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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1995
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 0-11402
TELXON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 74-1666060
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3330 West Market Street, Akron, Ohio 44333
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 867-3700
Securities registered pursuant Name of each exchange
to Section 12(b) of the Act: on which registered:
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of class)
7-1/2% Convertible Subordinated Debentures Due 2012
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes / X /. No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / /.
The aggregate market value of registrant's Common Stock held by non-affiliates
as of May 31, 1995, based on the last reported sales price of the Common Stock
as reported on Nasdaq NNM for such date, was $262,084,732.
At May 31, 1995, there were 15,663,587 outstanding shares of the registrant's
Common Stock.
Documents Incorporated by Reference
The registrant's definitive proxy statement for its 1995 Annual Meeting of
Stockholders to be held on August 31, 1995, which the registrant intends to
file with the Securities and Exchange Commission within 120 days of the close
of its fiscal year ended March 31, 1995, is incorporated by reference in Part
III of this Annual Report on Form 10-K from the date of filing such document.
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PART I
ITEM 1. BUSINESS
GENERAL
Description of Company's Business
Telxon Corporation ("Telxon" or the "Company") designs, develops, manufactures,
integrates, markets, and sells portable, batch and wireless tele-transaction
computers and systems. Telxon integrates its portable tele-transaction
computers ("PTCs") with wired and wireless Local Area Networks ("LAN") and
links these networks to customers' specific enterprise networks.
Products, systems and services are marketed through a global sales and
technical services operation to the retail, industrial, transportation,
logistics, insurance, financial, healthcare and other vertical markets.
Historical Overview
The Company was incorporated in 1969 in Delaware as "Electronic Laboratories,
Inc.", as the successor to a business established in Texas in 1967. The
Company's name was changed to "Telxon Corporation" in 1974.
Telxon completed its initial public offering of 1,600,000 shares in July 1983,
a secondary offering of 1,150,000 shares in July 1985, and in June 1987, a $46
million issue of 7-1/2% Convertible Subordinated Debentures due 2012. During
fiscal 1991, the Company purchased and retired $21.3 million of the debentures.
Since the early 1970s, Telxon has developed and marketed portable handheld
terminals to retailers and wholesalers in the grocery, drug and hardware
industries. These terminals were used for order entry and inventory
applications. Demand for handheld devices expanded as bar code identification
systems were adopted by these and other industries, and as the need for timely,
accurate information became more important to reducing costs, improving
productivity and enhancing customer service. As new generations of products and
applications evolved, Telxon became a leading provider of PTCs and PTC wireless
networks to these three major retail and wholesale industries.
Commercial demand over the past six years has been driving the use of portable
and wireless tele-transaction computers and systems to other retail industries
including mass merchandisers, department stores and specialty store chains.
Telxon systems are also being used and/or evaluated in a wide variety of other
industries, including manufacturing, transportation, logistics, healthcare,
finance, insurance, utilities, public safety and mobile field repair.
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Three Year Strategic Plan Effective April 1, 1993.
During the first quarter of fiscal 1994, management initiated a three-year
strategic plan to position the Company for expanding its current markets and
penetrating new markets through a revitalized global sales organization, new
vertical systems groups and new products and technology.
This plan incorporates five basic elements:
I. Global Sales, Marketing and Technical Services Operation
II. Vertical Systems Group
III. Technical Subsidiaries Group
IV. Advanced Research and Product Development
V. Telxon Manufacturing and Product Maintenance
These five elements are designed to drive the Company's sales and profits while
general and administration functions are available as shared resources.
I. GLOBAL SALES, MARKETING AND TECHNICAL SERVICES
Global Sales, Marketing and Technical Services includes three divisions:
- - North American Division
The North American Division is responsible for the sales and profits
of all Telxon products, systems and services in the United States and
Canada. In fiscal 1995, North American sales increased 33% compared
to the prior year. The North American Division sells direct through
its own sales force as well as through selected value added resellers
("VARs"), system integrators, original equipment manufacturers
("OEMs") and strategic partners.
No customer accounted for 10% or more of the Company's total revenues
in fiscal 1995.
- - International Division
The International Division is responsible for the sales and profits of
all Telxon products, systems and services outside of the United States
and Canada. In fiscal 1995, International Division sales increased
29% compared to the prior year. The International Division sells
direct through its own sales force as well as through selected
distributors, VARs, system integrators, OEMs and strategic partners.
International sales of the Company are subject to the risks inherent
in foreign operations, such as protective tariffs, export/import
controls and transportation delays and interruptions.
The International Division sells through subsidiaries located in
Australia, Belgium, France, Germany, Italy, Japan, Spain, and the
United Kingdom, and through distributors in Africa, Asia, Europe,
Mexico, the Middle East and South America. Distributor support
offices are located in Belgium, Brazil, and Singapore. (For more
information regarding geographical segments and revenues from the
Company's International Division, see Note 12 to the consolidated
financial statements and Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.")
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- - Global Technical Services Division
The Global Technical Services Division is responsible for developing
and integrating PTC products, application systems, wireless PTC
networks and system integration and project management services for
the North American and International Divisions.
The Global Technical Services Division provides customer specific
products and solutions, which integrate the Company's Gateway
Connectivity System(TM) ("GCS(TM)") technology with PTCs and the
customer's host interface. This Division performs site surveys,
utilizes protocol software for host connectivity, and implements user
applications.
II. VERTICAL SYSTEMS GROUP
The Vertical Systems Group ("VSG"), composed of five industry-specific
marketing groups, partners with Telxon's Global Sales, Marketing and Technical
Services, VARs and system integrators to provide industry specific solutions
for customers in each vertical industry.
- - The Retail Technology Group
The Retail Technology Group ("RTG") serves customers in the retail
industry. RTG serves the needs of department store, grocery, mass
merchandiser, drug store, hardware and specialty chains.
Traditionally, Telxon's market focus has been on the retail industry.
From its original base of batch, hand-held terminals (for order entry
and inventory), Telxon has become a leading provider of in-store
portable automation systems linking the Company's PTCs with in-store
processors and point-of-sale ("POS") systems via the Company's
wireless technology. Applications involving real-time communications
include shelf auditing, direct store delivery, and POS transactions.
- - The Industrial Technology Group
The Industrial Technology Group serves the manufacturing, warehousing,
and distribution markets. Telxon's portable industrial systems
consist of handheld or vehicle mounted PTCs which communicate in real
time via spread spectrum and/or narrowband wireless data
communications. A variety of connectivity options enable migration
paths to various host interfaces, such as IBM(R) SNA and Unix(R).
The Industrial Technology Group's systems support applications in
shipping, receiving, inventory management, work order processing, and
quality control.
__________________________________
- Gateway Connectivity System and GCS are trademarks of Telxon
Corporation.
- IBM is a registered trademark of International Business
Machines, Inc.
- UNIX is a registered trademark of Unix Systems Laboratories,
Inc.
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- - The Logistics and Transportation Technology Group
The Logistics and Transportation Technology Group markets the
Company's PTC and wireless network solutions to the materials
management and transport industry. Industry segments include
warehousing and logistics, air passenger, air cargo, couriers, motor
carriers, railroads, and water carriers.
The Company integrates its handheld, pen-based, cradle, and wireless
LANs and Wide Area Network ("WAN") technologies to automate
applications including package tracking, fleet management, payload
management, inspection, and work order processing.
- - The Healthcare Technology Group
The Healthcare Technology Group serves healthcare institutions, VARs
and integrators which are searching for opportunities to reduce costs
while improving the quality of patient care. The Company integrates
its pen-based PTC technology and wireless communication technology to
enhance hospital information networks and home healthcare data
transfers. Existing hospital software and computer systems can be
linked to Telxon PTCs. The Healthcare Technology Group targets
hospital and home healthcare clinicians to use their systems for
admitting, billing, charting, electronic patient record updating, and
point-of-care services.
- - The Insurance and Financial Services Group
The Insurance and Financial Services Group provides the Company's
pen-based and wireless communications solutions for insurance and
financial service firms. The Company's pen-based and Wide Area Radio
Network ("WARN") radio systems solutions currently target insurance
applications including premium audit inspection, property valuation,
and insurance claims management.
The Company's primary market segment has long been the retail industry, which
represents over 50% of current revenues. The Company's future growth will
depend in part on the ability of VSG to successfully penetrate new markets.
III. THE TECHNICAL SUBSIDIARIES GROUP
In fiscal 1993, the Company began a program to accelerate advanced research,
technology and product development by forming or purchasing new product and
technology companies that were driven through entrepreneurial innovation and
leadership. The Company also increased its investment in its own research and
product development operations. The following products and technologies were
identified to meet the Company's goals through this program:
- Ruggedized wide area radio PTCs
- Wireless pen-based workslates
- Advanced character recognition software
- Advanced 2D bar code encoding and autodiscriminating decode
software
- Advanced 902 MHz and 2.4 GHz spread spectrum radios and
wireless networks
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- Advanced CPU and ASIC design
- Advanced speech recognition
The Technical Subsidiaries Groups have been structured to work together with
the shared corporate resources of the Advanced Research and Product Development
Group to design, develop and produce leading-edge technology products for the
future. The companies acquired or formed through this program are detailed
below.
Itronix(R) Corporation
In March 1993, the Company acquired Itronix Corporation ("Itronix") of Spokane,
Washington. Itronix designs, develops, manufactures, and markets ruggedized,
portable microcomputers designed for mobile, telecommunications workers and
field service technicians.
Itronix products are environmentally sealed, protecting them against the
effects of water, shock, temperature extremes, dust, and rough handling. WARN
technology is integrated with the ruggedized, mobile terminals to provide data
transfer over long distances and open spaces via third party WANs.
PenRight!(R) Corporation
In February 1994, the Company acquired PenRight! Corporation ("PenRight!") of
Fremont, California. PenRight! is a leading developer of pen-based character
recognition software. PenRight!'s Pro(R) software acts as a DOS based software
development tool which can be utilized to create pen-based applications in
Microsoft "C." PenRight!'s Pro(R) software supports ten international
languages. The Company is developing a new version to support 486 platforms
and Pen for Windows(R).
Teletransaction(TM), Inc.
In February 1993, the Company acquired Teletransaction, Inc.
("Teletransaction") of Akron, Ohio. Teletransaction is a developer of advanced
pen and touch-screen wireless, mobile workslates for vertical markets,
including:
- Retail
- Industrial
- Logistics and transportation
- Healthcare
- Insurance and financial services
- Utilities
- Public Safety
- Mobile Field Repair
___________________________________________
- - Itronix is a registered trademark of Itronix Corporation.
- - PenRight! and PenRight! Pro are registered trademarks of PenRight!
Corporation.
- - Pen for Windows is a registered trademark of Microsoft Corporation.
- - Teletransaction is a trademark of Teletransaction, Inc.
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Metanetics(TM) Corporation
Metanetics Corporation ("Metanetics(TM)") was formed in January 1994 in Fort
Myers, Florida, in part from the acquisition of Metamedia Corporation of Port
Jefferson, New York.
Metanetics develops 2D bar code encoding and autodiscriminating decode
software.
Aironet Wireless Communications(TM), Inc.
In January 1994, the Company formed Aironet Wireless Communications, Inc.
("Aironet(TM)") of Akron, Ohio, to continue development and marketing of
wireless LAN and WAN systems. Aironet was formed from one subsidiary company
and two units of the Company:
- - Telesystems SLW, Inc. -- a designer and manufacturer of wireless
spread spectrum LAN radios that was purchased by Telxon in 1992.
- - Telxon's Radio and Wireless Network Engineering Group -- designers of
advanced spread spectrum technology radios and network software.
- - Telxon's RF Software Engineering Group -- advanced software designers
of universal wireless connectivity systems for integration to other
computer manufacturers' networks.
Aironet developed one of the first commercial applications for spread spectrum
radio technology and currently designs and develops universal modular LAN and
WAN radio products and networks which it sells to Telxon, VARs and OEMs.
Telxon's future growth will depend in part on the success of the Worldwide
Sales, Marketing and Technical Services Group, Vertical Systems Group and
Technical Subsidiaries Group.
IV. ADVANCED RESEARCH AND PRODUCT DEVELOPMENT
The Company's advanced research focuses on advanced hardware, software, and
firmware designs that utilize Telxon proprietary ASIC (Application Specific
Integrated Circuits) chips. The Company's product development strategy is to
enhance the functionality and improve the price and performance of its hardware
and software, and to improve the packaging of its PTC systems to address the
specific requirements of target market areas. Products and systems are
designed for modularity and the ability to upgrade, where possible.
There can be no assurance that the Company's research and development
activities will lead to the successful introduction of new or improved products
or that the Company will not encounter delays or problems in connection
therewith. Furthermore, customers may defer purchases of
__________________________________
- - Metanetics is a trademark of Metanetics Corporation.
- - Aironet and Aironet Wireless Communications are trademarks of Aironet
Wireless Communications, Inc.
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existing products in anticipation of new or improved versions of those
products. Although the Company contemplates the introduction of new products
in fiscal 1996, the majority are scheduled for introductions in the second half
of the year. Moreover, there can be no assurance that there will not be delays
in commencing volume production of such products or that such products will
ultimately be commercially successful.
During fiscal 1995, 1994, and 1993, the Company spent approximately $33.7
million, $29.1 million and $17.8 million, respectively, for Company-sponsored
research, development and engineering. For further discussion, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - Operating Expenses."
V. TELXON MANUFACTURING AND PRODUCT MAINTENANCE
- - Manufacturing Operations
Manufacturing operations consist of assembling, testing and the quality
assurance of components, sub-assemblies and finished products. The
Company's products are built and configured to customer specifications
for various memory sizes, packaging, peripherals, keyboards and
displays.
In May 1994, the Company's principal manufacturing operations were
consolidated into a newly constructed 116,000 square foot facility. The
facility provides a more efficient plant layout and an opportunity for
expansion of manufacturing capacity in the future. For information
regarding subsidiaries' manufacturing operations, see "PROPERTIES."
All component parts in the Company's products are purchased from outside
sources. All packaging, custom-integrated circuits, keyboards and
printed circuit boards are produced to the Company's specifications. A
number of peripheral products, including wands, laser scanners,
controllers and receivers, are purchased as completed assemblies and
attached to and staged with the Telxon products before delivery. Some
products are produced by outside contract manufacturers.
Telxon's International Procurement Office ("IPO") located in Singapore
provides the Company with an opportunity to procure materials from lower
cost, Far East suppliers. As more commodities are procured by the IPO
staff, continued cost savings are expected.
The Company has in the past encountered, and may in the future
encounter, shortages of supplies and delays in deliveries of necessary
components. While such shortages and delays could have a material
adverse effect on the Company's ability to ship products, the Company
has not suffered any such effects as the result of past shortages and
delays. Additionally, the Company does not believe that the loss of any
one supplier or subassembly manufacturer would have a material long-term
adverse effect on its business, although set-up costs and delays could
occur if the Company changed any single source supplier.
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- - Product Maintenance Operations
The Company provides maintenance and repair services for Telxon
customers from its National Service Center in Houston, Texas. The
Company also services various third party products, including personal
computers, printers and communication devices.
The Company also maintains a number of customer specific service depots
to provide service to users with large concentrations of Telxon
products. The Company offers a broad array of repair services and
maintenance agreements ranging from time and material charges to
sophisticated plans, such as the "just in time" program that offers
spare Telxon equipment supplied on site to the customer, virtually
eliminating any system downtime.
PRODUCTS AND SYSTEMS
Handheld PTCs
The Company has developed a line of handheld PTCs, which range from low-end
batch terminals to highly integrated PTCs using laser bar code readers and
spread spectrum radios. The current products in this group include: Telxon PTC
600, 610, 710, 860, 910, 912, 921, 960 and Itronix 3400.
Workslate and Other PTC Products
The Company has developed a line of pen-based and touch-screen workslate PTCs
through Teletransaction, including the PTC 1130, 1140 and 1180 series. The
Telxon PTC 860IM fork lift truck mount, the POS-5000 portable point-of-sale
terminal, the AMT-925 arm mounted terminal, and the Itronix T-5000 are also
included in this group.
Wireless Products, Network Systems and Software
Through Aironet, the Company has developed a series of spread spectrum data
radios, repeaters, routers and bridges. The current products use the 902 MHz
or 2.4 GHz frequency bands at data rates ranging from 232Kbps up to 2Mbps.
These radio products are integrated with Telxon's Microcellular Architecture
("TMA") software to build universal wireless networks.
Telxon's universal wireless networks interface seamlessly with other
manufacturers' communication networks.
The Company also makes a line of base station and client/server card
transceivers through its GCS series that interface portable wireless products
with a client/server or mainframe. These products include the GCS 2000 and
4000.
Wireless Data Communications
Telxon provides wireless data communication products for mobile, distributed
data processing application systems. The Company uses industry standard "open"
system protocols to provide connectivity across a wide range of host computer
systems including SNA and TCP/IP.
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The Company offers customers optional built-in acoustic couplers or integrated
modems that allow data transmission from remote tele- communication locations
into a host computer and client servers.
The Company's PTCs can be equipped with radios to transfer programs or data to
and from other computers or peripheral devices while remaining mobile. The
four types of available radios are (1) spread spectrum, (2) wide area, (3)
micro radios, and (4) narrow band FM radios.
Telxon's DataSpan 2000 System(TM) provides 902MHz and 2.4GHz spread spectrum
radio technology for fast, robust wireless data communications. Spread
spectrum technology and the Company's GCS are used to create a wireless
interface between Telxon PTCs and the customers' host computers. The Company's
spread spectrum radios are designed to fit into Telxon's PTCs and a variety of
personal computers (PCs) and client servers.
Mobile, wireless communication is provided using TMA. The DataSpan 2000 System
has one or more radio cells which support an area of coverage. The TMA system
allows PTCs to move from cell to cell while maintaining a wireless connection
to the host computer. The system can be expanded to provide more cells and
greater coverage to over 4 million square feet.
The Company has been granted a number of patents for its spread spectrum
technology and was the first company in the wireless industry to receive the
United States' Federal Communication Commission ("FCC") and Canada's Department
of Communication approval for its spread spectrum radios.
The Company markets the wireless LAN product line worldwide through Aironet.
The Company announced a wireless network communication development alliance
with IBM's AS/400 Division in May 1994. The alliance advances the joint
development, marketing, and sales of technology, products, and solutions by the
two companies.
Through Itronix and Teletransaction, third party wide area network radios are
integrated with PTCs via the ARDIS(R) or RAM(R) mobile data networks.
Accessing the ARDIS or RAM wireless wide area packet data networks is
accomplished by integrating third party radio modem boards into the Company's
PTCs.
"Micro radios" are small, low-power FM radios designed and manufactured by the
Company and integrated into Telxon PTCs and peripherals to provide cable-free
data communications between system components.
Narrow band FM radios from major manufacturers have been provided by Telxon
since 1984. These radios operate in the 450 MHz band and require FCC site
licensing.
___________________________________________
- - DATASPAN 2000 is a trademark of Telxon Corporation.
- - ARDIS is a registered trademark of IBM Corporation and Motorola
Corporation.
- - RAM is a registered trademark of RAM Mobile Data, Inc.
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Peripherals
The Company integrates a variety of peripheral products into or with its
regular product line. They include: laser bar code readers (internal and
external), modular printers (24, 40 and 80 columns), chargers, cradles, modems,
and RS232 interfaces. Many of these products or components of products are
purchased from outside vendors.
Software Products
The Company develops, through its subsidiaries PenRight! and Metanetics,
advanced character recognition software and advanced 2D bar code encoding and
autodiscriminating decode software.
Software Operating Systems, Languages and Applications
Telxon continues to invest in the research and development of operating
systems, software development tools, connectivity and ASIC microchips.
The Company continues to refine its proprietary PTC operating system TCOS(TM)
(Telxon Common Operating System) and TCAL(R) (Telxon Common Application
Language) to provide advanced application development programs in DOS, C and
other user friendly operating systems.
In 1989 Telxon introduced RAMsaver(TM), an improved Microsoft(R) MS-DOS(R)
version 3.21, to enhance conservation of battery power, support bar code
readers, minimize use of Random Access Memory ("RAM") and permit the operating
system and application programs to run from Read Only Memory ("ROM"). RAMsaver
expands the flexibility of Telxon PTCs and offers new application opportunities
by making the Company's PTCs readily accessible to PC software developers using
familiar application development tools and languages, such as Microsoft "C",
GW-BASIC(R), Pascal, Fortran, Assembler (MASM(R)) and Borland Turbo C(R).
Telxon's recent release of MS-DOS version 5.0 is the Company's fourth release
of MS-DOS.
The new pen-based and touch-screen workslates offer application development
capabilities in DOS, Pen for Windows and C.
INTELLECTUAL PROPERTY
The Company regards certain of its hardware and software products as
proprietary and relies on a combination of United States and foreign patent,
copyright, trademark and trade secret laws and license and other contractual
confidentiality provisions to protect its proprietary
______________________________________________________
- - TCOS is a trademark, and TCAL is a registered trademark, of Telxon
Corporation.
- - Microsoft and MS-DOS are registered trademarks of Microsoft
Corporation.
- - RAMsaver is a trademark of Telxon Corporation.
- - GW-BASIC and MASM are registered trademarks of Microsoft Corporation.
- - Turbo C is a registered trademark of Borland International, Inc.
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rights. In addition, the Company's products also utilize hardware and software
technologies licensed from third parties. Given the rapidity of industry
technological change, however, the competence and creative ability of the
Company's development, engineering, programming, marketing and service
personnel may be as or more important to its competitive position as the legal
protections and rights afforded by patent and other owned or licensed
intellectual property rights. The Company believes that its products and
trademarks do not infringe on the rights of third parties, but there can be no
assurance that third parties will not assert infringement claims in the future.
GOVERNMENT REGULATIONS
The Company believes that all of its products are in material compliance with
current government regulations; however, regulatory changes may require
modifications to certain of the Company's products in order for the Company to
continue to be able to manufacture and market these products. There can be no
assurances that more stringent regulations in these or other areas will not be
issued in the future with an adverse effect on the business of the Company. In
addition, sales of the Company's products could be adversely affected if more
stringent safety standards are adopted by customers.
Certain Company products intentionally transmit radio signals as part of their
normal operation. These products are subject to regulatory approval by the FCC
and corresponding authorities in each country in which they are marketed.
Such approvals are typically valid for the life of the product unless and
until the circuitry of the product is altered in material respects, in which
case a new approval may be required.
BACKLOG
Backlog at any particular date is dependent on timing of receipt of orders and,
therefore, is not a reliable indicator of future sales over an extended period
of time. Shipments made during any particular quarter generally represent
orders received either during that quarter or shortly before the beginning of
that quarter. Shipments for orders received in a fiscal quarter are generally
filled from products manufactured in that quarter. The Company maintains
significant levels of raw materials to facilitate meeting delivery requirements
of its customers. However, there can be no assurance that during any given
quarter, the Company has or can procure the appropriate mix of raw materials in
order to accommodate any given order. Therefor, the Company's financial
performance in any quarter is dependent to a significant degree upon obtaining
orders in that quarter which can be manufactured and delivered to its customers
in that quarter. Thus, financial performance for any given quarter cannot be
known or fully assessed until near the end of that quarter.
COMPETITION
The computer industry, of which PTC systems are a part, is highly competitive
and characterized by advances in technology which frequently result in the
introduction of new products with improved performance characteristics.
Failure to keep pace with product and technological advances could
negatively affect the Company's competitive position and prospects for
growth.
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The Company competes directly and indirectly with a number of companies in its
market segments. Frequent competitors include Symbol Technologies, Inc.,
Bohemia, New York, and Norand Corporation, Cedar Rapids, Iowa. In addition,
companies that are participants in the broader computer industry are potential
competitors. Some of the Company's competitors and potential competitors have
substantially greater financial, technical, intellectual property, marketing
and human resources than the Company.
EMPLOYEES
As of May 31, 1995, the Company employed approximately 1,850 full-time
personnel. The Company also employs temporary production and other personnel.
The Company has never experienced a work stoppage due to labor difficulties and
believes that relations with its employees are good.
ITEM 2. PROPERTIES
The Company's corporate and engineering offices are located in Akron, Ohio, in
a 100,000 square foot office building constructed in 1979. Such offices are
occupied by the Company pursuant to a lease expiring December 31, 2001. The
lease provides the Company with the option, exercisable on September 1, 2001,
to purchase the office building and the land on which it is situated for its
then current fair market value.
The Company owns a 32,500 square foot one-story facility approximately one mile
from its corporate offices which houses its Customer Support Center, the
Training and Technical Publications Group and New Product Support Department.
In addition, the Company leases approximately 54,000 square feet of office
space at locations within a three mile radius of its corporate offices pursuant
to leases expiring through March 31, 1997. These facilities house the
Company's Aironet and PenRight! subsidiaries, as well as various support
functions.
The Company owns two buildings in Houston, Texas of concrete construction,
located on a 15 acre site. The first building is a 116,000 square foot
manufacturing facility that was completed in April 1994. This building houses
all manufacturing and warehousing operations for the Company, as well as
administrative and manufacturing engineering offices. The second building is
36,000 square feet and houses the Company's National Service Center. This
building was completed in November 1993.
The Company's Itronix subsidiary is located in Spokane, Washington, where it
occupies approximately 22,500 square feet of office space pursuant to a lease
expiring May 31, 1998. Itronix also operates a 17,900 square foot
manufacturing facility located approximately 10 miles from its Spokane offices
which is leased through July 31, 1999.
The Company's Aironet subsidiary also maintains manufacturing operations in
Markham, Ontario, Canada, where it occupies approximately 9,600 square feet of
office and manufacturing space pursuant to a lease expiring November 30, 1998.
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In addition to these principal locations, the Company maintains 44 locations in
the United States, Canada, Western Europe, Australia, Japan and Southeast Asia
which are used principally for sales and customer service offices, as well as
for executive and engineering offices for certain of its domestic and its
international subsidiaries. These locations are generally leased for terms
which range from one to three years. The Company believes that its existing
and planned facilities will be adequate for its reasonably foreseeable level of
operations.
ITEM 3. LEGAL PROCEEDINGS
In December 1992, four class action suits were filed in the United States
District Court, Northern District of Ohio, by certain alleged stockholders of
the Company on behalf of themselves and purported classes consisting of Telxon
stockholders, other than defendants and their affiliates, who purchased the
Company's common stock between May 20, 1992 and January 19, 1993. The named
defendants are the Company, former President and Chief Executive Officer
Raymond D. Meyo, and then current President, Chief Operating Officer and Chief
Financial Officer Dan R. Wipff. On February 1, 1993, the plaintiffs filed
their Amended and Consolidated Class Action Complaint related to the four
actions, alleging claims for fraud on the market and negligent
misrepresentation, arising from alleged misrepresentations and omissions with
respect to the Company's financial performance and prospects, and alleged
trading activities of the named individual defendants. The Amended Complaint
seeks certification of the purported class, unspecified compensatory damages,
the imposition of a constructive trust on certain of the defendants' assets and
other unspecified extraordinary equitable and/or injunctive relief, interest,
attorneys' fees and costs. The defendants, including the Company, filed a
Motion to Dismiss which was denied by the court on June 3, 1993.
On April 16, 1993, plaintiffs filed their Motion for Class Certification. The
defendants, including the Company, filed their briefs in opposition to Class
Certification on October 13, 1993. On December 17, 1993, the District Court
certified the class, consisting of Telxon stockholders, other than defendants
and their affiliates, who purchased Telxon common stock between May 20, 1992
and December 14, 1992.
Discovery (other than of experts) in the Consolidated Class Action has been
completed. The defendants filed a Motion for Summary Judgment on May 19, 1995.
The plaintiffs filed a brief in opposition to the Motion on June 9, 1995, and
the defendants filed their reply brief on June 21, 1995. The Court has not yet
ruled on the Motion, and the Consolidated Class Action is scheduled for trial
commencing November 13, 1995. The defendants intend to continue vigorously
defending this Consolidated Class Action. However, the ultimate outcome of
this litigation cannot presently be determined, and accordingly, no provision
for any liability that may result from adjudication has been made in the
accompanying consolidated financial statements.
14
<PAGE> 15
On September 21, 1993, a derivative Complaint was filed in the Court of
Chancery of the State of Delaware, in and for Newcastle County, by an alleged
stockholder of Telxon derivatively on behalf of Telxon. The named defendants
are the Company; Robert F. Meyerson, Chairman of the Board and Chief Executive
Officer; Dan R. Wipff, then President, Chief Operating Officer and Chief
Financial Officer and director; Robert A. Goodman, Corporate Secretary and
outside director; Norton W. Rose; outside director and Dr. Raj Reddy, outside
director. The Complaint alleges breach of fiduciary duty to the Company and
waste of the Company's assets in connection with certain transactions entered
into by Telxon and compensation amounts paid by the Company. The Complaint
seeks an accounting, injunction, rescission, attorneys' fees and costs. While
the Company is nominally a defendant in this derivative action, no monetary
relief is sought by the plaintiff from the Company; accordingly, no
provisions for any loss nor any related insurance recovery therefor have been
made in the accompanying consolidated financial statements. On November 12,
1993, Telxon and the individual director defendants filed a Motion to Dismiss.
The plaintiff filed his brief in opposition to the Motion on May 2, 1994, and
the defendants filed a responsive final brief. The Motion was argued before
the Court on March 29, 1995, and the parties are awaiting the Court's ruling.
Discovery in this action is still at a preliminary stage. The defendants
intend to vigorously defend this action. While the ultimate outcome of this
action cannot presently be determined, the Company does not anticipate that
this matter will have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
In the normal course of its operations, the Company is subject to performance
under contracts, and has various legal actions pending. However, in
management's opinion, any such outstanding matters have been reflected in the
consolidated financial statements, are covered by insurance or, would not have
a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended March 31, 1995.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with respect to each executive
officer of the Company. Executive officers of the Company are annually elected
by the Board of Directors of the Company or are annually appointed by the Chief
Executive Officer and ratified and approved by the Board of Directors.
Robert F. Meyerson, age 58, has been the Chief Executive Officer of the Company
since October 1992 and Chairman of the Board of Directors since November 1981
and a director of the Company since November 1977. He was the Company's Chief
Executive Officer from August 1978 to May 1985, and its President from August
1978 to November 1981. From January 1984
15
<PAGE> 16
to September 1993, he was Chairman of the Board of Basicomputer Corporation
(reseller and servicer of personal computers; "Basicomputer"), until it was
acquired by The Future Now, Inc. in September 1993 and Chief Executive Officer
of Accipiter Corporation (consulting firm) from 1985 through October 1992.
John H. Cribb, age 61, has been Vice Chairman of the Company's Board of
Directors and Chairman, Telxon International since January 1995. From January
1993 to January 1995 he served the Company as President, International and,
from January 1990 to January 1993, as Senior Vice President, International
Operations. Mr. Cribb was a Vice President of the Company and Managing
Director of Telxon Limited, the Company's United Kingdom subsidiary, from 1982
to 1990. He has been a director of the Company since January 1995.
William J. Murphy, age 61, has been President and Chief Operating Officer of
the Company since January 1995. He was President, North America Division of
the Company from January 1994 to January 1995 and Executive Vice President,
North American Operations from January 1993 to January 1994. Mr. Murphy also
served the Company as Area Vice President, East from November 1992 to January
1993, as a District Manager from September 1989 to November 1992 and as Area
Vice President, North Eastern Region from May 1989 to August 1989. He has been
a director of the Company since January 1995.
Frank E. Brick, age 46, has been President and Chief Operating Officer, Telxon
International since February 1995. He joined the Company in October 1993 as
Senior Executive Vice President, Global Sales and Marketing, in which capacity
he continues to serve. For more than five years prior to joining the Company,
Mr. Brick was Chief Executive Officer of Basicomputer.
Dan R. Wipff, age 52 has been the President and Chief Executive Officer of the
Company's Telxon Products Division and the Company's Senior Executive Vice
President, Manufacturing Operations since July 1994. He was President and
Chief Operating Officer of the Company from October 1992, and the Company's
Chief Financial Officer from December 1991, until July 1994. Mr. Wipff was
Senior Executive Vice President and Chief Operating Officer of the Company
from October 1989 to October 1992. He also served as the Company's Chief
Financial Officer from October 1989 to July 1990 and from October 1990 to
September 1991. Mr. Wipff served as a director of the Company from April 1974
until September 1979 and from September 1980 until January 1995.
Kenneth W. Haver, age 36, has been Senior Vice President, Finance and
Administration, and Chief Financial Officer of the Company since March 1995 and
its Treasurer since May 1994. He has also served the Company as Vice
President, Financial Planning from September 1993 to March 1995. Mr. Haver
joined the Company from Basicomputer, where he had served as a Vice President
and Treasurer for more than five years.
16
<PAGE> 17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been publicly traded since July 21, 1983, in the
over-the-counter market under the symbol TLXN. The following table sets forth,
with respect to the past two fiscal years of the Company, the range of high and
low closing prices as reported in the Nasdaq Stock Market's National Market and
cash dividends paid. The Company has not paid other than nominal dividends.
The Company intends to follow a policy of retaining earnings in order to
finance the continued growth and development of its business. Payment of
dividends is within the discretion of the Company's Board of Directors and will
depend on, among other factors, earnings, capital requirements and the
operating and financial condition of the Company.
<TABLE>
<CAPTION>
Fiscal Quarter
------------------------------------------------
Year Ended March 31 First Second Third Fourth Year
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
High . . . . . . . . . . . . . $18.25 $16.25 $15.00 $15.50 $18.25
Low . . . . . . . . . . . . . 12.00 12.88 10.00 12.00 10.00
Dividends paid . . . . . . . . -- -- -- .01 .01
1994
High . . . . . . . . . . . . . $11.00 $12.75 $11.75 $16.63 $16.63
Low . . . . . . . . . . . . . 6.50 9.25 7.63 10.13 6.50
Dividends paid . . . . . . . . -- -- -- .01 .01
</TABLE>
As of May 31, 1995, there were approximately 1,562 holders of record of the
Company's Common Stock.
Historically, changes in the Company's actual or expected results of operations
have resulted in significant changes in the market price of the Company's
Common Stock. As a result, the market price of the Company's Common Stock has
been volatile.
While the Company does, from time to time, communicate with securities
analysts, any opinions, projections and forecasts contained in reports issued
by securities analysts have been prepared by each analyst based on his own
judgment and research and are not the responsibility of the Company. It should
not be assumed that the Company agrees with any report issued by any analyst.
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are selected financial data for the five years ended March 31,
1995, which have been derived from the Company's audited financial statements
for the periods indicated. The selected financial data should be read in
conjunction with the financial statements for the three years ended March 31,
1995, 1994 and 1993 as Item 8 herein. For further details on 1995 results,
also refer to Item 7.
<TABLE>
<CAPTION>
Income Statement Data: Year Ended March 31,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Product $323,916 $252,341 $197,116 $177,560 $152,656
Customer service 55,603 43,652 41,298 37,460 31,917
-------- -------- -------- -------- --------
Total revenues 379,519 295,993 238,414 215,020 184,573
Costs and expenses:
Cost of product revenues 189,568 143,347 123,511 93,203 77,715
Cost of customer service revenues 32,455 31,958 29,956 21,631 18,903
Selling expenses 68,279 59,894 46,393 42,564 35,823
Product development and
engineering expenses 33,728 29,058 17,798 12,131 11,571
General and administrative
expenses 34,583 31,854 36,113 21,249 22,280
-------- -------- -------- -------- --------
Total costs and expenses 358,613 296,111 253,771 190,778 166,292
-------- -------- -------- -------- --------
Income (loss) from operations 20,906 (118) (15,357) 24,242 18,281
Interest income 658 653 1,947 2,998 4,149
Interest expense (4,354) (2,459) (2,271) (2,203) (2,560)
-------- -------- -------- -------- --------
Income (loss) before income
taxes, extraordinary items
and cumulative effect of an
accounting change 17,210 (1,924) (15,681) 25,037 19,870
Provision (benefit) for income
taxes 8,192 875 (4,056) 9,139 7,533
-------- -------- -------- -------- --------
Income (loss) before extra-
ordinary items and cumulative
effect of an accounting change 9,018 (2,799) (11,625) 15,898 12,337
Extraordinary items:
Income tax effect of net operat-
ing loss carryover utilized -- -- -- 1,091 620
Gain from early extinguishment
of debt, net of taxes -- -- -- -- 4,045
-------- -------- -------- -------- --------
Income (loss) before cumulative
effect of an accounting change 9,018 (2,799) (11,625) 16,989 17,002
Cumulative effect of a change in
accounting for income taxes -- -- (439) -- --
-------- -------- -------- -------- --------
Net income (loss) $ 9,018 $ (2,799) $(12,064) $ 16,989 $ 17,002
======== ======== ======== ======== ========
Earnings per common and common
equivalent share:
Income (loss) before extra-
ordinary items and cumulative
effect of an accounting change $ .57 $ (.18) $ (.83) $ 1.13 $ .91
Income tax effect of net oper-
ating loss carryover utilized -- -- -- .08 .05
Gain from early extinguishment
of debt, net of taxes -- -- -- -- .30
------- ------- ------- ------- -------
Income (loss) per share
before cumulative effect of
an accounting change .57 (.18) (.83) 1 .21 1.26
Cumulative effect of a change in
accounting for income taxes -- -- (.03) -- --
------- ------- ------- ------- -------
Net Income (loss) per share $ .57 $ (.18) $ (.86) $ 1.21 $ 1.26
======= ======= ======= ======= =======
Average number of common and common
equivalent shares outstanding 15,909 15,210 13,991 14,067 13,510
Cash dividends $ .01 $ .01 $ .01 $ .01 $ .01
</TABLE>
18
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA (Continued)
Balance Sheet Data:
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Total assets $276,127 $259,968 $212,621 $199,162 $166,588
Notes payable, capital lease
and other obligations due
within one year 27,507 25,207 679 867 888
Total long-term debt and
capital lease obligations 32,209 27,534 24,930 25,556 26,009
Working capital 101,617 80,066 84,738 117,216 102,029
Stockholders' equity 138,578 124,715 128,219 124,398 102,163
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SUMMARY
The following table sets forth for the periods indicated (i) certain expense
and income items expressed as a percentage of total revenues, and (ii) the
percentage increase or decrease of such items as compared to the corresponding
prior period.
<TABLE>
<CAPTION>
Period to Period
Percentage of Total Revenues Increase (Decrease)
------------------------------------ ------------------------
1995 1994
Year ended March 31, Compared Compared
1995 1994 1993 to 1994 to 1993
------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Product revenues 85.3% 85.3% 82.7% 28.4% 28.0%
Customer service 14.7 14.7 17.3 27.4 5.7
----- ----- -----
Total revenues 100.0 100.0 100.0 28.2 24.2
Cost of product revenues 49.9 48.4 51.8 32.2 16.1
Cost of customer service
revenues 8.6 10.8 12.5 1.6 6.7
Selling expenses 18.0 20.2 19.5 14.0 29.1
Product development and
engineering expenses 8.9 9.8 7.5 16.1 63.3
General and administrative
expenses 9.1 10.8 15.1 8.6 (11.8)
----- ----- -----
94.5 100.0 106.4 21.1 16.7
----- ----- -----
Income (loss) from
operations 5.5 -- (6.4) N.M. (99.2)
Interest income .1 .2 .8 .8 (66.5)
Interest expense (1.1) (.8) (1.0) 77.1 8.3
----- ----- -----
Income (loss) before
income taxes and
cumulative effect of
an accounting change 4.5 (.6) (6.6) N.M. (87.7)
Provision (benefit) for
income taxes 2.1 .3 (1.7) N.M. (121.6)
----- ----- -----
Income (loss) before
cumulative effect of
an accounting change 2.4 (.9) (4.9) N.M. (75.9)
Cumulative effect of a
change in accounting
for income taxes -- -- (.2) N.M. (100.0)
---- ----- -----
Net income (loss) 2.4% (.9)% (5.1)% N.M. (76.8)%
==== ===== =====
</TABLE>
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
RESULTS OF OPERATIONS
Overview
Fiscal 1995 results represented a continuation of the revenue and earnings
growth which began in the fourth quarter of fiscal 1994. In fiscal 1995,
revenues increased 28% while costs and operating expenses decreased as a
percentage of total revenues for the same period. For fiscal 1995, the Company
reported net income of $9.0 million, or $.57 per share. This compares to a net
loss of $2.8 million or $.18 per share for fiscal 1994. Inflation has not had a
significant impact on consolidated results of operations.
The Company's continuing objective is to increase revenues and market
penetration while reducing costs as a percentage of total revenues. Its goal
is to deliver sustainable, profitable growth and increased stockholder value
over the coming years.
Revenues
1995 vs. 1994
Consolidated total revenues for fiscal 1995 increased $83.5 million or 28% as
compared to fiscal 1994. No customer accounted for 10% or more of total
revenues in fiscal 1995.
Product revenues for fiscal 1995 increased $71.6 million or 28% as compared
with fiscal 1994. Product revenues include the sale of Portable
Tele-Transaction Computer units, pen-based and touch-screen workslates,
hardware accessories, custom application software and software license fees and
wireless data communication products. The increase in product revenues was due
primarily to increased PTC unit volume. The average selling price per PTC unit
remained essentially unchanged between years.
Customer service revenues increased $12.0 million or 27% for fiscal 1995 as
compared to fiscal 1994. This growth was due primarily to the increase in the
installed base of the Company's equipment.
Revenues from the Company's international operations (including Canada) were
$108.1 million and $83.8 million in fiscal 1995 and 1994, respectively. This
increase was primarily attributable to increased European subsidiaries' revenues
resulting from increased unit volume. Changes in currency exchange rates and
intercompany hedging activities did not have a material effect on the results
of the Company's international operations.
Consolidated revenues for fiscal 1996 are expected to increase over fiscal 1995
levels.
1994 vs. 1993
Consolidated revenues for fiscal 1994 increased $57.6 million or 24% as
compared to fiscal 1993. In both fiscal 1994 and 1993, Wal-Mart Stores, Inc.
accounted for approximately 11% of total revenues.
20
<PAGE> 21
Product revenues for fiscal 1994 increased $55.2 million or 28% as compared to
fiscal 1993. The product revenue increase was due to a 16% increase in PTC
unit volume and a 10% increase in average selling price per PTC unit. The
acquisition of Itronix Corporation ("Itronix") in the fourth quarter of fiscal
1993 contributed to these increases. For fiscal 1994, Itronix product revenues
increased $23.8 million as compared with the one month reported results in
fiscal 1993.
Customer service revenues increased $2.4 million or 6% for fiscal 1994 as
compared to fiscal 1993. This growth was due to the increase in the installed
base of the Company's products offset by a reduction in the discretionary
spending by customers for servicing of the PTC installed base. The acquisition
of Itronix again contributed to this revenue increase. Fiscal 1994 customer
service revenues generated by Itronix increased $1.3 million as compared with
fiscal 1993.
Revenues from the Company's international operations (including Canada) were
$83.8 million and $73.7 million in fiscal 1994 and 1993, respectively. This
increase was primarily attributable to increased sales to unaffiliated
international distributors and increased Canadian subsidiary revenues. The
changes in currency exchange rates and intercompany hedging activities did not
have a material effect on the results of the Company's international
operations.
Cost of Revenues
1995 vs. 1994
Cost of product revenues as a percentage of product revenues was 59% in fiscal
1995 as compared to 57% in fiscal 1994. This increase in the cost percentage
was primarily due to pricing pressures on certain large accounts.
Cost of customer service revenues as a percentage of customer service revenues
was 58% in fiscal 1995 as compared to 73% in fiscal 1994. This decrease in the
cost percentage was primarily attributable to the fact that it was not
necessary to increase customer service personnel and related resources
proportionately with the increase in customer service revenues. These
economies reflect the consolidation of the Company's U.S. service depots to one
National Service Center located in Houston, Texas, which was completed in the
fourth quarter of fiscal 1994.
For the year ended March 31, 1995, inventory allowance accounts increased to
$10.9 million from $9.9 million at March 31, 1994. This increase was due to
provisions for inventory obsolescence of $7.4 million offset by disposals of
obsolete materials and other of $6.4 million. As a percentage of gross
inventories, the inventory allowances increased to 13% at March 31, 1995 from
11% at March 31, 1994. The Company continues to anticipate provisions for
obsolescence as revenue volumes generated from new product offerings replace
revenue from older products.
1994 vs. 1993
Total costs and operating expenses, as a percentage of revenues, were lower in
fiscal 1994 as compared to fiscal 1993 due primarily to unusual costs and other
non-recurring charges recognized in the prior year.
21
<PAGE> 22
Cost of product revenues as a percentage of product revenues was 57% in fiscal
1994 as compared to 63% in fiscal 1993. The reduction was primarily related to
non-recurring charges in fiscal 1993 aggregating $9.3 million including the
discontinuance of older product lines of $6.8 million, consulting fees of $1.5
million, product enhancement costs of $.7 million and other miscellaneous costs
of $.3 million. Additionally, fiscal 1993 results reflected lower margins
attributable to a single large contract and general pricing pressures.
Cost of customer service revenues as a percentage of customer service revenues
was 73% in both fiscal 1994 and 1993. Fiscal 1993 included $1.9 million of
charges relating to the consolidation of the customer service depots. Despite
the absence of these charges in fiscal 1994, the cost of customer service
revenues remained constant due to increased costs to repair more sophisticated
products offered by the Company.
For the year ended March 31, 1994, inventory allowance accounts increased to
$9.9 million from $7.5 million at March 31, 1993. This increase was due to
provisions for inventory obsolescence of $6.7 million offset by disposals of
obsolete materials and other of $4.3 million. However, as a percentage of
gross inventories, the inventory allowances decreased to 11% at March 31, 1994
from 13% at March 31, 1993.
Operating Expenses
1995 vs. 1994
Selling expenses as a percentage of total revenues were 18% in fiscal 1995 as
compared to 20% in fiscal 1994. Selling expenses increased $8.4 million in
fiscal 1995 as compared to fiscal 1994. The decrease in selling expenses as a
percentage of total revenues is primarily attributable to the leverage of
fixed selling expenses over a greater revenue base.
Product development and engineering expenses were 9% and 10% of total revenues
in fiscal 1995 and 1994, respectively. The increase of $4.7 million in fiscal
1995 as compared to 1994 was primarily attributable to research and development
activities related to new product development. These activities included
increased research and development costs associated with wireless data
communications and spread spectrum technology, pen-based technology, mobile
workforce products and other product improvements and new product
introductions. During the fourth quarter of fiscal 1995, the Company
recognized $2.0 million of development expense reimbursement funding relating
to a large order from a major customer. The expense reimbursement was offset
against the related development expenses incurred. This large order is
expected to be delivered primarily in the second half of fiscal 1996.
General and administrative expenses as a percentage of total revenues were 9%
and 11% for fiscal years 1995 and 1994, respectively. The increase of $2.7
million was primarily attributable to an increase in the corporate resources
necessary to support the Company's revenue growth. At March 31, 1995,
remaining amounts accrued in fiscal 1993 for restructuring charges relate to
severance and aggregate $.3 million. All such amounts are expected to be paid
in fiscal 1996. There were no material adjustments recorded in fiscal 1995 to
amounts recorded in fiscal 1994 or fiscal 1993.
22
<PAGE> 23
Selling, product development and engineering and administrative expenses are
expected to decrease as a percentage of total revenues for fiscal 1996 as
compared to fiscal 1995.
1994 vs. 1993
Selling expenses as a percentage of total revenues were 20% in both fiscal 1994
and 1993. Selling expenses increased $13.5 million in fiscal 1994 as compared
to fiscal 1993. Fiscal 1993 selling expenses included certain non-recurring
severance and relocation charges of $.8 million. The absence of these charges
in fiscal 1994 was offset by additional expenses of $4.3 million related to the
acquisitions made in the fourth quarter of fiscal 1993, variable selling
expenses (primarily wages and commissions related to revenue growth) and
expenses relating to the initial formation of VSG.
Product development and engineering expenses were 10% and 8% of total revenues
in fiscal 1994 and 1993, respectively. The increase of $11.3 million in fiscal
1994 as compared to 1993 was primarily attributable to research and development
activities related to new product development. These activities included
increased research and development costs associated with wireless data
communications and spread spectrum technology, pen-based technology, mobile
workforce products and other product improvements and new product
introductions.
General and administrative expenses as a percentage of total revenues were 11%
and 15% for fiscal years 1994 and 1993, respectively. The decrease of $4.3
million was primarily attributable to the unusual and non-recurring charges in
the prior year aggregating $9.1 million, including severance charges, increased
provision for doubtful accounts and increased consulting and professional fees.
At March 31, 1994, amounts accrued for such activity but yet unpaid related to
severance and aggregated $1.5 million. There were no material adjustments
recorded in fiscal 1994 to amounts recorded in fiscal 1993. The decrease in
1994 when compared to 1993 was partially offset by increases in expenses of
$1.4 million resulting from acquisitions made in the fourth quarter of fiscal
1993 and additional corporate expenses aggregating $3.4 million required to
support the Company's revenue growth.
Interest Expense
1995 vs. 1994
Net interest expense as a percentage of revenues was 1.0% and .6% in fiscal
1995 and 1994, respectively. The increase in fiscal 1995 as compared to fiscal
1994 reflected continued borrowing under the Company's credit facility caused
by cash requirements in excess of internally generated funds, primarily to
support the Company's investing activities.
1994 vs. 1993
Net interest expense as a percentage of revenues was .6% and .2% in fiscal 1994
and 1993, respectively. The increase in fiscal 1994 as compared to fiscal 1993
reflected the lower average cash and short-term investment balances primarily
due to increased investing activities aggregating $26.9 million which caused
cash requirements in excess of internally generated funds. These investing
activities are discussed in greater detail below.
23
<PAGE> 24
Income Taxes
1995 vs. 1994
The Company's consolidated effective tax rate was 48% in fiscal 1995 and 46% in
fiscal 1994. The consolidated effective tax rate for fiscal 1995 reflects
income before taxes increased by nondeductible goodwill amortization, the sum
of which is multiplied by the United States statutory tax rate and increased by
international tax rate differentials and changes in the deferred tax asset
valuation allowance. These increases are partially offset by research and
development credits and tax benefits related to export sales. There were no
tax law changes during fiscal 1995 that had a significant effect on the
calculation of the income tax liability. The consolidated effective tax rate
for fiscal 1994 reflects the loss before taxes increased by nondeductible
goodwill amortization, the sum of which is multiplied by the United States
statutory rate and increased by international tax rate differentials, and
partially offset by research and development credits and adjustments to the
valuation allowance. On August 10, 1993, the President signed into law the
Omnibus Budget Reconciliation Act of 1993 which contains certain provisions
covering the calculation of corporate income tax liability. These income tax
law changes did not have a significant effect on fiscal 1995 or 1994.
1994 vs. 1993
The Company's effective income tax rate was 46% in fiscal 1994 and (26%) in
fiscal 1993. The consolidated effective tax rate for fiscal 1994 reflects the
loss before taxes increased by nondeductible goodwill amortization, the sum of
which is multiplied by the United States statutory tax rate and decreased by
the research and development credits and changes in the deferred tax asset
valuation allowance. The consolidated effective tax rate for fiscal 1993
reflects the benefit from the net operating loss carryback for the U.S.
operations to prior years offset by the international tax rate differentials
and non-deductible goodwill amortization.
In February 1992, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). SFAS No. 109 required a change from the deferred method of
accounting for income taxes of Accounting Principles Board Opinion 11 to the
asset and liability method. Effective April 1, 1992, the Company adopted the
provisions of SFAS No. 109 and reported, in the amount of $.4 million, the
cumulative effect of the accounting change in the fiscal 1993 consolidated
statement of income.
Liquidity
1995 vs. 1994
At March 31, 1995, the Company had cash and cash equivalents of $31.4 million,
as compared with $24.8 million at March 31, 1994. The Company's current ratio
(current assets divided by current liabilities) was 2.0:1 and 1.8:1 at March
31, 1995 and 1994, respectively. The primary components of this increase in
working capital and current ratio were increases in cash and cash equivalents
of $6.6 million and accounts and notes receivable of $21.0 million and
decreases in accounts payable and accrued liabilities of $10.9 million. Days
sales outstanding has increased to 75 days at March 31, 1995 from 57 days at
March 31, 1994. This increase was primarily due to proportionately greater
revenues during the last month of fiscal 1995 as compared to fiscal 1994.
24
<PAGE> 25
These increases in working capital were partially offset by the decrease in
inventories of $7.2 million, the increases in notes payable and current portion
of long-term debt of $2.2 million and income taxes payable and other of $7.5
million. The decrease in inventories was due primarily to comparatively high
factory output near year-end and the utilization of long-lead time material
related to new product offerings.
The Company believes its existing resources, including available cash,
short-term investments, internally generated funds and credit facility, will be
sufficient to meet working capital requirements for the next twelve months.
1994 vs. 1993
At March 31, 1994, the Company had cash, cash equivalents and short-term
investments of $24.8 million, as compared with $27.2 million at March 31, 1993.
The Company's current ratio (current assets divided by liabilities) was 1.8:1
and 2.6:1 at March 31, 1994 and 1993, respectively. The primary components of
this decrease in working capital and the current ratio were decreases in cash
and short-term investments of $2.4 million and refundable income taxes of $3.0
million and increases in notes payable of $24.6 million and accounts payable of
$26.7 million. The increase in accounts payable was a direct result of
increased inventory purchases.
These decreases to working capital were offset by increases to inventories of
$27.9 million and accounts and notes receivable of $24.2 million. The increase
in inventories was primarily due to long lead-time procurement for pen-based
product offerings, increased safety stock levels related to the move of the
Company's manufacturing operations and the revenue growth experienced in the
later part of the fiscal year. Although the Company increased its investment
in accounts receivable, days sales outstanding decreased to 57 days at March
31, 1994 from 73 days at March 31, 1993. The Company believes this was a
result of increased control over the granting of extended credit terms and
increased management emphasis on cash collections and monitoring of past due
accounts.
Cash Flows from Operations
1995 vs. 1994
Cash flows provided by (used in) operations were $15.8 million and $(2.4)
million in fiscal 1995 and 1994, respectively. Fiscal 1995 cash flows were
positively impacted by the $11.8 million change from the net loss incurred in
fiscal 1994 to the net income recorded in fiscal 1995. Additionally, fiscal
1995 cash flows from operations were positively impacted by the following
positive cash flow items: inventories of $35.0 million, accounts and notes
receivable of $3.1 million, non-cash provisions for inventory obsolescence,
doubtful accounts and depreciation and amortization of $2.7 million and income
taxes payable and other of $9.8 million. These positive cash flow impacts were
partially offset by negative cash flow impacts of the change in accounts
payable and accrued liabilities of $41.6 million, refundable income taxes of
$2.0 and other of $.6 million.
25
<PAGE> 26
1994 vs. 1993
Cash flows (used in) provided by operations were $(2.4) million and $19.4
million in fiscal 1994 and 1993, respectively. Fiscal 1994 cash flows were
positively impacted by the reduction in the net loss reported of $9.3 million
and net increases in non-cash charges of $4.3 million. These positive impacts
were offset by changes in assets and liabilities which has a net negative
impact aggregating $35.4 million. All such changes are detailed on the
consolidated statement of cash flows.
Investing Activities
1995 vs. 1994
Net cash used in investing activities decreased to $16.3 million in fiscal 1995
as compared to $25.9 million in fiscal 1994. This decrease of $9.6 million was
primarily caused by a decrease in additions to property and equipment of $6.5
million and the decrease in payments for acquisitions of $3.0 million.
1994 vs. 1993
The Company invested $21.7 million and $16.4 million in facilities and capital
equipment in fiscal 1994 and 1993, respectively. This increase in additions
included the construction of new manufacturing and customer service facilities
which began during the first quarter of fiscal 1994 in Houston, Texas. Cash
flows from investing activities were also reduced by decreased utilization of
short-term investments of $24.4 million. This decrease was offset by
reductions in payments for acquisitions and contract rights and other of $6.4
million and $6.6 million, respectively.
Financing Activities
1995 vs. 1994
Cash flows provided by financing activities decreased $18.7 million for fiscal
1995 as compared to fiscal 1994. The decrease was primarily due to the
decrease of $18.5 million in the net proceeds related to the Company's credit
facility described in Note 5 of the consolidated financial statements and a
$2.3 million decrease due to reduction of long-term borrowings in fiscal 1995
versus proceeds from long-term borrowings in fiscal 1994. These decreases were
partially offset by increased proceeds from the exercise of stock options and
other of $2.1 million.
Effective March 31, 1995, the Company amended and restated its revolving
credit, term loan and security agreement with two banks which expires on March
31, 1996. Refer to Note 5 - Short-Term Financing for further details. The
agreement calls for a maximum credit limit of $50 million subject to
availability on qualifying accounts receivable and inventory and bears interest
at LIBOR plus 2.5% or the higher of the banks' prime rate plus 1% or the
Federal Funds Rate plus 1.5%. At March 31, 1995, the Company had $25.4 million
of short-term borrowings outstanding at a 9.5% rate of interest under the
revolving credit facility of this agreement and was in compliance with all
restrictive covenants contained in the agreement. During fiscal 1995, the
Company had a weighted average of $20.3 million outstanding under this facility
with a weighted average interest cost of 8.7%.
26
<PAGE> 27
During fiscal 1995, the Company borrowed $5.5 million under the term-loan
facility of this agreement. At March 31, 1995, the interest rate under this
term-loan facility was 10.0%.
1994 vs. 1993
Cash flows from financing activities increased $27.2 million for fiscal 1994 as
compared to fiscal 1993. This increase was primarily due to both short-term
and long-term borrowings aggregating $26.4 million in fiscal 1994 versus
short-term borrowing repayments of $1.3 million in fiscal 1993.
27
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Financial Reports:
Report of Management . . . . . . . . . . . . . . . . . . . . . . . . . 29
Report of Independent Accountants . . . . . . . . . . . . . . . . . . 30
Consolidated Financial Statements:
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . 32
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . 33
Consolidated Statement of Changes in Stockholders' Equity . . . . . . 34
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 35-54
Financial Statement Schedule:
II - Valuation and Qualifying Accounts and Reserves . . . . . . 61
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is presented in the financial statements or the notes thereto.
28
<PAGE> 29
REPORT OF MANAGEMENT
To the Board of Directors and Stockholders
of Telxon Corporation
The management of Telxon is responsible for the preparation, integrity and
objectivity of the financial statements and all other financial information
included in this report. Management believes that the financial statements
have been prepared in accordance with generally accepted accounting principles
and that any amounts included herein which are based on estimates of the
expected effects of events and transactions have been made with sound judgment
and approved by qualified personnel.
Telxon maintains an internal control structure to provide reasonable assurance
that assets are safeguarded and that transactions and events are recorded
properly. The internal control structure is regularly reviewed, evaluated and
revised as necessary by management. Additionally, the Telxon Statement of
Corporate Ethics requires every Company employee to maintain the highest level
of ethical standards in the conduct of all aspects of the Company's business,
and their compliance is regularly monitored.
The financial statements in this report have been audited by the independent
accounting firm of Coopers & Lybrand L.L.P. Their audits were conducted in
accordance with generally accepted auditing standards and included a study and
evaluation of our internal control structure as they considered necessary to
determine the extent of tests and audit procedures required for expressing an
opinion on the Company's financial statements.
The Audit Committee of the Board of Directors, of which all outside directors
are members, meets periodically with the independent auditors and management to
review accounting, auditing, internal control and financial reporting matters.
The external auditors have full and free access to the Audit Committee and its
individual members at any time.
/s/ Robert F. Meyerson
- ---------------------------
Robert F. Meyerson
Chairman of the Board and
Chief Executive Officer
/s/ William J. Murphy
- ---------------------------
William J. Murphy
President
29
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Telxon Corporation
We have audited the consolidated financial statements and the financial
statement schedules of Telxon Corporation and Subsidiaries listed in the index
on page 28 of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Telxon
Corporation and Subsidiaries as of March 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1995, 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
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As discussed in Note 1 to the consolidated financial statements, effective
April 1, 1992, the Company changed its method of accounting for income taxes.
As discussed in Note 15 to the consolidated financial statements, the Company
is a defendant in a Consolidated Class Action.
/s/ COOPERS & LYBRAND L.L.P.
Akron, Ohio
June 19, 1995
30
<PAGE> 31
Telxon Corporation
and Subsidiaries
Consolidated Balance Sheet
Dollars in Thousands (except per share amounts)
<TABLE>
<CAPTION>
March 31,
--------------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash (including cash equivalents of
$21,872 and $8,478) . . . . . . . . . . . . . . . . . . . . . $ 31,364 $ 24,041
Short-term investments . . . . . . . . . . . . . . . . . . . . . -- 764
Accounts receivable, net of allowance for
doubtful accounts of $1,832 and $1,635 . . . . . . . . . . . 84,468 64,009
Notes and other accounts receivable . . . . . . . . . . . . . . 6,256 5,723
Refundable income taxes . . . . . . . . . . . . . . . . . . . . 935 1,848
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 72,078 79,267
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . 10,192 10,288
-------- --------
Total current assets . . . . . . . . . . . . . . . . . 205,293 185,940
Property and equipment, net . . . . . . . . . . . . . . . . . . 45,887 41,561
Intangible and other assets, net . . . . . . . . . . . . . . . . 24,947 32,467
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $276,127 $259,968
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,395 $ 24,329
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 33,466 43,344
Current portion of long-term debt . . . . . . . . . . . . . . . 1,343 244
Capital lease obligations due within one year . . . . . . . . . 769 391
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 8,315 2,162
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 34,388 35,404
-------- --------
Total current liabilities . . . . . . . . . . . . . . . 103,676 105,874
Capital lease obligations . . . . . . . . . . . . . . . . . . . 1,729 463
Convertible subordinated debentures . . . . . . . . . . . . . . 24,734 24,734
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 5,246 1,837
Other long-term liabilities . . . . . . . . . . . . . . . . . . 2,164 2,345
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . 137,549 135,253
Stockholders' equity:
Preferred Stock, $1.00 par value per share;
500,000 shares authorized, none issued . . . . . . . . . -- --
Common Stock, $.01 par value per share;
50,000,000 shares authorized, 15,623,249
and 15,346,329 shares outstanding . . . . . . . . . . . . 156 153
Additional paid-in capital . . . . . . . . . . . . . . . . . 78,548 74,830
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 62,954 54,653
Equity adjustment for foreign currency
translation . . . . . . . . . . . . . . . . . . . . . . . (1,525) (3,587)
Unearned compensation relating to restricted
stock awards . . . . . . . . . . . . . . . . . . . . . . (1,555) (1,334)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . 138,578 124,715
-------- --------
Commitments and contingencies (Note 15) . . . . . . . . . . . -- --
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $276,127 $259,968
======== ========
</TABLE>
See accompanying notes to
consolidated financial statements
31
<PAGE> 32
Telxon Corporation
and Subsidiaries
Consolidated Statement of Income
Dollars in thousands
(except per share amounts)
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Product . . . . . . . . . . . . . . . . . . . . $323,916 $252,341 $197,116
Customer service . . . . . . . . . . . . . . . . 55,603 43,652 41,298
-------- -------- --------
Total revenues . . . . . . . . . . . . . 379,519 295,993 238,414
-------- -------- --------
Cost of revenues:
Product . . . . . . . . . . . . . . . . . . . . 189,568 143,347 123,511
Customer service . . . . . . . . . . . . . . . . 32,455 31,958 29,956
-------- -------- --------
Total cost of revenues . . . . . . . . . 222,023 175,305 153,467
-------- -------- --------
Gross profit . . . . . . . . . . . . . . . . . . 157,496 120,688 84,947
Operating expenses:
Selling expenses . . . . . . . . . . . . . . . . 68,279 59,894 46,393
Product development and engineering
expenses . . . . . . . . . . . . . . . . . 33,728 29,058 17,798
General and administrative expenses . . . . . . 34,583 31,854 36,113
-------- -------- --------
Total operating expenses . . . . . . . . 136,590 120,806 100,304
-------- -------- --------
Income (loss) from operations . . . . . 20,906 (118) (15,357)
Interest income . . . . . . . . . . . . . . . . . . 658 653 1,947
Interest expense . . . . . . . . . . . . . . . . . (4,354) (2,459) (2,271)
-------- -------- --------
Income (loss) before income
taxes and cumulative effect
of an accounting change . . . . . . . 17,210 (1,924) (15,681)
Provision (benefit) for income taxes . . . . . . . 8,192 875 (4,056)
-------- -------- --------
Income (loss) before cumulative
effect of an accounting
change . . . . . . . . . . . . . . . 9,018 (2,799) (11,625)
Cumulative effect of a change in
accounting for income taxes . . . . . . . . . . -- -- (439)
-------- -------- --------
Net income (loss) . . . . . . . . . . . $ 9,018 $ (2,799) $(12,064)
======== ======== ========
Earnings per common and common
equivalent share:
Income (loss) before cumulative
effect of an accounting change . . . . . $ .57 $ (.18) $ (.83)
Cumulative effect of a change in
accounting for income taxes . . . . . . -- -- (.03)
----- ------ ------
Net income (loss) per share . . . . . $ .57 $ (.18) $ (.86)
===== ====== ======
Average number of common and common
equivalent shares outstanding . . . . . . . . . 15,909,000 15,210,000 13,991,000
</TABLE>
See accompanying notes to
consolidated financial statements
32
<PAGE> 33
Telxon Corporation
and Subsidiaries
Consolidated Statement of Cash Flows
Dollars in Thousands
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . $ 9,018 $ (2,799) $(12,064)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) oper-
ating activities:
Depreciation and amortization . . . . . . . . 21,397 19,738 14,322
Cumulative effect of an accounting
change . . . . . . . . . . . . . . . . . . -- -- 439
Non-cash compensation related to
restricted stock awards . . . . . . . . . . 782 795 829
Provision for doubtful accounts . . . . . . . 1,158 817 2,745
Provision for inventory obsolescence . . . . . 7,407 6,674 9,700
Deferred income taxes . . . . . . . . . . . . (577) (313) (4,879)
Write-down of fixed assets . . . . . . . . . . -- -- 527
Loss on disposal of assets . . . . . . . . . . 145 425 183
Changes in assets and liabilities:
Accounts and notes receivable . . . . . . . (21,290) (24,400) 2,930
Refundable income taxes . . . . . . . . . . 913 2,955 (4,671)
Inventories . . . . . . . . . . . . . . . . (178) (35,190) (952)
Prepaid expenses and other . . . . . . . . (372) (871) 3,674
Intangibles and other assets . . . . . . . 1,455 1,543 (4,173)
Accounts payable and accrued
liabilities . . . . . . . . . . . . . . (10,030) 31,534 10,840
Income taxes payable . . . . . . . . . . . 6,153 (359) 149
Other long-term liabilities . . . . . . . . (181) (2,994) (239)
-------- -------- --------
Total adjustments . . . . . . . . . . 6,782 354 31,424
Net cash provided by (used in)
operating activities . . . . . . . . . . . 15,800 (2,445) 19,360
Cash flows from investing activities:
Proceeds from disposal of fixed
assets . . . . . . . . . . . . . . . . . . -- 750 --
Additions to property and equipment . . . . . (15,224) (21,702) (16,443)
Purchase of contract right and other . . . . . -- -- (6,637)
Short-term investments . . . . . . . . . . . . 764 (119) 24,268
Payments for acquisitions, net of cash
acquired . . . . . . . . . . . . . . . . . (970) (3,964) (10,378)
Software investments . . . . . . . . . . . . . (869) (318) (175)
Other . . . . . . . . . . . . . . . . . . . . -- (520) --
-------- -------- --------
Net cash used in investing
activities . . . . . . . . . . . . . . . . (16,299) (25,873) (9,365)
Cash flows from financing activities:
Notes payable, net . . . . . . . . . . . . . . 5,822 24,330 (1,272)
Principal payments on long-term
financing agreement . . . . . . . . . . . . (247) 2,080 --
Principal payments on capital leases . . . . . (642) (787) (940)
Proceeds from exercise of stock
options (includes tax benefit) . . . . . . 2,155 125 752
Payment of cash dividends . . . . . . . . . . (155) (152) (152)
-------- -------- --------
Net cash provided by (used in)
financing activities . . . . . . . . . . . 6,933 25,596 (1,612)
Effect of exchange rate changes on
cash . . . . . . . . . . . . . . . . . . . 889 248 758
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . 7,323 (2,474) 9,141
Cash and cash equivalents at beginning
of year . . . . . . . . . . . . . . . . . . 24,041 26,515 17,374
-------- -------- --------
Cash and cash equivalents at end of
year . . . . . . . . . . . . . . . . . . . $ 31,364 $ 24,041 $ 26,515
======== ======== ========
</TABLE>
See accompanying notes to
consolidated financial statements
33
<PAGE> 34
Telxon Corporation
and Subsidiaries
Consolidated Statement of
Changes in Stockholders' Equity
Dollars in Thousands (except per share amounts)
<TABLE>
<CAPTION>
Equity
Adjustment
Additional for Foreign
Common Paid-in Retained Currency Unearned
Stock Capital Earnings Translation Compensation
------ ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1992 . . . . . . . . . $139 $53,451 $ 70,088 $ 720 $ --
Exercise of stock options . . . . . . . 1 1,352 -- -- --
Dividends paid - $.01 per
share . . . . . . . . . . . . . . . . -- -- (152) -- --
Income tax benefit from
stock option transac-
tions . . . . . . . . . . . . . . . . -- 1,446 -- -- --
Common stock retired
(27,527 shares) . . . . . . . . . . . -- (247) (260) -- --
Stock issued under re-
stricted stock plan,
net of amortization . . . . . . . . . 1 1,149 -- -- (800)
Issuance of stock related
to acquisitions . . . . . . . . . . . 11 16,219 -- -- --
Adjustment for foreign
currency translation . . . . . . . . -- -- -- (2,835) --
Net loss for 1993 . . . . . . . . . . . -- -- (12,064) -- --
---- ------- -------- ------- -------
Balance at March 31, 1993 . . . . . . . . . 152 73,370 57,612 (2,115) (800)
Exercise of stock options . . . . . . . -- 120 -- -- --
Dividends paid - $.01 per
share . . . . . . . . . . . . . . . . -- -- (152) -- --
Income tax benefit from
stock option transac-
tions . . . . . . . . . . . . . . . . -- 23 -- -- --
Common stock retired
(1,503 shares) . . . . . . . . . . . -- (9) (8) -- --
Stock issued under re-
stricted stock plan, net
of amortization . . . . . . . . . . . 1 1,326 -- -- (534)
Adjustment for foreign
currency translation . . . . . . . . -- -- -- (1,472) --
Net loss for 1994 . . . . . . . . . . . -- -- (2,799) -- --
---- ------- -------- ------- -------
Balance at March 31, 1994 . . . . . . . . . 153 74,830 54,653 (3,587) (1,334)
Exercise of stock options . . . . . . . 2 2,341 (247) -- --
Dividends paid - $.01 per
share . . . . . . . . . . . . . . . . -- -- (155) -- --
Income tax benefit from
stock option transac-
tions . . . . . . . . . . . . . . . . -- 632 -- -- --
Common stock retired
(72,399 shares) . . . . . . . . . . . -- (258) (315) -- --
Stock issued under re-
stricted stock plan, net
of amortization . . . . . . . . . . . 1 1,003 -- -- (221)
Adjustment for foreign
currency translation . . . . . . . . -- -- -- 2,062 --
Net income for 1995 . . . . . . . . . . -- -- 9,018 -- --
---- ------- -------- ------- -------
Balance at March 31, 1995 . . . . . . . . . $156 $78,548 $ 62,954 $(1,525) $(1,555)
==== ======= ==-===== ======= =======
</TABLE>
See accompany notes to
consolidated financial statements
34
<PAGE> 35
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
Dollars in Thousands (except per share amounts)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its subsidiaries. All significant intercompany transactions have
been eliminated in consolidation.
Foreign Currency Translation
The financial statements of foreign operations are translated into U.S. dollars
using the local currency as the functional currency in accordance with
Statement of Financial Accounting Standards No. 52. Accordingly, all assets
and liabilities are translated at current rates of exchange, and operating
transactions are translated at weighted average rates during the year. The
translation gains and losses are accumulated as a separate component of
stockholders' equity until realized. There were no income taxes allocated to
the translation adjustments and transfers to net income in 1995, 1994 and 1993.
Net transaction gains or losses were not material in 1995, 1994 and 1993. For
further detail by geographic areas, see Note 12 - Business Segment.
Hedging Activities
The Company's hedging activities relate primarily to the use of forward
exchange contracts purchased by certain of its international subsidiaries to
purchase U.S. dollars for repayment of purchases of inventory from the parent
company. The aggregate amount of forward exchange contracts outstanding at any
time during the year, as well as the aggregate amount of gains and losses
resulting from these and other foreign currency transactions, were not
material.
Cash and Cash Equivalents
The Company considers all highly liquid investments which are both readily
convertible to cash and have a maturity of three months or less when purchased
to be cash equivalents. At March 31, 1994, the Company had restricted cash of
$1,000 related to funds held in escrow related to an acquisition. Because the
restriction lapsed within one year, these funds were classified as current
assets at March 31, 1994.
Short-Term Investments
Short-term investments are stated at the lower of cost or market. The
difference between the aggregate cost and fair value for such investments was
not material as of March 31, 1994.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
35
<PAGE> 36
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Property and Equipment
Depreciation of property and equipment is provided over the estimated useful
lives of the assets using the straight-line method for financial reporting
purposes. The ranges of the estimated useful lives are: buildings, 19 years;
machinery and equipment, furniture and fixtures, and transportation equipment,
3-10 years; marketing, customer service equipment, and tooling, 3 years; and
leasehold improvements, over the shorter of the useful life of the asset or the
life of the lease.
Software Costs, Intangibles and Other Assets
Software costs are capitalized in accordance with Statement of Financial
Accounting Standards No. 86 and are included in intangible and other assets in
the accompanying consolidated balance sheets. Purchased computer software is
capitalized and amortized for both financial and tax reporting purposes, using
the straight-line method, over the expected useful life of the software,
generally from three to seven years. Similarly, internally developed computer
software is capitalized and amortized for financial reporting purposes using
the straight-line method over three years; for tax purposes, however, these
costs are expensed as incurred. Product development and engineering expenses
are expensed as incurred for both financial and tax reporting purposes.
The excess of the purchase cost over the fair value of net assets acquired in
an acquisition (goodwill) is included in intangible and other assets in the
accompanying consolidated balance sheets. Goodwill is amortized on a
straight-line basis over five to ten years. The Company periodically reviews
goodwill to assess recoverability, and impairments, if any, would be recognized
in results of operations if a permanent reduction in value were to occur.
Non-compete agreements, convertible debenture issue costs, and license
agreements have also been included in intangible and other assets in the
accompanying consolidated balance sheets. Non-compete and license agreements
are amortized on a straight-line basis over the life of the related contract.
Convertible debenture issue costs are amortized on a straight-line basis over
the life of the debt, with accelerated amortization recorded on any debentures
purchased. All other assets included in intangible and other assets are
recorded at cost and are amortized on a straight-line basis over their expected
useful lives.
Revenue Recognition
Revenues from hardware sales and software licenses are recognized at the time
of shipment. In accordance with Statement of Position 91-1, "Software Revenue
Recognition," revenues from custom application software sales are recognized
using a percentage-of- completion method. Revenues from customer service are
recognized ratably over the maintenance contract period or as the services are
performed.
36
<PAGE> 37
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Product Development and Engineering Expenses
Expenditures for the development and engineering of products are expensed as
incurred.
Effective March 24, 1995, the Company entered into an agreement with a major
customer to develop a new generation of product. Under the terms of this
agreement, the Company will be reimbursed a total of $3 million for development
costs incurred related to the project. As of March 31, 1995, the Company had
been reimbursed for $2 million of product development and engineering costs
incurred during the fiscal year. The reimbursement has been recorded as a
reduction to the Company's product development and engineering expenses.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). Effective April 1, 1992, the Company adopted the provisions of SFAS
No. 109 and has reported the $.4 million cumulative effect of that change in
the method of accounting for income taxes in the fiscal 1993 consolidated
statement of income. SFAS No. 109 required a change from the deferred method
of accounting for income taxes of Accounting Principles Board Opinion No. 11
("APB 11") to the asset and liability method. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
reporting basis of existing assets and liabilities and their respective
tax basis.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of tax rate changes is recognized
in income in the period that includes the enactment date. Tax credits, when
available, are applied to reduce the provision for income taxes in the year in
which the credits arise. Undistributed earnings of foreign subsidiaries are
reinvested in their operations. Accordingly, no provision is made for
additional income taxes that might be payable on the distribution of such
earnings.
Earnings Per Share
Computations of earnings per common and common equivalent share of Common Stock
are based on the weighted average number of common shares outstanding during
the period (15,484,000 in 1995, 15,210,000 in 1994, and 13,991,000 in 1993),
increased by the net shares issuable on the assumed exercise of stock options
using the treasury stock method (425,000 in 1995 and none in 1994 and 1993).
All securities having an anti-dilutive effect on earnings per share have been
excluded from such computations. Common Stock purchase rights outstanding
under the Company's stockholder rights plan, which potentially have a dilutive
effect, have been excluded from the weighted common shares computation as
preconditions to the exercisability of such rights were not satisfied.
37
<PAGE> 38
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Reclassifications
Certain items in the 1994 consolidated financial statements and notes thereto
have been reclassified to conform to the 1995 presentation.
Contingent and Unusual Items
Contingent and unusual items are expensed as incurred when events giving rise
to such items are probable and the amounts are estimable in accordance with the
requirements of Statement of Financial Accounting Standards No. 5.
NOTE 2 -- INVENTORIES
Inventories at March 31 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Purchased components . . . . . . . . . . . . . . $40,958 $44,378
Work-in-process . . . . . . . . . . . . . . . . 16,376 18,664
Finished goods . . . . . . . . . . . . . . . . . 14,744 16,225
------- -------
$72,078 $79,267
======= =======
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment, at cost, at March 31 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Machinery and equipment . . . . . . . . . . . . $ 45,529 $39,426
Tooling . . . . . . . . . . . . . . . . . . . . 18,171 15,243
Furniture and office equipment . . . . . . . . . 16,424 13,889
Capital lease assets and other . . . . . . . . . 5,070 6,203
Leasehold improvements . . . . . . . . . . . . . 5,072 6,032
Buildings, improvements and leasehold
interest . . . . . . . . . . . . . . . . . 11,205 4,808
Land . . . . . . . . . . . . . . . . . . . . . 1,978 1,978
Transportation equipment . . . . . . . . . . . . 2,622 2,434
-------- -------
106,071 90,013
Less-accumulated depreciation and
amortization . . . . . . . . . . . . . . . 60,184 48,452
-------- -------
$ 45,887 $41,561
======== =======
</TABLE>
Depreciation expense for 1995, 1994 and 1993 amounted to $13,419, $11,238 and
$8,848, respectively.
Net capital lease additions (retirements) were $2,001, ($1,492) and ($190) in
1995, 1994 and 1993, respectively. These additions or retirements are non-cash
transactions and, accordingly, have been excluded from property and equipment
additions in the accompanying consolidated statement of cash flows.
Amortization of capital lease assets has been included in depreciation expense.
Accumulated depreciation related to capital lease assets aggregated $741, $473
and $2,101 in 1995, 1994 and 1993, respectively.
38
<PAGE> 39
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
NOTE 4 -- INTANGIBLE AND OTHER ASSETS, NET
Intangible and other assets, net, consisted of the following at March 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Capitalized software, net of amortization
of $9,622 and $8,346 . . . . . . . . . . . . . . . . . . . . . $ 3,926 $ 4,433
Goodwill relating to acquisitions, net of
amortization of $11,339 and $7,551 . . . . . . . . . . . . . . 15,656 19,354
Non-compete agreements with former share-
holders of acquisitions and others, net
of amortization of $5,258 and $3,234 . . . . . . . . . . . . . 1,320 3,236
Licenses, net of short-term portion of
$700 and amortization of $1,750 and
$1,050 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350 1,050
Convertible subordinated debenture issue
costs, net of amortization of $932 and
$900 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549 581
Other, net of amortization of $5,821 and
$5,595 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,146 3,813
------- -------
$24,947 $32,467
======= =======
</TABLE>
Amortization expense for the years ended March 31, was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Capitalized software . . . . . . . . . . . . . . . . . $1,341 $1,399 $1,560
Goodwill . . . . . . . . . . . . . . . . . . . . . . . 3,748 4,143 2,179
Non-compete agreements . . . . . . . . . . . . . . . . 2,024 1,916 1,318
Licenses . . . . . . . . . . . . . . . . . . . . . . . 700 700 350
Convertible subordinated debenture
issue costs . . . . . . . . . . . . . . . . . . . . 32 32 32
Other . . . . . . . . . . . . . . . . . . . . . . . . 133 310 35
------ ------ ------
$7,978 $8,500 $5,474
====== ====== ======
</TABLE>
In connection with the acquisition of Teletransaction, Inc.
("Teletransaction"), the Company acquired the rights to consulting services
(principally performed by Robert F. Meyerson, Chairman of the Board and Chief
Executive Officer) from Accipiter Corporation ("Accipiter"), which is owned
by Mr. Meyerson's wife and also secured a non-competition covenant from
Accipiter and Mr. Meyerson. Aggregate payments for these rights were $3.6
million. The cost of these rights is being amortized over the five year terms
of the agreements. See Note 14 for a description of the Teletransaction
acquisition.
39
<PAGE> 40
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
NOTE 5 -- SHORT-TERM FINANCING
Effective March 31, 1995, the Company amended and restated its revolving
credit, term loan and security agreement with two banks. This agreement
expires on March 31, 1996 and includes a provision for the extension of the
agreement in one-year increments. The agreement provides the Company with a
maximum credit facility of $50 million, subject to availability on qualifying
accounts receivable and inventory, reduced by the $5.5 million term loan
exercised by the Company, and bears interest at LIBOR plus 2.5% or the higher
of the banks' prime lending rate plus 1% or Federal Funds Rate plus 1.5%. At
March 31, 1995 the interest rate under the revolving credit provisions of this
facility was 9.5%. The weighted average interest rate incurred under this
agreement for the years ended March 31, 1995 and 1994 was 8.7% and 7.0%,
respectively. The agreement calls for the Company to pay an unused line fee of
3/8% per annum on the difference between the Company's line of credit balance
and the maximum revolving credit amount. The facility is collateralized by
substantially all of the Company's domestic assets. The agreement also
contains restrictive covenants, certain of which require the Company to
maintain specified levels of net worth and working capital and to meet certain
current ratios, debt to net worth ratios, and fixed charge coverages. At March
31, 1995, the Company had $25,395 of short-term borrowings outstanding under
the revolving credit facility of this agreement and was in compliance with all
restrictive covenants contained in the agreement. As of March 31, 1995 and
1994, the carrying amount for the short-term borrowing recorded in the
financial statements approximates fair value.
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities at March 31 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Current liability to former shareholders of
acquired companies . . . . . . . . . . . . . . . . . . . $ 563 $ 1,533
Accrued payroll and other employee compensation . . . . . . 10,130 10,610
Accrued commissions . . . . . . . . . . . . . . . . . . . . 2,355 2,362
Accrued taxes other than payroll and income taxes . . . . . 2,570 1,715
Deferred customer service revenues . . . . . . . . . . . . . 11,924 9,240
Accrued royalties . . . . . . . . . . . . . . . . . . . . . 2,280 3,737
Other accrued liabilities . . . . . . . . . . . . . . . . . 4,566 6,207
------- -------
$34,388 $35,404
======= =======
</TABLE>
NOTE 7 -- INCOME TAXES
Components of income (loss) before taxes, extraordinary items and cumulative
effect of an accounting change follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Domestic operations . . . . . . . . . . . . $ 7,384 $(6,325) $(24,330)
International operations . . . . . . . . . . 9,826 4,401 8,649
------- ------- --------
$17,210 $(1,924) $(15,681)
======= ======= ========
</TABLE>
40
<PAGE> 41
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
As discussed in Note 1, the Company adopted the provisions of SFAS No. 109,
effective April 1, 1992. The cumulative effect of this change in accounting
for income taxes of $439 was determined as of April 1, 1992 and is reported
separately in the consolidated statement of income for the year ended March 31,
1993. Prior years' financial statements have not been restated to apply the
provisions of SFAS No. 109.
Components of the provision (benefit) for income taxes by taxing jurisdiction
follow:
<TABLE>
<CAPTION>
Currently payable (refundable): 1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
U.S. . . . . . . . . . . . . . . . . . . . . $3,429 $(1,748) $(3,587)
State and local . . . . . . . . . . . . . . 120 70 (11)
International . . . . . . . . . . . . . . . 3,400 1,801 2,653
------ ------- -------
6,949 123 (945)
------ ------- -------
Deferred:
U.S. . . . . . . . . . . . . . . . . . . . . 1,156 (382) (4,221)
State and local . . . . . . . . . . . . . . 87 (121) (13)
International . . . . . . . . . . . . . . . -- 203 (206)
------ ------- -------
1,243 (300) (4,440)
------ ------- -------
Charge equivalent to tax effect of
operating loss carryovers utilized . . . . . -- 1,052 1,329
------ ------- -------
U.S. and international taxes (benefit) on
income before extraordinary credit . . . . $8,192 $ 875 $(4,056)
====== ======= =======
</TABLE>
The reconciliation between the reported total income tax expense (benefit) and
the amount computed by multiplying income (loss) before income taxes and
cumulative effect of an accounting change by the U.S. federal statutory tax
rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ----- -----
<S> <C> <C> <C>
U.S. federal statutory tax rate . . . . . . . 34.0% (34.0)% (34.0)%
International tax rate differential
including adjustments for intercompany
eliminations . . . . . . . . . . . . . . . . 2.4 48.4 5.3
Research and development credits . . . . . . (2.5) (22.6) (0.2)
Tax benefits related to export sales . . . . (2.7) -- --
Goodwill . . . . . . . . . . . . . . . . . . . 8.3 80.1 3.5
Change in deferred tax asset valuation
allowance . . . . . . . . . . . . . . . . . 0.4 (16.2) --
Other . . . . . . . . . . . . . . . . . . . . 7.7 (10.2) (0.5)
----- ----- -----
Consolidated effective income tax rate . . 47.6% 45.5% (25.9)%
===== ===== =====
</TABLE>
41
<PAGE> 42
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Deferred taxes related to temporary differences between the financial reporting
basis of assets and liabilities and their respective tax basis follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ----- -------
<S> <C> <C> <C>
Inventory obsolescence . . . . . . . . $ 326 $(919) $(1,164)
Depreciation . . . . . . . . . . . . . 382 (137) 55
Bad debt reserve . . . . . . . . . . . (9) 412 (500)
Computer software costs . . . . . . . (47) (91) (102)
Restricted stock compensation . . . . (272) (214) 313
Restructuring reserves . . . . . . . . 142 495 (600)
Severance . . . . . . . . . . . . . . 763 325 (1,461)
Other items . . . . . . . . . . . . . (42) (171) (981)
------ ----- -------
$1,243 $(300) $(4,440)
====== ===== =======
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at March 31 are presented below:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts . . . . . . . . . . . . . . . $ 638 $ 864
Inventory obsolescence . . . . . . . . . . . . . . . . . . . . 3,073 3,400
Uniform capitalization costs . . . . . . . . . . . . . . . . . 718 878
Restructuring reserves . . . . . . . . . . . . . . . . . . . . 99 241
Severance and vacation pay accruals . . . . . . . . . . . . . 716 1,396
State and local income taxes, net of federal
benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 939 863
Net operating loss and research and development
credit carryovers . . . . . . . . . . . . . . . . . . . . . 2,763 1,561
State and local tax carryovers, net of federal
benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 304 707
Undistributed losses of affiliated companies . . . . . . . . . 183 490
Contribution and capital loss carryovers . . . . . . . . . . . 232 232
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . 218 255
Restricted stock compensation . . . . . . . . . . . . . . . . 172 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,317 1,267
------- -------
Total gross deferred tax assets . . . . . . . . . . . . . . 11,372 12,154
Less valuation allowance . . . . . . . . . . . . . . . . . (3,950) (4,336)
------- -------
Total deferred tax assets . . . . . . . . . . . . . . . . . 7,422 7,818
------- -------
Deferred tax liabilities:
Prepaid healthcare costs . . . . . . . . . . . . . . . . . . (100) (344)
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . (1,654) (1,273)
Restricted stock compensation . . . . . . . . . . . . . . . . -- (99)
State and local income taxes, net of federal
benefit . . . . . . . . . . . . . . . . . . . . . . . . . . (265) (206)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (245) (160)
------- -------
Total gross deferred tax liabilities . . . . . . . . . . . (2,264) (2,082)
------- -------
Net deferred tax asset . . . . . . . . . . . . . . . . . . $ 5,158 $ 5,736
======= =======
</TABLE>
42
<PAGE> 43
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The net change in the total valuation allowance for the year ended March 31,
1995 and 1994 was a decrease of $386 and an increase of $1,173, respectively.
The net deferred tax asset is deemed realizable and is classified in the
prepaid expenses and other ($4,641) and intangible and other assets, net ($517)
captions on the consolidated balance sheet.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of March 31 will be allocated as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Income tax benefit that would be reported in the
consolidated statement of income . . . . . . . . . . . $2,206 $2,240
Income tax benefit that would reduce goodwill and
other noncurrent intangible assets . . . . . . . . . . 1,744 2,096
------ ------
Total $3,950 $4,336
====== ======
</TABLE>
No provision for U.S. income taxes on $22,904 of undistributed earnings of
international subsidiaries at March 31, 1995 has been made because these
earnings are indefinitely reinvested in the subsidiaries. Determination of the
amount of the unrecognized deferred tax liability for temporary differences
related to investment in foreign subsidiaries is not practicable.
Income taxes paid in 1995, 1994 and 1993 were $1,804, $2,282 and $4,483,
respectively. Income tax refunds received in fiscal 1995 and 1994 aggregated
$884 and $5,486, respectively. No income tax refunds were received in fiscal
1993.
As of March 31, 1995, the Company had foreign operating loss carryovers and
foreign research and development credit carryovers for both tax and financial
reporting purposes of $1,372 and $672, respectively. Certain of these foreign
carryovers aggregating $185 for both tax and financial reporting purposes have
indefinite carryover periods. The remaining foreign carryovers expire at
various dates through 2002. As a result of acquisitions in prior years, the
Company has domestic operating loss carryovers and domestic research and
development credit carryovers for tax and financial reporting purposes in the
amounts of $2,061 and $188, respectively. These domestic carryovers expire at
various dates through fiscal 2008. As of March 31, 1995, the Company has
domestic research and development credit carryovers of $592 and domestic
alternative minimum tax credit carryovers of $609. The domestic research and
development credit carryovers expire at various dates though fiscal 2010. The
domestic alternative minimum tax credit carryforward period is indefinite.
There can be no assurance that foreign and domestic tax carryovers will be
utilized.
43
<PAGE> 44
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
NOTE 8 -- STOCK OPTIONS AND RESTRICTED STOCK
During the periods shown below, the Company had in effect three stock option
plans for the officers and other key employees of the Company - the Telxon
Corporation 1983 Stock Option Plan (the "1983 Plan"), the Telxon Corporation
1988 Stock Option Plan (the "1988 Plan") and the Telxon Corporation 1990 Stock
Option Plan (the "1990 Plan"). The options outstanding under the 1983 Plan,
the 1988 Plan and the 1990 Plan generally vest in equal installments over a
three-year period on the first three anniversary dates after the date of grant.
The option price is equal to the market price for the Company's Common Stock at
the time of grant.
The following is a summary of the activity in the Company's stock option plans
during fiscal 1993, 1994 and 1995:
<TABLE>
<CAPTION>
Stock Options
-----------------------------
Average Price
Shares Per Share
--------- -------------
<S> <C> <C>
March 31, 1992 . . . . . . . . . . . . . . . . . . 1,273,228 $14.14
Granted . . . . . . . . . . . . . . . . . . . 558,500 12.13
Exercised . . . . . . . . . . . . . . . . . . (137,404) 9.00
Returned to pool due to employee
terminations . . . . . . . . . . . . . . . (249,168) 15.04
---------
March 31, 1993 . . . . . . . . . . . . . . . . . . 1,445,156 13.69
Granted . . . . . . . . . . . . . . . . . . . 803,011 10.68
Exercised . . . . . . . . . . . . . . . . . . (18,003) 6.63
Returned to pool due to employee
terminations and one-for-two program . . . (477,464) 20.11
---------
March 31, 1994 . . . . . . . . . . . . . . . . . . 1,752,700 10.64
Granted . . . . . . . . . . . . . . . . . . . 971,500 14.73
Exercised . . . . . . . . . . . . . . . . . . (325,245) 8.60
Returned to pool due to employee
terminations . . . . . . . . . . . . . . . (112,734) 10.84
---------
March 31, 1995 . . . . . . . . . . . . . . . . . . 2,286,221 $12.66
=========
</TABLE>
At March 31, 1995, there were 35,367 options outstanding and exercisable under
the 1988 Plan at $8.50 to $10.50 per share. At March 31, 1995, there were
2,250,854 options exercisable under the 1990 Plan at $8.75 to $23.00 per share.
Options available to be granted under the 1990 Plan at March 31, 1995, were
512,643. No further options can be granted under the 1983 Plan or the 1988
Plan.
The Company also has in effect a stock option plan for non-employee directors
(the "Director Plan"). During the fiscal year ended March 31, 1995, 50,000
options were granted at an average price per share of $14.475. At March 31,
1995, there were 241,665 options outstanding under the Director Plan at $9.125
to $23.00 per share. At March 31, 1995, there were no options available to be
granted under the Director Plan.
44
<PAGE> 45
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
At March 31, 1995, there were 12,000 options outstanding and exercisable at
$14.63 per share which were not granted under the Company's stock option plans.
During fiscal 1995, no options were exercised.
Effective September 14, 1993, a committee of the Company's Board of Directors
approved a voluntary program which enabled all employees (other than directors)
of the Company as of September 14, 1993 to trade existing options under the
1990 Plan, with option prices in excess of the then current market price, for
new options on a one-for-two basis at $10.125 per share, the September 14, 1993
market price of the Company's stock. As a result of the program, there was a
174,911 shares net reduction in the stock options outstanding.
In connection with its acquisition of Itronix Corporation ("Itronix") further
described in Note 14, the Company issued an aggregate of 47,980 shares of
restricted Company stock to three Itronix officers, vesting over a three year
period. Such shares were not granted under the Restricted Stock Plan as
described below. At March 31, 1995, 15,993 shares had vested, 17,593 shares
were forfeited due to terminations and 14,394 shares were outstanding but
remain subject to forfeiture.
During fiscal 1993, the Company adopted a Restricted Stock Plan (the
"Restricted Stock Plan"), under which 250,000 shares may be issued. A
committee of the Board of Directors determines the time periods during which
and the criteria upon which the Restricted Stock is subject to forfeiture.
During fiscal 1995, 100,000 shares, which vest over a three-year period, were
granted under the Restricted Stock Plan. At March 31, 1995, 82,500 shares
granted under the Restricted Stock Plan prior to fiscal 1995 had vested,
167,500 shares granted thereunder (including 100,000 granted in fiscal 1995)
were outstanding subject to forfeiture, 20,000 shares were forfeited during
fiscal 1995 and at March 31, 1995, there were no shares available to be granted
under the Restricted Stock Plan.
NOTE 9 -- LEASES
The Company leases certain equipment under capital leases generally for terms
of five years or less with renewal and purchase options. The present value of
future minimum lease payments for these capital lease obligations is reflected
in the consolidated balance sheet as current and noncurrent capital lease
obligations. In addition, the Company leases office facilities, customer
service locations and certain equipment under noncancelable operating leases.
45
<PAGE> 46
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Future minimum lease payments for years ending March 31, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . $ 979 $ 7,256
1997 . . . . . . . . . . . . . . . . . . . . . . . 739 6,659
1998 . . . . . . . . . . . . . . . . . . . . . . . 590 5,005
1999 . . . . . . . . . . . . . . . . . . . . . . . 519 3,703
2000 . . . . . . . . . . . . . . . . . . . . . . . 175 3,088
2001 and thereafter . . . . . . . . . . . . . . . . -- 3,324
------ -------
3,002 $29,035
=======
Amount representing interest . . . . . . . . . . . (504)
------
Present value of net minimum lease payments . . . . 2,498
Current portion . . . . . . . . . . . . . . . . . (769)
------
Long-term portion . . . . . . . . . . . . . . . . . $1,729
======
</TABLE>
The Company has an option to purchase the 100,000-square-foot facility
currently occupied by its corporate and engineering offices. The purchase
option is exercisable for a price equal to the fair market value of the
premises as determined by an independent appraisal prior to September 1, 2001.
Rent expense for 1995, 1994 and 1993 amounted to $11,212, $7,962 and $7,291,
respectively.
NOTE 10 -- LONG-TERM DEBT
Long-term debt at March 31, 1995 and 1994 consisted of $24,734 of 7-1/2%
Convertible Subordinated Debentures issued June 1, 1987, due in the year 2012.
The current conversion price of $26.75 is subject to adjustment in certain
events. Interest is payable on June 1 and December 1 in each year, and
commenced December 1, 1987. The Debentures are redeemable at any time at the
option of the Company, in whole or in part, at 102.25% of the principal amount
redeemed, declining annually to par on and after June 1, 1997. The sinking
fund requires mandatory annual payments of 5% of the original $46,000 principal
amount commencing June 1, 1997, calculated to retire 75% of the issue prior to
maturity. During fiscal 1991, the Company purchased and retired Debentures
with a principal face amount aggregating $21,266 which will be applied to the
earliest of the Company's sinking fund payment obligations. As of March 31,
1995 and 1994, the fair value of these debentures was $21,148 and $22,384,
respectively based on quoted market prices.
During fiscal year 1995, the Company borrowed $5.5 million under the term loan
component of the revolving credit, term loan and security agreement described
in Note 5. This five-year term loan bears interest at LIBOR plus 2.5% or the
higher of the prime rate plus 1% or the Federal Funds Rate plus 1.5%. At March
31, 1995, the interest rate under the term loan provisions of this facility was
10.0%. The maturities of this note for the next five years after March 31,
1995 are $1,088, $1,088, $1,088, $1,088 and $404, respectively.
46
<PAGE> 47
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Principal amounts due under the term loan are funded as revolving credit
advances. The borrowing and subsequent funding of $682 in principal due for
the year ended March 31, 1995 have been treated as non-cash transactions and,
accordingly, have been excluded from the fiscal year 1995 Statement of Cash
Flows. As of March 31, 1995, the carrying amount of this term loan recorded in
the financial statements approximates fair value.
Effective March 25, 1994, the Company entered into a seven-year financing
agreement to borrow $2,100. This agreement is collateralized by certain
transportation equipment owned by the Company and bears interest at the Federal
Reserve Commercial Paper Rate plus 3.15%. At March 31, 1995, the actual rate
was 6.88%. The maturities of this note for the next five years after March 31,
1995 are $255, $274, $293, $314, and $697 thereafter, respectively.
In addition, the Company has a $500 subordinated promissory note assumed in
connection with the acquisition of Itronix, which is due June 30, 1996 and on
which interest is due at the rate of prime plus one-half percent. This note
has been classified in the other long-term liabilities caption of the
consolidated balance sheet.
Total interest paid by the Company in 1995, 1994 and 1993 was $4,392, $2,498,
and $2,291, respectively.
NOTE 11 -- STOCKHOLDERS' EQUITY
On May 3, 1985, the Board of Directors approved a stock split of three shares
for every two shares outstanding, effective June 21, 1985, for holders of
record on May 20, 1985.
On April 8, 1986, the Board of Directors approved a stock split of three shares
for every two shares outstanding, effective May 12, 1986, for holders of record
on April 22, 1986.
These stock splits have been retroactively reflected in the accompanying
financial statements and all stock-related disclosures.
During fiscal 1988, the Company purchased 544,100 shares or 4.1% of its Common
Stock for $7,283 at an average price of $13.39. As authorized by the Board of
Directors, the purchased shares were retired.
The exercise of non-qualified stock options results in state and federal income
tax benefits to the Company equal to the difference between the market price at
the date of exercise and the option price. During 1995, 1994 and 1993, $632,
$23 and $1,446, respectively, was credited to additional paid-in capital as a
result of such option exercises.
47
<PAGE> 48
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
NOTE 12 -- BUSINESS SEGMENT
The Company designs, develops, manufactures, markets and services portable
interactive microcomputer systems. The Company's business is a single segment.
The Company does not believe that it is dependent upon any one customer or
group of customers. No customer accounted for 10% or more of total revenues in
fiscal 1995. In both fiscal 1994 and 1993, Wal-Mart Stores, Inc., accounted
for approximately 11% of total revenues.
The Company sells its products to customers in diversified industries,
primarily in North America and Europe. The Company realizes approximately
one-half of its revenues from customers in retail industries who are in widely
diversified geographic locations and markets. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
The Company maintains reserves for potential credit losses, and such losses
have historically been within management's expectations.
The Company has operations in the United States, Europe, Canada, Australia and
Asia. Information for 1995, 1994 and 1993 follows below.
Of the U.S. revenues from unaffiliated customers in 1995, 1994 and 1993,
$16,293, $14,704, and $10,265 were exports to Europe, Canada, South America,
Asia, Africa and the Middle East.
Transfers between geographic areas were at cost plus a negotiated mark-up.
Assets of geographic areas are identified with the operations of each area.
Corporate assets consist of property and equipment.
<TABLE>
<CAPTION>
United Adjustment &
1995 States Europe Other Elimination Consolidated
---- ------ ------- ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated
customers . . . . . . . . . . . . . . . . $285,603 $62,679 $31,237 $ -- $379,519
Transfers between geo-
graphic areas . . . . . . . . . . . . . . 36,254 443 28,973 (65,670) --
-------- ------- ------- -------- --------
Total revenues . . . . . . . . . . $321,857 $63,122 $60,210 $(65,670) $379,519
======== ======= ======= ======== ========
Operating income . . . . . . . . . . . . . $ 40,676 $ 3,434 $ 6,658 $ (232) $ 50,536
======== ======= ======= ========
Interest expense, net . . . . . . . . . . . (3,696)
Foreign currency transac-
tion gain, net . . . . . . . . . . . . . -- 145 299 -- 444
------- ------ ------ -------
Corporate expenses, net . . . . . . . . . . (30,074)
--------
Income before income
taxes . . . . . . . . . . . . . . . . $ 17,210
========
Identifiable assets at
March 31, 1995 . . . . . . . . . . $193,077 $40,943 $30,575 $ -- $264,595
======== ======= ======= ========
Corporate assets . . . . . . . . . . . . . 11,532
--------
Total assets at
March 31, 1995 . . . . . . . . . . $276,127
========
</TABLE>
48
<PAGE> 49
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
United Adjustment &
1994 States Europe Other Elimination Consolidated
---- ------ ------- ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated
customers . . . . . . . . . . . . . . . . $226,885 $44,561 $24,547 $ -- $ 295,993
Transfers between geo-
graphic areas . . . . . . . . . . . . . . 28,737 607 16,236 (45,580) --
-------- ------- ------- --------- ---------
Total revenues . . . . . . . . . . $255,622 $45,168 $40,783 $ (45,580) $ 295,993
======== ======= ======= ========= =========
Operating income . . . . . . . . . . . . . $ 20,462 $ 1,685 $ 3,247 $ (572) $ 24,822
======== ======= ======= =========
Interest expense, net . . . . . . . . . . . (1,806)
Foreign currency transac-
tion gain, net . . . . . . . . . . . . . -- 100 154 -- 254
------- ------ ------ ---------
Corporate expenses, net . . . . . . . . . . (25,194)
---------
Loss before income taxes . . . . . . . . . $ (1,924)
=========
Identifiable assets at
March 31, 1994 . . . . . . . . . . $186,801 $31,277 $31,292 $ -- $249,370
======== ======= ======= =========
Corporate assets . . . . . . . . . . . . . 10,598
--------
Total assets at
March 31, 1994 . . . . . . . . . . $259,968
========
</TABLE>
<TABLE>
<CAPTION>
United Adjustment &
1993 States Europe Other Elimination Consolidated
---- ------ ------- ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated
customers . . . . . . . . . . . . . $175,022 $43,575 $19,817 $ -- $238,414
Transfers between geo-
graphic areas . . . . . . . . . . . 20,338 436 12,385 (33,159) --
-------- ------- ------- -------- --------
Total revenues . . . . . . . . $195,360 $44,011 $32,202 $(33,159) $238,414
======== ======= ======= ======== ========
Operating income . . . . . . . . . . . . . $ 1,684 $ 4,722 $ 4,263 $ (1,569) $ 9,100
======== ======= ======= ========
Interest expense, net . . . . . . . . . . . (324)
Foreign currency transac-
tion gain (loss), net . . . . . . . . . . -- 844 (255) -- 589
-------- ------- ------- --------
Corporate expenses, net . . . . . . . . . . (25,046)
--------
Loss before income taxes
and cumulative effect of
an accounting change . . . . . . . . . . . $(15,681)
========
Identifiable assets at
March 31, 1993 . . . . . . . . . . $146,081 $28,724 $28,861 $ -- $203,666
======== ======= ======= ========
Corporate assets . . . . . . . . . . . . . 8,955
--------
Total assets at
March 31, 1993 . . . . . . . . . . $212,621
========
</TABLE>
49
<PAGE> 50
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
NOTE 13 -- INTERNATIONAL OPERATIONS
The consolidated financial statements include the following with respect to the
net income and net assets of the Company's international subsidiaries and
branches during the three years ended March 31:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,712 $ 2,694 $ 5,942
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . $49,913 $46,470 $46,631
</TABLE>
NOTE 14 -- ACQUISITIONS AND DIVESTITURES
Effective April 10, 1992, the Company acquired Telesystems SLW Inc.
("Telesystems") of Toronto, Ontario, Canada, a developer and supplier of
wireless data communications and local area networks using spread spectrum
radio technology. The purchase price consisted of approximately $2.6 million
in cash and 353,172 shares of the Company's Common Stock which is treated as a
non-cash item in the accompanying consolidated statement of cash flows. In
connection with the acquisition, the Company acquired approximately $3.5
million (U.S.) of Canadian federal tax non-capital loss carryforwards and $.3
million (U.S.) of investment tax credits which were used to reduce income
taxes payable and the goodwill relating to the acquisition. In addition, the
Company acquired a non-compete agreement with the founders of Telesystems for
which it paid $4.8 million in cash. The excess of the purchase price over the
fair value of the net assets acquired approximates $8.6 million, net of tax
credits utilized in fiscal 1994 of $.6 million, and is being amortized on a
straight-line basis over a ten year period. The acquisition was accounted for
as a purchase.
Effective February 2, 1993, the Company acquired the remaining 55% of the
common stock of Teletransaction for a purchase price of 720,000 shares of the
Company's Common Stock, which is treated as a non-cash item in the accompanying
consolidated statement of cash flows. The Company previously acquired 15% of
Teletransaction's common stock in March 1992 for $1.7 million and an additional
30% of Teletransaction's common stock in December 1992 for $3.0 million; these
investments were accounted for under the equity method prior to the acquisition
of the remaining shares of Teletransaction in February 1993. Teletransaction,
which was owned by Mr. Meyerson and members of his family as well as
Teletransaction employees prior to the acquisition, is the owner of certain
technology, product development and design rights related to portable pen-based
products. The common stock of the Company issued to shareholders of
Teletransaction was, at the time of issuance, subject to restrictions for
periods ranging from 1 to 3 years. This business combination has been treated
as a purchase and the resulting goodwill of $13.3 million is included in the
intangible and other assets, net caption of the consolidated balance sheet and
is being amortized on a straight-line basis over a 5 year period.
50
<PAGE> 51
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Effective March 1, 1993, the Company acquired, for $3.0 million in cash plus a
deferred payment provision of $.8 million, all of the common stock of Itronix,
a Washington corporation which designs and manufactures hand-held computers,
systems components and software for the mobile workforce and field service
markets. The cash purchase price was paid subsequent to March 31, 1993, and
accordingly, was classified as a current liability as of that date. The
acquisition was accounted for as a purchase, and the resulting goodwill of $2.5
million, net of goodwill adjustments of $1.1 million, is being amortized on a
straight-line basis, over a 10 year period.
The following unaudited proforma combined results of operations for the year
ended March 31, 1993 assume the acquisitions of Telesystems, Teletransaction
and Itronix had occurred April 1, 1991. The combined results below, which are
based on various assumptions, are not necessarily indicative of what would have
occurred had the acquisitions been consummated as of April 1, 1991.
<TABLE>
<CAPTION>
(Unaudited)
For the year ended
------------------
March 31, 1993
------------------
<S> <C>
Total revenues $249,424
Income (loss) before cumulative
effect of an accounting
change (17,148)
Net income (loss) (17,587)
Net income (loss) per share $ (1.15)
</TABLE>
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
Pursuant to a Settlement Agreement dated November 4, 1988, between the Company
and Symbol Technologies, Inc. ("Symbol") relating to the termination of the
Company's tender offer to purchase all the common stock of MSI Data Corporation
("MSI"), the Company entered into an agreement, which was amended and restated
effective September 30, 1992, providing, among other things, for the licensing
of certain Symbol and MSI patented technologies for specified royalties. Under
the agreement as amended and restated, the Company paid $2.8 million for
certain license fees and is obligated to pay the following ongoing royalties
based on the sales value of Company products incorporating the licensed
technologies: (i) from 10% on the first $25 million in cumulative sales,
declining to 5% on cumulative sales in excess of $100 million, of products
utilizing a MSI patent; and (ii) 7.5% on all sales of products utilizing one or
more of the Symbol patents.
51
<PAGE> 52
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
In December 1992, four class action suits were filed in the United States
District Court, Northern District of Ohio, by certain alleged stockholders of
the Company on behalf of themselves and purported classes consisting of Telxon
stockholders, other than defendants and their affiliates, who purchased the
Company's common stock between May 20, 1992 and January 19, 1993. The named
defendants are the Company, former President and Chief Executive Officer
Raymond D. Meyo, and then current President, Chief Operating Officer and Chief
Financial Officer Dan R. Wipff. On February 1, 1993, the plaintiffs filed
their Amended and Consolidated Class Action Complaint related to the four
actions, alleging claims for fraud on the market and negligent
misrepresentation, arising from alleged misrepresentations and omissions with
respect to the Company's financial performance and prospects, and alleged
trading activities of the named individual defendants. The Amended Complaint
seeks certification of the purported class, unspecified compensatory damages,
the imposition of a constructive trust on certain of the defendants' assets and
other unspecified extraordinary equitable and/or injunctive relief, interest,
attorneys' fees and costs. The defendants, including the Company, filed a
Motion to Dismiss which was denied by the court on June 3, 1993.
On April 16, 1993, plaintiffs filed their Motion for Class Certification. The
defendants, including the Company, filed their briefs in opposition to Class
Certification on October 13, 1993. On December 17, 1993, the District Court
certified the class, consisting of Telxon stockholders, other than defendants
and their affiliates, who purchased Telxon common stock between May 20, 1992
and December 14, 1992.
Discovery (other than of experts) in the Consolidated Class Action has been
completed. The defendants filed a Motion for Summary Judgment on May 19, 1995.
The plaintiffs filed a brief in opposition to the Motion on June 9, 1995, and
the defendants filed their reply brief on June 21, 1995. The Court has not yet
ruled on the Motion, and the Consolidated Class Action is scheduled for trial
commencing November 13, 1995. The defendants intend to continue vigorously
defending this Consolidated Class Action. However, the ultimate outcome of
this litigation cannot presently be determined, and accordingly, no provision
for any liability that may result from adjudication has been made in the
accompanying consolidated financial statements.
On September 21, 1993, a derivative Complaint was filed in the Court of
Chancery of the State of Delaware, in and for Newcastle County, by an alleged
stockholder of Telxon derivatively on behalf of Telxon. The named defendants
are the Company; Robert F. Meyerson, Chairman of the Board and Chief Executive
Officer; Dan R. Wipff, then President, Chief Operating Officer and Chief
Financial Officer and director; Robert A. Goodman, Corporate Secretary and
outside director; Norton W. Rose; outside director and Dr. Raj Reddy, outside
director. The Complaint alleges breach of fiduciary duty to the Company and
waste of the Company's assets in connection with certain transactions entered
into by Telxon and compensation amounts paid by the Company. The Complaint
seeks an accounting, injunction, rescission, attorneys' fees and costs. While
the Company is nominally a defendant in this derivative action, no monetary
52
<PAGE> 53
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
relief is sought by the plaintiff from the Company; accordingly, no
provisions for any loss nor any related insurance recovery therefor have been
made in the accompanying consolidated financial statements. On November 12,
1993, Telxon and the individual director defendants filed a Motion to Dismiss.
The plaintiff filed his brief in opposition to the Motion on May 2, 1994, and
the defendants filed a responsive final brief. The Motion was argued before
the Court on March 29, 1995, and the parties are awaiting the Court s ruling.
Discovery in this action is still at a preliminary stage. The defendants
intend to vigorously defend this action. While the ultimate outcome of this
action cannot presently be determined, the Company does not anticipate that
this matter will have a material adverse effect on the Company s consolidated
financial position, results of operations or cash flows.
In the normal course of its operations, the Company is subject to performance
under contracts, and has various legal actions pending. However, in
management's opinion, any such outstanding matters have been reflected in the
consolidated financial statements, are covered by insurance or, would not have
a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
NOTE 16 -- QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter
--------------------------------------------------
1995 First Second Third Fourth(a) Year
- ---- ------- ------ ------- --------- -------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . $87,433 $91,886 $98,196 $102,004 $379,519
Gross profit . . . . . . . . . . . . . . . . . . . 36,716 38,333 39,843 42,604 157,496
Net income . . . . . . . . . . . . . . . . . . . . $ 1,273 $ 1,619 $ 2,464 $ 3,662 $ 9,018
======= ======= ======= ======== ========
Earnings per common and common
equivalent share:
Net income per share . . . . . . . . . . . . . . . $ .08 $ .10 $ .16 $ .23 $ .57
======= ======= ======= ======== ========
</TABLE>
(a) Fourth quarter adjustments were not material to the quarterly results of
operations.
<TABLE>
<CAPTION>
Quarter
---------------------------------------------------
1995 First Second Third Fourth(a) Year
- ---- ------- ------ ------- --------- -------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . $56,541 $63,085 $76,968 $99,399 $295,993
Gross profit . . . . . . . . . . . . . . . . . . . 24,445 25,436 31,870 38,937 120,688
Net income (loss) . . . . . . . . . . . . . . . $(1,977) $(1,090) $ (617) $ 885 $ (2,799)
======= ======= ======= ======= ========
Earnings per common and common
equivalent share:
Net income (loss) per share . . . . . . . . . . . $ (.13) $ (.07) $ (.04) $ .06 $ (.18)
======= ======= ======= ======= ========
</TABLE>
53
<PAGE> 54
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(a) During the fourth quarter of fiscal 1994, the Company recorded pretax
charges aggregating $3.4 million. These charges included $1.6 million
related to severance, $1.2 million related to inventory obsolescence
and $1.7 million related to physical inventory adjustments. These
charges were offset by miscellaneous adjustments increasing pretax
income of $1.1 million.
After the related income tax benefit, the aggregate impact on fourth
quarter earnings was $(2.1) million or $(.13) per share.
54
<PAGE> 55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
Not applicable.
PART III
Except for certain information relating to the Company's Executive Officers
included in Part I of this Form 10-K, the information called for by this Part
III is not set forth herein but is incorporated by reference from the
definitive proxy statement which the Company intends to file with the
Securities and Exchange Commission within 120 days of the close of its fiscal
year ended March 31, 1995, with respect to the 1995 Annual Meeting of the
Company's Stockholders scheduled to be held August 31, 1995, or will otherwise
be timely filed.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
1. Consolidated Financial Statements: Reference is made to
the Index on Page 28 herein.
2. Financial Statement Schedule: Reference is made to the
Index on Page 28 herein. All other schedules are omitted
because they are not applicable or the required
information is shown in the financial statements or the
notes thereto.
3. Exhibits.
(b) The Company did not file a Form 8-K during its last quarter of
fiscal 1995.
(3) EXHIBITS
3.1 Restated Certificate of Incorporation of Registrant,
incorporated by reference to Exhibit No. 3.1 to
Registrant's Form 10-K filed for the year ended March
31, 1993.
3.2 Amended and Restated By-Laws of Registrant, as
amended, incorporated by reference to Exhibit No. 2(b)
to Registrant's Registration Statement on Form 8-A
with respect to its Common Stock filed pursuant to
Section 12(g) of the Securities Exchange Act, as
amended by Amendment No. 1 thereto filed under cover
of a Form 8.
4.1 Portions of the Restated Certificate of Incorporation
of Registrant pertaining to the rights of holders of
Registrant's Common Stock, par value $.01 per share
incorporated by reference to Exhibit 3.1 to
Registrant's Form 10-K for the year ended March 31,
1993.
4.2 Form of Certificate for the Registrant's Common
Stock, par value $.01 per share, incorporated herein
by reference to Exhibit 4.2 to Registrant's Form 10-K
filed for the year ended March 31, 1990.
55
<PAGE> 56
4.3 Rights Agreement between Registrant and AmeriTrust
Company National Association, as Rights Agent, dated
as of August 25, 1987, incorporated herein by
reference to Exhibit 2(c) to Amendment No. 1, dated
May 21, 1992, to Registrant's Registration Statement
on Form 8-A, filed December 19, 1983, with respect to
Registrant's Common Stock.
4.3.1 Form of Rights Certificate (included as
Exhibit A to the Rights Agreement included
as Exhibit 4.3 to this Annual Report on
Form 10-K). Until the Distribution Date
(as defined in the Rights Agreement), the
Rights Agreement provides that the common
stock purchase rights created thereunder
are evidenced by the certificates for
Registrant's Common Stock (the form of
which is included as Exhibit 4.3 to this
Annual Report on Form 10-K, which stock
certificates are deemed also to be
certificates for such common stock purchase
rights) and not by separate Rights
Certificates; as soon as practicable after
the Distribution Date, Rights Certificates
will be mailed to each holder of
Registrant's Common Stock as of the close
of business on the Distribution Date.
4.4 Indenture by and between the Registrant and AmeriTrust
Company National Association, as Trustee, dated as of
June 1, 1987, regarding Registrant's 7-1/2%
Convertible Subordinated Debentures Due 2012,
incorporated herein by reference to Exhibit 4.2 to
Registrant's Registration Statement on Form S-3,
Registration No. 33-14348, filed May 18, 1987.
4.4.1 Form of the Registrant's 7-1/2% Convertible
Subordinated Debentures Due 2012 (set forth
in the Indenture included as Exhibit 4.4 to
this Annual Report on Form 10-K).
10.1 Compensation and Benefits Plans of the Registrant.
10.1.1 Amended and Restated Retirement and Uniform
Matching Profit-Sharing Plan of Registrant,
effective July 1, 1993, incorporated herein
by reference to Exhibit 10.1.1 to
Registrant's Form 10-K filed for the year
ended March 31, 1994.
10.1.1.a Amendment, dated January 1, 1994,
incorporated herein by reference
to Exhibit 10.1.1.a to
Registrant's Form 10-K filed for
the year ended March 31, 1994.
10.1.1.b Amendment, dated April 1, 1994,
incorporated herein by reference
to Exhibit 10.1.1.b to
Registrant's Form 10-K filed for
the year ended March 31, 1994.
56
<PAGE> 57
10.1.1.c Amendment, dated January 1, 1994,
incorporated herein by reference
to Exhibit 10.1.1.c to
Registrant's Form 10-Q filed for
the quarter ended December 31,
1994.
10.1.2 1988 Stock Option Plan of Registrant,
incorporated herein by reference to Exhibit
10.1.2 to Registrant's Form 10-K filed for
the year ended March 31, 1994.
10.1.2.a Amendment, dated January 31,
1990, incorporated herein by
reference to Exhibit 10.1.2.a to
Registrant's Form 10-K filed for
the year ended March 31, 1994.
10.1.3 1990 Stock Option Plan of the Registrant,
as amended, incorporated herein by
reference to Exhibit 10.1.3 to Registrant's
Form 10-Q filed for the quarter ended
September 30, 1994.
10.1.4 1990 Stock Option Plan of the Registrant
for non-employee directors, as amended,
incorporated herein by reference to Exhibit
10.1.4 to Registrant's Form 10-K filed for
the year ended March 31, 1994.
10.1.5 Non-Qualified Stock Option Agreement
between the Registrant and Raj Reddy, dated
as of October 17, 1988, incorporated herein
by reference to Exhibit 10.1.6 to
Registrant's Form 10-K filed for the year
ended March 31, 1994.
10.1.5.a Description of amendment
extending option term,
incorporated herein by reference
to Exhibit 10.1.6.a to
Registrant's Form 10-Q filed for
the quarter ended September 30,
1994.
10.1.6 1992 Restricted Stock Plan of the
Registrant, incorporated herein by
reference to Exhibit 10.1.17 to the
Registrant's Form 10-Q filed for the
quarter ended December 31, 1993.
10.1.6.a Amendment, dated December 7,
1993, incorporated herein by
reference to Exhibit 10.1.17.a to
the Registrant's Form 10-Q filed
for the quarter ended December
31, 1993.
10.1.6.b Amendment, dated July 18, 1994,
incorporated herein by reference
to Exhibit 10.1.17.b to
Registrant's Form 10-Q filed for
the quarter ended September 30,
1994.
57
<PAGE> 58
10.1.7 Description of compensation arrangements
between the Registrant and Robert F.
Meyerson, Chairman of the Board of
Registrant, incorporated herein by
reference to Exhibit 10.14 to Registrant's
Form 10-K filed for the year ended March
31, 1990.
10.1.8 Employment Agreement between Telxon
Products, Inc., a wholly owned subsidiary
of the Registrant, and Dan R. Wipff, dated
September 29, 1994, incorporated herein by
reference to Exhibit 10.1.8 to Registrant's
Form 10-Q filed for the quarter ended
September 30, 1994.
10.1.9 Consulting Agreement between the Registrant
and Accipiter Corporation, dated March 6,
1992, incorporated herein by reference to
Exhibit 10.17 to the Registrant's Form 10-K
filed for the year ended March 31, 1992.
10.1.10 Services and Non-Competition Agreement,
dated as of January 18, 1993, among
Accipiter Corporation, Robert F. Meyerson
and the Registrant, incorporated herein by
reference to Exhibit 10.28 to the
Registrant's Form 10-Q filed for the
quarter ended December 31, 1992.
10.1.11 Employment Agreement between the
Registrant and John H. Cribb effective as
of April 1, 1993, incorporated herein by
reference to Exhibit 10.1.11 to
Registrant's Form 10- K filed for the year
ended March 31, 1994.
10.1.12 Severance and Settlement Agreement, dated
as of December 23, 1992, between the
Registrant and Raymond D. Meyo,
incorporated herein by reference to Exhibit
10.26 to the Registrant's Form 10-Q filed
for the quarter ended December 31, 1992.
10.1.13 Consulting Agreement, dated as of December
23, 1992, between the Registrant and
Raymond D. Meyo, incorporated herein by
reference to Exhibit 10.26 to the
Registrant's Form 10-Q filed for the
quarter ended December 31, 1992.
10.1.14 Employment Agreement between the
Registrant and D. Michael Grimes, dated as
of February 25, 1993, incorporated herein
by reference to Exhibit 10.1.14 to the
Registrant's Form 10-K filed for the year
ended March 31, 1993.
10.1.15 Employment Agreement between the
Registrant and William J. Murphy, dated as
of March 12, 1993, incorporated herein by
reference to Exhibit 10.1.15 to the
Registrant's Form 10-K filed for the year
ended March 31, 1993.
58
<PAGE> 59
10.1.16 Employment Agreement between the
Registrant and Frank Brick, effective as of
October 15, 1993, incorporated herein by
reference to Exhibit 10.1.16 on
Registrant's Form 10-Q filed for the
quarter ended September 30, 1994.
10.1.17 Employment Agreement between the
Registrant and David B. Swank, effective as
of August 22, 1994, incorporated herein by
reference to Exhibit 10.1.18 to
Registrant's Form 10-Q filed for the
quarter ended September 30, 1994.
10.2 Material Leases of the Registrant.
10.2.1 Lease between Registrant and 3330 W. Market
Properties, dated as of December 30, 1986,
incorporated herein by reference to Exhibit
10.2.1 to Registrant's Form 10-K filed for
the year ended March 31, 1994.
10.2.2 Lease between Itronix Corporation, a wholly
owned subsidiary of the Registrant, and
Hutton Settlement, Inc., dated as of April
5, 1993, incorporated herein by reference
to Exhibit 10.2.3 to the Registrant's Form
10-K filed for the year ended March 31,
1993.
10.2.3 Commercial Lease and Condominium Lease
Agreement between Itronix Corporation, a
wholly owned subsidiary of the Registrant,
and Metropolitan Mortgage & Securities
Company, Inc., dated May 26, 1994, filed
herewith.
10.3 Amended and Restated Revolving Credit, Term Loan and
Security Agreement between the Registrant and the Bank
of New York Commercial Corporation, dated as of March
31, 1995, filed herewith.
10.3.1 Amendment No. 1, dated as of June 16, 1995,
to the Amended and Restated Revolving
Credit, Term Loan and Security Agreement
between the Registrant and the Bank of New
York Commercial Corporation, filed
herewith.
10.4 Amended and Restated Agreement between the Registrant
and Symbol Technologies, Inc., dated as of September
30, 1992, incorporated herein by reference to Exhibit
10.4 to Registrant's Form 10-K for the year ended
March 31, 1993.
10.5 Plan and Agreement of Merger, dated as of January 18,
1993, among the Registrant, WSACO, Inc. and
Tele-transaction, Inc., incorporated herein by
reference to Exhibit 10.29 to the Registrant's Form
10-Q filed for the quarter ended December 31, 1992.
59
<PAGE> 60
10.5.1 Notice of Termination by WSACO, Inc., as
contemplated by Section 5.7 of the Plan and
Agreement of Merger, of Amended and
Restated Consulting Agreement between
Accipiter Corporation and Teletransaction,
Inc., incorporated herein by reference to
Exhibit 10.7.1 to Registrant's Form 10-K
for the year ended March 31, 1993.
10.6 Asset Purchase Agreement between the Registrant and
Retail Management Systems Corporation, dated as of
April 3, 1992, incorporated herein by reference to
Exhibit 10.23 to the Registrant's Form 10-K filed for
the year ended March 31, 1992.
10.7 Agreement for Sale and Licensing of Assets between
AST Research, Inc. and PenRight! Corporation, a wholly
owned subsidiary of the Registrant, dated as of
January 26, 1994, incorporated herein by reference to
Exhibit 10.11 to the Registrant's Form 10-Q for the
quarter ended December 31, 1993.
11. Computation of Common Shares outstanding and earnings
per share for the fiscal years ended March 31, 1995,
1994 and 1993, filed herewith.
21. Subsidiaries of the Registrant, filed herewith.
23. Consent of Coopers & Lybrand L.L.P., filed herewith.
24. Power of Attorney executed by members of the Board of
Directors, filed herewith.
27. Financial Data Schedule as of March 31, 1995, filed
herewith.
60
<PAGE> 61
TELXON CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Dollars in Thousands
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning of Charged to End of
Description Period Costs and Expenses Deductions Period
- ----------- ------------- ------------------ ------------ ------
<S> <C> <C> <C> <C>
Valuation account for accounts
receivable:
Year ended March 31, 1995: $1,635 $ 1,158 $ 961 (a) $ 1,832
Year ended March 31, 1994: $2,689 $ 817 $ 1,871 (a) $ 1,635
Year ended March 31, 1993: $1,321 $ 2,745 $ 1,377 (a) $ 2,689
Valuation account for inventory:
Year ended March 31, 1995: $9,850 $ 7,407 $ 6,315 (b) $10,942
Year ended March 31, 1994: $7,486 $ 6,674 $ 4,310 (b) $ 9,850
Year ended March 31, 1993: $4,356 $ 9,700 $ 6,570 (b) $ 7,486
</TABLE>
(a) Doubtful accounts charged off, net of recoveries.
(b) Write off of excess and/or obsolete material.
61
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELXON CORPORATION
Date: June 28, 1995 By: /s/ William J. Murphy
------------------------------
William J. Murphy, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. This report may
be signed in multiple counterparts, all of which taken together shall
constitute a single document.
<TABLE>
<S> <C> <C>
Chairman of the Board,
/s/ Robert F. Meyerson Chief Executive Officer June 28, 1995
- ------------------------- (principal executive officer)
Robert F. Meyerson and Director
* John H. Cribb Vice Chairman of the Board June 28, 1995
- ------------------------- and Director
John H. Cribb
/s/ William J. Murphy President and Director June 28, 1995
- -------------------------
William J. Murphy
/s/ Kenneth W. Haver Senior Vice President,
- ------------------------- Chief Financial Officer June 28, 1995
Kenneth W. Haver (principal financial officer)
and Treasurer
/s/ Gerald J. Gabriel Corporate Controller June 28, 1995
- ------------------------- (principal accounting officer)
Gerald J. Gabriel
* Dr. Raj Reddy Director June 28, 1995
- -------------------------
Dr. Raj Reddy
* Robert A. Goodman Director June 28, 1995
- -------------------------
Robert A. Goodman
* Norton W. Rose Director June 28, 1995
- -------------------------
Norton W. Rose
* J. Robert Anderson Director June 28, 1995
- -------------------------
J. Robert Anderson
* Dr. Walter J. Salmon Director June 28, 1995
- -------------------------
Dr. Walter J. Salmon
</TABLE>
* The undersigned, by signing his name hereto, does sign and
execute this Annual Report on Form 10-K pursuant to the Power of Attorney filed
with the Securities and Exchange Commission as Exhibit 24 hereto on behalf of
the Directors named therein unless otherwise indicated by manual signature on
this Annual Report on Form 10-K.
Date: June 28, 1995 By: /s/ William J. Murphy
-----------------------------------
William J. Murphy, Attorney-in-fact
62
<PAGE> 63
TELXON CORPORATION
EXHIBITS TO
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1995
63
<PAGE> 64
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
- ----
<S> <C>
* 3.1 Restated Certificate of Incorporation of Registrant, incorporated by reference to Exhibit No. 3.1 to
Registrant's Form 10-K filed for the year ended March 31, 1993.
* 3.2 Amended and Restated By-Laws of Registrant, as amended, incorporated by reference to Exhibit No.
2(b) to Registrant's Registration Statement on Form 8-A with respect to its Common Stock filed
pursuant to Section 12(g) of the Securities Exchange Act, as amended by Amendment No. 1 thereto
filed under cover of a Form 8.
* 4.1 Portions of the Restated Certificate of Incorporation of Registrant pertaining to the rights of
holders of Registrant's Common Stock, par value $.01 per share incorporated by reference to Exhibit
3.1 to Registrant's Form 10-K for the year ended March 31, 1993.
* 4.2 Form of Certificate for the Registrant's Common Stock, par value $.01 per share, incorporated herein
by reference to Exhibit 4.2 to Registrant's Form 10-K filed for the year ended March 31, 1990.
* 4.3 Rights Agreement between Registrant and AmeriTrust Company National Association, as Rights Agent,
dated as of August 25, 1987, incorporated herein by reference to Exhibit 2(c) to Amendment No. 1,
dated May 21, 1992, to Registrant's Registration Statement on Form 8-A, filed December 19, 1983,
with respect to Registrant's Common Stock.
* 4.3.1 Form of Rights Certificate (included as Exhibit A to the Rights Agreement included as
Exhibit 4.3 to this Annual Report on Form 10-K). Until the Distribution Date (as
defined in the Rights Agreement), the Rights Agreement provides that the common stock
purchase rights created thereunder are evidenced by the certificates for Registrant's
Common Stock (the form of which is included as Exhibit 4.3 to this Annual Report on
Form 10-K, which stock certificates are deemed also to be certificates for such
common stock purchase rights) and not by separate Rights Certificates; as soon as
practicable after the Distribution Date, Rights Certificates will be mailed to each
holder of Registrant's Common Stock as of the close of business on the Distribution
Date.
* 4.4 Indenture by and between the Registrant and AmeriTrust Company National Association, as Trustee,
dated as of June 1, 1987, regarding Registrant's 7-1/2% Convertible Subordinated Debentures Due
2012, incorporated herein by reference to Exhibit 4.2 to Registrant's Registration Statement on Form
S-3, Registration No. 33-14348, filed May 18, 1987.
</TABLE>
64
<PAGE> 65
<TABLE>
<CAPTION>
Page
- ----
<S> <C>
* 4.4.1 Form of the Registrant's 7-1/2% Convertible Subordinated Debentures Due 2012 (set
forth in the Indenture included as Exhibit 4.4 to this Annual Report on Form 10-K).
10.1 Compensation and Benefits Plans of the Registrant.
* 10.1.1 Amended and Restated Retirement and Uniform Matching Profit-Sharing Plan of
Registrant, effective July 1, 1993, incorporated herein by reference to Exhibit
10.1.1 to Registrant's Form 10-K filed for the year ended March 31, 1994.
* 10.1.1.a Amendment, dated January 1, 1994, incorporated herein by reference
to Exhibit 10.1.1.a to Registrant's Form 10-K filed for the year
ended March 31, 1994.
* 10.1.1.b Amendment, dated April 1, 1994, incorporated herein by reference to
Exhibit 10.1.1.b to Registrant's Form 10-K filed for the year ended
March 31, 1994.
* 10.1.1.c Amendment, dated January 1, 1994, incorporated herein by reference
to Exhibit 10.1.1.c to Registrant's Form 10-Q field for the quarter
ended December 31, 1994.
* 10.1.2 1988 Stock Option Plan of Registrant, incorporated herein by reference to Exhibit
10.1.2 to Registrant's Form 10-K filed for the year ended March 31, 1994.
* 10.1.2.a Amendment, dated January 31, 1990, incorporated herein by reference
to Exhibit 10.1.2.a to Registrant's Form 10-K filed for the year
ended March 31, 1994.
* 10.1.3 1990 Stock Option Plan of the Registrant, as amended, incorporated herein by
reference to Exhibit 10.1.3 to Registrant's Form 10-Q filed for the quarter ended
September 30, 1994.
* 10.1.4 1990 Stock Option Plan of the Registrant for non-employee directors, as amended,
incorporated herein by reference to Exhibit 10.1.4 to Registrant's Form 10-K filed
for the year ended March 31, 1994.
</TABLE>
65
<PAGE> 66
<TABLE>
<CAPTION>
Page
- ----
<S> <C>
* 10.1.5 Non-Qualified Stock Option Agreement between the Registrant and Raj Reddy, dated as
of October 17, 1988, incorporated herein by reference to Exhibit 10.1.6 to
Registrant's Form 10-K filed for the year ended March 31, 1994.
* 10.1.5.a Description of amendment extending option term, incorporated herein
by reference to Exhibit 10.1.6.a to Registrant's Form 10-Q filed for
the quarter ended September 30, 1994.
* 10.1.6 1992 Restricted Stock Plan of the Registrant, incorporated herein by reference to
Exhibit 10.1.17 to the Registrant's Form 10-Q filed for the quarter ended December
31, 1993.
* 10.1.6.a Amendment, dated December 7, 1993, incorporated herein by reference
to Exhibit 10.1.17.a to the Registrant's Form 10-Q filed for the
quarter ended December 31, 1993.
* 10.1.6.b Amendment, dated July 18, 1994, incorporated herein by reference to
Exhibit 10.1.17.b to Registrant's Form 10-Q filed for the quarter
ended September 30, 1994.
* 10.1.7 Description of compensation arrangements between the Registrant and Robert F.
Meyerson, Chairman of the Board of Registrant, incorporated herein by reference to
Exhibit 10.14 to Registrant's Form 10-K filed for the year ended March 31, 1990.
* 10.1.8 Employment Agreement between Telxon Products, Inc., a wholly owned subsidiary of the
Registrant, and Dan R. Wipff, dated September 29, 1994, incorporated herein by
reference to Exhibit 10.1.8 to Registrant's Form 10-Q filed for the quarter ended
September 30, 1994.
* 10.1.9 Consulting Agreement between the Registrant and Accipiter Corporation, dated March 6,
1992, incorporated herein by reference to Exhibit 10.17 to the Registrant's Form 10-K
filed for the year ended March 31, 1992.
* 10.1.10 Services and Non-Competition Agreement, dated as of January 18, 1993, among Accipiter
Corporation, Robert F. Meyerson and the Registrant, incorporated herein by reference
to Exhibit 10.28 to the Registrant's Form 10-Q filed for the quarter ended December
31, 1992.
</TABLE>
66
<PAGE> 67
<TABLE>
<CAPTION>
Page
- ----
<S> <C>
* 10.1.11 Employment Agreement between the Registrant and John H. Cribb effective as of April
1, 1993, incorporated herein by reference to Exhibit 10.1.11 to Registrant's Form 10-
K filed for the year ended March 31, 1994.
* 10.1.12 Severance and Settlement Agreement, dated as of December 23, 1992, between the
Registrant and Raymond D. Meyo, incorporated herein by reference to Exhibit 10.26 to
the Registrant's Form 10-Q filed for the quarter ended December 31, 1992.
* 10.1.13 Consulting Agreement, dated as of December 23, 1992, between the Registrant and
Raymond D. Meyo, incorporated herein by reference to Exhibit 10.26 to the
Registrant's Form 10-Q filed for the quarter ended December 31, 1992.
* 10.1.14 Employment Agreement between the Registrant and D. Michael Grimes, dated as of
February 25, 1993, incorporated herein by reference to Exhibit 10.1.14 to the
Registrant's Form 10-K filed for the year ended March 31, 1993.
* 10.1.15 Employment Agreement between the Registrant and William J. Murphy, dated as of March
12, 1993, incorporated herein by reference to Exhibit 10.1.15 to the Registrant's
Form 10-K filed for the year ended March 31, 1993.
* 10.1.16 Employment Agreement between the Registrant and Frank Brick, effective as of October
15, 1993, incorporated herein by reference to Exhibit 10.1.16 on Registrant's Form
10-Q filed for the quarter ended September 30, 1994.
* 10.1.17 Employment Agreement between the Registrant and David B. Swank, effective as of
August 22, 1994, incorporated herein by reference to Exhibit 10.1.18 to Registrant's
Form 10-Q filed for the quarter ended September 30, 1994.
10.2 Material Leases of the Registrant.
* 10.2.1 Lease between Registrant and 3330 W. Market Properties, dated as of December 30,
1986, incorporated herein by reference to Exhibit 10.2.1 to Registrant's Form 10-K
filed for the year ended March 31, 1994.
* 10.2.2 Lease between Itronix Corporation, a wholly owned subsidiary of the Registrant, and
Hutton Settlement, Inc., dated as of April 5, 1993, incorporated herein by reference
to Exhibit 10.2.3 to the Registrant's Form 10-K filed for the year ended March 31,
1993.
</TABLE>
67
<PAGE> 68
<TABLE>
<CAPTION>
Page
- ----
<S> <C>
** 10.2.3 Commercial Lease and Condominium Lease Agreement between Itronix Corporation, a
wholly owned subsidiary of the Registrant, and Metropolitan Mortgage & Securities
Company, Inc., dated May 26, 1994, filed herewith.
** 10.3 Amended and Restated Revolving Credit, Term Loan and Security Agreement between the Registrant and
the Bank of New York Commercial Corporation, dated as of March 31, 1995, filed herewith.
** 10.3.1 Amendment No. 1, dated as of June 16, 1995, to the Amended and Restated Revolving
Credit, Term Loan and Security Agreement between the Registrant and the Bank of New
York Commercial Corporation, filed herewith.
* 10.4 Amended and Restated Agreement between the Registrant and Symbol Technologies, Inc., dated as of
September 30, 1992, incorporated herein by reference to Exhibit 10.4 to Registrant's Form 10-K for
the year ended March 31, 1993.
* 10.5 Plan and Agreement of Merger, dated as of January 18, 1993, among the Registrant, WSACO, Inc. and
Tele-transaction, Inc., incorporated herein by reference to Exhibit 10.29 to the Registrant's Form
10-Q filed for the quarter ended December 31, 1992.
* 10.5.1 Notice of Termination by WSACO, Inc., as contemplated by Section 5.7 of the Plan
and Agreement of Merger, of Amended and Restated Consulting Agreement between
Accipiter Corporation and Teletransaction, Inc., incorporated herein by reference
to Exhibit 10.7.1 to Registrant's Form 10-K for the year ended March 31, 1993.
* 10.6 Asset Purchase Agreement between the Registrant and Retail Management Systems Corporation, dated as
of April 3, 1992, incorporated herein by reference to Exhibit 10.23 to the Registrant's Form 10-K
filed for the year ended March 31, 1992.
* 10.7 Agreement for Sale and Licensing of Assets between AST Research, Inc. and PenRight! Corporation, a
wholly owned subsidiary of the Registrant, dated as of January 26, 1994, incorporated herein by
reference to Exhibit 10.11 to the Registrant's Form 10-Q for the quarter ended December 31, 1993.
** 11. Computation of Common Shares outstanding and earnings per share for the fiscal years ended March 31,
1995, 1994 and 1993, filed herewith.
** 21. Subsidiaries of the Registrant, filed herewith.
</TABLE>
68
<PAGE> 69
<TABLE>
<CAPTION>
Page
- ----
<S> <C>
** 23. Consent of Coopers & Lybrand L.L.P., filed herewith.
** 24. Power of Attorney executed by members of the Board of Directors, filed herewith.
** 27. Financial Data Schedule as of March 31, 1995, filed herewith.
</TABLE>
- -----------------------------------------
* Previously filed
** Filed herewith
69
<PAGE> 1
Exhibit 10.2.3
COMMERCIAL LEASE
LEASE DATE: May 26, 1994
LANDLORD: Metropolitan Mortgage & Securities Company, Inc.
ADDRESS OF LANDLORD: 929 W. Sprague Ave.
Spokane, WA 99204
TENANT: Itronix Corporation
ADDRESS OF TENANT: South 801 Stevens Street
P.O. Box 179
Spokane, WA 99210
LEASE TERM: Five (5) years commencing on AUGUST 1, 1994, and ending
on JULY 31, 1999. In the event this Lease commences on a date
other than the first day of a calendar month, the term shall not
include that month. Instead, the term of this Lease shall begin on
the first day of the following month.
OPTION TO RENEW: Two (2) option periods of five (5) years each.
RENT: Base Rent at $.68534 per square foot per month ($12,258).
Additional Rent at $357.00 per month.
TENANT'S PERCENTAGE SHARE OF OPERATING EXPENSES: This is a
"Triple-Net Lease". Tenant shall pay directly, or through
reimbursement to Landlord, the proportionate share of all expenses
relating to the property, building and improvements of which the
leased premise is a portion as provided under the Lease Agreement.
The foregoing Basic Lease Information is hereby incorporated into
and made a part of this Lease. Each reference in this Lease to any
of the Basic Lease information shall mean the respective
information hereinabove set forth and shall be construed to
incorporate all of the terms provided under the Particular Lease
paragraph pertaining to such information. In the event of any
conflict between any Basic Lease Information and the Lease, the
Lease shall control.
LANDLORD: TENANT:
Metropolitan Mortgage & Itronix Corporation
Securities Company, Inc.
By: /s/ Bruce J. Blohowiak By: /s/ Lawrence L. Allman
----------------------- ------------------------------
Its: Vice President Its: President & CEO
----------------------- ------------------------------
<PAGE> 2
CONDOMINIUM LEASE AGREEMENT
THIS LEASE is made as of this _____________ day of MAY, 1994 between
METROPOLITAN MORTGAGE & SECURITIES COMPANY, INC. ("Landlord") and ITRONIX
CORPORATION ("Tenant").
In consideration of the mutual benefits outlined below, Landlord leases to
Tenant approximately seventeen thousand eight hundred eighty-six (17,886)
square feet of those premises ("the Premises") outlined in red on Exhibit "A"
(attached), and located within the building known as Madsen Court ("the
Building"). The Building, together with the surrounding grounds ("Common Area")
is situated on property ("the Property") commonly referred as Madsen Court and
legally described below:
See legal description (Exhibit "B" attached).
SECTION 1. TERM
The term of this Lease is five (5) years from the date of commencement.
Tenant shall have the option to extend (Renewal Option) the term of this Lease
for an additional term (Extension Term) of five (5) years. Tenant may exercise
two such Renewal Options, provided, the aggregate of the term of this Lease and
all Extension Terms shall not exceed fifteen (15) years from the commencement
of this Lease. Any Extension Term shall be subject to all other terms and
conditions of this Lease.
Tenant's Renewal Option is conditioned upon (1) Tenant being in
possession of the Premises at the time any Renewal Option is exercised, (2)
Tenant providing Landlord with written notice of intent to renew at least one
hundred twenty (120) days prior to the expiration of the then current term, and
(3) Tenant's compliance of all terms and conditions contained in this Lease.
Tenant shall not be able to exercise a renewal option while Tenant is in
default of any term or condition contained in this Lease.
SECTION 2. POSSESSION
ACCEPTANCE. Tenant shall accept the Premises upon notice from
Landlord, as provided under Section 7, that the Building and Common Areas are
substantially complete and the work to be constructed or installed pursuant to
the Blue Prints and Specifications (the Plan), attached as Exhibit "A", is
substantially complete, subject only to those minor items on a mutually agreed
punch list with a mutually agreed upon plan of implementation. Tenant's
obligation to pay rent provided in this Agreement shall commence on the
earlier to occur of:
(i) the date on which such work has been substantially completed, or
(ii) the date on which Tenant takes possession of, or commences the
operation of its business in any or all of the Premises.
<PAGE> 3
Effective July 15, 1994, Tenant shall have the right to enter upon the
Premises for the purposes of installing furniture, workstations and associated
peripherals prior to commencement of this Lease without being deemed in
possession of the Premises, provided, Tenant improvements to the production
facilities area are substantially complete, and Tenant does not impede or
otherwise interfere with the activities of Landlord, Landlord's building
contractor or its employees, agents or subagents; and further provided, that
Tenant complies with all other terms and conditions of this Lease.
EARLY POSSESSION. Should Landlord tender possession of the Premises
to Tenant prior to the commencement of the term and Tenant chooses to accept
such possession, Tenant's obligations under this Lease shall commence on the
date Tenant accepts such possession.
INTENDED USE. Upon occupancy of the Premises, Tenant shall be deemed
to have accepted the Premises as suitable for Tenant's intended purpose and to
have acknowledged that the Premises comply fully with Landlord's covenants and
obligations contained in this Lease, subject to the above referenced punch
list, and excluding latent defects that are structural in nature or other
defects within the Premises that are reasonably discoverable within thirty (30)
days after occupancy by Tenant. Landlord shall diligently proceed to remedy any
such defects within a reasonable and mutually agreeable period of time after
Landlord receives Tenant's written notice of such defects.
FAILURE TO DELIVER POSSESSION. In the event Landlord fails to deliver
possession of the Premises to Tenant within fifteen (15) days after the
commencement of this Lease, this Lease shall be immediately canceled, upon
written notice from Tenant, provided, Tenant did not cause Landlord's failure
to deliver possession.
SECTION 3. RENT
BASE RENT. Tenant hereby promises and agrees to pay Landlord a Base
Rent for the Premises at a rate of $.68534 per square foot per month
($12,258.00) during the term of this Lease. Base Rent shall be due and payable
on or before the first day of each month this Lease remains in force. Base Rent
for any fractional month at the beginning of the Lease shall be prorated.
BASE RENT ADJUSTMENTS. Base Rent shall not be increased during the
term of this Lease unless Landlord makes changes or modifications to the
approved Plan pursuant to a written change order submitted to Landlord by
Tenant. In the event Landlord makes such modifications or changes to the Plan,
Base Rent shall be increased to cover Landlord's additional cost incurred as a
result of Tenant's change order. Such additional costs shall be limited to
Landlord's actual costs incurred as a result of such change or modification
plus eight percent (8%) of such additional costs to cover Landlord's overhead
and profit.
In the event Tenant elects to exercise Tenant's Renewal Option, Base
Rent for each Extension Term shall be increased to an amount that is mutually
agreeable to both parties. Both parties agree to begin negotiating the Base
Rent adjustment at least nine (9) months prior to the expiration of the Term.
Any adjustment to Base Rent for the first Extension Term shall not exceed the
<PAGE> 4
percentage increase in the Consumer Price Index - Urban Consumer, All Items
(CPI) from March 1994 to March 1999. Any adjustment to Base Rent for the
second Extension Term shall not exceed the percentage increase in CPI from
March 1999 to March 2004.
ADDITIONAL RENT. Tenant agrees to pay Landlord Additional Rent of
$357.00 per month payable on the first day of each month this Lease is in
force. Such Additional Rent represents special improvements of a compressor
building and a loading dock installed by Landlord at Tenant's request. The
cost of such special improvements to Landlord was Twenty-nine Thousand Four
Hundred Sixty-nine Dollars ($29,469). Landlord agrees to amortize the cost of
those special improvements over ten (10) years at an interest rate of eight
percent (8%). All Additional Rent payments shall be applied against the
special improvement costs consistent with the above stated terms. Any amount
outstanding at the expiration of this Lease shall be immediately due and
payable unless Tenant exercises its Renewal Option, in which case this
provision shall stay in effect during the first Extension Term.
SECTION 4. OPERATING AND CAN COSTS
Tenant hereby promises and agrees to pay for all costs associated with
the Premises (Operating Costs) and a proportionate share of all costs
associated with the Building and Common Areas (CAM Costs) as provided herein.
OPERATING COSTS. Operating costs are those costs incurred by Landlord
as a direct result of Landlord's ownership of the Premises. Operating Costs
shall include but not be limited to property taxes, special tax assessments,
special assessments by appropriate governmental authorities and insurance.
Operating costs shall not include any cost associated with replacement of major
components of the heating, ventilation and air conditioning (HVAC) system or
with any cost associated with repairs to plumbing within the Premises.
CAM COSTS. CAM Costs are those costs incurred by the Landlord for
maintenance and repairs to the Building and Common Areas. CAM Costs shall
include but not be limited to those costs required to maintain and repair
landscape areas, parking areas, driveways, sidewalks, stairs, elevators or
elevation equipment, corridors, windows, electrical equipment located outside
the Premises and fixtures outside the Premises. CAM Costs shall not include
any cost associated with the replacement or structural modifications to the
Building's plumbing, roof, foundation, external walls and internal
weight-bearing walls.
ALLOCATION OF CAM COSTS. Tenant's proportionate share of CAM Costs
shall be computed on the basis of the ratio of the total number of net square
feet included within the Premises and the total amount of net square feet
included within the Building. For the purposes of this Lease, Tenant's "net"
square footage calculation shall be based upon all square footage within the
windows of the exterior walls of the Premises and the center of demising walls
between Tenant and other tenants, including hallways, stairways and vertical
penetrations, if any.
<PAGE> 5
PAYMENT OF OPERATING COSTS AND CAM COSTS. Tenant shall pay Landlord
$0.087 per square foot within the Premises per month to cover Operating Costs
and CAM Costs anticipated to be incurred during each calendar year. Such
payment shall be due and payable on or before the first day of each month this
Lease remains in force. Tenant's monthly payment shall represent one-twelfth
(1/12) of Tenant's estimated annual share of all Operating Costs and CAM Costs
and Landlord shall use monies collected under this provision to pay for
Tenant's share of all costs associated with the Premises and Tenant's
proportionate share of all costs associated with the Building and Common Areas
as provided above in this Section.
Landlord shall provide Tenant with a written estimate of Operating
Costs and Tenant's share of CAM Costs prior to commencement of this Lease and
on an annual basis thereafter. Neither party makes any representations or
warranties as to the accuracy of such estimate. In the event the Building is
partially occupied during any calendar year, Landlord has the right to adjust
or annualize Landlord's estimate of the operating Costs and CAM Costs to
reflect a fully occupied Building, however, only Tenant's proportionate share
of such annualized costs shall be assessed to Tenant. In the event the Lease
commencement or termination includes a partial calendar year, the Operating
Costs and CAM Costs shall be computed as though a full calendar year is
involved and prorated to reflect Tenant's partial year occupancy. Any
adjustments made pursuant to this paragraph shall be calculated according to
accepted standards of accounting for commercial building management.
Should Operating Costs or Tenant's share of CAM Costs exceed in any
calendar year the amount of Operating Costs and CAM costs advanced to Landlord
by Tenant during such calendar year, Tenant agrees to pay Landlord, pursuant to
this provision, Tenant's share of all un-reimbursed Operating Costs and CAM
Costs within thirty (30) days after Landlord presents Tenant with an operating
statement outlining such un-reimbursed costs, provided Tenant's payment of such
un-reimbursed costs does not exceed seven percent (7%) of Landlord's estimated
annual Operating Costs and CAM Costs. In the event Tenant's Operating Costs and
CAM Costs advances to Landlord in any calendar year exceeds Tenant's share of
Operating Costs and CAM Costs during such calendar year, Landlord shall return
such excess within 30 days after providing Tenant with an operating statement
outlining such costs.
Landlord shall give Tenant a statement of the Operating costs and CAM
Costs for each calendar year and shall use its best efforts to provide such
statement within one hundred eighty (180) days after the close of each calendar
year.
Tenant, at Tenant's expense, shall have the right at all reasonable
times to review Landlord's books and records relating to this Lease for any
year or years in which Operating Costs and/or CAM Costs become due hereunder.
PAYMENT ADJUSTMENT - OPERATING COSTS AND CAM COSTS. The monthly
payment representing anticipated Operating Costs and CAM Costs shall be subject
to adjustment in August of each year this Lease remains in effect. Such
adjustments shall reflect any increase in Landlord's written estimate of
Operating Costs and
<PAGE> 6
Tenant's share CAM Costs. Any increase to Tenant's monthly payments for
anticipated Operating Costs and CAM Costs shall be limited to seven percent
(7%) per year, excluding increases due to Insurance, taxes and assessments from
appropriate governmental authorities.
Section 5. LATE CHARGES AND PAYMENTS
LATE CHARGES. Should Tenant fail to make any payment according to the
terms and conditions of this Lease, Landlord shall be entitled to assess Tenant
a late charge equal to five percent (5%) of each late payment, provided,
Landlord notifies Tenant in writing at least three (3) business days prior to
assessing such late charge and Tenant fails to make such payment within that
three (3) day period.
PAYMENTS. Unless otherwise notif ied in writing, Tenant shall make all
payments of Base Rent, Additional Rent, Operating Costs, CAM Costs, Late
Charges and other charges assessed by Landlord to:
Metropolitan Mortgage & Securities Company, Inc.
929 W. Sprague Avenue
Spokane, WA 99204
APPLICATION OF PAYMENTS. Payments tendered by Tenant shall be applied
as follows:
First To reimburse Landlord for any expenses incurred as a result
of Tenant's default; then
Second To cure any outstanding late charges; then
Third To pay any past due amount of Base Rent, Additional Rent,
Operating Costs and CAM Costs ; then
Fourth To meet the Base Rent, Additional Rent, operating Costs and
CAM Cost obligation for the current month.
SECTION 6. USE
Tenant shall occupy and use the Premises in a manner consistent with
the recorded Declaration and Covenants, Conditions, Restrictions, and
Reservations for Madsen Court Condominium (CC&Rs) and shall comply with all
applicable laws, rules, ordinances, or regulations of any governmental body.
Tenant further agrees to abide by all rules, regulations and by-laws of the
Madsen Court Condominium Owners Association (Association) and all terms and
conditions set forth in the recorded CC&RS. The CC&Rs are attached as Exhibit
"C" and hereby incorporated as if fully set forth within this Lease.
In connection with use of the Premises, Tenant shall not:
(a) Commit nor permit the commission of any waste in, on or about the
Premises, Building and Common Areas.
<PAGE> 7
(b) Occupy or use, nor permit any portion to be occupied or used for
any business or purpose which is unlawful in part or in whole or is deemed to
be disreputable in any manner.
(c) Engage in any activity which would make it impossible to insure the
Premises against casualty or would increase the insurance rate for other
tenants in the Building, unless Tenant pays the additional costs of such
insurance.
(d) Engage in any activity that is extra hazardous.
(e) Generate, handle, store or dispose of any hazardous material on or
in the Premises, Building or Common Areas without Landlord's prior written
consent, which shall not be unreasonably withheld. Landlord hereby approves
Tenant's use of material listed on the attached exhibit "D" subject to Tenant
acquiring approval from all necessary governmental authorities. In the event
Landlord allows Tenant to generate, handle, store or dispose of any hazardous
material on the Premises, Tenant agrees to abide by all federal, state and
local laws and ordinances governing such hazardous material. As used herein,
"hazardous material" means any hazardous, toxic or dangerous substance, waste
or material, which is now or hereafter becomes designated as hazardous and/or
regulated under any Federal, State or local statute, ordinance, rule,
regulation or other law now or hereafter in effect pertaining to environmental
protection, contamination or clean-up.
Tenant agrees to hold harmless, indemnify and defend Landlord from and
against any damage, loss, claim or liability resulting from any breach of these
restrictions by Tenant, including any attorney's fees and costs incurred as a
result of any such breach. This indemnity shall survive the termination of
this Lease, whether by expiration of its term or otherwise.
Landlord warrants that the CC&Rs and Association by-laws and rules
allow for Tenant's current business activities. In the event the Association
changes its by-laws and/or rules, or Landlord causes the CC&Rs to be amended,
and such changes or amendments substantially restrict or limit Tenant's current
use of the Premises, Tenant may cancel this Lease upon ninety (90) days written
notice to Landlord. Tenant's notice must include with specific particularity
the Associations changes and the impact such changes have on Tenant.
SECTION 7. LANDLORDIS REPRESENTATION IS WARRANTIES AND OBLIGATIONS
PROPERTY. Landlord represents and warrants that to the best of
Landlord's knowledge, the Property is in compliance with all applicable laws,
ordinances, orders, rules, covenants, and regulations (state, federal,
municipal, and other agencies or bodies having jurisdiction thereof)
promulgated by any government authority or other party including but not
limited to those pertaining to the environment and that no litigation,
investigation or proceeding by or before any governmental authority or private
party is pending or known to be threatened against Landlord or the Property
including but not limited to the presence or release of hazardous substances on
the Property (collectively referred to as Claims) . Landlord further warrants
and represents that to the best of Landlord's knowledge there is not now nor
has there ever been
<PAGE> 8
in, on or at the Property any (i) generation, treatment, recycling, storage or
disposal of any hazardous waste as that term is defined under 40 CFR part 261
or any state equivalent; (ii) any underground storage tanks or surface
impoundments; (iii) any asbestos or asbestos containing material; (iv) any
polychlorinated biphenyls (PCB) used in hydraulic oils, electric transformers
or other equipment; or (v) a release or threatened release of hazardous
materials. Landlord agrees to hold harmless, indemnify and defend Tenant from
and against any damage, loss, claim or liability arising from any Claim,
including attorney's fees and costs incurred as a result of such Claim. This
indemnity shall survive the termination of this Lease, whether by expiration or
otherwise.
The parties agree to provide each other with written notice: (i) upon
obtaining knowledge of any potential or known release of hazardous materials
in, on or from the Premises; or (ii) upon receipt of any notice of any such
potential or known release from any governmental authority.
Upon Tenant's discovery of Landlord's breach of any above referenced
representation or warranty, Tenant shall have the right to terminate this Lease
or require Landlord to remedy the condition giving rise to such breach to
Tenant's reasonable satisfaction.
PREMISES. Landlord agrees to make the improvements contained in the Plan.
Such improvements have been reviewed and approved by Tenant and shall be
completed in accordance with the Plan and in an expeditious and diligent
manner, subject to events and delays due to causes beyond Landlord's reasonable
control. Landlord shall secure all required permits and hire a Washington state
registered contractor to complete all improvements contained in the Plan.
Landlord shall notify Tenant in writing at twenty (20) days prior to
substantial completion Tenant improvements to the Premises.
Landlord shall furnish, through the Association, the Common Areas and
Building with those services customarily provided in comparable buildings
including but not limited to landscape areas, parking areas, driveways,
sidewalks, stairs, elevators or elevation equipment, corridors, windows,
electrical equipment and fixtures outside of the Premises.
Landlord shall, at Landlord's expense, make repairs to Premises HVAC
and plumbing and the Building's plumbing, roof, foundation, exterior walls and
interior weight-bearing walls.
BUILDING AND COMMON AREA. Maintenance and repairs of the Building and
Common Areas shall be the sole responsibility of the Association, subject to
Landlord's remedies contained in the CC&Rs and the Association By-laws. Any
costs assessed to Landlord as a result of the Association maintaining and/or
repairing the Building and Common Areas shall be collected from Tenant through
the CAM Costs provision contained in Section 4 except as expressly provided in
this section.
Maintenance of the Building and Common Areas shall be in accordance
with the recorded Declaration and Covenants, Conditions, Restrictions, and
Reservations for Madsen Court Condominiums and shall include but not limited to
landscape areas, parking areas,
<PAGE> 9
driveways, sidewalks, stairs, elevators or elevation equipment, corridors,
windows, plumbing to the Premises, fixtures outside the Premises, electrical
equipment, and the Building's roof, foundation and external walls.
Landlord agrees to pay the cost of repairing damage to the Premises,
Building and Common Areas if such damage is caused by Landlord or Landlord's
agents, employees or invitees.
Landlord warrants that Tenant shall have one (1) parking stall
allocated, but not assigned, for every three hundred sixty-five square feet of
the Premises, fraction allocation of parking spaces excluded, with a minimum of
fifty-two parking spaces. Such allocation of parking spaces represents the
ratio of Tenants net square footage within the Premises to the total square
footage within the Building, as calculated in Section 4. Recognizing Tenant's
desire to obtain fifty-five (55) parking spaces, Landlord will make its best
effort to acquire an additional three (3) parking spaces for Tenant. However,
Landlord cannot guaranty acquisition of those parking spaces.
SECTION 8. TENANTIS OBLIGATIONS
APPROVAL OF BLUE PRINTS AND SPECIFICATIONS. Tenant agrees to approve
the attached Plan by signing and dating such Plan contemporaneously with
signing and dating this Lease.
NO WASTE. Tenant shall take good care of the Premises and keep it
free from waste and nuisance of any kind. Tenant shall maintain the Premises in
a clean and healthful condition, and shall comply with all laws, ordinances,
orders, rules and regulations (state, federal, municipal, or an other agency or
bodies having any jurisdiction thereof, including the Madsen Court Condominium
owners Association) with reference to use, condition, or occupancy of the
Premises.
MAINTENANCE AND REPAIR. Tenant shall maintain the Premises, except the
HVAC and plumbing, in good condition and in a manner satisfactory to Landlord,
ordinary wear and tear excepted. Tenant shall repair, at Tenant's expense, all
equipment, fixtures, plate glass and improvements. Tenant agrees to pay the
cost of repairing any damage to the Premises, Building and Common Areas if such
damage is caused by Tenant, Tenant's agents, employees or invitees.
ALTERATIONS. Alterations are prohibited. Tenant shall not make any
improvements or alterations to the Premises without first obtaining Landlord's
written consent, which such consent shall not be unreasonably withheld.
Landlord shall own all such improvements and/or alterations unless Landlord's
written consent to such improvements and/or alterations specifically provides
otherwise. Reconfiguration of Tenant's workstations and production
facilities shall not be considered alterations unless such reconfiguration
includes moving permanent wall or fixtures.
UTILITIES. Tenant shall make all applications and connections for
necessary services on the Premises in Tenant's name only, and Tenant shall be
solely liable for all utility charges as they become due, including but not
limited to charges for sewer,
<PAGE> 10
water, gas, electricity, and telephone services.
RETURN OF THE PREMISES. Upon expiration or termination of this Lease,
Tenant shall deliver all keys and surrender the Premises to in good condition,
excluding ordinary wear and tear, and broom clean to Landlord.
RESTORATION. Prior to surrendering the Premises to Landlord, Tenant
shall restore the Premises to its original condition, including any
improvements contained in the Plan and/or alterations owned by Landlord,
excluding ordinary wear and tear. All furniture, moveable trade fixtures
installed by Tenant and authorized improvements owned by Tenant may be removed
by Tenant at the termination of this Lease if Tenant so elects, and shall be
removed if Landlord so elects. All such removals and restoration by Tenant
shall be accomplished in a good workmanlike manner and shall not damage the
primary structure or structural qualities of the Building.
LEASE GUARANTOR. Tenant shall provide Landlord with all documents
Landlord deems necessary to ensure Tenant's lease guarantor (Guarantor) can
perform according to the terms and conditions contained in this Lease and the
Guaranty of Lease (attached).
SECTION 9. ASSIGNMENT AND SUBLETTING
Tenant shall not assign this Lease, nor sub-let the Premises or any
part thereof without the prior written consent of Landlord, which such consent
shall not be unreasonably withheld.
Landlord shall have the right to transfer and assign, in whole or in
part, any of Landlord's rights under this Lease, and in the Premises and
Building referred to herein. To the extent that such assignee assumes
Landlord's obligations hereunder, Landlord shall by virtue of such assignment
be released from all obligations contained in this Lease.
If Tenant and/or Guarantor is a corporation, any dissolution or
reorganization of Tenant or Guarantor, or the sale or other transfer of
ownership of any stock, if ownership of such stock represents a new controlling
interest in Tenant or Guarantor, shall be deemed an assignment. If Tenant
and/or Guarantor is a partnership, the withdrawal or change, voluntary,
involuntary or by operation at law, of partners owning thirty percent (30%) or
more of the partnership, or the dissolution of the partnership shall be deemed
an assignment.
In the event that Landlord agrees to an assignment of this Lease or
to a sublease, Tenant agrees to pay to Landlord or Landlord's agent a fee of two
and one half percent (2 1/2%) of the aggregate rental of such sublease or
assignment, but not less than $500.00, to reimburse Landlord for Landlord's
costs of processing such assignment or sublease. Transfer of this Lease to
Tenant's parent corporation or any affiliate corporation shall not be subject
to this fee.
<PAGE> 11
SECTION 10. RECEIPTS FROM ASSIGNEE OR SUBTENANT
Landlord's receipt of rent from any assignee, subtenant or occupant of
the Premises shall not be deemed a waiver of the non-assignment provision
contained in the ASSIGNMENT and SUBLETTING Section of this Lease, or an
acceptance of the assignee, subtenant or occupant as tenant. Tenant shall be
bound by all terms and conditions of this Lease unless such terms and
conditions are waived in writing by Landlord.
SECTION 11. LIABILITY
Except for the willful acts or negligence or omissions of Tenant,
Landlord shall indemnify and hold Tenant harmless for any loss, liability,
costs, and expenses, including attorney's fees, arising out of injury or damage
on or about the Premises, Building or Common Areas caused by the willful acts
or negligence or omissions of Landlord, its employees, invitees or by any
other person entering upon the Premises, Building and Common Areas under the
express or implied invitation of Landlord or arising out of Landlord's
activities.
Except for the willful acts or negligence or omissions of Landlord,
Tenant shall indemnify and hold Landlord harmless from any loss, liability,
costs and expenses, including attorney's fees and costs, arising out of
personal injury or damage on or about the Premises, Building and Common Areas
caused by the willful acts or negligence or omissions by Tenant, Tenant's
employees, subtenants, invitees or by any other person entering the Premises,
Building or Common Areas under express or implied invitation of Tenant, or
arising out of Tenant's use of the Premises, Building or Common Areas.
Neither party shall be liable or responsible for any loss or damage to
any property or person occasioned by theft, fire, act of God, public enemy,
riot, injunction, strike, insurrection, war, court order, requisition or order
of any governmental body or authority, or any other matter beyond a party's
reasonable control.
Tenant agrees, at Tenant's own expense, to purchase and keep in force
during the term of this Lease a policy or policies for workmen's compensation
and comprehensive liability insurance, including personal injury and property
damage, in the following amounts:
Insurance Coverage Minimum Limits
------------------ --------------
Workers Compensation Statutory
Comprehensive General Liability
Bodily Injury $1,000,000 per occurrence
$2,000,000 aggregate
Property Damage $5,000,000 per occurrence
$5,000,000 aggregate
Landlord reserves the right to adjust the insurance coverage
requirements should Landlord deem necessary, based on periodic insurance
reviews with respect to injury or damage to persons or property.
<PAGE> 12
Tenant's insurance policies shall: (a) name Landlord and the
Association as an additional insured and insure Landlord's and the
Association's contingent liability under this Lease; (b) be issued by an
insurance company which is acceptable to Landlord and licensed to do business
in the State of Washington; and (c) provide that such insurance shall not be
canceled unless Landlord and the Association receive written notice at least
thirty (30) days prior to such cancellation. Certificates of Insurance for
such policy or policies shall be delivered to Landlord upon commencement of the
term of this Lease and upon each renewal of such insurance coverage.
Landlord agrees to carry, through the Association, comprehensive
general liability in the same amounts outlined above. The Association's
insurance policies shall: (a) name Landlord and the Tenant as an additional
insured and insure Landlord's and Tenant's contingent liability under this
Lease; (b) be issued by an insurance company which is acceptable to Landlord
and licensed to do business in the State of Washington; and (c) provide that
such insurance shall not be canceled unless Landlord and Tenant receive written
notice at least thirty (30) days prior to such cancellation. Certificates of
Insurance for such policy or policies shall be delivered to Landlord and Tenant
upon commencement of the term of this Lease and upon each renewal of such
insurance coverage.
SECTION 12. WAIVER OF SUBROGATION
Landlord and Tenant hereby waive any right that each may have against
the other arising from any loss or damage that is covered by insurance
policies. Provided, however, that each party shall first have their respective
insurance companies waive any rights of subrogation that such companies may
have against Landlord or Tenant, as the case may be.
SECTION 13. RULES AND REGULATIONS
The parties and their agents, employees, and invitees shall comply
fully with all requirements of the Rules of the Building (attached). Tenant
shall be responsible its employees, servants, agents, visitors and invitees
compliance with such rules.
Section 14. LANDLORD ENTRANCE
Landlord, its officers, agent, and representatives, shall have the
right to enter into and upon any and all parts of the Premises at all
reasonable hours to and in a reasonable manner; (a) inspect the Premises and
insure Tenant is in compliance with all terms and conditions of this Lease, (b)
make repairs as Landlord may deem necessary, or (c) show the demised Premises
to prospective tenants, purchasers or lenders. Except in the case of
emergency, Landlord shall provide Tenant written notification at least
seventy-two hours prior to Landlord's entrance. Tenant shall not be entitled
to any rent abatement or reduction as a result of Landlord exercising any
provision of this Section.
<PAGE> 13
SECTION 15. CONDUCT OF BUSINESS
Tenant shall conduct its business, and control its agents, employees
and invitees in such a manner as not to create any nuisance, or interfere with,
annoy or disturb other tenants or Landlord in the management of the Building.
SECTION 16. CONDEENATION
If the Premises shall be taken or condemned in whole or in part for
public purpose, then the term of this Lease shall, at the option of Landlord,
cease and terminate. Tenant shall have no claim against Landlord for such
taking or condemnation nor for any part of any sum paid to Landlord by virtue
of such proceedings, unless a portion of such sum is attributable to the value
of the unexpired term of this Lease. In the event Landlord is compensated for
the value of the unexpired term of this Lease, Tenant shall have a claim for
a reasonable portion of the amount attributable to the unexpired portion of
this Lease.
SECTION 17. FIRE AND OTHER CASUALTY
In the event the Premises is totally destroyed by fire, tornado, or
other casualty, Landlord may, at Landlord's option, terminate this Lease. Rent
after such termination shall be abated during the unexpired portion of this
Lease, effective as of the date of such damage. In the event the Premises is
partially damaged by fire, tornado, or other casualty, or if the damage is more
serious but Landlord does not elect to terminate this Lease, then within thirty
(30) days after such damage, Landlord shall provide Tenant with notice of
intent to rebuild or repair. All repairs and/or rebuilding activities must be
substantially complete within 180 days after Landlord's notice of intent to
rebuild or repair. For the purposes of this Section: "total damage" shall mean
the cost to repair the Premises will be fifty percent (50%) or more than the
then current replacement cost of the Premises ; "partial damage" shall mean the
cost to repair the damage to the Premises is less than fifty percent (50%) of
the then replacement cost of the Premises and such repairs can be reasonably
completed within 180 days after the date of damage; and "replacement cost"
shall mean the amount of money necessary to repair or rebuild the Premises to
the condition that existed immediately prior to the damage, except that
Landlord shall not be required to rebuild, repair or replace any part of the
partitions, fixtures, and other improvements within the Premises that may have
been placed by Tenant or Tenant's assigns.
In the event Landlord decides to rebuild or repair the damage, Landlord
shall proceed with reasonable diligence to restore the Premises to
substantially the same condition that existed immediately prior to the damage,
except that Landlord shall not be required to rebuild, repair or replace any
part of the partitions, fixtures, and other improvements within the Premises
that may have been placed by Tenant or Tenant's assigns.
Landlord shall allow Tenant a fair diminution of rent during the time
the demised Premises are unfit for occupancy. In the event that any mortgagee
under a deed of trust, security agreement or mortgage on the Building should
require that the insurance proceeds be used to retire the mortgage debt,
Landlord
<PAGE> 14
shall have no obligation to rebuild and this Lease shall terminate upon notice
to Tenant. Any insurance which may be carried by Landlord or Tenant against
loss or damage to the Building or to the demised Premises shall be for the sole
benefit of the party carrying such insurance and under that party's sole
control.
SECTION 18. HOLDING OVER
If Tenant does not vacate the Premises at the time required, Tenant
shall be deemed to be holding over. In the event of Tenant's holding over,
Landlord shall have the option to treat Tenant as a month-to-manth tenant,
subject to all provisions of this Lease except the provisions for Term and Base
Rent. Base Rent during any hold over period shall be equal to one hundred
fifty percent (150%) of the Base Rent paid by Tenant prior to holding over.
Tenant's failure to remove Tenant's fixtures, furniture, furnishings,
equipment, or trade fixtures shall constitute a failure to vacate and Landlord
may invoke the provisions of this Section.
Holding over by Tenant or its assigns without the prior written
approval from Landlord shall be deemed to be unlawful detainer.
SECTION 19. TAXES
Tenant shall pay as due all taxes on its personal property located on
the Premises. Landlord shall pay as due all general real property taxes and
special assessments levied against the Premises from monies collected pursuant
to Section 4.
In the event The Premises is subject to a special assessment for a
public improvement, Tenant shall be responsible for paying such assessment as
provided above. Should Landlord cause the special assessment to be paid
in installments, such installments shall be treated as a general real property
tax to Tenant.
In the event Landlord is taxed, or Landlord's property is assessed
taxes for which Tenant is liable, Landlord may elect to pay those taxes and
seek reimbursement from Tenant. Tenant shall reimburse Landlord for all such
taxes within thirty (30) days after Landlord pays such taxes.
SECTION 20. EVENTS OF DEFAULT
The following shall be deemed to be events of default by Tenant under
this Lease:
(a) Tenant fails to pay any installment of rent on or by the first day
of any month and such failure continues for three (3) business days after
Tenant receives written notice from Landlord that payment is due.
(b) Tenant fails to comply with any term, provision or covenant of this
Lease, other than payment of rent, and shall not cure such failure within ten
(10) days after receipt of written
<PAGE> 15
notice to Tenant or within such reasonable period after such notice as may
be required to effect compliance so long as Tenant initiates compliance within
such ten (10) day period.
(c) Tenant makes an assignment for the benefit of creditors.
(d) Tenant or Guarantor, files a petition under any section of the
United States Bankruptcy Code as amended, or any successor legislation or
similar statute of the United States or any State thereof; or, Tenant or
Guarantor is adjudged bankrupt or insolvent in proceedings filed against Tenant
or Guarantor and such adjudication will not be vacated, set aside or stayed
within the time permitted by law.
(e) A receiver or Trustee is appointed for all or substantially all
of the assets of Tenant or Guarantor and such receivership may not be
terminated or stayed within the time permitted by law.
(f) Tenant, by reason of Tenant's acts, causes any increase in the rate
of insurance on the Premises, its contents, or the rate of insurance to other
tenants in the Building and Tenant does not pay for such increases.
(g) Tenant violates any use restriction contained in Section 6 of this
Lease.
Landlord shall be deemed to be in default under this Lease if Landlord
should fail to comply with any term, provision, or covenant of this Lease, and
does not cure such failure within ten (10) days after receipt of written notice
from Tenant to Landlord or within such reasonable period after such notice as
may be required to effect compliance so long as Landlord initiates compliance
within such ten (10) day period. In the event Landlord does not initiate
compliance within such ten (10) day period, Tenant may at its option do
whatever Landlord is obligated to do under the terms of this Lease but has
failed to do in a timely fashion and Landlord agrees to reimburse Tenant for
any expenses which Tenant may incur as a result of effecting compliance of
Landlord's obligations under this Lease. Landlord shall reimburse Tenant for
any such expenses within thirty (30) days after receipt of written notice
requesting such reimbursement.
SECTION 21. REMEDIES
Upon the occurrence of any event of default, Landlord shall have the
option to pursue any one or more of the following remedies:
(a) Require Tenant to deposit with Landlord an amount sufficient to cover
Tenant's delinquent payments.
(b) Terminate this Lease by written notice to the Tenant, in which event
Tenant shall immediately surrender the Premises to Landlord. If
Tenant fails to surrender the Premises, Landlord may, without
prejudice to any other remedy which Landlord may have for possession
or arrearage in rent, enter upon and take possession of the Premises
and expel or remove Tenant or Tenant's property
<PAGE> 16
and any other person who may be occupying the Premises or
any part thereof, by force if necessary, without being
liable for prosecution or for any claim of damages.
Tenant agrees to pay to Landlord on demand the amount of
all loss and damage which Landlord may suffer by reason
of such termination.
(c) Enter upon and take possession of the Premises, relet the
Premises and receive the rent therefrom without liability
to Tenant for any amounts received in excess of the rent
called for under this Lease. Tenant agrees to pay
Landlord on demand any costs of reletting as well as any
deficiency that may arise by reason of such reletting
during the remaining term of this Lease.
(d) Enter upon the Premises, by force if necessary, without
being liable for any claim for damages, and do whatever
Tenant is obligated to do under the terms of this Lease-
but has failed to do in a timely fashion. Tenant agrees
to reimburse Landlord on demand for any expenses which
Landlord may incur as a result of effecting compliance of
Tenant's obligations under this Lease. Tenant further
agrees that Landlord shall not be liable for any damages
resulting to the Tenant from such action.
(e) Recover all unpaid Base Rent, Additional Rent and other
charges arising during the remaining term of this Lease,
in addition to any costs and commissions incurred in
reletting and any losses or damages arising from Tenant's
default, including reasonable attorney's fees and court
costs. All such unpaid amounts shall accrue interest at
the annual rate of twelve percent (12%) (compounded
monthly) from date due or date incurred, until paid.
Landlord's pursuit of any of the foregoing remedies shall not
preclude Landlord from pursuing any other remedies provided herein or any other
remedies provided by law. Landlord's pursuit of any remedy provided herein
shall not constitute a forfeiture or waiver of any rent due to Landlord under
the term of this Lease or of any damages due to Landlord as a result of Tenant
violating any of the terms and conditions of this Lease.
Landlord's acceptance of rent following any event of default
shall not be construed as Landlord's waiver of such default. No waiver by
Landlord of any violation or breach of any of the terms and conditions of this
lease shall be deemed or construed to constitute a waiver of any other
violation or breach of the terms and conditions of this lease. Landlord's
forbearance to enforce one or more of the default remedies shall not be deemed
or construed to constitute a waiver or such default or of any future default.
SECTION 22. SURRENDER OF PREMISES
No action or representation by Landlord or Landlord's agents
during the term of this lease shall be deemed an acceptance of Tenant's
surrender of the Premises unless Tenant receives prior written approval of such
surrender from Landlord.
<PAGE> 17
SECTION 23. ATTORNEY'S FEES
In the event a law suit or action is instituted in connection with any
controversy arising out of this Lease, the prevailing party shall be entitled
to recover all costs and attorney's fees incurred as a result of such lawsuit
or action.
SECTION 24. CORPORATE AUTHORITY
If Tenant and/or Guarantor sign as a corporation, each of the persons
executing this Lease on behalf of Tenant and/or Guarantor does hereby covenant
and warrant that Tenant and/or Guarantor are duly authorized and existing
corporations, that Tenant is qualified to do business in the State of
Washington, that each corporation has full right and authority to enter into
this Lease, and that each of the persons signing on behalf of the corporations
are authorized to do so. Upon Landlord's request, Tenant and Guarantor
shall provide Landlord with evidence confirming the foregoing covenants and
warranties in a form satisfactory to Landlord.
SECTION 25. CERTAIN RIGHTS RESERVED BY LANDLORD
Landlord shall have the following rights, exercisable upon written
notice to Tenant:
(a) To decorate and make repairs, alterations, additions, changes or
improvements, whether structural or otherwise, in and about the Building, or
any part thereof, and for such purposes to enter upon the Premises (subject to
the provisions of Section 14 - Landlord's Entrance) and, during the continuance
of any such work, to temporarily close doors, entryways, public spaces and
corridors in the Building, to interrupt or temporarily suspend Building
services and facilities and to change the arrangement and location of entrances
or passageways, doors and doorways, stairs, corridors, elevators, toilets, or
other public parts of the Building, all without abatement of rent or affecting
any of Tenant's obligations hereunder, so long as the Premises are reasonably
accessible.
(b) To have and retain a paramount title to the Premises free and clear of
any act of Tenant purporting to burden or encumber them.
(c) To change the name by which the Building is designated subject to
Tenant's prior written approval, which shall not be unreasonably withheld.
(d) To grant to anyone the exclusive right to conduct any business or render
any service in or to the Building, provided such exclusive right shall not
operate to exclude Tenant from the use expressly permitted herein.
(e) To take all such reasonable measures as Landlord may deem advisable for
the security of the Building and its occupants, including without limitation,
the search of all persons entering or leaving the Building, the evacuation of
the Building for cause, suspected cause or for drill purposes, the temporary
denial of access to the Building, and the closing of the Building after normal
business hours and on Saturdays, Sundays and holidays, subject, however, to
Tenant's right to admittance when the Building
<PAGE> 18
is closed after normal business hours under such reasonable regulations as
Landlord may prescribe from time to time which may include by way of example
but not of limitation, that persons entering or leaving the Building,
whether or not during normal business hours, identify themselves to a security
officer by registration or otherwise and that such persons establish their
right to enter or leave the Building.
In the event Landlord exercises any right contained in this Section,
such action shall not constitute an eviction, constructive or actual, or
disturbance of Tenant's use or possession and shall not give rise to any claim
for set off or abatement of rent.
SECTION 26. NOTICES
Unless otherwise notified in writing, all notices or demands required
or permitted to be given pursuant to this Lease shall be deemed to have been
given or served only if they are made in writing and personally delivered or
sent certified or registered mail, postage prepaid, and addressed as follows:
TENANT: LANDLORD:
Lawrence L. Allman Gregory A. Weed
President 929 W. Sprague Ave.
S. 801 Stevens Street Spokane, WA 99223
Spokane, WA 99204
and
Carol Haugen Bruce J. Blohowiak
Legal Department 929 W. Sprague Ave.
S. 801 Stevens Street Spokane, WA 99223
Spokane, WA 99204
SECTION 27. FORCE MAJEURE
Each party shall not be liable nor responsible for any default under
the terms and conditions of this Lease that are caused by any delays due to
strikes, riots, acts of God, shortages of labor or materials, war, governmental
laws, regulations, or restrictions, or any other causes of any kind whatsoever
which are beyond the reasonable control of the non-performing party.
SECTION 28. ESTOPPEL CERTIFICATE
Within ten (10) days following any written request from Landlord,
Tenant shall execute and deliver to Landlord a certificate indicating that the
Lease is in full force and effect and that the Landlord is not in default of
any terms and conditions of the Lease, or alternatively, specifying the nature
of any claimed default, and the dates through which Base Rent, Additional Rent
and other charges have been paid.
SECTION 29. SEVERABILITY
The terms and conditions of this Lease shall be deemed severable and
the invalidity or unenforceability of any such term or condition shall not
affect the validity and enforceability of
<PAGE> 19
all other terms and conditions. In the event any term or condition of this
Lease is unenforceable, for any reason, that term or condition shall be
appropriately limited and given effect to the extent it may be enforceable.
SECTION 30. AMENDMENTS; BINDING EFFECT
This Lease may not be altered, changed, or amended, except by
instrument in writing signed by both parties hereto. The terms, provisions,
covenants and conditions contained in this Lease shall apply to, inure to the
benefit of, and be binding upon the parties hereto, and upon their respective
successors in interest and legal representatives, except as otherwise expressly
provided herein.
SECTION 31. GENDER
Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
SECTION 32. CAPTIONS
The captions contained in this Lease are for convenience of reference
only, and in no way limit or enlarge the terms and conditions of this Lease.
SECTION 33. ADDITIONAL PROVISIONS.
DRAFTING. This Lease shall be interpreted as if Landlord and Tenant
each drafted this document.
JURISDICTION AND VENUE. This Lease shall be governed by the laws of
the State of Washington and any law suit arising out of Lease shall be filed in
Spokane County, Washington
QUIET ENJOYMENT. So long as Tenant pays its rent and any other money
due under this Lease and observes and performs the terms, covenants, and
conditions under this Lease, Tenant will peacefully, quietly occupy, and enjoy
the full possession of the Premises without molestation of hinderance.
TENANT ENDORSEMENT. Landlord shall not use Tenant's name or identify
for promotional or other reasons without Tenant's prior written approval.
WITNESS, the signature of the parties hereto in multiple copies, this the
26th day of May, 1994
LANDLORD: TENANT:
Metropolitan Mortgage & Itronix Corporation
Securities Company
By: /s/ Bruce J. Blohowiak By: /s/ Lawrence L. Allman
-------------------------- -------------------------------
Its: Vice President Its: President & CEO
-------------------------- -------------------------------
<PAGE> 1
Exhibit 10.3
AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN
AND
SECURITY AGREEMENT
Amended and Restated Revolving Credit, Term Loan and Security
Agreement dated as of March 31, 1995 by and among TELXON CORPORATION
("Telxon"), a corporation organized under the laws of the State of Delaware,
THE RETAIL TECHNOLOGY GROUP, INC. ("Retail"), a corporation organized under the
laws of the State of Delaware, TELETRANSACTION, INC. ("Teletransaction"), a
corporation organized under the laws of the State of Delaware, ITRONIX
CORPORATION ("Itronix"), a corporation organized under the laws of the State of
Washington, MICROOFFICE SYSTEMS TECHNOLOGY, INC. ("MicroOffice"), a corporation
organized under the laws of the State of Delaware, PTC AIRCO, INC. ("PTC"), a
corporation organized under the laws of the State of Delaware (Telxon, Retail,
Teletransaction, Itronix, MicroOffice and PTC., each a "Borrower" and, jointly
and severally, the "Borrowers"), the undersigned financial institutions and the
various financial institutions which in accordance with Section 16.3 become
Lenders hereunder (collectively the "Lenders") and THE BANK OF NEW YORK
COMMERCIAL CORPORATION ("BNYCC"), a corporation organized under the laws of the
State of New York, as agent for Lenders (BNYCC in such capacity, the "Agent").
Borrowers, Lenders and Agent are parties to a Revolving Credit,
Term Loan and Security Agreement dated as of October 20, 1993 which has been
amended by (i) a First Amendment to Revolving Credit, Term Loan and Security
Agreement dated as of March 30, 1994, and (ii) a Second Amendment to Revolving
Credit, Term Loan and Security Agreement dated as of June 10, 1994 (the
"Original Loan Agreement").
By execution of this Agreement, Borrowers, Lenders and Agent wish
to amend and restate the Original Loan Agreement on the terms and conditions
hereinafter set forth.
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, each of the Borrowers and Lenders hereby agree as follows:
A. AMENDMENT AND RESTATEMENT
As of the date of this Agreement, the terms, conditions,
covenants, agreements, representations and warranties contained in the Original
Loan Agreement shall be deemed amended and restated in their entirety as
follows and the Original Loan Agreement shall be consolidated with and into and
superseded by this Agreement; provided, however, that nothing contained in this
Agreement shall impair, limit or affect the Liens heretofore granted, pledged
and/or assigned as security for Borrowers' obligations under the Original Loan
Agreement.
I. DEFINITIONS.
<PAGE> 2
1.1. Accounting Terms. As used in this Agreement,
the Note, or any certificate, report or other document made or delivered
pursuant to this Agreement, accounting terms not defined in Section 1.2 or
elsewhere in this Agreement and accounting terms partly defined in Section 1.2
to the extent not defined, shall have the respective meanings given to them
under GAAP; provided, however, that whenever such accounting terms are used for
the purposes of determining compliance with financial covenants in this
Agreement, such accounting terms shall be defined in accordance with generally
accepted accounting principles applied in the preparation of the audited
financial statements of Telxon and its Subsidiaries on a Consolidated Basis for
the fiscal year ended March 31, 1993, consistently applied.
1.2. General Terms. For purposes of this Agreement
the following terms shall have the following meanings:
"Advances" shall mean and include the Revolving Advances,
the Alternate Currency Advances, Letters of Credit and the Term Loan.
"Advance Rates" shall have the meaning set forth in Section
2.1(a) hereof.
"Affiliate" of any Person shall mean (a) any Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person, or (b) any Person
who is a director or officer (i) of such Person, (ii) of any Subsidiary of such
Person or (iii) of any Person described in clause (a) above. For purposes of
this definition, control of a Person shall mean the power, direct or indirect,
(x) to vote 10% or more of the securities having ordinary voting power for the
election of directors of such Person, or (y) to direct or cause the direction
of the management and policies of such Person whether by contract or otherwise.
"AIRONET" shall mean AIRONET Wireless Communications, Inc.,
a corporation organized under the laws of the State of Delaware.
"Alternate Base Rate" shall mean, for any day, a rate per
annum equal to the higher of (i) the Prime Rate in effect on such day and (ii)
the Federal Funds Rate in effect on such day plus 1/2 of 1%.
"Alternate Currency" means Pounds Sterling, Deutsche-Marks,
Lire, Australian Dollars, Canadian Dollars, French Francs and at Agent's sole
discretion, any other major currency (other than Dollars) which at the time a
request for an Alternate Currency Advance is made, is freely convertible and
transferable into Dollars and readily available to the Alternate Currency Bank
in the ordinary course of its dealings in the interbank Eurocurrency market.
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<PAGE> 3
"Alternate Currency Advances" shall mean Advances made
pursuant to Section 2.1(A) hereof.
"Alternate Currency Bank" shall mean The Bank of New York or
any affiliate thereof.
"Alternate Currency Interest Rate" shall mean for any
Alternate Currency Advance for the then current Interest Period relating
thereto, the rate per annum (such Alternate Currency Interest Rate to be
adjusted to the next higher 1/100 of one percent) equal to the rate which banks
will lend in interbank Eurocurrency market in the relevant Alternate Currency
for delivery on the first date of such Interest Period and in an amount
comparable to the principal amount of such Alternate Currency Advance
determined as of approximately 11:00 a.m. (New York time) two (2) Business Days
before the beginning of such Interest Period.
"Authority" shall have the meaning set forth in Section
4.19(d).
"Balance Sheet" shall have the meaning set forth in Section
5.5(a) hereof.
"Bank" shall mean The Bank of New York and any successor
thereto.
"Blocked Accounts" shall have the meaning set forth in
Section 4.15(h).
"Borrower" or "Borrowers" shall have the meaning set forth
in the preamble to this Agreement and shall extend to all permitted successors
and assigns of such Persons.
"Business Day" shall mean with respect to Eurodollar Loans,
any day on which commercial banks are open for domestic and international
business, including dealings in Dollar deposits in London, England or New York,
New York, with respect to Alternate Currency Advances, any day on which
commercial banks are open for domestic and international business and on which
dealings in such Alternate Currency are carried out in the offshore interbank
market and in the principal city in which dealings in such Alternate Currency
are settled and with respect to all other loans, any day other than a day on
which commercial banks in New York are authorized or required by law to close.
"CERCLA" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C.
Sections 9601 et seq.
"Certificate" shall have the meaning given to such term in
Section 3.3(d).
"Change of Control" shall mean (a) the occurrence of any
event (whether in one or more transactions) which results in a
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<PAGE> 4
transfer of control of any Borrower (other than Telxon) to a Person who is not
an Original Owner or (b) any merger or consolidation of or with any Borrower or
sale of all or substantially all of the property or assets of any Borrower.
For purposes of this definition, "control of any Borrower" shall mean the
power, direct or indirect (x) to vote 50% or more of the securities having
ordinary voting power for the election of directors of any Borrower or (y) to
direct or cause the direction of the management and policies of any Borrower by
contract or otherwise.
"Charges" shall mean all taxes, charges, fees, imposts,
levies or other assessments, including, without limitation, all net income,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation
and property taxes, custom duties, fees, assessments, liens and charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts, imposed by any taxing or other authority, domestic or
foreign (including, without limitation, the Pension Benefit Guaranty
Corporation or any environmental agency or superfund), upon the Collateral or
any Borrower.
"Claims" shall mean all security interests, liens, claims or
encumbrances held or asserted by any Person against any or all of the
Collateral or the Real Property, other than (A) Charges and (B) Permitted
Encumbrances.
"Closing Date" shall mean October 20, 1993 or such other
date as may be agreed to by the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time together with the regulations promulgated thereunder.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles;
(d) all Inventory;
(e) the Texas Real Property;
(f) all of each Borrower's right, title and
interest in and to (i) its respective goods and other property including, but
not limited to all merchandise returned or rejected by Customers, relating to
or securing any of the Receivables; (ii) all of each Borrower's rights as a
consignor, a consignee, an unpaid vendor, mechanic, artisan, or other lienor,
including
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<PAGE> 5
stoppage in transit, setoff, detinue, replevin, reclamation and repurchase;
(iii) all additional amounts due to any Borrower from any Customer relating to
the Receivables; (iv) other property, including warranty claims, relating to
any goods securing this Agreement; (v) all of each Borrower's contract rights
(but excluding contract rights to the extent the agreements relating thereto
prohibit the granting of a lien in such rights and such prohibitions relating
to Borrowers' material contracts have been disclosed to Agent in writing and
have not been waived by the applicable party under such agreements), rights of
payment which have been earned under a contract right, instruments, documents,
chattel paper, warehouse receipts, deposit accounts, money and securities; (vi)
if and when obtained by any Borrower, all real and personal property of third
parties in which such Borrower has been granted a lien or security interest as
security for the payment or enforcement of Receivables; and (vii) any other
goods, personal property or real property now owned or hereafter acquired in
which any Borrower has expressly granted a security interest or may in the
future grant a security interest to Agent hereunder, under any Security
Document or in any amendment or supplement hereto or thereto, or under any
other agreement between Agent and any Borrower;
(g) all of Borrowers' ledger sheets, ledger
cards, files, correspondence, records, books of account, business papers,
computers, computer software (whether owned by any Borrower or in which it has
an interest), computer programs, tapes, disks and documents relating to (a),
(b), (c), (d), (e) or (f) of this Paragraph; and
(h) all proceeds and products of (a), (b), (c),
(d), (e), (f) and (g) in whatever form, including, but not limited to: cash,
deposit accounts (whether or not comprised solely of proceeds), certificates of
deposit, insurance proceeds (including hazard, flood and credit insurance),
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements or documents, eminent domain proceeds, condemnation
proceeds and tort claim proceeds.
Notwithstanding the foregoing, Collateral shall not include the
thirty-four percent of the issued and outstanding shares of capital stock of
the Foreign Subsidiaries that is not being pledged pursuant to the Pledge
Agreements.
"Commitment Percentage" of any Lender shall mean the
percentage set below such Lender's name on the signature page hereof as same
may be adjusted upon any assignment by a Lender pursuant to Section 16.3(b)
hereof.
"Commitment Transfer Supplement" shall mean a document in
the form of Exhibit 16.3 hereto, properly completed and otherwise in form and
substance satisfactory to Agent by which the Purchasing Lender purchases and
assumes a portion of the obligation of a Lender to make Advances under this
Agreement.
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<PAGE> 6
"Consents" shall mean all filings and all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
and transnational authorities and other third parties, domestic or foreign,
necessary to carry on any Borrower's business, including, without limitation,
any consents required under all applicable federal, state or other applicable
law or regulation.
"Contract Rate" shall mean, as applicable, the Revolving
Interest Rate, the Term Loan Rate and the Alternate Currency Interest Rate.
"Controlled Group" shall mean all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with any Borrower, are
treated as a single employer under Section 414 of the Code.
"Current Assets" at a particular date, shall mean all cash,
cash equivalents, accounts and inventory of Telxon and its Subsidiaries and all
other items which would, in conformity with GAAP, be included under current
assets on a balance sheet of Telxon and its Subsidiaries on a Consolidated
Basis as at such date; provided, however, that such amounts shall not include
(a) any amounts for any Indebtedness owing by an Affiliate to any of Telxon or
its Subsidiaries, unless such Indebtedness arose in connection with the sale of
goods or rendition of services in the ordinary course of business and would
otherwise constitute current assets in conformity with GAAP, (b) any shares of
stock issued by an Affiliate of any Borrower, or (c) the cash surrender value
of any life insurance policy.
"Current Liabilities" at a particular date, shall mean all
amounts which would, in conformity with GAAP, be included under current
liabilities on a balance sheet of Telxon and its Subsidiaries on a Consolidated
Basis, as at such date, but in any event including, without limitation, the
amounts of (a) all Indebtedness of Telxon or any of its Subsidiaries payable on
demand, or, at the option of the Person to whom such Indebtedness is owed, not
more than twelve (12) months after such date, (b) any payments in respect of
any Indebtedness of Telxon or any of its Subsidiaries (whether installment,
serial maturity, sinking fund payment or otherwise) required to be made not
more than twelve (12) months after such date, (c) all reserves in respect of
liabilities or Indebtedness payable on demand or, at the option of the Person
to whom such Indebtedness is owed, not more than twelve (12) months after such
date, the validity of which is not contested at such date, (d) all accruals for
federal or other taxes measured by income payable within a twelve (12) month
period, and (e) all Revolving Advances and Alternate Currency Advances.
"Customer" shall mean and include the account debtor with
respect to any Receivable and/or the prospective purchaser of goods, services
or both with respect to any contract or contract
-6-
<PAGE> 7
right, and/or any party who enters into or proposes to enter into any contract
or other arrangement with any Borrower, pursuant to which such Borrower is to
deliver any personal property or perform any services.
"Deed" shall mean that certain Deed of Trust, Assignment of
Rents and Security Agreement from Telxon to Jim Kletke, Esq., as Trustee for
the benefit of Agent on the Texas Real Property.
"Default" shall mean an event which, with the giving of
notice or passage of time or both, would constitute an Event of Default.
"Default Rate" shall have the meaning set forth in Section
3.1 hereof.
"Depository Accounts" shall have the meaning set forth in
Section 4.15(h) hereof.
"Dollar Equivalent" means, with respect to any amount
denominated in an Alternate Currency, the amount of Dollars obtained by
converting the amount of such Alternate Currency into Dollars at the spot rate
for the purchase of Dollars with such Alternate Currency, as applicable, as
quoted by the Alternate Currency Bank at approximately 11:00 a.m. (New York
time) on the date of determination thereof.
"Dollars" and the sign "$" without any preceding notation or
initials shall mean lawful money of the United States of America.
"Domestic Loan" shall mean any Advance with interest being
charged based upon the Alternate Base Rate.
"Earnings Before Interest and Taxes" shall mean net income
of Telxon and its Subsidiaries on a Consolidated Basis before interest and
taxes.
"Effective Date" shall mean March 31, 1995 or such other
date as may be agreed to by the parties hereto.
"Eligible Inventory" shall mean and include Inventory,
excluding work in process, with respect to each Borrower valued at the lower of
cost or market value, determined on a first-in-first-out basis, which is not,
in the reasonable opinion of the Agent, obsolete, slow moving or unmerchantable
and which the Agent, in its reasonable discretion, shall not deem ineligible
Inventory, based on such considerations as the Agent may from time to time deem
appropriate including, without limitation, whether the Inventory is subject to
a perfected, first priority security interest in favor of Agent and whether the
Inventory conforms to all standards imposed by any governmental agency,
division or department thereof which has regulatory authority over such goods
or the use or sale thereof.
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<PAGE> 8
"Eligible Receivables" shall mean and include with respect
to each Borrower each Receivable of such Borrower arising in the ordinary
course of such Borrower's business and which the Agent, in its credit judgment,
shall deem to be an Eligible Receivable, based on such considerations as the
Agent may from time to time reasonably deem appropriate. A Receivable shall
not be deemed eligible unless such Receivable is subject to Agent's perfected
security interest and no other Lien other than Permitted Encumbrances, and is
evidenced by an invoice, bill of lading or other documentary evidence
satisfactory to the Agent. In addition, no Receivable shall be an Eligible
Receivable if:
(a) it arises out of a sale made by any Borrower to an
Affiliate of any Borrower or to a Person controlled by an Affiliate of any
Borrower;
(b) it is due or unpaid more than sixty (60) days after the
original due date or one hundred and twenty (120) days after the original
invoice date;
(c) twenty-five percent (25%) or more of the Receivables
from the Customer are not deemed Eligible Receivables under paragraph (b)
above;
(d) any covenant, representation or warranty contained in
this Agreement with respect to such Receivable has been breached;
(e) the Customer is also a creditor or supplier of any
Borrower, or the Customer has disputed liability or made any claim with respect
to any other Receivable due from such Customer to any Borrower, or the
Receivable otherwise is or may become subject to any right of setoff by the
Customer;
(f) the Customer shall (i) apply for, suffer, or consent to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or other fiduciary of itself or of all or a substantial
part of its property or call a meeting of its creditors, (ii) admit in writing
its inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business, (iii) make a general assignment for
the benefit of creditors, (iv) commence a voluntary case under any state or
federal bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a
bankrupt or insolvent, (vi) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (vii) acquiesce to, or fail to
have dismissed, any petition which is filed against it in any involuntary case
under such bankruptcy laws, or (viii) take any action for the purpose of
effecting any of the foregoing;
(g) the sale is to a Customer outside the continental
United States of America, unless the sale is on letter of credit, guaranty or
acceptance terms, in each case acceptable to the Agent in its discretion;
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<PAGE> 9
(h) the sale to the Customer is on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper;
(i) Agent believes, in its reasonable judgment, that
collection of such Receivable is insecure or that such Receivable may not be
paid by reason of the Customer's financial inability to pay;
(j) the Customer is the United States of America, any state
or any department, agency or instrumentality of any of them, unless the
applicable Borrower effectuates an assignment of its right to payment of such
Receivable to Agent pursuant to the Assignment of Claims Act of 1940, as
amended (31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15) or
has otherwise complied with other applicable statutes or ordinances; provided,
however, this paragraph shall not apply at any time that the aggregate amount
of Receivables which would otherwise be Eligible Receivables but for the
operation of this paragraph (j) does not exceed $250,000.
(k) the goods giving rise to such Receivable have not been
shipped and delivered to and accepted by the Customer or the services giving
rise to such receivable have not been performed by the applicable Borrower and
accepted by the Customer or the Receivable otherwise does not represent a final
sale;
(l) the Receivables of the Customer exceed a credit limit
determined by the Agent, in its reasonable discretion, to the extent such
Receivable exceeds such limit;
(m) the Receivable is subject to any offset, deduction,
defense, dispute, or counterclaim but only to the extent of the maximum amount
of such offset, deduction, defense, dispute or counterclaim or if the
Receivable is contingent in any respect or for any reason;
(n) the applicable Borrower has made any agreement with the
Customer for any deduction therefrom, except for discounts or allowances made
in the ordinary course of business for prompt payment, all of which discounts
or allowances are reflected in the calculation of the face value of each
respective invoice related thereto;
(o) shipment of the merchandise or the rendition of
services has not been completed or accepted by Customer;
(p) any return, rejection or repossession of the
merchandise has occurred but only to the extent of the value of such return,
rejection or repossession;
(q) such Receivable is not payable to a Borrower; or
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(r) such Receivable is not otherwise satisfactory to the
Agent as determined in good faith by the Agent in the exercise of its
discretion in a reasonable manner.
"Environmental Complaint" shall have the meaning set forth
in Section 4.19(d) hereof.
"Environmental Laws" shall mean all federal, state, foreign
and local environmental, land use, zoning, health, chemical use, safety and
sanitation laws, statutes, ordinances and codes relating to the protection of
the environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state, foreign and local
governmental agencies and authorities with respect thereto.
"Equipment" shall mean and include as to each Borrower all
of such Borrower's goods (excluding Inventory) whether now owned or hereafter
acquired and wherever located including, without limitation, all equipment,
plant, machinery, apparatus, motor vehicles, fittings, furniture, furnishings,
fixtures, parts, accessories and all replacements and substitutions therefor or
accessions thereto.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time and the rules and regulations
promulgated thereunder.
"Eurodollar Loan" shall mean any Advance with interest being
charged based upon the Eurodollar Rate.
"Eurodollar Rate" shall mean for any Eurodollar Loan for the
then current Interest Period relating thereto the rate per annum (such
Eurodollar Rate to be adjusted to the next higher 1/100 of one percent) equal
to the quotient of (a) LIBOR, divided by (b) a number equal to 1.00 minus the
aggregate of the rates (expressed as a decimal) of reserve requirements current
on the day that is two (2) Business Days prior to the beginning of the Interest
Period (including, without limitation, basic, supplemental, marginal and
emergency reserves) under any regulation promulgated by the Board of Governors
of the Federal Reserve System (or any other governmental authority having
jurisdiction over Bank) as in effect from time to time dealing with reserve
requirements prescribed for eurocurrency funding including any reserve
requirements with respect to "eurocurrency liabilities" under Regulation D of
the Board of Governors of the Federal Reserve System.
"Event of Default" shall mean the occurrence of any of the
events set forth in Article X hereof.
"Federal Funds Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by
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<PAGE> 11
Federal funds brokers, as published for such day (or if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or if such rate is not so published for any day which is a
Business Day, the average of quotations for such day on such transactions
received by the Bank from three Federal funds brokers of recognized standing
selected by the Bank.
"Fixed Charge Coverage" shall mean and include, with respect
to any fiscal period, the ratio of (a) Earnings Before Interest and Taxes plus
depreciation, amortization and other non-cash charges to (b) all principal and
interest payments made or scheduled to be made by Telxon and its Subsidiaries
on their Indebtedness for borrowed money, excluding the principal amount of
Revolving Advances and Alternate Currency Advances.
"Formula Amount" shall have the meaning set forth in Section
2.1(a).
"Foreign Subsidiaries" shall mean those Subsidiaries of
Telxon which are incorporated outside of the United States of America.
"Foreign Subsidiary Guarantors" shall mean Telxon Foreign.
"GAAP" shall mean generally accepted accounting principles
in the United States of America in effect from time to time.
"General Intangibles" shall mean and include as to each
Borrower all of such Borrower's general intangibles, whether now owned or
hereafter acquired including, without limitation, all choses in action, causes
of action, corporate or other business records, inventions, designs, patents,
patent applications, equipment formulations, manufacturing procedures, quality
control procedures, trademarks, service marks, trade secrets, goodwill,
copyrights, design rights, registrations, licenses, franchises, customer lists,
tax refunds, tax refund claims, computer programs, claims under guaranties,
security interests or other security held by or granted to such Borrower to
secure payment of any of the Receivables by a Customer, rights of
indemnification and all other intangible property of such Borrower of every
kind and nature (other than Receivables).
"Governmental Body" shall mean any nation or government, any
state or other political subdivision thereof or any entity exercising the
legislative, judicial, regulatory or administrative functions of or pertaining
to a government.
"Guarantor" shall mean the Foreign Subsidiary Guarantors,
AIRONET, Telxon Trading, Penright!, Metanetics, Products and any other Person
who executes a Guaranty.
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"Guarantor Security Agreements" shall mean individually and
collectively, each security agreement executed by Telxon Foreign, AIRONET,
Telxon Trading, Penright!, Metanetics, Products and any other Subsidiary of
Telxon in favor of Agent.
"Guaranty" or "Guarantees" shall mean individually and
collectively, each guaranty of the obligations of a Borrower executed by a
Guarantor in favor of Agent.
"Hazardous Discharge" shall have the meaning set forth in Section 4.19(d)
hereof.
"Hazardous Substance" shall mean, without limitation, any
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated byphenyls, petroleum and petroleum products,
methane, hazardous materials, hazardous wastes, hazardous or toxic substances
or related materials as defined in CERCLA, the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA or any
other applicable Environmental Law and in the regulations adopted pursuant
thereto.
"Hazardous Wastes" includes all waste materials subject to
regulation under CERCLA, RCRA or applicable state law, and any other applicable
Federal and state laws now in force or hereafter enacted relating to hazardous
waste disposal.
"Indebtedness" of a Person at a particular date shall mean
all obligations of such Person which in accordance with GAAP would be
classified upon a balance sheet as liabilities (except capital stock and
surplus earned or otherwise) and in any event, without limitation by reason of
enumeration, shall include all indebtedness, debt and other similar monetary
obligations of such Person whether direct or guaranteed, and all premiums, if
any, due in connection with the payment of such indebtedness, and all
indebtedness secured by a Lien on assets owned by such Person, whether or not
such indebtedness actually shall have been created, assumed or incurred by such
Person. Any indebtedness of such Person resulting from the acquisition by such
Person of any assets subject to any Lien shall be deemed, for the purposes
hereof, to be the equivalent of the creation, assumption and incurring of the
indebtedness secured thereby, whether or not actually so created, assumed or
incurred.
"Interest Period" shall mean the period provided for any
Eurodollar Rate Loan or any Alternate Currency Advance pursuant to Section
2.2(b).
"Inventory" shall mean and include as to each Borrower all
of such Borrower's now owned or hereafter acquired goods, merchandise and other
personal property, wherever located, to be furnished under any contract of
service or held for sale or lease, raw materials, work in process, finished
goods and materials and supplies of any kind, nature or description which are
or might be
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<PAGE> 13
used or consumed in such Borrower's business or used by such Borrower in
selling or furnishing such goods, merchandise and other personal property, and
all documents of title or other documents representing them.
"Inventory Advance Rate" shall have the meaning set forth in
Section 2.1(a)(ii) hereof.
"Lender" and "Lenders" shall have the meaning ascribed to
such term in the Preamble and shall include each person which is a transferee,
successor or assign of any Lender.
"Lending Office" means, (a) for each Lender and for each
type of Advance other than Alternate Currency Advances, the lending office of
such Lender (or for an affiliate of such Lender) designated as such for such
type of Advance on its signature page hereof or such other office of such
Lender (or of an affiliate of such Lender) as such Lender may time to time
specify to Agent and Borrowers as the office by which its Advances of such type
are to be made and maintained and (b) for each Alternate Currency Bank, the
lending office of such Alternate Currency Bank located in the principal city in
which dealings in the relevant Alternate Currency are settled or such other
office as the Alternate Currency Bank may from time to time specify to Agent
and Borrowers as the office by which Alternate Currency Advances are to be
made, maintained and paid.
"Letters of Credit" shall have the meaning set forth in
Section 2.9.
"Letter of Credit Application" shall have the meaning set
forth in Section 2.10(a).
"Letter of Credit and Security Agreement" shall have the
meaning set forth in Section 2.9.
"Letter of Credit Fees" shall have the meaning set forth in
Section 3.2.
"LIBOR" shall mean for any Eurodollar Loan for the then
current Interest Period relating thereto, the rate per annum quoted by the Bank
two (2) Business Days prior to the first day of such Interest Period for the
offering by the Bank to prime commercial banks in the London interbank
eurodollar market of Dollar deposits, in immediately available funds for a
period equal to such Interest Period and in an amount equal to the amount of
such Eurodollar Loan.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), Charge, Claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement in respect of any asset of any
kind or nature whatsoever including, without limitation, any conditional sale
or
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<PAGE> 14
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the Uniform Commercial Code or comparable
law of any jurisdiction.
"Maximum Loan Amount" shall mean $50,000,000 less repayments
of the Term Loan.
"Maximum Revolving Advance Amount" shall mean $44,500,000.
"Metanetics" shall mean Metanetics Corporation, a
corporation organized under the laws of the State of Delaware.
"Mortgages" shall mean the mortgages and/or deeds of trust
on the Texas Real Property together with all extensions, renewals, amendments,
supplements, modifications, substitutions and replacements thereto and thereof.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Sections 3(37) and 4001(a)(3) of ERISA.
"Net Worth" at a particular date, shall mean all amounts
which would be included under shareholders' equity on a balance sheet of Telxon
and its Subsidiaries on a Consolidated Basis.
"Note" shall mean collectively, the Revolving Credit Note
and the Term Note.
"Obligations" shall mean and include any and all of each
Borrower's Indebtedness and/or liabilities to Agent or Lenders of every kind,
nature and description, direct or indirect, secured or unsecured, joint,
several, joint and several, absolute or contingent, due or to become due, now
existing or hereafter arising, contractual or tortious, liquidated or
unliquidated, regardless of how such indebtedness or liabilities arise or by
what agreement or instrument they may be evidenced or whether evidenced by any
agreement or instrument, including, but not limited to, any and all of each
Borrower's Indebtedness and/or liabilities under this Agreement, under the
Other Loan Documents, any Guaranty or under any other agreement between Agent
or Lenders and any Borrower and all obligations of each Borrower to Agent or
Lenders to perform acts or refrain from taking any action but excluding
Borrowers' Indebtedness under the Subordinated Debt Documentation.
"Original Owner" shall mean Telxon.
"Other Loan Documents" shall mean the Mortgages, the Note,
the Letter of Credit and Security Agreement, the Letter of Credit Application,
the Patent and Trademark Assignments, the Guarantees, the Guarantor Security
Agreements, the Pledge Agreements and any and all other agreements, instruments
and documents, now or hereafter executed by any Borrower or any
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<PAGE> 15
Guarantor in favor of Agent or any Lender in respect of the transactions
contemplated by this Agreement.
"Patent, Trademark and Copyright Assignments" shall mean
collectively, the Trademark Collateral Security Agreement, the Patent
Collateral Security Agreement, the Copyright Security Agreement and the
Assignments for Security executed by any Borrower in favor of Agent.
"Payment Office" shall mean initially Agent's office at 530
Fifth Avenue, New York, New York 10036; thereafter, such other office of Agent,
if any, which it may designate by notice to Telxon to be the payment office.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Penright!" shall mean PenRight! Corporation, a corporation
organized under the laws of the State of Delaware.
"Permitted Acquisitions" shall mean an acquisition by any
Borrower or any Permitted Acquisition Subsidiary of the assets or stock of a
Person provided that (i) no Event of Default or Default shall have occurred and
be continuing, (ii) after giving effect to such acquisition there shall not
exist any Event of Default or Default, (iii) after giving effect to such
acquisition the outstanding amount of Advances (other than the Term Loan) shall
not exceed $3,000,000, (iv) the aggregate purchase price paid (including,
without limitation, all liabilities assumed in connection with such
acquisition) of all such acquisitions made during any fiscal year (excluding
all such acquisitions consummated prior to the Closing Date) shall not exceed
$5,000,000, (v) Telxon shall keep Agent informed with respect to its or any
other Borrower's plans for any acquisition, (vi) no Borrower shall merge with
any Person being so acquired, (vii) the acquired assets shall not be included
in Eligible Receivables and Eligible Inventory and (viii) (x) in the event any
Borrower acquires less than fifty percent (50%) of the capital stock of any
Person, such Borrower shall pledge to Agent for the benefit of Lenders as
collateral security for the Obligations the shares of stock of such Person
pursuant to documentation in form and substance satisfactory to Agent and (y)
in the event any Borrower acquires fifty percent (50%) or more of the capital
stock of any Person or creates a new entity to acquire the assets of any
Person, Lenders shall receive a Guaranty from such Person which Guaranty shall
be secured by a Lien on all of the assets of such Person.
"Permitted Acquisition Subsidiary" shall mean a Subsidiary
of any Borrower created by such Borrower for the sole purpose of consummating a
Permitted Acquisition.
"Permitted Encumbrances" shall mean (a) Liens in favor of
Agent for the benefit of Lenders; (b) Liens for taxes, assessments or other
governmental charges not delinquent, or, being
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<PAGE> 16
contested in good faith and by appropriate proceedings and with respect to
which proper reserves have been taken by Borrowers; provided, that, the Lien
shall have no effect on the priority of the Liens in favor of Agent except for
such Liens that secure amounts not to exceed $250,000 in the aggregate
outstanding at anytime and reserves are established by Agent to protect Agent's
interest in the Collateral subject to such Liens or a stay of enforcement of
any such Lien shall be in effect; (c) Liens disclosed in the financial
statements referred to in Section 5.5, the existence of which Agent has
consented to in writing; (d) deposits or pledges to secure obligations under
worker's compensation, social security or similar laws, or under unemployment
insurance; (e) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
and appeal bonds and other obligations of like nature arising in the ordinary
course of Borrowers' business; (f) judgment Liens that have been stayed or
bonded and mechanics', worker's, materialmen's or other like Liens arising in
the ordinary course of Borrowers' business with respect to obligations which
are not due or which are being contested in good faith by Borrowers; (g) Liens
placed upon fixed assets acquired to secure a portion of the purchase price
thereof, provided that (x) any such lien shall not encumber any other property
of Borrowers and (y) the aggregate amount of Indebtedness secured by such Liens
incurred as a result of such purchases during any fiscal year shall not exceed
the amount provided for in Section 7.6; (h) financing statements covering
personal property of any Borrower which is leased by a Borrower, provided that
(x) any such financing statement covers only the personal property which is
leased and (y) no Borrower has the right or option to purchase such property
upon termination of the lease; and (i) Liens described in or disclosed on
Schedule 1.2.
"Person" shall mean an individual, a partnership, a company,
a corporation, a business trust, a joint stock company, a trust, an
unincorporated association, a joint venture, a governmental authority or any
other entity of whatever nature.
"Plan" shall mean any employee benefit plan within the
meaning of Section 3(3) of ERISA, maintained for employees of Borrower or any
member of the Controlled Group or any such Plan to which Borrower or any member
of the Controlled Group is required to contribute on behalf of any of its
employees.
"Pledge Agreements" shall mean collectively, the Pledge
Agreement in favor of Agent executed and delivered by Telxon with respect to
the pledge of stock of Telxon U.K., and the Pledge Agreement in favor of Agent
executed and delivered by AIRONET with respect to the pledge of stock of Telxon
Canada, and any other pledge agreement hereafter executed by any Borrower or
any Guarantor in favor of Agent, as amended, modified, supplemented and
reaffirmed form time to time together with the certificates evidencing such
stock and undated stock powers duly executed in blank with respect thereto.
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"Prime Rate" shall mean the prime commercial lending rate of
the Bank as publicly announced to be in effect from time to time, such rate to
be adjusted automatically, without notice, on the effective date of any change
in such rate. This rate of interest is determined from time to time by the
Bank as a means of pricing some loans to its customers and is neither tied to
any external rate of interest or index nor does it necessarily reflect the
lowest rate of interest actually charged by the Bank to any particular class or
category of customers of the Bank.
"Products" shall mean Telxon Products, Inc., a corporation
organized under the laws of the State of Delaware.
"Projections" shall have the meaning set forth in Section
5.5(b) hereof.
"Purchasing Lender" shall have the meaning given to such
term in Section 16.3 hereof.
"RCRA" shall mean the Resource Conservation and Recovery
Act, 42 U.S.C. Sections 6901 et seq., as same may be amended from time
to time.
"Real Property" shall mean all of Borrowers' right, title
and interest in and to the real property and improvements thereon owned or
leased by any Borrower, including, without limitation, the Texas Real Property
and all improvements thereon.
"Receivables" shall mean and include as to each Borrower all
of such Borrower's accounts, contract rights, instruments, documents, chattel
paper, general intangibles relating to accounts, drafts and acceptances, and
all other forms of obligations owing to such Borrower arising out of or in
connection with the sale or lease of Inventory or the rendition of services,
all guarantees and other security therefor, whether secured or unsecured, now
existing or hereafter created, and whether or not specifically sold or assigned
to Agent hereunder.
"Receivables Advance Rate" shall have the meaning set forth
in Section 2.1(a)(i) hereof.
"Register" shall have the meaning set forth in Section
16.3(d).
"Release" shall have the meaning set forth in Section
5.7(c)(i) hereof.
"Reportable Event" shall mean a reportable event described
in Section 4043(b) of ERISA or the regulations promulgated thereunder.
"Required Lenders" means at any time Lenders holding
Commitment Percentages of at least sixty-six and two-thirds percent (66 2/3%).
In the event any Lender fails to comply with its
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<PAGE> 18
commitments hereunder (after the Agent shall have given each non-defaulting
Lender other than BNYCC the option (which must be exercised within one (l)
Business Day) to fund its pro rata share of the amount not funded by any
defaulting Lender or, in the event only one non-defaulting Lender so opts to
purchase the amount not funded by the defaulting Lender, such Lender funds the
entire defaulted amount), the Commitment Percentages of all Lenders shall be
recalculated for purposes of this definition, so that the Commitment Percentage
of any Lender is equal to a percentage equivalent of a fraction of which the
numerator is the outstanding balance of Advances made by such Lender, including
Letters of Credit and Alternate Currency Advances which such Lender has an
obligation to participate in, and the denominator is the total outstanding
principal balance of all Advances.
"Revolving Advances" shall mean Advances made other than
Letters of Credit and the Term Loan.
"Revolving Credit Note" shall mean the promissory note
referred to in Section 2.1(a) hereof.
"Revolving Credit Commitment" shall mean for each Lender,
the commitment of each Lender to fund the Revolving Advances as provided in
Section 2.1(a) hereof, in a maximum amount equal to the product of its
Commitment Percentage and the Maximum Revolving Advance Amount.
"Revolving Interest Rate" shall mean an interest rate per
annum equal to (a) the sum of the Alternate Base Rate plus one percent (1.00%)
with respect to Domestic Loans, and (b) the sum of the Eurodollar Rate plus two
and one-half percent (2.5%) with respect to Eurodollar Rate Loans.
"Settlement Date" shall mean the Closing Date and thereafter
Wednesday of each week unless such day is not a Business Day in which case it
shall be the next succeeding Business Day.
"Subordinated Debt Documentation" shall mean the Indenture
dated as of June 1, 1987 between Telxon and AmeriTrust Company National
Association, the 7 1/2% Convertible Subordinated Debentures Due 2012 dated as
of the date of their respective authentication, in the aggregate original
principal amount of $46,000,000 issued by Telxon and all agreements, documents
and instruments executed in connection therewith.
"Subordinated Indebtedness" shall mean the Indebtedness of
Telxon evidenced by the Subordinated Debt Documentation.
"Subsidiary" of any Person shall mean a corporation or other
entity of whose shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having such power
only by reason of the happening of a contingency) to elect a majority of the
directors of such corporation, or other Persons performing similar functions,
i.e.,
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<PAGE> 19
voting, for such entity, are owned, directly or indirectly, by such Person.
"Tangible Net Worth" at a particular date shall mean (a) Net
Worth at such date, minus (b) the goodwill of Telxon and its Subsidiaries at
such date, minus (c) all assets included in the entry "intangible and other
assets" on the balance sheet of Telxon and its Subsidiaries on a Consolidated
Basis at such date minus (d) monies due from unconsolidated Affiliates of
Telxon and its Subsidiaries.
"Telxon Canada" shall mean AIRONET Canada Inc., formerly
known as Telxon Canada Corporation, Inc., a corporation organized under the
laws of Ontario.
"Telxon Foreign" shall mean Telxon Foreign Sales Corp., a
corporation organized under the laws of the Virgin Islands.
"Telxon and its Subsidiaries on a Consolidated Basis" shall
mean the consolidation in accordance with GAAP of the accounts or other items
of Telxon and its Subsidiaries.
"Telxon Trading" shall mean Telxon Trading Co., Inc., a
corporation organized under the laws of the State of Delaware.
"Telxon UK" shall mean Telxon Limited, a corporation
organized under the laws of the United Kingdom.
"Term" shall mean the Closing Date through March 31, 1996,
as same may be extended in accordance with the provisions of Section 13.1
hereof.
"Term Loan" shall mean the Advances made pursuant to Section
2.4 hereof.
"Term Loan Amount" shall mean an amount equal to the lesser
of (x) $5,500,000, or (y) 75% of the fair market value of Texas Real Property
as appraised by independent third parties who are satisfactory to Agent and
which appraisals comply in all respects with the Financial Institutions Reform,
Recovery and Enforcement Act.
"Term Loan Effective Date" shall mean for each installment
of the Term Loan the date all conditions precedent set forth in Sections 8.2
and 8.3 have been satisfied or to the extent not satisfied, waived by Agent and
Lenders.
"Term Loan Rate" shall mean an interest rate per annum equal
to (a) the sum of the Alternate Base Rate plus one percent (1.00%) with respect
to Domestic Loans, and (b) the sum of the Eurodollar Rate plus two and one-half
percent (2.50%) with respect to Eurodollar Rate Loans.
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"Term Note" shall mean the promissory note described in
Section 2.4 hereof.
"Termination Date" shall have the meaning set forth in
Section 13.1 hereof.
"Termination Event" shall mean (i) a Reportable Event with
respect to any Plan or Multiemployer Plan; (ii) the withdrawal of Telxon or any
member of the Controlled Group from a Plan or Multiemployer Plan during a plan
year in which such entity was a "substantial employer" as defined in Section
4001(a)(2) of ERISA; (iii) the providing of notice of intent to terminate a
Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the
institution by the PBGC of proceedings to terminate a Plan or Multiemployer
Plan; (v) any event or condition (a) which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan or Multiemployer Plan, or (b) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA; or (vi)
the partial or complete withdrawal within the meaning of Sections 4203 and 4205
of ERISA, of Telxon or any member of the Controlled Group from a Multiemployer
Plan.
"Texas Real Property" shall mean all of Telxon's rights and
interest in and to the real property located at West by Northwest Business Park
in Houston, Texas and all improvements thereon.
"Toxic Substance" shall mean and include any material
present on the Real Property which has been shown to have significant adverse
effect on human health or which is subject to regulation under the Toxic
Substances Control Act (TSCA), 15 U.S.C. Sections 2601 et seq., applicable
state law, or any other applicable Federal or state laws now in force or
hereafter enacted relating to toxic substances. "Toxic Substance" includes but
is not limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based
paints.
"Transferee" shall have the meaning set forth in Section
16.3(b) hereof.
"Trigger Event" shall have the meaning given to such term in
Section 3.3(b) hereof.
"Week" shall mean the time period commencing with a
Wednesday and ending on the following Tuesday.
"Working Capital" at a particular date, shall mean the
excess, if any, of Current Assets over Current Liabilities reduced by that
portion of the Term Loan Amount which has not been advanced at such date.
1.3. Uniform Commercial Code Terms. All terms used
herein and defined in the Uniform Commercial Code as adopted in the
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State of New York shall have the meaning given therein unless otherwise defined
herein.
II. ADVANCES, PAYMENTS.
2.1. (a) Revolving Advances. Subject to the
terms and conditions set forth in this Agreement, each Lender, severally and
not jointly, will from time to time upon Telxon's request, make Revolving
Advances to the Borrowers in aggregate amounts outstanding at any time not
greater than such Lender's Commitment Percentage of the lesser of (I) the
Maximum Revolving Advance Amount less the sum of (x) the aggregate amount of
outstanding Letters of Credit and (y) the Dollar Equivalent of Alternate
Currency Advances or (II) an amount equal to the sum of:
(i) up to 85%, subject to the provisions of Section
2.1(b) hereof ("Receivables Advance Rate"), of Eligible
Receivables less such reserves as Agent may reasonably deem
proper and necessary, plus
(ii) up to the lesser of (x) $7,000,000 or (y) up to
30%, subject to the provisions of Section 2.1(b) hereof
("Inventory Advance Rate") of the value of Eligible
Inventory less such reserves as Agent may reasonably deem
proper and necessary (the Receivables Advance Rate and
Inventory Advance Rate shall be referred to collectively as
the "Advance Rates"), minus
(iii) the aggregate amount of outstanding Letters of
Credit, minus
(iv) the Dollar Equivalent of the aggregate amount of
outstanding Alternate Currency Advances.
The sum of the amounts derived from Sections 2.1(a)(i) plus (ii) at
any time and from time to time shall be referred to as the "Formula Amount".
The Revolving Advances shall be evidenced by the secured promissory note
substantially in the form attached hereto as Exhibit 2.1(a).
(b) Discretionary Rights. The Advance
Rates and reserve may be increased or decreased by Lenders at any time and from
time to time in the exercise of their reasonable discretion. Borrowers consent
to any such increases or decreases and acknowledges that decreasing the Advance
Rates or increasing the reserve may limit or restrict Advances requested by any
Borrower. Agent shall give Telxon fifteen (15) days prior written notice of
the intention to decrease Advance Rates, together with an explanation of why
Agent has determined such a decrease is appropriate.
2.1(A) (a) Alternate Currency Advances. Subject to the
terms and conditions set forth in this Agreement, Agent
will from
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time to time upon Telxon's request, cause the Alternate Currency Bank to make
Advances to Borrowers in Alternate Currencies; provided, however, that Agent
will not cause Alternate Currency Advances to be made to the extent that the
Dollar Equivalent of such Alternate Currency Advances would then cause the sum
of (i) the outstanding Revolving Advances, plus (ii) the aggregate face amount
of outstanding Letters of Credit, plus (iii) the Dollar Equivalent of Alternate
Currency Advances (with the Dollar Equivalent of the requested Alternate
Currency Advance deemed to be outstanding for purposes of this calculation) to
exceed the lesser of (x) the Maximum Revolving Advance Amount or (y) the
Formula Amount. The maximum amount of the Dollar Equivalent of Alternate
Currency Advances together with the aggregate face amount of outstanding
Letters of Credit shall not exceed $10,000,000 in the aggregate at any time.
(b) Conversions. In determining the
amount of Advances outstanding, the amount of any Alternate Currency Advances
outstanding shall be converted to the Dollar Equivalent of such amount on the
date of any such determination.
2.2. Procedure for Revolving Advances and Alternate
Currency Advances Borrowing.
(a) Telxon, on behalf of any Borrower, may
from time to time request that Revolving Advances be made by Lenders to or for
the benefit of any Borrower in the amounts specified by notifying Agent not
later than 10:00 a.m. New York City time on a Business Day of its request to
incur, on that day, a Domestic Loan hereunder. Should any amount required to
be paid as interest hereunder, or as fees or other charges under this Agreement
or any other agreement with Agent or Lenders, or with respect to any other
Obligation, become due, same shall be deemed a request for a Revolving Advance
as of the date such payment is due, in the amount required to pay in full such
interest, fee, charge or Obligation under this Agreement or Other Loan
Document, and such request shall be irrevocable. Notwithstanding the
foregoing, at such times as the outstanding amount of the Advances (other than
the Term Loan) is less than $3,000,000, Agent shall not charge Borrowers'
account for such amounts, provided that Agent receives written notice from
Telxon at least one (1) Business Day prior to the due date of such payment that
Borrowers' intend to make payment of such amounts to Agent and such payments
are made to Agent in accordance with the terms of this Agreement or the Other
Loan Documents on or prior to the due date thereof.
(b) Notwithstanding the provisions of (a)
above, in the event Telxon on behalf of Borrowers desires to obtain a
Eurodollar Rate Loan or an Alternate Currency Advance, it shall give Agent at
least three (3) Business Days' prior written notice specifying (i) the date of
the proposed borrowing (which shall be a Business Day), (ii) the type of
borrowing and the amount to be borrowed, which amount with respect to
Eurodollar Rate Loans on the date of such Advance shall be an integral multiple
of $1,000,000,
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and with respect to Alternate Currency Advances on the date of such Advance
shall be an integral multiple of $100,000, (iii) the duration of the first
Interest Period therefor and (iv) if an Alternate Currency Advance is
requested, the requested currency of such Alternate Currency Advance. Interest
Periods for Eurodollar Rate Loans and Alternate Currency Advances shall be for
one, two or three month periods.
(c) Each Interest Period of a Eurodollar
Rate Loan or Alternate Currency Advance shall commence on the date such
Eurodollar Loan or Alternate Currency Advance is made and shall end on such
date as Telxon may elect as set forth in Section 2.2 (b)(iii) above, provided
that:
(i) any Interest Period which would
otherwise end on a day which is not a Business Day shall be the next preceding
or succeeding Business Day as is Bank's or Alternate Currency Bank's custom in
the market to which such Eurodollar Rate Loan or Alternate Currency Advance
relates; and
(ii) no Interest Period shall end after
the last day of the Term; and
(iii) any Interest Period which begins on a day
for which there is no numerically corresponding day in the calendar month
during which such Interest Period is to end shall (subject to clause (i) above)
end on the last day of such calendar month.
Telxon shall elect the initial Interest Period applicable to
a Eurodollar Rate Loan or Alternate Currency Advance by the notice of borrowing
given to Agent by Telxon pursuant to Section 2.2(b) or by the notice of
conversion or continuation given to Agent by Telxon pursuant to Sections 2.2(d)
or (e), as the case may be. Telxon shall give irrevocable written notice to
Agent of its intention to extend or continue a Eurodollar Rate Loan or an
Alternate Currency Advance for an additional Interest Period not less than
three (3) Business Days prior to the last day of the then current Interest
Period applicable to such Eurodollar Rate Loan or Alternate Currency Advance.
If Agent does not receive timely notice of the requested extension, any
Eurodollar Rate Loan shall convert to a Domestic Loan, subject to Section
2.2(e) hereinbelow and any Alternate Currency Advance shall be due and payable,
subject to Section 2.2(d) hereinbelow.
(d) If Telxon desires to obtain an
Alternate Currency Advance or to continue an Alternate Currency Advance, Telxon
shall make such request to Agent in writing at least three (3) Business Days'
prior to the date of the requested Alternate Currency Advance or the last day
of the then Current Interest Period applicable to such outstanding Alternate
Currency Advance, which request may only be made if no Event of Default shall
have occurred and been continuing. Promptly upon receipt of notice from Telxon
of its request for an Alternate Currency Advance or to continue an Alternate
Currency Advance, Agent shall determine
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whether the requested Alternate Currency will be readily available to the
Alternate Currency Bank in the interbank Eurocurrency market in the normal
course of business in the amount and for the Interest Period requested. Agent
shall notify Telxon two (2) Business Days prior to the date of the requested
Alternate Currency Advance of the determination made as to the availability of
the requested Alternate Currency and the related Alternate Currency Interest
Rate. If Agent notifies Telxon that such requested Alternate Currency is
available, the obligation to make or continue any Alternate Currency Advance
shall nevertheless be subject to the condition that there shall have occurred
no change in circumstances in the interbank Eurocurrency market after such
notification and prior to the first day of the relevant Interest Period, which
change of circumstance would, in the opinion of Agent or the Alternate Currency
Bank, make it impractical for the requested Alternate Currency Advance to be
made or continued in such Alternate Currency. If Agent or the Alternate
Currency Bank so determines that such a circumstance has occurred in the
interbank Eurocurrency market or if Agent or the Alternate Currency Bank
determines that the requested Alternate Currency is not readily available to
it, Agent shall promptly notify Telxon thereof and such Alternate Currency
Advance shall not be made, and any such continuation shall not be effected in
such Alternate Currency; and any Alternate Currency Advance outstanding in such
Alternate Currency that Telxon shall have so requested to be continued in such
Alternate Currency shall be repaid at the end of the then current Interest
Period. Telxon may not request that any Alternate Currency Advance originally
made in one Alternate Currency be subsequently converted into another Alternate
Currency but must repay such Alternate Currency Advance and, subject to the
terms and conditions of this Agreement, may reborrow in the other Alternate
Currency. There shall not be outstanding at anytime more than ten (10)
Eurodollar Loans and Alternate Currency Advances in the aggregate.
(e) Provided that no Event of Default
shall have occurred and be continuing, Telxon may, on the last Business Day of
the then current Interest Period applicable to any Eurodollar Rate Loan,
convert such outstanding Eurodollar Rate Loan into a Domestic Loan or convert
any outstanding Domestic Loan into a Eurodollar Rate Loan in the same aggregate
principal amount. If Telxon desires to convert a Domestic Loan or Eurodollar
Rate Loan as aforesaid, Telxon shall give Agent not less than three (3)
Business Days' prior written notice, specifying the date of such conversion,
the Domestic Loan or Eurodollar Rate Loan to be converted and, if the
conversion is from a Domestic Loan to any other type of loan, the duration of
the first Interest Period therefor. After giving effect to each such
conversions there shall not be outstanding more than ten (10) Eurodollar Loans
and Alternate Currency Advances in the aggregate.
(f) Subject to Borrowers' right to prepay
Revolving Advances in accordance with Section 2.3, at their option and upon
three (3) Business Days' prior written notice, Borrowers
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may prepay the Eurodollar Loans and the Alternate Currency Advances with
accrued interest on the principal being prepaid to the date of such prepayment
and, in the event that any prepayment of a Eurodollar Rate Loan or any
Alternate Currency Advance is required or permitted on a date other than the
last Business Day of the then current Interest Period with respect thereto,
Borrowers shall indemnify Agent, Lenders and the Alternate Currency Bank
therefor in accordance with Section 2.2(g) hereof.
(g) Each Borrower shall indemnify Agent,
Lenders, and the Alternate Currency Bank and hold Agent, Lenders and the
Alternate Currency Bank harmless from and against any and all actual losses or
actual expenses that Agent, Lenders and the Alternate Currency Bank may sustain
or incur as a consequence of any prepayment or any default by Borrowers in the
payment of the principal of or interest on any Eurodollar Rate Loan or any
Alternate Currency Advance or failure by Borrower to complete a borrowing of, a
prepayment of or conversion of or to a Eurodollar Rate Loan or any Alternate
Currency Advance after notice thereof has been given, including (but not
limited to) any interest or other amounts payable by Agent, Lenders or the
Alternate Currency Bank to lenders of funds obtained by it in order to make or
maintain its Eurodollar Rate Loans or the Alternate Currency Advances
hereunder. A certificate as to any additional amounts payable pursuant to the
foregoing sentence submitted by Agent or any Lender to Borrowers shall be
conclusive unless Agent receives a written statement of Borrowers' specific
exceptions thereto within thirty (30) days after such certificate is received
by Telxon or in the case of manifest error.
(h) Notwithstanding any other provision
hereof, if any applicable law, treaty, regulation or directive, or any change
therein or in the interpretation or application thereof, shall make it unlawful
for any Lender (for purposes of this subsection (h), the term "Lender" shall
include any Lender, any Alternate Currency Bank, its respective Lending Office
and such other office or branch where any Lender, any Alternate Currency Bank
or any corporation or bank controlling such Lender or such Alternate Currency
Bank makes or maintains any Eurodollar Rate Loans or any Alternate Currency
Advances) to make or maintain its Eurodollar Rate Loans or Alternate Currency
Advances, the obligation of any Lender to make or maintain Eurodollar Rate
Loans or Alternate Currency Advances hereunder shall forthwith be cancelled and
Borrowers shall, if any affected Eurodollar Rate Loans or Alternate Currency
Advance are then outstanding, promptly upon request from such Lender, either
pay all such affected Eurodollar Rate Loans or Alternate Currency Advances or
convert such affected Eurodollar Rate Loans or Alternate Currency Advance into
loans of another type. If any such payment or conversion of any Eurodollar
Rate Loan or Alternate Currency Advance is made on a day other than the last
day of the Interest Period for such Eurodollar Rate Loan or Alternate Currency
Advance, Borrowers shall pay such Lender or Alternate Currency Bank, upon such
Lender's or Alternate Currency Bank's request, such amount or amounts as may be
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necessary to compensate such Lender or Alternate Currency Bank for any loss or
expense sustained or incurred by such Lender or Alternate Currency Bank in
respect of such Eurodollar Rate Loan or Alternate Currency Advance as a result
of such payment or conversion, including (but not limited to) any interest or
other amounts payable by such Lender or Alternate Currency Bank to lenders of
funds obtained by such Lender or Alternate Currency Bank in order to make or
maintain such Eurodollar Rate Loan or Alternate Currency Advance. A
certificate as to any additional amounts payable pursuant to the foregoing
sentence submitted by Agent or any Lender to Borrowers shall be conclusive
absent manifest error.
(i) Each Lender shall to the extent of the
percentage amount equal to the product of such Lender's applicable Commitment
Percentage times the aggregate amount of the Dollar Equivalent of Alternate
Currency Advances be deemed to have irrevocably purchased an undivided
participation in the obligation of Borrowers to repay an Alternate Currency
Advance. In the event at the time such Revolving Advance is deemed made, the
unpaid balance of Revolving Advances exceeds or would exceed, with the making
of such Revolving Advance, the lesser of (a) the Maximum Revolving Advance
Amount or (b) the Formula Amount, in each case minus the aggregate amount of
outstanding Letters of Credit, minus the Dollar Equivalent of the aggregate
amount of outstanding Alternate Currency Advances, and such disbursement is not
reimbursed by Borrowers within two (2) Business Days, Agent shall promptly
notify each Lender and upon Agent's demand each Lender shall pay to Agent such
Lender's proportionate share of such unreimbursed amount together with such
Lender's proportionate share of Agent's unreimbursed costs and expenses
relating to such unreimbursed disbursement. Upon receipt by Agent of a
repayment from any Borrower of any amount disbursed by Agent for which Agent
had already been reimbursed by Lenders, Agent shall deliver to each Lender that
Lender's pro rata share of such repayment. Each Lender's participation
commitment shall continue until the last to occur of any of the following
events: (A) Agent ceases to be obligated to cause the issuance of Alternate
Currency Advances hereunder; and (B) no Alternate Currency Advance remains
outstanding.
2.3. Disbursement of Advance Proceeds. All Advances
(other than Alternate Currency Advances) shall be disbursed by Agent from its
Lending Office and Alternate Currency Advances shall be disbursed in the
requested currency by the Alternate Currency Bank from its Lending Office and,
together with any and all other Obligations of Borrowers to Agent or Lenders,
shall be charged to the Borrowers' account on Agent's books. During the Term,
Borrowers may use the Revolving Advances by borrowing, prepaying, in whole or
in part, and reborrowing the Revolving Advances, all in accordance with the
terms and conditions hereof. The proceeds of each Revolving Advance requested
by Telxon or deemed to have been requested by a Borrower under Section 2.2(a)
hereof shall, with respect to requested Revolving Advances to the extent
Lenders make
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such Revolving Advances, be made available by way of credit to Telxon's
operating account at National City Bank, Cleveland, Ohio, Account Number
669000037, or such other bank as Telxon may designate following notification to
Agent, in immediately available federal or other immediately available funds,
or, with respect to Revolving Advances deemed to have been requested by any
Borrower, be disbursed to Agent to be applied to the outstanding Obligations
giving rise to such deemed request.
2.4. Term Loan. (a) Subject to the terms and
conditions of this Agreement, each Lender, severally and not jointly, will make
the Term Loan to Borrowers in a principal amount equal to such Lender's
Commitment Percentage of the Term Loan Amount. The Term Loan shall be funded
in two installments. The initial installment shall be in the amount of
$1,425,000. The second installment shall be in an amount equal to the lesser
of (x) $4,075,000, or (y) the difference between (i) the Term Loan Amount and
(ii) $1,425,000.
(b) The initial installment of the Term Loan was
advanced on June 28, 1994. Until the second installment of the Term
Loan is funded, the Term Loan shall be, with respect to principal,
payable commencing on the first day of July, 1994, and on the first
day of each month thereafter, in monthly principal installments each
in an amount equal to $23,750.00.
(c) The second installment of the Term Loan shall be
advanced upon satisfaction of the conditions set forth in Sections
8.2 and 8.3 hereof. The Term Loan shall be, with respect to
principal, payable commencing on the first day of the month following
the month in which the second installment of the Term Loan is
advanced and on the first day of each month thereafter, in monthly
principal installments each in an amount equal to one-sixtieth (1/60)
of the Term Loan Amount.
(d) Notwithstanding anything to the contrary in
subsections (b) and (c) of this Section 2.4, the unpaid principal
balance of the Term Loan shall be due on the fifth anniversary of the
date on which the initial installment of the Term Loan was made,
subject to acceleration upon the occurrence of an Event of Default
(and the expiration of any applicable cure periods) under this
Agreement or the termination of this Agreement.
(e) The Term Loan shall be evidenced by and subject
to the terms and conditions set forth in the secured promissory note
("Term Note") substantially in the form attached hereto as Exhibit
2.4.
2.5. Maximum Advances. The aggregate balance of
Advances outstanding at any time shall not exceed the
lesser of (a)
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the Maximum Loan Amount or (b) the sum of the Formula Amount plus the
outstanding principal balance of the Term Loan.
2.6. Repayment of Advances.
(a) The Advances shall be due and payable
in full on the last day of the Term subject to earlier prepayment as herein
provided. The Term Loan shall be due and payable as provided in Section 2.4
hereof and in the Term Note.
(b) Each Borrower recognizes that the
amounts evidenced by checks, notes, drafts or any other items of payment
relating to and/or proceeds of Collateral may not be collectible by Agent on
the date received. In consideration of Agent's agreement to conditionally
credit the Borrowers' account as of the Business Day on which Agent receives
those items of payment, each Borrower agrees that, in computing the charges
under this Agreement, all items of payment shall be deemed applied by Agent on
account of the Obligations one (1) Business Day following the Business Day
Agent receives such remittances via wire transfer or electronic depository
check from either the Blocked Account bank or the Depository Account bank, as
provided for in Section 4.15(h). Agent is not, however, required to credit the
Borrowers' account for the amount of any item of payment which is
unsatisfactory to Agent and Agent may charge the Borrowers' account for the
amount of any item of payment which is returned to Agent unpaid.
(c) All payments of principal, interest
and other amounts payable hereunder, or under any of the Other Loan Documents,
other than with respect to Alternate Currency Advances shall be made to Agent
at the Payment Office on the due date therefor not later than 1:00 p.m. (New
York Time) in Dollars in Federal funds or other funds immediately available to
Agent and if made by wire transfer shall be made to The Bank of New York, One
Wall Street, New York, New York 10015, ABA No. 021000018, Account No.
0000016608, Reference: Telxon Corporation or such other account as Agent shall
direct in writing to Telxon. All payments of principal and interest payable
with respect to Alternate Currency Advances shall be made to the Alternate
Currency Bank at its Lending Office on the due date thereof not later than
11:00 a.m. (New York Time) in immediately available funds in the relevant
Alternate Currency. Agent shall have the right to effectuate payment on any
and all Obligations due and owing hereunder by charging Borrowers' account or
by making Advances as provided in Section 2.2 hereof.
(d) Borrowers shall pay principal,
interest and all other amounts payable hereunder, or under any Other Loan
Document, without any deduction whatsoever, including, but not limited to, any
deduction for any setoff or counterclaim.
2.7. Repayment of Excess Advances. The aggregate
balance of Advances outstanding at any time in excess of the maximum amount of
Advances permitted hereunder shall be immediately
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due and payable upon discovery thereof by, or notice thereof delivered to,
Telxon without the necessity of any further demand, at the Payment Office,
whether or not a Default or Event of Default has occurred.
2.8. Statement of Account. Agent shall maintain, in
accordance with its customary procedures, a loan account in the name of
Borrowers in which shall be recorded the date and amount of each Advance made
by Lenders and the date and amount of each payment in respect thereof;
provided, however, the failure by Agent to record the date and amount of any
Advance shall not adversely affect Agent or any Lender. For each month, Agent
shall send to Telxon a statement showing the accounting for the Advances made,
payments made or credited in respect thereof, and other transactions between
Lenders and Borrowers, during such month. The monthly statements shall be
deemed correct and binding upon each Borrower and shall constitute an account
stated between Lenders and each Borrower, unless Agent receives a written
statement of Telxon's specific exceptions thereto within forty-five (45) days
after such statement is received by Telxon or in the case of manifest error.
The records of Agent with respect to the loan accounts shall be prima facie
evidence of the amounts of Advances and other changes thereto and of payments
applicable thereto.
2.9. Letters of Credit. Subject to the terms and
conditions hereof, Agent shall (a) issue or cause the issuance of Letters of
Credit ("Letters of Credit") on behalf of any Borrower; provided, however, that
Agent will not be required to issue or cause to be issued any Letters of Credit
to the extent that the face amount of such Letters of Credit would then cause
the sum of (i) the outstanding Revolving Advances plus (ii) outstanding Letters
of Credit (with the requested Letter of Credit being deemed to be outstanding
for purposes of this calculation) plus (iii) the Dollar Equivalent of Alternate
Currency Advances to exceed the lesser of (x) the Maximum Revolving Advance
Amount or (y) the Formula Amount. The maximum amount of outstanding Letters of
Credit together with the Dollar Equivalent of Alternate Currency Advances shall
not exceed $10,000,000 in the aggregate at any time. All disbursements or
payments related to Letters of Credit shall be deemed to be Revolving Advances
and shall bear interest at the applicable Revolving Advance Rate; Letters of
Credit that have not been drawn upon shall not bear interest. Letters of
Credit shall be subject to the terms and conditions set forth in the Letter of
Credit and Security Agreement attached hereto as Exhibit 2.9 ("Letter of Credit
and Security Agreement").
2.10. Issuance of Letters of Credit.
(a) Telxon may request Agent to issue or
cause the issuance of a Letter of Credit by delivering to Agent at its Lending
Office, Agent's standard form of Letter of Credit and Security Agreement
together with Bank's standard form of Letter of Credit Application
(collectively, the "Letter of Credit Application") completed to the
satisfaction of Agent; and, such
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other certificates, documents and other papers and information as Agent may
reasonably request.
(b) Each Letter of Credit shall, among
other things, (i) provide for the payment of sight drafts when presented for
honor thereunder in accordance with the terms thereof and when accompanied by
the documents described therein and (ii) have an expiry date not later than
twelve (12) months after such Letter of Credit's date of issuance and in no
event later than the last day of the Term. Each Letter of Credit Application
and each Letter of Credit shall be subject to the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, and any amendments or revision thereof and, to the extent
not inconsistent therewith, the laws of the State of New York.
2.11. Requirements For Issuance of Letters of Credit .
(a) In connection with the issuance of any
Letter of Credit the Borrowers shall indemnify, save and hold Agent and each
Lender harmless from any actual (and not consequential) loss, cost, expense or
liability, including, without limitation, payments made by Agent and any
Lender, and expenses and reasonable attorneys' fees incurred by Agent or any
Lender arising out of, or in connection with, any Letter of Credit to be issued
or created for any Borrower except for Agent's or any Lender's willful
misconduct or gross (not mere) negligence. The Borrowers shall be bound by
Agent's or any issuing or accepting bank's regulations and good faith
interpretations of any Letter of Credit issued or created for its account,
although this interpretation may be different from its own; and, neither Agent
nor any Lender, the bank which opened the Letter of Credit, nor any of its
correspondents shall be liable for any error, negligence, or mistakes, whether
of omission or commission, in following Telxon's instructions or those
contained in any Letter of Credit or of any modifications, amendments or
supplements thereto or in issuing or paying any Letter of Credit except for
Agent's or any Lender's or such correspondents' willful misconduct or gross
(not mere) negligence.
(b) Telxon shall authorize and direct any
bank which issues a Letter of Credit to name the applicable Borrower as the
"Account Party" therein and to deliver to Agent all instruments, documents, and
other writings and property received by the bank pursuant to the Letter of
Credit and to accept and rely upon Agent's instructions and agreements with
respect to all matters arising in connection with the Letter of Credit, the
application therefor or any acceptance therefor.
(c) In connection with all Letters of
Credit issued or caused to be issued by Agent under this Agreement, each
Borrower hereby appoints Agent, or its designee, as its attorney, with full
power and authority (i) to sign and/or endorse such Borrower's name upon any
warehouse or other receipts, letter of credit applications and acceptances;
(ii) to sign such Borrower's
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name on bills of lading; (iii) to clear Inventory through the United States of
America Customs Department ("Customs") in the name of such Borrower or Agent or
Agent's designee, and to sign and deliver to Customs officials powers of
attorney in the name of such Borrower for such purpose; and (iv) to complete in
such Borrower's name or Agent's, or in the name of Agent's designee, any order,
sale or transaction, obtain the necessary documents in connection therewith,
and collect the proceeds thereof. Neither Agent nor its attorneys will be
liable for any acts or omissions nor for any error of judgment or mistakes of
fact or law, except for Agent's or its attorney's willful misconduct or gross
(not mere) negligence. This power, being coupled with an interest, is
irrevocable as long as any Letters of Credit remain outstanding.
(d) Each Lender shall to the extent of the
percentage amount equal to the product of such Lender's applicable Commitment
Percentage times the aggregate amount of all disbursements made with respect to
the Letters of Credit be deemed to have irrevocably purchased an undivided
participation in the reimbursement obligation of Borrowers as a consequence of
such disbursement. In the event that at the time a disbursement is made the
unpaid balance of Revolving Advances exceeds or would exceed, with the making
of such disbursement, the lesser of (a) the Maximum Revolving Advance Amount or
(b) the Formula Amount, in each case minus the aggregate amount of outstanding
Letters of Credit, minus the Dollar Equivalent of the aggregate amount of
outstanding Alternate Currency Advances, and such disbursement is not
reimbursed by Borrowers within two (2) Business Days, Agent shall promptly
notify each Lender and upon Agent's demand each Lender shall pay to Agent such
Lender's proportionate share of such unreimbursed disbursement together with
such Lender's proportionate share of Agent's unreimbursed costs and expenses
relating to such unreimbursed disbursement. Upon receipt by Agent of a
repayment from any Borrower of any amount disbursed by Agent for which Agent
had already been reimbursed by Lenders, Agent shall deliver to each Lender that
Lender's pro rata share of such repayment. Each Lender's participation
commitment shall continue until the last to occur of any of the following
events: (A) Agent ceases to be obligated to issue Letters of Credit hereunder;
(B) no Letter of Credit issued hereunder remains outstanding and uncancelled or
(C) all Persons (other than the applicable Borrower) have been fully reimbursed
for all payments made under or relating to Letters of Credit.
2.12. Additional Payments. Any sums expended by Agent
or any Lender due to any Borrower's failure to perform or comply with its
obligations under this Agreement or any Other Loan Document including, without
limitation, any Borrower's obligations under Sections 4.2, 4.4, 4.12, 4.13,
4.14 and 6.1 hereof, may be charged to the Borrowers' account as a Revolving
Advance and added to the Obligations.
2.13. Manner of Borrowing and Payment.
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(a) Each borrowing of Advances shall be
advanced according to the applicable Commitment Percentages of the Lenders.
(b) Each payment (including each
prepayment) by Borrowers on account of the principal of and interest on the
Revolving Credit Note, shall be applied to the Revolving Advances pro rata
according to the applicable Commitment Percentages of Lenders. Each payment
(including each prepayment) by Borrowers on account of the principal of and
interest on the Term Note, shall be applied to the Term Loan pro rata according
to the applicable Commitment Percentages of Lenders. Except as expressly
provided herein, all payments (including prepayments) to be made by any
Borrower on account of principal, interest and fees shall be made without
set-off or counterclaim and shall be made to Agent on behalf of Lenders to
Agent's Lending Office, in each case on or prior to 1:00 p.m., New York time,
in Dollars and in immediately available funds.
(c) (i) Notwithstanding anything to the
contrary contained in Sections 2.13(a) and (b) hereof, commencing with the
first Business Day following the Closing Date, each borrowing of Revolving
Advances shall be advanced by Agent and each payment by any Borrower on account
of Revolving Advances shall be applied first to those Revolving Advances made
by Agent. On or before 1:00 p.m., New York time, on each Settlement Date
commencing with the first Settlement Date following the Closing Date, Agent and
Lenders shall make certain payments as follows: (I) if the aggregate amount of
new Revolving Advances made by Agent during the preceding Week (if any) exceeds
the aggregate amount of repayments or prepayments applied to outstanding
Revolving Advances during such preceding Week, then each Lender shall provide
Agent with funds in an amount equal to its applicable Commitment Percentage of
such excess, and (II) if the aggregate amount of repayments applied to
outstanding Revolving Advances during such Week exceeds the aggregate amount of
new Revolving Advances made during such Week, then Agent shall, through its
Lending Office, provide each Lender with funds in an amount equal to its
applicable Commitment Percentage of such excess.
(ii) Each Lender shall be entitled to earn
interest at the applicable Contract Rate on outstanding Advances which it has
funded.
(iii) Promptly following each Settlement Date,
Agent shall submit to each Lender a certificate with respect to payments
received and Advances made during the Week immediately preceding such
Settlement Date. Such certificate of Agent shall be conclusive in the absence
of manifest error.
(d) If any Lender or any Transferee (a
"benefitted Lender") shall at any time receive any payment of all or part of
its Advances, or interest thereon, or receive any Collateral in respect thereof
(whether voluntarily or involuntarily
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or by set-off) in a greater proportion than any such payment to and Collateral
received by any other Lender, if any, in respect of such other Lender's
Advances, or interest thereon, and such greater proportionate payment or
receipt of Collateral is not expressly permitted hereunder, such benefitted
Lender shall purchase for cash from the other Lenders such portion of each such
other Lender's Advances, or shall provide such other Lender with the benefits
of any such Collateral, or the proceeds thereof, as shall be necessary to cause
such benefitted Lender to share the excess payment or benefits of such
Collateral or proceeds ratably with each Lender; provided, however, that if all
or any portion of such excess payment or benefits is thereafter recovered from
such benefitted Lender, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery, but without
interest. Each Lender so purchasing a portion of another Lender's Advances may
exercise all rights of payment (including, without limitation, rights of
set-off) with respect to such portion as fully as if such Lender were the
direct holder of such portion.
(e) Unless Agent shall have been notified
by telephone, confirmed in writing, by any Lender that such Lender will not
make the amount which would constitute its applicable Commitment Percentage of
the Advances available to Agent, Agent may (but shall not be obligated to)
assume that such Lender shall make such amount available to Agent and, in
reliance upon such assumption, make available to Borrowers a corresponding
amount. Agent will promptly notify Telxon of its receipt of any such notice
from a Lender. If such amount is made available to Agent on a date after a
Settlement Date, such Lender shall pay to Agent on demand an amount equal to
the product of (i) the daily average Federal Funds Rate (computed on the basis
of a year of 360 days) during such period as quoted by Agent, times (ii) such
amount, times (iii) the number of days from and including such Settlement Date
to the date on which such amount becomes immediately available to Agent. A
certificate of Agent submitted to any Lender with respect to any amounts owing
under this paragraph (e) shall be conclusive, in the absence of manifest error.
If such amount is not in fact made available to Agent by such Lender within
three (3) Business Days after such Settlement Date, Agent shall be entitled to
recover such an amount, with interest thereon at the Revolving Interest Rate
applicable to such Revolving Advances hereunder, on demand from Borrowers;
provided, however, that Agent's right to such recovery shall not prejudice or
otherwise adversely affect Borrowers' rights (if any) against such Lender.
2.14. Mandatory Prepayments. Upon the sale or other
disposition by any Borrower of any Collateral other than Inventory in the
ordinary course of business and Equipment to the extent permitted by Section
4.3 hereof, such Borrower shall repay the Advances in an amount equal to the
net proceeds of such sale (i.e., gross proceeds less the reasonable costs of
such sales or other dispositions), such repayments to be made promptly but in
no event more than five (5) Business Days following receipt by such Borrower of
such net proceeds. Until the date of payment, such proceeds
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shall be held in trust for Agent by such Borrower. The foregoing shall not be
deemed to be implied consent to any such sale otherwise prohibited by the terms
and conditions hereof. The net proceeds from the sale of the Texas Real
Property shall be applied first to the outstanding principal installments on
the Term Loan in the inverse order of the maturities thereof and, second, to
the remaining Advances in such order as Agent may determine, subject to
Borrowers' ability to reborrow Revolving Advances in accordance with the terms
hereof. The net proceeds from the sale of any Collateral other than the Texas
Real Property shall be applied to the Revolving Advances in such order as Agent
may determine, subject to Borrowers' ability to reborrow Revolving Advances in
accordance with the terms hereof; provided, however, at such times as the
outstanding amount of Advances (other than the Term Loan) is less than
$3,000,000, Borrowers shall be permitted to retain the net proceeds of the sale
or other disposition of any Collateral other than the Texas Real Property.
III. INTEREST AND FEES.
3.1. Interest. Interest on Advances shall be payable
in arrears with respect to Domestic Loans, on the first day of each month, and,
with respect to Eurodollar Rate Loans and Alternate Currency Advances, at the
end of each Interest Period, in respect of the actual principal amount of
Advances outstanding at the end of each day at a rate per annum equal to (i)
with respect to Revolving Advances, the applicable Revolving Interest Rate,
(ii) with respect to the Term Loan, the applicable Term Loan Rate, and (iii)
with respect to Alternate Currency Advances, the applicable Alternate Currency
Interest Rate. Interest with respect to Advances (other than the Alternate
Currency Advances) shall be paid to Agent for the ratable benefit of Lenders
and interest with respect to the Alternate Currency Advances shall be paid to
the Alternate Currency Bank. Whenever, subsequent to the date of this
Agreement, the Alternate Base Rate is increased or decreased, if applicable,
the applicable Contract Rate shall be similarly changed without notice or
demand of any kind by an amount equal to the amount of such change in the
Alternate Base Rate during the time such change or changes remain in effect.
Upon and after the declaration of an Event of Default, and during the
continuation thereof, the Obligations shall bear interest at the applicable
Contract Rate plus two percent (2%) per annum (the "Default Rate").
3.2. Letter of Credit Fees.
Borrowers shall pay Agent for the ratable benefit of the
Lenders (i) (A) for issuing or causing the issuance of a standby Letter of
Credit, a fee computed at a rate per annum of two percent (2%) on the
outstanding amount thereof from time to time and (B) for issuing or causing the
issuance of a Letter of Credit that is not a standby Letter of Credit, a fee
equal to two percent (2%) of the original and each increase in the face amount
thereof for each 120 days or part thereof of its term (the fees set forth in
(A) and
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(B) referred to as "Letter of Credit Fees") and (ii) Bank's other customary
charges payable in connection with Letters of Credit as in effect from time to
time (which charges shall be furnished to Borrower by Agent upon request).
Such fees and charges shall be payable (i) in the case of any Letter of Credit,
on its opening (ii) in the case of a standby Letter of Credit, (A) monthly
thereafter in advance and (B) upon each increase in the outstanding amount
thereof and (iii) in the case of any Letter of Credit that is not a standby
Letter of Credit, at the time of each increase in face amount thereof. Any
such charge in effect at the time of a particular transaction shall be the
charge for that transaction, notwithstanding any subsequent change in Bank's
prevailing charges for that type of transaction. All Letter of Credit Fees
payable hereunder shall be deemed earned in full on the date when the same are
due and payable hereunder and shall not be subject to rebate or proration upon
the termination of this Agreement for any reason.
At any time following the occurrence, the declaration and
during the continuation of an Event of Default, Borrowers will upon demand by
Agent cause cash to be deposited and maintained in an account established by
Agent, as cash collateral, in an amount equal to outstanding face amount of
Letters of Credit, and each Borrower hereby irrevocably authorizes Agent, in
its discretion, on such Borrower's behalf and in such Borrower's name, to open
such an account and to make and maintain deposits therein, or in an account
opened by such Borrower, in the amounts required to be made by such Borrower,
out of the proceeds of Receivables or other Collateral or out of any other
funds of such Borrower coming into Lender's possession at any time. Agent will
invest or cause to be invested such cash collateral (less applicable reserves)
in such short-term money-market items as to which Agent and Telxon mutually
agree and absent such agreement, in Agent's discretion, and the net return on
such investments shall be credited to such account and constitute additional
cash collateral. Borrowers may not withdraw amounts credited to any such
account except (i) upon the final indefeasible payment and performance in full
of all Obligations and termination of this Agreement or (ii) if no Event of
Default or Default shall exist at the time of such withdrawal.
3.3. Fees.
(a) Unused Line Fee. If, for any calendar
month during the term of this Agreement, the average daily unpaid balance of
the Advances for each day of such month does not equal the Maximum Revolving
Advance Amount, then Borrowers shall pay to Agent for ratable benefit of
Lenders a fee at a rate equal to three-eighths of one percent (3/8%) per annum
on the amount by which that portion of the Maximum Revolving Advance Amount
exceeds such average daily unpaid balance. Such fee shall be payable to Agent
for ratable benefit of Lenders in arrears on the last day of each month.
(b) Collateral Evaluation Fee. Borrowers
shall pay to Agent a monthly collateral evaluation fee in the sum of
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$1,500 commencing on the first day of the month following the month in which
the Advances (exclusive of the Term Loan) exceed $3,000,000 (the "Trigger
Event"); provided, however, that in the event (i) the amount of Advances
(exclusive of the Term Loan) shall not exceed $3,000,000 at any time during any
consecutive two (2) month period following the month in which the Trigger Event
occurred (the "Two Month Period"), (ii) no Event of Default or Default shall
have occurred and be continuing, and (iii) Agent receives a certificate of the
Chief Financial Officer of Telxon stating that Borrowers do not anticipate that
the outstanding amount of Advances (exclusive of the Term Loan) will exceed
$3,000,000 for an additional three (3) month period following the Two Month
Period (the "Certificate") the collateral evaluation fee shall not be payable
until such time as the outstanding Advances (exclusive of the Term Loan) shall
exceed $3,000,000.
(c) Alternate Currency Advance Fees.
Borrowers shall pay Agent for the ratable benefit of the Lenders for causing
the issuance of Alternate Currency Advances a fee computed at a rate per annum
of two and one half percent (2.5%) on the Dollar Equivalent of the outstanding
Alternate Currency Advances. Such fee shall be payable upon the making of the
Alternate Currency Advance and monthly thereafter in advance and shall be
deemed earned in full on the date when the same is due and payable hereunder
and shall not be subject to rebate or proration upon early termination of an
Alternate Currency Advance for any reason.
3.4. Collateral Examination Fee. Borrowers shall pay
to Agent on the first day of each month following any month in which Agent
performs any collateral examination - namely any field examination, collateral
analysis or other business analysis, the need for which is to be determined by
Agent in its reasonable judgment and which monitoring is undertaken by Agent or
for Agent's benefit - a collateral examination fee in an amount equal to $600
per day for each person employed to perform such examination, plus all
out-of-pocket costs and disbursements reasonably incurred by Agent in the
performance of such examination or analysis.
3.5. Computation of Interest and Fees. Interest and
fees hereunder shall be computed on the basis of a year of 360 days and for the
actual number of days elapsed. If any payment to be made hereunder becomes due
and payable on a day other than a Business Day, the due date thereof shall be
extended to the next succeeding Business Day and interest thereon shall be
payable at the applicable Contract Rate during such extension.
3.6. Maximum Charges. In no event whatsoever shall
interest and other charges charged hereunder exceed the highest rate
permissible under law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto. In the event that a court determines
that Agent or any Lender or the Alternate Currency Bank has received interest
and other charges hereunder in excess of the highest rate applicable hereto,
such excess interest shall be first applied to any unpaid principal
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balance owed by Borrowers, and if the then remaining excess interest is greater
than the previously unpaid principal balance, the applicable recipient shall
promptly refund such excess amount to Borrowers and the provisions hereof shall
be deemed amended to provide for such permissible rate.
3.7. Increased Costs. In the event that any
applicable law, treaty or governmental regulation, or any change therein or in
the interpretation or application thereof, or compliance by Agent or any
Lender (for purposes of this Section 3.7, the term "Lender" shall include
Agent, any Lender or the Alternate Currency Bank, any Lending Office and any
corporation or bank controlling Agent, any Lender or any Alternate Currency
Bank) with any request or directive (whether or not having the force of law)
from any central bank or other financial, monetary or other regulatory
authority, shall:
(a) subject Agent or any Lender to any new
or additional tax of any kind whatsoever with respect to this Agreement or
change the basis of taxation of payments to Agent or any Lender of principal,
fees, interest or any other amount payable hereunder or under any Other Loan
Documents (except for taxes on the overall net income of Agent or any Lender by
the jurisdiction in which it maintains its principal office);
(b) impose, modify or hold applicable any
reserve, special deposit, assessment or similar requirement against assets held
by, or deposits in or for the account of, advances or loans by, or other credit
extended by, any office of Agent or any Lender, including (without limitation)
pursuant to Regulation D of the Board of Governors of the Federal Reserve
System; or
(c) impose on Agent or any Lender or the
London interbank eurodollar market any other condition with respect to this
Agreement or any Other Loan Documents;
and the result of any of the foregoing is to increase the cost to Agent or
Lender of making, renewing or maintaining its Advances hereunder by an amount
that Agent or such Lender deems to be material or to reduce the amount of any
payment (whether of principal, interest or otherwise) in respect of any of the
Advances by an amount that Agent or such Lender deems to be material, then, in
any case Borrowers shall promptly pay Agent or such Lender, upon its demand,
such additional amount as will compensate Agent or such Lender for such
additional cost or such reduction, as the case may be. Agent or such Lender
shall certify the amount of such additional cost or reduced amount to
Borrowers, and provide an explanation of such additional cost or reduction to
Borrowers. Such certification shall be conclusive absent manifest error.
3.8. Basis For Determining Interest Rate Inadequate
or Unfair. In the event that Agent, any Lender or any Alternate Currency Bank
shall have determined that:
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(a) reasonable means do not exist for
ascertaining the Eurodollar Rate for any Interest Period; or
(b) Dollar deposits in the relevant amount
and for the relevant maturity are not available in the London interbank
eurodollar market, with respect to an outstanding Eurodollar Rate Loan, a
proposed Eurodollar Rate Loan, or a proposed conversion of a Domestic Loan into
a Eurodollar Rate Loan,
then Agent shall give Telxon prompt written, telephonic or telegraphic notice
of such determination. If such notice is given, (i) any such requested
Eurodollar Rate Loan shall be made as a Domestic Loan, unless Telxon shall
notify Agent no later than 10:00 a.m. (New York City time) three (3) Business
Days prior to the date of such proposed borrowing, that the request for such
borrowing shall be cancelled or made as an unaffected type of Eurodollar Rate
Loan, and (ii) any Eurodollar Rate Loan or Domestic Loan which was to have been
converted to an affected type of Eurodollar Rate Loan, shall be continued as or
converted into a Domestic Loan or, if Telxon shall notify Agent, no later than
10:00 a.m. (New York City time) three (3) Business Days prior to the proposed
conversion, shall be maintained as an unaffected type of Eurodollar Rate Loan.
Until such notice has been withdrawn, Lenders shall have no obligation to make
an affected type of Eurodollar Rate Loan or maintain outstanding affected
Eurodollar Rate Loans and Borrowers shall not have the right to convert a
Domestic Loan into an affected Eurodollar Rate Loan.
3.9. Capital Adequacy.
(a) In the event that Agent or any Lender
shall have determined that any applicable law, rule, regulation or guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Agent, or any Lender (for purposes of this Section
3.9, the term "Lender" shall include Agent, any Lender or the Alternate
Currency Bank, any Lending Office and any corporation or bank controlling
Agent, any Lender or any Alternate Currency Bank) with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on Agent or any Lender's capital as a consequence
of its obligations hereunder to a level below that which Agent or such Lender
could have achieved but for such adoption, change or compliance (taking into
consideration Agent's and each Lender's policies with respect to capital
adequacy) by an amount deemed by Agent or any Lender to be material, then, from
time to time, Borrowers shall pay upon demand to Agent or such Lender such
additional amount or amounts as will compensate Agent or such Lender for such
reduction. In determining such amount or amounts, Agent or such Lender may use
any reasonable averaging or attribution methods. The protection of this
Section 3.9 shall be
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available to Agent and each Lender regardless of any possible contention by
Agent, any Lender or any other financial institution of invalidity or
inapplicability with respect to the applicable law, regulation or condition.
(b) A certificate of Agent or such Lender
setting forth such amount or amounts as shall be necessary to compensate Agent
or such Lender with respect to Section 3.9(a) hereof and the reasons therefor
when delivered to Borrowers shall be conclusive absent manifest error.
3.10. Survival. The obligations of Borrowers under
Sections 2.2(g), 3.7, 3.8, and 3.9 shall survive termination of this Agreement
and the Other Loan Documents and payment in full of the Obligations.
IV. COLLATERAL: GENERAL TERMS
4.1. Security Interest in the Collateral. To secure
the prompt payment and performance to Agent and each Lender of the Obligations,
each Borrower hereby acknowledges and confirms that Agent for the benefit of
Lenders has and shall continue to have a Lien in all Collateral heretofore
granted by such Borrower pursuant to the Original Loan Agreement, and to the
extent not otherwise granted thereunder, each Borrower hereby assigns, pledges
and grants to Agent for the ratable benefit of each Lender a continuing
security interest in and to all of its Collateral, whether now owned or
existing or hereafter acquired or arising and wheresoever located. Each
Borrower shall mark its books and records as may be necessary or appropriate to
evidence, protect and perfect Agent's security interest and shall cause its
financial statements to reflect such security interest.
4.2. Perfection of Security Interest. Each Borrower
shall take all action that may be necessary or desirable, or that Agent may
request, so as at all times to maintain the validity, perfection,
enforceability and priority of Agent's security interest in the Collateral or
to enable Agent to protect, exercise or enforce its rights hereunder and in the
Collateral, including, but not limited to (i) discharging all Liens other than
Permitted Encumbrances, (ii) obtaining landlords' or mortgagees' lien waivers,
(iii) delivering to Agent, endorsed or accompanied by such instruments of
assignment as Agent may specify, and stamping or marking, in such manner as
Agent may specify, any and all chattel paper, instruments, letters of credit
and advices thereof and documents evidencing or forming a part of the
Collateral, (iv) entering into warehousing, lockbox and other custodial
arrangements satisfactory to Agent, and (v) executing and delivering financing
statements, instruments of pledge, mortgages, notices and assignments, in each
case in form and substance satisfactory to Agent, relating to the creation,
validity, perfection, maintenance or continuation of Agent's security interest
under the Uniform Commercial Code or other applicable law. All reasonable
charges,
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expenses and fees Agent may incur in doing any of the foregoing, and any local
taxes relating thereto, shall be charged to the Borrowers' account as a
Revolving Advance and added to the Obligations or, at Agent's option, shall be
paid to Agent immediately upon written demand therefor.
4.3. Disposition of Collateral. Each Borrower will
safeguard and protect all Collateral for Agent's general account and make no
disposition thereof whether by sale, lease or otherwise except (a) the sale of
Inventory in the ordinary course of business and (b) the disposition or
transfer of Equipment in the ordinary course of business during any fiscal year
having an aggregate fair market value of not more than $1,000,000 and only (x)
to the extent that the proceeds of any such disposition (i) are used to acquire
replacement Equipment which is subject to Agent's security interest or (ii)
applied to reduce outstanding Advances of the Borrowers in accordance with
Section 2.14 hereof, or (y) with the prior written consent of Lenders.
4.4. Preservation of Collateral. Following the
occurrence of an Event of Default in addition to the rights and remedies set
forth in Section 11.1 hereof, Agent: (a) may at any time take such steps as
Agent deems necessary to protect Agent's interest in and to preserve the
Collateral, including the hiring of such security guards or the placing of
other security protection measures as Agent may deem appropriate; (b) may
employ and maintain at any of Borrowers' premises a custodian who shall have
full authority to do all acts necessary to protect Agent's interests in the
Collateral; (c) may lease warehouse facilities to which Agent may move all or
part of the Collateral; (d) may use any of Borrower's owned or leased lifts,
hoists, trucks and other facilities or equipment for handling or removing the
Collateral; and (e) shall have, and is hereby granted, a right of ingress and
egress to the places where the Collateral is located, and may proceed over and
through any of Borrower's owned or leased property. Each Borrower shall
cooperate fully with all of Agent's efforts to preserve the Collateral and will
take such actions to preserve the Collateral as Agent may reasonably direct.
All of Agent's expenses of preserving the Collateral, including any expenses
relating to the bonding of a custodian, shall be charged to the Borrowers'
account as a Revolving Advance and added to the Obligations.
4.5. Ownership of Collateral. With respect to the
Collateral, at the time the Collateral becomes subject to Agent's security
interest: (a) each Borrower shall be the sole owner of and fully authorized
and able to sell, transfer, pledge and/or grant a first security interest in
each and every item of its respective Collateral to Agent, subject to the
security interests set forth in Schedule 1.2; and, except for Permitted
Encumbrances, the Collateral shall be free and clear of all Liens, Claims,
Charges and encumbrances whatsoever; (b) each document and agreement executed
by each Borrower or delivered to Agent or any Lender with respect to the
Collateral shall be true and correct in
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all material respects; (c) all signatures and endorsements of each Borrower
that appear on such documents and agreements shall be genuine and each Borrower
shall have full capacity to execute same; (d) each location where the value of
Borrower's Inventory exceeds $100,000 is set forth on Schedule 4.5(b); and (e)
each Borrower's Equipment and Inventory shall be located as set forth on
Schedule 4.5 and shall not be removed from such location(s) without the prior
written consent of Agent except with respect to (i) the sale of Inventory in
the ordinary course of business, (ii) the sale of Equipment to the extent
permitted in Section 4.3 hereof, (iii) transfers by any Borrower of Inventory
from one location set forth on Schedule 4.5 to another location set forth on
Schedule 4.5 provided that after giving effect to such transfer the aggregate
value of Inventory located at the location to which the Inventory was
transferred does not exceed $100,000 at any time, (iv) transfers by any
Borrower of Inventory and/or Equipment from one location set forth on Schedule
4.5(b) to another location set forth on Schedule 4.5(b) provided that Agent has
filed financing statements against each Borrower in such location and (v)
transfers by any Borrower of Equipment from one location set forth on Schedule
4.5(b) to a location set forth on Schedule 4.5 provided that Agent has filed
financing statements against each Borrower in such location.
4.6. Defense of Agent's and Lender's Interests. (a)
Until (i) payment and performance in full of all of the Obligations and (ii)
termination of this Agreement, Agent's interests in the Collateral shall
continue in full force and effect. During such period no Borrower shall,
without Agent's prior written consent, pledge, sell (except Inventory in the
ordinary course of business and Equipment to the extent permitted in Section
4.3 hereof), assign, transfer (except to the extent permitted in Section 4.3
hereof), create or suffer to exist a Lien upon or encumber or allow or suffer
to be encumbered in any way, except for Permitted Encumbrances, any part of the
Collateral. Each Borrower shall defend Agent's interests in the Collateral
against any and all persons whatsoever.
(b) At any time following demand by Agent in
accordance with the terms of this Agreement for payment of all Obligations, (i)
Agent shall have the right to take possession of the indicia of the Collateral
and the Collateral in whatever physical form contained, including without
limitation: labels, stationery, documents, instruments and advertising
materials, (ii) Borrowers shall, upon demand of Agent, assemble the Collateral
in the best manner possible and make it available to Agent at a place
reasonably convenient to Agent, and (iii) each Borrower shall, and Agent may,
at its option, instruct all suppliers, carriers, forwarders, warehouses or
others receiving or holding cash, checks, Inventory, documents or instruments
in which Agent holds a security interest to deliver same to Agent and/or
subject to Agent's order and if they shall come into Borrowers' possession,
they, and each of them, shall be held by Borrowers in trust as Agent's trustee,
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and Borrowers will immediately deliver them to Agent in their original form
together with any necessary endorsement.
4.7. Books and Records. Each Borrower shall (a) keep
proper books of record and account in which full, true and correct entries will
be made of all dealings or transactions of or in relation to its business and
affairs; (b) set up on its books accruals with respect to all taxes,
assessments, charges, levies and claims; and (c) on a reasonably current basis
set up on its books, from its earnings, allowances against doubtful
Receivables, advances and investments and all other proper accruals (including
without limitation by reason of enumeration, accruals for premiums, if any, due
on required payments and accruals for depreciation, obsolescence, or
amortization of properties), which should be set aside from such earnings in
connection with its business. All determinations pursuant to this subsection
shall be made in accordance with, or as required by, GAAP consistently applied
in the opinion of such independent public accountant as shall then be regularly
engaged by Borrowers.
4.8. Financial Disclosure. Each Borrower hereby
irrevocably authorizes and directs all accountants and auditors employed by
such Borrower at any time during the term of this Agreement to exhibit and
deliver to Agent and each Lender copies of any of such Borrower's financial
statements, trial balances or other accounting records of any sort in the
accountant's or auditor's possession, and to disclose to Agent and each Lender
any information such accountants may have concerning such Borrower's financial
status and business operations. Each Borrower hereby authorizes all federal,
state and municipal authorities to furnish to Agent and each Lender copies of
reports or examinations relating to such Borrower, whether made by such
Borrower or otherwise. Agent and each Lender, however, will attempt to obtain
by written request such information or materials directly from such Borrower
prior to obtaining such information or materials from such accountants or such
authorities. Agent will advise the Borrowers of any requests made to obtain
information or materials from such accountants or authorities.
4.9. Compliance with Laws. Each Borrower shall
comply with all acts, rules, regulations and orders of any legislative,
administrative or judicial body or official applicable to its respective
Collateral or any part thereof or to the operation of such Borrower's business
the non-compliance with which would have a material adverse effect on the
Collateral, or the operations, business or condition (financial or otherwise)
of Borrowers taken as a whole. Any Borrower may, however, contest or dispute
any acts, rules, regulations, orders and directions of those bodies or
officials in any reasonable manner, provided that sufficient reserves are
established to the reasonable satisfaction of Agent to protect Agent's Lien on
or security interest in the Collateral. The Collateral at all times shall be
maintained in accordance with the requirements of all insurance carriers which
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provide insurance with respect to the Collateral so that such insurance shall
remain in full force and effect.
4.10. Inspection of Premises. At all reasonable times
Agent or any Lender shall have full access to and the right to audit, check,
inspect and make abstracts and copies from each Borrower's books, records,
audits, correspondence and all other papers relating to the Collateral and the
operation of each Borrower's business. Agent, any Lender and their agents may
enter upon any of Borrower's premises at any time during business hours and at
any other reasonable time, and from time to time, for the purpose of inspecting
the Collateral and any and all records pertaining thereto and the operation of
each Borrower's business.
4.11. Insurance. Each Borrower shall bear the full
risk of any loss of any nature whatsoever with respect to its property. At
each Borrower's own cost and expense in amounts and with carriers acceptable to
Agent, each Borrower shall (a) keep all its insurable properties and properties
in which such Borrower has an interest insured against the hazards of fire,
flood, sprinkler leakage, those hazards covered by extended coverage insurance
and such other hazards, in each case for such amounts, as is customary in the
case of companies engaged in businesses similar to such Borrower's including,
without limitation, business interruption insurance; (b) maintain a bond in
such amounts as is customary in the case of companies engaged in businesses
similar to such Borrower's insuring against larceny, embezzlement or other
criminal misappropriation of insured's officers and employees who may either
singly or jointly with others at any time have access to the assets or funds of
such Borrower either directly or through authority to draw upon such funds or
to direct generally the disposition of such assets; (c) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (d) maintain all such worker's compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which Borrower is engaged in business; (e) furnish Agent with
(i) evidence of the existence of such insurance and evidence of the maintenance
of such policies or the renewal thereof at least thirty (30) days before any
expiration date, and (ii) appropriate loss payable endorsements in form and
substance satisfactory to Agent, naming Agent as loss payee as its interests
may appear with respect to all insurance coverage referred to in clause (a)
above and naming Agent as co-insured with respect to all insurance coverage
referred to in clauses (b) and (c) above, and providing with respect to all
insurance coverage referred to in clause (a) above (A) that all proceeds
thereunder shall be payable to Agent, (B) no such insurance shall be affected
by any act or neglect of the insured or owner of the property described in such
policy, and (C) that such policy and loss payable clauses may not be cancelled,
amended or terminated unless at least thirty (30) days' prior written notice is
given to Agent. In the event of any loss thereunder, the carriers named
therein hereby are directed by Agent and the applicable Borrower to make
payment for such loss to Agent and not to such Borrower and Agent jointly. If
any insurance
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losses are paid by check, draft or other instrument payable to any Borrower and
Agent jointly, Agent may endorse such Borrower's name thereon and do such other
things as Agent may deem advisable to reduce the same to cash. Agent is hereby
authorized to adjust and compromise claims under insurance coverage referred to
in clauses (a) and (b) above which authority may be utilized by Agent only
after the occurrence and during the continuation of an Event of Default. All
loss recoveries received by Agent with respect to the Texas Real Property shall
be applied first, to principal installments of the Term Loan in the inverse
order of the maturities thereof and, second, to the remaining Obligations in
such order as Agent in its sole discretion shall determine. All other loss
recoveries received by Agent upon any such insurance may be applied to the
Obligations, in such order as Agent in its sole discretion shall determine.
Any surplus shall be paid by Agent to the applicable Borrower or applied as may
be otherwise required by law. Any deficiency thereon shall be paid by such
Borrower to Agent, on demand. Anything hereinabove to the contrary
notwithstanding, and subject to the fulfillment of the conditions set forth
below, Agent shall remit to Borrowers insurance proceeds (other than proceeds
relating to the Texas Real Property which shall be applied to the Obligations
in the manner set forth above) received by Agent during any calendar year under
insurance policies procured and maintained by Borrowers which insure Borrowers'
insurable properties (other than the Texas Real Property) to the extent such
insurance proceeds do not exceed $1,000,000 in the aggregate during such
calendar year or $500,000 per occurrence. In the event the amount of insurance
proceeds (other than proceeds relating to the Texas Real Property which shall
be applied to the Obligations in the manner set forth above) received by Agent
for any occurrence exceeds $500,000 but does not exceed $1,000,000 in the
aggregate during any calendar year, then Agent shall not be obligated to remit
the insurance proceeds to Borrowers unless Borrowers shall provide Agent with
evidence reasonably satisfactory to Agent that the insurance proceeds will be
used by Borrowers to repair, replace or restore the insured property which was
the subject of the insurable loss. In the event Borrowers have previously
received (or, after giving effect to any proposed remittance by Agent to
Borrowers would receive) insurance proceeds (other than proceeds relating to
the Texas Real Property which shall be applied to the Obligations in the manner
set forth above) which equal or exceed $1,000,000 in the aggregate during any
calendar year, then Agent may, in its sole discretion, either remit the
insurance proceeds to Borrowers upon Borrowers providing Agent with evidence
reasonably satisfactory to Agent that the insurance proceeds will be used by
Borrowers to repair, replace or restore the insured property which was the
subject of the insurable loss, or apply the proceeds to the Obligations, as
aforesaid. The agreement of Agent to remit insurance proceeds in the manner
above provided shall be subject in each instance to satisfaction of each of the
following conditions: (x) no Event of Default or Default shall then have
occurred, and (y) Borrowers shall use such insurance proceeds to repair,
replace or restore the insurable
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property which was the subject of the insurable loss and for no other purpose.
4.12. Failure to Pay Insurance. If any Borrower fails
to obtain insurance as required by this Agreement, or to keep the same in
force, Agent, if Agent so elects, may obtain such insurance and pay the premium
therefor for such Borrower's account, and charge such Borrower's account
therefor and such expenses so paid shall be part of the Obligations.
4.13. Payment of Taxes. Each Borrower will pay, when
due, all taxes, assessments and other Charges or Claims lawfully levied or
assessed upon such Borrower or any of the Collateral including, without
limitation, real and personal property taxes, assessments and charges and all
franchise, income, employment, social security benefits, withholding, and sales
taxes. If any tax by any governmental authority is or may be imposed on or as
a result of any transaction between any Borrower and Agent or any Lender which
Agent or any Lender may be required to withhold or pay or if any taxes,
assessments, or other Charges remain unpaid after the date fixed for their
payment, or if any Claim shall be made which, in Agent's or any Lender's
opinion, may possibly create a valid Lien on the Collateral, Agent may with
notice to such Borrower pay the taxes, assessments or Liens, and such Borrower
hereby indemnifies and holds Agent and each Lender harmless in respect thereof,
except that Agent will not pay any taxes, assessments or Liens to the extent
that such Lien constitutes a Permitted Encumbrance. The amount of any payment
by Agent under this Section 4.13 shall be charged to the Borrowers' account as
a Revolving Advance and added to the Obligations and, until such Borrower shall
furnish Agent with an indemnity therefor (or supply Agent with evidence
satisfactory to Agent that due provision for the payment thereof has been
made), Agent may hold without interest any balance standing to such Borrower's
credit and Agent shall retain its security interest in any and all Collateral
held by Agent.
4.14. Payment of Leasehold Obligations. Each Borrower
shall at all times pay, when and as due, its rental obligations under all
leases under which it is a tenant, and shall otherwise comply, in all material
respects, with all other terms of such leases and keep them in full force and
effect where the failure to so comply would have a material adverse effect on
the business, assets, operations, condition (financial or otherwise) or
prospects of Borrowers taken as a whole and, at Agent's request will provide
evidence of having done so.
4.15. Receivables.
(a) Nature of Receivables. Each of the
Receivables shall be a bona fide and valid account representing a bona fide
indebtedness incurred by the Customer therein named, for a fixed sum as set
forth in the invoice relating thereto (provided immaterial or unintentional
invoice errors shall not be deemed to
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be a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of a Borrower, or work, labor or services theretofore
rendered by a Borrower as of the date each Receivable is created. Same shall
be due and owing in accordance with the applicable Borrower's standard terms of
sale without dispute, setoff or counterclaim except as may be stated on the
accounts receivable schedules delivered by such Borrower to Agent.
(b) Solvency of Customers. Each Customer,
to the best of each Borrower's knowledge, as of the date each Receivable is
created, is and will be solvent and able to pay all Receivables on which the
Customer is obligated in full when due or with respect to such Customers of any
Borrower who are not solvent such Borrower has set up on its books and in its
financial records bad debt reserves adequate to cover such Receivables.
(c) Locations of Borrowers. Each
Borrower's chief executive office is located at the address set forth on
Schedule 4.15(c) hereto. Until written notice is given to Agent by any
Borrower of any other office at which it keeps its records pertaining to
Receivables, all such records shall be kept at such executive office.
(d) Collection of Receivables. Until any
Borrower's authority to do so is terminated by Agent (which notice Agent may
give only at any time following the occurrence of an Event of Default or a
Default), each Borrower will, at such Borrower's sole cost and expense, but on
Agent's behalf and for Agent's account, collect as Agent's property and in
trust for Agent all amounts received on Receivables, and shall not commingle
such collections with such Borrower's funds or use the same except to pay
Obligations. Each Borrower shall, upon request, deliver to Agent or the
Blocked Account in original form and within three (3) days of receipt thereof,
all checks, drafts, notes, money orders, acceptances, cash and other evidences
of Indebtedness.
(e) Notification of Assignment of
Receivables. At any time following the occurrence of an Event of Default,
Agent shall have the right to send notice of the assignment of, and Agent's
security interest in, the Receivables to any and all Customers or any third
party holding or otherwise concerned with any of the Collateral. Thereafter,
Agent shall have the sole right to collect the Receivables, take possession of
the Collateral, or both. Agent's actual collection expenses, including, but
not limited to, stationery and postage, telephone and telegraph, secretarial
and clerical expenses and the salaries of any collection personnel used for
collection, may be charged to the Borrowers' account and added to the
Obligations.
(f) Power of Agent to Act on Borrowers'
Behalf. Agent shall have the right to receive, endorse, assign and/or deliver
in the name of Agent or any Borrower any and all checks, drafts and other
instruments for the payment of money relating to the Receivables, and each
Borrower hereby waives notice of
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presentment, protest and non-payment of any instrument so endorsed. Each
Borrower hereby constitutes Agent or Agent's designee as such Borrower's
attorney with power (A) at any time (i) to endorse such Borrower's name upon
any notes, acceptances, checks, drafts, money orders or other evidences of
payment or Collateral; (ii) to sign such Borrower's name on any invoice or bill
of lading relating to any of the Receivables, drafts against Customers,
assignments and verifications of Receivables; (iii) to send verifications of
Receivables to any Customer; (iv) to sign such Borrower's name on all financing
statements or any other documents or instruments deemed necessary or
appropriate by Agent to preserve, protect, or perfect Agent's interest in the
Collateral and to file same; and (v) to do all other acts and things necessary
to carry out this Agreement and (B) following the occurrence of an Event of
Default (i) to demand payment of the Receivables; (ii) to enforce payment of
the Receivables by legal proceedings or otherwise; (iii) to exercise all of
such Borrower's rights and remedies with respect to the collection of the
Receivables and any other Collateral; (iv) to settle, adjust, compromise,
extend or renew the Receivables; (v) to settle, adjust or compromise any legal
proceedings brought to collect Receivables; (vi) to prepare, file and sign such
Borrower's name on a proof of claim in bankruptcy or similar document against
any Customer; (vii) to prepare, file and sign such Borrower's name on any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with the Receivables; and (viii) to do all other acts and things
necessary to carry out this Agreement. All acts of said attorney or designee
are hereby ratified and approved, and said attorney or designee shall not be
liable for any acts of omission or commission nor for any error of judgment or
mistake of fact or of law, except for said attorney's or designee's willful
misconduct or gross (not mere) negligence; this power being coupled with an
interest is irrevocable while any of the Obligations remain unpaid. Agent
shall have the right at any time following the occurrence of an Event of
Default, to change the address for delivery of mail addressed to any Borrower
to such address as Agent may designate.
(g) No Liability. Neither Agent nor any
Lender shall, under any circumstances or in any event whatsoever, have any
liability for any error or omission or delay of any kind occurring in the
settlement, collection or payment of any of the Receivables or any instrument
received in payment thereof, or for any damage resulting therefrom other than
as a result of its respective willful misconduct or gross (not mere)
negligence. Following the occurrence of an Event of Default or Default Agent
may, without notice or consent from the applicable Borrower, sue upon or
otherwise collect, extend the time of payment of, compromise or settle for
cash, credit or upon any terms any of the Receivables or any other securities,
instruments or insurance applicable thereto and/or release any obligor thereof.
Agent is authorized and empowered to accept following the occurrence of an
Event of Default or Default the return of the goods represented by any of the
Receivables, without notice to or consent by the applicable
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Borrower, all without discharging or in any way affecting the applicable
Borrower's liability hereunder.
(h) Establishment of a Lockbox Account,
Dominion Account. All proceeds of Collateral shall, at the direction of Agent,
be deposited by each Borrower into a lockbox account, dominion account or such
other "blocked account" ("Blocked Accounts") as Agent may require pursuant to
an arrangement with such bank as may be selected by each Borrower and be
acceptable to Agent. Each Borrower shall issue to any such bank, an
irrevocable letter of instruction directing said bank to transfer such funds so
deposited to Agent, either to any account maintained by Agent at said bank or
by wire transfer to appropriate account(s) of Agent. All funds deposited in
such "blocked account" shall immediately become the property of Agent and each
Borrower shall obtain the agreement by such bank to waive any offset rights
against the funds so deposited. Agent assumes no responsibility for such
"blocked account" arrangement, including without limitation, any claim of
accord and satisfaction or release with respect to deposits accepted by any
bank thereunder. Alternatively, Agent may establish depository accounts
("Depository Accounts") in the name of Agent at a bank or banks for the deposit
of such funds and each Borrower shall deposit all proceeds of Receivables or
cause same to be deposited, in kind, in such Depository Accounts of Agent in
lieu of depositing same to the Blocked Accounts. Notwithstanding the
foregoing, until the Trigger Event occurs, Agent shall direct the bank where
the Blocked Account is located to, at Telxon's request, transfer Customer
remittances to Telxon's operating account at such bank unless an Event of
Default or Default shall exist at the time the remittances are received.
Following the occurrence of the Trigger Event all Customer remittances shall be
transferred to Agent provided, however, in the event (i) the amount of Advances
(exclusive of the Term Loan) shall not exceed $3,000,000 at any time during any
consecutive two (2) month period following the month in which the Trigger Event
occurred, (ii) no Event of Default or Default shall have occurred and be
continuing, and (iii) Agent receives the Certificate, Agent shall, at Telxon's
request, direct the bank where the Blocked Account is located to transfer the
remittances to Telxon's operating account at such bank.
(i) Adjustments. No Borrower will,
without Lenders' consent, compromise or adjust any Receivables (or extend the
time for payment thereof) or accept any returns of merchandise or grant any
additional discounts, allowances or credits thereon except for those
compromises, adjustments, returns, discounts, credits and allowances as have
been heretofore customary in the business of such Borrower.
4.16. Inventory. All Inventory which is subject to
the Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations and orders thereunder (the "FFLS") has been and will be produced by
Borrowers in accordance with the FFLS.
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4.17. Maintenance of Equipment. The Equipment shall
be maintained in good operating condition and repair (reasonable wear and tear
excepted) and all necessary replacements of and repairs thereto shall be made
so that the value and operating efficiency of the Equipment shall be maintained
and preserved. No Borrower shall use or operate the Equipment in violation of
any law, statutes, ordinances, codes, rules or regulations. Each Borrower
shall have the right to sell Equipment to the extent set forth in Section 4.3
hereof.
4.18. Exculpation of Liability. Nothing herein
contained shall be construed to constitute Agent or any Lender as any
Borrower's agent for any purpose whatsoever except as may be expressly provided
for herein, nor shall Agent or any Lender be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the
Collateral wherever the same may be located and regardless of the cause thereof
other than as a result of its respective willful misconduct or gross (not mere)
negligence. Neither Agent nor any Lender, whether by anything herein or in any
assignment or otherwise, assume any Borrower's obligations under any contract
or agreement assigned to Agent or such Lender, and neither Agent nor any Lender
shall be responsible in any way for the performance by any Borrower of any of
the terms and conditions thereof.
4.19. Environmental Matters.
(a) Borrowers will ensure that all Real Property
remains in compliance with all Environmental Laws and will not place or permit
to be placed any Hazardous Substances on any Real Property except as not
prohibited by applicable law or appropriate governmental authorities.
(b) Borrowers will establish and maintain
a system to assure and monitor continued compliance with all applicable
Environmental Laws which system shall include periodic reviews of such
compliance.
(c) Borrowers will (i) employ in
connection with the use of the Real Property appropriate technology necessary
to maintain compliance with any applicable Environmental Laws and (ii) dispose
of any and all Hazardous Waste generated at the Real Property only at
facilities and with carriers that maintain valid permits under RCRA and any
other applicable Environmental Laws. Borrowers shall use their best efforts to
obtain certificates of disposal, such as hazardous waste manifest receipts,
from all treatment, transport, storage or disposal facilities or operators
employed by Borrowers in connection with the transport or disposal of any
Hazardous Waste generated at the Real Property.
(d) In the event any Borrower obtains,
gives or receives notice of any Release or threat of Release of a reportable
quantity of any Hazardous Substances at any Real Property (any such event being
hereinafter referred to as a "Hazardous Discharge") or
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receives any notice of violation, request for information or notification that
it is potentially responsible for investigation or cleanup of environmental
conditions at any Real Property, demand letter or complaint, order, citation,
or other written notice with regard to any Hazardous Discharge or violation of
Environmental Laws affecting any Real Property or any Borrower's interest
therein (any of the foregoing is referred to herein as an "Environmental
Complaint") from any Person or entity, including any state agency responsible
in whole or in part for environmental matters in the state in which the Real
Property is located or the United States Environmental Protection Agency (any
such person or entity hereinafter the "Authority"), then Telxon shall, within
five (5) Business Days, give written notice of same to Agent detailing facts
and circumstances of which any Borrower is aware giving rise to the Hazardous
Discharge or Environmental Complaint. Such information is to be provided to
allow Agent to protect its security interest in the Real Property and is not
intended to create nor shall it create any obligation upon Agent or any Lender
with respect thereto.
(e) Borrowers shall promptly forward to
Agent copies of any request for information, notification of potential
liability, demand letter relating to potential responsibility with respect to
the investigation or cleanup of Hazardous Substances at any other site owned,
operated or used by any Borrower to dispose of Hazardous Substances and shall
continue to forward copies of correspondence between any Borrower and the
Authority regarding such claims to Lender until the claim is settled. Telxon
shall promptly forward to Agent copies of all documents and reports concerning
a Hazardous Discharge at the Real Property that any Borrower is required to
file under any Environmental Laws. Such information is to be provided solely
to allow Agent to protect Agent's security interest in the Real Property and
the Collateral.
(f) Borrowers shall respond promptly to
any Hazardous Discharge or Environmental Complaint and take all necessary
action in order to safeguard the health of any Person and to avoid subjecting
the Collateral or Real Property to any Lien. If Borrowers shall fail to
respond promptly to any Hazardous Discharge or Environmental Complaint or
Borrowers shall fail to comply with any of the requirements of any
Environmental Laws, Agent on behalf of Lenders may, but without the obligation
to do so, for the sole purpose of protecting Agent's interest in Collateral:
(A) give such notices or (B) enter onto the Real Property (or authorize third
parties to enter onto the Real Property) and take such actions as Agent (or
such third parties as directed by Agent) deem reasonably necessary or
advisable, to clean up, remove, mitigate or otherwise deal with any such
Hazardous Discharge or Environmental Complaint. All reasonable costs and
expenses incurred by Agent and Lenders (or such third parties) in the exercise
of any such rights, including any sums paid in connection with any judicial or
administrative investigation or proceedings, fines and penalties, together with
interest thereon from the date expended at the Default Rate, shall be paid upon
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demand by Borrowers, and until paid shall be added to and become a part of the
Obligations secured by the Liens created by the terms of this Agreement or any
other agreement between Agent, any Lender and any Borrower.
(g) Promptly upon the written request of
Agent from time to time, which request shall indicate Lenders' basis for
concern, Telxon shall provide Agent, at Borrowers' expense, with an
environmental site assessment or environmental audit report prepared by an
environmental engineering firm acceptable in the reasonable opinion of Agent,
to assess with a reasonable degree of certainty the existence of a Hazardous
Discharge and the potential costs in connection with abatement, cleanup and
removal of any Hazardous Substances found on, under, at or within the Real
Property. Any report or investigation of such Hazardous Discharge proposed and
acceptable to an appropriate Authority that is charged to oversee the clean-up
of such Hazardous Discharge shall be acceptable to Agent. If such estimates,
individually or in the aggregate, exceed $250,000, Agent shall have the right
to require Borrowers to post a bond, letter of credit or other security
reasonably satisfactory to Agent to secure payment of these costs and expenses.
(h) Borrowers shall defend and indemnify
Agent and Lenders and hold Agent, Lenders and their respective employees,
agents, directors and officers harmless from and against all loss, liability,
damage and expense, claims, costs, fines and penalties, including attorney's
fees, suffered or incurred by Agent or Lenders under or on account of any
Environmental Laws, including, without limitation, the assertion of any lien
thereunder, with respect to any Hazardous Discharge, the presence of any
Hazardous Substances affecting the Real Property, whether or not the same
originates or emerges from the Real Property or any contiguous real estate,
including any loss of value of the Real Property as a result of the foregoing
except to the extent such loss, liability, damage and expenses is attributable
to any Hazardous Discharge resulting from actions on the part of Agent or any
Lender. Borrowers' obligations under this Section 4.19 shall arise upon the
discovery of the presence of any Hazardous Substances at the Real Property,
whether or not any federal, state, or local environmental agency has taken or
threatened any action in connection with the presence of any Hazardous
Substances. Borrowers' obligation and the indemnifications hereunder shall
survive the termination of this Agreement.
4.20. Financing Statements. Except as
respects the financing statements filed by Agent, the financing statements
described on Schedule 1.2 and financing statements evidencing Permitted
Encumbrances, no financing statement covering any of the Collateral or any
proceeds thereof is on file in any public office.
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V. REPRESENTATIONS AND WARRANTIES.
Each Borrower represents and warrants as follows:
5.1. Authority. Each Borrower has full power,
authority and legal right to enter into this Agreement and the Other Loan
Documents and to perform all its respective Obligations hereunder and
thereunder. The execution, delivery and performance hereof and of the Other
Loan Documents (a) are within such Borrower's corporate powers, have been duly
authorized, are not in contravention of law or the terms of such Borrower's
by-laws, certificate of incorporation, or other applicable documents relating
to such Borrower's formation or to the conduct of such Borrower's business or
of any material agreement or undertaking to which such Borrower is a party or
by which such Borrower or its property is bound, and (b) will not conflict with
nor result in any breach in any of the provisions of or constitute a default
under or result in the creation of any Lien except Permitted Encumbrances upon
any asset of such Borrower under the provisions of any charter, by-law,
material agreement or other material instrument to which such Borrower or its
property is a party or by which it may be bound.
5.2. Formation and Qualification.
(a) Each Borrower is duly incorporated and
in good standing under the laws of the state listed on Schedule 5.2(a) hereto
and is qualified to do business and is in good standing under the laws of the
states listed on Schedule 5.2(b) which constitute all locations in which
qualification and good standing are necessary for such Borrower to conduct its
business and own its property and where the failure to so qualify would have a
material adverse effect on the business, assets, operations, condition
(financial or otherwise) or prospects of Borrowers taken as a whole. Each
Borrower has delivered to Agent true and complete copies of its certificate of
incorporation and by-laws and will promptly notify Agent of any amendment or
changes thereto.
(b) The only Subsidiaries of Borrowers as
of the Effective Date are listed on Schedule 5.2.
5.3. Survival of Representations and Warranties. All
representations and warranties of each Borrower contained in this Agreement and
the Other Loan Documents shall be true at the time of such Borrower's execution
of this Agreement and the Other Loan Documents, and shall (without prejudice to
the terms of any such Other Loan Documents) survive the execution, delivery and
acceptance thereof by the parties thereto and the closing of the transactions
described therein or related thereto.
5.4. Tax Returns. Each Borrower's federal tax
identification number is set forth on Schedule 5.4. Each Borrower has filed
all federal, state and local tax returns and other reports each is required by
law to file and has paid all taxes,
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assessments, fees and other governmental charges that are due and payable
except to the extent such taxes, assessments, fees and other charges constitute
Permitted Encumbrances. Federal, state and local income tax returns of each
Borrower have been examined and reported upon by the appropriate taxing
authority or closed by applicable statute and satisfied for all fiscal years
prior to and including the fiscal year ended March 31, 1990. The provision for
taxes on the books of each Borrower are adequate for all years not closed by
applicable statutes, and for its current fiscal year, and no Borrower has
knowledge of any deficiency or additional assessment in connection therewith
not provided for on its books.
5.5. Financial Statements.
(a) The balance sheets of Telxon and its
Subsidiaries on a Consolidated Basis of December 31, 1994 (the "Balance Sheet")
furnished to Agent is accurate, complete and correct and fairly reflects the
financial condition of Borrower as of such date, and has been prepared in
accordance with GAAP, consistently applied, subject to normal year end
adjustments and the absence of footnote disclosures. The Balance Sheet has
been certified as accurate, complete and correct in all material respects by
the President and Chief Financial Officer of Telxon. Since the date of such
financial statements, there has been no material adverse change in the
business, financial condition, prospects or results of operations of any of
Telxon or its Subsidiaries.
(b) The twelve-month cash flow projections
of Telxon and its Subsidiaries on a Consolidated Basis and consolidating basis
and the projected balance sheets as of the Effective Date, copies of which are
annexed hereto as Exhibit 5.5(b) (the "Projections") were prepared by the Chief
Financial Officer of Telxon, are based on underlying assumptions which provide
a reasonable basis for the projections contained therein and reflect each
Borrower's judgment based on present circumstances of the most likely set of
conditions and course of action for the projected period.
5.6. Corporate Name. Except as set forth
on Schedule 5.6, no Borrower has been known by any other corporate name in the
past five years or sells Inventory under any other name nor has any Borrower
been the surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person during the preceding five (5)
years.
5.7. O.S.H.A. and Environmental Compliance.
(a) Each Borrower has duly complied with,
and its facilities, business, assets, property, leaseholds and Equipment are in
compliance in all material respects with, the provisions of the Federal
Occupational Safety and Health Act, the Environmental Protection Act, RCRA and
all other Environmental Laws; there have been no outstanding citations, notices
or orders
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of non-compliance issued to any Borrower or relating to its business, assets,
property, leaseholds or equipment under any such laws, rules or regulations.
(b) Each Borrower has been issued all
required federal, state and local licenses, certificates or permits relating to
all applicable Environmental Laws.
(c) (i) There are no visible signs of
releases, spills, discharges, leaks or disposal (collectively referred to as
"Releases") of Hazardous Substances at, upon, under or within any Real Property
or any premises leased by any Borrower; (ii) except the underground storage
tanks located on the premises of PTC at Akron-Canton Regional Airport, Hangar
13, 5430 Lauby Road, North Canton, Ohio as described in the Phase I
Environmental Site Assessment conducted by Electro-Analytical Laboratories
dated January 1993, there are no underground storage tanks or polychlorinated
biphenyls on the Real Property or any premises leased by any Borrower; (iii)
neither the Real Property nor any premises leased by any Borrower has ever been
used as a treatment, storage or disposal facility of Hazardous Waste; and (iv)
no Hazardous Substances are present on the Real Property or any premises leased
by any Borrower, excepting such quantities as are handled in accordance with
all applicable manufacturer's instructions and governmental regulations and in
proper storage containers and as are necessary for the operation of the
commercial business of any Borrower or of its tenants.
5.8. Solvency; No Litigation, Violation, Indebtedness
or Default.
(a) Telxon and its Subsidiaries on a
Consolidated Basis are solvent, able to pay their debts as they mature, have
capital sufficient to carry on their businesses and all businesses in which
they are about to engage, and (i) as of the Closing Date, the fair present
saleable value of their assets, calculated on a going concern basis, is in
excess of the amount of their liabilities and (ii) subsequent to the Closing
Date, the fair saleable value of their assets (calculated on a going concern
basis) will be in excess of the amount of their liabilities.
(b) Except as disclosed in Schedule 5.8(b)
as such schedule may be amended and modified by Borrowers from time to time in
accordance with Section 9.4 hereof, no Borrower has (i) pending or threatened
litigation, arbitration, actions or proceedings which involve the possibility
of materially and adversely affecting its business, assets, operations,
condition or prospects, financial or otherwise, or the Collateral, or the
ability of such Borrower to perform this Agreement or the Other Loan Documents,
or (ii) any Indebtedness for borrowed money other than the Obligations and the
Subordinated Indebtedness.
(c) No Borrower is in violation, nor has
any Borrower received notice of its violation of any applicable
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statute, regulation or ordinance in any respect materially and adversely
affecting the Collateral or the business, assets, operations, condition
(financial or otherwise), or prospects, of Borrowers taken as a whole, nor is
any Borrower in violation of any order of any court, governmental authority or
arbitration board or tribunal.
(d) No Borrower or any member of the
Controlled Group maintains or contributes to any Plan other than those listed
on Schedule 5.8(d) hereto. Except as set forth in Schedule 5.8(d), (i) no Plan
has incurred any "accumulated funding deficiency," as defined in Section
302(a)(2) of ERISA and Section 412(a) of the Code, whether or not waived, and
each Borrower and each member of the Controlled Group has met all applicable
minimum funding requirements under Section 302 of ERISA in respect of each
Plan, (ii) each Plan which is intended to be a qualified plan under Section
401(a) of the Code as currently in effect has been determined by the Internal
Revenue Service to be qualified under Section 401(a) of the Code and the trust
related thereto is exempt from federal income tax under Section 501(a) of the
Code, (iii) no Borrower nor any member of the Controlled Group has incurred any
liability to the PBGC other than for the payment of premiums, and there are no
premium payments which have become due which are unpaid, (iv) no Plan has been
terminated by the plan administrator thereof or by the PBGC, and there is no
occurrence which would cause the PBGC to institute proceedings under Title IV
of ERISA to terminate any Plan, (v) at this time, the current value of the
assets of each Plan exceeds the present value of the accrued benefits and other
liabilities of such Plan and neither any Borrower or any member of the
Controlled Group knows of any facts or circumstances which would materially
change the value of such assets and accrued benefits and other liabilities,
(vi) no Borrower or any member of the Controlled Group has breached any of the
responsibilities, obligations or duties imposed on it by ERISA with respect to
any Plan, (vii) no Borrower or any member of a Controlled Group has incurred
any liability for any excise tax arising under Section 4972 or 4980B of the
Code, and no fact exists which could give rise to any such liability, (viii) no
Borrower or any member of the Controlled Group or any fiduciary of, or any
trustee to, any Plan, has engaged in a "prohibited transaction" described in
Section 406 of the ERISA or Section 4975 of the Code nor taken any action which
would constitute or result in a Termination Event with respect to any such Plan
which is subject to ERISA, (ix) each Borrower and each member of the Controlled
Group has made all contributions due and payable with respect to each Plan, (x)
there exists no event described in Section 4043(b) of ERISA, for which the
thirty (30) day notice period contained in 29 CFR Section 2615.3 has not been
waived, (xi) no Borrower or any member of the Controlled Group has any
fiduciary responsibility for investments with respect to any plan existing for
the benefit of persons other than employees or former employees of any Borrower
and any member of the Controlled Group, and (xii) no Borrower or any member of
the Controlled Group has withdrawn, completely or
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partially, from any Multiemployer Plan so as to incur liability under the
Multiemployer Pension Plan Amendments Act of 1980.
5.9. Patents, Trademarks, Copyrights and Licenses.
All patents, patent applications, trademarks, trademark applications, service
marks, service mark applications, copyrights, copyright applications,
tradenames, assumed names and licenses owned or utilized by any Borrower and
which are material to the business and operations of Borrowers are set forth on
Schedule 5.9, are valid and, where necessary, have been duly registered or
filed with all appropriate governmental authorities and constitute all of the
intellectual property rights which are necessary for the operation of its
business; there is no pending challenge to the validity of any such material
patent, trademark, copyright, tradename or license and no Borrower is aware of
any grounds for any challenge which would have a material adverse effect on the
business, assets, operations, condition (financial or otherwise) of Borrowers
taken as a whole, except as set forth in Schedule 5.9 hereto. Each patent,
patent application, patent license, trademark, trademark application, trademark
license, service mark, service mark application, service mark license,
copyright, design right, copyright application and copyright license owned or
held by any Borrower and all trade secrets used by any Borrower consist of
original material or property developed by such Borrower or the rights thereto
were lawfully acquired by such Borrower from the proper and lawful owner
thereof. Each of such items which are material to the business or operations
of such Borrower has been maintained so as to preserve the value thereof from
the date of creation or acquisition thereof. Except as set forth on Schedule
5.9, with respect to all software used by any Borrower, such Borrower is in
possession of all source and object codes related to each piece of software
which is material to the business or operations of Borrowers taken as a whole
or is the beneficiary of a source code escrow agreement each such source code
escrow agreement being listed on Schedule 5.9 hereto.
5.10. Licenses and Permits. Except as set forth in
Schedule 5.10, each Borrower (a) is in compliance with and (b) has procured and
is now in possession of, all material licenses or permits required by any
applicable federal, state, or local law or regulation for the operation of its
business in each jurisdiction wherein it is now conducting or proposes to
conduct business, in each case where the failure to procure such licenses or
permits would have a material adverse effect on the business, properties,
condition (financial or otherwise) or operations, present or prospective of
Borrowers taken as a whole.
5.11. Default of Indebtedness. Except as set forth on
Schedule 5.11, no Borrower is in default in the payment of the principal of or
interest on any Indebtedness for borrowed money or under any instrument or
agreement under or subject to which any Indebtedness for borrowed money has
been issued and no event has occurred under the provisions of any such
instrument or agreement which with or without the lapse of time or the giving
of notice, or
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both, constitutes or would constitute an event of default thereunder.
5.12. No Default. No Borrower is in default in the
payment of any Indebtedness for borrowed money or the performance of any of its
material contractual obligations and no Default has occurred.
5.13. No Burdensome Restrictions. No Borrower is
party to any contract or agreement the performance of which would materially
and adversely affect the business, assets, operations, condition (financial or
otherwise) or prospects of Borrowers taken as a whole. No Borrower has agreed
or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its property, whether now owned or hereafter
acquired, to be subject to a Lien which is not a Permitted Encumbrance.
5.14. No Labor Disputes. No Borrower is involved in
any labor dispute; there are no strikes or walkouts or union organization of
any Borrower's employees threatened or in existence and no labor contract is
scheduled to expire during the Term other than as set forth on Schedule 5.14
hereto.
5.15. Margin Regulations. No Borrower is engaged, nor
will it engage, principally or as one of its important activities, in the
business of extending credit for the purpose of "purchasing" or "carrying" any
"margin stock" within the respective meanings of each of the quoted terms under
Regulation U or Regulation G of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. No part of the
proceeds of any Advance will be used for "purchasing" or "carrying" "margin
stock" as defined in Regulation U of such Board of Governors.
5.16. Investment Company Act. No Borrower is an
"investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended, nor is it controlled by such a
company.
5.17. Disclosure. No representation or warranty made
by any Borrower in this Agreement or in any financial statement, report,
certificate or any other document furnished in connection herewith contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein not misleading. There is no
fact known to any Borrower or which reasonably should be known to any Borrower
which such Borrower has not disclosed to Agent in writing with respect to the
transactions contemplated by this Agreement which materially and adversely
affects the condition (financial or otherwise), results of operations,
business, or assets of Borrowers taken as a whole.
5.18. Delivery of Subordinated Debt Documentation.
Agent has received complete copies of the Subordinated Debt Documentation
(including all exhibits, schedules and disclosure letters referred to therein
or delivered pursuant thereto, if any)
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and all amendments thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof. None of such documents and agreements
has been amended or supplemented, nor have any of the provisions thereof been
waived, except pursuant to a written agreement or instrument which has
heretofore been delivered to Agent.
5.19. Swaps. No Borrower is a party to, nor will it
be a party to, any swap agreement whereby such Borrower has agreed or will
agree to swap interest rates or currencies unless same provides that damages
upon termination following an event of default thereunder are payable on an
unlimited "two-way basis" without regard to fault on the part of either party.
5.20. Conflicting Agreements. Except as set forth on
Schedule 5.20, no provision of any material mortgage, indenture, contract,
agreement, judgment, decree or order binding on Borrowers or affecting the
Collateral conflicts with, or requires any Consent which has not already been
obtained to, or would in any way prevent the execution, delivery or performance
of, the terms of this Agreement or the Other Loan Documents.
5.21. Application of Certain Laws and Regulations. No
Borrower is subject to any statute, rule or regulation which regulates the
incurrence of any Indebtedness, including without limitation, statutes or
regulations relative to common or interstate carriers or to the sale of
electricity, gas, steam, water, telephone, telegraph or other public utility
services.
5.22. Business and Property of Borrower. Upon and
after the Closing Date, Borrowers do not propose to engage in any business
other than the ownership and operation of an airplane and activities related to
the use of such airplane by Borrowers, research, design, development,
acquisition, marketing, manufacturing and sale of software and products
utilizing proprietary software, portable teletransaction computers, symbology
encoding, recognition and decoding, scanning and communicating devices,
pen-based products, wireless systems, integration and voice integration
technologies, radios and other electronic devices and activities related to or
necessary to conduct such business. On the Closing Date, each Borrower will
own all the property and possess all of the rights and Consents necessary for
the conduct of the business of such Borrower.
5.23. Material Changes. Since the Closing Date, no
material adverse change has occurred in the business, financial condition,
prospects or results of operations of any Borrower, or the existence or value
of the Collateral except as otherwise disclosed in writing to Agent prior to
the Effective Date.
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<PAGE> 59
VI. AFFIRMATIVE COVENANTS.
Borrowers shall, until payment in full of the Obligations and
termination of this Agreement:
6.1. Payment of Fees. Pay to Agent on demand all
usual and customary fees and expenses which Agent incurs in connection with (a)
the forwarding of Advance proceeds and (b) the establishment and maintenance of
any Blocked Accounts or Depository Accounts as provided for in Section 4.15(h).
Agent may, without making demand, charge the account of Borrowers for all such
fees and expenses.
6.2. Conduct of Business and Maintenance of Existence
and Assets. (a) Conduct continuously and operate actively their businesses
according to good business practices and maintain all of their properties
useful or necessary in their businesses in good working order and condition
(reasonable wear and tear excepted and except as may be disposed of in
accordance with the terms of this Agreement), including, without limitation,
all licenses, patents, copyrights, design rights, tradenames, trade secrets and
trademarks and take all actions necessary to enforce and protect the validity
of any intellectual property right or other right included in the Collateral
where the failure to do so would have a material adverse effect on the
business, assets, operations, condition (financial or otherwise) or prospects
of Borrowers taken as a whole; (b) keep in full force and effect their
existence and comply in all material respects with the laws and regulations
governing the conduct of their businesses, where the failure to do so would
have a material adverse effect on the business, assets, operations, condition
(financial or otherwise) or prospects of Borrowers taken as a whole; and (c)
make all such reports and pay all such franchise and other taxes and license
fees and do all such other acts and things as may be lawfully required to
maintain their rights, licenses, leases, powers and franchises under the laws
of the United States or any political subdivision thereof, as the case may be,
where the failure to do so would have a material adverse effect on the
business, assets, operations, condition (financial or otherwise) or prospects
of Borrowers taken as a whole.
6.3. Violations. Promptly notify Agent in writing of
any violation of any law, statute, regulation or ordinance of any governmental
entity, or of any agency thereof, applicable to any Borrower which may
materially and adversely affect the Collateral or the business, assets,
operations, condition (financial or otherwise) or prospects of Borrowers taken
as a whole.
6.4. Government Receivables. Take all steps
necessary to protect Agent's interest in the Collateral under the Federal
Assignment of Claims Act or other applicable state or local statutes or
ordinances and deliver to Agent appropriately endorsed, any instrument or
chattel paper connected with any Receivable arising out of contracts between
any Borrower and the United States, any state or any department, agency or
instrumentality of
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any of them; provided, however, Borrowers shall not be required to so comply if
the aggregate amount of such Receivables do not exceed $250,000 at any one
time.
6.5. Net Worth. Cause to be maintained as of the end
of each fiscal quarter of Borrowers a Net Worth of not less than $117,585,000.
6.6. Tangible Net Worth. Cause to be maintained as
of the end of each fiscal quarter of Borrowers a Tangible Net Worth of not less
than $75,000,000.
6.7. Current Ratio. Cause to be maintained as of the
end of each fiscal quarter of Borrowers a ratio of Current Assets to Current
Liabilities not less than 1.75 to 1.00.
6.8. Indebtedness to Tangible Net Worth Ratio. Cause
to be maintained as of the end of each fiscal quarter of Borrowers a ratio of
Indebtedness of Telxon and its Subsidiaries on a Consolidated Basis to (a) the
sum of Tangible Net Worth plus (b) the Subordinated Indebtedness no greater
than 1.45 to 1.00.
6.9. Working Capital. Cause to be maintained as of
the end of each fiscal quarter of Borrowers, Working Capital in an amount not
less than $70,000,000.
6.10. Fixed Charge Coverage. Cause the Fixed Charge
Coverage for each fiscal period set forth below to be greater at the end of
such fiscal period than the ratio set forth opposite such fiscal period below:
<TABLE>
<CAPTION>
Fixed Charge
Fiscal Period Coverage Ratio
------------- --------------
<S> <C>
July 1, 1993 thru September 30, 1993 2.00 to 1.00
July 1, 1993 thru December 31, 1993 2.00 to 1.00
July 1, 1993 thru March 31, 1994 2.00 to 1.00
July 1, 1993 thru June 30, 1994 2.00 to 1.00
October 1, 1993 thru September 30, 1994 2.00 to 1.00
January 1, 1994 thru December 31, 1994 2.00 to 1.00
April 1, 1994 thru March 31, 1995 2.00 to 1.00
July 1, 1994 thru June 30, 1995 2.00 to 1.00
October 1, 1994 thru September 30, 1995 2.00 to 1.00
January 1, 1995 thru December 31, 1996 2.00 to 1.00
April 1, 1995 thru March 31, 1996 2.00 to 1.00
</TABLE>
6.11. Execution of Supplemental Instruments. Execute
and deliver to Agent from time to time, upon demand, such supplemental
agreements, statements, assignments and transfers, or instructions or documents
relating to the Collateral, and such other instruments as Agent may reasonably
request, in order that the full intent of this Agreement may be carried into
effect.
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6.12. Payment of Indebtedness. Pay, discharge or
otherwise satisfy at or before maturity (subject, where applicable, to
specified grace periods and, in the case of the trade payables, to normal
payment practices) all its obligations and liabilities of whatever nature,
except when the amount or validity thereof is currently being contested in good
faith by appropriate proceedings and each Borrower shall have provided for such
reserves as Agent may reasonably deem proper and necessary.
6.13. Standards of Financial Statements. Cause all
financial statements referred to in Sections 9.7, 9.8, 9.9 and 9.12 to be
complete and correct in all material respects (subject, in the case of interim
financial statements, to normal year-end audit adjustments) and to be prepared
in reasonable detail and in accordance with GAAP applied consistently
throughout the periods reflected therein (except as concurred in by such
reporting accountants or officer, as the case may be, and disclosed therein).
6.14. Guarantees. Upon the request of Agent following
the occurrence of an Event of Default, Borrowers shall cause each of the
Foreign Subsidiaries to deliver to Agent Guarantees duly executed by each of
such Foreign Subsidiaries in form and substance satisfactory to Agent.
VII. NEGATIVE COVENANTS.
No Borrower shall, until satisfaction in full of the Obligations and
termination of this Agreement:
7.1. Merger, Consolidation, Acquisition and Sale of
Assets.
(a) (i) Enter into any merger, consolidation
or other reorganization with or into any other Person, (ii) permit any other
Person to consolidate with or merge with it except for Permitted Acquisitions,
or (iii) acquire all or a substantial portion of the assets or stock of any
Person, except Permitted Acquisitions and acquisitions of stock or assets of
any Person in exchange for the stock of such Borrower with the prior written
consent of Agent which consent will not be unreasonably withheld.
(b) Sell, lease, transfer or otherwise
dispose of any of its properties or assets, except (i) in the ordinary course
of its business, (ii) as permitted by Section 4.3 and (iii) the sale of the
undeveloped land owned by Telxon located at I-77 and White Pond Drive, Akron,
Ohio.
7.2. Creation of Liens. Create or suffer to exist
any Lien, Charge, Claim or transfer upon or against any of its property or
assets now owned or hereafter acquired, except Permitted Encumbrances.
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7.3. Guarantees. Become liable upon the obligations
of any Person by assumption, endorsement, indemnity or guaranty thereof or
otherwise (other than to Lenders) except (a) the endorsement of checks in the
ordinary course of business; (b) guarantees by Borrowers of the obligations of
another Borrower; (c) guarantees by Borrowers after the Closing Date of the
obligations of their Subsidiaries (other than a Borrower) provided that the
aggregate amount so guaranteed together with the loans made by Borrowers to
such Subsidiaries does not exceed $4,000,000 in the aggregate at any time
outstanding; and (d) as disclosed on Schedule 7.3.
7.4. Investments. Purchase or acquire obligations or
stock of, or any other interest in, any Person, except (a) obligations issued
or guaranteed by the United States of America or any agency thereof, (b)
commercial paper with maturities of not more than 180 days and a published
rating of not less than A-1 or P-1 (or the equivalent rating), (c) certificates
of time deposit and bankers' acceptances having maturities of not more than 180
days and repurchase agreements backed by United States government securities of
a commercial bank if (i) such bank has a combined capital and surplus of at
least $500,000,000, or (ii) its debt obligations, or those of a holding company
of which it is a Subsidiary, are rated not less than A (or the equivalent
rating) by a nationally recognized investment rating agency, (d) U.S. money
market funds that invest solely in obligations issued or guaranteed by the
United States of America or an agency thereof, (e) investments existing on the
Effective Date in Subsidiaries existing on the Effective Date, (f) Permitted
Acquisitions and Permitted Acquisition Subsidiaries, (g) investments made in
the ordinary course of business to developers of technology and to acquire
licenses provided that the aggregate outstanding amount of such investments
together with loans permitted by Section 7.5(d) does not exceed $1,000,000 at
any time and (h) investments made to Subsidiaries formed after the Effective
Date pursuant to Section 7.12 (a)(ii) hereof.
7.5. Loans. Make advances, loans or extensions of
credit to any Person, including without limitation, any Subsidiary or Affiliate
except (a) with respect to the extension of commercial trade credit in
connection with the sale of Inventory in the ordinary course of its business,
(b) loans made by any Borrower to another Borrower, (c) loans to Subsidiaries
(other than a Borrower) provided that the aggregate Dollar Equivalent of such
loans together with the aggregate amount of the obligations of such
Subsidiaries guaranteed by Borrowers does not exceed $4,000,000 in the
aggregate at any time, (d) loans after the Closing Date in the ordinary course
of business to developers of technology and to acquire licenses provided that
the aggregate outstanding amount of such loans together with investments
permitted by Section 7.4(g) does not exceed $1,000,000 at any time, (e) loans
to employees in the ordinary course of business provided that the aggregate
amount of such loans does not exceed $1,000,000 at anytime and (f) loans set
forth on Schedule 7.5.
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7.6. Capital Expenditures. Contract for, purchase or
make any expenditure or commitments for fixed or capital assets (including
capitalized leases but excluding construction costs relating to the Texas Real
Property) in any fiscal year of Borrowers in an amount in excess of
$20,000,000.
7.7. Dividends. Declare, pay or make any dividend or
distribution on any shares of the common stock or preferred stock of any
Borrower (other than dividends or distributions of such Subsidiaries payable in
its stock, or split-ups or reclassifications of its stock) or apply any of its
funds, property or assets to the purchase, redemption or other retirement of
any common or preferred stock, or of any options to purchase or acquire any
such shares of common or preferred stock of any Borrower and not permit any
Subsidiary to do any of the foregoing except that (a) so long as (i) no notice
of termination with regard to this Agreement shall be outstanding, (ii) no
Event of Default or Default shall have occurred and be continuing or will
result as a result of such payment and (iii) the aggregate amount of such
dividends paid during any fiscal year of Telxon does not exceed $250,000,
Telxon may pay dividends on its outstanding shares of capital stock in the
amount of $.01 per share and each Borrower (other than Telxon) may pay
dividends to Telxon.
7.8. Indebtedness. Create, incur, assume or suffer
to exist any Indebtedness (exclusive of trade debt and accrued expenses) of any
Borrower except in respect of (i) Indebtedness to Lenders; (ii) the
Subordinated Indebtedness; (iii) Indebtedness incurred for capital expenditures
permitted under Section 7.6 hereof; and (iv) Indebtedness set forth on Schedule
7.8.
7.9. Nature of Business. Substantially change the
nature of the business in which Borrowers are presently engaged, nor except as
specifically permitted hereby purchase or invest, directly or indirectly, in
any assets or property other than in the ordinary course of business for assets
or property which are useful in, necessary for and are to be used in its
business as presently conducted.
7.10. Transactions with Affiliates. Directly or
indirectly, purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or otherwise deal with, any Affiliate, except (a)
transactions in the ordinary course of business as conducted on the Closing
Date, on an arm's-length basis on terms no less favorable than terms which
would have been obtainable from a Person other than an Affiliate and (b)
transactions set forth on Schedule 7.10.
7.11. Leases. Enter as lessee into any lease
arrangement for real or personal property (unless capitalized and permitted
under Section 7.6 hereof) if after giving effect thereto, aggregate annual
rental payments for all leased property would exceed $10,000,000 in any one
fiscal year.
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<PAGE> 64
7.12. Subsidiaries.
(a) Form any Subsidiary except for (i)
Permitted Acquisition Subsidiaries and (ii) Subsidiaries (other than Permitted
Acquisition Subsidiaries) provided that the aggregate amount investments and
loans to such Subsidiaries does not exceed $1,000,000 at any time.
(b) Enter into any partnership, joint
venture or similar arrangement.
7.13. Fiscal Year and Accounting Changes. Change its
fiscal year from a year ending on March 31 or make any significant change (i)
in accounting treatment and reporting practices except as required by GAAP or
(ii) in tax reporting treatment except as required by law.
7.14. Pledge of Credit. Now or hereafter pledge
Agent's or any Lender's credit on any purchases or for any purpose whatsoever
or use any portion of any Advance in or for any business other than such
Borrower's business as conducted on the Effective Date.
7.15. Amendment of Certificates of Incorporation,
By-Laws. Amend, modify or waive any term or material provision of their
respective Certificates of Incorporation, By-Laws, memorandum or articles of
association unless required by law.
7.16. Compliance with ERISA. (i) (x) Maintain, or
permit any member of the Controlled Group to maintain, or (y) become obligated
to contribute, or permit any member of the Controlled Group to become obligated
to contribute, to any Plan, other than those Plans disclosed on Schedule
5.8(d), (ii) engage, or permit any member of the Controlled Group to engage, in
any non-exempt "prohibited transaction", as that term is defined in section 406
of ERISA and Section 4975 of the Code, (iii) incur, or permit any member of the
Controlled Group to incur, any "accumulated funding deficiency", as that term
is defined in Section 302 of ERISA or Section 412 of the Code, (iv) terminate,
or permit any member of the Controlled Group to terminate, any Plan where such
event could result in any liability of Telxon or any member of the Controlled
Group or the imposition of a lien on the property of Telxon or any member of
the Controlled Group pursuant to Section 4068 of ERISA, (v) assume, or permit
any member of the Controlled Group to assume, any obligation to contribute to
any Multiemployer Plan not disclosed on Schedule 5.8(d), (vi) incur, or permit
any member of the Controlled Group to incur, any withdrawal liability to any
Multiemployer Plan; (vii) fail promptly to notify Lender of the occurrence of
any Termination Event, (viii) fail to comply, or permit a member of the
Controlled Group to fail to comply, with the requirements of ERISA or the Code
or other applicable laws in respect of any Plan, (ix) fail to meet, or permit
any member of the Controlled Group to fail to meet, all minimum funding
requirements under ERISA or the Code or postpone or delay or allow any member
of
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the Controlled Group to postpone or delay any funding requirement with respect
of any Plan.
7.17. Prepayment of Indebtedness. At any time,
directly or indirectly, prepay any Indebtedness for borrowed money (other than
to Lenders), or repurchase, redeem, retire or otherwise acquire any
Indebtedness of any Borrower except for regularly scheduled sinking fund and
interest payments permitted pursuant to the terms of the Subordinated Debt
Documentation as in effect on the Closing Date.
VIII. CONDITIONS PRECEDENT.
8.1. Conditions of Effectiveness. This Agreement
shall become effective upon satisfaction or waiver by Lenders of each of the
following conditions precedent:
(a) Copies of Agreement. Agent shall have
received six (6) copies of this Agreement executed by Borrowers and Lenders;
(b) Corporate Proceedings of Borrowers and
Guarantors. Agent shall have received a copy of the resolutions in form and
substance reasonably satisfactory to Agent, of the Board of Directors of each
Borrower and each Guarantor authorizing (i) the execution, delivery and
performance of this Agreement and any Other Loan Documents to which such Person
is a party and (ii) the granting by each Borrower of the security interests in
and liens upon the Collateral in each case certified by the Secretary or an
Assistant Secretary of each Borrower or Guarantor, as the case may be, as of
the Effective Date; and, such certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded as of
the date of such certificate;
(c) Incumbency Certificates of Borrowers
and Guarantors. Agent shall have received a certificate of the Secretary or an
Assistant Secretary of each Borrower and each Guarantor, dated the Effective
Date, as to the incumbency and signature of the officers of each Borrower and
each Guarantor executing this Agreement, any certificate or other documents to
be delivered by it pursuant hereto, together with evidence of the incumbency of
such Secretary or Assistant Secretary;
(d) Certificates. Agent shall have
received a copy of the Articles or Certificate of Incorporation of Products,
and all amendments thereto, certified by the Secretary of State or other
appropriate official of its jurisdiction of incorporation together with copies
of the By-Laws of Products and all agreements of Products' shareholders
certified as accurate and complete by the Secretary or Assistant Secretary of
Products;
(e) Good Standing Certificates. Agent
shall have received good standing certificates for Products dated not
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<PAGE> 66
more than thirty (30) days prior to the Effective Date, issued by the Secretary
of State or other appropriate official of Products' jurisdiction of
incorporation and each jurisdiction where the conduct of Products' business
activities or the ownership of its properties necessitates qualification;
(f) Legal Opinion. Agent shall have
received the executed legal opinion of Goodman Weiss Miller Freedman with
respect to Borrowers in form and substance satisfactory to Lenders which shall
cover such matters incident to the transactions contemplated by this Agreement,
the Pledge Agreements, the Guaranty of Products and the Guarantor Security
Agreement of Products and related agreements as Agent may reasonably require
and each Borrower hereby authorizes and directs such counsel to deliver such
opinions to Agent and the Lenders;
(g) No Litigation. (i) No litigation,
investigation or proceeding before or by any arbitrator or governmental
authority shall be continuing or threatened against any Borrower or against the
officers or directors of any Borrower (A) in connection with this Agreement and
the Other Loan Documents or any of the transactions contemplated thereby and
which, in the reasonable opinion of Agent, is deemed material or (B) which if
adversely determined, would, in the reasonable opinion of Agent, have a
material adverse effect on the business, assets, operations or condition
(financial or otherwise) of Borrowers taken as a whole; and (ii) no
injunction, writ, restraining order or other order of any nature materially
adverse to any Borrower or the conduct of its business or inconsistent with the
due consummation of the transactions contemplated by this Agreement or the
Other Loan Documents shall have been issued by any governmental authority;
(h) Consents. Agent shall have received
any and all domestic and foreign Consents necessary to permit the effectuation
of the transactions contemplated by this Agreement and the Other Loan
Documents; and, Agent shall have received such Consents and waivers of such
third parties as might assert claims with respect to the Collateral, as Agent
and its counsel shall deem necessary;
(i) Guarantees, Guarantor Security
Agreements, Pledge Agreements and Other Documents. Agent shall have received
(a) affirmations of the Guarantees and the Guarantor Security Agreements
existing as of the Effective Date, (b) a Guaranty from Products, (c) a
Guarantor Security Agreement duly executed by Products with respect to all of
the assets of Products, (d) the Pledge Agreements and (e) all Other Loan
Documents, in each case duly executed by each party thereto each in form and
substance satisfactory to Agent and Lenders; and
(j) Other. All corporate and other
proceedings, and all documents, certificates, instruments agreements, opinions
of counsel and other legal matters in
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connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to Agent, Lenders and their counsel.
8.2. Conditions to Each Advance. The agreement of
Lenders to make any Advance requested to be made on any date (including,
without limitation, its initial Advance), is subject to the satisfaction of the
following conditions precedent as of the date such Advance is made:
(a) Representations and Warranties. Each
of the representations and warranties made by the Borrowers and the Guarantors
in or pursuant to this Agreement and any Other Loan Document, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any Other Loan Document shall be true and correct in all
material respects on and as of such date as if made on and as of such date;
(b) No Default. No Event of Default or
Default shall have occurred and be continuing on such date, or would exist
after giving effect to the Advances requested to be made, on such date;
provided, however that Lenders in their sole discretion, may continue to make
Advances notwithstanding the existence of an Event of Default or Default and
that any Advances so made shall not be deemed a waiver of any such Event of
Default or Default; and
(c) Maximum Advances. In the case of any
Advances requested to be made, after giving effect thereto, the aggregate
Advances shall not exceed the maximum amount of Advances permitted hereunder.
Each request for an Advance hereunder shall constitute a representation and
warranty by Borrowers as of the date of such Advance that the conditions
contained in this subsection shall have been satisfied.
8.3. Conditions to Term Loan. The agreement of
Lenders to fund the second installment of the Term Loan is subject to the
satisfaction of the following conditions precedent:
(a) Survey. Agent shall have received in form and
substance satisfactory to Agent an updated survey of the Texas Real
Property reflecting the completion of all improvements on the Texas
Real Property.
(b) Appraisals. Agent shall have received
appraisals of all improvements on the Texas Real Property conducted
by independent third parties who are satisfactory to Agent and which
appraisals comply in all respects with the Financial Institutions
Reform Recovery and Enforcement Act and are satisfactory to Agent in
all respects; and
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(c) Compliance. Agent shall have received with respect to
the improvements upon the Texas Real Property (i) evidence of zoning
compliance and (ii) certificates of occupancy.
IX. INFORMATION AS TO BORROWERS.
Each Borrower shall, until satisfaction in full of the Obligations
and the termination of this Agreement:
9.1. Disclosure of Material Matters. Within five (5)
days of learning thereof, report to Agent all matters materially affecting the
value, enforceability or collectibility of any portion of the Collateral having
a value in excess of $50,000 including, without limitation, any Borrower's
reclamation or repossession of, or the return to such Borrower of, a material
amount of goods or claims or disputes asserted by any Customer or other
obligor. No Borrower will, without Agent's consent, compromise or adjust any
Receivables (or extend the time for payment thereof) or accept any returns of
merchandise or grant any additional discounts, allowances or credits thereon
except for those compromises, adjustments, returns, discounts, credits and
allowances as have been heretofore customary in the business of such Borrower.
9.2. Schedules. Deliver to Agent on or before the
fifteenth (15th) Business Day of each month as and for the prior month (a)
accounts receivable ageings, and (b) Inventory reports. In addition, each
Borrower will deliver to Agent at such intervals as the Required Lenders may
require: (i) confirmatory assignment schedules, (ii) copies of Customers'
invoices, (iii) evidence of shipment or delivery, (iv) accounts payable
schedules and (v) such further schedules, documents and/or information
regarding the Collateral as Agent may require including, without limitation,
trial balances and test verifications. Agent shall have the right to confirm
and verify all Receivables by any manner and through any medium it considers
advisable and do whatever it may deem reasonably necessary to protect its
interests hereunder. The items to be provided under this Section are to be in
form satisfactory to Agent and executed by each Borrower and delivered to Agent
from time to time solely for Agent's convenience in maintaining records of the
Collateral, and any failure to deliver any of such items to Agent shall not
affect, terminate, modify or otherwise limit Agent's Lien with respect to the
Collateral. Agent shall deliver copies of all such documents and/or schedules
delivered to it by Borrowers to Agent.
9.3. Environmental Reports. Furnish Agent,
concurrently with the delivery of the financial statements referred to in
Section 9.7, a certificate signed by President and/or Chief Financial Officer
of Telxon stating, to the best of his knowledge, that the Borrowers are in
compliance in all material respects with all federal, state and local laws
relating to environmental protection and control and occupational safety and
health. To the
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extent the Borrowers are not in compliance with the foregoing laws, the
certificate shall set forth with specificity all areas of non- compliance and
the proposed action the Borrowers will implement in order to achieve full
compliance.
9.4. Litigation. Promptly notify Agent in writing of
any litigation arising after the Closing Date affecting any Borrower, whether
or not the claim is covered by insurance, and of any suit or administrative
proceeding, which may materially and adversely affect the Collateral or the
business, assets, operations, condition (financial or otherwise) or prospects
of Borrowers taken as a whole.
9.5. Occurrence of Defaults, etc. Promptly notify
Agent in writing upon the occurrence of (a) any Event of Default or Default;
(b) any event, development or circumstance whereby any financial statements or
other reports furnished to Agent fail in any material respect to present
fairly, in accordance with GAAP consistently applied, the financial condition
or operating results of any Borrower as of the date of such statements; (c) any
accumulated retirement plan funding deficiency which, if such deficiency
continued for two plan years and was not corrected as provided in Section 4971
of the Code, could subject Borrowers to a tax imposed by Section 4971 of the
Code; (d) each and every default by any Borrower which might result in the
acceleration of the maturity of any Indebtedness, including the names and
addresses of the holders of such Indebtedness with respect to which there is a
default existing or with respect to which the maturity has been or could be
accelerated, and the amount of such Indebtedness; and (e) any other development
in the business or affairs of any Borrower which might reasonably be expected
to be materially adverse; in each case describing the nature thereof and the
action such Borrower proposes to take with respect thereto.
9.6. Government Receivables. Notify Agent
immediately if the aggregate amount of its Receivables arising out of contracts
between any Borrower and the United States, any state, or any department,
agency or instrumentality of any of them exceeds $250,000.
9.7. Annual Financial Statements. Furnish Agent
within one hundred and five (105) days after the end of each fiscal year of
Borrowers, the audited financial statements ("Audited Annual Financial
Statements") of Telxon and its Subsidiaries on a Consolidated Basis including,
but not limited to, statements of income, profit and loss and stockholders'
equity and cash flow from the beginning of the current fiscal year to the end
of such fiscal year and the balance sheet as at the end of such fiscal year,
all prepared in accordance with GAAP applied on a basis consistent with prior
practices, and in reasonable detail and reported upon without qualification by
an independent certified public accounting firm selected by Telxon and
satisfactory to Agent (the "Accountants"). The audit report of such accounting
firm shall be accompanied by a statement of such accounting firm certifying
that in making the
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examination upon which such report was based either no information came to
their attention which to their knowledge constituted an Event of Default or a
Default under this Agreement or any related agreement or, if such information
came to their attention, specifying any such default, and such report shall
contain or have appended thereto calculations which set forth Borrowers'
compliance with the requirements or restrictions imposed by Sections 6.5, 6.6,
6.7, 6.8, 6.9, 6.10, and 7.6.
9.8. Monthly Financial Statements. Furnish Agent
within thirty (30) days after the end of each month an unaudited balance sheet
of Telxon and its Subsidiaries on a Consolidated Basis and unaudited statements
of income and stockholders' equity and cash flow of Telxon and its Subsidiaries
on a Consolidated Basis and consolidating basis reflecting results of
operations from the beginning of the fiscal year to the end of such month and
for such month, prepared on a basis consistent with prior practices and
complete and correct in all material respects, subject to normal year end
adjustments and the absence of footnote disclosures. The reports shall be
accompanied by a certificate of each Borrower, signed by the President and/or
Chief Financial Officer of each Borrower, which shall state whether an Event of
Default or a Default has occurred and those reports which are delivered after
the end of each fiscal quarter of Borrowers shall contain or have appended
thereto calculations which set forth Borrowers' compliance with the
requirements or restrictions imposed by Sections 6.5, 6.6, 6.7, 6.8, 6.9, 6.10
and 7.6.
9.9. Other Reports. Furnish Agent as soon as
available, but in any event within ten (10) days after the issuance thereof
(unless previously submitted to Agent) with copies of such financial
statements, reports and returns as each Borrower shall send to its stockholders
and copies of any regular periodic and special reports or registration
statements which any Borrower files with the Securities and Exchange Commission
or any governmental authority which may be substituted therefor, or any
national securities exchange.
9.10. Additional Information. Furnish Agent with
additional information as Agent shall reasonably request in order to enable
Agent to determine whether the terms, covenants, provisions and conditions of
this Agreement and the Note have been complied with by Borrowers including,
without limitation and without the necessity of any request by Agent, (a)
copies of all environmental audits and reviews, (b) at least thirty (30) days
prior thereto, notice of any Borrower's opening of any new office or place of
business or any Borrower's closing of any existing office or place of business,
and (c) promptly upon any Borrower's learning thereof, of any labor dispute to
which any Borrower may become a party, any strikes or walkouts relating to any
of its plants or other facilities, and the expiration of any labor contract to
which any Borrower is a party or by which any Borrower is bound.
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9.11. Projected Operating Budget. Furnish Agent, no
later than thirty (30) days prior to the beginning of each of Borrowers' fiscal
years commencing with fiscal year 1995, a month by month projected operating
budget and cash flow of Telxon or its Subsidiaries on a Consolidated Basis for
such fiscal year (including an income statement for each month and a balance
sheet as at the end of the last month in each fiscal quarter), such projections
to be accompanied by a certificate signed by each Borrower's President or Chief
Financial Officer to the effect that such projections have been prepared on the
basis of sound financial planning practice consistent with past budgets and
financial statements and that such officer has no reason to question the
reasonableness of any material assumptions on which such projections were
prepared.
9.12. Variances From Operating Budget. Furnish Agent,
concurrently with the delivery of the financial statements referred to in
Sections 9.7 and 9.8 for each fiscal quarter of Borrowers, (i) a written report
summarizing all material variances from (x) budgets submitted by Borrowers
pursuant to Section 9.11 and (y) the corresponding period for the prior fiscal
year and a discussion and analysis by management with respect to such variances
and (ii) a revised operating budget for the remainder of such fiscal year.
9.13. Notice of Adverse Events. Furnish Agent with
prompt notice of (i) any lapse or other termination of any Consent issued to
any Borrower by any Governmental Body or any other Person that is material to
the operation of the business of Borrowers taken as a whole, (ii) any refusal
by any Governmental Body or any other Person to renew or extend any such
Consent that is material to the operation of the business of Borrowers taken as
a whole; and (iii) copies of any periodic or special reports filed by any
Borrower with any Governmental Body or Person, if such reports indicate any
material change in the business, operations, affairs or condition of Borrowers
taken as a whole, or if copies thereof are requested by Agent, and (iv) copies
of any material notices and other communications from any Governmental Body or
Person which specifically relate to any Borrower.
9.14. ERISA Notices and Requests. Furnish Agent with
immediate written notice in the event that (i) any Borrower or any member of
the Controlled Group knows or has reason to know that a Termination Event has
occurred, together with a written statement describing such Termination Event
and the action, if any, which such Borrower or member of the Controlled Group
has taken, is taking, or proposes to take with respect thereto and, when known,
any action taken or threatened by the Internal Revenue Service, Department of
Labor or PBGC with respect thereto, (ii) any Borrower or any member of the
Controlled Group knows or has reason to know that a prohibited transaction (as
defined in Sections 406 of ERISA and 4975 of the Code) has occurred together
with a written statement describing such transaction and the action which such
Borrower or any member of the Controlled Group has taken, is taking or proposes
to take with respect thereto, (iii) a funding waiver
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request has been filed with respect to any Plan together with all
communications received by any Borrower or any member of the Controlled Group
with respect to such request, (iv) any increase in the benefits of any existing
Plan or the establishment of any new Plan or the commencement of contributions
to any Plan to which any Borrower or any member of the Controlled Group was not
previously contributing shall occur, (v) any Borrower or any member of the
Controlled Group shall receive from the PBGC a notice of intention to terminate
a Plan or to have a trustee appointed to administer a Plan, together with
copies of each such notice, (vi) any Borrower or any member of the Controlled
Group shall receive any favorable or unfavorable determination letter from the
Internal Revenue Service regarding the qualification of a Plan under Section
401(a) of the Code, together with copies of each such letter; (vii) any
Borrower or any member of the Controlled Group shall receive a notice regarding
the imposition of withdrawal liability, together with copies of each such
notice; (viii) any Borrower or any member of the Controlled Group shall fail to
make a required installment or any other required payment under Section 412 of
the Code on or before the due date for such installment or payment; (ix) any
Borrower or any member of the Controlled Group knows that (a) a Multiemployer
Plan has been terminated, (b) the administrator or plan sponsor of a
Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC
has instituted or will institute proceedings under Section 4042 of ERISA to
terminate a Multiemployer Plan.
9.15. Insurance Documentation. Deliver to Agent on an
annual basis evidence of the maintenance of insurance policies required to be
maintained pursuant to Section 4.11 hereof.
9.16. Additional Documents. Execute and deliver to
Agent, upon request, such documents and agreements as Agent may, from time to
time, reasonably request to carry out the purposes, terms or conditions of this
Agreement.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
10.1. Failure by any Borrower to pay any principal or
interest on the Obligations when due, whether at maturity or by reason of
acceleration pursuant to the terms of this Agreement or by notice of intention
to prepay, or by required prepayment or failure to pay any other liabilities or
make any other payment, fee or charge provided for herein when due and in the
event the aggregate balance of Revolving Advances outstanding at any time are
in excess of the amounts permitted hereunder such default shall continue
unremedied for more than five (5) days after notice thereof shall have been
given to Telxon by Agent;
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10.2. Any representation or warranty made or deemed
made by any Borrower in this Agreement, any Other Loan Document or any related
agreement or in any certificate, document or financial or other statement
furnished at any time in connection herewith or therewith shall prove to have
been misleading in any material respect on the date when made or deemed to have
been made;
10.3. Failure by any Borrower to (i) furnish financial
information when due or when requested, or (ii) permit the inspection of its
books or records;
10.4. Issuance of a notice of Lien, Charge, Claim,
levy, assessment, injunction or attachment (other than Permitted Encumbrances)
against a material portion of Borrowers' property which is not stayed or lifted
within forty (40) days;
10.5. Failure or neglect of any Borrower to perform,
keep or observe any term, provision, condition, covenant herein contained, or
contained in any Other Loan Document or other agreement or arrangement, now or
hereafter entered into between any Borrower and any Lender other than a failure
or neglect of any Borrower to keep or observe any term, provision, condition or
covenant contained in Sections 4.7, 4.9, 4.11, 6.1, 6.2, 6.4 or 9.4 hereof
which is cured within thirty (30) days from the occurrence of such failure or
neglect;
10.6. Any judgment is rendered or judgment liens filed
against any Borrower for an amount in excess of $500,000 which within thirty
(30) days of such rendering or filing is not either satisfied, stayed or
discharged of record;
10.7. Any Borrower shall (i) apply for, consent to or
suffer the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or other fiduciary of itself or of all or a
substantial part of its property, (ii) make a general assignment for the
benefit of creditors, (iii) commence a voluntary case under any state or
federal bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a
bankrupt or insolvent, (v) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (vi) acquiesce to, or fail to
have dismissed, within forty five (45) days, any petition filed against it in
any involuntary case under such bankruptcy laws, or (vii) take any action for
the purpose of effecting any of the foregoing;
10.8. Any Borrower shall admit in writing its
inability, or be generally unable, to pay its debts as they become due or cease
operations of its present business;
10.9. Any Affiliate or Subsidiary of Borrowers, or any
Guarantor, shall (i) apply for, consent to or suffer the appointment of, or the
taking of possession by, a receiver, administrative receiver, administrator,
custodian, trustee, liquidator or other fiduciary of itself or of all or a
substantial
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part of its property, (ii) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business, (iii) make a general assignment for the benefit of creditors, (iv)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vii) acquiesce to, or fail to have dismissed, within forty five (45)
days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (viii) take any action for the purpose of effecting any of
the foregoing;
10.10. Any change occurs in the condition or affairs
(financial or otherwise) of Borrowers which in Lenders' opinion impairs the
Collateral or the ability of Borrowers to perform their Obligations under this
Agreement;
10.11. Any Lien created hereunder or provided for
hereby or under any Guarantor Security Agreement or under any related agreement
for any reason ceases to be or is not a valid and perfected Lien except (a)
those Liens on Inventory and/or Equipment which are not perfected by virtue of
Agent not having filed financing statements where such Inventory and/or
Equipment is located as a result of Borrowers' representation that the
aggregate value of such Inventory located at such premises does not exceed
$100,000 and (b) those Liens which cease to be perfected as a result of Agent's
failure to file continuation statements;
10.12. A default of the obligations of any Borrower
under any other agreement to which it is a party shall occur which materially
and adversely affects the condition, affairs or prospects (financial or
otherwise) of Borrowers taken as a whole which default is not cured within any
applicable grace period;
10.13. An event of default has occurred under the
Subordinated Debt Documentation which default shall not have been cured or
waived within any applicable grace period;
10.14. Termination or breach of any Guaranty, Guarantor
Security Agreement, Pledge Agreement or similar agreement executed and
delivered to Lender in connection with the Obligations of any Borrower, or if
any Borrower or Guarantor attempts to terminate, challenges the validity of, or
its liability under, any such Guaranty, Guarantor Security Agreement, Pledge
Agreement or similar agreement;
10.15. If any Change of Control shall occur;
10.16. Any material provision of this Agreement or any
Other Loan Document shall, for any reason, cease to be valid and binding on any
Borrower, or any Borrower shall so claim in writing to Agent;
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10.17. If (i) any Governmental Body shall (A) revoke,
terminate, suspend or adversely modify any license, permit, patent, trademark
or tradename of any Borrower which has a material adverse effect on the
business, assets, operations, condition (financial or otherwise) or prospects
of Borrowers taken as a whole, or (B) commence proceedings to suspend, revoke,
terminate or adversely modify any such license, permit, trademark, tradename or
patent and such proceedings shall not be dismissed or discharged within sixty
(60) days, which has a material adverse effect on the business, assets,
operations, condition (financial or otherwise) or prospects of Borrowers taken
as a whole, or (C) schedule or conduct a hearing on the renewal of any license,
permit, trademark, tradename or patent necessary for the continuation of any
Borrower's business and the staff of such Governmental Body issues a report
recommending the termination, revocation, suspension or material, adverse
modification of such license, permit, trademark, tradename or patent which has
a material adverse effect on the business, assets, operations, condition
(financial or otherwise) or prospects of Borrowers taken as a whole; (ii) any
agreement which is necessary or material to the operation of any Borrower's
business shall be revoked or terminated and not replaced by a substitute
acceptable to the Required Lenders within thirty (30) days after the date of
such revocation or termination, and such revocation or termination and
non-replacement would have a material adverse effect on the business, assets,
operations, condition (financial or otherwise) or prospects of Borrowers taken
as a whole;
10.18. Any material portion of the Collateral shall be
seized or taken by a Governmental Body, or any Borrower or the title and rights
of any Borrower or any Original Owner which is the owner of any material
portion of the Collateral shall have become the subject matter of litigation
which might, in the opinion of the Required Lenders, upon final determination,
result in impairment or loss of the security provided by this Agreement or the
Other Loan Documents;
10.19. Except for the interruption of manufacturing
operations occurring as a result of the relocation of Borrowers' manufacturing
operations to the Texas Real Property which interruption shall not exceed
thirty (30) days, the operations of any Borrower's manufacturing facility are
interrupted at any time for more than forty eight (48) hours during any period
of three (3) consecutive days, unless such Borrower shall (i) be entitled to
receive for such period of interruption, proceeds of business interruption
insurance sufficient to assure that its per diem cash needs during such period
is at least equal to its average per diem cash needs for the consecutive twelve
(12) month period immediately preceding the initial date of interruption and
(ii) receive such proceeds in the amount described in clause (i) preceding not
later than thirty (30) days following the initial date of any such
interruption; provided, however, that notwithstanding the provisions of clauses
(i) and (ii) of this section, an Event of Default shall be deemed to have
occurred if such Borrower shall be
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receiving the proceeds of business interruption insurance for a period of sixty
(60) consecutive days; or
10.20. An event or condition specified in Sections 7.16
or 9.14 hereof shall occur or exist with respect to any Plan and, as a result
of such event or condition, together with all other such events or conditions,
any Borrower or any member of the Controlled Group shall incur, or in the
opinion of Agent be reasonably likely to incur, a liability to a Plan or the
PBGC (or both) which, in the reasonable judgment of Agent, would have a
material adverse effect upon the Collateral or the ability of Borrowers to
perform their Obligations under this Agreement.
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1. Rights and Remedies. Upon the occurrence of an
Event of Default pursuant to Section 10.7 all Obligations shall be immediately
due and payable and this Agreement and the obligation of Lenders to make
Advances shall be deemed terminated; and, upon the occurrence of any of the
other Events of Default and at any time thereafter (such default not having
previously been cured), at the option of Required Lenders all Obligations shall
be immediately due and payable and Lenders shall have the right to terminate
this Agreement and to terminate the obligation of Lenders to make Advances.
Upon the occurrence of any Event of Default, Agent shall have the right to
exercise in a commercially reasonable manner any and all other rights and
remedies provided for herein, under any Other Loan Document, under and in
accordance with the Uniform Commercial Code and at law or equity generally,
including, without limitation, the right to foreclose the security interests
granted herein and to realize upon any Collateral by any available judicial
procedure. Agent may enter any of Borrowers' premises or other premises
without legal process and without incurring liability to any Borrower therefor,
and Agent may thereupon, or at any time thereafter, in its discretion without
notice or demand, take the Collateral and remove the same to such place as
Agent may deem advisable and Agent may require Borrowers to make the Collateral
available to Lenders at a convenient place. With or without having the
Collateral at the time or place of sale, Agent may sell the Collateral, or any
part thereof, at public or private sale, at any time or place, in one or more
sales, at such price or prices, and upon such terms, either for cash, credit or
future delivery, as Agent may elect. Except as to that part of the Collateral
which is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Agent shall give Borrowers reasonable
notification of such sale or sales, it being agreed that in all events written
notice mailed to Borrowers at least five (5) days prior to such sale or sales
is reasonable notification. At any public sale Agent or any Lender may bid for
and become the purchaser, and Agent, any Lender or any other purchaser at any
such sale thereafter shall hold the Collateral sold absolutely free from any
claim or right of whatsoever kind, including any equity of redemption and such
right and equity are
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hereby expressly waived and released by Borrowers. In connection with the
exercise of the foregoing remedies, Agent is granted permission to use all of
Borrowers' trademarks, trade styles, trade names, patents, patent applications,
licenses, franchises and other proprietary rights which are used in connection
with (a) Inventory for the purpose of disposing of such Inventory and (b)
Equipment for the purpose of completing the manufacture of unfinished goods.
The proceeds realized from the sale of any Collateral shall be applied first to
the reasonable costs, expenses and attorneys' fees and expenses incurred by
Agent for collection and for acquisition, completion, protection, removal,
storage, sale and delivery of the Collateral; secondly to interest due upon any
of the Obligations; and thirdly to the principal of the Obligations. If any
deficiency shall arise, Borrowers shall remain liable to Agent and Lenders
therefor. Nothing herein contained shall limit the rights of Agent, the
Lenders or any other person under the Other Loan Documents.
11.2. Agent's Discretion. Agent shall have the right
in its sole discretion to determine which rights, Liens, security interests or
remedies Agent may at any time pursue, relinquish, subordinate, or modify or to
take any other action with respect thereto and such determination will not in
any way modify or affect any of Agent's or Lenders' rights hereunder.
11.3. Setoff. In addition to any other rights which
Agent or any Lender may have under applicable law, upon the occurrence of an
Event of Default hereunder, Agent and such Lender shall have a right to apply
any of Borrowers' property held by Agent and such Lender to reduce the
Obligations.
11.4. Rights and Remedies not Exclusive. The
enumeration of the foregoing rights and remedies is not intended to be
exhaustive and the exercise of any right or remedy shall not preclude the
exercise of any other right or remedies, all of which shall be cumulative and
not alternative.
11.5. Exercise of Rights in a Commercially Reasonable
Manner. Agent and each Lender shall exercise their respective rights, remedies
and discretion under this Agreement or any Other Loan Document in a
commercially reasonable manner.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1. Waiver of Notice. Each Borrower hereby waives
notice of non-payment of any of the Receivables, demand, presentment, protest
and notice thereof with respect to any and all instruments, notice of
acceptance hereof, notice of loans or advances made, credit extended,
Collateral received or delivered, or any other action taken in reliance hereon,
and all other demands and notices of any description, except such as are
expressly provided for herein.
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12.2. Delay. No delay or omission on Agent's or any
Lender's part in exercising any right, remedy or option shall operate as a
waiver of such or any other right, remedy or option or of any default.
12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND
EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
12.4. DTPA WAIVER. TO THE FULLEST EXTENT ALLOWED BY
TEXAS LAW, BORROWERS HEREBY WAIVE ALL PROVISIONS OF THE DECEPTIVE TRADE
PRACTICES - CONSUMER PROTECTION ACT ("DTPA"), OTHER THAN SECTION 17.555
(PERTAINING TO CONTRIBUTION AND INDEMNITY) OF THE DTPA, WITH RESPECT TO OR
CONCERNING THIS AGREEMENT, THE MORTGAGES OR THE NOTE, OR THE TRANSACTIONS
PURSUANT TO WHICH THEY ARE EXECUTED, OR ANY TRANSACTIONS OR OTHER DEALINGS
HERETOFORE, HEREAFTER OR CONTEMPORANEOUSLY ARISING OR OCCURRING WITH RESPECT TO
ANY OF THE FOREGOING, AND TELXON EXPRESSLY WARRANTS AND REPRESENTS THAT IT HAS
ASSETS OF $5,000,000 OR MORE AND EACH BORROWER EXPRESSLY WARRANTS AND
REPRESENTS THAT IT (a) HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS
MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS OF THIS TRANSACTION,
(b) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO LENDERS
OR AGENT AND (c) HAS BEEN REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. BORROWERS AGREE THAT SUCH
REPRESENTATIONS AND WARRANTIES SHALL CONSTITUTE PRIMA FACIE EVIDENCE OF SUCH
FACTS CONTAINED THEREIN IN ANY LITIGATION WHEREIN THIS WAIVER IS ASSERTED.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1. Term. This Agreement, which shall inure to the
benefit of and shall be binding upon the respective successors and permitted
assigns of Agent, each Borrower and each Lender, shall become effective on the
date hereof and shall continue in full force and effect until the last day of
the Term unless sooner terminated as herein provided. The Term shall be
automatically extended for successive periods of one (1) year each unless
terminated by Agent at the end of such initial Term or any successive one (1)
year Term by giving the Borrowers not less than
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ninety (90) days prior written notice. Borrowers may terminate this Agreement
at any time upon not less than ninety (90) days prior written notice
("Termination Date") upon payment in full of all the Obligations; provided,
however, that Borrowers pay an early termination fee in an amount equal to one
percent (1%) of the Maximum Loan Amount, reducing by one-eighth of one percent
(0.125%) on January 1, 1994 and on the first day of each April, July, October
and January thereafter. Such early termination fee shall also be due and
payable by Borrowers upon termination by Agent of this Agreement following the
occurrence of an Event of Default other than termination solely as a result of
an Event of Default arising from a breach of Sections 6.5, 6.6, 6.7, 6.8, 6.9
or 6.10.
13.2. Termination. The termination of the Agreement
shall not affect any of Borrowers', Agent's or any Lender's rights, or any of
the Obligations having their inception prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into, rights or interests created or the
Obligations have been fully disposed of, concluded or liquidated. The security
interests, Liens and rights granted to Agent and Lenders hereunder and the
financing statements filed hereunder shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that any
Borrower's respective account may from time to time be temporarily in a zero or
credit position, until all of the Obligations of each Borrower have been paid
or performed in full after the termination of this Agreement or each Borrower
has furnished Agent and Lenders with an indemnification satisfactory to Agent
and Lenders with respect thereto. Accordingly, each Borrower waives any rights
which it may have under Section 9-404(1) of the Uniform Commercial Code to
demand the filing of termination statements with respect to the Collateral, and
Agent shall not be required to send such termination statements to any
Borrower, or to file them with any filing office, unless and until this
Agreement shall have been terminated in accordance with its terms and all
Obligations paid in full in immediately available funds. All representations,
warranties, covenants, waivers and agreements contained herein shall survive
termination hereof until all Obligations are repaid or performed in full.
XIV. REGARDING AGENT.
14.1. Appointment. Each Lender hereby designates
BNYCC to act as Agent for such Lender under this Agreement and the Other Loan
Documents. Each Lender hereby irrevocably authorizes Agent to take such action
on its behalf under the provisions of this Agreement and the Other Loan
Documents and to exercise such powers and to perform such duties hereunder and
thereunder as are specifically delegated to or required of Agent by the terms
hereof and thereof and such other powers as are reasonably incidental thereto
and Agent shall hold all Collateral, payments of principal and interest, fees
(except the fees set forth in Sections 3.3(a) and 3.4), charges and collections
(without giving effect to any
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collection days) received pursuant to this Agreement, for the ratable benefit
of Lenders. Agent may perform any of its duties hereunder by or through its
agents or employees. As to any matters not expressly provided for by this
Agreement (including without limitation, collection of the Note) Agent shall
not be required to exercise any discretion or take any action, but shall be
required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding; provided, however, that Agent
shall not be required to take any action which exposes Agent to liability or
which is contrary to this Agreement or the Other Loan Documents or applicable
law unless Agent is furnished with an indemnification reasonably satisfactory
to Agent with respect thereto.
14.2. Nature of Duties. Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
Other Loan Documents. Neither Agent nor any of its officers, directors,
employees or agents shall be (i) liable for any action taken or omitted by them
as such hereunder or in connection herewith, unless caused by their gross
negligence (but not mere negligence) or willful misconduct or gross (not mere)
negligence, or (ii) responsible in any manner for any recitals, statements,
representations or warranties made by any Borrower or any officer thereof
contained in this Agreement, or in any of the Other Loan Documents or in any
certificate, report, statement or other document referred to or provided for
in, or received by Agent under or in connection with, this Agreement or any of
the Other Loan Documents or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement, or any of the
Other Loan Documents or for any failure of any Borrower to perform its
obligations hereunder. Agent shall not be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any of the Other
Loan Documents, or to inspect the properties, books or records of any Borrower.
The duties of Agent as respects the Advances to Borrowers shall be mechanical
and administrative in nature; Agent shall not have by reason of this Agreement
a fiduciary relationship in respect of any Lender; and nothing in this
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon Agent any obligations in respect of this Agreement except as
expressly set forth herein.
14.3. Lack of Reliance on Agent and Resignation.
Independently and without reliance upon Agent or any other Lender, each Lender
has made and shall continue to make (i) its own independent investigation of
the financial condition and affairs of each Borrower in connection with the
making and the continuance of the Advances hereunder and the taking or not
taking of any action in connection herewith, and (ii) its own appraisal of the
creditworthiness of each Borrower. Agent shall have no duty or responsibility,
either initially or on a continuing basis, to provide any Lender with any
credit or other information with
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respect thereto, whether coming into its possession before making of the
Advances or at any time or times thereafter except as shall be provided by any
Borrower pursuant to the terms hereof. Agent shall not be responsible to any
Lender for any recitals, statements, information, representations or warranties
herein or in any agreement, document, certificate or a statement delivered in
connection with or for the execution, effectiveness, genuineness, validity,
enforceability, collectability or sufficiency of this Agreement or any Other
Loan Document, or of the financial condition of any Borrower, or be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement, the Note, the Other Loan
Documents or the financial condition of any Borrower, or the existence of any
Event of Default or any Default.
Agent may resign on sixty (60) days' written notice to each
of Lenders and the Borrowers and upon such resignation, the Required Lenders
will promptly designate a successor Agent reasonably satisfactory to Borrowers.
Any such successor Agent shall succeed to the rights, powers
and duties of Agent, and the term "Agent" shall mean such successor agent
effective upon its appointment, and the former Agent's rights, powers and
duties as Agent shall be terminated, without any other or further act or deed
on the part of such former Agent. After any Agent's resignation as Agent, the
provisions of this Article XIV shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
14.4. Certain Rights of Agent. If Agent shall request
instructions from Lenders with respect to any act or action (including failure
to act) in connection with this Agreement or any Other Loan Document, Agent
shall be entitled to refrain from such act or taking such action unless and
until Agent shall have received instructions from the Required Lenders; and
Agent shall not incur liability to any Person by reason of so refraining.
Without limiting the foregoing, Lenders shall not have any right of action
whatsoever against Agent as a result of its acting or refraining from acting
hereunder in accordance with the instructions of the Required Lenders.
14.5. Reliance. Agent shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing, resolution,
notice, statement, certificate, telex, teletype or telecopier message,
cablegram, order or other document or telephone message believed by it to be
genuine and correct and to have been signed, sent or made by the proper person
or entity, and, with respect to all legal matters pertaining to this Agreement
and the Other Loan Documents and its duties hereunder, upon advice of counsel
selected by it. Agent may employ agents and attorneys-in-fact and shall not be
liable for the default or misconduct of any such agents or attorneys-in-fact
selected by Agent with reasonable care.
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14.6. Notice of Default. Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder or under the Other Loan Documents, unless Agent has received notice
from a Lender or Borrower referring to this Agreement or the Other Loan
Documents, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that Agent receives such a
notice, Agent shall give notice thereof to Lenders. Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders; provided, that, unless and until Agent shall
have received such directions, Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default
or Event of Default as it shall deem advisable in the best interests of
Lenders.
14.7. Indemnification. To the extent Agent is not
reimbursed and indemnified by Borrowers, each Lender will reimburse and
indemnify Agent in proportion to its respective portion of the Advances (or, if
no Advances are outstanding, according to its Commitment Percentage), from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against
Agent in performing its duties hereunder, or in any way relating to or arising
out of this Agreement or any Other Loan Document; provided that, Lenders shall
not be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from Agent's gross negligence (but not mere negligence) or willful
misconduct or gross (not mere) negligence.
14.8. Agent in its Individual Capacity. With respect
to the obligation of Agent to lend under this Agreement, the Advances made by
it shall have the same rights and powers hereunder as any other Lender and as
if it were not performing the duties as Agent specified herein; and the term
"Lender" or any similar term shall, unless the context clearly otherwise
indicates, include Agent in its individual capacity as a Lender. Agent may
engage in business with Borrowers as if it were not performing the duties
specified herein, and may accept fees and other consideration from any Borrower
for services in connection with this Agreement or otherwise without having to
account for the same to Lenders.
14.9. Delivery of Documents. To the extent Agent
receives documents and information from Borrower pursuant to the terms of this
Agreement, Agent will promptly furnish such documents and information to
Lenders.
14.10. Borrowers' Undertaking to Agent. Without
prejudice to their respective obligations to the Lenders under the other
provisions of this Agreement, each of the Borrowers hereby undertakes with
Agent to pay to Agent from time to time on demand all amounts from time to time
due and payable by it for the account of Agent or the Lenders or any of them
pursuant to this Agreement
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to the extent not already paid. Any payment made pursuant to any such demand
shall pro tanto satisfy the relevant Borrower's obligations to make payments
for the account of the Lenders or the relevant one or more of them pursuant to
this Agreement.
XV. BORROWING AGENCY.
15.1. Borrowing Agency Provisions.
(a) Borrowers hereby irrevocably designate
Telxon to be their attorney and agent and in such capacity to borrow, sign and
endorse notes, and execute and deliver all instruments, documents, writings and
further assurances now or hereafter required hereunder or any Other Loan
Document, on behalf of Borrowers, and hereby authorize Agent to pay over or
credit all loan proceeds hereunder in accordance with the request of Telxon.
(b) The handling of this credit facility as a
co-borrowing facility with a borrowing agent in the manner set forth in this
Agreement is solely as an accommodation to the Borrowers and at their request.
Neither Agent nor the Lenders shall incur liability to the Borrowers as a
result thereof. To induce the Agent and the Lenders to do so and in
consideration thereof, each Borrower hereby indemnifies Agent and each Lender
and holds Agent and each Lender harmless from and against any and all
liabilities, expenses, losses, damages and claims of damage or injury asserted
against Agent or any Lender by any Person arising from or incurred by reason of
the handling of the financing arrangements of the Borrowers as provided herein,
reliance by Agent or any Lender on any request or instruction from Agent or any
other action taken by Agent or any Lender with respect to this Section 15.1
except due to gross negligence (but not mere negligence) or willful misconduct
by the indemnified party.
(c) All Obligations shall be joint and several,
and each Borrower shall make payment upon the maturity of the Obligations by
acceleration or otherwise, and such obligation and liability on the part of
each Borrower shall in no way be affected by any extensions, renewals or
forbearance granted by Agent or any Lender to any Borrower, failure of Agent or
any Lender to give any Borrower notice of borrowing or any other notice, any
failure of Agent or any Lender to pursue or preserve its rights against any
Borrower, the release by the Agent or any Lender of any Collateral now or
hereafter acquired from any Borrower, and such agreement by each Borrower to
pay upon any notice issued pursuant hereto is unconditional and unaffected by
prior recourse by Agent or any Lender to the other Borrower or any Collateral
for such Borrower's Obligations or the lack thereof.
15.2. Subrogation. Notwithstanding any payment or
payments made by any Borrower hereunder, or any setoff or application of funds
of any Borrower by Agent or any Lender, no Borrower shall be entitled to be
subrogated to any of the rights of
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Agent or Lender against any Borrower or against any Collateral or guarantee or
right of offset held by any Lender for the payment of the Obligations, nor
shall any Borrower seek or be entitled to seek any contribution or
reimbursement from any other Borrower in respect of payments made by such
Borrower hereunder, until all amounts owing to Agent and Lenders by Borrowers
on account of the Obligations are paid in full and this Agreement has been
terminated. If, notwithstanding the foregoing, any amount shall be paid to any
Borrower on account of such subrogation rights at any time when all of the
Obligations shall not have been paid in full and this Agreement shall not have
been terminated, such amount shall be held by such Borrower in trust for Agent
and Lenders, segregated from other funds of such Borrower, and shall, forthwith
upon and (in any event within two (2) business days of) receipt by such
Borrower, be turned over to Agent in the exact form received by such Borrower
(duly endorsed by such Borrower to Agent, if required), to be applied against
the Obligations, whether matured or unmatured, in such order as Agent may
determine, subject to the provisions of this Agreement.
XVI. MISCELLANEOUS.
16.1. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applied
to contracts to be performed wholly within the State of New York. Any judicial
proceeding brought by or against any Borrower with respect to any of the
Obligations, this Agreement or any related agreement may be brought in any
court of competent jurisdiction in the State of New York, United States of
America, and, by execution and delivery of this Agreement, each Borrower
accepts for itself and in connection with its properties, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. Nothing herein shall affect the right to serve process in
any manner permitted by law or shall limit the right of Lenders to bring
proceedings against any Borrower in the courts of any other jurisdiction. Each
Borrower waives any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. Any judicial
proceeding by any Borrower against Lenders involving, directly or indirectly,
any matter or claim in any way arising out of, related to or connected with
this Agreement or any related agreement, shall be brought only in a federal or
state court located in the City of New York, State of New York.
16.2. Entire Understanding.
(a) This Agreement and the documents executed
concurrently herewith contain the entire understanding between Borrowers, Agent
and each Lender and supersedes all prior agreements and understandings, if any,
relating to the subject
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matter hereof. Any promises, representations, warranties or guarantees not
herein contained and hereinafter made shall have no force and effect unless in
writing, signed by Borrowers', Agent's and each Lender's respective officers.
Each Borrower acknowledges that it has been advised by counsel in connection
with the execution of this Agreement and the Other Loan Documents and is not
relying upon oral representations or statements inconsistent with the terms and
provisions of this Agreement.
(b) The Required Lenders, Agent with the consent in
writing of the Required Lenders, and Borrowers may, subject to the provisions
of this Section 16.2 (b), from time to time enter into written supplemental
agreements to this Agreement, the Note or the Other Loan Documents executed by
Borrowers, for the purpose of adding or deleting any provisions or otherwise
changing, varying or waiving in any manner the rights of Lenders, Agent or
Borrowers thereunder or the conditions, provisions or terms thereof of waiving
any Event of Default thereunder, but only to the extent specified in such
written agreements; provided, however, that no such supplemental agreement
shall, without the consent of all Lenders:
(i) increase the Commitment
Percentage of any Lender;
(ii) increase the Maximum Revolving
Advance Amount, the principal amount of the Term Loan or the Advance Rate;
(iii) extend the maturity of any Note
or the due date for any amount payable hereunder, or decrease the rate of
interest or reduce any fee payable by Borrowers to Lenders pursuant to this
Agreement;
(iv) alter the definition of the term
Required Lenders or alter, amend or modify this Section 16.2(b);
(v) release any Collateral or any
collateral under the Pledge Agreements during any fiscal year of Borrowers
having an aggregate value in excess of $2,500,000; or
(vi) change the rights and duties of
Agent.
Any such supplemental agreement shall apply equally to each of the Lenders and
shall be binding upon Borrowers, Lenders and Agent and all future holders of
the Obligations. In the case of any waiver, Borrowers, Agent and Lenders shall
be restored to their former positions and rights, and any Event of Default
waived shall be deemed to be cured and not continuing, but no waiver of a
specific Event of Default shall extend to any subsequent Event of Default
(whether or not the subsequent Event of Default is the same as the Event of
Default which was waived), or impair any right consequent thereon.
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16.3. Successors and Assigns; Participations; New
Lenders.
(a) This Agreement shall be binding upon
and inure to the benefit of Borrowers, Agent, each Lender, all future holders
of the Note and their respective successors and assigns, except that no
Borrower may assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of Agent and each Lender.
(b) Each Borrower acknowledges that in the
regular course of commercial banking business one or more Lenders may at any
time and from time to time sell participating interests in the Advances to
other financial institutions (each such transferee or purchaser of a
participating interest, a "Transferee"). Each Transferee may exercise all
rights of payment (including without limitation rights of set-off) with respect
to the portion of such Advances held by it or other Obligations payable
hereunder as fully as if such Transferee were the direct holder thereof
provided that Borrowers shall not be required to pay to any Transferee more
than the amount which it would have been required to pay to Lender which
granted an interest in its Advances or other Obligations payable hereunder to
such Transferee had such Lender retained such interest in the Advances
hereunder or other Obligations payable hereunder and in no event shall
Borrowers be required to pay any such amount arising from the same
circumstances and with respect to the same Advances or other Obligations
payable hereunder to both such Lender and such Transferee. Borrowers hereby
grant to any Transferee a continuing security interest in any deposits, moneys
or other property actually or constructively held by such Transferee as
security for the Transferee's interest in the Advances. Borrowers shall not be
required to pay any attorneys' fees or other fees which relate to the sale of
participations to Transferees. In the event any Lender sells a participating
interest in the Advances to a Transferee (other than a sale of a participating
interest by BNYCC to an Affiliate of BNYCC) to which Borrowers have not
consented, but which consent shall not be unreasonably withheld by Borrowers,
Borrowers may terminate this Agreement and prepay the Obligations without the
early termination fee set forth in Section 13.1.
(c) Any Lender may sell, assign or
transfer all or any part of its rights under this Agreement and the Other Loan
Documents to one or more additional banks or financial institutions and one or
more additional banks or financial institutions may commit to make Advances
hereunder (each a "Purchasing Lender"), in minimum amounts of not less than
$5,000,000 pursuant to a Commitment Transfer Supplement, executed by a
Purchasing Lender, the transferor Lender, and Agent and delivered to Agent for
recording. Upon such execution, delivery, acceptance and recording in the
Register, from and after the transfer effective date determined pursuant to
such Commitment Transfer Supplement, (i) Purchasing Lender thereunder shall be
a party hereto and, to the extent provided in such Commitment Transfer
Supplement, have the
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rights and obligations of a Lender thereunder with a Commitment Percentage as
set forth therein, and (ii) the transferor Lender thereunder shall, to the
extent provided in such Commitment Transfer Supplement, be released from its
obligations under this Agreement, the Commitment Transfer Supplement creating a
novation for that purpose. Such Commitment Transfer Supplement shall be deemed
to amend this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing Lender and the resulting adjustment of
the Commitment Percentages arising from the purchase by such Purchasing Lender
of all or a portion of the rights and obligations of such transferor Lender
under this Agreement and the Other Loan Documents. Borrowers hereby agree to
the addition of such Purchasing Lender and the resulting adjustment of the
Commitment Percentages arising from the purchase by such Purchasing Lender of
all or a portion of the rights and obligations of such transferor Lender under
this Agreement and the Other Loan Documents; provided, however, in the event
Borrowers do not expressly consent in writing to the addition of such
Purchasing Lender, which consent shall not be unreasonably withheld, Borrowers
may terminate this Agreement and prepay the Obligations without the early
termination fee set forth in Section 13.1. Borrowers shall execute and deliver
such further documents and do such further acts and things in order to
effectuate the foregoing.
(d) Agent shall maintain at its address a
copy of each Commitment Transfer Supplement delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Advances
owing to each Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and Borrowers, Agent and Lenders
may treat each Person whose name is recorded in the Register as the owner of
the Advance recorded therein for the purposes of this Agreement. The Register
shall be available for inspection by the Borrowers or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Borrowers authorize each Lender to
disclose to any Transferee or Purchasing Lender and any prospective Transferee
or Purchasing Lender any and all financial information in such Lender's
possession concerning Borrowers which has been delivered to such Lender by or
on behalf of Borrowers pursuant to this Agreement or in connection with such
Lender's credit evaluation of Borrowers.
(f) Requirements Upon Transfer. If, pursuant
to this Section 16.3, any interest in this Agreement or any of the Other Loan
Documents is transferred to a Purchasing Lender that is organized under the
laws of any jurisdiction other than the United States or any state thereof, the
Lender transferring such interest (the "Transferor Lender") shall cause such
assignee or Transferee concurrently with the effectiveness of such transfer,
(a) represent to the Transferor Lender (for the benefit of Transferor Lender,
Agent and Borrowers) that it is either (i) entitled to the benefits of an
income tax treaty with the United States of America that
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provides for an exemption from United States of America withholding tax on
interest and other payments which may be made by Borrowers under this Agreement
and the Other Loan Documents; or (ii) is engaged in the trade or business
within the United States of America, (b) to furnish to Transferor Lender, Agent
and Borrowers either Internal Revenue Service Form 4224 or Internal Revenue
Service Form 1001 (wherein such assignee or Transferee claims entitlement to
complete exemption from federal withholding tax of the United States of America
on all payments hereunder) and (c) to agree (for the benefit of Transferor
Lender, Agent and Borrowers) to provide to the Transferor Lender, the Agent and
Borrowers such forms or documentation as may be required from time to time,
including, a new Form 4224 or Form 1001 upon the obsolescence of any previously
delivered form, in accordance with applicable laws and regulations of the
United States of America establishing the current status of such assignee or
Transferee with regard to continued entitlement to such complete withholding
tax exemption.
16.4. Application of Payments. Agent shall have the
continuing and exclusive right to apply or reverse and re-apply any payment and
any and all proceeds of Collateral to any portion of the Obligations. To the
extent that any Borrower makes a payment or Agent or any Lender receives any
payment or proceeds of the Collateral for any Borrower's benefit, which are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, debtor in possession, receiver,
custodian or any other party under any bankruptcy law, common law or equitable
cause, then, to such extent, the Obligations or part thereof intended to be
satisfied shall be revived and continue as if such payment or proceeds had not
been received by Agent or such Lender.
16.5. Indemnity. Each Borrower shall indemnify Agent
and each Lender from and against any and all actual liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
reasonable fees and disbursements of counsel incurred in connection with such
matters) which may be imposed on, incurred by, or asserted against Agent or any
Lender in any litigation, proceeding or investigation instituted or conducted
by any governmental agency or instrumentality or any other Person with respect
to any aspect of, or any transaction contemplated by, or referred to in, or any
matter related to, this Agreement, whether or not Agent or any Lender is a
party thereto, except to the extent (i) that any of the foregoing arises out of
the willful misconduct or gross (not mere) negligence of the party being
indemnified and (ii) such costs and expenses which arise from any claims or
causes of action asserted by any Borrower against Agent or any Lender,
Borrowers shall not be required to pay such costs and expenses where (i)
Borrowers shall have received a non-appealable final judgment (i.e., a judgment
on which all appeals have been taken or the time for appeal has lapsed) in
their favor or (ii) the parties have otherwise agreed in writing.
-88-
<PAGE> 89
16.6. Notice. Any notice or request hereunder may be
given to any Borrower or to Agent or any Lender at their respective addresses
set forth below or at such other address as may hereafter be specified in a
notice designated as a notice of change of address under this Section. Any
notice or request hereunder shall be given by (a) hand delivery, (b) overnight
courier, (c) registered or certified mail, return receipt requested, (d) telex
or telegram, subsequently confirmed by registered or certified mail, or (e)
telecopy to the number set out below (or such other number as may hereafter be
specified in a notice designated as a notice of change of address) with
telephone communication to a duly authorized officer of the recipient
confirming its receipt as subsequently confirmed by registered or certified
mail. Notices and requests shall, in the case of those by (x) overnight
courier or telegram, be deemed to have been given when delivered to the
overnight courier or delivered to the telegraph office addressed as provided in
this Section and (y) registered or certified mail, be deemed to have been given
when deposited in the United States mail addressed as provided in this Section:
<TABLE>
<S> <C>
(A) If to Agent or The Bank of New York Commercial
BNYCC at: Corporation
1290 Avenue of the Americas
New York, New York 10104
Attention: Daniel J. Murray
Telephone: (212) 408-4088
FAX: (212) 408-4313
with a copy to: Hahn & Hessen
350 Fifth Avenue
New York, New York 10118
Attention: Steven J. Seif, Esq.
Telephone: (212) 736-1000
FAX: (212) 594-7167
(B) If to Lender other than Agent, as specified on the signature pages hereof
(C) If to Borrowers, at: Telxon Corporation
3330 West Market Street
Akron, Ohio 44333-0582
Attention: Chief Financial Officer
Telephone: (216) 867-3700
FAX: (216) 873-2240
with a copy to: Goodman Weiss Miller Freedman
100 Erieview Plaza, 27th Floor
Cleveland, Ohio 44214-1824
Attention: Robert A. Goodman, Esq.
Telephone: (216) 696-3366
FAX: (216) 363-5835
</TABLE>
16.7. Severability. If any part of this Agreement is
contrary to, prohibited by, or deemed invalid under applicable laws
-89-
<PAGE> 90
or regulations, such provision shall be inapplicable and deemed omitted to the
extent so contrary, prohibited or invalid, but the remainder hereof shall not
be invalidated thereby and shall be given effect so far as possible.
16.8. Expenses. (i) All costs and expenses including,
without limitation, reasonable attorneys' fees and disbursements (including the
disbursements and allocated costs of in-house counsel) incurred by Agent, Agent
on behalf of Lenders and Lenders (a) in all efforts made to enforce payment of
any Obligation or effect collection of any Collateral, or (b) in connection
with the entering into, modification, amendment, administration and enforcement
of this Agreement or any consents or waivers hereunder and all related
agreements, documents and instruments, or (c) in instituting, maintaining,
preserving, enforcing and foreclosing on Agent's security interest in or Lien
on any of the Collateral, whether through judicial proceedings or otherwise, or
(d) in defending or prosecuting any actions or proceedings arising out of or
relating to Agent's or any Lender's transactions with any Borrower, or (e) in
connection with any advice given to Agent or any Lender with respect to its
rights and obligations under this Agreement and all related agreements, may be
charged to the Borrowers' account as a Revolving Advance and shall be part of
the Obligations; and (ii) each Borrower agrees that any expenses incurred by
Agent and/or Lenders in connection with any action taken by them under any
Guaranty, Guarantor Security Agreement, Pledge Agreement, patent collateral
security agreement, assignment of security or any other agreement executed by
any Guarantor shall constitute Indebtedness of the Borrowers hereunder and
shall be charged to the Borrowers' account as Revolving Advances.
16.9. Injunctive Relief. Each Borrower recognizes
that, in the event any Borrower fails to perform, observe or discharge any of
its obligations or liabilities under this Agreement, any remedy at law may
prove to be inadequate relief to Lenders; therefore, Agent, if Required Lenders
so request, shall be entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages.
16.10. Consequential Damages. Neither Agent, any
Lender nor any agent or attorney for Agent or any Lender shall be liable to any
Borrower for consequential damages arising from any breach of contract, tort or
other wrong relating to the establishment, administration or collection of the
Obligations.
16.11. Captions. The captions at various places in
this Agreement are intended for convenience only and do not constitute and
shall not be interpreted as part of this Agreement.
16.12. Counterparts. This Agreement may be executed in
one or more counterparts, each of which taken together shall constitute one and
the same instrument.
-90-
<PAGE> 91
16.13. Construction. The parties acknowledge that each
party and its counsel have reviewed this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments, schedules or exhibits thereto.
16.14. Confidentiality. Agent, each Lender and any
Transferee shall hold all non-public information obtained by Agent or such
Lender pursuant to the requirements of this Agreement in accordance with
Agent's and such Lender's customary procedures for handling confidential
information of this nature; provided, however Agent and each Lender may
disclose such confidential information (a) to its examiners, affiliates,
outside auditors, counsel and other professional advisors, (b) to any
prospective Transferees, and (c) as required or requested by any governmental
agency or representative thereof or pursuant to legal process; provided,
however that in no event shall Agent or any Lender be obligated to return any
materials furnished by any Borrower other than those documents and instruments
in possession of Agent or any Lender in order to perfect its Lien in the
Collateral once the Obligations have been paid in full and this Agreement has
been terminated.
16.15. Release. The parties hereto acknowledge that
the Deed may be released in accordance with Section 5.19 of the Deed. The
parties further acknowledge that any prepayment of the Term Loan in connection
with a refinancing solely of the Term Loan shall not result in any early
termination fee under Section 13.1 of this Agreement.
16.16. Additional Financing. In the event that
Borrowers obtain financing from one or more lenders other than Lenders and such
lenders desire to obtain a Lien on the Texas Real Property, Borrowers shall
execute and/or deliver prior to the granting of such Lien any and all documents
and agreements reasonably requested by Agent and/or Lenders in order to protect
their interests in the Collateral (other than the Texas Real Property),
including, but not limited to, mortgagee waivers, subordination agreements and
intercreditor agreements.
-91-
<PAGE> 92
16.17. This Agreement Paramount. If and to the extent
that any of the provisions of the Other Loan Documents conflict or are
otherwise inconsistent with any express provisions of this Agreement, the
provisions of this Agreement shall prevail.
Each of the parties has signed this Agreement as of the 31st day of
March, 1995.
TELXON CORPORATION
By:/s/ Kenneth W. Haver
---------------------------------
Name: Kenneth W. Haver
Title: Sr. V.P. amd Chief Financial Officer
3330 West Market Street
Akron, Ohio 44333
THE RETAIL TECHNOLOGY GROUP, INC.
By:/s/ Kenneth W. Haver
---------------------------------
Name: Kenneth W. Haver
Title: Treasurer
3330 West Market Street
Akron, Ohio 44333
TELETRANSACTION, INC.
By:/s/ Kenneth W. Haver
---------------------------------
Name: Kenneth W. Haver
Title: Treasurer
3330 West Market Street
Akron, Ohio 44333
ITRONIX CORPORATION
By:/s/ Kenneth W. Haver
---------------------------------
Name: Kenneth W. Haver
Title: Treasurer
South 801 Stevens
Spokane, WA 99204
(signatures continued on next page)
-92-
<PAGE> 93
MICROOFFICE SYSTEMS TECHNOLOGY, INC.
By:/s/ Kenneth W. Haver
--------------------------------
Name: Kenneth W. Haver
Title: Treasurer
3330 West Market Street
Akron, Ohio 44333
PTC AIRCO, INC.
By:/s/ Kenneth W. Haver
--------------------------------
Name: Kenneth W. Haver
Title: Treasurer
3330 West Market
Street Akron, Ohio 44333
THE BANK OF NEW YORK COMMERCIAL CORPORATION, as
Lender and as Agent
By:/s/ Daniel J. Murray
--------------------------------
Daniel J. Murray,
Vice President
1290 Avenue of the Americas
New York, New York 10104
COMMITMENT PERCENTAGE: 50%
BANKAMERICA BUSINESS CREDIT, INC., as
Lender
By:/s/ George Markowsky
--------------------------------
Name: George Markowsky
Title: Vice President
40 East 52nd Street
New York, New York 10022
COMMITMENT PERCENTAGE: 50%
-93-
<PAGE> 1
Exhibit 10.3.1
AMENDMENT NO. 1
TO
AMENDED AND RESTATED
REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 1 ("Amendment") is entered into as of June
16, 1995, by and among TELXON CORPORATION ("Telxon"), a corporation organized
under the laws of the State of Delaware, THE RETAIL TECHNOLOGY GROUP, INC.
("Retail"), a corporation organized under the laws of the State of Delaware,
TELETRANSACTION, INC. ("Teletransaction"), a corporation organized under the
laws of the State of Delaware, ITRONIX CORPORATION ("Itronix"), a corporation
organized under the laws of the State of Washington, MICROOFFICE SYSTEMS
TECHNOLOGY, INC. ("MicroOffice"), a corporation organized under the laws of
the State of Delaware, PTC AIRCO, INC. ("PTC"), a corporation organized under
the laws of the State of Delaware (Telxon, Retail, Teletransaction, Itronix,
MicroOffice and PTC., each a "Borrower" and, jointly and severally, the
"Borrowers"), the undersigned financial institutions (collectively the
"Lenders") and THE BANK OF NEW YORK COMMERCIAL CORPORATION ("BNYCC"), a
corporation organized under the laws of the State of New York, as agent for
Lenders (BNYCC in such capacity, the "Agent").
BACKGROUND
----------
Borrowers, Lenders and Agent are parties to an Amended and
Restated Revolving Credit, Term Loan and Security Agreement dated as of March
31, 1995 (as amended, supplemented or otherwise modified from time to time, the
"Loan Agreement") pursuant to which Lenders provide Borrowers with certain
financial accommodations.
Borrowers have requested that Agent and Lenders amend the Loan
Agreement and Agent and Lenders are willing to do so on the terms and
conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or
grant of credit heretofore or hereafter made to or for the account of Borrowers
by Lenders, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Definitions. All capitalized terms not otherwise
defined herein shall have the meanings given to them in the Loan Agreement.
<PAGE> 2
2. AMENDMENT TO LOAN AGREEMENT. Subject to satisfaction
of the conditions precedent set forth in Section 3 below, the Loan Agreement is
hereby amended as follows:
(a) The following definitions in Section 1.2 of the Loan
Agreement are hereby amended in their entirety to provide as follows:
"ADVANCES" shall mean and include the Revolving
Advances, the Alternate Currency Advances, Letters of Credit, the Term Loan and
Foreign Exchange Obligations.
"REVOLVING ADVANCES" shall mean Advances made other
than Letters of Credit, the Term Loan and Foreign Exchange Obligations.
(b) The following defined terms are hereby added to
Section 2.1 of the Loan Agreement in their appropriate alphabetical order:
"FOREIGN EXCHANGE CONTRACTS" shall have the meaning
set forth in Section 2.15 hereof.
"FOREIGN EXCHANGE OBLIGATIONS" shall have the meaning
set forth in Section 2.15 hereof.
"FX RESERVE" shall have the meaning set forth in
Section 2.15 hereof.
"MAXIMUM FOREIGN EXCHANGE FACILITY" shall have the
meaning set forth in Section 2.15 hereof.
(c) The phrase "excluding work in process," in the
definition of Eligible Inventory is hereby deleted.
(d) Section 2.1(a) of the Loan Agreement is hereby
amended in its entirety to provide as follows:
"2.1(a) REVOLVING ADVANCES. Subject to the terms and
conditions set forth in this Agreement, each Lender, severally and not jointly,
will from time to time upon Telxon's request, make Revolving Advances to the
Borrowers in aggregate amounts outstanding at any time not greater than such
Lender's Commitment Percentage of the lesser of (I) the Maximum Revolving
Advance Amount less the sum of (x) the aggregate amount of outstanding Letters
of Credit (y) the Dollar Equivalent of Alternate Currency Advances and (z) the
F/X Reserve or (II) an amount equal to the sum of:
(i) up to 85%, subject to the provisions of
Section 2.1(b) hereof ("Receivables Advance Rate"),
of Eligible Receivables less such reserves as Agent
may reasonably deem proper and necessary,plus
-2-
<PAGE> 3
(ii) up to the lesser of (x) $15,000,000 or (y)
up to 30%, subject to the provisions of Section
2.1(b) hereof ("Inventory Advance Rate") of the value
of Eligible Inventory less such reserves as Agent may
reasonably deem proper and necessary (the Receivables
Advance Rate and Inventory Advance Rate shall be
referred to collectively as the "Advance
Rates"),minus
(iii) the aggregate amount of outstanding Letters of
Credit, minus
(iv) the Dollar Equivalent of the aggregate
amount of outstanding Alternate Currency Advances, minus
(v) the F/X Reserve.
The sum of the amounts derived from Sections 2.1(a)(II)(i)
plus (ii) minus (v) at any time and from time to time shall be referred to as
the "Formula Amount". The Revolving Advances shall be evidenced by the secured
promissory note substantially in the form attached hereto as Exhibit 2.1(a)."
(e) A new Section 2.15 is hereby added to the Loan
Agreement which provides as follows:
"2.15 FOREIGN EXCHANGE CONTRACTS. (a) Subject to the
terms and conditions hereof, Telxon, on behalf of any
Borrower, may, from time to time, request and Agent may, in
its sole discretion, purchase or arrange for the purchase of
foreign currency for delivery immediately or at some future
date (the contracts for such purchases being hereinafter
referred to as "Foreign Exchange Contracts"); provided,
however, that the aggregate outstanding face amount of all
Foreign Exchange Contracts ("Foreign Exchange Obligations")
shall at no time exceed $5,000,000 ("Maximum Foreign Exchange
Facility") and the aggregate settlement amount of all Foreign
Exchange Contracts shall not exceed $1,000,000 on any day;
further provided, however, that Agent will not be required to
enter into or arrange for Foreign Exchange Contracts to the
extent that such Foreign Exchange Contract would expire after
the last day of the Term. All Foreign Exchange Contracts
entered into by Agent upon Telxon's request shall be for
Borrowers' exclusive account and Borrowers will reimburse
Agent for all costs, expenses, service charges, fees and
commissions incurred in connection therewith (including the
cost of purchasing the foreign currency). All amounts payable
by Borrowers under this Section 2.15 may be charged to
Borrowers' account. If, as of a date on which foreign
currency is to be delivered, Telxon has not instructed Agent
as to where
-3-
<PAGE> 4
such currency is to be transferred or if on such date
Borrowers are in default under this Agreement, Agent may, in
its discretion, sell or arrange for the sale of the foreign
currency to any third party and charge Borrowers' account for
the difference between the cost quoted to Telxon for
purchasing the foreign currency and the price Agent (or its
nominee) obtains in selling the foreign currency. Agent (or
its nominee) shall not hold the foreign currency beyond the
designated delivery date. Borrowers acknowledge and agree
that the cost of purchasing foreign currency from Agent may be
greater than Agent's cost. Borrowers shall indemnify and hold
Agent harmless from all losses, liabilities and expenses
(including attorneys' fees) incurred by Agent as a result of
or arising from any foreign currency transaction that Agent
institutes at Telxon's request. Borrowers shall be bound by
the regulations and rules of Agent and of any bank or other
financial institution through which Agent purchases Foreign
Exchange Contracts and Borrowers agree that neither Agent nor
any bank or its correspondents which purchase Foreign Exchange
Contracts shall be liable for any error, negligence and/or
mistake, whether of omission or commission, in purchasing or
failing to purchase Foreign Exchange Contracts. Agent may
from time to time establish such reserves (the "FX Reserve")
against availability under Section 2.1(a)(II) in connection
with the purchase of Foreign Exchange Contracts as Agent deems
appropriate. The FX Reserve shall mean an amount initially
equal to $500,000 which amount may, in the exercise by Agent
of its sole discretion (and without any obligation to do so),
be (i) decreased at any time or from time or (ii) increased at
any time or from time to time by an amount equal to the
difference between exchange exposure of Agent under the
Foreign Exchange Contracts and the amount of the FX Reserve in
existence at such time."
(f) Section 7.4(g) of the Loan Agreement is hereby
amended in its entirety to provide as follows:
"(g) investments made in the ordinary course of business to
developers and marketers of emerging technology or in
developing markets and to acquire licenses of such technology
provided that the aggregate outstanding amount of such
investments together with loans permitted by Section 7.5(d)
does not exceed $10,000,000 at any time and"
(g) Sections 7.5(d) and (e) of the Loan Agreement are
hereby amended in their entirety to provide as follows:
"(d) loans after the Closing Date in the ordinary course of
business to developers and marketers of
-4-
<PAGE> 5
emerging technology or in developing markets and to acquire
licenses of such technology provided that the aggregate
outstanding amount of such loans together with investments
permitted by Section 7.4(g) does not exceed $10,000,000 at any
time, (e) loans to employees in the ordinary course of
business provided that the aggregate amount of such loans does
not exceed $3,000,000 at any time and"
3. CONDITIONS OF EFFECTIVENESS. This Amendment shall
become effective upon satisfaction of the following conditions precedent:
Agent shall have received six (6) copies of this Amendment executed by
Borrowers and Lenders and consented and agreed to by Guarantors, and such other
certificates, instruments, documents, agreements and opinions of counsel as may
be required by Agent, Lenders or their counsel, each of which shall be in form
and substance satisfactory to Agent, Lenders and their counsel.
4. REPRESENTATIONS AND WARRANTIES. Borrowers hereby
represents and warrants as follows:
(a) This Amendment and the Loan Agreement, as
amended hereby, constitute legal, valid and binding
obligations of Borrowers and are enforceable against Borrowers
in accordance with their respective terms.
(b) Upon the effectiveness of this Amendment,
Borrowers hereby reaffirm all covenants, representations and
warranties made in the Loan Agreement to the extent the same
are not amended hereby and agree that all such covenants,
representations and warranties shall be deemed to have been
remade as of the effective date of this Amendment.
(c) No Event of Default or Default has occurred
and is continuing or would exist after giving effect to this
Amendment.
(d) Borrowers have no defense, counterclaim or
offset with respect to the Loan Agreement.
5. EFFECT ON THE LOAN AGREEMENT.
(a) Upon the effectiveness of Section 2 hereof, each
reference in the Loan Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import shall mean and be a reference to the Loan
Agreement as amended hereby.
(b) Except as specifically amended herein, the Loan
Agreement, and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect, and
are hereby ratified and confirmed.
-5-
<PAGE> 6
(c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of Agent
or any Lender, nor constitute a waiver of any provision of the Loan Agreement,
or any other documents, instruments or agreements executed and/or delivered
under or in connection therewith.
6. GOVERNING LAW. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns and shall be governed by and construed in accordance with the laws
of the State of New York.
7. HEADINGS. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
8. COUNTERPARTS. This Amendment may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed an
original and all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, this Amendment has been duly executed as
of the day and year first written above.
TELXON CORPORATION
By: /s/ Kenneth W. Haver
------------------------------
Name: Kenneth W. Haver
Title: Sr. V.P. and C.F.O.
3330 West Market Street
Akron, Ohio 44333
THE RETAIL TECHNOLOGY GROUP, INC.
By: /s/ Kenneth W. Haver
------------------------------
Name: Kenneth W. Haver
Title: Treasurer
3330 West Market Street
Akron, Ohio 44333
TELETRANSACTION, INC.
By: /s/ Kenneth W. Haver
------------------------------
Name: Kenneth W. Haver
Title: Treasurer
3330 West Market Street
Akron, Ohio 44333
(SIGNATURES CONTINUED ON NEXT PAGE)
-6-
<PAGE> 7
ITRONIX CORPORATION
By: /s/ Kenneth W. Haver
-------------------------------
Name: Kenneth W. Haver
Title: Treasurer
South 801 Stevens
Spokane, WA 99204
MICROOFFICE SYSTEMS TECHNOLOGY, INC.
By: /s/ Kenneth W. Haver
-------------------------------
Name: Kenneth W. Haver
Title: V.P., Finance and Treasurer
3330 West Market Street
Akron, Ohio 44333
PTC AIRCO, INC.
By: /s/ Kenneth W. Haver
------------------------------
Name: Kenneth W. Haver
Title: Treasurer
3330 West Market Street
Akron, Ohio 44333
THE BANK OF NEW YORK COMMERCIAL
CORPORATION, as Lender and as Agent
By: /s/ Daniel J. Murray
--------------------------------
Daniel J. Murray, Vice President
1290 Avenue of the Americas
New York, New York 10104
COMMITMENT PERCENTAGE: 50%
BANKAMERICA BUSINESS CREDIT, INC.,
as Lender
By: /s/ George Markowsky
--------------------------------
Name: George Markowsky
Title: Vice President
40 East 52nd Street
New York, New York 10022
COMMITMENT PERCENTAGE: 50%
(SIGNATURES CONTINUED ON NEXT PAGE)
-7-
<PAGE> 8
CONSENTED AND AGREED TO:
Telxon Foreign Sales Corp.
By: /s/ Gerald J. Gabriel
----------------------
Name: Gerald J. Gabriel
Title: Secretary
AIRONET Wireless Communications, Inc.
By: /s/ Kenneth W. Haver
---------------------
Name: Kenneth W. Haver
Title: Treasurer
Telxon Trading Co., Inc.
By: /s/ Kenneth W. Haver
---------------------
Name: Kenneth W. Haver
Title: Treasurer
Penright! Corporation
By: /s/ Kenneth W. Haver
---------------------
Name: Kenneth W. Haver
Title: Treasurer
Metanetics Corporation
By: /s/ Kenneth W. Haver
---------------------
Name: Kenneth W. Haver
Title: Treasurer
Telxon Products, Inc.
By: /s/ Kenneth W. Haver
---------------------
Name: Kenneth W. Haver
Title: Treasurer
-8-
<PAGE> 1
Exhibit 11
EXHIBIT (11)* TO REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED MARCH 31, 1995
TELXON CORPORATION
COMPUTATION OF COMMON SHARES OUTSTANDING
AND EARNINGS PER SHARE
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) applicable to common
shares $ 9,018 $ (2,799) $(12,064)
======= ======== ========
Weighted average common shares outstand-
ing for the year 15,909 15,210 13,991
Increase in weighted average from:
Dilutive effect of stock options -- -- --
------- ------- --------
Weighted average common shares, assuming
issuance of the above securities 15,909 15,210 13,991
======= ======= ========
Earnings (loss) per common share:
On the weighted average common
shares outstanding for the year $ .57 $ (.18) $ (.86)
Assuming issuance of shares for
dilutive stock options** $ .57 $ (.18) $ (.86)
</TABLE>
* Numbered in accordance with Item 601 of Regulation S-K.
** This calculation is submitted in accordance with Regulation S-K Item
601(b)(1) although not required for income statement presentation because it
results in dilution of less than three percent. The Company's 7-1/2%
Convertible Debentures were omitted from the fully diluted calculation due to
their anti-dilutive effect.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
----------- -----------------------------
<S> <C>
Telxon Australia Pty. Ltd. Australia
N.V. Telxon Belgium S.A. Belgium
Telxon (France) S.A. France
Telxon Italia s.r.1. Italy
Telxon mde GmbH Germany
Telxon Limited England
Telxon Japan Japan
Telxon Canada Corporation Ltd. Ontario, Canada
MicroOffice Systems Technology, Inc. Delaware
Telxon Europe BV The Netherlands
Telxon Data Systems AG Switzerland
Itronix Corporation Washington
Telxon Foreign Sales Corporation U.S. Virgin Islands
Telxon Products, Inc. Delaware
Telxon International Procurement
Services, Inc. Delaware
PTC Airco, Inc. Delaware
The Retail Technology Group, Inc. Delaware
Teletransaction, Inc. Delaware
Aironet Wireless Communications, Inc. Delaware
Aironet Canada Inc. Ontario, Canada
Aironet Canada Limited Ontario, Canada
PenRight! Corporation Delaware
Telxon Trading Co. Delaware
Telxon Corporation Systems Espana, S.A. Spain
Metanetics Corporation Delaware
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus constituting
part of this Registration Statement of Telxon Corporation and Subsidiaries on
Form S-8 (Nos. 2-88298, 2-92434, 33-16939, 33-989, 33-32600, 33-37177,
33-43314, 33-43315, 33- 60968, 33-60970, 33-60972 and 33-56205) of our report,
which includes an explanatory paragraph related to a Consolidated Class Action,
dated June 19, 1995, on our audits of the consolidated financial statements and
financial statement schedule of Telxon Corporation and Subsidiaries, as of
March 31, 1995 and 1994, and for each of the three years in the period ended
March 31, 1995, appearing on page 30 of the Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Akron, Ohio
June 26, 1995
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
TELXON CORPORATION
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors
of Telxon Corporation, a Delaware corporation (the "Company"), does hereby
make, constitute and appoint Robert F. Meyerson, William J. Murphy, Kenneth W.
Haver and Gerald J. Gabriel, and each of them acting individually, his true and
lawful attorney-in-fact and agent with power to act without the other and full
power of substitution and resubstitution, to prepare or cause to be prepared,
to execute for and on his behalf and in his name and in his capacity as a
Director of the Company, and to deliver and file or cause to be delivered and
filed any and all instruments which said attorneys-in-fact and agents, or any
of them, may deem necessary to enable the Company to comply with the Securities
Exchange Act of 1934, as amended, and the rules, regulations and requirements
of the Securities and Exchange Commission (the "Commission") pursuant thereto,
in connection with the filing with the Commission of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995, together with any
amendments and any exhibits and other documents in support thereof or
supplemental thereto, hereby granting to said attorneys-in-fact and agents and
each of them full power and authority to do and perform each and every act and
thing whatsoever as said attorneys-in-fact and agents may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity as aforesaid, hereby ratifying
and confirming all acts and things which said attorneys-in-fact and agents may
do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned has subscribed these presents,
effective as of the 20th day of June, 1995.
<TABLE>
<S> <C>
/s/ Robert F. Meyerson /s/ Norton W. Rose
---------------------------------- ----------------------------------
Robert F. Meyerson, Director Norton W. Rose, Director
/s/ William J. Murphy /s/ Raj Reddy
---------------------------------- ----------------------------------
William J. Murphy, Director Raj Reddy, Director
/s/ John H. Cribb /s/ J. Robert Anderson
---------------------------------- ----------------------------------
John H. Cribb, Director J. Robert Anderson, Director
/s/ Robert A. Goodman /s/ Walter J. Salmon
---------------------------------- ----------------------------------
Robert A. Goodman, Director Walter J. Salmon, Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 31,364
<SECURITIES> 0
<RECEIVABLES> 86,300
<ALLOWANCES> 1,832
<INVENTORY> 72,078
<CURRENT-ASSETS> 205,293
<PP&E> 106,071
<DEPRECIATION> 60,184
<TOTAL-ASSETS> 276,127
<CURRENT-LIABILITIES> 103,676
<BONDS> 31,709
<COMMON> 156
0
0
<OTHER-SE> 138,578
<TOTAL-LIABILITY-AND-EQUITY> 276,127
<SALES> 323,916
<TOTAL-REVENUES> 379,519
<CGS> 189,568
<TOTAL-COSTS> 222,023
<OTHER-EXPENSES> 136,590
<LOSS-PROVISION> 1,158
<INTEREST-EXPENSE> 3,696
<INCOME-PRETAX> 17,210
<INCOME-TAX> 9,182
<INCOME-CONTINUING> 9,018
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,018
<EPS-PRIMARY> .57
<EPS-DILUTED> 0
</TABLE>
