption of mobile workforce technologies. The radio/modem can be
purchased from various third party suppliers or from Racotek.
MOBILE COMPUTER. The mobile computer is a customer-selected,
third-party-supplied device that runs the customer's mobile application
software. PC-compatible computers and any other computers that have implemented
the application program interface are usable on the system without change to the
application program. Mobile computers are available from a number of third party
suppliers.
WIRELESS NETWORKS. KeyWare uses the ARDIS, CDPD, RAM, SMR, paging, circuit
switched cellular, Orbcomm satellite and NORCOM satellite networks. Racotek is
continuing to research and develop the compatibility of KeyWare with other
wireless networks.
Aggregate revenues generated from the above-mentioned hardware products
represented, 18%, 51% and 79% of total revenues for the years ended December 31,
1996, 1995 and 1994, respectively. This decrease reflects the Company's decision
to discontinue the production, purchase and distribution of proprietary SMR
products.
CUSTOMERS
Racotek has 61 customers and approximately 9,900 mobile workers using its
products. These customers are primarily in the following market segments: field
service, less-than-truckload ("LTL") trucking, insurance and sales/order entry.
For the year ended December 31, 1994, sales to Quicksilver Express Courier, Inc.
and American Freightways each represented more than 10% of the Company's total
revenues. For the year ended December 31, 1995, sales to American Freightways,
The Hertz Corporation and Arrowsmith Technologies, Inc. each represented more
than 10% of the Company's total revenues. For the year ended December 31, 1996,
sales to American Freightways was more than 10% of the Company's total revenues.
FIELD SERVICE. 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 problem within the field service industry.
Current users of Racotek products and services have implemented a system
that provides continuous data flow to and from field service technicians
increasing customer service and productivity. Racotek products and services can
improve the clarity of the assignment and, using the system, all information
(such as warranty, service history and parts availability) at the base office
may be electronically accessed by the field service technician.
Ameritech, Bell South Telecommunications, Caterpillar, Datacard, Unisys,
Xerox Canada Ltd., Public Service Electric & Gas Co., and Neopost are field
service businesses that are currently testing or using Racotek products and
services for mobile data systems.
6
LESS-THAN-TRUCKLOAD TRUCKING. LTL trucking companies carry loads containing
shipments from multiple customers at one time. LTL trucking therefore requires
frequent and detailed communication between dispatcher and driver to meet
demands for freight flow and dock management. At present, LTL trucking companies
generally rely on voice communication between the dispatcher and driver. Voice
communication is time-consuming, subject to misinterpretation and creates
significant driver inefficiency. In addition, drivers may be out of their trucks
and miss information. Pick-up information, including destination, number of
pieces, freight weight and priority, is often too detailed and voluminous for
drivers to communicate by voice. Consequently, shipment planning can be delayed
until the driver returns to the dock, and transportation time may be lost.
The Racotek mobile data system addresses these problems by providing a
real-time data transmission system to improve the accuracy and timeliness of the
information transmitted, enabling more information to be transmitted in a
shorter period of time and holding messages while the driver is out of the
vehicle. As drivers complete a freight pick-up, they can use the Racotek mobile
data system to transmit the relevant information, allowing logistics planning to
take place hours earlier than before. This provides opportunities for improved
resource utilization, quicker freight delivery and improved customer service and
satisfaction.
American Freightways, New Penn Motor Express, Overnite Transportation and
Northwest Transport Service Inc. are LTL trucking companies that are currently
testing or using the Racotek products and services.
SALES/ORDER ENTRY. In this market, sales people visit retail stores and
take orders for merchandise to fill the necessary shelf space. At the end of the
day, this information is forwarded to a distribution warehouse where orders are
processed and trucks are then loaded. The time lag in getting the information to
the distribution center may result in overtime, missed shipments and, most
importantly, empty shelf space for businesses. With KeyWare, sales people take
orders in the field and transmit them directly to the warehouse on a real-time
basis. The orders can be immediately assembled for next day delivery, thus
reducing overtime and assuring full shelf space.
Pepsi Cola Allied Bottlers, Inc., Pepsi Cola & National Brand Beverages,
Ltd. and Hertz Corporation are sales/order entry companies that are currently
testing or using Racotek products and services.
In addition to the above-named market segments, the Company has customers in
the following market segments: insurance, healthcare, cable television and
utilities.
SALES
Racotek's sales strategy is to develop large national accounts as early,
high profile adopters of its products and services. The Company considers a
large account to be a customer that operates 500 or more mobile units. The
Company uses both its direct sales organization and industry experts to show
prospective customers the economic benefits of increased productivity, improved
customer service and lower costs. Typically, the Company sells to senior
operations management within a company. In addition to approaching large
prospective customers through its direct sales force, the Company has developed
relationships with large system integrators such as Andersen Consulting and
Electronic Data Systems; manufacturers of terminals and hand-held computer
equipment such as IBM and Telxon Corporation; and major wireless network
providers such as ARDIS and RAM. The Company believes these relationships will
lead to contacts with large prospective customers. The Company also expects to
have an efficient indirect channel of VARs to market the small and mid-sized
companies.
The Company's professional services group is able to provide services to
assist customers in implementing a wireless data system. These front-end
consulting services are necessary and critical for the successful implementation
of mobile data. Based on years of experience in mobile data, the Company
believes it is well positioned to provide customers these services.
7
Of the Company's 10 sales people, 7 are assigned to major accounts, two are
industry experts and one is responsible for developing relationships with
systems integrators, manufacturers of computer equipment, major wireless network
providers and VARs.
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 and the
Company generally does not allow product returns.
STRATEGIC RELATIONSHIPS
In February 1992, the Company entered into an agreement with Motorola to
develop and market RacoNet mobile data services over Motorola's owned and
operated SMR systems. Under the terms of this 10-year agreement, Racotek has
developed a line of products and services that is specifically adapted to
Motorola's SMR service. Both Racotek and Motorola may distribute these products
and services. Motorola advanced $4.5 million for development of the product
technology, market and distribution channels, all of which has been converted
into stock of the Company. Motorola also purchased additional shares of the
Company's stock.
In addition to its contract with Motorola for purchase of airtime, the
Company has agreements with various independent SMR providers nationwide. Under
these agreements, the Company purchases airtime to provide its transmission
services to local customers. The agreements typically have a term of two years
and are renewable on an annual basis thereafter. Either party may terminate the
agreement by giving notice within 90 days of the end of a renewal period.
During 1994, the Company entered into agreements with ARDIS and RAM to
resell services provided by these two wireless networks. During 1995, the
Company entered into agreements with AT&T Wireless Services, Wireless Data
Division, Bell Atlantic/NYNEX Mobile and GTE whereby Racotek could market their
services.
In March 1996, the Company entered into an agreement with IBM whereby IBM
serves as a "preferred services provider" of Racotek products and services. IBM
is a single point of contact for customers seeking wireless mobile data systems
and solutions. During 1996, the Company was selected by Lockheed Martin
Information Systems and Technologies to be a charter member of the Mobile
Computing Alliance-TM-. This alliance intends to develop best-of-breed wireless
solutions for field force automation. During 1996, the Company also signed an
agreement with NORCOM Networks Corp. to provide satellite data transmission
services.
PRODUCT DEVELOPMENT
During 1996, the Company's major product development activities centered
around KeyWare, the Company's wireless networking software. The KeyWare product,
which was announced in the first quarter of 1995, provides the connectivity and
interoperability for existing enterprise applications to mobile and portable
workers through multiple wireless networks simultaneously. In 1996, the
Company's development efforts focused on broadening KeyWare's market by
increasing the number of wireless networks, operating systems and mobile
hardware platforms that KeyWare will support. KeyWare is currently designed to
work with ARDIS, RAM, CDPD, SMR, paging, circuit switch cellular and certain
satellite networks. The KeyWare product isolates applications from changes in
wireless network technology and provides special tools and services to aid
application developers. The KeyWare product has been developed to provide
customers with choices of host platforms and operating systems, LAN/WAN
connections, wireless networks, mobile platforms, operating systems, wireless
modems, network management tools, development tools, flexible API and
interfacing options and database usage.
8
Racotek intends to expand the number of wireless networks that are supported
under the KeyWare product as they become available. The Company's ability to
extend the KeyWare system to other networks will depend in part on its ability
to enter into and maintain relationships with wireless network providers on
economically favorable terms. The Company's inability to obtain high-quality,
reliable, continuous airtime from wireless network providers could adversely
affect the Company's business. See "Technology."
For the years ended December 31, 1996, 1995 and 1994, the Company's research
and development expenses were approximately $4,211,000, $4,170,000 and
$3,035,000 respectively. Included in the 1995 expense was a $742,000 charge for
the acquisition of certain technologies of BPSI.
COMPETITION
Competition in the communications industry is intense. The Company currently
faces direct competition in the market for mobile networking software from IBM,
Informix Software, Inc., Mobileware Corp., Nettech Systems, Inc., Oracle
Corporation and Software Corporation of America. Furthermore, major software
development companies, such as Novell, Inc. and Microsoft Corporation, as well
as computer and communications companies, such as AT&T and the regional Bell
operating companies ("RBOCs"), are possible sources of future direct competition
for the Company's products and services. Certain application software
developers, including Alliance Systems, Inc. and Mobile Data Solutions, Inc.,
have expanded their software to provide parts of a mobile data solution. In
addition, wireless network providers and hardware manufacturers that the Company
seeks to work with as partners could attempt to provide mobile data systems that
do not include KeyWare or other Racotek products or services, thereby becoming
competitors.
In addition to these direct competitors, the Company presently faces
competition from providers of other mobile communication services that customers
might view as substitutes for wireless data transmission, such as cellular
telephone, paging and conventional two-way voice radio. In the future,
additional competition can be expected as companies seek to exploit new
technologies that are developed for wireless communications, such as satellites
(geosynchronous, LEOs and VSATs), ESMR, CDPD digital cellular, two-way
acknowledged paging and PCS. The Company's inability to compete successfully
would decrease the number of the Company's customers, which could adversely
affect the Company's revenues and business.
Motorola competes with the Company in the mobile communications market
generally as a provider of communications products and technologies. The
Company's relationship with Motorola is in conflict with Motorola's role as one
of the Company's potential competitors. If Motorola determines that its
relationship with the Company is detrimental to Motorola's business as a whole,
or if Motorola for any reason decides not to pursue actively its relationship
with the Company, the Company's business could be adversely affected. See
"Strategic Relationships."
Racotek competes with other providers of wireless communications services by
attempting to demonstrate to customers the superiority of Racotek products in
price and performance terms and by endeavoring to enter into agreements with
other providers so that Racotek can resell their transmission services as part
of a package that includes RacoNet or KeyWare. There can be no assurance that
the Company will be able to enter into or maintain relationships with wireless
network providers, or that any such relationships will be on financially
favorable terms. See "Strategic Relationships."
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 entrenched market positions and established tradenames,
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 products 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 customers. Any of
these competitive developments could adversely affect the Company's business.
9
TECHNOLOGY
WIRELESS NETWORKS
ARDIS. ARDIS grew out of the network originally designed for IBM's field
service workers in 1983 and supports portable remote units. ARDIS concentrates
many base stations with overlapping coverage to improve in-building penetration.
ARDIS links all of its cities via a dedicated backbone network and supports
nationwide roaming.
CELLULAR. Cellular uses low power base stations that cover individual cells
as small as a few miles in diameter. Each cell slightly overlaps the coverage of
the six cells that surround it. Consequently, a given pair of frequencies can be
re-used many times within the small metropolitan area as long as it is not used
in two adjacent cells. Multiple cells continuously monitor the receive signal
strength of each active mobile unit, and the control system initiates a transfer
at the time when the signal strength drops below a specified level at the base
station of the cell the mobile unit is leaving and rises above a specified level
at the base station of the cell the unit is entering. The FCC has allocated 832
channel pairs, 416 per carrier in each market, to cellular radio.
CELLULAR DIGITAL PACKET DATA. A consortium of cellular telephone carriers
has announced that its members will implement the CDPD protocol, which uses
IBM's CelluPlan II technology to allow packages of data to be transmitted over
the idle voice channels of existing analog cellular voice networks and provide a
data-over-cellular networking capability nationwide. The deployment of CDPD is
proceeding although at a much slower rate than originally announced.
NEXT GENERATION SPECIALIZED MOBILE RADIO, INTEGRATED DISPATCH ENHANCED
NETWORK ("IDEN"). The largest SMR operator, NEXTEL, received FCC permission to
offer ESMR service through the use of Motorola's iDEN digital radio technology.
ESMR is intended to increase the capacity of the SMR frequencies that NEXTEL
currently licenses.
PERSONAL COMMUNICATIONS SERVICES (PCS). Personal communications services
generally refer to digital wireless spectrum, technology and service offerings
being deployed based on FCC spectrum auctions in 1994, 1995 and 1996. Auctions
of spectrum and resulting technology fall into two categories: broadband PCS and
narrow-band PCS. Broadband PCS, with spectrum licensees including AT&T, and
various consortia including the RBOCS, Sprint and several cable companies, are
generally focusing on voice and short-messaging services and are expected to
compete directly with existing cellular services in each market. Narrow-band
PCS, including companies such as Mtel (which offers the SkyTel 2-Way messaging
service), AT&T and PageNet have a range of strategies including less
spectrum-intensive short messaging services and wireless voicemail, depending on
the licensee.
RAM MOBILE DATA. RAM has deployed its wireless packet data network in the
major markets in the U.S. RAM's technology is based on MOBITEX, a standard
packet protocol on which operational systems have been based in a number of
foreign countries.
SATELLITE NETWORKS. There are several companies that provide wireless data
or voice transmission services through satellites. For example, QUALCOMM Inc.
provides a data transmission service for the long-haul trucking industry called
OmniTRACS. Orbital Communications Corp. is deploying a messaging services
supported by a Low Earth Orbit satellite, and American Mobile Satellite
Corporation has deployed a geosynchronous mobile voice and data satellite
covering North America.
SPECIALIZED MOBILE RADIO NETWORKS. SMR refers to certain blocks of radio
channels licensed by the FCC primarily to businesses that resell voice
transmission services. Trunked radio uses transmission channel management
techniques to aggregate traffic from individual subscriber lines to share a
smaller number of radio channels. There are three major trunked radio equipment
vendors, Motorola, E.F. Johnson Co. and
10
GE Mobile Communications, each of which uses a different proprietary signaling
scheme to accomplish the channel allocation and management process for analog
signals, and each of which uses a different approach to handling data.
SPREAD SPECTRUM. Unlike wireless networks that use radio frequencies that
the FCC licenses to specific users on an exclusive basis, spread spectrum packet
radio may operate without license in the 902-928 MHz. band. Metricom, Inc. has
developed a digital, packet-switched, spread spectrum radio technology as the
basis of its wireless data communications system for the electric utility
industry. Unlike circuit-switched radio, in which a transmission channel is
assigned to the exclusive use of an individual user or pair of users for the
duration of a call, packet-switched radio allocates transmission capacity to a
user only while a packet actually is being transmitted. In addition, several
companies have designed local area spread spectrum systems targeting warehouse
and factory communications.
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 products. The Company has received a U.S.
letter patent claiming a data overlay on trunked voice radio, and has made
corresponding filings in Australia, Brazil, Canada, the European Patent Office,
Israel, Japan, Korea, Mexico and Taiwan. The Company has also filed patent
applications on KeyWare Time Synchronization and KeyWare Adaptive Concatenation
processes. These applications have been filed in the United States and the
above-mentioned foreign countries. In addition, the Company is pursuing
trademark registrations for three principal marks 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 unsigned, "shrink wrap" 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 products are or may be
distributed do not protect the Company's products 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 products, 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 products, the Company could be prohibited from manufacturing and
marketing such products. 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 products, to defend any legal action
taken against it or to pay damages for infringement.
MANUFACTURING
The Company duplicates software and related documentation and configures
customers' mobile data communications systems at the Company's facilities in
Minneapolis, Minnesota. The Company does not manufacture any of the hardware
used by its customers in a mobile data network, but this hardware is readily
available from various sources.
11
EMPLOYEES
As of December 31, 1996, the Company had 94 full-time employees, including 8
in finance and administration, 5 in marketing, 12 in sales and support, 66 in
technology solutions and sales and 3 in operations. The employees and the
Company are not parties to any 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, including
Michael Fabiaschi, Isaac Shpantzer, Paul Edelhertz and David Maenke. 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 32,400 square feet
located in a multi-story building in Minneapolis, Minnesota. The facility is
leased pursuant to an agreement that expires in July 2000. The Company has
certain expansion rights under its lease to increase facility size. In addition,
the Company has leased approximately 12,400 square feet for staging,
integration, shipping and receiving at a separate location in Minneapolis,
Minnesota. The facility is leased pursuant to a lease that expires in April
1997. The Company also has sales offices in Boston, Massachusetts, Chicago,
Illinois, Petaluma, California and Dallas, Texas. 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 the
Company's 1996 Annual Report, which are incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any significant litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is contained in the section entitled
"Common Stock" appearing in the Company's Annual Report to Stockholders for the
year ended December 31, 1996. Such information is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is contained in the section entitled
"Selected Financial Data" appearing in the Company's Annual Report to
Stockholders for the year ended December 31, 1996. Such information is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is contained in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing in the Company's Annual Report to Stockholders for the
year ended December 31, 1996. Such information is incorporated herein by
reference.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is contained in the sections entitled
"Balance Sheets," "Statements of Operations," "Statements of Stockholders'
Equity," "Statements of Cash Flows," "Notes to Financial Statements" and "Report
of Independent Accountants" appearing in the Annual Report to Stockholders for
the year ended December 31, 1996. Such information is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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
"Compliance under Section 16(a) of the Securities Exchange Act of 1934,"
appearing in the Company's Proxy Statement to be delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held on May 13, 1997
(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.
13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)(1), (a)(2) Financial Statements and Financial Statement Schedule. Reference is made to
and (d) "Index to Financial Statements and Financial Statement Schedule" filed as
part of this Annual Report on Form 10-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 February 19, 1997.
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
55439.(1)
14
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)
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)
15
13.01 Portions of the Annual Report to Stockholders of the Registrant for the year
ended December 31, 1996. Except for those portions of such Annual Report
expressly incorporated herein by reference, such Annual Report shall not be
deemed a "filed" document.
23.01 Consent of Coopers & Lybrand L.L.P.
- ------------------------
* 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.
ITEM 14(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter.
16
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.
By /s/ MICHAEL A. FABIASCHI
-----------------------------------------
Michael A. Fabiaschi,
Date: March 28, 1997 PRESIDENT AND CHIEF EXECUTIVE OFFICER
Each person whose signature appears below constitutes and appoints Michael
A. Fabiaschi and David J. Maenke, 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 A. FABIASCHI
- ------------------------------ President and Chief March 28, 1997
Michael A. Fabiaschi Executive Officer
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ DAVID J. MAENKE
- ------------------------------ Chief Financial Officer March 28, 1997
David J. Maenke and Secretary
OTHER DIRECTORS:
/s/ YUVAL ALMOG
- ------------------------------ Chairman of the Board March 28, 1997
Yuval Almog
/s/ JOSEPH B. COSTELLO
- ------------------------------ Director March 28, 1997
Joseph B. Costello
/s/ DIXON R. DOLL
- ------------------------------ Director March 28, 1997
Dixon R. Doll
/s/ DONALD L. LUCAS
- ------------------------------ Director March 28, 1997
Donald L. Lucas
/s/ LEIF G. SODERBERG
- ------------------------------ Director March 28, 1997
Leif G. Soderberg
17
RACOTEK, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
(ITEM 14(A))
Information incorporated by reference to the Racotek, Inc. Annual Report to
Stockholders to be delivered to stockholders in connection with the Annual
Meeting of Stockholders on May 13, 1997:
PAGE REFERENCE
---------------------------
ANNUAL REPORT
FORM 10-K TO STOCKHOLDERS
---------- ---------------
Financial Statements:
Balance Sheets..................................................................... 21
Statements of Operations........................................................... 22
Statements of Stockholders' Equity................................................. 23
Statements of Cash Flows........................................................... 24
Notes to Financial Statements...................................................... 25 - 29
Report of Independent Accountants.................................................... 30
Report of Independent Accountants on Financial Statement Schedule.................... 19
Schedules:
II. Valuation and Qualifying Accounts................................................ 20
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the financial statements or notes
thereto.
18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of Racotek, Inc.:
Our report on the financial statements of Racotek, Inc. has been
incorporated by reference in this Form 10-K from page 30 of the 1996 Annual
Report to Stockholders of Racotek, Inc. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index on page 18 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
_________/s/ COOPERS & LYBRAND________
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
January 14, 1997
19
RACOTEK, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN B COLUMN C COLUMN D
------------- ----------- ----------- COLUMN E
COLUMN A BALANCE AT ADDITIONS DEDUCTIONS -------------
- ---------------------------------------------------------------- BEGINNING OF CHARGED TO FROM BALANCE AT
DESCRIPTION PERIOD EXPENSE ALLOWANCE END OF PERIOD
- ---------------------------------------------------------------- ------------- ----------- ----------- -------------
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
Warranty reserve (included in other accrued expenses)......... 157 0 (149) 8
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
Warranty reserve (included in other accrued expenses)......... 30 191 (64) 157
Year ended December 31, 1994:
Allowance for doubtful accounts (deducted from accounts
receivable).................................................. 90 192 (132) 150
Inventory obsolescence reserve (deducted from inventories).... 221 295 (127) 389
Warranty reserve (included in other accrued expenses)......... 27 66 (63) 30
20
INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- --------- --------------------------------------------------------------------------------------- -----------------
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
February 19, 1997.................................................................... 24
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 55439.(1)
10.13 Form of Indemnification Agreement entered into by the Registrant and each of its
directors and executive officers.(1)
21
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- --------- --------------------------------------------------------------------------------------- -----------------
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)
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)
22
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- --------- --------------------------------------------------------------------------------------- -----------------
13.01 Annual Report to Stockholders of the Registrant for the year ended December 31, 1996.
Except for those portions of such Annual Report expressly incorporated herein by
reference, such Annual Report shall not be deemed a "filed" document................. 35
23.01 Consent of Coopers & Lybrand L.L.P..................................................... 50
- ------------------------
* 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.
Item 14(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter.
23