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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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from __________to __________
Commission file number 0-11402
TELXON CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 74-1666060
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3330 West Market Street, Akron, Ohio 44333
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 867-3700
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Securities registered pursuant Name of each exchange
to Section 12(b) of the Act: on which registered:
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of class)
7-1/2% Convertible Subordinated Debentures Due 2012
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of registrant's Common Stock held by non-affiliates
as of May 31, 1996, based on the last reported sales price of the Common Stock
as reported on Nasdaq NNM for such date, was $284,203,545.
At May 31, 1996, there were 16,110,016 outstanding shares of the registrant's
Common Stock.
Documents Incorporated by Reference
-----------------------------------
The registrant's definitive proxy statement for its 1996 Annual Meeting of
Stockholders to be held on August 29, 1996, 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, 1996, 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
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GENERAL
Description of Company's Business
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Telxon Corporation ("Telxon" or the "Company") designs, manufactures,
integrates, markets and supports wireless and mobile transaction systems and
solutions. The Company's portable tele-transaction computers ("PTCs") and its
wireless local area network ("LAN") systems are integrated with
customer-specific enterprise computer systems and third-party wide area networks
("WANs"), enabling mobile workers to process data on a real-time basis at the
point of transaction. Telxon customers' needs to reduce cycle times, improve
asset management and create new services drives their requirements for real-time
information throughout their organizations. Telxon products are sold worldwide
for use in vertical markets including retail, manufacturing, field service,
transportation/logistics, insurance/finance, healthcare, and route accounting.
Historical Overview
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The Company was incorporated in Delaware in 1969 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 of common stock
in July 1983, a secondary offering of 1,150,000 common shares in July 1985, a
$46 million issue of 7-1/2% Convertible Subordinated Debentures due 2012 in June
1987, and an $82.5 million issue of 5-3/4% Convertible Subordinated Notes due
2003 in December 1995. During fiscal 1991, the Company purchased and retired
$21.3 million of the 7-1/2% Debentures.
For more than two decades, the Company has developed and marketed portable
handheld terminals to retailers and wholesalers in the grocery, drug and
hardware segments. More recently, commercial demand has increased as the use of
wireless PTC systems, including newly developed pen-based workslates and
ruggedized notebook computers, has expanded into other retail segments,
including mass merchandisers, department stores and specialty store chains. An
increasing number of new markets are also adopting mobile transaction solutions
including manufacturing, field service, transportation/logistics,
insurance/finance, healthcare, utilities and public safety.
Telxon pioneered the commercialization of spread spectrum radio frequency ("RF")
technology in LANs for vertical market applications. Telxon is the leading
supplier of RF-enabled devices, having shipped over 300,000 units to date.
The Company's core PTC and wireless data communication products integrate
microprocessors, memory, displays, keyboards, touch screens, character
recognition software, bar code readers, printers, telephone modems and local
and/or wide area radios. Through a combination of propriety application-specific
integrated circuit ("ASIC") technology, data radio technology and
market-responsive "fashion packaging," the Company seeks to deliver
cost-effective, tailored solutions that meet the technical and ergonomic needs
of the Company's targeted markets. The Company's wireless
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data networks are designed for integration of wireless access points, RF
client-server controller boards and microcellular software. Telxon's
microcellular architecture network software allows PTCs to roam seamlessly
through large buildings and groups of buildings with uninterrupted data flow.
The Company competes in a highly competitive marketplace characterized by
rapidly evolving technology. Certain of the important factors, risks and
uncertainties affecting its business and results of operations are referenced in
the discussion of the Company's business that follows. For a more detailed
discussion of those and other such factors, risks and uncertainties, see
"FACTORS THAT MY AFFECT FUTURE RESULTS" under "Item 7. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" below in this
Form 10-K, which discussion should be read in conjunction with the discussion
under this Item 1.
Five-Year Strategic Plan
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During the second quarter of fiscal 1996, management accelerated the
implementation of a new five-year strategic plan designed to deliver
profitable growth over the next five fiscal years. This new plan, TELXON 2000,
builds upon the successful implementation of the Company's previous, three-year
plan, TELXON 96, by (1) expanding its investment in the development and
acquisition of evolutionary products and technologies to serve its customers'
changing needs, (2) expanding the Company's vision to anticipate and serve the
future needs of a global marketplace, and (3) expanding its penetration of
targeted vertical markets worldwide.
TELXON 2000 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. 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
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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 1996, North American sales increased 22% 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 1996.
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- - 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 1996, International Division sales increased 15% 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.")
- - 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, including other wireless and
mobile devices, 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
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The Vertical Systems Group ("VSG"), composed of 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 targeted vertical markets.
- - 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, handheld 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.
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- - Gateway Connectivity System and GCS are trademarks of Telxon Corporation.
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Applications involving real-time communications include shelf auditing,
direct store delivery, customer assisted ordering, 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
ruggedized handheld, pen-based and 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.
- - 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 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
PTCs and wireless communication technology to enhance hospital information
networks and home healthcare data transfers. Existing hospital software and
computer systems can be linked via the Company's wireless network
infrastructure to both Telxon PTCs and third-party mobile devices. 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.
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- 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 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. Other
strategically targeted markets include field service, route accounting, public
safety and utilities.
III. The Technical Subsidiaries Group
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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 exhibiting 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 image reading
- Advanced 900 MHz and 2.4 GHz spread spectrum radios and wireless
networks
- Advanced CPU and ASIC design
- Advanced speech recognition
The Technical Subsidiaries Group 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
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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.
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- Itronix is a registered trademark of Itronix Corporation.
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PenRight!(R) Corporation
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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 software supports ten international languages.
The Company has developed a new version to support 486 platforms and Pen for
Windows(R).
Teletransaction(TM), Inc.
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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 served by the Company
Metanetics(TM) Corporation
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Metanetics Corporation ("Metanetics") 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
and advanced image reading technology.
Aironet Wireless Communications(TM), Inc.
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In January 1994, the Company formed Aironet Wireless Communications, Inc.
("Aironet") of Akron, Ohio, to continue development and marketing of
wireless LAN systems. Aironet was formed from one subsidiary company and two
units of the Company:
- - Telesystems SLW, Inc. -- 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 radio
products and networks which it sells to Telxon, VARs and OEMs.
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- 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.
- Metanetics is a trademark of Metanetics Corporation.
- Aironet and Aironet Wireless Communications are trademarks of Aironet
Wireless Communications, Inc.
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Virtual Vision(R), Inc.
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In July 1995, the Company acquired the assets and assumed certain liabilities of
Virtual Vision, Inc. ("Virtual Vision") of Redmond, Washington.
Virtual Vision is a leading developer of "augmented reality" head-mounted
systems technology.
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
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The Company's advanced research focuses on advanced hardware, software, and
firmware designs that utilize Telxon proprietary ASIC 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 targeted market.
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 existing products in anticipation
of new or improved versions of those products. Although the Company contemplates
the introduction of new products in fiscal 1997, 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 1996, 1995, and 1994, the Company spent approximately $45.4
million, $33.7 million and $29.1 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. Manufacturing and Product Maintenance
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- - Manufacturing Operations
Manufacturing operations consist of the assembly, testing and 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 1994, the Company's principal manufacturing operations were consolidated
into a newly constructed, Company-owned 116,000 square foot facility.
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- Virtual Vision is a registered trademark of Virtual Vision, Inc.
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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.
- - 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
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The Company has developed a line of handheld PTCs, which range from low-end
batch terminals to highly integrated PTCs incorporating 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
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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 and 870IM series of fork lift truck mounts, the POS-
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5000 portable point-of-sale terminal, the AMT-925 arm mounted terminal, and the
Itronix T-5000 and X-C 6000 are also included in this group.
Wireless Data Communication Products, Network Systems and Software
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Telxon provides wireless data communication solutions for mobile, distributed
data processing application systems through PTCs 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. The
Company uses industry standard "open" system protocols to provide seamless
connectivity across a wide range of host computer systems including SNA and
TCP/IP and other manufacturers' communication networks.
Through Aironet, the Company has developed a series of spread spectrum data
radios, access points, repeaters, routers and bridges. The current products use
the 900 MHz or 2.4 GHz frequency bands, utilizing both direct sequence and
frequency hopping technology, 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.
In June 1996, Aironet received approval from the United States Federal
Communication Commission ("FCC") for its new 2.4 Ghz frequency hopping family of
wireless LAN products. Aironet is currently the only company that designs and
manufactures 900 Mhz and 2.4 Ghz direct sequence and 2.4 Ghz frequency hopping
spread spectrum radios. Aironet's wireless LAN systems, utilizing both types of
spread spectrum radios, will be compliant with the emerging Institute of
Electrical and Electronic Engineer's (IEEE) 802.11 protocol standards.
Telxon's DataSpan 2000(TM) System provides 900MHz 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 customers' host computers. The Company's spread spectrum radios
are designed to fit into Telxon's PTCs and a variety of personal computers
(PCs), client servers and other mobile devices.
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 coverage to over 4 million square feet.
The Company 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. The
Company also 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 has been granted a number of patents for its spread spectrum
technology and was the first company in the wireless industry to receive FCC and
Canadian Department of Communication approval for its spread spectrum radios.
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- DATASPAN 2000 is a trademark of Telxon Corporation.
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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 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.
Peripherals
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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 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 systems, 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").
- ----------
- ARDIS is a registered trademark of IBM Corporation and Motorola
Corporation.
- RAM is a registered trademark of RAM Mobile Data, Inc.
- 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.
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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). RAMsaver has been expanded to include MS-DOS version 5.0, with
MS-DOS version 6.22 available on its pen-based units.
The new pen-based and touch-screen workslates offer application development
capabilities in DOS, Pen for Windows and C. Telxon also offers Windows 3.1(R),
Windows for Workgroups(R) and Windows 95(R).
The Company develops, through its subsidiaries PenRight! and Metanetics,
advanced character recognition software, advanced image reading and 2D bar code
encoding and autodiscriminating decode software.
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 rights. In addition, the
Company's products also utilize hardware and software technologies licensed
from third parties. Given the rapidly changing nature of the industry's
technology, 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 REGULATION
The Company believes that substantially all of its products are in material
compliance with current government regulations and is working to bring the
remaining products into compliance; 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 which could have 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.
- ----------
- GW-BASIC, MASM, Windows 3.1, Windows for Workgroups, and Windows 95
are registered trademarks of Microsoft Corporation.
- Turbo C is a registered trademark of Borland International, Inc.
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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. Therefore, 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.
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, 1996, the Company employed approximately 2,100 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, Training
Group and New Product Support Department.
In addition, the Company leases approximately 118,500 square feet of office
space at locations within a four mile radius of its corporate offices pursuant
to leases expiring through March 31, 1997. These facilities house
13
<PAGE> 14
the Company's Aironet and PenRight! subsidiaries, as well as the Company's
market research and product marketing, systems development and testing,
integration and product quality management groups and certain corporate
development and 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 Telxon manufacturing and warehousing operations, 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 29,500 square feet of office space pursuant to a lease
expiring May 31, 1999. Itronix also operates a 36,000 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 February 14, 1999
and leases an additional 4,700 square feet of adjacent space on a year-to-year
basis renewable through that same date.
In addition to these principal locations, the Company maintains 45 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
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, the 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,
14
<PAGE> 15
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.
Following the completion of discovery (other than of experts), each defendant
filed a Motion for Summary Judgment on May 19, 1995, all of which were opposed
by the plaintiffs. On September 14, 1995, the Court granted each defendant
summary judgment on all counts, which the plaintiffs have appealed to the
defendants to the United States Sixth Circuit Court of Appeals. The parties'
briefing of the appeal has been completed, but no date for oral argument of the
appeal has yet been set. The defendants intend to continue vigorously defending
the Consolidated Class Action. Though there can be no assurance that the
Company's summary judgment will be upheld on appeal on all counts or as to the
ultimate outcome of any portion of the case with respect to which the summary
judgment may be reversed, no provision has been made in the accompanying
consolidated financial statements for any liability that may result to the
Company in such an event.
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 final responsive brief. The Motion was argued before the Court on March
29, 1995, and on July 18, 1995, the Court issued its ruling. The Court
dismissed all of the claims relating to the plaintiff's allegations of
corporate waste. The claims relating to breach of fiduciary duty survived the
Motion to Dismiss and are now the subject of discovery, which is in its early
stages. The defendants believe that the remaining claims lack merit, and they
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 affect 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 and certain contingencies
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.
15
<PAGE> 16
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, 1996.
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 59, has been the Chief Executive Officer of the Company
since October 1992, Chairman of the Board of Directors of the Company 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. Mr. Meyerson was Chairman of the
Board of Basicomputer Corporation (personal computer integration and network
services; "Basicomputer") from January 1984 until September 1993 and Chief
Executive Officer of Accipiter Corporation (consulting firm) from June 1985
through October 1992.
John H. Cribb, age 63, has been Vice Chairman of the Company's Board of
Directors 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.
Frank E. Brick, age 47, became President and Chief Operating Officer of the
Company in June 1996. He had previously served the Company as President and
Chief Operating Officer, Telxon International from February 1995 to June 1996
and as Senior Executive Vice President from October 1993 to February 1995. For
more than five years prior to joining the Company in October 1993, Mr.
Brick was Chief Executive Officer of Basicomputer.
William J. Murphy, age 62, was named Senior Executive Vice President, Global
Sales and Marketing in June 1996, having served the Company as President and
Chief Operating Officer from January 1995 to June 1996. He was Executive Vice
President, North American Operations of the Company from January 1993 to January
1995 and Area Vice President, East from November 1992 to January 1993. Mr.
Murphy also served the Company as a District Manager from September 1989 to
November 1992 and Area Vice President, North Eastern Region from May 1989 to
August 1989. He has been a director of the Company since January 1995.
Dan R. Wipff, age 53, has been the President and Chief Executive Officer of the
Company's Telxon Products manufacturing division 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.
16
<PAGE> 17
Kenneth W. Haver, age 37, has been a 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.
17
<PAGE> 18
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 principal trading market for
the Company's Common Stock is the Nasdaq Stock Market's National Market ("NNM").
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 NNM 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>
1996
High................. $22.88 $24.88 $25.75 $23.25 $25.75
Low.............. 14.50 20.13 20.00 18.13 14.50
Dividends paid... -- -- -- .01 .01
1995
High............. $18.25 $16.25 $15.13 $15.50 $18.25
Low.............. 12.00 12.88 10.00 12.00 10.00
Dividends paid... -- -- -- .01 .01
</TABLE>
As of May 31, 1996, there were approximately 1,223 holders of record of the
Company's Common Stock.
Historically, variations in the Company's actual or expected results of
operations and changes in analysts' earnings estimates and investment
recommendations 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, like that of other technology companies, has been subject to significant
volatility. The Company's stock may also be affected by broader market trends
unrelated to the Company's own performance involving Company competitors,
technology stocks in general or the economy as a whole.
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.
18
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
Set forth below are selected financial data for the five years ended March 31,
1996, 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, including the notes thereto, for the
three years ended March 31, 1996, 1995 and 1994 as included in Item 8 herein.
For further details on 1996 results, also refer to Item 7.
<TABLE>
<CAPTION>
Income Statement Data: Year Ended March 31,
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Product $ 417,725 $ 323,916 $ 252,341 $ 197,116 $ 177,560
Customer service 68,744 55,603 43,652 41,298 37,460
--------- --------- --------- --------- ---------
Total revenues 486,469 379,519 295,993 238,414 215,020
Costs and expenses:
Cost of product revenues 249,120 189,568 143,347 123,511 93,203
Cost of customer service revenues 39,016 32,455 31,958 29,956 21,631
Selling expenses 82,207 68,279 59,894 46,393 42,564
Product development and
engineering expenses 45,383 33,728 29,058 17,798 12,131
General and administrative expenses 39,415 34,583 31,854 36,113 21,249
--------- --------- --------- --------- ---------
Total costs and expenses 455,141 358,613 296,111 253,771 190,778
--------- --------- --------- --------- ---------
Income (loss) from operations 31,328 20,906 (118) (15,357) 24,242
Interest income 760 658 653 1,947 2,998
Interest expense (6,770) (4,354) (2,459) (2,271) (2,203)
Gain on sale of subsidiary stock 1,116 -- -- -- --
Other non-operating income 401 -- -- -- --
--------- --------- --------- --------- ---------
Income (loss) before income
taxes, extraordinary items
and cumulative effect of an
accounting change 26,835 17,210 (1,924) (15,681) 25,037
Provision (benefit) for income
taxes 10,314 8,192 875 (4,056) 9,139
--------- --------- --------- --------- ---------
Income (loss) before extra-
ordinary items and cumulative
effect of an accounting change 16,521 9,018 (2,799) (11,625) 15,898
Extraordinary items:
Income tax effect of net operat-
ing loss carryover utilized -- -- -- -- 1,091
--------- --------- --------- --------- ---------
Income (loss) before cumulative
effect of an accounting change 16,521 9,018 (2,799) (11,625) 16,989
Cumulative effect of a change in
accounting for income taxes -- -- -- (439) --
--------- --------- --------- --------- ---------
Net income (loss) $ 16,521 $ 9,018 $ (2,799) $ (12,064) $ 16,989
========= ========= ========= ========= =========
Earnings per common and common
equivalent share:
Income (loss) before extra-
ordinary items and cumulative
effect of an accounting change $ 1.00 $ .57 $ (.18) $ (.83) $ 1.13
Income tax effect of net oper-
ating loss carryover utilized -- -- -- -- .08
--------- --------- --------- --------- ---------
Income (loss) per share
before cumulative effect of
an accounting change 1.00 .57 (.18) (.83) 1.21
Cumulative effect of a change in
accounting for income taxes -- -- -- (.03) --
--------- --------- --------- --------- ---------
Net Income (loss) per share $ 1.00 $ .57 $ (.18) $ (.86) $ 1.21
========= ========= ========= ========= =========
Average number of common and common
equivalent shares outstanding 16,490 15,909 15,210 13,991 14,067
Cash dividends $ .01 $ .01 $ .01 $ .01 $ .01
</TABLE>
19
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA (Continued)
- -------------------------------------------
Balance Sheet Data:
<TABLE>
<CAPTION>
March 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Total assets $389,209 $276,127 $259,968 $212,621 $199,162
Notes payable, capital lease
and other obligations due
within one year 2,119 27,507 25,207 679 867
Total long-term debt and
capital lease obligations 110,537 32,209 27,534 24,930 25,556
Working capital 185,995 101,617 80,066 84,738 117,216
Stockholders' equity 161,190 138,578 124,715 128,219 124,398
</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. This table and the textual discussion and analysis which follows
should be read in conjunction with the financial statements, including the notes
thereto, for the three years ended March 31, 1996, 1995 and 1994 as included in
Item 8 herein.
<TABLE>
<CAPTION> Period to Period
Increase (Decrease)
Percentage of Total Revenues -------------------------
------------------------------------- 1996 1995
Year ended March 31, Compared Compared
1996 1995 1994 to 1995 to 1994
------ ------ ------ --------- --------
<S> <C> <C> <C> <C> <C>
Product revenues 85.9 85.3% 85.3% 29.0% 28.4%
Customer service 14.1 14.7 14.7 23.6 27.4
----- ----- -----
Total revenues 100.0 100.0 100.0 28.2 28.2
Cost of product revenues 51.2 49.9 48.4 31.4 32.2
Cost of customer service
revenues 8.0 8.6 10.8 20.2 1.6
Selling expenses 17.0 18.0 20.2 20.4 14.0
Product development and
engineering expenses 9.3 8.9 9.8 34.6 16.1
General and administrative
expenses 8.1 9.1 10.8 14.0 8.6
----- ----- -----
93.6 94.5 100.0 26.9 21.1
----- ----- -----
Income (loss) from
operations 6.4 5.5 -- 49.9 N.M.
Interest income .2 .1 .2 15.5 .8
Interest expense (1.4) (1.1) (.8) 55.5 77.1
Gain on sale of subsidiary stock .2 -- -- N.M. --
Other non-operating income .1 -- -- N.M. --
---- ----- -----
Income (loss) before
income taxes and
cumulative effect of
an accounting change 5.5 4.5 (.6) 55.9 N.M.
Provision for income taxes 2.1 2.1 .3 25.9 N.M.
----- ---- ----
Net income (loss) 3.4% 2.4% (.9)% 83.2 N.M.
===== ==== ====
</TABLE>
20
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (Continued)
IN ADDITION TO DISCUSSING AND ANALYZING THE COMPANY'S RECENT HISTORICAL
FINANCIAL RESULTS AND CONDITION, THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDES STATEMENTS
CONCERNING CERTAIN TRENDS AND OTHER FORWARD-LOOKING INFORMATION AFFECTING OR
RELATING TO THE COMPANY WHICH ARE INTENDED TO QUALIFY FOR THE PROTECTIONS
AFFORDED "FORWARD-LOOKING STATEMENTS" UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995, PUBLIC LAW 104-67. THE FORWARD-LOOKING STATEMENTS MADE
HEREIN AND ELSEWHERE IN THIS FORM 10-K ARE INHERENTLY SUBJECT TO RISKS AND
UNCERTAINTIES WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS. SEE "FACTORS THAT MAY AFFECT
FUTURE RESULTS" BELOW AND CAUTIONARY STATEMENTS APPEARING UNDER "ITEM 1.
BUSINESS" AND ELSEWHERE IN THIS FORM 10-K FOR A DISCUSSION OF THE IMPORTANT
FACTORS AFFECTING THE REALIZATION OF THOSE RESULTS.
OVERVIEW
Fiscal 1996 results represented a continuation of the revenue and earnings
growth which began in late fiscal 1994. In fiscal 1996, revenues increased 28%
as compared to fiscal 1995 while costs and operating expenses decreased as a
percentage of total revenues for the same period. For fiscal 1996, the Company
reported net income of $16.5 million, or $1.00 per share. This compares to a net
income of $9.0 million or $.57 per share for fiscal 1995. Inflation has not had
a significant impact on consolidated results of operations.
The Company anticipates its first half of fiscal 1997 results to reflect
approximately 5% revenue growth and a loss of approximately $.50 per share due
to changing market conditions as described below. The Company anticipates a
return to profitability in the second half of fiscal 1997.
The Company's continuing strategic objectives are to increase revenues and
market penetration while reducing costs as a percentage of total revenues, to
drive new product development and use vertical systems groups to expand into
targeted markets. The Company's goal is to deliver profitable growth and
increased stockholder value over the coming years.
The Company operates in a rapidly changing and dynamic market, and the Company's
strategies and plans are designed to adapt to changing market conditions where
and when possible. However, there can be no assurance that the Company's
strategies and plans will take into account all market conditions and changes
thereto. Accordingly, the historical results presented in the Company's
consolidated financial statements and discussed herein are not necessarily
indicative of future results. See "Factors That May Affect Future Results" for a
discussion of risk factors which may affect the Company's future results of
operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The risks and other important factors which may affect the Company's business,
operating results, and financial and other condition include, without
limitation, the following:
21
<PAGE> 22
The Company's results of operations are affected by a variety of factors,
including economic conditions specific to the industries in which it competes,
decreases in average selling price over the life of any particular product, the
timing, manufacturing complexity and expense of new product introductions (both
by the Company and its competitors), the timely implementation of new
manufacturing technologies, the ability to safeguard patents and other
intellectual property in a rapidly evolving market, the rapid increase in demand
for some products and the rapid decline in demand for others and the Company's
ability to anticipate and plan for that changing market demand. Certain of these
factors are beyond the Company's control.
The Company's shipments during any particular quarter generally represent orders
received either during that quarter or shortly before the beginning of that
quarter. The Company endeavors to maintain sufficient levels of purchased
components to meet the 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 purchased components to accommodate any given
order. Therefore, the Company's financial performance in any quarter is
dependent to a significant degree upon obtaining orders which can be
manufactured and delivered to its customers in that quarter. Financial
performance for any given quarter cannot be known or fully assessed until near
the end of that quarter.
The Company has historically recognized a substantial portion of its product
revenues in the last month of each quarter. A significant portion of the
Company's expenses are relatively fixed, and timing of increases in such
expenses is based in large part on the Company's forecast of future revenues. As
a result, if revenues do not meet expectations, the Company may be unable to
quickly adjust expenses to levels appropriate to actual revenues, which could
have a materially adverse effect on the Company's results of operations.
The markets in which the Company competes are intensely competitive and
characterized by rapid technological change, introduction of new products with
improved performance characteristics, product obsolescence and price erosion.
Failure to keep pace with product and technological advances could negatively
affect the Company's competitive position and prospects for growth. Customers'
anticipation of new or enhanced product offerings by the Company or a competitor
may lead them to defer purchases of the Company's existing products. 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.
The Company's future success depends on its ability to develop and rapidly bring
to market technologically advanced products. From time to time the Company
invests in development stage and other entities who possess or who could
potentially possess strategically important technologies. Due to the nature of
these entities and the nature of their operations, there can be no assurance
that these investments will be realizable or will result in marketable and/or
successful products. There can be no assurance that the Company's research and
development activities will lead to the commercially successful introduction of
new or improved products or that the Company will not encounter delays or
problems in connection therewith. The cost of perfecting new and improved
technologies to satisfy customer quality and delivery expectations as they are
brought to market cannot always be fully anticipated and may adversely affect
Company operating profits during such introductions. In addition, the average
selling prices for computer
22
<PAGE> 23
products generally decrease over the products' lives. To mitigate such
decreases, the Company seeks to reduce manufacturing costs of existing products
and to introduce new products, functions and other price/performance-enhancing
features. To the extent these do not occur on a timely basis, the Company's
operating results could be materially adversely affected.
To date, the Company's revenues have been concentrated in the retail industry,
historically representing over 50% of its total revenues. The Company's future
growth depends, in part, on its ability to successfully penetrate and expand its
revenues in new markets. There can be no assurance that such penetration and
expansion into new markets can be achieved.
The Company believes its future success is also dependent, in part, upon its
ability to continue to enhance and broaden its current line of products through
internal development and the acquisition of new businesses and technologies, but
there can be no assurance that the Company will be able to identify, acquire or
profitably operate new businesses or otherwise implement its growth strategy
successfully. For the Company to manage its growth and integrate any newly
acquired entities, it must continue to improve operations and financial and
management information systems and effectively motivate and manage employees. If
the Company is unable to successfully pursue and manage such growth, its
business and results of operations could be adversely affected.
The Company regards certain of its hardware and software technologies as
proprietary and relies on a combination of United States and foreign patent,
copyright, trademark and trade secret laws, as well as, license and other
contractual confidentiality provisions, to protect its proprietary rights.
Despite the Company's efforts to safeguard its proprietary rights, there can be
no assurance that the Company will be successful in doing so or that the
Company's competitors will not independently develop or patent technologies that
are substantially equivalent or superior to or otherwise circumvent the
Company's technologies and proprietary rights.
The Company's products utilize hardware and software technologies licensed from
third parties. There can be no assurance that the Company will be able to
license needed technology in the future. An early termination of certain of
these license agreements (including patent rights licensed from Symbol
Technologies, Inc., one of its principal competitors, necessary for the
Company's manufacture and sale of its integrated laser scanning terminals which
account for a material portion of the Company's current sales) could have a
materially adverse effect on the Company's ability to market certain of its
products, hence, on its business, results of operations and financial condition.
The Company believes that its products, processes and trademarks do not infringe
on the rights of third parties, but there can be no assurance that third parties
will not assert infringement or other related claims against the Company or its
licensors in the future. Any infringement claim or related litigation against
the Company, or any challenge to the validity of the Company's own intellectual
property rights, and the expense of defending the same could materially
adversely effect the Company's ability to market its products and hence, on its
business, results of operations and financial condition.
Certain components and sub-assemblies of the Company's products are procured
from outside the United States. Certain of the Company's products,
sub-assemblies and components are procured from a single source supplier and
others are procured from only a limited number of suppliers. The Company has in
the past encountered, and may in the future encounter,
23
<PAGE> 24
shortages of supplies and delays in deliveries of necessary components. Such
shortages and delays could have a materially adverse effect on the Company's
ability to ship products.
As a substantial portion of the Company's total revenues, ranging from
approximately 25-30% in recent years, is from customers located outside of the
United States, the Company's results could be negatively affected by global and
regional economic conditions, changes in foreign currency exchange rates, trade
protection measures, regulatory acceptance of the Company's products in foreign
countries, longer accounts receivable collection patterns and other
considerations peculiar to the conduct of international business. The Company is
subject to similar risks in its procurement of certain of its materials and
components from foreign sources.
Certain of the Company's products intentionally transmit radio signals as part
of their normal operation. These products are subject to regulatory approval,
restrictions on the use of certain frequencies and the creation of interference,
and other requirements by the Federal Communications Commission ("FCC") and
corresponding authorities in each country in which they are marketed. Regulatory
changes could significantly impact the Company's operations by restricting the
Company's development efforts, obsoleting current products or increasing the
opportunity for additional competition. The intentional emission of
electromagnetic radiation has also been the subject of recent public concern
regarding possible health and safety risks, and though the Company believes that
the low power output and the distance typically maintained between a product and
the user means that its products do not pose material safety concerns, there can
be no assurance that such safety issues will not arise in the future and will
not have a materially adverse effect on the Company's business.
Among other things, the Company's future depends in large part on the continued
service of its key technical, marketing and management personnel and on its
ability to continue to attract and retain qualified employees, particularly
those highly skilled design, process and test engineers involved in the
manufacture of existing products and the development of products and processes.
The competition for such personnel is intense, and the loss of key employees
could have a materially adverse effect on the Company's business, financial
condition and results of operations.
In addition to the factors discussed above and elsewhere in this Form 10-K which
may adversely affect the Company's conduct of its business and the results
thereof, the Company's financial condition is also subject to the possible
adverse effects of certain pending litigation and other contingencies discussed
above under "Item 3. LEGAL PROCEEDINGS", and in Note 16 to the financial
statements included below in Item 8 below, in this Form 10-K.
RESULTS OF OPERATIONS
Revenues
- --------
1996 vs. 1995
Consolidated total revenues for fiscal 1996 increased $107.0 million or 28%
as compared to fiscal 1995. No customer accounted for 10% or more of total
revenues in fiscal 1996.
24
<PAGE> 25
Product revenues for fiscal 1996 increased $93.8 million or 29% as compared with
fiscal 1995. Product revenues include the sale of PTCs, including rugged,
wireless mobile computers; pen-based and touch-screen workslates; hardware
accessories; wireless data communication products; custom application software
and software licenses and a variety of professional services including system
integration and project management. The increase in product revenues was due
primarily to an increase in average selling price per PTC unit supplemented by a
moderate increase in PTC unit volume. Revenues from the Company's Itronix
subsidiary, a manufacturer of rugged, wireless mobile computers, increased $39.4
million and also contributed to the increase in the average selling price per
PTC unit. Further contributing to the increased average selling price per unit
is the Company's movement towards comprehensive wireless systems which are more
complex and therefore more costly, and increased volumes of pen-based and
touch-screen workslates as a percentage of total product revenues. The increase
in product revenues was aided by high levels of new account and non-retail
market activity in industries such as manufacturing, transportation, and
utilities.
Customer service revenues increased $13.1 million or 24% for fiscal 1996 as
compared to fiscal 1995. This growth was due primarily to the increase in the
installed base of the Company's products.
Revenues from the Company's international operations (including Canada) were
$123.5 million and $108.1 million in fiscal 1996 and 1995, respectively. This
increase was primarily attributable to increased European subsidiaries' revenues
resulting from an increased average selling price per unit. Changes in currency
exchange rates and intercompany hedging activities did not have a material
effect on the results of the Company's international operations.
The Company anticipates its first half of fiscal 1997 results to reflect
approximately 5% revenue growth. However, the Company also expects higher
revenue growth to occur in the second half of fiscal 1997. Additionally, the
Company intends to focus on building revenue backlog during fiscal 1997.
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. 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 products.
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.
25
<PAGE> 26
Cost of Revenues
- ----------------
1996 vs. 1995
Cost of product revenues as a percentage of product revenues was 60% in fiscal
1996 as compared to 59% in fiscal 1995. This increase in the cost percentage was
primarily due to pricing pressures on certain large accounts and fulfillment of
customer delivery commitments for volume shipments of new products which
required costly, rapid redesign and rework. Revenues related to software and
manufacturing rights agreements and distribution agreements, which have little
incremental cost, and reduced estimates for warranty costs combined to decrease
the cost of product revenues as a percentage of product revenues by
approximately 1%.
Cost of customer service revenues as a percentage of customer service revenues
was 57% in fiscal 1996 as compared to 58% in fiscal 1995. 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.
For the year ended March 31, 1996, inventory allowance accounts decreased to
$10.1 million from $10.9 million at March 31, 1995. This decrease was due to
the disposal of obsolete materials and other of $2.8 million offset by
provisions for inventory obsolescence of $2.0 million. As a percentage of gross
inventories, the inventory allowances decreased to 8% at March 31, 1996 from
13% at March 31, 1995. The decrease in the inventory allowance percentage
reflects the Company's improved ability to estimate future customer service
requirements of manufacturing components. This improvement led to the reduction
of estimated reserves during the fourth quarter which had a pretax impact of
$2.9 million. The Company continues to anticipate provisions for obsolescence
as revenues generated from new product offerings replace revenue from older
products. Also in the fourth quarter of fiscal 1996, the Company incurred
unusual non-recurring provisions for sales adjustments of $2.9 million,
manufacturing adjustments of $1.0 million and other miscellaneous adjustments
of $.4 million.
The Company anticipates market pressure to lower its manufactured costs of
handheld products by accelerating initiatives to improve manufacturing and
operating efficiencies.
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.
26
<PAGE> 27
Operating Expenses
- ------------------
1996 vs. 1995
Selling expenses as a percentage of total revenues were 17% in fiscal 1996 as
compared to 18% in fiscal 1995. Selling expenses increased $13.9 million in
fiscal 1996 as compared to fiscal 1995. 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% of total revenues in both
fiscal 1996 and 1995. The increase of $11.7 million, net of capitalized software
development costs, in fiscal 1996 as compared to 1995 was primarily attributable
to research and development activities related to new product development. These
activities included increased research and development costs associated with the
further development of wireless data communications and spread spectrum
technology; evolutionary development of pen-based technology; commercial
development of rugged, wireless mobile computers; pre-commercial research
relating to augmented reality hardware and software, advanced image reading and
two dimensional bar-code technology and improvements to existing PTC and other
products. During the first quarter of fiscal 1996, the Company recognized $1.0
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.
General and administrative expenses as a percentage of total revenues were 8%
and 9% for fiscal years 1996 and 1995, respectively. The increase of $4.8
million was primarily attributable to increased legal expenses, corporate and
international administration necessary to support the Company's revenue growth.
At March 31, 1996, there were no remaining amounts accrued in fiscal 1993
related to restructuring charges. All such remaining amounts were paid in fiscal
1996. There were no material adjustments recorded in fiscal 1996 related to
restructuring amounts recorded in fiscal 1994 or fiscal 1993.
During the fourth quarter of fiscal 1996, the Company capitalized software
development costs in accordance with the requirements of SFAS No. 86 aggregating
$7.1 million on a pretax basis.
Selling, product development and engineering and administrative expenses are
expected to decrease as a percentage of total revenues for fiscal 1997 as
compared to fiscal 1996, due to increased revenue base, streamlining of product
lines and the related operating efficiencies, and other expense reduction
initiatives. The Company anticipates a loss of approximately $.50 per share for
the first half of fiscal 1997, while the successful implementation of the
Company's cost reduction initiatives are expected to allow a return to
profitability in the second half of fiscal 1997. The Company also anticipates a
net profit for the full fiscal year 1997.
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
27
<PAGE> 28
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. 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.
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 related to severance
and aggregated $.3 million. There were no material adjustments recorded in
fiscal 1995 to amounts recorded in fiscal 1994 or fiscal 1993.
Interest Expense
- ----------------
1996 vs. 1995
Net interest expense as a percentage of revenues was 1.2% and 1.0% in fiscal
1996 and 1995, respectively. The increase in fiscal 1996 as compared to fiscal
1995 reflects the continued borrowing under the Company's credit facilities
through the end of the third quarter of fiscal 1996 and interest costs related
the Company 5-3/4% convertible subordinated notes issued during the third
quarter of fiscal 1996. The Company's cash requirements are discussed below in
Cash Flows from Operating and Investing Activities.
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.
Income Taxes
- ------------
1996 vs. 1995
The Company's consolidated effective tax rate was 38% in fiscal 1996 and 48% in
fiscal 1995. The consolidated effective tax rate for fiscal 1996 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. These increases are partially offset by
research and development credits earned through the first quarter of fiscal 1996
and benefits from research and development credit carryforwards from prior
fiscal years. The credit available for increasing research and development
expenditures expired at June 30, 1995. There were no other significant tax law
changes during fiscal 1996 that had a significant effect on the calculation of
the income tax liability. The consolidated effective tax rate for fiscal 1995
reflects income before taxes increased by nondeductible goodwill
28
<PAGE> 29
amortization, the sum of which is multiplied by the United States statutory rate
and increased by international tax rate differentials. These increases were
partially offset by research and development credits.
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. These increases are partially offset by
research and development credits. 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. There were no income tax law changes that had
a significant effect on fiscal 1995 or 1994.
NON-OPERATING INCOME
During fiscal 1996, the Company sold interests in its Metanetics subsidiary, a
licensor and developer of image reading technology, to certain key executives
and to third-parties. A total of 1.7 million shares of voting common stock were
sold at prices ranging from $.50 per share to $1.04 per share. Total proceeds
aggregated $1.4 million in cash and notes receivable. The resulting pre-tax gain
of $1.1 million, net of related transaction costs, was recorded as non-operating
income. Deferred taxes of $.5 million for the gain were included in the
Company's provision for income taxes. The Company's remaining percentage
interest in the voting common stock of Metanetics at March 31, 1996, was 49%.
Prior to the transactions, Metanetics was a wholly-owned subsidiary. Subsequent
to March 31, 1996, the Company repurchased 432,558 shares of Metanetics voting
common stock. This repurchase of shares resulted in an increase in the Company's
interest in Metanetics to 58%.
The Company anticipates potential sales of partial ownership interests in
certain of its technical subsidiaries and other operations in the future through
various transactions, which may include public offerings and/or private
placements.
Non-operating income in fiscal 1996 also included realized and unrealized gains
from transactions in trading securities amounting to $.4 million.
FINANCIAL CONDITION
Liquidity
- ---------
1996 vs. 1995
At March 31, 1996, the Company had cash and cash equivalents of $34.8 million,
as compared with $31.4 million at March 31, 1995. The Company's current ratio
(current assets divided by current liabilities) was 2.6:1 and 2.0:1 at March 31,
1996 and 1995, respectively. The primary components of the increases in working
capital and current ratio were increases in cash and cash equivalents of $3.5
million, accounts and notes receivable of $52.4 million, inventories of $39.1
million and decreases in notes payable of $25.3 million. Days sales outstanding
has increased to 84 days at March 31, 1996 from 75 days at March 31, 1995. This
increase was primarily due to proportionately greater revenues during the last
month of fiscal 1996 as
29
<PAGE> 30
compared to fiscal 1995 and to the increase in complex and lengthy installations
of local and wide area networks. The increase in inventories was primarily due
to the increase in the breadth of the Company's product offerings and the
related manufacturing safety stock levels, particularly at the Company's Itronix
subsidiary.
These increases in working capital were partially offset by the increase in
accrued liabilities of $10.8 million.
The Company believes its existing resources, including available cash,
short-term investments, internally generated funds and bank credit facilities,
will be sufficient to meet working capital requirements for the next twelve
months.
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 the 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.
The 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.
Cash Flows from Operations
- --------------------------
1996 vs. 1995
Cash flows provided by (used in) operations were $(15.5) million and $15.8
million in fiscal 1996 and 1995, respectively. Fiscal 1996 cash flows were
positively impacted by the $7.5 million increase in net income recorded in
fiscal 1996 as compared to that recorded in fiscal 1995, the increase in the
cash flow impact of the non-cash provision for income taxes of $4.7 million, the
change in the cash flow impact of accounts payable and accrued liabilities of
$48.3 million and other positive cash flow impacts of $3.4 million. These
positive cash flow impacts were offset by negative cash flow impacts of the
change in inventories of $40.9 million, accounts and notes receivable of $32.8
million, income taxes payable of $8.5 million, intangibles and other assets of
$6.1 million, the cash flow impact of the provision for inventory obsolescence
of $5.4 million and other negative cash flow impacts of $1.5 million.
The Company anticipates positive cash flows from operating activities for fiscal
1997.
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
30
<PAGE> 31
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 million and other of $.6 million.
Investing Activities
- --------------------
1996 vs. 1995
Net cash used in investing activities increased to $34.2 million in fiscal 1996
as compared to $16.3 million in fiscal 1995. This increase of $17.9 million was
primarily caused by an increase in investments in capitalized software of $8.2
million reflecting the transition of software development projects to commercial
readiness, the increase in additions to property and equipment of $7.5 million
and the increase in payments for acquisitions of $1.4 million.
Subsequent to March 31, 1996, the Company sold certain retail application
software operations, with net assets of approximately $5 million to a
third-party for cash and notes receivable, including interest, of $6.4 million.
In addition to the proceeds from the sale, the Company also entered into a
software license agreement with the third-party purchaser. The agreement
provides for the Company to receive, over the next five years, license fees
amounting to 20% of the revenue generated by the purchased software, with
minimum required payments aggregating $6,600.
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.
Financing Activities
- --------------------
1996 vs. 1995
Cash flows provided by financing activities increased $46.6 million for fiscal
1996 as compared to fiscal 1995. The increase was primarily due to proceeds from
the Company's issuance of $82.5 million of 5 3/4% convertible subordinated notes
and a $3.8 million increase in the proceeds from the exercise of employee stock
options. These increases were partially offset by the negative cash flow impact
of notes payable and payments of capital leases of $36.2 million and the payment
of debt issue costs of $3.5 million.
Effective March 8, 1996, the Company replaced its previous revolving credit,
term loan and security agreement with a new unsecured credit agreement with a
group of eight banks. The agreement, which expires on March 8, 2001, provides
the Company with a maximum credit facility of $100 million and permits the
Company to borrow funds as domestic or Eurodollar advances. Funds borrowed as
domestic advances bear interest at the greater of the agent bank's "Prime
Commercial Lending Rate" or the Federal Funds
31
<PAGE> 32
Rate plus .50% while Eurodollar advances bear interest at the agent bank's
Eurodollar rate plus .50% to 1.25% based on certain capitalization levels. In
addition, the agreement requires the Company to pay a commitment fee of .15% to
.375% per annum, based on certain capitalization levels, on the unused portion
of the revolving commitment amounts. The Company is also required to pay a
utilization fee of .125% to .25% per annum, based on certain capitalization
levels, on Eurodollar advances at certain borrowing levels. The agreement also
contains certain restrictive covenants which requires the Company to maintain
certain leverage, net worth and fixed charge coverage ratios. The Company had no
amounts outstanding under this agreement and was in compliance with all
restrictive covenants at March 31, 1996.
Additionally, effective March 20, 1996, the Company entered into an unsecured
business purpose revolving promissory note with a bank. The note, which expires
March 19, 1997, provides the Company with a maximum credit facility of $20
million and bears interest at the bank's "Money Market Rate" plus .50% to 1.25%
per annum, based on certain capitalization levels. The Company had no borrowings
outstanding under this note at March 31, 1996.
During fiscal 1996, the Company had a weighted average of $25.3 million
outstanding under it previous facilities with a weighted average interest cost
of 8.9%.
Effective December 12, 1995, the Company issued $82.5 million of 5-3/4%
convertible subordinated notes due January 1, 2003. The conversion price for the
notes is $27.50 per common share and is subject to adjustment in certain events.
Interest is payable on January 1 and July 1 in each year, commencing July 1,
1996. On or after January 5, 1999, the notes are redeemable at any time at the
option of the Company, in whole or in part, at the following prices for the
following calendar years: 1999, 103.286%; 2000, 102.464%; 2001, 101.643% and
2002, 100.812%.
During the first quarter of fiscal 1997, the Company repurchased 100,000 shares
of its common stock at a weighted average price per share of approximately
$10.43.
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
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 then revolving
credit, term loan and security agreement with two banks which was replaced on
March 8, 1996, by the new unsecured credit facility discussed above. The
agreement called for a maximum credit limit of $50 million subject to
availability on qualifying accounts receivable and inventory and bore 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
32
<PAGE> 33
million outstanding under this facility with a weighted average interest cost of
8.7%.
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%.
New Accounting Standards
- ------------------------
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes a fair value based
method of accounting for the issuance of stock or similar equity instruments to
employees and requires compensation costs to be measured using the fair value of
the award at the grant date and recognized over the vesting period. As permitted
by SFAS No. 123, the Company will continue accounting for stock issued to
employees in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("Opinion No. 25") and include the
required pro forma disclosures of net income and earnings per share as if SFAS
No. 123 had been adopted. The Company is required to adopt the disclosure
requirements of this new standard for the fiscal year ended March 31, 1997. As
the adoption of SFAS No. 123 will only require additional disclosures, there
will be no effect on the Company's operating results or cash flows.
In June 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121").
SFAS No. 121 requires long-lived assets and identifiable intangible assets that
are held and used by an entity to be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. The Company is required to adopt the provisions of SFAS No. 121
by fiscal 1997. Management believes that the adoption of this pronouncement will
not have a material effect on the Company's operating results or cash flows.
33
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Pages
-----
<S> <C> <C>
Financial Reports:
Report of Management........................................................................................ 35
Report of Independent Accountants........................................................................... 36
Consolidated Financial Statements:
Consolidated Balance Sheet.................................................................................. 37
Consolidated Statement of Income............................................................................ 38
Consolidated Statement of Cash Flows........................................................................ 39
Consolidated Statement of Changes in Stockholders' Equity................................................... 40
Notes to Consolidated Financial Statements.................................................................. 41-59
Financial Statement Schedule:
II - Valuation and Qualifying Accounts and Reserves................................................. 69
</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.
34
<PAGE> 35
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/ Frank E. Brick
- ---------------------------------------
Frank E. Brick
President and Chief Operating Officer
/s/ William J. Murphy
- ---------------------------------------
William J. Murphy
Senior Executive Vice President,
Global Sales and Marketing
35
<PAGE> 36
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 schedule of Telxon Corporation and Subsidiaries listed in the index on
page 34 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, 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.
/s/ COOPERS & LYBRAND L.L.P.
Akron, Ohio
June 28, 1996
36
<PAGE> 37
Telxon Corporation
and Subsidiaries
Consolidated Balance Sheet
- --------------------------
In Thousands (except share and per share amounts)
<TABLE>
<CAPTION>
March 31,
--------------------------
1996 1995
--------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash (including cash equivalents of
$23,411 and $21,872)................................................................ $ 34,828 $ 31,364
Trading securities...................................................................... 902 --
Accounts receivable, net of allowance for
doubtful accounts of $1,731 and $1,832.............................................. 133,592 84,468
Notes and other accounts receivable..................................................... 9,522 6,256
Refundable income taxes................................................................. -- 935
Inventories............................................................................. 111,132 72,078
Prepaid expenses and other.............................................................. 9,939 10,192
-------- --------
Total current assets....................................................... 299,915 205,293
Property and equipment, net.................................................................. 54,673 45,887
Intangible and other assets, net............................................................. 34,621 24,947
-------- --------
Total...................................................................... $389,209 $276,127
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable........................................................................... $ 66 $ 25,395
Accounts payable........................................................................ 59,620 33,466
Current portion of long-term debt....................................................... 1,156 1,343
Capital lease obligations due within one year........................................... 897 769
Income taxes payable.................................................................... 7,029 8,315
Accrued liabilities..................................................................... 45,152 34,388
-------- --------
Total current liabilities.................................................. 113,920 103,676
Capital lease obligations.................................................................... 1,982 1,729
Convertible subordinated debentures.......................................................... 107,224 24,734
Long-term debt............................................................................... 1,331 5,246
Other long-term liabilities.................................................................. 3,562 2,164
-------- --------
Total liabilities.......................................................... 228,019 137,549
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, 16,096,193
and 15,623,249 shares outstanding................................................... 161 156
Additional paid-in capital.............................................................. 85,750 78,548
Retained earnings....................................................................... 78,096 62,954
Equity adjustment for foreign currency
translation......................................................................... (2,064) (1,525)
Unearned compensation relating to restricted
stock awards........................................................................ (753) (1,555)
-------- --------
Total stockholders' equity................................................. 161,190 138,578
-------- --------
Commitments and contingencies (Note 16)...................................................... -- --
-------- --------
Total...................................................................... $389,209 $276,127
======== ========
</TABLE>
See accompanying notes to
consolidated financial statements
37
<PAGE> 38
Telxon Corporation
and Subsidiaries
Consolidated Statement of Income
- --------------------------------
In Thousands
(except per share amounts)
<TABLE>
<CAPTION>
Year ended March 31,
---------------------------------------------
1996 1995 1994
--------- -------- -------
<S> <C> <C> <C>
Revenues:
Product ......................................................... $417,725 $323,916 $252,341
Customer service...................................................... 68,744 55,603 43,652
-------- -------- --------
Total revenues........................................... 486,469 379,519 295,993
-------- -------- --------
Cost of revenues:
Product ......................................................... 249,120 189,568 143,347
Customer service...................................................... 39,016 32,455 31,958
-------- -------- --------
Total cost of revenues................................... 288,136 222,023 175,305
-------- -------- --------
Gross profit ......................................................... 198,333 157,496 120,688
Operating expenses:
Selling expenses...................................................... 82,207 68,279 59,894
Product development and engineering
expenses ......................................................... 45,383 33,728 29,058
General and administrative expenses................................... 39,415 34,583 31,854
-------- -------- --------
Total operating expenses................................. 167,005 136,590 120,806
-------- -------- --------
Income (loss) from operations............................ 31,328 20,906 (118)
Interest income ......................................................... 760 658 653
Interest expense ......................................................... (6,770) (4,354) (2,459)
Gain on sale of subsidiary stock........................................... 1,116 -- --
Other non-operating income................................................. 401 -- --
-------- -------- --------
Income (loss) before income taxes........................ 26,835 17,210 (1,924)
Provision for income taxes................................................. 10,314 8,192 875
-------- -------- --------
Net income (loss)........................................ $ 16,521 $ 9,018 $ (2,799)
======== ======== ========
Earnings per common and common
equivalent share:
Net income (loss) per share.............................. $ 1.00 $ .57 $ (.18)
====== ===== ======
Average number of common and common
equivalent shares outstanding......................................... 16,490 15,909 15,210
</TABLE>
See accompanying notes to
consolidated financial statements
38
<PAGE> 39
Telxon Corporation
and Subsidiaries
Consolidated Statement of Cash Flows
- ------------------------------------
<TABLE>
<CAPTION>
Dollars in Thousands Year ended March 31,
----------------------------------------------
1996 1995 1994
--------- -------- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................................... $16,521 $ 9,018 $ (2,799)
Adjustments to reconcile net income (loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization.................................. 22,945 21,397 19,738
Non-cash compensation related to
restricted stock awards.................................... 802 782 795
Non-cash gain on trading securities............................ (340) -- --
Trading securities............................................. (562) -- --
Provision for doubtful accounts................................ 1,538 1,158 817
Provision for inventory obsolescence........................... 2,026 7,407 6,674
Deferred income taxes.......................................... 4,161 (577) (313)
Loss on disposal of assets..................................... 393 145 425
Changes in assets and liabilities:
Accounts and notes receivable.............................. (54,103) (21,290) (24,400)
Refundable income taxes.................................... 935 913 2,955
Inventories................................................ (41,139) (178) (35,190)
Prepaid expenses and other................................. (976) (372) (871)
Intangibles and other assets............................... (4,628) 1,455 1,543
Accounts payable and accrued
liabilities............................................ 38,238 (10,030) 31,534
Income taxes payable....................................... (2,302) 6,153 (359)
Other long-term liabilities................................ 1,031 (181) (2,994)
------- ------- -------
Total adjustments................................. (31,981) 6,782 354
Net cash (used in) provided by operating
activities.......................................................... (15,460) 15,800 (2,445)
Cash flows from investing activities:
Proceeds from disposal of fixed assets.................................. -- -- 750
Additions to property and equipment..................................... (22,749) (15,224) (21,702)
Short-term investments.................................................. -- 764 (119)
Payments for acquisitions, net of cash
acquired ........................................................... (2,403) (970) (3,964)
Software investments ................................................... (9,025) (869) (318)
Other .................................................................. -- -- (520)
------- ------- -------
Net cash used in investing activities................................... (34,177) (16,299) (25,873)
Cash flows from financing activities:
Notes payable, net...................................................... (30,084) 5,822 24,330
Principal payments on long-term
financing agreement................................................. (230) (247) 2,080
Principal payments on capital leases.................................... (968) (642) (787)
Proceeds from convertible debt.......................................... 82,500 -- --
Debt issue costs paid................................................... (3,463) -- --
Proceeds from exercise of stock
options (includes tax benefit)...................................... 5,977 2,155 125
Payment of cash dividends............................................... (160) (155) (152)
------- ------- -------
Net cash provided by financing activities............................... 53,572 6,933 25,596
Effect of exchange rate changes on cash................................. (471) 889 248
------- ------- -------
Net increase (decrease) in cash and
cash equivalents.................................................... 3,464 7,323 (2,474)
Cash and cash equivalents at beginning
of year ........................................................... 31,364 24,041 26,515
------- ------- -------
Cash and cash equivalents at end of year................................ $34,828 $31,364 $24,041
======= ======= =======
</TABLE>
See accompanying notes to
consolidated financial statements
39
<PAGE> 40
Telxon Corporation
and Subsidiaries
Consolidated Statement of
- -------------------------
Changes in Stockholders' Equity
- -------------------------------
Dollars in Thousands (except per share amounts)
<TABLE>
<CAPTION>
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, 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)
Exercise of stock options.................. 5 5,509 (734) -- --
Dividends paid - $.01 per
share .............................. -- -- (160) -- --
Income tax benefit from
stock option transac-..................
tions .............................. -- 1,751 -- -- --
Common stock retired
(80,206 shares)........................ -- (241) (485) -- --
Amortization of restricted
stock .............................. -- -- -- -- 802
Stock issued under employee
stock purchase plan.................... -- 183 -- -- --
Adjustment for foreign
currency translation................... -- -- -- (539) --
Net income for 1996........................ -- -- 16,521 -- --
---- ------- ------- ------- -----
Balance at March 31, 1996....................... $161 $85,750 $78,096 $(2,064) $(753)
==== ======= ======= ======== =====
</TABLE>
See accompanying notes to
consolidated financial statements
40
<PAGE> 41
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 wholly-owned and majority-owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
Minority Interests
- ------------------
The difference between the proceeds from the sale of stock by a subsidiary and
the Company's carrying value of such stock is recorded as non-operating gains or
losses at the time of the sale. Minority interests then represent the
unaffiliated stockholders' interests in the cumulative earnings of the
subsidiary subsequent to the sale of stock.
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 1996, 1995 and 1994. Net
transaction gains or losses were not material in 1996, 1995 and 1994. 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, 1996, the Company had cash of $500 held in
escrow related to a Standstill Agreement with a third-party.
Trading Securities
- ------------------
Trading securities, which consist of marketable securities that the Company has
purchased with the intent of selling within one year, have been stated at fair
value in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115"). Under SFAS No. 115, the Company records all unrealized holding gains and
losses as non-operating income or loss.
41
<PAGE> 42
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
During fiscal 1996, the Company had recognized $339 of net unrealized holding
gains on trading securities.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
- ----------------------
Property and equipment are recorded at historical cost and depreciated 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, these costs are
generally expensed as incurred, however, certain of these costs have been
capitalized and will be amortized using the straight-line method over three
years. 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, deferred financing 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. Deferred financing
costs are amortized on a straight-line basis over the life of the related 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 or at the time of title transfer if professional services are also
performed. Professional services revenues, which include system integration and
project management fees, are recognized as services are
42
<PAGE> 43
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
performed. 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
contracts are recognized ratably over the maintenance contract period or as the
services are performed.
During fiscal 1996, the Company entered into certain software license agreements
and manufacturing right contracts with third-parties. The sale of these rights
have been recorded as product revenue.
Product Development and Engineering Expenses
- --------------------------------------------
Expenditures for the development and engineering of products are expensed as
incurred in accordance with the requirements of Statement of Financial
Accounting Standards No. 2, "Accounting for Research and Development Costs".
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 was reimbursed a total of $3 million for development
costs incurred related to the project. As of March 31, 1996, the Company had
been reimbursed for the remaining $1 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.
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 (15,910,000 in 1996, 15,484,000 in 1995, and 15,210,000 in 1994),
increased by the net shares issuable on the assumed exercise of stock options
using the treasury stock method (580,000 in 1996, 425,000 in 1995, and none in
1994). 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.
Reclassifications
- -----------------
Certain items in the 1995 consolidated financial statements and notes
thereto have been reclassified to conform to the 1996 presentation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
43
<PAGE> 44
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
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, "Accounting
for Contingencies".
NOTE 2 -- INVENTORIES
- ---------------------
Inventories at March 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Purchased components ........................................................ $ 50,022 $40,958
Work-in-process ............................................................ 35,379 16,376
Finished goods............................................................... 25,731 14,744
------- -------
$111,132 $72,078
======== =======
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
- --------------------------------
Property and equipment, at cost, at March 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------- ------
<S> <C> <C>
Machinery and equipment...................................................... $55,809 $45,529
Tooling...................................................................... 24,349 18,171
Furniture and office equipment............................................... 18,098 16,424
Buildings, improvements and leasehold
interest............................................................ 12,097 11,205
Capital lease assets and other............................................... 7,107 5,070
Leasehold improvements....................................................... 6,407 5,072
Transportation equipment..................................................... 2,913 2,622
Land......................................................................... 1,978 1,978
------- -------
128,758 106,071
Less-accumulated depreciation and
amortization........................................................ 74,085 60,184
------- -------
$54,673 $45,887
======= =======
</TABLE>
Depreciation expense for 1996, 1995 and 1994 amounted to $15,184, $13,419 and
$11,238, respectively.
Net capital lease additions (retirements) were $1,348, $2,001 and ($1,492) in
1996, 1995 and 1994, 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 $1,680, $741 and $473 in
1996, 1995 and 1994, respectively.
44
<PAGE> 45
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>
1996 1995
------- ------
<S> <C> <C>
Goodwill relating to acquisitions, net of
amortization of $13,907 and $11,339 $14,775 $15,656
Capitalized software, net of amortization
of $7,071 and $9,622.................................................. 10,566 3,926
Other, net of amortization of $292 and
$5,821................................................................ 4,832 3,146
Deferred financing costs, net of amortization
of $1,096 and $932.................................................... 3,848 549
Non-compete agreements with former share-
holders of acquisitions and others, net
of amortization of $2,280 and $5,258.................................. 600 1,320
Licenses, net of short-term portion of
$350 and amortization of $2,100 and
$1,750................................................................ -- 350
------- -------
$34,621 $24,947
======= =======
</TABLE>
Amortization expense for the years ended March 31, was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Goodwill...................................................... $4,100 $3,748 $4,143
Capitalized software.......................................... 2,385 1,341 1,399
Other ....................................................... 42 133 310
Deferred financing costs...................................... 164 32 32
Non-compete agreements........................................ 720 2,024 1,916
Licenses...................................................... 350 700 700
------ ------ ------
$7,761 $7,978 $8,500
====== ====== ======
</TABLE>
In connection with the acquisition of Teletransaction, Inc., 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 $3,600. The cost of these rights is
being amortized over the five year terms of the agreements
NOTE 5 -- SHORT-TERM FINANCING
- ------------------------------
Effective March 8, 1996, the Company replaced its previous revolving credit,
term loan, and security agreement with a new, unsecured credit agreement with a
group of eight banks. The credit agreement, which expires on March 8, 2001,
provides the Company with a maximum credit facility of $100,000 and permits the
Company to borrow funds as domestic or Eurodollar advances. Funds borrowed as
domestic advances bear interest at the greater of the agent bank's "Prime
Commercial Lending Rate" or the Federal Funds rate plus .50% while Eurodollar
advances bear interest at the agent bank's Eurodollar rate plus .50% to 1.25%
based on certain capitalization levels. At March 31, 1996, the interest rate in
effect under the new credit
45
<PAGE> 46
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
agreement for domestic advances was 8.25% and 6.19% for Eurodollar advances. In
addition, the agreement requires the Company to pay a commitment fee of .15% to
.375% per annum, based on certain capitalization levels, on the unused portion
of the revolving commitment amount. The Company is also required to pay a
utilization fee of .125% to .25% per annum, based on certain capitalization
levels, on Eurodollar advances at certain borrowing levels. At March 31, 1996,
the commitment fee and utilization fee rates were equal to .20% and .25% per
annum, respectively. The agreement also contains certain restrictive covenants
which requires the Company to maintain certain leverage, net worth and fixed
charge coverage ratios. The Company had no borrowings outstanding under the
$100,000 credit agreement and was in compliance with all restrictive covenants
contained in the agreement at March 31, 1996.
Additionally, effective March 20, 1996, the Company entered into an unsecured
business purpose revolving promissory note with a bank. The note, which expires
March 19, 1997, provides the Company with a maximum credit facility of $20,000
and bears interest at the lending bank's "Money Market Rate" plus .50% to 1.25%
per annum, based on certain capitalization levels. At March 31, 1996, the
interest rate in effect under the note was 6.5%. The Company had no borrowings
outstanding under the $20,000 unsecured promissory note at March 31, 1996.
During fiscal 1996, the Company had a weighted average of $25,354 outstanding
under its previous revolving credit facility with a weighted average interest
cost of 8.9%. At March 31, 1995, the Company had $25,395 of short-term
borrowings outstanding under the revolving credit facility at an interest rate
of 9.5% per annum. The weighted average interest rate incurred under this
agreement for the year ended March 31, 1995, was 8.7%. The carrying amount of
the short-term borrowings outstanding at March 31, 1995, approximated fair
value.
NOTE 6 -- ACCRUED LIABILITIES
- -----------------------------
Accrued liabilities at March 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Deferred customer service revenues...................................................... $15,063 $11,924
Accrued payroll and other employee compensation......................................... 10,586 10,130
Accrued taxes other than payroll and income taxes....................................... 4,035 2,570
Accrued commissions..................................................................... 3,808 2,355
Accrued royalties....................................................................... 3,430 2,280
Accrued interest........................................................................ 2,136 633
Other accrued liabilities............................................................... 6,094 4,496
------- -------
$45,152 $34,388
======= =======
</TABLE>
46
<PAGE> 47
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
NOTE 7 -- INCOME TAXES
- ----------------------
Components of income (loss) before taxes, extraordinary items and cumulative
effect of an accounting change follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- ------
<S> <C> <C> <C>
Domestic operations .............................................. $13,758 $ 7,384 $(6,325)
International operations.......................................... 13,077 9,826 4,401
------- ------- -------
$26,835 $17,210 $(1,924)
======= ======= =======
</TABLE>
The Company accounts for income taxes in accordance with SFAS No. 109. Under
SFAS No. 109, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are currently in
effect.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Components of the provision (benefit) for income taxes by taxing jurisdiction
are as follows:
<TABLE>
<CAPTION>
Currently payable (refundable): 1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
U.S.................................................................... $ 3,796 $3,429 $(1,748)
State and local........................................................ 264 120 70
Foreign................................................................ 4,727 3,400 1,801
------- ------ -------
8,787 6,949 123
------- ------ -------
Deferred:
U.S.................................................................... 1,586 1,156 (382)
State and local........................................................ 178 87 (121)
Foreign................................................................ (237) -- 203
------- ------ -------
1,527 1,243 (300)
------- ------ -------
Charge equivalent to tax effect of
operating loss carryovers utilized ................................... -- -- 1,052
------- ------ -------
U.S. and foreign taxes on
income before extraordinary credit..................................... $10,314 $8,192 $ 875
======= ====== =======
</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>
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
U.S. federal statutory tax rate ............................................. 35.0% 35.0% (35.0)%
Foreign tax rate differential................................................ 1.7 2.4 48.4
Research and development credits ............................................ (2.2) (2.5) (22.6)
Goodwill..................................................................... 5.6 8.3 80.1
Other ...................................................................... (1.7) 4.4 (25.4)
---- ---- -----
Consolidated effective income tax rate.................................... 38.4% 47.6% 45.5%
==== ==== ====
</TABLE>
47
<PAGE> 48
Telxon Corporation
and Subsidiaries
Notes to Consolidated financial Statements (Continued)
- ------------------------------------------------------
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>
1996 1995
------- ------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................................................... $ 701 $ 638
Inventory obsolescence and capitalization............................................... 3,526 3,791
State and local income benefits......................................................... 1,748 2,094
Net operating loss and research and development
and alternative minimum tax credit carryovers...................................... 1,340 2,763
Warranty reserves....................................................................... 1,068 76
Employee benefits and compensation...................................................... 705 979
Other................................................................................... 827 1,031
------ -----
Total gross deferred tax assets................................................ 9,915 11,372
Less valuation allowance....................................................... (2,384) (3,950)
------ ------
Total deferred tax assets...................................................... 7,531 7,422
------ ------
Deferred tax liabilities:
Depreciation and amortization........................................................... (3,019) (1,654)
Other................................................................................... (1,094) (610)
------ ------
Total gross deferred tax liabilities........................................... (4,113) (2,264)
------ ------
Net deferred tax asset......................................................... $3,418 $5,158
====== ======
</TABLE>
The net change in the total valuation allowance for the years ended March 31,
1996 and 1995 was a decrease of $1,566 and $386, respectively. The net deferred
tax asset is deemed realizable and is classified in prepaid expenses 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>
1996 1995
------ -----
<S> <C> <C>
Income tax benefit that would be reported in the
consolidated statement of income........................................................ $1,444 $2,206
Income tax benefit that would reduce goodwill and
other noncurrent intangible assets...................................................... 940 1,744
------ ------
Total $2,384 $3,950
====== ======
</TABLE>
No provision for U.S. income taxes on $23,967 of undistributed earnings of
international subsidiaries at March 31, 1996, 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 1996, 1995 and 1994 were $6,340, $1,804 and $2,282,
respectively. Income tax refunds received in fiscal 1996, 1995 and 1994
aggregated $1,620, $884 and $5,486, respectively.
As of March 31, 1996, the Company had foreign operating loss carryovers of
$1,362 for both tax and financial reporting purposes. These foreign carryovers
expire at various dates through fiscal 2003.
48
<PAGE> 49
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
As a result of acquisitions in prior years, the Company had domestic operating
loss carryovers and domestic research and development credit carryovers for tax
and financial reporting purposes in the amounts of $1,165 and $188,
respectively. These domestic carryovers expire at various dates through fiscal
2008. As of March 31, 1996, the Company had domestic alternative minimum tax
credit carryovers of $692. The domestic alternative minimum tax credit
carryforward period is indefinite. There can be no assurance that foreign and
domestic tax carryovers will be utilized.
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 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Stock Options
----------------------------
Average Price
Shares Per Share
--------- -------------
<S> <C> <C>
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
Granted ................................................................. 1,184,626 19.10
Exercised ................................................................... (513,927) 10.94
Returned to pool due to employee
terminations.............................................................. (5,990) 12.28
---------
March 31, 1996 ................................................................... 2,950,930 $15.54
=========
</TABLE>
At March 31, 1996, there were 2,950,930 options outstanding under the 1990 Plan
at $8.75 to $23.00 per share.
During fiscal 1996, the Company's stockholders approved an amendment to the 1990
Plan that increased the number of shares available for issuance by 850,000
shares, to a total of 3,350,000 shares. Options available to be granted under
the 1990 Plan at March 31, 1996 were 286,851. No further options can be granted
under the 1983 Plan or the 1988 Plan.
49
<PAGE> 50
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
The Company also has in effect a stock option plan for non-employee directors
(the "Director Plan"). During fiscal 1996, the Company's stockholders approved
an amendment to the Director Plan that increased the number of shares available
for issuance by 150,000 shares, to a total of 400,000 shares. During the fiscal
year ended March 31, 1996, 55,000 options were granted at an average price per
share of $21.69. At March 31, 1996, there were 210,000 options outstanding under
the Director Plan at $9.125 to $23.50 per share. At March 31, 1996, there were
156,667 options available to be granted under the Director Plan.
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 1996, 6,000 options were canceled and no options were exercised.
At March 31, 1996, there were 6,000 such options outstanding and exercisable at
$14.63 per share.
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"), 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, 1996,
23,190 shares had vested, 17,593 shares were forfeited due to terminations and
7,197 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. At March 31, 1996, 131,000
shares granted under the Restricted Stock Plan had vested, 119,000 shares were
outstanding subject to forfeiture, and no shares were available to be granted.
During fiscal 1996, the Company's stockholders approved the 1995 Employee Stock
Purchase Plan (the "1995 Stock Purchase Plan"), under which 500,000 shares of
unused or treasury stock were authorized for sale to eligible employees at a 15%
discount from market value. At March 31, 1996, 8,815 shares had been issued and
purchased under the 1995 Stock Purchase Plan and 491,185 shares remained
available for future purchases.
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
50
<PAGE> 51
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
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.
Future minimum lease payments for years ending March 31, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<C> <C> <C>
1997......................................................................................... $1,155 $ 6,353
1998......................................................................................... 1,014 6,142
1999......................................................................................... 903 5,059
2000......................................................................................... 300 4,343
2001......................................................................................... 21 4,033
2002 and thereafter.......................................................................... -- 1,362
----- ------
3,393 $27,292
Amount representing interest................................................................. (514) =======
-----
Present value of net minimum lease payments.................................................. 2,879
Current portion ............................................................................. (897)
-----
Long-term portion ........................................................................... $1,982
======
</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 1996, 1995 and 1994 amounted to $10,623, $11,212 and $7,962,
respectively.
NOTE 10 -- CONVERTIBLE SUBORDINATED DEBENTURES AND LONG-TERM DEBT
- -----------------------------------------------------------------
Convertible subordinated debentures at March 31, 1996, consisted of $82,500 of
5-3/4% Convertible Subordinated Notes (the "5-3/4% Notes") and $24,724 of 7-1/2%
Convertible Subordinated Debentures (the "7-1/2% Debentures") while convertible
subordinated debentures at March 31, 1995 was comprised of $24,734 of the 7-1/2
Debentures.
Effective December 12, 1995, the Company issued $82,500 of 5-3/4% Notes due
January 1, 2003. The conversion price for the 5-3/4% Notes is $27.50 per common
share and is subject to adjustment in certain events. Interest is payable on
January 1 and July 1 in each year, commencing July 1, 1996. On or after January
5, 1999, the 5-3/4% Notes are redeemable at any time at the option of the
Company, in whole or in part, at the following prices for the following calendar
years: 1999, 103.286%; 2000, 102.464%; 2001, 101.643% and 2002, 100.821%. As of
March 31, 1996, the carrying amount of the 5-3/4% Notes recorded in the
financial statements approximates fair value.
The 7-1/2% Debentures, which were issued June 1, 1987, are due June 1, 2012. The
conversion price for the 7-1/2% Debentures 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
51
<PAGE> 52
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
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, 1996 and 1995, the fair value of these debentures
was $24,724 and $21,148, respectively based on quoted market prices.
During fiscal 1995, the Company borrowed $5.5 million under the term loan
component of a previous credit facility. At March 31, 1996, there was no
outstanding balance related to the term loan.
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, 1996, the actual rate was
8.99%. The maturities of this note for the next five years after March 31, 1996
are $273, $292, $313, $335, and $358.
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. At March 31,
1996, this note has been classified in the current portion of long-term debt
caption of the consolidated balance sheet.
Total interest paid by the Company in 1996, 1995 and 1994 was $5,046, $4,392,
and $2,498, respectively.
NOTE 11 -- STOCKHOLDERS' EQUITY
- -------------------------------
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 1996, 1995 and 1994, $1,751,
$632 and $23, respectively, was credited to additional paid-in capital as a
result of such option exercises.
NOTE 12 -- BUSINESS SEGMENT
- ---------------------------
The Company designs, develops, manufactures, markets and services mobile and
wireless transaction systems and solutions for vertical markets. 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 1996 or 1995. In fiscal 1994, 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
52
<PAGE> 53
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
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 1996, 1995 and 1994 follows below.
Of the U.S. revenues from unaffiliated customers in 1996, 1995 and 1994,
$20,070, $16,293 and $14,704 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 &
1996 States Europe Other Elimination Consolidated
---- -------- ------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated
customers..................................... $382,156 $69,588 $34,725 $ -- $486,469
Transfers between geo-
graphic areas................................. 45,508 896 38,603 (85,007) --
-------- ------- ------- -------- --------
Total revenues........................ $427,664 $70,484 $73,328 $(85,007) $486,469
======== ======= ======= ======== ========
Operating income ............................. $ 50,935 $ 6,506 $ 5,759 $ 996 $ 64,196
======== ======= ======= ========
Interest expense, net.......................... (6,010)
Non-operating income........................... 1,517
Foreign currency transac-
tion gain (loss), net......................... (18) 115 (157) -- (60)
-------- ------- ------- --------
Corporate expenses, net........................ (32,808)
--------
Income before income taxes ................... $ 26,835
========
Identifiable assets at
March 31, 1996........................ $297,154 $43,142 $35,130 $ -- $375,426
======== ======= ======= ========
Corporate assets ............................. 13,783
--------
Total assets at
March 31, 1996........................ $389,209
========
</TABLE>
53
<PAGE> 54
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
<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 transaction 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>
<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>
54
<PAGE> 55
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>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Net income ....................................................... $ 7,695 $ 6,712 $ 2,694
Net assets ....................................................... $58,764 $49,913 $46,470
</TABLE>
NOTE 14 -- ACQUISITIONS AND DIVESTITURES
- ----------------------------------------
Effective July 13, 1995, the Company acquired the assets and assumed certain
liabilities of Virtual Vision, Inc. ("Virtual Vision"), a leading developer of
certain "augmented reality" head-mounted systems technology, for $1,900 cash
plus a $1,000 promissory note and other obligations of $200. This acquisition
was accounted for as a purchase and the resulting goodwill of $3,219 will be
amortized over a useful life of 7 years.
NOTE 15 -- SALE OF SUBSIDIARY STOCK
- -----------------------------------
During fiscal 1996, the Company sold interests in its Metanetics Corporation
("Metanetics") subsidiary, a licensor and developer of image reading technology,
to certain key employees and to third-parties. A total of 1,713,372 shares of
voting common stock were sold at prices ranging from $.50 per share to $1.04 per
share. Total proceeds aggregated $1,351 in cash and notes receivable. The
resulting pre-tax gain of $1,116, net of related transaction costs, was recorded
as other non-operating income. Deferred taxes of $459 were provided for the
gain, and were included in the Company's provision for income taxes. The
Company's remaining percentage interest in the voting common stock of Metanetics
at March 31, 1996 was 49%. Prior to the transactions, Metanetics was a
wholly-owned subsidiary.
Subsequent to March 31, 1996, the Company repurchased 432,558 shares of
Metanetics voting common stock. This repurchase of shares resulted in an
increase in the Company's interest in Metanetics to 58%.
NOTE 16 -- COMMITMENTS AND CONTINGENCIES
- ----------------------------------------
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
55
<PAGE> 56
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
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, the 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.
Following the completion of discovery (other than of experts), each defendant
filed a Motion for Summary Judgment on May 19, 1995, all of which were opposed
by the plaintiffs. On September 14, 1995, the Court granted each defendant
summary judgment on all counts, which the plaintiffs have appealed to the
defendants to the United States Sixth Circuit Court of Appeals. The parties'
briefing of the appeal has been completed, but no date for oral argument of the
appeal has yet been set. The defendants intend to continue vigorously defending
the Consolidated Class Action. Though there can be no assurance that the
Company's summary judgment will be upheld on appeal on all counts or as to the
ultimate outcome of any portion of the case with respect to which the summary
judgment may be reversed, no provision has been made in the accompanying
consolidated financial statements for any liability that may result to the
Company in such an event.
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
final responsive brief. The Motion was argued before the Court on March 29,
1995, and on July 18, 1995, the Court issued its ruling. The Court dismissed all
of the claims relating to the plaintiff's allegations of corporate waste. The
claims relating to breach of fiduciary duty survived the Motion to Dismiss and
are
56
<PAGE> 57
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
now the subject of discovery, which is in its early stages. The defendants
believe that the remaining claims lack merit, and they 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 and certain contingencies
pending, including a claim made by the owner of a manufacturing facility
formerly leased by the Company that the Company caused and should remediate
alleged soil contamination at the facility. The Company, with professional
assistance, is investigating the existence, scope, nature and cause of the
claimed contamination. Information necessary to support a reasonable estimate of
the scope of loss, if any, is not presently available and, accordingly, no
provision has been made in accompanying financial statements. The Company, while
not conceding denial of coverage, has been advised by its insurers that coverage
is not available concerning this matter. While the Company, based on its initial
assessment of the situation, believes the matter's ultimate resolution will not
have a material adverse effect on the Company's business or financial condition,
if the Company were ultimately required to remediate such contamination, the
associated costs could have a material adverse effect on results of operations
for one or more quarters in which the associated charge(s) would be taken. In
management's opinion, all other such outstanding matters have either been
reflected in the consolidated financial statements, are covered by insurance or
would not have a material adverse effect on the Company's business, consolidated
financial position or results of operations or cash flows.
NOTE 17 -- NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -------------------------------------------------
In June 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121").
SFAS No. 121 requires long-lived assets and identifiable intangible assets that
are held and used by an entity to be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. The Company is required to adopt the provisions of SFAS No. 121
by fiscal 1997. Management believes that the adoption of this pronouncement will
not have a material effect on the Company's consolidated financial position
or results of operations or cash flows.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes a fair value based
method of accounting for the issuance of stock or similar equity instruments
to employees and requires compensation costs to be measured using the fair
value of the award at the grant date and recognized over the vesting
period. As permitted by SFAS No. 123, the Company will continue
accounting for stock issued to employees in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("Opinion No. 25") and include the required pro forma disclosures of net
57
<PAGE> 58
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
income and earnings per share as if SFAS No. 123 had been adopted. The Company
is required to adopt the disclosure requirements of this new standard for the
fiscal year ended March 31, 1997. As the adoption of SFAS No. 123 will only
require additional disclosures, there will be no effect on the Company's
consolidated financial position or results of operations or cash flows.
Under Opinion No. 25, the Company is required to record compensation expense for
stock or similar equity instruments granted to employees only to the extent that
the market price of the Company's common stock is greater than the grant price
at the grant date. Refer to Note 8 -- Stock Options and Restricted Stock for
additional details on the Company's accounting for stock issued to employees.
NOTE 18 -- SUBSEQUENT EVENTS
- ----------------------------
Subsequent to March 31, 1996, the Company sold certain retail application
software operations, with net assets of approximately $5,000, to a third-party
for cash and notes receivable, including interest, of $6,400. In addition to the
proceeds from the sale, the Company also entered into a software license
agreement with the third-party purchaser. The agreement provides for the Company
to receive, over the next five years, license fees amounting to 20% of the
revenue generated by the purchased software, with minimum required payments
aggregating $6,600.
Additionally, during the first quarter of fiscal 1997, the Company repurchased
100,000 shares of its common stock at a weighted average price per share of
approximately $10.43.
NOTE 19 -- QUARTERLY DATA (UNAUDITED)
- -------------------------------------
<TABLE>
<CAPTION>
Quarter
---------------------------------------------------------------------
1996 First Second Third Fourth(a) Year(b)
- ---- ------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Revenues ............................................. $103,541 $107,016 $131,030 $144,882 $486,469
Gross profit.......................................... 43,127 45,516 52,491 57,199 198,333
-------- -------- -------- -------- --------
Net income............................................ $ 2,229 $ 2,811 $ 4,205 $ 7,276 $ 16,521
======== ======== ======== ======== ========
Earnings per common and common
equivalent share:
Net income per share ................................. $.14 $.17 $.26 $.45 $1.00
==== ==== ==== ==== =====
</TABLE>
(a) During the fourth quarter of fiscal 1996, the Company recorded
capitalized software costs, net of amortization, aggregating $7,075.
Offsetting the software capitalization were other unusual non-recurring
adjustments aggregating $4,255. After the related income tax impact,
the aggregate impact on fourth quarter earnings was $1,749 or $ .11 per
share.
The impact of such quarterly adjustments on the reported earnings
during the first three quarters of fiscal 1996 was not material.
58
<PAGE> 59
Telxon Corporation
and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
- ------------------------------------------------------
Also during the fourth quarter, the Company refined its estimates for
inventory valuation based on previously unavailable information. As a
result, the Company's inventory valuation reserves for both
manufacturing and customer service inventories were reduced by $2,863.
After the related income tax benefit, the impact on fourth quarter
earnings was $1,775 or $ .11 per share.
(b) The net income per share for the quarters does not equal net income per
share for the year due to differentials in the impact of quarterly and
annual weighted new stock issuances on the weighted average number of
shares outstanding for each respective period.
<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.
59
<PAGE> 60
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, 1996, with respect to the 1996 Annual Meeting of the Company's Stockholders
scheduled to be held August 29, 1996, 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 34 herein.
(2) Financial Statement Schedule: Reference is made to
the Index on Page 34 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 required by Item 601 of Regulation S-K:
3.1 Restated Certificate of Incorporation of
Registrant, incorporated herein 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 herein 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 herein by
reference to Exhibit 3.1 to Registrant's Form 10-K
for the year ended March 31, 1993.
4.2 Text of form of Certificate for the Registrant's
Common Stock, par value $.01 per share, and
description of graphic and image material appearing
thereon, incorporated herein by reference to
Exhibit 4.2 to the Registrant's Form 10-Q filed for
the quarter ended June 30, 1995.
4.3 Rights Agreement between Registrant and AmeriTrust
Company National Association, as Rights Agent,
dated as of
60
<PAGE> 61
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 above). 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 text of which and
description thereof is included as
Exhibit 4.2 above, 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 Registrant's 7-1/2%
Convertible Subordinated Debentures
Due 2012 (set forth in the Indenture
included as Exhibit 4.4 above).
4.5 Indenture by and between the Registrant and Bank
One Trust Company, N.A., as Trustee, dated as of
December 1, 1995, regarding Registrant's 5-3/4%
Convertible Subordinated Notes due 2003,
incorporated herein by reference to Exhibit 4.1 to
Registrant's Registration Statement on Form S-3,
Registration No. 333-1189, filed February 23, 1996.
4.5.1 Form of Registrant's 5-3/4%
Convertible Subordinated Notes due
2003 issued under the Indenture
included as Exhibit 4.5 above,
incorporated herein by reference to
Exhibit 4.2 to Registrant's
Registration Statement on Form S-3,
Registration No. 333-1189,
filed February 23, 1996.
4.5.2 Registration Rights Agreement by and
among the Registrant and Hambrecht &
Quist LLC and Prudential Securities
Incorporated, as the Initial
Purchasers of Registrant's 5-3/4%
Convertible Subordinated Notes due
2003, with respect to the
registration of said Notes under
applicable securities laws,
incorporated herein by reference to
Exhibit 4.3 to Registrant's
Registration
61
<PAGE> 62
Statement on Form S-3, Registration No.
333-1189, filed February 23, 1996.
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 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 for employees 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,
1995.
10.1.4 1990 Stock Option Plan for Non-Employee Directors
of the Registrant, as amended, incorporated herein
by reference to Exhibit 10.1.4 to Registrant's
Form 10-Q filed for the quarter ended September
30, 1995.
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
62
<PAGE> 63
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 1995 Employee Stock Purchase Plan of the
Registrant, as amended, incorporated herein by
reference to Exhibit 10.1.7 to Registrant's Form
10-Q filed for the quarter ended September 30,
1995.
10.1.8 Description of compensation arrangements between
the Registrant and Robert F. Meyerson, Chairman of
the Board of Registrant, incorporated herein by
reference to 10.1.7 to Registrant's Form 10-Q
filed for the quarter ended June 30, 1995.
10.1.9 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.
10.1.10 Consulting Agreement the Registrant and
Accipiter Corporation, March 6, 1992,
incorporated herein by to Exhibit 10.17 to the
Registrant's 10-K filed for the year ended March
31, 1992.
10.1.11 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.
10.1.12 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.
63
<PAGE> 64
10.1.13 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.
10.1.14 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.
10.1.15 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.
10.1.16 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,
incorporated herein by reference to
Exhibit 10.2.3 to Registrant's
Form 10-K for the year ended March
31, 1995.
10.2.4 Standard Office Lease (Modified Net
Lease) between Registrant and John
D. Dellagnese III, dated as of July
19, 1995, including Addendum
thereto, filed herewith.
10.2.4.a Second Addendum to Lease
included as Exhibit 10.2.4
above, dated as of October
5, 1995, filed herewith.
10.2.4.b Third Addendum to Lease
included as Exhibit 10.2.4
above, dated as of March 1,
1996, filed herewith.
64
<PAGE> 65
10.3 Credit Agreements of the Registrant.
10.3.1 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 (replaced by the unsecured
revolving credit facility established by the
Credit Agreement included as Exhibit 10.3.2
below), incorporated herein by reference to
Exhibit 10.3 to Registrant's Form 10-K for the
year ended March 31, 1995.
10.3.1.a 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,
incorporated herein by reference to
Exhibit 10.3.1 to Registrant's Form
10-K for the year ended March 31, 1995.
10.3.1.b Amendment No. 2, dated as of December
1, 1995, to the Amended and Restated
Revolving Credit, Term Loan and
Security Agreement between the
Registrant and the Bank of New York
Commercial Corporation, incorporated
herein by reference to Exhibit 10.3.1.b
to Registrant's Form 10-Q filed for
the quarter ended December 31, 1995.
10.3.2 Credit Agreement by and among the Registrant, the
lenders party thereto from time to time and The
Bank of New York, as letter of credit issuer,
swing line lender and agent for the lenders, dated
as of March 8, 1996 (replaced the secured
revolving and term loan facility established by
the Amended and Restated Revolving Credit, Term
Loan and Security Agreement included as Exhibit
10.3.1 above, as amended by Amendments No. 1 and 2
thereto included as Exhibits 10.3.1.a and 10.3.1.b
above), filed herewith.
10.3.3 Business Purpose Revolving Promissory Note made
by the Registrant in favor of Bank One, Akron,
N.A., dated September 8, 1995, and related Letter
Agreement between them of even date, incorporated
herein by reference to Exhibit 10.3.2 to
Registrant's Form 10-Q filed for the quarter ended
September 30, 1995.
10.3.4 Business Purpose Revolving Promissory Note made
by the Registrant in favor of Bank One, Akron,
N.A., dated November 24, 1995, and related Letter
Agreement between them dated November 22, 1995,
incorporated herein by reference to Exhibit 10.3.3
to Registrant's Form 10-Q filed for the quarter
ended December 31, 1995.
65
<PAGE> 66
10.3.5 Business Purpose Revolving Promissory Note made
by the Registrant in favor of Bank One, Akron,
N.A., dated January 31, 1996, and related Letter
Agreement between them dated of even date,
incorporated herein by reference to Exhibit 10.3.4
to Registrant's Form 10-Q filed for the quarter
ended December 31, 1995.
10.3.6 Business Purpose Revolving Promissory Note made
by the Registrant in favor of Bank One, Akron,
N.A., dated February 29, 1996, and related Letter
Agreement between them dated of even date, filed
herewith.
10.3.7 Business Purpose Revolving Promissory Note
(Swing Line) made by the Registrant in favor of
Bank One, Akron, N.A., dated March 20, 1996, 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 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.
10.7 Agreement of Purchase and Sale of Assets by and among
Vision Newco, Inc., a wholly owned subsidiary of the
Registrant, Virtual Vision, Inc., as debtor and debtor in
possession, and the Official Unsecured Creditors' Committee,
on behalf of the bankruptcy estate of Virtual Vision, dated
as of July 13, 1995, incorporated herein by reference to
Exhibit 10.8 to Registrant's Form 10-Q filed for the quarter
ended June 30, 1995.
10.8 Subscription Agreement by and among New Meta Licensing
Corporation, a subsidiary of the Registrant, and certain
officers of the Registrant as Purchasers, dated as of
September 19, 1995, incorporated herein by reference to
66
<PAGE> 67
Exhibit 10.8 to Registrant's Form 10-Q, filed for
the quarter ended September 30, 1995.
10.9 Shareholder Agreement by and among New Meta Licensing
Corporation, a subsidiary of the Registrant, and its
Shareholders, including the officers of the Registrant party
to the Subscription Agreement included as Exhibit 10.8
above, dated as of September 29, 1995, incorporated herein
by reference to Exhibit 10.9 to Registrant's Form 10-Q,
filed for the quarter ended September 30, 1995.
10.9.1 First Amendment, dated as of September 29, 1995,
to the Shareholder Agreement included as Exhibit
10.9 above, incorporated herein by reference to
Exhibit 10.9.1 to Registrant's Form 10-Q filed for
the quarter ended December 31, 1995.
10.9.2 Second Amendment, dated as of January, 1996, to
the Shareholder Agreement included As Exhibit 10.9
above, incorporated herein by reference to Exhibit
10.9.2 to Registrant's Form 10-Q filed for the
quarter ended December 31, 1995.
10.9.3 Amended and Restated Shareholder Agreement by and
among Metanetics Corporation (fka New Meta
Licensing Corporation) and its Shareholders, dated
as of March 28, 1996, superseding the Shareholder
Agreement included as Exhibit 10.9 above, as
amended, filed herewith.
10.9.4 First Amendment, dated as of March 30, 1996, to
the Amended and Restated Shareholder Agreement
included as Exhibit 10.9.3 above, filed herewith.
11. Computation of Common Shares outstanding and earnings per
share for the fiscal year ended March 31, 1996, 1995 and
1994, 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 of Registrant, filed herewith.
27. Financial Data Schedule as of March 31, 1996, filed herewith.
(b) Reports on Form 8-K
No current report on Form 8-K was filed by Registrant during the last
quarter of the fiscal year ended March 31, 1996 for which this Annual
Report on Form 10-K is filed. Subsequent to the end of that fiscal
quarter the Registrant filed the following Current Reports on Form 8-K:
(I) Current Report dated May 21, 1996, attaching the Registrant's press
release of that date which announced its financial results for the
fourth fiscal quarter and fiscal year ended March 31, 1996 as well as
discussing the effects of its financial condition at that date under
the subordination provisions of its $82,500,000 in principal
67
<PAGE> 68
amount of 5-3/4% Convertible Subordinated Notes due 2003 issued in
December 1995 (the press release as incorporated into the Form 8-K
included consolidated balance sheets for the Registrant as of March 31,
1996 and 1995 and condensed consolidated statements of income for the
three-month periods (unaudited) and fiscal years ended March 31, 1996 and
1995); and (ii) Current Report dated June 19, 1996 attaching the
Registrant's press release of that date which announced changes in the
Registrant's senior management, expected financial results for the fiscal
year ending March 31, 1997, including an anticipated loss of
approximately $8,400,000, or $.50 per share, for the first half of fiscal
1997, and the recommendation of management to Registrant's Board of
Directors that the Registrant repurchase common stock and convertible
bonds (neither the Form 8-K nor the Press Release included any financial
statements).
68
<PAGE> 69
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, 1996: $ 1,832 $ 1,538 $ 1,639 (a) $ 1,731
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
Valuation account for inventory:
Year ended March 31, 1996: $ 10,942 $ 2,026 $ 2,905 (b) $ 10,063
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
</TABLE>
(a) Doubtful accounts charged off, net of recoveries.
(b) Write off of excess and/or obsolete material.
69
<PAGE> 70
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: July 1, 1996 By: /s/ Robert F. Meyerson
--------------------------------
Robert F. Meyerson, Chairman and
Chief Executive Officer
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 July 1, 1996
- ------------------------------------------------- (principal executive officer)
Robert F. Meyerson and Director
* John H. Cribb Vice Chairman of the Board July 1, 1996
- ------------------------------------------------- and Director
John H. Cribb
* William J. Murphy Director July 1, 1996
- -------------------------------------------------
William J. Murphy
/s/ Kenneth W. Haver Senior Vice President,
- ------------------------------------------------- Chief Financial Officer July 1, 1996
Kenneth W. Haver (principal financial officer)
and Treasurer
/s/ Larry E. Shai Corporate Controller July 1, 1996
- ------------------------------------------------- (principal accounting officer)
Larry E. Shai
* Dr. Raj Reddy Director July 1, 1996
- -------------------------------------------------
Dr. Raj Reddy
* Robert A. Goodman Director July 1, 1996
- -------------------------------------------------
Robert A. Goodman
* Norton W. Rose Director July 1, 1996
- -------------------------------------------------
Norton W. Rose
* Richard J. Bogomolny Director July 1, 1996
- -------------------------------------------------
Richard J. Bogomolny
</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: July 1, 1996 By: /s/ Kenneth W. Haver
----------------------------------
Kenneth W. Haver, Attorney-in-fact
70
<PAGE> 71
TELXON CORPORATION
EXHIBITS TO
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
<PAGE> 72
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Page
- ----
<S> <C> <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 Text of form of Certificate for the Registrant's Common
Stock, par value $.01 per share, and description of
graphic and image material appearing thereon,
incorporated herein by reference to Exhibit 4.2 to
Registrant's Form 10-Q filed for the quarter ended
June 30, 1995.
* 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 above). 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 text of
which and description thereof is included as
Exhibit 4.2 above, which stock certificates
aredeemed 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
</TABLE>
<PAGE> 73
Page
- ----
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
above).
* 4.5 Indenture by and between the Registrant and Bank One
Trust Company, N.A., as Trustee, dated as of
December 1, 1995, regarding Registrant's 5-3/4%
Convertible Subordinated Notes due 2003, incorporated
herein by reference to Exhibit 4.1 to Registrant's
Registration Statement on Form S-3,
Registration No. 333-1189, filed February 23, 1996.
* 4.5.1 Form of Registrant's 5-3/4%
Convertible Subordinated Notes due
2003 issued under the Indenture
included as Exhibit 4.5 above,
incorporated herein by reference to
Exhibit 4.2 to Registrant's
Registration Statement on Form S-3,
Registration No. 333-1189, filed
February 23, 1996.
* 4.5.2 Registration Rights Agreement
by and among the Registrant and
Hambrecht & Quist LLC and Prudential
Securities Incorporated, as the
Initial Purchasers of Registrant's
5-3/4% Convertible Subordinated
Notes due 2003, with respect to the
registration of said Notes under
applicable securities laws,
incorporated herein by reference to
Exhibit 4.3 to Registrant's
Registration Statement on Form S-3,
Registration No. 333-1189, filed
February 23, 1996.
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
<PAGE> 74
Page
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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 for employees 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, 1995.
* 10.1.4 1990 Stock Option Plan for Non-Employee
Directors of the Registrant, as amended,
incorporated herein by reference to
Exhibit 10.1.4 to Registrant's Form 10-Q
filed for the quarter ended September 30,
1995.
* 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 1995 Employee Stock Purchase Plan of the
Registrant, as amended, incorporated herein
by reference to Exhibit 10.1.7 to
Registrant's
<PAGE> 75
Page
- ----
Form 10-Q filed for the quarter ended
September 30, 1995.
* 10.1.8 Description of compensation arrangements
between the Registrant and Robert F.
Meyerson, Chairman of the Board of
Registrant, incorporated herein by reference
to Exhibit 10.1.7 to Registrant's Form 10-Q
filed for the quarter ended September 30,
1995.
* 10.1.9 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.
* 10.1.10 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.
* 10.1.11 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.
* 10.1.12 Employment 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.
* 10.1.13 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.
* 10.1.14 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.
* 10.1.15 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.
* 10.1.16 Employment Agreement between the Registrant
and David B. Swank, effective as of August
22, 1994, incorporated herein by reference
to Exhibit
<PAGE> 76
Page
- ----
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,
incorporated herein by reference to Exhibit
10.2.3 to Registrant's Form 10-K for the
year ended March 31, 1995.
** 10.2.4 Standard Office Lease (Modified Net Lease)
between Registrant and John D. Dellagnese
III, dated as of July 19, 1995, including
Addendum thereto, filed herewith.
** 10.2.4.a Second Addendum to Lease included
as Exhibit 10.2.4 above, dated as
of October 5, 1995, filed
herewith.
** 10.2.4.b Third Addendum to Lease included
as Exhibit 10.2.4 above, dated as
of March 1, 1996, filed herewith.
* 10.3.1 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 (replaced by the unsecured
revolving credit facility established by the
Credit Agreement included as Exhibit 10.3.2
below), incorporated herein by reference to
Exhibit 10.3 to Registrant's Form 10-K for
the year ended March 31, 1995.
* 10.3.1.a 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,
incorporated herein by
reference to Exhibit 10.3.1 to
Registrant's Form 10-K for the
year ended March 31, 1995.
<PAGE> 77
Page
- ----
* 10.3.1.b Amendment No. 2, dated as of
December 1, 1995, to the
Amended and Restated Revolving
Credit, Term Loan and Security
Agreement between the
Registrant and the Bank of New
York Commercial Corporation,
incorporated herein by
reference to Exhibit 10.3.1.b
to Registrant's Form 10-Q filed
for the quarter ended December
31, 1995.
** 10.3.2 Credit Agreement by and among the
Registrant, the lenders party thereto from
time to time and The Bank of New York, as
letter of credit issuer, swing line lender
and agent for the lenders, dated as of March
8, 1996 (replaced the secured revolving and
term loan facility established by the
Amended and Restated Revolving Credit, Term
Loan and Security Agreement included as
Exhibit 10.3.1 above, as amended by
Amendments No. 1 and 2 thereto included as
Exhibits 10.3.1.a and 10.3.1.b above), filed
herewith.
* 10.3.3 Business Purpose Revolving Promissory Note
made by the Registrant in favor of Bank One,
Akron, N.A., dated September 8, 1995, and
related Letter Agreement between them of
even date, incorporated herein by reference
to Exhibit 10.3.2 to Registrant's Form 10-Q
filed for the quarter ended September 30,
1995.
* 10.3.4 Business Purpose Revolving Promissory Note
made by the Registrant in favor of Bank One,
Akron, N.A., dated November 24, 1995, and
related Letter Agreement between them dated
November 22, 1995, incorporated herein by
reference to Exhibit 10.3.3 to Registrant's
Form 10-Q filed for the quarter ended
December 31, 1995.
* 10.3.5 Business Purpose Revolving Promissory Note
made by the Registrant in favor of Bank One,
Akron, N.A., dated January 31, 1996, and
related Letter Agreement between them dated
of even date, incorporated herein by
reference to Exhibit 10.3.4 to Registrant's
Form 10-Q filed for the quarter ended
December 31, 1995.
** 10.3.6 Business Purpose Revolving Promissory Note
made by the Registrant in favor of Bank One,
Akron, N.A., dated February 29, 1996, and
related Letter Agreement between them dated
of even date, filed herewith.
** 10.3.7 Business Purpose Revolving Promissory Note
(Swing Line) made by the Registrant in favor
of Bank One, Akron, N.A., dated March 20,
1996, filed herewith.
<PAGE> 78
Page
- ----
* 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 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.
* 10.7 Agreement of Purchase and Sale of Assets by and among
Vision Newco, Inc., a wholly owned subsidiary of the
Registrant, Virtual Vision, Inc., as debtor and
debtor in possession, and the Official Unsecured
Creditors' Committee, on behalf of the bankruptcy
estate of Virtual Vision, dated as of July 13, 1995,
incorporated herein by reference to Exhibit 10.8 to
Registrant's Form 10-Q filed for the quarter ended
June 30, 1995.
* 10.8 Subscription Agreement by and among New Meta
Licensing Corporation, a subsidiary of the Registrant,
and certain officers of the Registrant as Purchasers,
dated as of September 19, 1995, incorporated herein
by reference to Exhibit 10.8 to Registrant's Form
10-Q, filed for the quarter ended September 30, 1995.
* 10.9 Shareholder Agreement by and among New Meta Licensing
Corporation, a subsidiary of the Registrant, and its
Shareholders, including the officers of the
Registrant party to the Subscription Agreement
included as Exhibit 10.8 above, dated as of September
29, 1995, incorporated herein by reference to
Exhibit 10.9 to Registrant's Form 10-Q, filed for the
quarter ended September 30, 1995.
* 10.9.1 First Amendment, dated as of September 29,
1995, to the Shareholder Agreement included
as Exhibit 10.9 above, incorporated herein
by reference to Exhibit 10.9.1 to
Registrant's Form 10-Q filed for the quarter
ended December 31, 1995.
<PAGE> 79
Page
- ----
* 10.9.2 Second Amendment, dated as of January, 1996,
to the Shareholder Agreement included As
Exhibit 10.9 above, incorporated herein by
reference to Exhibit 10.9.2 to Registrant's
Form 10-Q filed for the quarter ended
December 31, 1995.
** 10.9.3 Amended and Restated Shareholder Agreement
by and among Metanetics Corporation (fka New
Meta Licensing Corporation) and its
Shareholders, dated as of March 28, 1996,
superseding the Shareholder Agreement
included as Exhibit 10.9 above, as amended,
filed herewith.
** 10.9.4 First Amendment, dated as of March 30, 1996,
to the Amended and Restated Shareholder
Agreement included as Exhibit 10.9.3 above,
filed herewith.
** 11. Computation of Common Shares outstanding and earnings per share for
the fiscal years ended March 31, 1996, 1995 and 1994, 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 of
Registrant, filed herewith.
** 27. Financial Data Schedule as of March 31, 1996, filed herewith.
- ----------------
* Previously filed
** Filed herewith
<PAGE> 1
EXHIBIT 10.2.4
STANDARD OFFICE LEASE
(Modified Net Lease)
This Lease Agreement entered into as of the 19TH day of JULY, 1995, between JOHN
D. DELLAGNESE III (hereinafter called "Lessor"), and TELXON CORPORATION
(hereinafter called "Lessee"):
Witnesseth:
1. DEMISE: Lessor leases to Lessee and Lessee hires from Lessor the premises
identified as APPROXIMATELY 34,718 RENTABLE SQUARE FEET (hereinafter called
"said premises") in the building known as THE WATERFORD (hereinafter called "the
Building"), located at 3875 EMBASSY PARKWAY, SUITE 300, BATH TOWNSHIP, OHIO, for
a term of 5 YEARS ,beginning on the 15TH day of OCTOBER, 1995, and ending on the
14TH day of OCTOBER, 2000, unless sooner terminated as hereinafter provided. A
sketch of said premises is attached hereto as Exhibit A.
2. USE OF PREMISES: Said premises shall be used and occupied by Lessee for
GENERAL OFFICE PURPOSES only, and for no other purpose.
3. ANNUAL BASE RENT: In consideration thereof, Lessee covenants to pay Lessor
without demand annual base rent for said premises as set forth on Exhibit B,
attached hereto, payable in monthly installments as set forth on Exhibit B, in
advance, without deduction or set-off, in legal tender of the United States of
America on the first day of each and every calendar month during said term at
the offices of Lessor, or at such other place as Lessor may from time to time in
writing designate. The amount of such rent to be paid by Lessee is subject to
adjustment from time to time as set forth in paragraph 5 hereof. The rent
reserved and all other charges hereunder not paid by Lessee when due shall bear
interest at 4% in excess of the prime rate then in effect at National City Bank,
Northeast (or its successor).
4. DEFINITIONS: As used in this Lease, the following terms shall have the
following respective meanings:
(a) "Annual Base Rent" - The annual rent to be paid by Lessee to Lessor
pursuant to the provisions of Paragraph 3.
(b) "Adjusted Annual Rent" - The Annual Base Rent as hereinafter adjusted
in accordance with the provisions hereof, but in no event less than the Annual
Base Rent.
(c) "Base Year" - The full calendar year commencing January 1, 1995, and
ending December 31, 1995.
(d) "Comparison Year" - The first full calendar year following the Base
Year and each subsequent full calendar, or fraction thereof at the termination
of this Lease, during which this Lease shall continue in effect.
(e) "Lessee's Share" - The percentage which the rentable area of said
premises is of the total rentable area of the Building, which percentage is
agreed upon as being 37.4%. In the event that additional areas shall be included
under this Lease, or the total rentable area of the Building is changed, said
agreed percentage shall be proportionately adjusted.
(f) "Operating Expenses" - Those expenses incurred during the year, whether
the Base Year or a Comparison Year, in respect of the operation, maintenance and
repair of the Building (as used herein, the word "Building" includes the
building itself, and all parts thereof, including but not limited to the roof,
structural elements, walls, functioning systems and elevators, and including
also the grounds thereof, used in connection with the Building, including but
not limited to site improvements, underground and aboveground utility lines,
pipes, sewers, conduits and facilities, and including also the lawns and
landscaped areas, parking areas, driveways, driveway approaches, walkways and
sidewalks) in accordance with generally accepted maintenance, including service
and maintenance contracts for the heating, ventilating and air conditioning
systems of the Building, and other functioning Systems of the Building, window
washing, management fees, trash and rubbish storage pick-up and removal and
other services, but shall not include:
(i) expenses for painting, redecorating, or other work performed for
other tenants in the Building other than painting, redecorating and other
work which is standard for the Building;
(ii) expenses for repairs and other work occasioned by fire, windstorm
or other casualty insured against by Lessor;
(iii) expenses incurred in leasing or procuring new tenants including
lease commissions, advertising expenses, and expenses of renovating space
for new tenants;
(iv) legal expenses incurred in enforcing the terms of any lease;
(v) interest or amortization payment of any mortgages;
(vi) wages, salaries or other compensation paid to any employee above
the grade of building superintendent.
(g) "Taxes" - The taxes and assessments, special or otherwise, and sewer
charges if any, including expenses incurred in connection with disputing or
contesting the amount thereof, levied or assessed for the year in question,
whether the Base Year or a Comparison Year, or a partial year, upon or with
respect to the Building of which said premises are a part, together with the
land upon which said Building is located, together with adjacent premises, if
any, used for parking purposes or otherwise in conjunction with the use of said
Building, together with the improvements situated on said land and on said
premises, by Federal, State or local government. Should any governmental
authority having jurisdiction impose a tax and/or assessment (other than an
income or franchise tax) upon or against the rentals payable hereunder or on the
privilege of renting, leasing or letting real property, either by way of
substitution for the taxes and assessments levied or assessed against such
Building, land, premises and other improvements, or in addition thereto, such
tax and/or assessment shall be deemed to constitute a and/or assessment against
such Building, land, premis other improvements for the purposes of this
paragraph 4(g).
1
<PAGE> 2
Provided, however, that the total aggregate amount of such taxes,
assessments and sewer charges, for the year in which such Building, land,
premises and improvements are first assessed by the Summit County Auditor at
substantially completed value, shall be deemed to be the "Taxes" for the Base
Year, and Lessee shall not be obligated to pay any rent adjustment based upon
increased taxes unless and until such amount should increase for a subsequent
Comparison Year.
5. RENT ADJUSTMENT: The Annual Base Rent shall be adjusted for each Comparison
Year by Lessee's Share of the net aggregate increase, or decrease, if any, in
the amount of Taxes and Operating Expenses for the Comparison Year over or under
those for the Base Year, but shall not in any event be less than the amount
stipulated in Paragraph 3. The Adjusted Annual Rent for any Comparison Year
shall serve as the basis for an estimate of the Adjusted Annual Rent to become
due for the next succeeding Comparison Year until the computation for that
Comparison Year is made. All monthly installments of rent coming due after an
Adjusted Annual Rent has been established shall be adjusted to the extent
necessary to pay an estimated Adjusted Annual Rent for the then current
Comparison Year in equal monthly installments on such basis. The increase
reflected in Adjusted Annual Rent for the last Comparison Year shall be paid by
Lessee in a lump sum promptly upon presentation by Lessor to Lessee of a
statement of said adjustment.
As an example of the type of rent adjustment and the payment of estimated
Adjusted Annual Rent described above, see Exhibit B-1 attached hereto.
Lessor shall keep and make available to Lessee for a period of 60 days
after statements for rental payments are rendered to Lessee, records in
reasonable detail of Taxes and Operating Expenses for the period covered by such
statement or statements and shall permit Lessee and the representatives of
Lessee to examine and audit such statements at any reasonable time during
business hours. If Lessee shall dispute any item or items included by Lessor in
determining Taxes or Operating Expenses for the Base Year or any Comparison
Year, and such dispute is not amicably settled between Lessor and Lessee within
30 days after any statement for Adjusted Annual Rent has been rendered or after
the date for settling the rent payable for any Comparison Year, either party
may, during the 20 days next following the expiration of said 30 day period,
notify the other of its election to arbitrate said dispute and may then refer
such disputed item or items to a reputable firm of certified public accountants
selected by Lessor for decision and the decision of such firm shall be
conclusive and binding upon Lessor and Lessee. The expense involved in such
determination shall be borne by the party against whom a decision is rendered by
said accountants, provided that if more than one item is disputed and the
decision shall be in part against each party, the expenses shall be fairly
apportioned by said accountants. Pending a decision, Lessee shall pay on the
basis of Adjusted Annual Rent subject to a proper adjustment upon rendition of
the decision. If Lessee shall not dispute any item or items of any such
statement within 30 days after such statement has been rendered, Lessee shall be
deemed to have approved such statement.
6. BUILDING SERVICES: Provided Lessee is not in default under any of the
covenants and agreements of this Lease, Lessor shall furnish Lessee the
following services [See Addendum]:
(a) Window washing services, standard for the Building (Lessee shall not
engage or provide cleaning, janitor, window washing or maintenance services
without Lessor's prior written consent, and if consent is given, such services
shall always be subject to supervision by Lessor, and at Lessee's sole
responsibility and expense);
(b) Heat and air conditioning service during "business hours" (which term
is hereinafter defined), compatible with human comfort, but subject to factors
over which Lessor has no control, including but not limited to fuel shortages,
energy crises and governmental regulations; Lessee may not install, or arrange
to have installed, any air conditioning equipment without receiving Lessor's
prior written approval; and any such equipment installed without said approval
shall, if required by Lessor, be removed at Lessee's sole expense;
(c) Cold and hot water at standard Building temperatures for sanitary
purposes only; Lessee shall pay, at standard Building rates, for cold and hot
water used for other than sanitary purposes or for water wasted;
(d) Passenger and freight elevator service, during business hours; elevator
service at other times shall be optional with Lessor and when so provided shall
never be deemed a continuing obligation of Lessor;
(e) Electrical service used at said premises shall be separately metered to
said premises and the cost thereof shall be paid by Lessee to Ohio Edison
Company or its successor. The cost of "house" electricity, that is, electricity
for the benefit of all occupants of the Building, used for such things as the
operation of air conditioning and elevators and parking lot lighting, shall be
paid by each lessee of the Building in proportion to its "Lessee's Share", which
Lessor shall bill to Lessee at periodic intervals, and Lessee shall pay such
billings within a reasonable time thereafter, as set forth in such billings.
Any installation of special equipment (other than equipment for customary
lighting purposes and customary business machines, equipment and computers),
and/or intermittent operating equipment, must have the prior written approval of
Lessor, and shall be subject to special charges and regulations, and any new or
additional electrical facilities required to service the equipment installed by
Lessee, and all changes in existing electrical facilities in or servicing said
premises required by Lessee, if approved by the Lessor, shall be installed,
furnished or made by Lessor at Lessee's expense. Lessee shall replace all light
bulbs, fluorescent tubes, ballasts and starters which wear out or become
inoperative and Lessee shall repair and maintain all lighting equipment within
said premises.
(i) Lessor, while not warranting that any of such services stipulated
herein shall be free from interruptions or suspensions caused by repairs,
renewals, improvements, alterations, strikes, lockouts, accidents,
inability of Lessor to procure such service, or to obtain fuel or supplies,
or for other cause or causes beyond Lessor s reasonable control, shall
nevertheless diligently attempt to make such repairs or renewals to
Building distribution lines and facilities as may be required to restore
any such service so interrupted or suspended. An interruption or suspension
of, or fluctuation in, any Building Service (resulting from any of said
causes) shall never be deemed an eviction or disturbance of Lessee's use
and possession of said premises, or any part thereof, nor render Lessor
liable to Lessee for damages, nor relieve Lessee from performance of
Lessee's covenants and agreements hereunder.
(ii) The term "business hours" as used herein shall mean Monday to
Friday, inclusive, from 8:00 A.M. to 6:00 P.M. and Saturday mornings from
8:00 A.M. to 1:00 P.M. but excluding all Legal Holidays.
(iii) The failure of Lessee to pay either the rent reserved or any
other charges required to be paid by Lessee pursuant to this Lease when due
shall entitle Lessor, in addition to any other remedies available to
Lessor, upon not less than five days written notice to Lessee, to
discontinue furnishing water, electrical and other services to Lessee, and
no such discontinuance of services shall be deemed an eviction or
disturbance of Lessee's use of said premise, nor render Lessor liable to
Lessee for damages, nor relieve Lessee from the performance of Lessee's
covenants and agreements hereunder.
7. RIGHTS RESERVED BY LESSOR: Lessor reserves the following rights:
(a) to change the street address or name of the Building or
the unit number of said premises or the arrangement or location of entrances,
passageways, doors, doorways, corridors, elevators, stairs, toilets or other
public parts of the Building without liability to Lessee;
(b)to designate all sources furnishing sign painting, lettering, vending
machines, towel or toilet supplies, or other similar services required in said
premises;
(c) to enter during the last 90 days of the term,
2
<PAGE> 3
provided Lessee shall have removed substantially all of Lessee's property from
said premises, for the purpose of altering, remodeling, repairing, renovating or
otherwise preparing said premises for re-tenanting;
(d) to grant anyone the exclusive privilege of conducting any particular
business or activity in the Building;
(e) to enter said premises at all reasonable times, with prior notice,(1)
for the making of such inspections, repairs, alterations, improvements or
additions of, or to, said premises or the Building as Lessor may deem necessary
or desirable; (2) to exhibit said premises to others during the last 6 months of
the term hereunder; and (3) for any purpose whatsoever related to the safety,
protection, preservation or improvement of said premises or of the Building or
of Lessor's interest;
(f) at any time or times Lessor, either voluntarily or pursuant to
governmental requirements, may make repairs, alterations or improvements in or
to the Building or any part thereof, and during such times may temporarily close
entrances, doors, corridors, elevators or other public facilities;
(g) to charge Lessee any expense (including overtime or premium costs
incurred by Lessor) resulting from repairs, alterations, decorating or other
work performed in said premises or the Building at Lessee's request made at
other than business hours; and
(h) from and after the commencement date of this Lease and throughout the
term of this Lease and any extension thereof, to require the Lessee to protect,
indemnify and save harmless the Lessor from and against any and all liability to
third parties incurred by any act or neglect of the Lessee, or any of its
agents, servants or employees, in, on, or about the demised premises and Lessee
at all times shall at its own cost protect the Lessor with public liability
insurance and property damage insurance in a responsible insurance company or
companies authorized to do business in the state of Ohio, in the amount of not
less than $1,000,000.00 single limit, for bodily injuries (including death) and
property damage. Lessor, upon written notice to Lessee, may require Lessee to
increase the amount of such coverage to compensate for inflation and other
economic factors occurring during the term of this Lease. Lessor shall be named
as an additional insured under said policy of insurance. The Lessee shall within
10 days of commencement date of this lease, or as soon thereafter as made
available by the insurance company, deposit with the Lessor a copy of all such
policies or certificates showing such insurance to be then in force.
Lessor may exercise all or any of the foregoing rights hereby reserved
without being deemed guilty of an eviction or disturbance of Lessee's use and
possession, without being liable in any manner to Lessee, and without
elimination or abatement of rent, or payment of other compensation, and such
acts shall in no way affect this Lease.
8. POSSESSION: If Lessor shall be unable to deliver possession of said premises
on the date of the commencement of the term hereby created because of the
holding over of any tenant, or tenants, or for any other cause beyond Lessor s
reasonable control, then the rent reserved shall not commence until the date
possession of said premises is available to Lessee, and Lessee agrees to accept
such allowance and abatement of rent as liquidated damages, in full satisfaction
for the failure of Lessor so to deliver possession on said date of commencement,
and to the exclusion of all claims and rights which Lessee might otherwise have
by reason of delivery of possession not being made on said date; and no failure
so to deliver possession on said date shall in any event extend, or be deemed to
extend, the term of this Lease. Unfinished extra work, if any, undertaken by
Lessor for Lessee shall not be considered in determining the date when
possession is available to Lessee.
If Lessor is unable to give possession of the premises to Lessee on the
date for the commencement of the term hereof by reason of the fact that Lessor
has not substantially completed any space preparation work in said remises
pursuant to Lessor's so-called "Work Letter" agreed to between of Lessor and
Lessee (which said Work Letter, if any, is attached hereto as Exhibit C,
consisting of 0 separate pages, and made apart hereof), and if the delay in
completion of such work has not been caused by Lessee's failure to submit its
plans and specifications certifications by Lessor's Agent that such work has
been substantially completed. If such date shall be other than the first day of
a calendar month, the rent for such month shall be prorated on a per diem basis.
No failure to deliver possession on the scheduled date for the commencement of
the term shall extend, or be deemed to extend, the term of this Lease.
9. LOSS OR DAMAGE TO PROPERTY: All personal property belonging to Lessee or to
any other person located in or about said premises or the Building shall be
there at the sole risk of Lessee or such other person, and neither Lessor nor
Lessor s agents or employees shall be liable for the theft or misappropriation
thereof, nor for any damage or injury thereto, nor for death or injury of Lessee
or any other persons or damage to property caused by water, snow, frost, steam,
heat, cold, dampness, falling plaster, explosions, sewers or sewerage, gas,
odors, noise, the bursting or leaking of pipes, plumbing, electrical wiring, and
equipment and fixtures of all kinds, or by any act or neglect of other tenants
or occupants of the Building, or of any other person, or caused in any other
manner whatsoever, unless such damage, injury or death is caused by the failure
of Lessor, within a reasonable time following receipt of written notice from
Lessee, to make any repairs or otherwise to perform any other term, covenant or
condition of this Lease which, pursuant to the terms of this Lease, is the
obligation of Lessor. Lessee shall protect, indemnify and save harmless Lessor
from all losses, costs or damages sustained by reason of any act or other
occurrence or failure to act causing death or injury to any person or damage to
property whomsoever or whatsoever due directly or indirectly to the use or
occupancy of said premises or any part thereof by Lessee, or due directly or
indirectly to any breach or default on the part of Lessee in the performance of
any covenant or agreement on the part of Lessee to be performed, and Lessee
covenants, upon written notice from Lessor, to resist or defend, at Lessee's
expense, any such action or proceeding by counsel reasonably satisfactory to
Lessor.
10. HOLDING OVER: Should Lessee or any party claiming under Lessee remain in
possession of said premises after the expiration of the term of this Lease with
the consent of Lessor, then, unless anew agreement in writing shall have been
entered into between the parties hereto, such tenancy shall be from
month-to-month and otherwise be subject to all of the covenants and agreements
of this Lease, so far as applicable, ate monthly rental equal to 150% of the
last monthly installment of rent payable hereunder, and terminable by either
party on 30 days notice.
11. ASSIGNMENT AND SUBLETTING: Lessee shall not, without prior written consent
of Lessor which shall not be unreasonably withheld in each instance (a) assign,
mortgage, hypothecate or convey this Lease or any interest therein; (b)allow any
transfer hereof or any lien upon Lessee's interest by operation of law; (c)
sublet said premises or any part thereof; or (d) permit the use or occupancy of
said premises or any part thereof by anyone other than Lessee. If Lessee is a
corporation, any material change in the equity or stock ownership which
constitutes a change in the control of Lessee shall be deemed to be an
assignment. Consent to any such assignment, conveyance, or subletting by Lessor
shall not operate as a waiver of the necessity fore consent to any subsequent
assignment, conveyance, or subletting, and the terms of such consent shall be
binding upon any person holding by, under, or through Lessee. Such consent shall
not relieve Lessee from liability hereunder for the payment of rental or
performance or observance of any of the terms and conditions of this Lease.
12. TAKING AND SURRENDER OF POSSESSION: Taking of possession by Lessee shall be
conclusive evidence as against Lessee that said premises were in good order and
satisfactory condition when Lessee so took possession. No representation
respecting the condition of said premises or the Building has been made by
Lessor to Lessee unless contained herein; and no promise of Lessor to prepare,
alter or improve said premises for Lessee's use and occupancy shall be binding
upon Lessor unless contained herein or in Lessor's said Work Letter. This Lease
does not grant any rights to light or air over property except over public ways
kept open by public authority, and Lessor shall not be liable to Lessee for any
expense, injury, death, loss or damages resulting from work done in or upon, or
by reason of the use of, any adjacent or nearby building, land or public or
private
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<PAGE> 4
way. At the expiration, or earlier termination in any manner, 0f the term hereof
Leasee shall quit and surrender said premises broom clean together with all
installations, improvements and alterations (including partitions) which may
have been installed by Lessor or Lessee. Said premises shall be in as good
condition and repair as when possession was delivered, reasonable use and wear
and, subject to the provisions of Paragraph 22 below, loss or damage by fire,
the elements or other risk which Lessor is required to insure against excepted,
failing which Lessor may restore said premises to such condition and Lessee
shell pay the cost thereof. Lessee may remove carpeting laid by Lessee, provided
Lessee also removes all nails, tacks, paper, glue, bases, and other vestiges of
the carpeting and restores the floor surface to the condition existing before
such carpeting was laid. If Lessee fails to remove Lessee's carpeting, trade
fixtures, personal property, and equipment which it has a right to remove from
said premises prior to the end of the term, Lessee shall be conclusively
presumed to have abandoned the same, and ownership thereof shall forthwith vest
in Lessor without payment or credit to Lessee.
13. ALTERATIONS - PERSONAL PROPERTY: Lessee shell not make any alterations,
additions, improvements or other changes in or to said premises or the Building,
or attach, affix or build therein any improvement or installation without
Lessor's prior written consent in each and every instance. Before any such work
is done or any materials therefor are delivered on said premises or into the
Building, Lessee shall provide Lessor with plans, specifications, names of
contractors, copies of contracts and necessary permits; shall indemnify and hold
harmless Lessor against liens, costs, damages and expenses of all kinds; and
shall submit to Lessor's reasonable supervision of said work. All additions,
installations, alterations, fixtures and improvements (temporary or permanent)
in and upon said premises whether installed by Lessee or Lessor, shall become
Lessor's property, and shall remain upon, and be surrendered with, said premises
without disturbance or injury upon the termination of this Lease by lapse of
time or otherwise, all without payment or credit to Lessee. Lessee shall have
the right to place in said premises, at such locations therein as Lessee may
from time to time determine, Lessee's furniture, trade fixtures and standard
business office machines and equipment, and such personal property shall be and
remain the property of Lessee, and may be removed by Lessee at any time during
the lease term, upon its expiration, or upon its earlier termination in any
manner. Lessee, however, agrees to repair at Lessee's expense any damage to said
premises or the Building caused by such removal. Lessee's personal property and
trade fixtures shall be separately entered for assessment purposes or for
taxation purposes of any kind. Lessee shall promptly pay all taxes levied
thereon.
14. USE AND REPAIR OF PREMISES BY LESSEE: Throughout the term hereof Lessee
shall take good care of and maintain said premises and the fixtures and
improvements therein, and shall use said premises during the term for the
purpose above specified and no other; shall not illegally sell or store therein
any spirituous, malt or vinous liquors, or any narcotic drugs; shall not
exhibit, sell or offer for sale on said premises or in the Building anything
whatsoever except such as are essentially connected with the stated use of said
premises; shall not make or permit any use of said premises which, directly or
indirectly, is forbidden by ordinance, statute or government regulation, or by
any restrictions of record, or which may increase the premium cost of, or
invalidate, any policy of insurance carried on the Building or covering its
operation, and shall comply with the Rules and Regulations appearing at the end
of this Lease, which Rules and Regulations are made apart thereof by reference.
All repairs required to be made as a result of Lessee's misuse or neglect of
said premises or of damage to, or defacement of, the Building, or any part
thereof, by reason of Lessee's tenancy therein shall be made at Lessee's
expense. Lessee shall give immediate notice to Lessor in case of fire or
accident in said premises or of any defects, damage or injury therein or in any
fixtures or equipment.
15. UNTENANTABILITY: Unless all or substantially all of the Building is made
unfit for occupancy by fire or other casualty, acts of God or other cause, if
the said premises shall be partially damaged by fire or other casualty, this
Lease shall remain in full force and effect and the damage to said premises
shall be repaired by the Lessor, and the rent until such repairs shall be made
shall be abated on a per diem basis proportionate to the extent and for the
period that said premises are unfit for occupancy. Lessor shall incur no
liability on account of any delay in the completion of such repairs which may
arise by reason of adjustment of insurance, labor difficulties or any other
cause beyond Lessor's control. If all or substantially all of said premises or
the Building are made unfit for occupancy by fire or other casualty, acts of God
or other cause, Lessor may elect (a) to terminate this I-ease as of the date
when said premises or the Building are so made unfit for occupancy, by written
notice to Lessee within 90 days after that date, or (b) to repair, restore or
rehabilitate said premises or the Building at Lessor's expense within 120 days
after Lessor is enabled to take possession of the damaged premises and undertake
reconstruction or repairs; and if Lessor elects so to repair, restore or
rehabilitate said premises or the Building this Lease shall not terminate, but
rent shall be abated on a per diem basis proportionate to the extent and for the
period that said premises are unfit for occupancy. In the event Lessor shall
proceed under (b) above and shall not substantially complete the work within
said 120 days (excluding from said period loss of time resulting from delays
beyond the reasonable control of Lessor) either Lessor or Lessee may then
terminate this Lease by written notice to the other not later than 10 days after
the expiration of said 120 days period computed as herein provided. In the event
of termination of this Lease pursuant to this Paragraph, rent shall be
apportioned on a per diem basis to and including the effective date of such
termination.
16. REMEDIES OF LESSOR: All rights and remedies of Lessor herein set forth are
in addition to any and all rights and remedies allowed by law and equity.
(a) If any voluntary or involuntary petition or similar pleading under any
Act of Congress relating to bankruptcy shall be filed by or against Lessee, or
if any voluntary or involuntary proceedings in any court or tribunal shall be
instituted by or against Lessee to declare Lessee insolvent or unable to pay
Lessee's debts, then and in any such event Lessor may, if Lessor so elects, with
or without notice of such election and with or without entry or other action by
Lessor, forthwith terminate this Lease and Lessee's right to possession of said
premises, and not withstanding any other provisions hereof, Lessor shall
forthwith upon such termination be entitled to recover damages in an amount
equal to the then present value of the rent reserved in this Lease for the
entire residue of the stated term hereof, less the fair rental value of said
premises for the residue of the stated term hereof.
(b) If Lessee shall fail to pay the rent reserved herein, or within 5 days
after notice from Lessor that said rent has not been paid, or fails to pay
Lessor's charges for water, electrical or other services within 10 days after
rendition of statement, or defaults in the prompt and full performance of any of
Lessee's covenants and agreements hereunder, and said default is not corrected
within 10 days after notice from Lessor of said default, or if the leasehold
interest of Lessee be levied upon under execution or be attached, or if Lessee
makes and assignment for the benefit of creditors or if a receiver be appointed
for any property of Lessee, or if Lessee abandons said premises, than and in any
such event Lessor may, if Lessor so elects, and with or without notice of such
election and with or without demand whatsoever, forthwith terminate this Lease
and Lessee's right of possession of said premises, or Lessor may, without
terminating this Lease, terminate Lessee's right to possession of said premises.
(c) Upon the termination of this Lease, or upon the termination of Lessee's
right to possession without termination of the Lease, Lessee shall surrender
possession and vacate said premises immediately, and Lessor may enter into and
repossess said premises with or without process of law and remove all persons
and property therefrom in the same manner and with the same right as if this
Lease had not been made, and for the purpose of such entry and repossession
Lessee waives any notice provided by law or otherwise to be given in connection
therewith.
(d) If Lessor elects to terminate Lessee's right to possession only,
without terminating the Lease, as above provided,
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<PAGE> 5
Lessor may remove from said premises any and all property found therein and such
repossession shall not release Lessee from Lessee's obligation to pay the rent
reserved herein. After any such repossession by Lessor without termination of
the Lease, Lessor shall make reasonable efforts to relet said premises, or any
part thereof, as agent of Lessee to any person, firm, or corporation and for
such time and upon such terms as Lessor, in Lessor's sole discretion, may
determine. Lessor may make repairs, alterations and additions in and to said
premises and redecorate the same to the extent deemed by Lessor necessary or
desirable, and Lessee shall, upon demand, pay the reasonable cost thereof
together with Lessor's expenses (including any brokers commission) of reletting.
If the rents collected by Lessor upon any such reletting are not sufficient to
pay monthly the full amount of the rent reserved herein together with the costs
of such repairs, alterations, additions, redecorating and expenses, Lessee shall
pay to Lessor the amount of each monthly deficiency upon demand.
(e) Any and all property which may be removed from said premises by Lessor
may be handled, removed, stored or otherwise disposed of by Lessor at the risk
and expense of Lessee, and Lessor shall in no event be responsible for the
preservation or safekeeping thereof. Lessee shall pay to Lessor, upon demand,
any and all expenses incurred in such removal and all storage charges against
said property so long as the same shall be in Lessor's possession or under
Lessor's control. If any property shall remain in said premises or in the
possession of Lessor and shall not be removed by Lessee within a period of 10
days from and after the time when the premises are either abandoned by Lessee or
repossessed by Lessor under the terms of this Lease, said property shall
conclusively be deemed to have been forever abandoned by Lessee.
(f) If Lessee shall default in performing any term, covenant or condition
of this Lease on the part of Lessee to be performed by Lessee, which default may
be cured by the expenditure of money, Lessor at Lessor's option may, but shall
not be obligated to, on behalf of Lessee after written notice to Lessee of such
default and their failure to cure within 5 days expend such sum as may be
necessary to perform and fulfill such term, covenant or condition, and any and
all sums so expended by Lessor, with interest thereon at 4% in excess of the
prime rate of interest then in effect at National City Bank, Northeast (or its
successor), from the date of such expenditure, shall be and be deemed to be
additional rent, in addition to the annual base rent, and shall be repaid by
Lessee to Lessor on demand, but no such payment or expenditure by Lessor shall
be deemed a waiver of Lessee's default nor shall it affect any other remedy of
Lessor by reason of such default.
17. SUBORDINATION OF LEASE: This Lease is and shall be subject and subordinate
to the lien of any mortgage or mortgages, deed or deeds of trust and ground
lease or leases which may now or hereafter affect the Building or the Lend of
which said premises are a part or both, and to all renewals, extensions or
replacements of any such mortgages, deeds of trust or ground leases. Lessee
shall recognize and honor any assignment of this Lease by the Lessor or
assignment of the rentals hereunder by the Lessor as security or otherwise. It
is the intention of parties that such priority shall be established
automatically and that no separate instrument shall be required to effectuate
such subordination of this Lease. The Lessee will, however, upon request by
Lessor, execute any and all instruments, including any required estoppel
certificates, deemed by Lessor or any mortgagee of the premises necessary or
advisable to subject and subordinate this Lease and all rights given Lessee
hereunder to such mortgage or mortgages. In the event that Lessee does not,
within ten (10) days after such request by Lessor, execute such instruments,
Lessee hereby authorizes the Lessor as the Lessee's attorney-in-fact to execute
any such instruments for and on behalf of Lessee. In the event any proceedings
are brought for the foreclosure of any such mortgage, Lessee covenants that it
will, to the extent of Lessor's interest affected by such foreclosure, attorn to
the purchaser upon any such foreclosure sale and recognize such purchaser's
interest as Lessor under this Lease. Lessee agrees to execute and deliver at any
time and from time to time, upon the request of Lessor or of any such holder,
any instrument which, in the sole judgement of Lessor, may be necessary or
appropriate in any such foreclosure proceeding or otherwise to evidence such
attornment.
See Addendum
18. NOTICES: In every instance where it shall be necessary or desirable for
Lessor to serve any notice or demand upon Lessee, such notice or demand shall be
deemed sufficiently given or made if, in writing, it is mailed to Lessee by
registered, or certified, United States mail postage prepaid, addressed to
Lessee at
Attn: Legal Department
3330 West Market Street
Akron, OH 44333
and the time of giving or making such notice or demand shall be deemed to be the
time when the same is mailed as herein provided. Any notice by Lessee to Lessor
must be sent by registered, or certified, United States mail, postage prepaid,
addressed to Lessor at the address where the last previous rent hereunder was
paid. wherever in this Lease, in connection with the breach or performance of
any of the covenants and agreements of Lessee, no period of time or notice is
required by the terms hereof, no notice shall be required as a prerequisite to
the exercise of any right or remedy of Lessor.
19. ACCESS TO BUILDING: Lessee, for Lessee and for Lessee's agents, employees,
licensees, and invitees, agrees that all such persons desiring to enter or leave
the Building at other than normal business hours, shall use such entrances or
exits as may be designated by Lessor, and shall comply with Building security
regulations established from time to time by Lessor with respect to
identification, registration, method of signalling for admission, etc., so as to
establish the right of such persons to enter or to leave the Building. The
provisions of this paragraph shall not require the Lessor to keep the Building
open other than during normal business hours.
20. COMMON AREAS: Lessee and Lessee's agents, employees, licensees, and invitees
shall have the right to use, in common with Lessor and Lessor's tenants and the
agents, employees, licensees and invitees of each, the public sidewalks,
entrances, lobbies, vestibules, stairways, corridors, passenger and freight
elevators, public toilets, and other public areas of the Building, subject,
however, to applicable Building rules, regulations and security measures. Lessee
and Lessee's agents, employees, licensees and invitees shall not obstruct or
litter, or use for storage (temporary or otherwise) or for the display of
merchandise or services, or for any purpose other than the intended and normal
purpose, any of said public sidewalks, entrances, lobbies, vestibules,
stairways, corridors, passenger and freight elevators, public toilets and other
public areas of said Building; and no floor mats or runners shall be placed by
Lessee in any Building corridor, lobby or vestibule.
21. EMINENT DOMAIN: Lessee agrees with Lessor that if the whole or any part of
said premises shall be appropriated, condemned, taken or otherwise acquired by
any public or quasi-public authority under the power of eminent domain,
condemnation or other proceedings, this Lease and the estate hereby created
shall terminate and wholly expire on the date title shall vest in the acquiring
authority, and all rent shall be prorated and adjusted as of said date. In no
event whatsoever shall Lessee have any claim to the amount, or any portion
thereof, that may be awarded as damages or paid as a result of such
appropriation and taking. Lessee hereby assigns to Lessor all of Lessee's right,
title and interest in and to any and all amounts awarded or paid by reason of
such appropriation, condemnation and taking, provided however, that none of the
foregoing is meant to deprive the Lessee from claiming moving expenses,
displacement expenses or the like solely from the acquiring authority.
22. WAIVER OF SUBROGATION: It shall be the obligation of both parties to this
Lease, Lessor and Lessee, at all times to keep and maintain in full force and
effect full and adequate insurance coverage against loss or perils covered by
standard fire insurance policies, with extended coverage and with vandalism and
malicious mischief endorsements, insuring (as concerns Lessor) the Building of
which said premises are a part and also said premises (but excluding the
contents thereof and fixtures, trade fixtures, leasehold improvements,
machinery, equipment, furniture and other property, if any, owned by Lessee or
by third
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<PAGE> 6
parties) and (as concerns Lessee) such coverage shall insure all property owned
by Lessee or by third parties and in Lessees possession, including the contents
of said premises and any fixtures, trade fixtures, leasehold improvements,
machinery, equipment, furniture and other property, if any, owned by Lessee or
by any such third party. Lessee shall also carry business interruption
insurance. In the event of loss or damage due to a risk or peril so required to
be insured against, neither Lessor or its insurance company or companies nor
Lessee or its insurance company or companies, nor any such third party, or its
insurance company or companies, shall have any right of action or claim, by way
of subrogation, or otherwise, against either party to this lease, or the agents,
servants, employees, or invitees of that party, as a result of any such loss or
damage, it being the intention of the parties that in the event of any such loss
or damage, Lessor, Lessee and any third party shall look solely to its own
insurance company to recoup any such loss caused by any such risk or peril and
that upon payment having been made by any such insurance company, any such
insurance company so making payment shall have no right of action over against
either party to this Lease, or the agents, servants, employees or invitees of
that party because of any payment so made to its insured. The provisions of this
Section 22 shall be applicable whether or not the insurance coverage required to
be kept and maintained as outlined herein is in fact so kept and maintained and
whether or not such loss or damage is caused, or claimed to be caused, by the
act, fault or neglect of either party to this Lease or its agents, servants,
employees or invitees. Provided, however, that nothing herein contained shall be
construed to relieve Lessee, its agents, servants, employees or invitees, from
liability to Lessor as to any loss or damage sustained by Lessor within the
deductible portion of Lessor's insurance coverage, provided the deductible
amount thereof is not in excess of $1,000.00, and provided, further, that
nothing herein contained shall be construed to relieve either party to this
Lease, or any third party, or its or their agents, servants, employees or invi-
tees of liability to , the injured party for loss or damage caused by willful or
wanton misconduct or intentionally destructive or malicious acts.
23. [deleted in its entirety by interlineation]
24. [deleted in its entirety by interlineation]
25. NO WAIVER:
(a) No receipt of money by Lessor from Lessee with knowledge of the breach
of any covenants of this Lease, or after the termination hereof, or after the
service of any notice, or after the commencement of any suit, or after final
judgement for possession of said premises shall be deemed a waiver of such
breach, nor shall it reinstate, continue or extend the term of this Lease or
effect any such notice, demand or suit.
(b) No delay on the part of Lessor in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude any other, or
farther, exercise thereof, or the exercise of any other right, power or
privilege.
(c) No act done or thing said by Lessor or Lessor's agents or employees
shall constitute a cancellation, termination or modification of this Lease, or a
waiver of any covenant, agreement or condition hereof, nor relieve Lessee from
Lessee's obligation to pay the rents reserved or other charges to be paid
hereunder. Any waiver or release by Lessor and any cancellation, termination or
modification of this Lease must be in writing signed by Lessor.
26. RULES AND REGULATIONS: Lessee and Lessee's agents, employees and invitees
shall faithfully observe, and strictly comply with the Rules and Regulations
appearing at the end of this Lease and made a part hereof, and with such further
reasonable Rules and Regulations as Lessor may, after notice to Lessee, from
time to time adopt. Nothing in this Lease contained shall be construed to impose
upon Lessor any duty or obligation to enforce the Rules and Regulations in any
other lease as against any other lessee, and Lessor shall not be liable to
Lessee for violation of the same by any other lessee or the agents, employees,
licensees or invitees of such other lessee.
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<PAGE> 7
27. BROKER: Lessee represents and warrants to Lessor that no broker negotiated
or was instrumental in negotiating or consummating this Lease except MIKE STACY
OF JIM CUMMINS REAL ESTATE, INC.
28. ENTIRE AGREEMENT: This Lease contains the entire agreement between the
parties hereto and shall not be modified in any manner except by an instrument
in writing executed by said parties or their respective successors in interest.
If more than one person or entity or a combination thereof comprise "Lessee",
their liability hereunder shall be joint and several.
29. RECORDING: The parties hereto agree that this Lease shall not be recorded,
but on request of either party, Lessor and Lessee agree to execute a Memorandum
of this Lease, which Memorandum of Lease may then be recorded in the office of
the County Recorder in which said premises are located.
30. PARAGRAPH HEADINGS: The paragraph headings appearing on this Lease are
inserted only as a matter of convenience and for reference purposes, and in no
way define, limit or describe the scope and intent of this Lease, or any
paragraph hereof, nor in any way affect it.
31. QUIET ENJOYMENT: If Lessee shall (1) pay the rent reserved, the charges for
services stipulated herein and other amounts to be paid by Lessee to Lessor, and
(2) well and faithfully keep, perform and observe all of the covenants, agree-
ments and conditions' herein stipulated to be kept, performed and observed by
Lessee, Lessee shall at all times during the term of this Lease have the
peaceable and quiet enjoyment of said premises without hindrance of Lessor or
any person lawfully claiming under Lessor, subject, however, to the terms of
this Lease and any instrument provided for in Paragraph 17.
32. BINDING EFFECT: The covenants, agreements and conditions contained in this
Lease shall be binding upon and shall inure to the benefit of Lessor and Lessee,
and their respective heirs, legal representatives, successors and assigns to the
extent permitted in this Lease. Provided, however, that if Lessor should sell
the Building and the grounds thereof, of which the demised premises are a part,
or convey title thereto to a third party purchaser or other grantee, or
otherwise cease being the owner thereof, then Lessor, as of the date of such
sale, conveyance or termination of ownership, and thereafter, shall have no
farther liability or obligations pursuant to this Lease except as to those
liabilities and obligations, if any, accrued as of such date.
33. ADDITIONAL TERMS: See Addendum (if any) attached hereto.
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<PAGE> 8
IN WITNESS WHEREOF, Lessee and Lessor have executed duplicate counterparts of
this LEASE AGREEMENT as of the day, month and year first above shown.
LESSEE:
TELXON CORPORATION
- ---------------------------------------
/s/ Glenn S. Hansen
- ---------------------------------------
Vice President, Legal Administration
and Corporate Counsel
- ---------------------------------------
(Title)
WITNESS:
/s/ Marilyn Riazi
- ---------------------------------------
/s/ Marion Matthews
- ---------------------------------------
As to Lessee
STATE OF OHIO ) SS.
SUMMIT COUNTY
Before me, a Notary Public in and for said County and State, personally
appeared GLENN S. HANSEN, VP LEGAL ADMIN (title) and CORP. COUNSEL,
___________________ (title) of the Corporation on whose behalf the foregoing
LEASE AGREEMENT was executed, who acknowledged that HE did sign the same as such
officer(s) in behalf of said Corporation and by authority of its Board of
Directors; and that said instrument is HIS free act and deed individually and as
such officer(s) and the free and corporate act and deed of said Corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
AKRON, OHIO this 18TH day of JULY, 1995.
/s/ Joyce M. Goff
- --------------------------------------------------------------------------------
JOYCE M. GOFF
NOTARY PUBLIC, STATE OF OHIO
COMMISSION EXPIRES 11-20-99
LESSOR:
JOHN D. DELLAGNESE III
- ---------------------------------------
By /s/ John D. Dellagnese III
------------------------------------
WITNESS:
/s/ Laura M. Metzger
- ---------------------------------------
/s/ Jeanie M. Fausnight
- ---------------------------------------
As to Lessor
STATE OF OHIO ) SS.
COUNTY
Before me, a Notary Public in and for said County and State, personally
appeared JOHN D DELLAGNESE III identified as Lessor in the foregoing LEASE
AGREEMENT, who acknowledged that HE did sign the foregoing instrument and that
the same is HIS free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
AKRON, OHIO this 19TH day of JULY, 1995.
/s/ Laura M. Metzger
- --------------------------------------------------------------------------------
LAURA M. METZGER, Notary Public
Residence - Summit County
State Wide Jurisdiction, Ohio
My Commission Expires June 9, 1998
8
<PAGE> 9
ADDENDUM
This is an Addendum to that Certain "STANDARD OFFICE LEASE (Modified Net
Lease)", hereinafter referred to as the "Lease", executed on same date herewith
wherein JOHN D. DELLAGNESE III is "Lessor" and TELXON CORPORATION is "Lessee".
References hereinafter noted are to section numbers of the Lease. In the event
of a conflict between the terms of the Lease and the terms of this Addendum, the
terms of this Addendum shall control.
1. DEMISE: The commencement date of this Lease shall be changed from
October 15, 1995 to November 1, 1995 and the expiration date shall be changed
from October 14, 2000 to October 31, 2000.
6. BUILDING SERVICES: Lessee shall provide and pay for its own janitorial
services to its demised premises.
17. SUBORDINATION OF LEASE: The following Non-Disturbance
Agreement/Attornment clause shall be added to this section of the Lease:
In the event the Premises are presently encumbered by a mortgage, or in the
event that, in the future, the Premises should be encumbered by any mortgage, it
shall be the obligation of Lessor to obtain and deliver to Lessee an instrument
in writing executed by any such mortgagee, suitable for recording, and by
whatever name called providing, in substance, that Lessee shall not be disturbed
in its use, possession and enjoyment of the Premises or deprived of any of its
rights as set forth herein by any such mortgagee, or any party claiming by,
through or under any such mortgagee, even through any such mortgage and/or the
promissory note for which any such mortgage is security may be in default,
and/or mortgage foreclosure proceedings are pending, and/or the premises
encumbered by any such mortgage have been sold, on foreclosure sale, or
otherwise, and the purchaser thereof is such mortgagee or some other third
party.
Conditioned upon the foregoing, Lessee agrees to subordinate its leasehold
interest to any such mortgagee and to attorn to any such mortgagee or subsequent
third party owner of the premises described in any such mortgage.
<PAGE> 10
34. LEASEHOLD IMPROVEMENTS (New): Lessor shall pay an amount of $41,661.60
towards the leasehold improvements made to Suite 300. Any improvements over said
amount of $41,661.60 shall be paid for in a lump sum payment by Lessee to
Lessor.
35. LEASE OF ADDITIONAL SPACE BY LESSOR (New): If Lessor desires to lease
additional space in the Waterford Building, Lessor shall give written notice to
Lessee stating such desire and the monthly rentals which Lessor wishes to
receive for such space. Lessor shall not enter into a binding lease for such
space within 15 days after sending such notice to Lessee. The provisions hereof
shall not Constitute a so-called "right of first refusal" for such space.
IN WITNESS WHEREOF, the parties hereto have set their hands to this
Addendum as of the date stated on page one of the Lease to which this Addendum
is attached.
LESSOR:
-------
JOHN D. DELLAGNESE III
/s/ John D. Dellagnese III
--------------------------------------------
LESSEE:
-------
TELXON CORPORATION
By: /s/ Glenn S. Hansen
----------------------------------------
Glenn S. Hansen
Title: Vice President, Legal Administration
-------------------------------------
and Corporate Counsel
<PAGE> 11
EXHIBIT "B"
-----------
ANNUAL BASE RENT: During the term of this Lease, and any renewals thereof,
Lessee shall pay to Lessor annual base rent, in equal monthly installments, on
the first day of each month, in advance, in the following amounts:
(A) During Lease years 1 through 5, such annual base rent shall be
$538,129.00 per year, hereinafter the "A Rent", with the monthly payment being
$44,844.08.
<PAGE> 1
EXHIBIT 10.2.4.a
SECOND ADDENDUM TO LEASE
------------------------
This Second Addendum to Lease is made and entered into as of this 5TH day
of OCTOBER, 1995, by and between JOHN D. DELLAGNESE Ill, hereinafter referred to
as "Lessor" and TELXON CORPORATION, hereinafter referred to as "Lessee".
Reference is made to that certain "Standard Office Lease (Modified Net Lease)"
dated July 19, 1995, which, together with the Attachments, Exhibits and Addendum
to Lease are hereinafter collectively referred to as the "Lease". In the event
of a conflict between the terms of the Lease and the terms of this Addendum, the
terms of this Addendum shall control.
This Second Addendum is made necessary because of the fact that Lessee is
leasing additional space in the Waterford building and because Lessee has
requested that an Option to Renew clause be added to its Lease. It is
accordingly agreed to by and between the parties as follows:
1. Lessee is leasing an additional 18,744 rentable square feet in the
Waterford building. This additional space is made up of 6,071 rentable
square feet on the first floor and 12,673 rentable square feet on the
second floor (see the floorplans attached labeled as "Exhibit A" and
Exhibit "A-1") to give Lessee a total of 53,462 rentable square feet in the
Waterford building.
2. The term for this additional 18,744 rentable square feet shall commence on
November 1, 1995 and expire in conjunction with Lessee's original leased
space, namely on October 14, 2000.
3. Lessee's annual base rent for this additional space shall be $290,532.00
per year, with the monthly payment being $24,211.00. Lessee's total annual
base rent shall be $828,661.00 per year, with the monthly payment being
$69,055.08.
4. Lessee's Share, per Section 4(e) of the Lease, shall be changed from 37.4%
to 57.5%.
5. Lessor shall pay an amount of $22,493.00 towards the leasehold improvements
made to this additional 18,744 rentable square feet. Any improvements over
said amount of $22,493.00 shall be paid for in a lump sum
<PAGE> 2
payment by Lessee to Lessor.
6. Lessee has the option to renew its Lease for one (1) term of five (5) years
providing Lessee gives Lessor written notice of its intent to renew its
Lease at least twelve (12) months prior to the expiration date of its
existing Lease. Should Lessee elect to renew its Lease, the annual rental
rate would be determined as follows:
Base Rent of Existing Lease x (CPI for the month of 6/2000 x 87%)
---------------------------------
CPI for the 1st lease month,
namely, 10/1995
As used herein, the letters "CPI" mean the United States Department of
Labor, Bureau of Labor Statistics, Revised Consumer Price Index, All Urban
Consumers, U.S. City Average, All Items (1982 - 1984 = 100) or, in the
event such index is not published at a time when its application is called
for hereto, then the most nearly equivalent index then being published by
the federal government or other authoritative compiler of such statistics,
and in general use in northeastern Ohio. In no event, however, shall the
annual base rent payable during any lease year be less than the annual base
rent payable during any previous lease year.
7. All other terms and conditions of Lease will remain in effect.
IN WITNESS WHEREOF, the parties have set their hands on the dates
hereinafter noted.
<TABLE>
<S> <C>
Signed and acknowledged LESSOR:
in the presence of: -------
/s/ Laura M. Metzger /s/ John D. Dellagnese III
- ---------------------------------- ------------------------------------
John D. Dellagnese III
/s/ Yuki Fisher-Northington (Executed this 5th day of
- ---------------------------- ---
October, 1995)
------- --
Signed and acknowledged LESSEE:
in the presence of: ------
/s/ Marilyn Riazi TELXON CORPORATION
- ----------------------------------
/s/ Marion Matthews By: /s/ Glenn S. Hansen
- ---------------------------------- --------------------------------
Title Vice President, Legal Administration
--------------------------
and Corporate Counsel
(Executed this 2nd day of
---
October, 1995)
------- --
</TABLE>
<PAGE> 1
EXHIBIT 10.2.4b
THIRD ADDENDUM TO LEASE
-----------------------
This Third Addendum to Lease is made and entered into as of this 1ST day of
MARCH, 1996, by and between JOHN D. DELLAGNESE III, hereinafter referred to as
"Lessor" and TELXON CORPORATION, hereinafter referred to as "Lessee". Reference
is made to that certain "Standard Office Lease (Modified Net Lease)" dated July
19, 1995, which, together with the Attachments, Exhibits, Addendum to Lease, and
Second Addendum to Lease dated October 5, 1995 are hereinafter collectively
referred to as the "Lease". In the event of a conflict between the terms of the
Lease and the terms of this Addendum, the terms of this Addendum shall control.
This Third Addendum is made necessary because Lessee has requested that a
change in occupancy date for the premises be made. It is accordingly agreed to
by and between the parties as follows:
1. The term of the Lease remains for a period of five (5) years, with the new
commencement date being March 1, 1996 and the new expiration date being
February 28, 2001.
2. The Annual Base Rent for this Lease, which shall commence on March 1, 1996,
shall be $74,924.76 per month(this includes $5,869.68 monthly in
amortization).
3. All other terms and conditions of Lease will remain in effect.
IN WITNESS WHEREOF, the parties have set their hands on the dates
hereinafter noted.
<TABLE>
<S> <C>
Signed and acknowledged LESSOR:
in the presence of: -------
/s/ Thomas A. Karcher /s/ John D. Dellagnese III
- ---------------------------------- ------------------------------------
John D. Dellagnese III
/s/ Deborah L. Zushin (Executed this March 1st day of
- ---------------------------- ---------
March, 1996)
----- --
Signed and acknowledged LESSEE:
in the presence of: ------
/s/ Charles K. Prather TELXON CORPORATION
- ----------------------------------
By: /s/ Dennis K. Oleksuk
--------------------------------
Title Director, Corporate Savings
--------------------------
(Executed this 29th day of February 1996.
----
</TABLE>
<PAGE> 1
EXHIBIT 10.3.2
CREDIT AGREEMENT
Credit Agreement, dated as of March 8, 1996, by and among Telxon
Corporation, a Delaware corporation (the "BORROWER"), the lenders party hereto
from time to time (each a "LENDER" and, collectively, the "LENDERS"), The Bank
of New York ("BNY"), as Issuer and as Swing Line Lender, and BNY, as agent for
the Lenders (in such capacity, the "AGENT").
1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION
------------------------------------------
1.1 Definitions
-----------
When used herein, terms defined in the preamble have the
respective meanings indicated therein, and each of the following terms have the
meaning ascribed thereto unless the context hereof otherwise specifically
requires:
"ABR ADVANCES": the Loans (or any portions thereof) at such time as
they (or such portions) are made or are being maintained at a rate of interest
based upon the Alternate Base Rate.
"ACCOUNTANTS": Coopers & Lybrand L.L.P., any other "big six" firm
of independent certified public accountants (or any successor thereto), or such
other firm of independent certified public accountants of recognized national
standing as shall be selected by the Borrower and satisfactory to the Agent.
"ACCUMULATED FUNDING DEFICIENCY": as defined in Section 302 of
ERISA.
"ACQUISITION": with respect to any Person, the purchase or other
acquisition by such Person, by any means whatsoever (including by devise,
bequest, gift, through a dividend or otherwise), of (a) Stock of, or other
equity securities of, any other Person if, immediately thereafter, such other
Person would be either a consolidated subsidiary of such Person or otherwise
under the control of such Person, (b) any business, going concern or division
thereof, or (c) the Property of any other Person (other than in the ordinary
course of business in an arm's length transaction), provided, however, that no
acquisition of all or substantially all of the assets of such other Person
shall be deemed to be in the ordinary course of business.
"ADVANCE": an ABR Advance or a Eurodollar Advance, as the case may
be.
"AFFECTED ADVANCE": as defined in Section 3.8(b).
<PAGE> 2
"AFFILIATE": with respect to any Person at any time and from time
to time, any other Person (other than a consolidated subsidiary of such Person)
which at such time (a) controls such Person, or (b) is under common control
with such Person. The term "control", as used in this definition with respect
to any Person, means the power, whether direct, or indirect through one or more
intermediaries, to direct or cause the direction of the management and policies
of such Person, whether through the ownership of voting securities or other
interests, by contract or otherwise.
"AGGREGATE COMMITMENTS": the Revolving Commitments of all of the
Lenders.
"AGGREGATE REVOLVING COMMITMENT AMOUNT": at any date, the sum of
the Revolving Commitment Amounts of all Lenders on such date.
"AGGREGATE REVOLVING CREDIT EXPOSURE": at any date, the sum of the
Revolving Credit Exposures of all Lenders on such date.
"AGREEMENT": this Credit Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
"ALTERNATE BASE RATE": for any day, a rate per annum equal to the
greater of (a) the BNY Rate in effect on such day, or (b) 0.50% plus the
Federal Funds Effective Rate.
"APPLICABLE MARGIN":
(a) (i) with respect to ABR Advances, the percentage set forth
below under the heading "ABR" adjacent to the applicable Pricing Level, (ii)
with respect to Eurodollar Advances, the percentage set forth below under the
heading "Eurodollar" adjacent to the applicable Pricing Level, (iii) with
respect to the Commitment Fee, the percentage set forth under the heading
"Commitment Fee" adjacent to the applicable Pricing Level, and (iv) with
respect to the Utilization Fee, the percentage set forth below under the
heading "Utilization Fee" adjacent to the applicable Pricing Level:
<TABLE>
<CAPTION>
Commitment Utilization
ABR Eurodollar Fee Fee
------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
whenever
Pricing Level I
is in effect: 0.0000% 0.5000% 0.1500% 0.1250%
whenever
Pricing Level II
is in effect: 0.0000% 0.6250% 0.1875% 0.1250%
</TABLE>
- 2 -
<PAGE> 3
<TABLE>
<S> <C> <C> <C> <C>
whenever
Pricing Level III
is in effect: 0.0000% 0.7500% 0.2000% 0.1250%
whenever
Pricing Level IV
is in effect: 0.0000% 1.0000% 0.2000% 0.2500%
whenever
Pricing Level V
is in effect: 0.0000% 1.2500% 0.3750% 0.2500%
</TABLE>
(b) The Applicable Margin shall be based on the Compliance Certificate most
recently delivered with respect to the last fiscal quarter of the preceding
fiscal year pursuant to Section 7.7(d), and shall become effective on the date
such Compliance Certificate is delivered to the Lenders.
(c) Notwithstanding anything to the contrary contained in this
definition, (i) with respect to each period, if any, during which the Borrower
shall be in Default of its obligations under Section 7.7(d), for purposes of
this definition, the applicable Pricing Level shall conclusively be deemed to
be Pricing Level V during each such period, (ii) except as otherwise specified
in the preceding clause (i), during the period commencing on the Effective Date
and ending on the date the financial statements required to be delivered
pursuant to Section 7.7(a) in respect of the Borrower's fiscal year ending
March 31, 1996 are delivered to the Agent, the applicable Pricing Level shall
conclusively be deemed to be Pricing Level III, and (iii) except as otherwise
specified in the preceding clause (i), prior to the date the Compliance
Certificate for the fiscal year ending March 31, 1997 is delivered to the
Lenders pursuant to Section 7.7(d), the Applicable Margin for Pricing Level I
and Pricing Level II shall conclusively be deemed to be the Applicable Margin
for Pricing Level III.
"ASSIGNMENT": as defined in Section 11.7(c).
"ASSIGNMENT AND ACCEPTANCE AGREEMENT": an assignment and acceptance
agreement executed by an assignor and an assignee pursuant to which, subject to
the terms and conditions hereof, the assignor assigns to the assignee all or
any portion of such assignor's Loans, Letter of Credit Participation, Notes and
Revolving Commitment, substantially in the form of Exhibit H.
"BANKWATCH": Thomson BankWatch, Inc.
"BNYCC AGREEMENTS": the Amended and Restated Credit, Term Loan and Security
Agreement, dated March 31, 1995, among
- 3 -
<PAGE> 4
the Borrower, the Retail Technology Group, Inc., Teletransaction, Inc., Itronix
Corporation, Microoffice Systems Technology, Inc., and PTC Airco, Inc., the
financial institutions named therein, and The Bank of New York Commercial
Corporation, as agent, as amended by Amendment 1 to the Amended and Restated
Credit, Term Loan and Security Agrement, dated June 16, 1995, and Amendment 2
to the Amended and Restated Credit, Term Loan and Security Agreement, dated
December 12, 1995, and all other documents executed and delivered in connection
therewith, in each case as amended, supplemented or otherwise modified from
time to time.
"BNY RATE": a rate of interest per annum equal to the rate of interest
publicly announced in New York City by BNY from time to time as its prime
commercial lending rate, such rate to be adjusted automatically (without
notice) on the effective date of any change in such publicly announced rate.
"BORROWING REQUEST": a request for Loans in the form of Exhibit C.
"CAPITAL EXPENDITURES": shall mean, with respect to any Person for any
period, the aggregate of all expenditures incurred by such Person during such
period which, in accordance with GAAP, are required to be included in
"additions to property, plant or equipment" or similar items reflected on the
balance sheet of such Person, provided, however, that "Capital Expenditures"
shall not include (i) capitalized leases, or (ii) expenditures of proceeds of
insurance settlements in respect of lost, destroyed or damaged assets,
equipment or other property to the extent such expenditures are made to replace
or repair such lost, destroyed or damages assets, equipment or other property
within six months of the receipt of such proceeds.
"CAPITALIZATION": Net Debt PLUS shareholders' equity of the Borrower and the
Subsidiaries on a Consolidated basis.
"CAPITALIZATION RATIO": the ratio, as of any fiscal year end of the
Borrower, of Net Debt to Capitalization.
"CASH COLLATERAL": as defined in Section 2.13.
"CASH COLLATERAL ACCOUNT": as defined in Section 2.13.
"CHANGE OF CONTROL": an event or series of events whereby (a) any Person
(other than the Borrower, any one or more of its Subsidiaries, any employee
benefit plan, or any entity organized, appointed or established by the Borrower
or any such Subsidiary which holds shares of the Borrower's common stock for or
pursuant to the terms of any such employee benefit plan), acting alone or in
concert with one or more
- 4 -
<PAGE> 5
other Persons, (i) has acquired or shall acquire beneficial ownership of
securities, or options or other rights therefor, entitling such Person to 25%
or more of the voting power with respect to such class of securities, or (ii)
possesses or shall possess, directly or indirectly, the power to direct or
cause the direction of the management and policies of the Borrower, whether
through the ownership of voting securities, by contract or otherwise, or (b)
directors of the Borrower constituting that percentage necessary to approve
corporate action shall not have been directors on the Effective Date or
directors designated or approved by the directors holding such positions on the
Effective Date.
"CODE": the Internal Revenue Code of 1986, as the same may be amended, or
any successor thereto, and the rules and regulations issued thereunder, as from
time to time in effect.
"COMMITMENT FEE": as defined in Section 3.11.
"COMMITMENT PERCENTAGE": as of any date and with respect to any Lender, a
fraction, the numerator of which is such Lender's Revolving Commitment Amount
on such date, and the denominator of which is the Aggregate Revolving
Commitment Amount on such date.
"COMMITMENT PERIOD": the period commencing on the Effective Date and ending
on the Commitment Termination Date.
"COMMITMENT TERMINATION DATE": the earlier to occur of (a) March 8, 2001, as
the same may be extended in accordance with Section 2.6, and (b) such other
date upon which the Revolving Commitments shall have been terminated in
accordance with Section 2.7 or Section 9.2.
"COMPENSATORY INTEREST PAYMENT": as defined in Section 3.4(c).
"COMPLIANCE CERTIFICATE": a certificate in the form of Exhibit G.
"CONSOLIDATED": the Borrower and the Subsidiaries on a consolidated basis in
accordance with GAAP.
"CONSOLIDATING": the Borrower and each Subsidiary taken separately.
"CONTINGENT OBLIGATION": as to any Person (the "secondary obligor"), any
obligation of such secondary obligor (a) guaranteeing or in effect guaranteeing
any return on any investment made by another Person, or (b) guaranteeing or in
effect
- 5 -
<PAGE> 6
guaranteeing any indebtedness, lease, dividend or other obligation ("primary
obligations") of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including any obligation of such secondary
obligor, whether or not contingent, (i) to purchase any such primary obligation
or any Property constituting direct or indirect security therefor, (ii) to
advance or supply funds (A) for the purchase or payment of any such primary
obligation or (B) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase Property, securities or services primarily for the
purpose of assuring the beneficiary of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation, (iv)
otherwise to assure or hold harmless the beneficiary of such primary obligation
against loss in respect thereof, and (v) in respect of the indebtedness of any
partnership in which such secondary obligor is a general partner, except to the
extent that such indebtedness of such partnership is nonrecourse to such
secondary obligor and its separate Property; provided, however, that the term
"Contingent Obligation" shall not include the indorsement of instruments for
deposit or collection in the ordinary course of business.
"CONTROL PERSON": as defined in Section 3.6.
"CREDIT DATE": each date upon which a Loan is made or a Letter of Credit is
issued.
"DEFAULT": any of the events specified in Section 9.1, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"DEFAULT RATE": as defined in Section 3.4(b).
"DISPOSITION": with respect to any Person, any sale, assignment, transfer or
other disposition by such Person, by any means, of (a) the Stock of, or other
equity interests of, any other Person, (b) any business, Operating Entity or
division thereof, or (c) any other Property of such Person, other than in the
ordinary course of business, provided, however, that no such sale, assignment,
transfer or other disposition of Property shall be deemed to be in the ordinary
course of business (i) if it is the sale, assignment, transfer or disposition
of (1) all or substantially all of the Property of such Person, or (2) any
Operating Entity, (ii) if the fair market value of the Property is in excess of
$250,000, or (iii) to the extent that the aggregate fair market value of all
sales, assignments, transfers and other dispositions of Property made by such
Person within the same fiscal year which are individually equal to or less than
$250,000, would exceed $2,000,000, and
- 6 -
<PAGE> 7
provided, further, that notwithstanding anything to the contrary contained in
this definition, (I) all sales of inventory (other than in connection with bulk
transfers of Property in connection with a liquidation or similar disposition
of the Property of such Person) shall be deemed to be in the ordinary course of
business, (II) any sale, assignment, transfer or other disposition of any
obsolete tangible personal Property shall each be deemed to be in the ordinary
course of business, (III) any grant by a Person of a license to use
Intellectual Property or proprietary information (including software) shall not
be deemed to be a "Disposition", and (IV) any sale, assignment, transfer or
other disposition by the Borrower of one or more leases (pursuant to which the
Borrower, as lessor, let inventory to any Person (other than a Subsidiary) in
the ordinary course of the Borrower's business) to any Person in the business
of discounting the same shall not be deemed to be a "Disposition".
"DOLLAR or "$": lawful currency of the United States of America.
"DOMESTIC BUSINESS DAY": any day (other than a Saturday, Sunday or legal
holiday in the State of New York) on which banks are open for business in New
York City, New York.
"DOMESTIC INTERCOMPANY ACQUISITION": an Acquisition by the Borrower or any
Domestic Subsidiary which is a Guarantor from the Borrower or any other
Domestic Subsidiary which is a Guarantor.
"DOMESTIC INTERCOMPANY DEBT": (a) Indebtedness of the Borrower to one or
more of the Domestic Subsidiaries which are Guarantors, and (b) demand
indebtedness of one or more of the Domestic Subsidiaries which are Guarantors,
to the Borrower or any one or more of the other Domestic Subsidiaries which are
Guarantors.
"DOMESTIC INTERCOMPANY DISPOSITION": a Disposition by the Borrower or any
Domestic Subsidiary which is a Guarantor to the Borrower or any other Domestic
Subsidiary which is a Guarantor.
"DOMESTIC SUBSIDIARY": each Subsidiary other than a Foreign Subsidiary.
"EBITDA": as of any date, the earnings of the Borrower and the Subsidiaries
on a Consolidated basis for the four fiscal quarter period in respect of which
financial statements have been most recently delivered pursuant to Section
7.7(a) or Section 7.7(c), as the case may be, PLUS each of the following with
respect to the Borrower and the Subsidiaries on a Consolidated basis for such
period to the extent utilized in
- 7 -
<PAGE> 8
determining such earnings: (a) Interest Expense, (b) provision for income
taxes, (c) depreciation, (d) amortization, (e) extraordinary non-cash gains and
losses, (f) non-cash write-offs and write-downs of inventory, and (g) non-cash
write-offs in respect of any early retirement of Indebtedness.
"EFFECTIVE DATE": as defined in Section 11.20.
"EMPLOYEE BENEFIT PLAN": an employee benefit plan within the meaning of
Section 3(3) of ERISA maintained, sponsored or contributed to by the Borrower,
any Subsidiary or any ERISA Affiliate.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, or any successor thereto, and the rules and regulations
issued thereunder, as from time to time in effect.
"ERISA AFFILIATE": when used with respect to an Employee Benefit Plan,
ERISA, the PBGC or a provision of the Code pertaining to employee benefit
plans, any Person that is a member of any group of organizations within the
meaning of Sections 414(b) or (c) of the Code or, solely with respect to
applicable provisions of the Code, Sections 414(m) or (o) of the Code, of which
the Borrower or any Subsidiary is a member.
"EURODOLLAR ADVANCE": a given portion of the Revolving Loans selected by the
Borrower to bear interest during an Interest Period selected by the Borrower at
a rate per annum based upon a Eurodollar Rate determined with reference to such
Interest Period, all pursuant to and in accordance with Sections 2.5 and 3.3.
"EURODOLLAR BUSINESS DAY": any Domestic Business Day, other than a Domestic
Business Day on which banks are not open for dealings in Dollar deposits in the
London interbank market.
"EURODOLLAR RATE": with respect to each Eurodollar Advance and as determined
by BNY and reported to the Agent, the rate of interest per annum (rounded, if
necessary, to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%,
then to the next higher 1/16 of 1%) equal to a fraction, the numerator of which
is the rate, as reported by BNY to the Agent, quoted by BNY to leading banks in
the interbank eurodollar market as the rate at which BNY is offering Dollar
deposits in an amount approximately equal to BNY's Commitment Percentage of
such Eurodollar Advance and having a period to maturity approximately equal to
the Interest Period applicable to such Eurodollar Advance, as quoted two
Eurodollar Business Days
- 8 -
<PAGE> 9
prior to the first day of such Interest Period, and the denominator of which is
an amount equal to 1.00 MINUS the aggregate of the then stated maximum rates
during such Interest Period of all reserve requirements (including marginal,
emergency, supplemental and special reserves), expressed as a decimal,
established by the Board of Governors of the Federal Reserve System and any
other banking authority to which BNY and other major United States money center
banks are subject in respect of eurocurrency liabilities (currently referred to
as "Eurocurrency liabilities" in Regulation D of the Board of Governors of the
Federal Reserve System) without benefit of credits for proration, exceptions or
offsets which may be available from time to time to BNY.
"EVENT OF DEFAULT": any of the events specified in Section 9.1, provided
that any requirement for the giving of notice, the lapse of time, or both, or
any other condition has been satisfied.
"EXISTING INDEBTEDNESS": all of the obligations of the Borrower and its
Subsidiaries under the BNYCC Agreements.
"EXISTING SUBORDINATED DEBENTURES": the Borrower's 7-1/2% convertible
subordinated debentures due 2012, outstanding on the Effective Date, as the
same may be amended, supplemented or otherwise modified from time to time.
"EXISTING SUBORDINATED NOTES": the Borrower's 5-3/4% convertible
subordinated notes due 2003, outstanding on the Effective Date, as the same may
be amended, supplemented or otherwise modified from time to time.
"EXPANSION OBLIGATIONS": all Indebtedness of the Borrower incurred and to
be incurred in connection with the expansion (including the purchase of
equipment) of the Borrower's manufacturing facility in Texas.
"EXTENSION REQUEST": as defined in Section 2.6.
"FCC": the Federal Communications Commission, or any Governmental Authority
succeeding to the functions thereof.
"FCC LICENSES": all related licenses, other licenses, franchises and permits
issued by the FCC or under federal, state or local laws from time to time which
authorize a Person to receive or distribute, or both, over the airwaves, audio,
television, radio or microwave signals within a geographic area.
"FEDERAL FUNDS EFFECTIVE RATE": for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average
(rounded, if necessary, to the
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<PAGE> 10
nearest 1/100 of 1% or, if there is no nearest 1/100 of 1%, then to the next
higher 1/100 of 1%) of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Domestic Business Day, for the
next preceding Domestic Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Domestic Business
Day, the average (rounded, if necessary, to the nearest 1/100 of 1% or, if
there is no nearest 1/100 of 1%, then to the next higher 1/100 of 1%) of the
quotations for such day on such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it.
"FEES": as defined in Section 3.2.
"FINANCIAL STATEMENTS": as defined in Section 4.15(a).
"FIXED CHARGE COVERAGE RATIO": as of any fiscal quarter end, the ratio of
(a) the rent expense of the Borrower and the Subsidiaries on a Consolidated
basis for the four fiscal quarters then ended plus EBITDA, to (b) Fixed
Charges.
"FIXED CHARGES": as of any fiscal quarter end, the sum of each of the
following (without duplication) in respect of the Borrower and the Subsidiaries
on a Consolidated basis during the four fiscal quarter period then ended (a)
Interest Expense (less, without duplication, interest income), (b) with respect
to all Indebtedness of the Borrower and the Subsidiaries, all repayments of
such Indebtedness which, as of such fiscal quarter end, were scheduled to be
made during the immediately succeeding four fiscal quarter period, (c) rent
expense, (d) Capital Expenditures (excluding those relating to the expansion of
the Texas PP&E not in excess of $25,000,000), and (e) taxes incurred.
"FOREIGN INTERCOMPANY DEBT": demand indebtedness of one or more of the
Foreign Subsidiaries to any one or more of the other Foreign Subsidiaries.
"FOREIGN SUBSIDIARY": each Subsidiary that is not organized under the laws
of the United States of America or any State thereof.
"FUNDED CURRENT LIABILITY PERCENTAGE": as defined in Section 401(a)(29) of
the Code.
"GAAP": generally accepted accounting principles as from time to time in
effect in the United States.
"GOVERNMENTAL AUTHORITY": any foreign, federal, state, municipal or other
government, or any department, commission,
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<PAGE> 11
board, bureau, agency, public authority or instrumentality thereof, or any
court or arbitrator.
"GUARANTOR": as defined in the Subsidiary Guaranty.
"HIGHEST LAWFUL RATE": the maximum rate of interest, if any, which at any
time or from time to time may be contracted for, taken, charged or received on
the Loans or the Notes or which may be owing to any Lender pursuant to this
Agreement under the laws applicable to such Lender and this Agreement.
"INDEBTEDNESS": as to any Person, at a particular time, all items of such
Person which constitute, without duplication, (a) indebtedness for borrowed
money or the deferred purchase price of Property (other than trade payables and
accrued expenses incurred in the ordinary course of business), (b) indebtedness
evidenced by notes, bonds, debentures or similar instruments, (c) obligations
with respect to any conditional sale to such Person or other title retention
agreement pursuant to which such Person is obligated, (d) indebtedness arising
under acceptance facilities and the amount available to be drawn under all
letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder to the extent such Person shall not
have reimbursed the issuer in respect of the issuer's payment of such drafts,
(e) all liabilities secured by any Lien on any Property owned by such Person
even though such Person shall not have assumed or otherwise become liable for
the payment thereof (other than carriers', warehousemen's, mechanics',
repairmen's or other like non-consensual Liens arising in the ordinary course
of business), (f) that portion of any obligation of such Person, as lessee,
which in accordance with GAAP is required to be capitalized on the balance
sheet of such Person, and (g) Contingent Obligations.
"INDEMNIFIED LIABILITIES": as defined in Section 11.5.
"INTELLECTUAL PROPERTY": all trademarks and service marks, all copyrights
and all patents.
"INTEREST EXPENSE": for any period and in respect of any Person, the
interest expense of such Person in respect of such period, determined in
accordance with GAAP.
"INTEREST PAYMENT DATE": (i) as to any ABR Advance, the last day of each
March, June, September and December commencing on the first of such days to
occur after such ABR Advance shall have been made or any Eurodollar Advance
shall have been converted to such ABR Advance, (ii) as to any Eurodollar
Advance in respect of which the Borrower shall have selected an Interest Period
of one, two or three months, the last day of such Interest Period, and (iii) as
to any Eurodollar Advance
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<PAGE> 12
in respect of which the Borrower shall have selected an Interest Period greater
than three months, the last day of each three month interval during such
Interest Period.
"INTEREST PERIOD": the period commencing on any Eurodollar Business Day
selected by the Borrower in accordance with Section 2.5 or Section 3.3 and
ending one, two, three or six months thereafter (provided that such period does
not end later than the Commitment Termination Date), as selected by the
Borrower in accordance with such Sections, subject to the following:
(i) if any Interest Period would otherwise end on a day which
is not a Eurodollar Business Day, such Interest Period shall be extended to the
immediately succeeding Eurodollar Business Day unless the result of such
extension would be to carry the end of such Interest Period into another
calendar month, in which event such Interest Period shall end on the Eurodollar
Business Day immediately preceding such day; and
(ii) if any Interest Period shall begin on the last Eurodollar
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period),
such Interest Period shall end on the last Eurodollar Business Day of such
latter calendar month.
"INVESTMENTS": as defined in Section 8.5.
"ISSUER": BNY.
"JET": a 1979 Falcon 20F (Serial Number 403) aircraft, FAA Registration
Number N 108BG.
"JET OBLIGATIONS": all Indebtedness of the Borrower and/or its Subsidiaries
in connection with the purchase or lease of the Jet.
"LETTER OF CREDIT COMMITMENT": the commitment of the Issuer to issue Letters
of Credit under and in accordance with the terms of this Agreement.
"LETTER OF CREDIT EXPOSURE": at any date, (a) in respect of all the Lenders,
the sum, without duplication, of (i) the aggregate amount which may be drawn
under all unexpired Letters of Credit outstanding on such date (whether or not
the conditions for drawing thereunder have or may be satisfied), (ii) the
aggregate amount, on such date, of all unpaid drafts (which have not been
dishonored) drawn on all Letters of Credit, and (iii) the aggregate unpaid
reimbursement obligations in respect of the Letters of Credit on such date, and
(b) in respect of any Lender, an amount equal to such Lender's
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<PAGE> 13
Commitment Percentage multiplied by the amount determined under clause (a) of
this definition.
"LETTER OF CREDIT FEE": as defined in Section 3.12.
"LETTER OF CREDIT PARTICIPATION": with respect to each Lender, its
obligations to the Issuer hereunder.
"LETTER OF CREDIT REQUEST": a request in the form of Exhibit I.
"LETTERS OF CREDIT": as defined in Section 2.10.
"LEVERAGE RATIO": as of any date, the ratio of (a) Net Debt to (b) EBITDA.
"LIEN": any mortgage, pledge, assignment, lien, charge, encumbrance or
security interest of any kind, or the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"LOAN DOCUMENTS": this Agreement, the Subsidiary Guaranty and, upon the
execution and delivery thereof, the Notes and the Reimbursement Agreements.
"LOAN PARTY": with respect to any Loan Document, any Person (other than the
Agent, the Issuer, the Swing Line Lender or any Lender) which, in accordance
with the terms of such Loan Document, is or is to be a party thereto.
"LOANS": the Revolving Loans and the Swing Line Loans.
"MARGIN STOCK": any "margin stock", as said term is defined in Regulation U
of the Board of Governors of the Federal Reserve System, as the same may be
amended or supplemented from time to time.
"MATERIAL ADVERSE": with respect to any change or effect, a material adverse
change in, or effect on, as the case may be, (i) the financial condition,
operations, business, prospects or Property of the Borrower and the
Subsidiaries taken as a whole, (ii) the ability of the Borrower or any
Subsidiary to perform its obligations under the Loan Documents to which it is a
party, or (iii) the ability of the Agent, the Issuer, the Swing Line Lender or
any Lender to enforce the Loan Documents.
"MATERIAL SUBSIDIARY": as of any date, each Subsidiary which (a) as of the
fiscal quarter end immediately preceding such date had Consolidating gross
revenues in excess of $2,000,000 for the four fiscal quarters then ended, or
(b) has total assets in excess of $3,000,000.
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<PAGE> 14
"MOODY'S": Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN": a Pension Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NET DEBT": as of any date, total Consolidated Indebtedness of the Borrower
and its Subsidiaries (net of Contingent Obligations and reimbursement
obligations in respect of undrawn letters of credit) MINUS total Consolidated
cash and cash equivalents of the Borrower and its Subsidiaries in excess of
$10,000,000, in each case to the extent such Indebtedness or cash or cash
equivalents would be required by GAAP to be reflected on a Consolidated Balance
Sheet of the Borrower and its Subsidiaries as of such date.
"NON-EXTENDING LENDER": as defined in Section 2.6(b).
"NOTE": the Swing Line Note or a Revolving Note, as the case may be.
"NOTES": the Swing Line Note and the Revolving Notes.
"OBLIGATIONS": as defined in Section 2.13.
"OPERATING ENTITY": (a) any Person, (b) any business or operating unit of a
Person which is, or could be, operated separate and apart from the other
businesses and operations of such Person, or (c) any other line of business or
division.
"OTHER INTERCOMPANY ACQUISITION": an Acquisition by the Borrower or any
Subsidiary from the Borrower or any other Subsidiary, provided, however, that
the term "Other Intercompany Acquisition" shall not include any Domestic
Intercompany Acquisition.
"OTHER INTERCOMPANY DEBT": (a) Indebtedness of the Borrower to one or more
of the Subsidiaries, and (b) demand indebtedness of one or more of the
Subsidiaries to the Borrower or any one or more of the other Subsidiaries,
provided, however, that the term "Other Intercompany Debt" shall not include
any Domestic Intercompany Debt.
"OTHER INTERCOMPANY DISPOSITION": a Disposition by the Borrower or any
Subsidiary to the Borrower or any other Subsidiary, provided, however, that the
term "Other Intercompany Disposition" shall not include any Domestic
Intercompany Disposition.
"OUTSTANDINGS": with respect to the Issuer, the Swing Line Lender and each
Lender, as the case may be, as of any date, an amount equal to (a) the
outstanding principal balance on such date of all the Loans of the Issuer, the
Swing Line
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<PAGE> 15
Lender or such Lender, PLUS (b) with respect to the Issuer only, the excess of
(i) the aggregate sum of all drafts honored under all Letters of Credit, over
(ii) all payments made to the Issuer by the Borrower and the Lenders in
reimbursement thereof or participation therein, as the case may be, PLUS (c)
with respect to each Lender, the excess of (i) the aggregate sum of all
payments by such Lender in participation of the Reimbursement Obligations
and/or the Swing Line Loans, over (ii) all reimbursements of such Lender in
respect thereof.
"OUTSTANDING PERCENTAGE": as of any date and with respect to each Lender,
the Swing Line Lender or the Issuer, as the case may be, a fraction the
numerator of which is the Outstandings of such Lender, the Swing Line Lender or
the Issuer, as applicable, on such date, and the denominator of which is the
aggregate Outstandings of the Issuer, the Swing Line Lender and all Lenders on
such date.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA, or any Governmental Authority succeeding to
the functions thereof.
"PENSION PLAN": at any time, any Employee Benefit Plan (including a
Multiemployer Plan) subject to Section 302 of ERISA or Section 412 of the Code,
the funding requirements of which are, or at any time within the six years
immediately preceding the time in question, were in whole or in part, the
responsibility of the Borrower, any of its Subsidiaries or an ERISA Affiliate.
"PERSON": any individual, firm, partnership, limited liability partnership,
joint venture, corporation, limited liability company, association, business
enterprise, joint stock company, unincorporated association, trust,
Governmental Authority or any other entity, whether acting in an individual,
fiduciary, or other capacity, and for the purpose of the definition of "ERISA
Affiliate", a trade or business.
"PRICING LEVEL": Pricing Level I, Pricing Level II, Pricing Level III,
Pricing Level IV or Pricing Level V, as applicable.
"PRICING LEVEL I": at any time, when the Capitalization Ratio is less than
20% as of the last day of the most recent fiscal year end.
"PRICING LEVEL II": at any time, when the Capitalization Ratio is less than
25% but greater than or equal to 20% as of the last day of the most recent
fiscal year end.
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<PAGE> 16
"PRICING LEVEL III": at any time, when the Capitalization Ratio is less than
35% but greater than or equal to 25% as of the last day of the most recent
fiscal year end.
"PRICING LEVEL IV": at any time, when the Capitalization Ratio is less than
45% but greater than or equal to 35% as of the last day of the most recent
fiscal year end.
"PRICING LEVEL V": at any time, when the Capitalization Ratio is greater
than or equal to 45% as of the last day of the most recent fiscal year end.
"PROHIBITED TRANSACTION": a transaction that is prohibited under Section
4975 of the Code or Section 406 of ERISA and not exempt under Section 4975 of
the Code or Section 408 of ERISA.
"PROPERTY": in respect of any Person, all types of real, personal or mixed
property and all types of tangible or intangible property owned or leased by
such Person.
"REGULATORY CHANGE": (a) the adoption of any law, rule or regulation after
the date hereof, (b) the issuance or promulgation after the date hereof of any
directive, guideline or request from any central bank or United States or
foreign Governmental Authority (whether or not having the force of law), or (c)
any change after the date hereof in the interpretation of any existing law,
rule, regulation, directive, guideline or request by any central bank or United
States or foreign Governmental Authority charged with the administration
thereof.
"REIMBURSEMENT AGREEMENT": as defined in Section 2.10(b).
"REIMBURSEMENT OBLIGATIONS": all of the obligations and liabilities of the
Borrower (a) under Reimbursement Agreements, and (b) hereunder in respect of
the Letters of Credit.
"REPORTABLE EVENT": with respect to any Pension Plan, (a) any event set
forth in Sections 4043(c) (other than a Reportable Event as to which the 30 day
notice requirement is waived by the PBGC under applicable regulations), 4062(e)
or 4063(a) of ERISA or the regulations thereunder, (b) an event requiring the
Borrower, any of its Subsidiaries or any ERISA Affiliate to provide security to
a Pension Plan under Section 401(a)(29) of the Code, or (c) failure to make any
payment required by Section 412(m) of the Code.
"REQUIRED LENDERS": (a) at any time prior to the Commitment Termination
Date, Lenders having Revolving Commitment Amounts in the aggregate equal to or
more than 51% of the Aggregate Revolving Commitment Amount, and (b) at all
other times, the Issuer, the Swing Line Lender and Lenders having
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<PAGE> 17
Outstandings in the aggregate equal to or more than 51% of the aggregate
Outstandings of the Issuer, the Swing Line Lender and all Lenders.
"RESTRICTED PAYMENT": with respect to any Person, any of the following,
whether direct or indirect: (a) the declaration or payment by such Person of
any dividend or distribution on any class of Stock of such Person, other than a
dividend payable solely in shares of that class of Stock to the holders of such
class, (b) the declaration or payment by such Person of any distribution on any
other type or class of equity interest or equity investment in such Person,
other than (i) a distribution to equity holders of the same type and class of
equity interest or equity investment as then held, and (ii) with respect to the
Borrower, a distribution of rights to purchase capital Stock of the Borrower,
and (c) any redemption, retirement, purchase or acquisition of, or sinking fund
(other than scheduled sinking fund payments in respect of the Existing
Subordinated Debentures) or other similar payment in respect of, any class of
Stock of, or other type or class of equity interest or equity investment in,
such Person, provided, however, that for purposes of this definition, the term
"distribution" shall not include the payment of interest.
"REVOLVING COMMITMENT": in respect of any Lender, such Lender's undertaking
to make Revolving Loans, and, with respect to the Swing Line Lender only, Swing
Line Loans, to the Borrower, subject to the terms and conditions hereof, in an
aggregate outstanding principal amount not exceeding the Revolving Commitment
Amount of such Lender.
"REVOLVING COMMITMENT AMOUNT": as of any date and with respect to any
Lender, the amount set forth adjacent to its name under the heading "Revolving
Commitment Amount" in Exhibit A on such date or, in the event that such Lender
is not listed on Exhibit A, the "Revolving Commitment Amount" which such Lender
shall have assumed from another Lender in accordance with Section 11.7 on or
prior to such date, as all of the same may be adjusted from time to time
pursuant to Sections 2.7 and 11.7(c).
"REVOLVING CREDIT EXPOSURE": with respect to any Lender as of any date, the
sum as of such date of (a) the outstanding principal balance of such Lender's
Revolving Loans, (b) such Lender's Commitment Percentage of the outstanding
principal balance of the Swing Line Loans, and (c) an amount equal to such
Lender's Letter of Credit Exposure.
"REVOLVING LOAN" and "REVOLVING LOANS": as defined in Section 2.1.
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<PAGE> 18
"REVOLVING NOTE" and "REVOLVING NOTES": as defined in Section 2.2.
"SPECIAL COUNSEL": Emmet, Marvin & Martin, LLP, or such other counsel as the
Agent shall retain as its counsel in connection herewith.
"STOCK": any and all shares, interests, warrants, options, rights of
conversion, participations or other equivalents (however designated) of
corporate stock.
"SUBORDINATED DEBENTURES INDENTURE": the Indenture, dated as of June 1,
1987, between the Borrower and Ameritrust Company National Association, as
Trustee, pursuant to which the Existing Subordinated Debentures have been
issued, as the same may be amended, supplemented or otherwise modified from
time to time.
"SUBORDINATED NOTES INDENTURE": the Indenture, dated as of December 1, 1995,
between the Borrower and Bank One Trust Company, N.A., as Trustee, pursuant to
which the Existing Subordinated Notes have been issued, as the same may be
amended, supplemented or otherwise modified from time to time.
"SUBSIDIARY": at any time and from time to time, any corporation,
association, partnership, joint venture or other business entity of which the
Borrower and/or any Subsidiary of the Borrower, directly or indirectly at such
time, either (a) in respect of a corporation, owns or controls more than 50% of
the outstanding Stock having ordinary voting power to elect a majority of the
board of directors or similar managing body, irrespective of whether a class or
classes shall or might have voting power by reason of the happening of any
contingency, or (b) in respect of an association, partnership, joint venture or
other business entity, is entitled to share in more than 50% of the profits and
losses, however determined.
"SUBSIDIARY GUARANTY": as defined in Section 5.3.
"SUPER-MAJORITY LENDERS": (a) at any time prior to the Commitment
Termination Date, Lenders having Revolving Commitment Amounts in the aggregate
equal to or more than 66-2/3% of the Aggregate Revolving Commitment Amount,
and (b) at all other times, the Issuer, the Swing Line Lender and Lenders
having Outstandings in the aggregate equal to or more than 66-2/3% of the
aggregate Outstandings of the Issuer, the Swing Line Lender and all Lenders.
"SWING LINE LENDER": BNY.
"SWING LINE LOAN" and "SWING LINE LOANS": as defined in Section 2.3.
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<PAGE> 19
"SWING LINE NOTE": as defined in Section 2.4.
"SWING LINE PARTICIPATION AMOUNT": as defined in Section 2.8.
"SWING LINE PARTICIPATION EVENT": as defined in Section 2.8.
"S&P": Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc.
"TANGIBLE NET WORTH": with respect to the Borrower and the Subsidiaries on
a Consolidated basis at any date, the stockholders' equity of the Borrower and
the Subsidiaries on a Consolidated basis less Intangible Assets, all determined
as of such date. For purposes of this definition "Intangible Assets" shall
mean the amount (to the extent reflected in determining such stockholders'
equity) of all goodwill, patents, trademarks, service marks, trade names,
copyrights, unamortized debt discount and expense, unamortized deferred
charges, anticipated future benefit of tax loss carry-forwards (net of any
associated valuation reserves), and all other intangible assets.
"TAXES": as defined in Section 3.10.
"TERMINATION EVENT": with respect to any Pension Plan, (a) a Reportable
Event, (b) the termination of a Pension Plan under Section 4041(c) of ERISA, or
the filing of a notice of intent to terminate a Pension Plan under Section
4041(c) of ERISA, or the treatment of a Pension Plan amendment as a termination
under Section 4041(e) of ERISA, (c) the institution of proceedings by the PBGC
to terminate a Pension Plan under Section 4042 of ERISA, or (d) the appointment
of a trustee to administer any Pension Plan under Section 4042 of ERISA.
"TEXAS PP&E": all property, plant and equipment of the Borrower located at
its manufacturing facility in Texas.
"UNFUNDED PENSION LIABILITIES": with respect to any Pension Plan (other
than a Multiemployer Plan), as of the last day of the fiscal year of such
Pension Plan preceding the time in question, the amount determined by taking
the accumulated benefit obligation, as disclosed in accordance with Statement
of Accounting Standards No. 87, "Employers' Accounting for Pensions", over the
fair market value of Pension Plan assets.
"UNQUALIFIED AMOUNT": as defined in Section 3.4(c).
"UNRECOGNIZED RETIREE WELFARE LIABILITY": with respect to any Employee
Benefit Plan maintained by the Borrower or any Subsidiary that provides
postretirement benefits other than
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<PAGE> 20
pension benefits, the amount of the transition obligation, as determined in
accordance with Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," as of
the most recent valuation date, that has not been recognized as an expense in
the income statement of the Borrower and its Consolidated Subsidiaries,
provided that (i) prior to the date such Statement is applicable to the
Borrower, such amount shall be based on an estimate made in good faith of the
transition obligation, and (ii) for purposes of determining the aggregate
amount of the Unrecognized Retiree Welfare Liability, any Employee Benefit Plan
maintained by a Consolidated Subsidiary that is not otherwise an ERISA
Affiliate shall be included.
"UPSTREAM DIVIDENDS": as defined in Section 8.7.
"UTILIZATION FEE": as defined in Section 3.13.
1.2 PRINCIPLES OF CONSTRUCTION
--------------------------
(a) All capitalized terms defined in this Agreement shall
have the meanings given such capitalized terms herein when used in the other
Loan Documents or any certificate, opinion or other document made or delivered
pursuant hereto or thereto, unless otherwise expressly provided therein.
(b) As used in the Loan Documents and in any certificate,
opinion or other document made or delivered pursuant thereto, accounting terms
not defined in Section 1.1, and accounting terms partly defined in Section 1.1
to the extent not defined, shall have the respective meanings given to them
under GAAP. Unless otherwise expressly provided herein, the word "fiscal" when
used herein shall refer to the relevant fiscal period of the Borrower.
(c) The words "hereof", "herein", "hereto" and "hereunder"
and similar words when used in each Loan Document shall refer to such Loan
Document as a whole and not to any particular provision of such Loan Document,
and Section, schedule and exhibit references contained therein shall refer to
Sections thereof or schedules or exhibits thereto unless otherwise expressly
provided therein.
(d) All references herein to a time of day shall mean the
then applicable time in New York, New York, unless otherwise expressly provided
herein.
(e) Section headings have been inserted herein and in the
other Loan Documents for convenience only and shall not be construed to be a
part hereof or thereof. Unless the context otherwise requires, words in the
singular number include the plural, and words in the plural include the
singular.
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<PAGE> 21
(f) Whenever in any Loan Document or in any certificate or
other document made or delivered pursuant thereto, the terms thereof require
that a Person sign or execute the same or refer to the same as having been so
signed or executed, such terms shall mean that the same shall be, or was, duly
signed or executed by (i) in respect of any Person that is a corporation, any
duly authorized officer thereof, and (ii) in respect of any other Person (other
than an individual), any analogous counterpart thereof, in either case in
respect of whom the Agent shall have received an incumbency certificate in all
respects satisfactory to the Agent.
(g) The words "include" and "including", when used in each
Loan Document, shall mean that the same shall be included "without limitation",
unless otherwise specifically provided.
(h) The obligations of the Loan Parties under the Loan
Documents constitute "Designated Senior Indebtedness" under, and as such term
is defined in, the Subordinated Notes Indenture as in effect on the date
hereof, to the extent that such obligations are included within the meaning of
such term.
2. AMOUNT AND TERMS OF LOANS AND LETTERS OF CREDIT
-----------------------------------------------
2.1 Revolving Loans
---------------
Subject to the terms and conditions hereof, each Lender severally
(and not jointly) agrees to make loans (each a "REVOLVING LOAN" and,
collectively with each other Revolving Loan of such Lender and/or with each
Revolving Loan of each other Lender, the "REVOLVING LOANS") to the Borrower
from time to time during the Commitment Period, during which period the
Borrower may borrow, prepay and reborrow in accordance with the provisions
hereof, provided that immediately after making each Revolving Loan and after
giving effect to all Revolving Loans and Swing Line Loans repaid, and all
reimbursements of Letters of Credit made, concurrently with the making of any
Revolving Loans, (a) such Lender's Revolving Credit Exposure would not exceed
such Lender's Revolving Commitment Amount, and (b) the Aggregate Revolving
Credit Exposure would not exceed the Aggregate Revolving Commitment Amount.
The principal amount of each Lender's Revolving Loan made on a Credit Date
shall be an amount equal to its Commitment Percentage of all Revolving Loans
made on such date. Subject to the provisions of Sections 2.5 and 3.3,
Revolving Loans may be made as (i) one or more ABR Advances, (ii) one or more
Eurodollar Advances, or (iii) any combination thereof.
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<PAGE> 22
2.2 Revolving Notes
---------------
The Revolving Loans made by each Lender shall be evidenced by a
promissory note of the Borrower, substantially in the form of Exhibit B-1
(each, as indorsed or modified from time to time, a "REVOLVING NOTE" and,
collectively with the Revolving Note of each other Lender, the "REVOLVING
NOTES"), payable to the order of such Lender, dated the Effective Date, and in
the maximum stated principal amount equal to such Lender's Revolving Commitment
Amount.
2.3 Swing Line Loans
----------------
Subject to the terms and conditions hereof, the Swing Line Lender
agrees to make loans (each a "SWING LINE LOAN" and, collectively with each
other Swing Line Loan, the "SWING LINE LOANS") to the Borrower from time to
time during the Commitment Period, during which period the Borrower may borrow,
prepay and reborrow in accordance with the provisions hereof, provided that
immediately after making each Swing Line Loan, (a) the aggregate unpaid balance
of the Swing Line Loans would not exceed $3,000,000, and (b) the Aggregate
Revolving Credit Exposure would not exceed the Aggregate Revolving Commitment
Amount. Swing Line Loans may be made only as one or more ABR Advances.
2.4 Swing Line Note
---------------
The Swing Line Loans shall be evidenced by a promissory note of the
Borrower, substantially in the form of Exhibit B-2 (as indorsed or modified
from time to time, the "SWING LINE NOTE"), payable to the order of the Swing
Line Lender, dated the Effective Date, and in the maximum stated principal
amount equal to $3,000,000.
2.5 Notice of Borrowing
-------------------
The Borrower agrees to notify the Agent (and, with respect to a
Swing Line Loan, the Swing Line Lender), which notification shall be by
facsimile and shall be irrevocable, no later than (a) 11:30 A.M. on the same
Domestic Business Day, in the case of an ABR Advance (other than a Swing Line
Loan), (b) 3:00 P.M. on the same Domestic Business Day, in the case of a Swing
Line Loan, and (c) 3:00 P.M. at least three Eurodollar Business Days prior to
each date, in the case of a Eurodollar Advance, in each such case, that it
intends to borrow a Loan under this Agreement, specifying (1) the aggregate
amount requested to be borrowed under the Aggregate Commitments, (2) the
proposed Credit Date, (3) except for Swing Line Loans, which may be made only
as ABR Advances, whether the borrowing is to be of one or more ABR Advances,
one or more Eurodollar Advances, or a combination thereof and the amount
- 22 -
<PAGE> 23
of each thereof, and (4) the Interest Period for each Eurodollar Advance, which
notice shall be promptly confirmed by delivery to the Agent (and, with respect
to a Swing Line Loan, the Swing Line Lender) of a Borrowing Request. The Agent
shall promptly notify each Lender (by telephone or otherwise, such notice to be
confirmed by facsimile or other writing) of such borrowing request. Subject to
its receipt of each such notice from the Agent and subject to the terms and
conditions hereof, (A) each Lender shall make immediately available funds
available to the Agent at the address therefor set forth in Section 11.2 not
later than (I) 2:00 P.M., in the case of an ABR Advance (other than a Swing
Line Loan), and (II) 12:00 Noon, in the case of a Eurodollar Advance, in each
case on each Credit Date in an amount equal to such Lender's Commitment
Percentage of the Loans (other than the Swing Line Loans) requested by the
Borrower on such Credit Date, and (B) the Swing Line Lender shall make
immediately available funds available to the Borrower not later than 5:00 P.M.
on each Credit Date in an amount equal to the Swing Line Loan requested by the
Borrower on such Credit Date, provided, however, that (i) each Eurodollar
Advance to be made on a Credit Date, when aggregated with all amounts to be
converted to a Eurodollar Advance on such date and having the same Interest
Period as such first Eurodollar Advance, shall equal no less than $5,000,000 or
an integral multiple of $250,000 in excess thereof, (ii) each ABR Advance
(other than a Swing Line Loan) made on each Credit Date shall equal no less
than (x) $1,000,000 or an integral multiple of $250,000 in excess thereof or
(y) the excess of the Aggregate Revolving Commitment Amount over the Aggregate
Revolving Credit Exposure, and (iii) each Swing Line Loan made on each Credit
Date shall equal no less than $100,000 or an integral multiple of $50,000 in
excess thereof.
2.6 Extension of Commitment Period
------------------------------
(a) Provided that no Default or Event of Default shall exist, the
Borrower may request, on any one date that is not less than 60 days prior to
the then current Commitment Termination Date, that the Commitment Termination
Date be extended for an additional 365 days by giving written notice thereof
(each an "EXTENSION REQUEST") to the Agent and, upon receipt of such notice,
the Agent shall promptly notify each Lender thereof. Each Lender shall
endeavor to respond to the Extension Request, if any, within 30 days of its
receipt of notice thereof, provided that each Lender which shall have failed so
to respond by such time shall be deemed not to have consented thereto. The
Agent shall promptly notify the Borrower as to the name of each Lender which,
in accordance with this Section 2.6, consented to such extension. In the event
that Lenders having Revolving Commitment Amounts equal to or more than 66-2/3%
of the Aggregate Revolving Commitment Amount
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<PAGE> 24
shall not have consented, in accordance with this Section 2.6, to such
extension, the then current Commitment Termination Date shall not be extended
and shall remain in full force and effect. In the event that all Lenders shall
have so consented, the then existing Commitment Termination Date shall be
extended to the day which is 365 days after such date (or, if such date is not
a Domestic Business Day, the Domestic Business Day immediately preceding such
day).
(b) Notwithstanding any provision of Section 2.6(a) to the
contrary, in the event Lenders having Revolving Commitment Amounts equal to or
more than 66-2/3% of the Aggregate Revolving Commitment Amount consent to an
extension of the Commitment Termination Date pursuant to Section 2.6(a) (the
"CONTINUING LENDERS"), the Borrower shall have the right, provided no Default
or Event of Default shall have occurred and be continuing, to replace or remove
any Lender that did not so consent (each a "NON-EXTENDING LENDER") by giving
the Agent notice of its intention to replace or remove any Non-Extending Lender
no later than 3 Domestic Business Days after the Borrower's receipt of the
names of the Continuing Lenders from the Agent pursuant to Section 2.6(a). On
or prior to the then current Commitment Termination Date, the Borrower shall,
with respect to each Non-Extending Lender, either (i) reduce the Aggregate
Revolving Commitment Amount to an amount equal to the aggregate Revolving
Commitment Amounts of the Continuing Lenders and pay to the Agent for the
account of each such Non-Extending Lender all principal and interest and other
amounts owing to such Non-Extending Lender under the Loan Documents (in which
case the Commitment of such Non-Extending Lender shall automatically
terminate), or (ii) replace such Non-Extending Lender. In the event of a
replacement of a Non-Extending Lender, such Non-Extending Lender agrees to
assign its rights and obligations under the Loan Documents to a bank selected
by the Borrower with the consent of the Agent (which consent shall not be
unreasonably withheld) immediately upon payment by or on behalf of such bank to
such Non- Extending Lender of such Non-Extending Lender's Commitment Percentage
of all outstanding Loans and accrued interest, fees and other sums payable
under the Loan Documents and to otherwise effect such assignment in accordance
with the terms of Section 11.7(c). In the event that the Borrower shall have
elected to replace or remove a Lender pursuant to this Section 2.6(b), then on
the date, if any, upon which all of the Borrower's obligations under this
Section 2.6(b) shall have been satisfied, if any, the then existing Commitment
Termination Date shall be extended to the day which is 365 days after such date
(or, if such date is not a Domestic Business Day, the Domestic
- 24 -
<PAGE> 25
Business Day immediately preceding such day), provided, however, that if the
Borrower shall not have satisfied such obligations on or prior to the then
existing Commitment Termination Date, such Commitment Termination Date shall
not be extended.
2.7 Termination or Reduction of Revolving Commitments
-------------------------------------------------
At the Borrower's option, (i) the Borrower may terminate the
Revolving Commitments at any time, or (ii) the Borrower may permanently reduce
the Aggregate Revolving Commitment Amount in part at any time and from time to
time, provided in each case, however, that (A) the Borrower shall have given at
least three Domestic Business Days' prior irrevocable written notice to the
Agent, (B) the Borrower shall have prepaid the accrued Commitment Fee on the
amount of such reduction through the date thereof, (C) immediately after giving
effect thereto, the Aggregate Revolving Credit Exposure shall not exceed the
Aggregate Revolving Commitment Amount, and (D) with regard to partial
reductions, each such partial reduction shall be in an amount equal to at least
$10,000,000, or an integral multiple of $1,000,000 in excess thereof. Each
reduction of the Aggregate Revolving Commitment Amount shall be made by
reducing each Lender's Revolving Commitment Amount by a sum equal to each such
Lender's Commitment Percentage of the amount of such reduction.
2.8 Repayment and Participation of the Swing Line Loans
---------------------------------------------------
(a) The Borrower shall repay the outstanding principal amount
of each Swing Line Loan by the seventh day following the Credit Date of such
Swing Line Loan. A Swing Line Loan may be repaid from the proceeds of
Revolving Loans made after the Credit Date of such Swing Line Loan, provided
that the conditions precedent to the making of such Revolving Loans as set
forth in Section 6 have been satisfied. Upon the occurrence of an Event of
Default (each, a "SWING LINE PARTICIPATION EVENT"), each Lender shall purchase
unconditionally, irrevocably, and severally (and not jointly) from the Swing
Line Lender a participation in the outstanding Swing Line Loans in an amount
equal to the product of its Commitment Percentage and the outstanding amount of
the Swing Line Loans (the "SWING LINE PARTICIPATION AMOUNT"). Each Lender
shall also be liable for an amount equal to the product of its Commitment
Percentage and any amounts paid by the Borrower pursuant to this Section 2.8(a)
that are subsequently rescinded or avoided, or must otherwise be restored or
returned. Such liabilities shall be unconditional and without regard to the
occurrence of any Default or Event of Default or the compliance by the Borrower
with any of its obligations under the Loan Documents.
- 25 -
<PAGE> 26
(b) Upon receipt of notice of an Event of Default,
each Lender shall make available to the Agent for the account of the Swing
Line Lender its Swing Line Participation Amount at the office of the Agent
specified in Section 11.2, in lawful money of the United States and in
immediately available funds, before 4:00 P.M. on the day such notice was
given by the Agent, if such notice was given by the Agent at or prior to
12:00 Noon on such day, and before 12:00 Noon on the next Domestic Business
Day, if such notice was given by the Agent after 12:00 Noon on such day.
The Agent shall deliver the payments made by each Lender pursuant to the
immediately preceding sentence to the Swing Line Lender promptly upon
receipt thereof in like funds as received. Each Lender shall indemnify and
hold harmless the Agent and the Swing Line Lender from and against any and
all losses, liabilities (including liabilities for penalties), actions,
suits, judgments, demands, costs and expenses resulting from any failure on
the part of such Lender to pay, or from any delay in paying the Agent any
amount such Lender is required to pay in accordance with this Section 2.8
(except in respect of losses, liabilities or other obligations suffered by
the Swing Line Lender resulting from the gross negligence or willful
misconduct of the Swing Line Lender), and such Lender shall be required to
pay interest to the Agent for the account of the Swing Line Lender from the
date such amount was due until paid in full, on the unpaid portion thereof,
at a rate of interest per annum equal to the Alternate Base Rate PLUS 2%,
payable upon demand by the Swing Line Lender. The Agent shall distribute
such interest payments to the Swing Line Lender upon receipt thereof in like
funds as received.
(c) Whenever the Agent is reimbursed by the Borrower, for the
account of the Swing Line Lender, for any payment in connection with Swing Line
Loans and such payment relates to an amount previously paid by a Lender
pursuant to this Section 2.8, the Agent will pay over such payment to such
Lender (i) before 4:00 P.M. on the day such payment from the Borrower is
received, if such payment is received at or prior to 12:00 Noon on such day, or
(ii) before 12:00 Noon on the next succeeding Domestic Business Day, if such
payment from the Borrower is received after 12:00 Noon on such day.
2.9 Prepayments of the Loans
------------------------
(a) VOLUNTARY PREPAYMENTS OF REVOLVING LOANS. The Borrower
may, at its option, prepay Revolving Loans, in whole or in part, at any time
and from time to time, (i) by notifying the Agent in writing no later than 1:00
P.M. at least three Eurodollar Business Days prior to the designated Eurodollar
Business Day for such prepayment, in the case of a
- 26 -
<PAGE> 27
prepayment of a Eurodollar Advance, provided that such prepayment shall be made
by no later than 12:00 Noon on the designated Eurodollar Business Day for such
prepayment, or (ii) by notifying the Agent no later than 11:30 A.M. on the
Domestic Business Day designated for such prepayment, in the case of a
prepayment of an ABR Advance, provided that such prepayment shall be made by no
later than 1:00 P.M. on the designated Domestic Business Day for such
prepayment, in either case specifying (x) the amount to be prepaid, and (y) the
date of such prepayment. Upon receipt of each such notice, the Agent shall
promptly notify each Lender thereof. Each such notice given by the Borrower
pursuant to this Section 2.9(a) shall be irrevocable. Each partial prepayment
under this Section 2.9(a) shall be in a minimum amount of $1,000,000 or an
integral multiple of $250,000 in excess thereof.
(b) VOLUNTARY PREPAYMENTS OF SWING LINE LOANS. The Borrower
may, at its option, prepay the Swing Line Loans, in whole or in part, at any
time and from time to time, by notifying the Agent no later than 12:00 Noon in
writing on the same Domestic Business Day, provided that such prepayment shall
be made no later than 2:00 P.M. on such Domestic Business Day, specifying the
amount to be prepaid. Each such notice given by the Borrower pursuant to this
Section 2.9(b) shall be irrevocable. Each partial prepayment under this
Section 2.9(b) shall be in a minimum amount of $100,000 or an integral multiple
of $50,000 in excess thereof.
(c) MANDATORY PREPAYMENTS OF REVOLVING LOANS AND SWING LINE
LOANS. Upon any termination of the Revolving Commitments, the Borrower shall
prepay the outstanding principal balance of the Revolving Loans and the Swing
Line Loans and deposit into the Cash Collateral Account an amount which would
cause the balance on deposit in the Cash Collateral Account to equal or exceed
the aggregate Letter of Credit Exposure of all Lenders. Upon each reduction of
the Aggregate Revolving Commitment Amount, if the Aggregate Revolving Credit
Exposure would exceed the Aggregate Revolving Commitment Amount as so reduced,
the Borrower shall prepay the Revolving Loans, prepay the Swing Line Loans,
make a deposit into the Cash Collateral Account, or any combination thereof, so
that the Aggregate Revolving Commitment Amount, as so reduced, plus the balance
on deposit in the Cash Collateral Account (but in no event greater than an
amount equal to the Aggregate Letter of Credit Exposure) would equal or exceed
the Aggregate Revolving Credit Exposure.
(d) IN GENERAL. Simultaneously with each prepayment of a
Loan, the Borrower shall prepay all accrued interest on the amount prepaid
through the date of prepayment and any amounts due under Section 3.5.
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<PAGE> 28
2.10 Letter of Credit Sub-facility
-----------------------------
(a) Subject to the terms and conditions of this Agreement and
the payment by the Borrower to the Issuer of such fees as the Borrower and the
Issuer have agreed, the Issuer agrees, in reliance on the agreement of the
other Lenders set forth in Section 2.11, to issue from time to time standby and
documentary letters of credit under and in accordance with this Agreement
("LETTERS OF CREDIT") during the Commitment Period for the account of the
Borrower, provided that immediately after the issuance of each Letter of Credit
(i) the aggregate amount available to be drawn under all Letters of Credit
(whether or not the conditions for drawing thereunder have or may be satisfied)
would not exceed $10,000,000, and (ii) the Aggregate Revolving Credit Exposure
would not exceed the Aggregate Revolving Commitment Amount. Each Letter of
Credit shall have an expiration date which shall not exceed the earlier of (1)
twelve months from the date of issuance thereof, or (2) the Domestic Business
Day immediately preceding the Commitment Termination Date.
(b) Each Letter of Credit shall be issued for the account of
the Borrower in support of an obligation of the Borrower or any of the Domestic
Subsidiaries in favor of a beneficiary who has requested the issuance of such
Letter of Credit as a condition to a transaction entered into in connection
with the Borrower's or such Domestic Subsidiary's business. The Borrower shall
give the Agent a Letter of Credit Request for the issuance of each Letter of
Credit by 12:00 Noon, five Domestic Business Days prior to the requested date
of issuance. Such Letter of Credit Request shall be accompanied by the
Issuer's standard Application and Agreement for Documentary and/or Standby
Letters of Credit (each, a "REIMBURSEMENT AGREEMENT") executed by the Borrower,
and shall specify (i) the beneficiary of such Letter of Credit and the
obligations of the Borrower or such Domestic Subsidiary in respect of which
such Letter of Credit is to be issued, (ii) the Borrower's proposal as to the
conditions under which a drawing may be made under such Letter of Credit and
the documentation to be required in respect thereof, (iii) the maximum amount
to be available under such Letter of Credit, and (iv) the requested date of
issuance. Upon receipt of such Letter of Credit Request from the Borrower, the
Agent shall promptly notify the Issuer and each Lender thereof. The Issuer
shall, on the proposed date of issuance and subject to the terms and conditions
of the Loan Documents, issue the requested Letter of Credit, provided, however,
that no Letter of Credit shall be issued if the Agent, the Issuer or any
Lender, by notice to the Agent no later than 3:00 P.M. three Domestic Business
Days prior to the requested date of issuance of such Letter of Credit, shall
have determined that any condition set forth in Section 5 or 6 shall have not
been satisfied. Each Letter of
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<PAGE> 29
Credit shall be in form and substance reasonably satisfactory to the Issuer and
the Borrower, with such provisions with respect to the conditions under which a
drawing may be made thereunder and the documentation required in respect of
such drawing as the Issuer shall reasonably require.
(c) Upon each payment by the Issuer of a draft drawn under a
Letter of Credit, the Borrower shall reimburse the Issuer for the amount
thereof upon demand therefor by the Issuer. If all or any portion of any
reimbursement obligation in respect of a Letter of Credit shall not be paid
when due (whether upon demand, by acceleration or otherwise), such overdue
amount shall bear interest, payable upon demand by the Issuer, at a rate per
annum equal to the Alternate Base Rate PLUS 2%, from the date of such
nonpayment until paid in full (whether before or after the entry of a judgment
thereon).
(d) Notwithstanding anything to the contrary contained herein
or in any Reimbursement Agreement, to the extent that the terms of this
Agreement shall be inconsistent with the terms of such Reimbursement Agreement,
the terms of this Agreement shall govern.
2.11 Letter of Credit Participation
------------------------------
(a) Each Lender hereby unconditionally and irrevocably,
severally (and not jointly) takes an undivided participating interest in the
obligations of the Issuer under and in connection with each Letter of Credit in
an amount equal to such Lender's Commitment Percentage of the amount of such
Letter of Credit. Each Lender shall be liable to the Issuer for its Commitment
Percentage of the unreimbursed amount of each draft drawn and honored under
each Letter of Credit. Each Lender shall also be liable for an amount equal to
the product of its Commitment Percentage and any amounts paid by the Borrower
pursuant to Sections 2.10(c) and 2.12 that are subsequently rescinded or
avoided, or must otherwise be restored or returned. Such liabilities shall be
unconditional and without regard to the occurrence of any Default or Event of
Default or the compliance by the Borrower with any of its obligations under the
Loan Documents.
(b) The Issuer shall promptly notify the Agent, and the Agent
will promptly notify each Lender (which notice shall be promptly confirmed in
writing), of the date and the amount of each draft paid under each Letter of
Credit with respect to which full reimbursement shall not have been made by the
Borrower as provided in Section 2.10(c), and forthwith upon receipt of such
notice, such Lender shall make available to the Agent for the account of the
Issuer its Commitment Percentage of the amount of such unreimbursed draft at
the office of the Agent specified in Section 11.2, in lawful money of the
United
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<PAGE> 30
States and in immediately available funds, before 4:00 P.M., on the day such
notice was given by the Agent, if such notice was given by the Agent at or
prior to 12:00 Noon on such day, and before 12:00 Noon, on the next Domestic
Business Day, if such notice was given by the Agent after 12:00 Noon on such
day. The Agent shall deliver the payments made by each Lender pursuant to
the immediately preceding sentence to the Issuer promptly upon receipt
thereof in like funds as received. Each Lender shall indemnify and hold
harmless the Agent and the Issuer from and against any and all losses,
liabilities (including liabilities for penalties), actions, suits,
judgments, demands, costs and expenses (including reasonable attorneys' fees
and expenses payable to the Issuer as the issuer of the relevant Letter of
Credit) resulting from any failure on the part of such Lender to pay, or
from any delay in paying the Agent any amount such Lender is required to pay
in accordance with this Section 2.11(b), except in respect of losses,
liabilities or other obligations suffered by the Issuer resulting from the
gross negligence or willful misconduct of the Issuer, and such Lender shall
be required to pay interest to the Agent for the account of the Issuer from
the date such amount was due until paid in full, on the unpaid portion
thereof, at a rate of interest per annum equal to the Alternate Base Rate
PLUS 2%, payable upon demand by the Issuer. The Agent shall distribute such
interest payments to the Issuer upon receipt thereof in like funds as
received.
(c) Whenever the Agent is reimbursed by the Borrower for the
account of the Issuer for any payment under a Letter of Credit and such payment
relates to an amount previously paid by a Lender in respect of its Commitment
Percentage of the amount of such payment under such Letter of Credit, the Agent
will pay over such payment to such Lender (i) before 4:00 P.M. on the day such
payment from the Borrower is received, if such payment is received at or prior
to 1:00 P.M. on such day, or (ii) before 12:00 Noon on the next succeeding
Domestic Business Day, if such payment from the Borrower is received after 1:00
P.M. on such day.
2.12 Absolute Obligation with respect to Letter of Credit Payments
-------------------------------------------------------------
The Borrower's obligation to reimburse the Agent for the account of
the Issuer in respect of a Letter of Credit for each payment under or in
respect of such Letter of Credit shall be absolute and unconditional under any
and all circumstances and irrespective of any set-off, counterclaim or defense
to payment which the Borrower may have or have had against the beneficiary of
such Letter of Credit, the Agent, the Issuer, any Lender or any other Person,
including any defense based on the failure of any drawing to conform to the
terms of such Letter of Credit, any drawing document proving
- 30 -
<PAGE> 31
to be forged, fraudulent or invalid, or the legality, validity, regularity or
enforceability of such Letter of Credit, provided, however, that the Borrower
shall not be obligated to reimburse the Agent for the account of the Issuer for
any wrongful payment under such Letter of Credit.
2.13 Cash Collateral Account
-----------------------
At the time, or at any time before, the Borrower shall be required
to, or shall elect to, make a deposit into the Cash Collateral Account, the
Agent shall establish and maintain at its offices at One Wall Street, New York,
New York in the name of the Borrower but under the sole dominion and control of
the Agent, a cash collateral account designated as "Telxon Cash Collateral
Account" (the "CASH COLLATERAL ACCOUNT"). The Borrower may from time to time
make one or more deposits into the Cash Collateral Account. The Borrower
hereby pledges to the Agent for its benefit, the benefit of the Issuer and the
pro rata benefit of the Lenders, a Lien on and security interest in the Cash
Collateral Account and all sums at any time and from time to time on deposit
therein (the Cash Collateral Account, together with all sums on deposit therein
being sometimes hereinafter collectively referred to as the "CASH COLLATERAL"),
as collateral security for the prompt payment in full when due, whether at
stated maturity, by acceleration or otherwise, of all the obligations of the
Borrower under the Loan Documents (the "OBLIGATIONS"). The Borrower agrees
that at any time and from time to time at its expense, it will promptly execute
and deliver to the Agent any further instruments and documents, and take any
further actions, that may be necessary or that the Agent may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Agent to exercise and enforce
its rights and remedies hereunder with respect to any Cash Collateral. The
Borrower agrees that it will not (a) sell or otherwise dispose of any of the
Cash Collateral, or (b) create or permit to exist any Lien upon any of the Cash
Collateral, except for the Lien created by this Agreement. The Borrower hereby
authorizes the Agent, promptly after each drawing under each Letter of Credit,
to apply any and all cash on deposit in the Cash Collateral Account towards the
reimbursement of the Issuer for all sums paid in respect of such drawing and
all other Obligations which shall then be due and owing.
2.14 Use of Proceeds and Letters of Credit
-------------------------------------
The Borrower covenants and agrees that on and after the first
Credit Date the Borrower shall use the proceeds of
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<PAGE> 32
the Loans and cause Letters of Credit to be issued in connection with its
general corporate purposes and the general corporate purposes of its
Subsidiaries in a manner not inconsistent with the provisions of the Loan
Documents. Notwithstanding anything to the contrary contained in any Loan
Document, the Borrower further covenants and agrees that no part of the
proceeds of any Loan will be used, directly or indirectly, for a purpose which
violates any law, rule or regulation of any Governmental Authority, including
the provisions of Regulations G, U or X of the Board of Governors of the
Federal Reserve System, as amended.
3. PROCEEDS, PAYMENTS, CONVERSIONS, INTEREST, YIELD PROTECTION AND FEES
--------------------------------------------------------------------
3.1 Disbursement of the Proceeds of the Loans
-----------------------------------------
The Agent shall disburse the proceeds of the Loans (other than the
Swing Line Loans) at its office designated in Section 11.2 by crediting to the
general deposit account (maintained with the Agent) of the Borrower the funds
received from each Lender. Unless the Agent shall have received prior notice
from a Lender (by telephone or otherwise, but not "voice mail" or any similar
service, such notice to be confirmed by facsimile or other writing) that such
Lender will not make available to the Agent such Lender's Commitment Percentage
of the Loans requested by the Borrower on a Credit Date, the Agent may assume
that such Lender has made such amount available to the Agent on such Credit
Date in accordance with this Section 3.1, provided that such Lender received
notice of the proposed borrowing from the Agent, and the Agent may, in reliance
upon such assumption, make available to the Borrower on such Credit Date a
corresponding amount. If and to the extent such Lender shall not have so made
such amount available to the Agent, such Lender and the Borrower severally
agree to pay to the Agent, forthwith on demand, such corresponding amount (to
the extent not previously paid by the other), together with interest thereon
for each day from the date such amount is made available to the Borrower until
the date such amount is paid to the Agent, at a rate per annum equal to, in the
case of the Borrower, the applicable interest rate set forth in Section 3.4(a)
and, in the case of such Lender, the Federal Funds Effective Rate for the first
three Domestic Business Days after such funding was so made available by the
Agent, and 1% plus the Federal Funds Effective Rate thereafter. Any such
payment by the Borrower shall be without prejudice to its rights against such
Lender. If such Lender shall pay to the Agent such corresponding amount, such
amount so paid shall constitute such Lender's Loan as part of such Loans for
purposes of this Agreement,
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<PAGE> 33
which Loan shall be deemed to have been made by such Lender on the Credit Date
applicable to such Loans.
3.2 Payments
--------
(a) Each payment, including each prepayment, of principal and
interest on the Loans, of the Commitment Fee, the Letter of Credit Fee and the
Utilization Fee (collectively, together with all other fees to be paid to the
Agent, the Issuer, the Swing Line Lender and the Lenders in connection with
this Agreement, the "FEES"), and all other amounts payable by the Borrower
under the Loan Documents shall be made by the Borrower to the Agent at its
office set forth in Section 11.2 in funds immediately available in New York by
1:00 P.M. on the due date for such payment. The failure of the Borrower to
make any such payment by such time shall not constitute a default hereunder if
such payment is made on such due date, but any such payment made after 1:00
P.M. on such due date shall be deemed to have been made on the next Domestic
Business Day or Eurodollar Business Day, as the case may be, for the purpose of
calculating interest on amounts outstanding on the applicable Loans. Promptly
upon receipt thereof by the Agent, each payment of principal and interest on
the Loans shall be remitted by the Agent in like funds as received to each
Lender pro rata according to its pro rata share of the Loans being paid.
Promptly upon receipt thereof by the Agent, each payment of the Commitment Fee,
the Utilization Fee and the Letter of Credit Fee shall be remitted by the Agent
in like funds as received to each Lender pro rata according to such Lender's
Revolving Commitment Amount.
(b) If any payment hereunder or under the Loans shall be due
and payable on a day which is not a Domestic Business Day or Eurodollar
Business Day, as the case may be, the due date thereof (except as otherwise
provided in the definition of Interest Period) shall be extended to the next
Domestic Business Day or Eurodollar Business Day, as the case may be, and
interest shall be payable at the applicable rate specified herein during such
extension.
3.3 Conversions; Other Matters
--------------------------
(a) The Borrower may elect at any time and from time to time to
convert one or more Eurodollar Advances to an ABR Advance by giving the Agent
irrevocable notice of such election prior to 11:30 A.M. on the same Domestic
Business Day as that designated for conversion, specifying the amount to be so
converted, provided, that any such conversion shall only be made on the last
day of the Interest Period applicable to each such Eurodollar Advance. In
addition, the Borrower may elect from time to time to convert an ABR Advance to
any one or more new Eurodollar Advances or to convert any one or more existing
- 33 -
<PAGE> 34
Eurodollar Advances to any one or more new Eurodollar Advances by giving the
Agent irrevocable notice of such election by no later than 3:00 P.M. three
Eurodollar Business Days prior thereto, specifying the amount to be so
converted and the initial Interest Period relating thereto, provided that (i)
any such conversion of an ABR Advance to a Eurodollar Advance shall only be
made on a Eurodollar Business Day, and (ii) any such conversion of an existing
Eurodollar Advance shall only be made on the last day of the Interest Period
applicable thereto. The Agent shall promptly provide the Lenders with notice
of each such election. Loans may be converted pursuant to this Section 3.3 in
whole or in part, provided that the amount to be converted to each Eurodollar
Advance, when aggregated with any Eurodollar Advance to be made on such date
and having the same Interest Period as such first Eurodollar Advance, shall
equal no less than $5,000,000 or an integral multiple of $250,000 in excess
thereof.
(b) Notwithstanding anything in this Agreement to the contrary,
upon the occurrence and during the continuance of a Default or an Event of
Default, the Borrower shall have no right to elect to convert any existing ABR
Advance to a new Eurodollar Advance or to convert any existing Eurodollar
Advance to a new Eurodollar Advance. In such event, any such ABR Advance shall
be automatically continued as an ABR Advance or any such Eurodollar Advance
shall be automatically converted to an ABR Advance on the last day of the
Interest Period applicable to such Eurodollar Advance.
(c) Each such conversion shall be effected by each Lender by
applying the proceeds of the new ABR Advance or Eurodollar Advance, as the case
may be, to the existing Advance (or portion thereof) being converted (it being
understood that such conversion shall not constitute a borrowing for purposes
of Sections 4, 5 or 6).
(d) Notwithstanding any other provision of any other Loan
Document:
(i) If the Borrower shall have failed to elect a Eurodollar
Advance under Section 2.5 or 3.3, as the case may be, in connection with any
borrowing of new Loans or expiration of an Interest Period with respect to
any existing Eurodollar Advance, the amount of the Loans subject to such
borrowing or such existing Eurodollar Advance shall thereafter be an ABR
Advance until such time, if any, as the Borrower shall elect a new
Eurodollar Advance pursuant to this Section 3.3,
(ii) The Borrower shall not be permitted to select any type
of Advances other than ABR Advances in respect of the Swing Line Loans, and
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<PAGE> 35
(iii) The Borrower shall not be permitted to have more than 8 Eurodollar
Advances outstanding at any one time.
3.4 Interest Rates and Payment Dates
--------------------------------
(a) PRIOR TO MATURITY. Except as otherwise provided in Section
3.4(b) and Section 3.4(c), the Advances shall bear interest on the unpaid
principal balance thereof at the applicable interest rate or rates per annum
set forth below:
<TABLE>
<CAPTION>
ADVANCES RATE
-------- ----
<S> <C>
Each ABR Advance Alternate Base Rate PLUS
the Applicable Margin.
Each Eurodollar Advance Eurodollar Rate applicable
thereto PLUS the Applicable Margin.
</TABLE>
(b) DEFAULT RATE. Upon the occurrence and during the
continuance of any Event of Default, the unpaid principal balance of each Loan
shall bear interest at a rate per annum equal to 2% plus the rate which would
otherwise be applicable pursuant to Section 3.4(a) (the "DEFAULT RATE").
Interest accrued at the Default Rate shall be payable on demand.
(c) HIGHEST LAWFUL RATE. Notwithstanding anything to the
contrary contained in this Agreement, at no time shall the interest rate
payable on the Loans, together with the Fees and other amounts payable
hereunder to the extent the same constitute or are deemed to constitute
interest, exceed the Highest Lawful Rate. If in respect of any period during
the term of this Agreement, any amount paid hereunder, to the extent the same
shall (but for the provisions of this Section 3.4) constitute or be deemed to
constitute interest, would exceed the maximum amount of interest permitted by
the Highest Lawful Rate during such period (such amount being hereinafter
referred to as an "UNQUALIFIED AMOUNT"), then (i) such Unqualified Amount shall
be applied or shall be deemed to have been applied as a prepayment of the
Loans, and (ii) if in any subsequent period during the term of this Agreement,
all amounts payable hereunder in respect of such period which constitute or
shall be deemed to constitute interest shall be less than the maximum amount of
interest permitted by the Highest Lawful Rate during such period, then the
Borrower shall pay to the Lender in respect of such period an amount (each a
"COMPENSATORY INTEREST PAYMENT") equal to the lesser of (x) a sum which, when
added to all such amounts, would equal the maximum amount of interest permitted
by the Highest Lawful Rate during such period, and (y) an amount equal to the
- 35 -
<PAGE> 36
aggregate sum of all Unqualified Amounts less all other Compensatory Interest
Payments.
(d) LATE PAYMENT RATE. Each payment of interest on any Loan,
and each payment of any Fee or other payment payable under any Loan Document,
not paid within three Domestic Business Days of the date when due and payable
shall bear interest, to the extent permitted by law, payable on demand by the
Agent at the Default Rate from the due date thereof until the date such payment
is made.
(e) IN GENERAL. Interest shall be payable in arrears on each
Interest Payment Date and upon each payment (including each prepayment) of the
Loans. Any change in the interest rate on the Loans resulting from a change in
the Alternate Base Rate, any reserve requirement, or any deposit insurance
assessment shall become effective as of the opening of business on the day on
which such change shall become effective. The Agent shall, as soon as
practicable, notify the Borrower and the Lenders of the effective date and the
amount of any change in the BNY Rate, but any failure to so notify shall not in
any manner affect the obligation of the Borrower to pay interest on the Loans
in the amounts and on the dates set forth herein. Each determination by the
Agent of the Alternate Base Rate and the Eurodollar Rate pursuant to this
Agreement shall be conclusive and binding on the Borrower absent manifest
error. The Borrower acknowledges that to the extent interest payable on the
Loans is based on the Alternate Base Rate, such rate is only one of the bases
for computing interest on loans made by the Lenders, and by basing interest
payable on the ABR Advances on the Alternate Base Rate, the Lenders have not
committed to charge, and the Borrower has not in any way bargained for,
interest based on a lower or the lowest rate at which the Lenders may now or in
the future make extensions of credit to other Persons. Interest on Eurodollar
Advances and ABR Advances determined with reference to the Federal Funds
Effective Rate shall be calculated on the basis of a 360 day year for the
actual number of days elapsed. Interest on ABR Advances determined with
reference to the BNY Rate shall be calculated on the basis of a 365/6 day year
for the actual number of days elapsed.
3.5 Indemnification for Loss
------------------------
Notwithstanding anything contained herein to the contrary, if the
Borrower shall fail to borrow or convert an Advance after it shall have given
notice to do so in which it shall have requested a Eurodollar Advance pursuant
to Section 2.5 or 3.3, as the case may be, or if a Eurodollar Advance shall be
terminated for any reason prior to the last day of the Interest Period
applicable thereto, or if any repayment or prepayment of the principal amount
of a Eurodollar Advance is
- 36 -
<PAGE> 37
made for any reason on a date which is prior to the last day of the Interest
Period applicable thereto, the Borrower agrees to indemnify each Lender
against, and to pay on demand directly to such Lender the amount (calculated by
such Lender using any method chosen by such Lender which is reasonable and
customarily used by such Lender for such purpose) equal to any loss or
reasonable expense suffered by such Lender to the extent resulting from such
failure to borrow or convert, or such termination, repayment or prepayment,
including any loss, cost or expense suffered by such Lender in liquidating or
employing deposits acquired to fund or maintain the funding of such Eurodollar
Advance, or redeploying funds prepaid or repaid, in amounts which correspond to
such Eurodollar Advance.
3.6 Reimbursement for Costs, Etc.
-----------------------------
(a) If at any time or from time to time there shall occur a
Regulatory Change and the Issuer, the Swing Line Lender or any Lender shall
have determined that such Regulatory Change (i) shall have had the effect of
reducing (A) the rate of return on the Issuer's, the Swing Line Lender's or
such Lender's capital or the capital of any Person directly or indirectly
owning or controlling the Issuer, the Swing Line Lender or such Lender (each a
"CONTROL PERSON"), or (B) the asset value (for capital purposes) to the Issuer,
the Swing Line Lender or such Lender or such Control Person, as applicable, of
the Reimbursement Obligations, any participation therein, or the Loans or any
participation therein, in any case to a level below that which the Issuer, the
Swing Line Lender or such Lender or such Control Person would have achieved but
for such Regulatory Change (after taking into account the Issuer's, the Swing
Line Lender's or such Lender's or such Control Person's policies regarding
capital), (ii) imposes, modifies or deems applicable any reserve, asset,
special deposit or special assessment requirements on deposits obtained in the
interbank eurodollar market in connection with this Agreement, the Notes and
the Reimbursement Agreements (excluding, with respect to any Eurodollar
Advance, any such requirement which is included in the determination of the
rate applicable thereto), (iii) subjects the Issuer, the Swing Line Lender or
such Lender, as applicable, to any tax (documentary, stamp or otherwise) with
respect to this Agreement, any Note, or any Reimbursement Agreement, or (iv)
changes the basis of taxation of payments to the Issuer, the Swing Line Lender
or such Lender, as applicable, of principal, interest or fees payable under
this Agreement, any Note or any Reimbursement Agreement (except for any tax, or
changes in the rate of tax on the Issuer's, the Swing Line Lender's or such
Lender's net income imposed by the United States or any other jurisdiction)
then, in each such case, within ten days after receipt by the Borrower of a
certificate with respect thereto given in accordance with Section 3.9 by the
Issuer, the Swing Line Lender
- 37 -
<PAGE> 38
or such Lender, as applicable, the Borrower shall pay to the Issuer, the Swing
Line Lender, such Lender or such Control Person, as the case may be, such
additional amount or amounts as shall be sufficient to compensate the Issuer,
the Swing Line Lender, such Lender or such Control Person, as the case may be,
for (1) any such reduction referred to in clause (a)(i) of this Section 3.6,
and (2) any taxes, losses, costs or expenses (excluding general administrative
and overhead costs) attributable to the Issuer's, such Lender's or such Control
Person's compliance during the term hereof with such Regulatory Change.
(b) The Issuer, the Swing Line Lender and each Lender agrees
to provide the Borrower with notice of each Regulatory Change which would
require the Borrower to make a payment to the Issuer or such Lender under this
Section 3.6 promptly upon the Issuer or such Lender obtaining actual knowledge
thereof and determining that it intends to require the Borrower to make such
payment.
(c) Each of the Issuer, the Swing Line Lender and each Lender
will, at the request of the Borrower, designate a different lending office if
such designation (i) will avoid the need for, or minimize the amount of, any
compensation to which the Issuer, the Swing Line Lender or such Lender, as the
case may be, is entitled pursuant to this Section 3.6, and (ii) will not, in
the sole judgment of the Issuer, the Swing Line Lender or such Lender, as the
case may be, be otherwise disadvantageous to it.
3.7 Illegality of Funding
---------------------
Notwithstanding any other provision hereof, if after the date
hereof any Lender shall reasonably determine that any law, regulation, treaty
or directive, or any change therein or in the interpretation or application
thereof, shall make it unlawful for such Lender to make or maintain any
Eurodollar Advance as contemplated by this Agreement, (a) the commitment of
such Lender to make Eurodollar Advances or convert ABR Advances to Eurodollar
Advances shall forthwith be suspended, and (b) such Lender's Loans then
outstanding as Eurodollar Advances, if any, shall be converted automatically to
an ABR Advance on the last day of the then current Interest Period applicable
thereto or at such earlier time as may be required. If the commitment of any
Lender with respect to any Eurodollar Advances is suspended pursuant to this
Section 3.7 and such Lender shall notify the Agent and the Borrower that it is
once again legal for such Lender to make or maintain Eurodollar Advances, such
Lender's commitment to make or maintain Eurodollar Advances shall be
reinstated.
- 38 -
<PAGE> 39
3.8 Option to Fund; Substituted Interest Rate
-----------------------------------------
(a) Each Lender has indicated that, if the Borrower requests
a Eurodollar Advance, such Lender may wish to purchase one or more deposits in
order to fund or maintain its funding of its Commitment Percentage of such
Eurodollar Advance during the Interest Period with respect thereto; it being
understood that the provisions of this Agreement relating to such funding are
included only for the purpose of determining the rate of interest to be paid in
respect of such Eurodollar Advance and any amounts owing under Sections 3.5 and
3.6. Each Lender shall be entitled to fund and maintain its funding of all or
any part of each Eurodollar Advance in any manner it sees fit, but all such
determinations hereunder shall be made as if each Lender had actually funded
and maintained its Commitment Percentage of each Eurodollar Advance during the
applicable Interest Period through the purchase of deposits in an amount equal
to its Commitment Percentage of such Eurodollar Advance having a maturity
corresponding to such Interest Period. Any Lender may fund its Commitment
Percentage of each Eurodollar Advance from or for the account of any branch or
office of such Lender as such Lender may choose from time to time.
(b) In the event that (i) the Agent shall have determined
(which determination shall be conclusive and binding upon the Borrower) that by
reason of circumstances affecting the interbank eurodollar market either
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate
applicable pursuant to Section 2.5 or Section 3.3, or (ii) Required Lenders
shall have notified the Agent of their determination (which determination shall
be conclusive and binding on the Borrower) that the applicable Eurodollar Rate
will not adequately and fairly reflect the cost to the Lenders of maintaining
or funding loans bearing interest based on such Eurodollar Rate with respect to
any portion of the Loans that the Borrower has requested be made as a
Eurodollar Advance or any Eurodollar Advance that will result from the
requested conversion of any portion of the Loans into a Eurodollar Advance
(each, an "AFFECTED ADVANCE"), the Agent shall promptly notify the Borrower and
the Lenders (by telephone or otherwise, to be promptly confirmed in writing) of
such determination on or, to the extent practicable, prior to the requested
Credit Date or conversion date for such Affected Advance. If the Agent shall
give such notice, (A) any Affected Advances shall be made as ABR Advances, (B)
the Loans (or any portion thereof) that were to have been converted to Affected
Advances shall be converted to or continued as ABR Advances, and (C) any
outstanding Affected Advances shall be converted, on the last day of the then
current Interest Period with respect thereto, to ABR Advances. The Agent shall
withdraw any notice under clause (i) or (ii), as the case may be, of this
Section 3.8(b) by notice
- 39 -
<PAGE> 40
to the Borrower promptly upon (x) in the case of clause (i), the Agent having
determined that such circumstances affecting the relevant market no longer
exist and that adequate and reasonable means do exist for determining the
Eurodollar Rate pursuant to Section 2.5 or Section 3.3, or (y) the Agent having
been notified by Required Lenders that circumstances no longer render the Loans
(or any portion thereof) Affected Advances, and until such withdrawal of a
notice under clause (i) or (ii), as the case may be, of this Section 3.8(b), no
further Eurodollar Advances of the affected type shall be required to be made
by the Lenders nor shall the Borrower have the right to convert all or any
portion of the Loans to such type of Eurodollar Advances.
3.9 Certificates of Payment and Reimbursement
-----------------------------------------
The Issuer, the Swing Line Lender and each Lender agrees, in
connection with any request by it to the Borrower for payment or reimbursement
pursuant to Section 3.5 or 3.6, to provide the Borrower with a certificate,
signed by an officer of the Issuer, the Swing Line Lender or such Lender,
setting forth a description in reasonable detail of the amount and nature of
any such payment or reimbursement. The Issuer's and each Lender's, and the
Swing Line Lender's, determination of such payment or reimbursement shall be
conclusive absent manifest error.
3.10 Taxes; Net Payments
-------------------
(a) All payments made by the Borrower to the Agent, any
Lender, the Swing Line Lender and the Issuer under the Loan Documents shall be
made free and clear of, and without reduction for or on account of, any taxes
required by law to be withheld from any amounts payable under the Loan
Documents excluding, in the case of the Agent, the Issuer, the Swing Line
Lender and each Lender, net income and franchise taxes imposed (including,
without limitation, branch taxes imposed by the United States or similar taxes
imposed by a political subdivision or taxing authority thereof) on the Agent,
the Issuer, the Swing Line Lender or such Lender, as the case may be, by the
jurisdiction under the laws of which such Person is organized or any political
subdivision or taxing authority thereof or therein, or by any jurisdiction in
which such Person's lending office is located or any political subdivision or
taxing authority thereof or therein (all such non-excluded taxes being
hereinafter called "TAXES"). In the event that the Borrower is prohibited by
law from making payments hereunder free of deductions or withholdings in
respect of Taxes, then the Borrower shall pay such additional amounts to the
Agent, for the benefit of the Issuer, the Swing Line Lender and the Lenders, as
may be necessary in order that the actual amounts received by the Issuer, the
Swing Line Lender
- 40 -
<PAGE> 41
and each Lender in respect of interest and any other amounts payable hereunder
or under its Note after deduction or withholding (and after payment of any
additional taxes or other charges due as a consequence of the payment of such
additional amounts) shall equal the amount that would have been received if
such deduction or withholding were not required. In the event that any such
deduction or withholding with respect to Taxes can be reduced or nullified as a
result of the application of any relevant double taxation convention, the
Agent, the Issuer, the Swing Line Lender or the relevant Lender, as the case
may be, will (unless it would be otherwise disadvantageous to it) cooperate
with the Borrower (at the sole expense of the Borrower) in making application
to the relevant taxing authorities seeking to obtain such reduction or
nullification, provided, however, that the Agent, the Issuer, the Swing Line
Lender and the Lenders shall have no obligation to engage in litigation with
respect thereto. If the Borrower shall make any payments under this Section
3.10 or shall make any deductions or withholdings from amounts paid hereunder
in accordance with this Section 3.10, the Borrower shall, as promptly as
practicable thereafter, forward to the Agent original or certified copies of
official receipts or other evidence acceptable to the Agent establishing such
payment and the Agent in turn shall distribute copies of such receipts to each
Lender. If payments to the Issuer, the Swing Line Lender or any Lender
hereunder are or become subject to any withholding, the Issuer, the Swing Line
Lender or such Lender shall (unless otherwise required by a Governmental
Authority or as a result of any law, rule, regulation, order or similar
directive applicable to the Issuer, the Swing Line Lender or such Lender)
designate a different office or branch to which payments are to be made under
the Loan Documents from that initially selected by the Issuer, the Swing Line
Lender or such Lender, if such designation would avoid or mitigate such
withholding and would not be otherwise disadvantageous to the Issuer, the Swing
Line Lender or such Lender in any respect. In the event that the Issuer, the
Swing Line Lender or any Lender shall have determined that it received a refund
or credit for Taxes paid by the Borrower under this Section 3.10, the Issuer,
the Swing Line Lender or such Lender shall promptly notify the Agent and the
Borrower of such fact and shall remit to the Borrower the amount of such refund
or credit applicable to the payments made by the Borrower in respect of the
Issuer, the Swing Line Lender or such Lender under this Section 3.10.
(b) Each Lender not incorporated under the laws of the United
States or any State thereof shall deliver to the Borrower such certificates,
documents, or other evidence as the Borrower may reasonably require from time
to time as are necessary to establish that such Lender is not subject to
withholding under Section 1441, 1442 or 3406 of the Code or as
- 41 -
<PAGE> 42
may be necessary to establish, under any law imposing upon the Borrower,
hereafter, an obligation to withhold any portion of the payments made by the
Borrower under the Loan Documents, that payments to the Agent on behalf of such
Lender are not subject to withholding. Notwithstanding any provision herein to
the contrary, the Borrower shall have no obligation to pay to the Issuer, the
Swing Line Lender or any Lender any amount which the Borrower is liable to
withhold due to the failure of the Issuer, the Swing Line Lender or such Lender
to file any statement of exemption required by the Code.
3.11 Commitment Fees
---------------
The Borrower agrees to pay to the Agent for the pro rata account of
the Lenders a fee (the "COMMITMENT FEE"), payable quarterly in arrears on the
last day of each March, June, September and December of each year, commencing
on the last day of the fiscal quarter in which the Effective Date shall have
occurred, and on the Commitment Termination Date, at a rate per annum equal to
the Applicable Margin, on the average daily excess of (a) the Aggregate
Revolving Commitment Amount, over (b)(i) the aggregate outstanding principal
balance of the Revolving Loans, PLUS (ii) the aggregate Letter of Credit
Exposure, PLUS (iii) the aggregate outstanding principal balance of the Swing
Line Loans. In addition, upon each reduction of the Aggregate Revolving
Commitment Amount, the Borrower shall pay the Commitment Fee accrued on the
amount of such reduction through the date of such reduction. The Commitment
Fee shall be computed on the basis of a 360 day year for the actual number of
days elapsed.
3.12 Letter of Credit Fee
--------------------
The Borrower agrees to pay to the Agent, for the pro rata account
of the Lenders, fees (each a "LETTER OF CREDIT FEE") with respect to each
Letter of Credit for the period from and including the date of issuance thereof
to and including the expiration date thereof, at a rate per annum equal to the
Applicable Margin for Eurodollar Advances in effect on the date such Letter of
Credit Fee becomes payable MULTIPLIED BY the average daily amount available to
be drawn under such Letter of Credit. Each Letter of Credit Fee shall be (i)
calculated on the basis of a 360 day year for the actual number of days
elapsed, and (ii) payable quarterly in arrears on the last day of each March,
June, September and December of each year, and on the expiration or
cancellation of such Letter of Credit.
3.13 Utilization Fee
---------------
The Borrower agrees to pay to the Agent, for the pro rata account
of the Lenders, a fee (the "UTILIZATION
- 42 -
<PAGE> 43
FEE"), payable quarterly in arrears on the last day of each March, June,
September and December of each year, commencing on the last day of the fiscal
quarter of the Borrower in which the Effective Date shall have occurred, and on
the Commitment Termination Date, at a rate per annum (calculated on the basis
of a 360 day year for the actual number of days elapsed) equal to the
Applicable Margin, on the average outstanding daily balance of the Eurodollar
Advances for each day upon which the Aggregate Revolving Credit Exposure
exceeds 50% of the Aggregate Revolving Commitment Amount.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Agent to enter into this Agreement, to induce the
Issuer to enter into this Agreement and to issue the Letters of Credit, to
induce the Swing Line Lender to enter this Agreement and to make Swing Line
Loans, and to induce the Lenders to enter into this Agreement, to participate
in the Reimbursement Obligations and the Swing Line Loans and to make the
Loans, the Borrower hereby makes the following representations and warranties
to the Agent, the Issuer, the Swing Line Lender and the Lenders:
4.1 Subsidiaries; Capital Stock
---------------------------
As of the date of this Agreement, the Borrower has only the
Subsidiaries set forth on, and the authorized, issued and outstanding capital
stock of the Borrower and each such Subsidiary (or partnership or other
interests, as the case may be) is as set forth on, Schedule 4.1. As of the
date of this Agreement, the only Material Subsidiaries of the Borrower are
indicated as such on Schedule 4.1. As of the date of this Agreement, except as
set forth on Schedule 4.1, the shares of, or partnership or other interests in,
each Subsidiary are owned beneficially and of record by the Borrower or another
Subsidiary, are free and clear of all Liens except as permitted by Section 8.2,
and are duly authorized, validly issued, fully paid and nonassessable. As of
the date of this Agreement, except as set forth on Schedule 4.1, (a) neither
the Borrower nor any Subsidiary has issued any securities convertible into, or
options or warrants for, any common or preferred equity securities thereof, (b)
there are no agreements, voting trusts or understandings binding upon the
Borrower or any Subsidiary with respect to the voting securities of the
Borrower or any Subsidiary or affecting in any manner the sale, pledge,
assignment or other disposition thereof, including any right of first refusal,
option, redemption, call or other right with respect thereto, whether similar
or dissimilar to any of the foregoing, and (c) all of the outstanding capital
stock of each Subsidiary is owned by the Borrower or another Subsidiary.
- 43 -
<PAGE> 44
4.2 Existence and Power
-------------------
Each of the Borrower and each of its Subsidiaries is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, has all requisite power and authority to own its
Property and to carry on its business as now conducted, and is in good standing
and authorized to do business in each jurisdiction in which the failure so to
qualify could reasonably be expected to have a Material Adverse effect.
4.3 Authority
---------
Each of the Borrower and each of its Subsidiaries has full power
and authority to own its Property, conduct its business, and enter into,
execute, deliver and perform the terms of the Loan Documents to which it is a
party, all of which have been duly authorized by all proper and necessary
corporate, partnership or other action, as the case may be, and are in full
compliance with its certificate of incorporation and by-laws or partnership
agreement and/or other organic documents, as the case may be. No consent or
approval of, notice to, filing with, or other action by, shareholders of the
Borrower, any Governmental Authority or any other Person, which has not already
been obtained, is required to authorize in respect of the Borrower or any of
its Subsidiaries, or is required in connection with the execution, delivery and
performance by the Borrower and each of its Subsidiaries of, the Loan Documents
to which it is a party, or is required as a condition to the enforceability
against the Borrower or such Subsidiary of the Loan Documents to which it is a
party.
4.4 Binding Agreement
-----------------
The Loan Documents constitute the valid and legally binding
obligations of the Borrower and each of its Subsidiaries to the extent the
Borrower or such Subsidiary, as the case may be, is a party thereto,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by equitable principles relating to the
availability of specific performance as a remedy.
4.5 Litigation
----------
Except as set forth on Schedule 4.5, there are no actions, suits,
arbitration proceedings or claims (whether purportedly on behalf of the
Borrower, any of its Subsidiaries or otherwise) pending or, to the knowledge of
the Borrower, threatened against the Borrower or any of its Subsidiaries, or
maintained by the Borrower or any of its Subsidiaries, or
- 44 -
<PAGE> 45
which may affect the Property of the Borrower or such Subsidiary, at law or in
equity, before any Governmental Authority, which could reasonably be expected
to have a Material Adverse effect. There are no proceedings pending or, to the
knowledge of the Borrower, threatened against the Borrower or any of its
Subsidiaries (a) which call into question the validity or enforceability of, or
otherwise seek to invalidate any Loan Document, or (b) which might,
individually or in the aggregate, materially and adversely affect any of the
transactions contemplated by any Loan Document.
4.6 No Conflicting Agreements
-------------------------
(a) Neither the Borrower nor any of its Subsidiaries is in
default under any agreement to which it is a party or by which it or any of its
Property is bound, unless the effect of such default could not reasonably be
expected to have a Material Adverse effect.
(b) No provision of any statute, rule, regulation, judgment,
directive, decree or order, or any existing material mortgage, indenture,
contract or agreement, in each case binding on the Borrower or any of its
Subsidiaries or affecting the Property of the Borrower or any of its
Subsidiaries conflicts with, or requires any consent which has not already been
obtained under, or would in any way prohibit the execution, delivery or
performance by the Borrower or any of its Subsidiaries of the terms of, any
Loan Document. The execution, delivery or performance by the Borrower and each
of its Subsidiaries of the terms of each Loan Document to which it is a party
will not constitute a default under, or result in the creation or imposition
of, or obligation to create, any Lien upon the Property of the Borrower or any
of its Subsidiaries pursuant to the terms of any such mortgage, indenture,
contract or agreement which defaults or Liens, individually or in the
aggregate, would have or result in a Material Adverse effect.
4.7 Taxes
-----
The Borrower and each of its Subsidiaries has filed or caused to be
filed all tax returns, and has paid, or has made adequate provision for the
payment of, all taxes shown to be due and payable on said returns or in any
assessments made against them, the failure of which to file or pay could
reasonably be expected to have a Material Adverse effect, and no tax Liens have
been filed against the Borrower or any of its Subsidiaries and no claims are
being asserted with respect to such taxes which are required by GAAP (as in
effect on the Effective Date) to be reflected in the Financial Statements and
are not so reflected therein. The charges, accruals and
- 45 -
<PAGE> 46
reserves on the books of the Borrower and each of its Subsidiaries with respect
to all federal, state, local and other taxes are considered by the management
of the Borrower to be adequate, and the Borrower knows of no unpaid assessment
which is or might be due and payable against it or any of its Subsidiaries or
any Property of the Borrower or any of its Subsidiaries, except such thereof as
are being contested in good faith and by appropriate proceedings diligently
conducted, and for which adequate reserves have been set aside in accordance
with GAAP.
4.8 Compliance with Applicable Laws; Filings
----------------------------------------
Neither the Borrower nor any of its Subsidiaries is in default with
respect to any judgment, order, writ, injunction, decree or decision of any
Governmental Authority which default could reasonably be expected to have a
Material Adverse effect. The Borrower and each of its Subsidiaries is
complying with all applicable statutes, rules and regulations of all
Governmental Authorities, a violation of which could reasonably be expected to
have a Material Adverse effect. The Borrower and each of its Subsidiaries has
filed or caused to be filed with all Governmental Authorities all reports,
applications, documents, instruments and information required to be filed
pursuant to all applicable laws, rules, regulations and requests which, if not
so filed, could reasonably be expected to have a Material Adverse effect.
4.9 Governmental Regulations
------------------------
Neither the Borrower nor any of its Subsidiaries nor any
corporation controlled by, controlling, or under common control with, the
Borrower or any of its Subsidiaries, is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, or the Investment
Company Act of 1940, in each case as amended, or is subject to any statute or
regulation which regulates the incurrence of Indebtedness, including statutes
or regulations relative to common or contract carriers or to the sale of
electricity, gas, steam, water, telephone, telegraph or other public utility
services.
4.10 Property
--------
Each of the Borrower and each of its Material Subsidiaries has good
and marketable title to, or a valid leasehold interest in, all of its real
property, and is the owner of, or has a valid lease of, all personal property,
in each case which is material to the Borrower or such Material Subsidiary,
(except for minor defects in title that do not interfere with its ability to
conduct its business as currently conducted), subject to no Liens, except such
Liens permitted
- 46 -
<PAGE> 47
by Section 8.2. All leases of material Property to each of the Borrower and
each of its Material Subsidiaries are in full force and effect, the Borrower or
such Material Subsidiary enjoys quiet and undisturbed possession under all
leases of real property and neither the Borrower nor any of its Material
Subsidiaries is in default beyond any applicable grace period of any material
provision thereof. The foregoing representation is not intended to benefit any
title insurer or other third party in respect of Property owned by the Borrower
or any of its Material Subsidiaries by way of subrogation or otherwise.
4.11 Federal Reserve Regulations; Use of Loan Proceeds
-------------------------------------------------
Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any Margin Stock.
After giving effect to the making of each Loan, Margin Stock will constitute
less than 25% of the assets (as determined by any reasonable method) of the
Borrower and its Subsidiaries. Anything in this Agreement to the contrary
notwithstanding, no Lender shall be obligated to extend credit to the Borrower
in violation of any limitation or prohibition provided by any applicable law,
regulation or statute, including Regulation U of the Board of Governors of the
Federal Reserve System.
4.12 No Misrepresentation
--------------------
No representation or warranty contained in any Loan Document and no
certificate, Financial Statement, annual audited or quarterly unaudited
Consolidated financial statement furnished pursuant to Section 7.7(a) or
7.7(c), or written notice furnished or to be furnished by the Borrower or any
Subsidiary pursuant to Section 7.7, contains or will contain, as of its date, a
misstatement of material fact, or omits or will omit to state, as of its date,
a material fact required to be stated in order to make the statements therein
contained not misleading in the light of the circumstances under which made.
4.13 Plans
-----
Each Employee Benefit Plan of the Borrower, each of its Domestic
Subsidiaries and each ERISA Affiliate is in compliance with ERISA and the Code,
where applicable, in all material respects. At the date hereof (a) the amount
of all Unfunded Pension Liabilities under the Pension Plans, excluding any
Pension Plan which is a Multiemployer Plan, does not exceed $0, (b) the amount
of the aggregate Unrecognized Retiree Welfare Liability under all applicable
Employee Benefit Plans does not exceed $0, and (c) the Borrower, its Domestic
- 47 -
<PAGE> 48
Subsidiaries and its ERISA Affiliates have only the Employee Benefit Plans
listed on Schedule 4.13. The Borrower, each of its Domestic Subsidiaries and
each ERISA Affiliate have complied with the requirements of Section 515 of
ERISA with respect to each Pension Plan which is a Multiemployer Plan. At the
date hereof, the aggregate potential annual withdrawal liability payments, as
determined in accordance with Title IV of ERISA, for which the Borrower, each
of its Domestic Subsidiaries and each ERISA Affiliate would become obligated in
the event of a complete or partial withdrawal from all Pension Plans which are
Multiemployer Plans does not exceed $0. The Borrower, each of its Domestic
Subsidiaries and each ERISA Affiliate has, as of the date hereof, made all
contributions or payments to or under each such Pension Plan required by law or
the terms of such Pension Plan or any contract or agreement. No material
liability to the PBGC has been, or is expected by the Borrower, any of its
Domestic Subsidiaries or any ERISA Affiliate to be, incurred by the Borrower,
any of its Domestic Subsidiaries or any ERISA Affiliate. Liability, as
referred to in this Section 4.13, includes any joint and several liability.
Each Employee Benefit Plan which is a group health plan within the meaning of
Section 5000(b)(1) of the Code is in material compliance with the continuation
of health care coverage requirements of Section 4980B of the Code.
4.14 Environmental Matters
---------------------
Except as set forth on Schedule 4.14, neither the Borrower nor any
of its Subsidiaries (a) has received written notice or otherwise learned of any
claim, demand, action, event, condition, report or investigation indicating or
concerning any potential or actual liability which individually or in the
aggregate could reasonably be expected to have a Material Adverse effect,
arising in connection with (i) any non-compliance with or violation of the
requirements of any applicable federal, state or local environmental health or
safety statute or regulation, or (ii) the release or threatened release of any
toxic or hazardous waste, substance or constituent, or other substance into the
environment, (b) to the best knowledge of the Borrower, has any threatened or
actual liability in connection with the release or threatened release of any
toxic or hazardous waste, substance or constituent, or other substance into the
environment which individually or in the aggregate could reasonably be expected
to have a Material Adverse effect, (c) has received notice of any federal or
state investigation evaluating whether any remedial action is needed to respond
to a release or threatened release of any toxic or hazardous waste, substance
or constituent or other substance into the environment for which the Borrower
or any of its Subsidiaries is or would be liable, which liability would
reasonably be expected to have a Material Adverse effect, or (d) has received
notice that the Borrower or any of
- 48 -
<PAGE> 49
its Subsidiaries is or may be liable to any Person under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
Section 9601 ET SEQ., or any analogous state law, which liability would
reasonably be expected to have a Material Adverse effect. The Borrower and
each of its Subsidiaries is in compliance with the financial responsibility
requirements of federal and state environmental laws to the extent applicable,
including those contained in 40 C.F.R., part 264, subpart H, and part 265,
subpart H, and any analogous state law, except in those cases in which the
failure so to comply would not reasonably be expected to have a Material
Adverse effect.
4.15 Financial Statements
--------------------
(a) The Borrower has heretofore delivered to the Lenders, the
Issuer, the Swing Line Lender and the Agent copies of its (i) audited
Consolidated Balance Sheet as of March 31, 1995, and the related Consolidated
Statement of Income and Retained Earnings, and Consolidated Statement of Cash
Flows, for the fiscal year then ended, and (ii) unaudited Consolidated Balance
Sheet as of December 31, 1995, and the related Consolidated Statement of Income
and Retained Earnings, and Consolidated Statement of Cash Flows, for the three
fiscal quarters then ended (collectively, together with the related notes and
schedules, the "FINANCIAL STATEMENTS"). The Financial Statements fairly
present the Consolidated financial condition and results of the operations of
the Borrower and its Subsidiaries as of the dates and for the periods indicated
therein and have been prepared in conformity with GAAP as then in effect
subject, in the case of interim Financial Statements, to normal year-end
adjustments and to a lack of footnotes. Neither the Borrower nor any of its
Subsidiaries has any obligation or liability of any kind (whether fixed,
accrued, contingent, unmatured or otherwise) which, in accordance with GAAP as
then in effect, should have been disclosed in the Financial Statements and was
not. Except as set forth on Schedule 4.15, since March 31, 1995, there has been
no Material Adverse change and the Borrower and its Subsidiaries have conducted
their businesses only in the ordinary course.
(b) The Borrower has heretofore delivered to the Lenders
copies of its unaudited Consolidating Balance Sheet as of March 31, 1995, and
the related Consolidating Statement of Income and Retained Earnings, and
Consolidating Statement of Cash Flows, for the fiscal year then ended, and such
financial statements fairly present the financial condition and results of the
operations of the Borrower and each Subsidiary, taken separately, as of the
dates and for the periods indicated therein.
- 49 -
<PAGE> 50
4.16 Franchises, Intellectual Property, Etc.
---------------------------------------
The Borrower and each of its Subsidiaries possesses or has the
right to use all franchises, Intellectual Property and licenses (including FCC
Licenses) that are material and necessary for the conduct of its business, and
to the knowledge of the Borrower and its Subsidiaries, such franchises,
Intellectual Property or licenses do not infringe upon the valid rights of
others in a manner that could reasonably be expected to have a Material Adverse
effect. No event has occurred that permits or, to the best knowledge of the
Borrower, after notice or the lapse of time or both, or any other condition,
could reasonably be expected to permit, the revocation or termination of any
rights to such franchises, Intellectual Property or licenses, which revocation
or termination could reasonably be expected to have a Material Adverse effect.
4.17 Labor Relations
---------------
As of the Effective Date, neither the Borrower nor any of its
Subsidiaries is a party to any collective bargaining agreement. To the best
knowledge of the Borrower, no petition has been filed or proceedings instituted
by any employee or group of employees with any labor relations board seeking
recognition of a bargaining representative with respect to the Borrower or such
Subsidiary. There are no material controversies pending between the Borrower
or any of its Subsidiaries and any of their respective employees, which could
reasonably be expected to have a Material Adverse effect.
5. CONDITIONS OF EXTENDING CREDIT ON THE FIRST CREDIT DATE
-------------------------------------------------------
In addition to the requirements set forth in Section 6, the obligation of
each Lender to make one or more Loans, the obligation of the Swing Line Lender
to make one or more Swing Line Loans and the obligation of the Issuer to issue
one or more Letters of Credit, on the first Credit Date, is subject to the
fulfillment of the following conditions on or prior to the first Credit Date:
5.1 Evidence of Corporate and Other Action
--------------------------------------
On or prior to the Effective Date, the Agent shall have received a
certificate, dated the Effective Date, of the Secretary or other analogous
counterpart of each Loan Party (i) attaching a true and complete copy of the
resolutions of its Board of Directors or other analogous managing body and of
all documents evidencing all necessary corporate, partnership or similar action
(in form and substance reasonably satisfactory to the Agent) taken by it to
authorize the Loan Documents
- 50 -
<PAGE> 51
to which it is a party and the transactions contemplated thereby, (ii)
attaching a true and complete copy of its organizational documents, (iii)
setting forth the incumbency of the corporate officer(s) or other analogous
counterparts thereof who may sign such Loan Documents, including therein a
signature specimen of such corporate officer or counterpart, as the case may
be, and (iv) attaching a certificate of good standing of the Secretary of
State of the State of its formation and each other jurisdiction in which it
is qualified to conduct business except, in the case of such other
jurisdiction, when the failure to be in good standing in such jurisdiction
would not have a Material Adverse effect.
5.2 Notes
-----
On or prior to the Effective Date, the Borrower shall have
delivered to the Agent (for delivery to each Lender or, in the case of the
Swing Line Note, the Swing Line Lender) each of the Notes, as executed by the
Borrower.
5.3 Subsidiary Guaranty
-------------------
On or prior to the Effective Date, the Borrower shall have
delivered or caused to be delivered to the Agent a guaranty, dated the
Effective Date, executed by each of the parties listed on Schedule 5.3, and in
the form of Exhibit D (as the same may be amended, supplemented or otherwise
modified from time to time, the "SUBSIDIARY GUARANTY").
5.4 Existing Indebtedness
---------------------
The Existing Indebtedness shall have been completely discharged,
all Liens, if any, securing the same shall have been terminated, all of the
obligations of the financial institutions party to the BNYCC Agreements to
extend credit thereunder shall have been terminated, and the Agent shall have
received satisfactory evidence of all of the foregoing.
5.5 Approvals
---------
All approvals and consents of all Governmental Authorities, and all
approvals and all consents of all other Persons, in each case which are
required to be obtained in connection with the consummation of the transactions
contemplated by the Loan Documents have been obtained, all required notices
have been given, and all required waiting periods have expired, and the Agent
shall have received evidence satisfactory to it of the foregoing.
- 51 -
<PAGE> 52
5.6 Litigation
----------
There is no injunction, writ, preliminary restraining order or
other order of any nature issued by any Governmental Authority in any respect
affecting any Loan Document or any transaction contemplated by the Loan
Documents, and no action or proceeding by or before any Governmental Authority
shall have been commenced and be pending seeking to prevent or delay any of the
foregoing or challenging any term or provision thereof or seeking any damages
in connection therewith, and the Agent shall have received a certificate, dated
the Effective Date, in all respects reasonably satisfactory to the Agent, of an
executive officer of the Borrower to the foregoing effect.
5.7 Insurance
---------
On or prior to the Effective Date, the Agent shall have received a
certificate of insurance with respect to all insurance required to be
maintained under Section 7.3, in form and substance satisfactory to the Agent.
5.8 Approval of Special Counsel
---------------------------
All legal matters incident to the making of each Loan and/or the
issuance of each Letter of Credit on the first Credit Date shall be reasonably
satisfactory to Special Counsel and, on the Effective Date, the Agent shall
have received from Special Counsel an opinion, dated the Effective Date, and in
the form of Exhibit E.
5.9 Opinion of Counsel
------------------
On or prior to the Effective Date, the Agent shall have received an
opinion of Goodman Weiss Miller Goldfarb, counsel to the Borrower and the
Subsidiaries, dated the Effective Date and in the form of Exhibit F.
5.10 Payment of Fees
---------------
On or prior to the Effective Date, the Borrower shall have paid to
the Issuer, the Swing Line Lender, the Agent and the Lenders all Fees and all
expenses (including the reasonable fees and disbursements of Special Counsel)
which it shall have agreed to pay, to the extent such Fees and expenses shall
have become payable on or prior to the Effective Date.
5.11 Other Documents
---------------
The Agent shall have received such other documents (including
financial statements and projections), each in form and substance reasonably
satisfactory to the Agent, as the
- 52 -
<PAGE> 53
Agent shall reasonably require in connection with the making of the first Loans
or the issuance of the first Letter of Credit.
6. CONDITIONS OF EXTENDING CREDIT ON EACH CREDIT DATE
--------------------------------------------------
The obligation of each Lender to make each Revolving Loan, the obligation of
the Swing Line Lender to make each Swing Line Loan and the obligation of the
Issuer to issue each Letter of Credit is subject to the fulfillment of the
following conditions precedent:
6.1 Compliance
----------
On each Credit Date, and after giving effect to the Loans to be
made or the Letters of Credit to be issued on such Credit Date, (a) there shall
exist no Default or Event of Default, and (b) the representations and
warranties contained in this Agreement shall be true and correct with the same
effect as though such representations and warranties had been made on such
Credit Date.
6.2 Closings
--------
All documents required by the provisions of this Agreement to have
been executed or delivered by each Loan Party to the Agent, Issuer, Swing Line
Lender or any Lender on or before the applicable Credit Date shall have been so
executed or delivered on or before such Credit Date.
6.3 Borrowing Request or Letter of Credit Request
---------------------------------------------
The receipt by the Agent of a Borrowing Request, in the case of
such Loan, or a Letter of Credit Request, in the case of such Letter of Credit,
executed by the Borrower.
7. AFFIRMATIVE AND FINANCIAL COVENANTS
-----------------------------------
The Borrower covenants and agrees that on and after the Effective Date and
until the later to occur of (a) the Commitment Termination Date, and (b) the
payment in full of the Notes and the performance by the Borrower of all of its
other obligations under the Loan Documents, the Borrower will:
7.1 Legal Existence
---------------
Except as may otherwise be permitted by Sections 8.3 and 8.4,
maintain, and cause each Subsidiary to maintain, (a) in the case of the
Borrower and each Material Subsidiary only, its corporate, partnership or other
legal existence, as
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<PAGE> 54
the case may be, and (b) its corporate, partnership or other legal existence in
good standing in the jurisdiction of its incorporation or formation and in each
other jurisdiction in which the failure so to do could reasonably be expected
to have a Material Adverse effect.
7.2 Taxes
-----
Pay and discharge when due, and cause each of its Material
Subsidiaries so to do, all taxes, assessments, governmental charges, license
fees (including with respect to FCC Licenses) and levies upon or with respect
to the Borrower and such Material Subsidiary, and upon the income, profits and
Property thereof unless, and only to the extent, that (a) such taxes,
assessments, governmental charges, license fees and levies shall be contested
in good faith and by appropriate proceedings diligently conducted by the
Borrower or such Material Subsidiary, and (b) such reserve or other appropriate
provision as shall be required by GAAP shall have been made therefor.
7.3 Insurance
---------
(a) Maintain, and cause each of its Material Subsidiaries to
maintain, insurance with financially sound insurance carriers against at least
such risks, and in at least such amounts, as are usually insured against by
similar businesses, including, as appropriate, business interruption, public
liability (bodily injury and property damage), fidelity, workers' compensation
and property insurance, and which, in the case of such property insurance,
shall be (A) in amounts sufficient to prevent the Borrower and each of its
Material Subsidiaries from becoming a co-insurer and (B) "all risk" insurance;
and file with the Agent at least once every 12 months a detailed list of such
insurance then in effect, stating the names of the carriers thereof, the policy
numbers, the insureds thereunder, the amounts of insurance, dates of expiration
thereof, and the Property and risks covered thereby.
(b) Neither the Borrower nor any or its Material Subsidiaries
shall take out separate insurance concurrent in form or contributing in the
event of loss with that required to be maintained pursuant to Section 7.3(a),
except as set forth on Schedule 7.3, unless the Agent shall have approved the
carrier and the form and content of the insurance policy.
7.4 Performance of Obligations
--------------------------
Pay and discharge promptly when due, and cause each Subsidiary so
to do, all lawful Indebtedness, obligations and claims for labor, materials and
supplies or otherwise which,
- 54 -
<PAGE> 55
if unpaid, could reasonably be expected to (a) have a Material Adverse effect,
or (b) become a Lien on the Property of the Borrower or any of its
Subsidiaries, except those Liens permitted under Section 8.2, provided that
neither the Borrower nor such Subsidiary shall be required to pay or discharge
or cause to be paid or discharged any such Indebtedness, obligation or claim so
long as (i) the validity thereof shall be contested in good faith and by
appropriate proceedings diligently conducted by the Borrower or such
Subsidiary, and (ii) such reserve or other appropriate provision as shall be
required by GAAP shall have been made therefor.
7.5 Condition of Property
---------------------
Except for ordinary wear and tear, at all times maintain, protect
and keep in good repair, working order and condition, all Property used in the
operation of its business, and cause each Subsidiary so to do, except to the
extent that the failure so to do would not, individually or in the aggregate,
have a Material Adverse effect.
7.6 Observance of Legal Requirements
--------------------------------
Observe and comply in all material respects, and cause each of its
Subsidiaries so to do, with all laws, ordinances, orders, judgments, rules,
regulations, certifications, franchises, permits, licenses (including FCC
Licenses), directions and requirements of all Governmental Authorities,
including, without limitation, ERISA and environmental laws, which now or at
any time hereafter may be applicable to it or to such Subsidiary, a violation
of which could reasonably be expected to have a Material Adverse effect.
7.7 Financial Statements and Other Information
------------------------------------------
Furnish to the Agent (who shall after the receipt thereof promptly
furnish the same to each Lender to the extent the Borrower is not obligated so
to do hereunder):
(a) and to each Lender, as soon as available and, in any
event, within 95 days after the close of each fiscal year, a copy of (i) the
Borrower's Consolidated and Consolidating Balance Sheets as of the end of such
fiscal year, and (ii) the related Consolidated and Consolidating Statements of
Income and Retained Earnings, and Consolidated Statement of Cash Flows, as of
and through the end of such fiscal year, setting forth in each case in
comparative form the corresponding figures in respect of the previous fiscal
year, all in reasonable detail and, in the case of such Consolidated financial
statements, accompanied by a report of the Accountants, which report shall
state that (A) the Accountants audited such Consolidated financial statements,
(B) such audit
- 55 -
<PAGE> 56
was made in accordance with generally accepted auditing standards in effect at
the time and provides a reasonable basis for their opinion, and (C) said
Consolidated financial statements have been prepared in accordance with GAAP;
(b) and to each Lender, simultaneously with the delivery of
the annual audited statements required by Section 7.7(a), copies of a
certificate of such Accountants stating that after making their examination
necessary to provide the report therefor, they have no knowledge of any Default
or Event of Default, except as specified in such certificate;
(c) and to each Lender, as soon as available, and in any
event within 50 days after the end of each of the first three fiscal quarters
of each fiscal year, a copy of (i) the Balance Sheet, as of the end of such
quarter, of the Borrower on a Consolidated basis, and (ii) the related
Statements of Income and Retained Earnings, and Statements of Cash Flows, of
the Borrower on a Consolidated basis for (x) such quarter, and (y) the period
from the beginning of the then current fiscal year to the end of such quarter,
in each case in comparative form with the prior fiscal year, all in reasonable
detail and, in the case of such Consolidated financial statements, prepared in
accordance with GAAP (without footnotes and subject to year-end adjustments);
(d) and to each Lender, within 50 days after the end of each
of the first three fiscal quarters, and within 95 days after the end of the
last fiscal quarter, of each fiscal year, a Compliance Certificate, as of the
end of such fiscal quarter, certified by the chief financial officer of the
Borrower;
(e) prompt written notice upon the Borrower's or any
Subsidiary's obtaining knowledge that: (i) any Indebtedness (other than
Indebtedness under the Loan Documents) of the Borrower or any of its
Subsidiaries in an aggregate amount in excess of $100,000 shall have been
declared or become due and payable prior to its stated maturity, or called and
not paid when due, or (ii) the holders of any notes (other than the Notes), or
other evidence of Indebtedness, certificates or securities evidencing any such
Indebtedness, or any obligees with respect to any other Indebtedness of the
Borrower or any of its Subsidiaries, have the right to declare Indebtedness in
an aggregate amount in excess of $100,000 due and payable prior to its stated
maturity;
(f) prompt written notice of: (i) any citation, summons,
subpoena, order to show cause or other order naming
- 56 -
<PAGE> 57
the Borrower or any of its Subsidiaries a party to any proceeding before any
Governmental Authority which could reasonably be expected to have a Material
Adverse effect, and include with such notice a copy of such citation, summons,
subpoena, order to show cause or other order, (ii) any lapse or other
termination of any license (including FCC Licenses), permit, franchise or other
authorization issued to the Borrower or any of its Subsidiaries by any
Governmental Authority, (iii) any refusal by any Governmental Authority to
renew or extend any license (including FCC Licenses), permit, franchise or
other authorization, and (iv) any dispute between the Borrower or any of its
Subsidiaries and any Governmental Authority, which lapse, termination, refusal
or dispute, referred to in clause (ii), (iii) or (iv) of this Section 7.7(f),
could reasonably be expected to have a Material Adverse effect;
(g) and to each Lender, promptly upon becoming available,
copies of all regular, periodic or special reports, schedules, proxy
statements, registration statements, 10-Ks, 10-Qs and 8-Ks which the Borrower
or any of its Subsidiaries may now or hereafter be required to file with or
deliver to any securities exchange or the Securities and Exchange Commission,
or any other Governmental Authority succeeding to the functions thereof;
(h) prompt written notice in the event that the Borrower or
any of its Subsidiaries knows, or has reason to know, that (i) any Termination
Event with respect to a Pension Plan has occurred or will occur, (ii) any
condition exists with respect to a Pension Plan (other than a Multiemployer
Plan) which presents a material risk of termination of such Pension Plan by the
PBGC (as evidenced by correspondence with the PBGC), imposition of an excise
tax on the Borrower, any of its Subsidiaries or any ERISA Affiliate or the
requirement that the Borrower, any of its Subsidiaries or any ERISA Affiliate
provide security to any Pension Plan, (iii) the Borrower, any of its
Subsidiaries or any ERISA Affiliate has applied for a waiver of the minimum
funding standard under Section 412 of the Code with respect to a Pension Plan,
(iv) the aggregate amount of the Unfunded Pension Liabilities under all Pension
Plans (other than Multiemployer Plans) has increased to an amount in excess of
$250,000, (v) the aggregate amount of Unrecognized Retiree Welfare Liability
under all applicable Employee Benefit Plans has increased to an amount in
excess of $250,000, (vi) the Borrower, any of its Subsidiaries or any ERISA
Affiliate has engaged in a Prohibited Transaction with respect to an Employee
Benefit Plan, (vii) the imposition of a tax upon the Borrower or any of its
Subsidiaries under Section 4980B(a) of the Code, or (viii) the assessment of a
civil penalty under Section 502(c) of ERISA against the Borrower or any of its
Subsidiaries, or (ix) any condition with respect to a
- 57 -
<PAGE> 58
Multiemployer Plan exists which presents a risk of material liability to the
Borrower or any of its Subsidiaries, provided, however, that notice shall only
be required in the case of clauses (i) through (ix) of this Section 7.7(h) if
such events, individually or in the aggregate, would reasonably be expected to
have a Material Adverse effect, in each case together with a certificate of an
executive officer of the Borrower setting forth the details of such event and
the action which the Borrower, such Subsidiary or such ERISA Affiliate proposes
to take with respect thereto, together with a copy of all notices and filings
with respect thereto;
(i) prompt written notice in the event that the Borrower, any
of its Subsidiaries or any ERISA Affiliate shall receive a demand letter from
the PBGC notifying the Borrower, such Subsidiary or such ERISA Affiliate of any
final decision finding material liability under ERISA Sections 4062, 4063 or
4064 of the Borrower, any of its Subsidiaries or any ERISA Affiliate and the
date by which such liability must be paid, together with a copy of such letter
and a certificate of an executive officer of the Borrower setting forth the
action which the Borrower, such Subsidiary or such ERISA Affiliate proposes to
take with respect thereto;
(j) promptly upon the same becoming available, and in any
event by the date such amendment is adopted, a copy of any Pension Plan
amendment that the Borrower, any of its Subsidiaries or any ERISA Affiliate
proposes to adopt which would require the posting of security under Section
401(a)(29) of the Code, together with a certificate of an executive officer of
the Borrower setting forth the reasons for the adoption of such amendment and
the action which the Borrower, such Subsidiary or such ERISA Affiliate proposes
to take with respect thereto;
(k) as soon as possible and in any event by the 10th day
after any required installment or other payment under Section 412 of the Code
owed to a Pension Plan by the Borrower, any of its Subsidiaries or any ERISA
Affiliate shall have become due and owing and remain unpaid a copy of the
notice of failure to make required contributions provided to the PBGC by the
Borrower, any of its Subsidiaries or any ERISA Affiliate under Section 412(n)
of the Code, together with a certificate of an executive officer of the
Borrower setting forth the action which the Borrower, such Subsidiary or such
ERISA Affiliate proposes to take with respect thereto;
(l) upon becoming aware thereof, prompt written notice of the
occurrence of (i) each Default, (ii) each Event of Default, and (iii) each
Material Adverse change; and
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<PAGE> 59
(m) promptly upon request therefor, such other information
and reports regarding the business, condition (financial or otherwise),
Property or prospects of the Borrower and its Subsidiaries, as the Agent or any
Lender at any time or from time to time may reasonably request.
7.8 Inspection
----------
At all reasonable times, upon reasonable prior notice, permit
representatives of the Agent or any Lender to visit the offices of the Borrower
or any of its Subsidiaries, to examine the books and records thereof and
Accountants' reports relating thereto, and to make copies or extracts
therefrom, to discuss the affairs of the Borrower or any of its Subsidiaries
with the respective officers thereof, and to examine and inspect the Property
of the Borrower or any of its Subsidiaries and to meet and discuss the affairs
of the Borrower and each Subsidiary with the Accountants.
7.9 Authorizations
--------------
Maintain and cause each of its Subsidiaries to maintain, in full
force and effect, all copyrights, patents, trademarks, trade names, service
marks, franchises, licenses (including FCC Licenses), permits, applications,
reports, and other authorizations and rights, as are necessary for the conduct
from time to time of their businesses, except to the extent the failure so to
maintain such items, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse effect.
7.10 Subsidiaries
------------
(a) Except as set forth on Schedule 4.1 or as may otherwise
be permitted by Sections 8.3 and 8.4, at all times maintain (directly or
indirectly), beneficially and of record, 100% of the voting control of, and
100% of the equity in, each of its Material Subsidiaries.
(b) Notwithstanding the exceptions set forth in Section
7.10(a), at all times maintain (directly or indirectly), beneficially and of
record, 85% of the voting control of, and 85% of the equity in, each of its
Material Subsidiaries other than those set forth on Schedule 7.14.
7.11 Leverage Ratio
--------------
As of any date during each period set forth below, have a Leverage
Ratio not greater than the ratio set forth below adjacent to such period:
- 59 -
<PAGE> 60
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date through
December 30, 1996 3.75:1.00
December 31, 1996 through
June 29, 1997 3.25:1.00
June 30, 1997 and
thereafter 2.75:1.00
</TABLE>
7.12 Tangible Net Worth
------------------
As of any date, maintain Tangible Net Worth of not less than the
sum of (a) $106,000,000 PLUS (b) 25% of the positive Consolidated net income of
the Borrower and its Subsidiaries for each completed fiscal quarter ending
after December 31, 1995.
7.13 Fixed Charge Coverage Ratio
---------------------------
At each fiscal quarter end during each period set forth below, have
a Fixed Charge Coverage Ratio greater than or equal to the ratio set forth
adjacent to such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date through
December 30, 1996 1.05:1.00
December 31, 1996 and
thereafter 1.10:1.00
</TABLE>
7.14 Additional Subsidiaries
-----------------------
(a) (i) Within 50 days after the end of each fiscal quarter, cause
each Person (other than an existing Guarantor or a Person listed on Schedule
7.14) which shall be both a Domestic Subsidiary and a Material Subsidiary as of
such fiscal quarter end to become a party to the Subsidiary Guaranty in
accordance with the terms thereof, (ii) within 50 days after the end of each
fiscal quarter, beginning with the fiscal quarter ending March 31, 1997, cause
each Person (other than an existing Guarantor) which shall be both a Domestic
Subsidiary and a Material Subsidiary as of such fiscal quarter end to become a
party to the Subsidiary Guaranty in accordance with the terms thereof, and
(iii) on or prior to each date hereafter upon which a Person shall be or have
become both a Domestic Subsidiary and a Material Subsidiary pursuant to Section
8.5(s), cause such Person (other than an existing
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<PAGE> 61
Guarantor) to become a party to the Subsidiary Guaranty in accordance with the
terms thereof, on and as of such date.
(b) Cause each Subsidiary which shall have become a party to
the Subsidiary Guaranty at any time after the first Credit Date to deliver to
the Agent, simultaneously with the execution and delivery of the same, (i) a
certificate, dated the date such Subsidiary shall have become a party to the
Subsidiary Guaranty, executed by such Subsidiary and substantially in the form
of, and with substantially the same attachments as, the certificate which would
have been required under Section 5.1 if such Subsidiary had become a party to
the Subsidiary Guaranty on or before the first Credit Date, and (ii) if
requested by the Agent, an opinion of counsel to such Subsidiary covering the
same matters with respect to such Subsidiary covered by the opinions delivered
pursuant to Section 5.10, and otherwise in form and substance reasonably
satisfactory to the Agent.
8. NEGATIVE COVENANTS
------------------
The Borrower covenants and agrees that on and after the Effective Date and
until the later to occur of (a) the Commitment Termination Date, and (b) the
payment in full of the Notes and the performance by the Borrower of all of its
other obligations under the Loan Documents, the Borrower shall not:
8.1 Indebtedness
------------
Create, incur, assume or suffer to exist any Indebtedness, or
permit any Subsidiary so to do, except any one or more of the following types
of Indebtedness: (a) Indebtedness under the Loan Documents, (b) the Existing
Indebtedness, provided that such Indebtedness shall be repaid in full prior to
or simultaneously with the making of the Loans on the first Credit Date, (c)
Indebtedness of the Borrower and its Subsidiaries in respect of capitalized
leases not in excess of $25,000,000 in the aggregate at any one time
outstanding, (d) Domestic Intercompany Debt, (e) Other Intercompany Debt
(without duplication of Indebtedness permitted by clauses (j), (k) and (l) of
this Section 8.1) the aggregate outstanding principal balance of which, when
aggregated with the cost of all Investments permitted pursuant to Section
8.5(r) (excluding Investments set forth on Schedule 8.5), shall not exceed
$25,000,000, (f) trade credit (including letters of credit) of the Borrower or
the Subsidiaries thereof incurred in the ordinary course of their business, (g)
Jet Obligations not in excess of $2,000,000 at any one time outstanding, (h)
Expansion Obligations not in excess of $25,000,000 at any one time outstanding,
(i) Contingent Obligations of the Borrower, provided, however, that such
Indebtedness (excluding (1) other
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<PAGE> 62
Indebtedness permitted under this Section 8.1, and (2) Contingent Obligations
in respect of trade credit of the Subsidiaries permitted under Section 8.1(f))
shall not exceed $25,000,000 at any one time outstanding, (j) indebtedness of
the Borrower in an aggregate amount not in excess of $50,000,000 at any one
time outstanding under unsecured short-term lines of credit, (k) Indebtedness
set forth on Schedule 8.1, and (l) Foreign Intercompany Debt (without
duplication of Indebtedness permitted by clause (e) of this Section 8.1) not in
excess of $5,000,000 in the aggregate at any one time outstanding.
8.2 Liens
-----
Create, incur, assume or suffer to exist any Lien against or on any
Property now owned or hereafter acquired by the Borrower or any Subsidiary, or
permit any Subsidiary so to do, except any one or more of the following types
of Liens: (a) Liens in connection with workers' compensation, unemployment
insurance or other social security obligations (which phrase shall not be
construed to refer to ERISA or the minimum funding obligations under Section
412 of the Code), (b) Liens to secure the performance of bids, tenders, letters
of credit, contracts (other than contracts for the payment of Indebtedness),
leases, statutory obligations, surety, customs, appeal, performance and payment
bonds and other obligations of like nature, in each such case arising in the
ordinary course of business, (c) mechanics', workmen's, carriers',
warehousemen's, materialmen's, landlords', or other like Liens arising in the
ordinary course of business with respect to obligations which are not due or
which are being contested in good faith and by appropriate proceedings
diligently conducted, (d) Liens for taxes, assessments, fees or governmental
charges or levies which are not delinquent or are being contested in good faith
and by appropriate proceedings diligently conducted, and in respect of which
adequate reserves shall have been established in accordance with GAAP on the
books of the Borrower or such Subsidiary, (e) Liens of attachments, judgments
or awards against the Borrower or any Subsidiary with respect to which an
appeal or proceeding for review shall be pending or a stay of execution shall
have been obtained, or which are otherwise being contested in good faith and by
appropriate proceedings diligently conducted, and in respect of which adequate
reserves shall have been established in accordance with GAAP on the books of
the Borrower or such Subsidiary, (f) easements, rights of way, restrictions,
leases of Property to others, easements for installations of public utilities,
title imperfections and restrictions, zoning ordinances and other similar
encumbrances affecting Property which in the aggregate do not have, or would
not be reasonably expected to result in, a Material Adverse effect, (g) Liens
on
- 62 -
<PAGE> 63
Property of the Borrower or any Subsidiary existing on the Effective Date and
set forth on Schedule 8.2, (h) Liens on Property hereafter acquired by the
Borrower or its Subsidiaries and either existing on such Property when
acquired, or created contemporaneously with such acquisition, to secure the
payment or financing of the purchase price thereof, provided that such Liens
attach only to the Property so acquired and provided further that the
Indebtedness secured by such Liens is permitted by Section 8.1, (i) Liens in
respect of capitalized leases permitted by Section 8.1, provided that such
Liens attach only to the Property leased pursuant thereto, (j) statutory Liens
in favor of lessors arising in connection with Property leased to the Borrower
or any Subsidiary thereof, (k) Liens on Margin Stock to the extent that a
prohibition on such Liens pursuant to this Section 8.2 would violate Regulation
U of the Board of Governors of the Federal Reserve System, as amended, (l)
Liens created under or in connection with the Existing Indebtedness, provided
that such Liens shall be released simultaneously with the making of the Loans
on the first Credit Date, (m) licenses granted by the Borrower and/or the
Subsidiaries, in the ordinary course of business, to use Intellectual Property,
proprietary information and any other intangible assets, and any related source
code escrow arrangements, (n) Liens on the Jet securing the Jet Obligations,
and (o) Liens securing the Expansion Obligations on the Borrower's
manufacturing facility in Texas.
8.3 Dispositions
------------
Make any Disposition or permit any Subsidiary to do so, except any
one or more of the following: (a) Dispositions of any Investments permitted
under Sections 8.5(a) through and including 8.5(j) and Section 8.5(t), (b)
Dispositions of Margin Stock to the extent that a prohibition on such
Dispositions pursuant to this Section 8.3 would violate Regulation U of the
Board of Governors of the Federal Reserve System, as amended, (c) Dispositions
of the Texas PP&E, provided the same is leased back contemporaneously
therewith, (d) Domestic Intercompany Dispositions, (e) Other Intercompany
Dispositions, provided that the fair market value of the Property so sold,
assigned, transferred or otherwise disposed of in connection with all such
Other Intercompany Dispositions pursuant to this Section 8.3(e) shall not
exceed $5,000,000 during the term of this Agreement, (f) Disposition of the
Jet, provided the same is leased back contemporaneously therewith, (g) other
Dispositions of Property having a fair market value which, when aggregated with
the fair market value of all other Property sold, assigned, transferred or
otherwise disposed of pursuant to this Section 8.3(g) would not exceed, in the
aggregate, (1) $7,500,000 during any fiscal year, or (2) $25,000,000 during the
term of this Agreement, and (h) Dispositions set forth on Schedule 8.3.
- 63 -
<PAGE> 64
8.4 Mergers and Acquisitions
------------------------
Consolidate or merge into or with any Person, or make any
Acquisition, or enter into any binding agreement to do any of the foregoing
which is not contingent on obtaining the consent of the Required Lenders, or
permit any Subsidiary so to do, except any one or more of the following: (a)
any Subsidiary of the Borrower may merge into or be acquired by the Borrower,
provided that the Borrower is the survivor thereof, and any Subsidiary of the
Borrower may merge into or be acquired by another Subsidiary of the Borrower,
in each case referred to in this clause (a) provided that immediately before
and after giving effect thereto no Default or Event of Default shall or would
exist, (b) Acquisitions by the Borrower or any Subsidiary thereof of
Investments permitted by Section 8.5, (c) Domestic Intercompany Acquisitions,
(d) Other Intercompany Acquisitions (other than as permitted under clause (a)
above), provided that the aggregate consideration paid in connection with all
such Other Intercompany Acquisitions pursuant to this Section 8.4(d) shall not
exceed $5,000,000 during the term of this Agreement, (e) Capital Expenditures,
and (f) other Acquisitions by the Borrower, provided that (i) immediately
before and after giving effect to each such Acquisition, no Default or Event of
Default shall or would exist, (ii) immediately after giving effect to each such
Acquisition, all of the representations and warranties contained in Section 4
shall be true and correct as if then made, and (iii) the aggregate
consideration paid for all such Acquisitions shall not exceed $25,000,000.
8.5 Investments
-----------
Any time hold, purchase, invest in or otherwise acquire any
derivative product or any interest therein or any debt security or Stock of,
or any other equity interest in, any Person, or make any loan or advance to, or
enter into any arrangement for the purpose of providing funds or credit to, or
make any other investment, whether by way of capital contribution or otherwise,
in any Person (all of which are sometimes referred to herein as "INVESTMENTS"),
or permit any Subsidiary so to do, except any one or more of the following
Investments: (a) Investments by the Borrower or any Subsidiary thereof in
short-term direct obligations of the United States of America (and not the
agencies or instrumentalities thereof), (b) Investments by the Borrower or any
Subsidiary thereof in short-term debt securities of any issuer, provided that
the principal thereof and interest thereon is unconditionally guaranteed by the
United States of America (and not the agencies or instrumentalities thereof),
(c) Investments by the Borrower or any Subsidiary thereof in short-term
certificates of deposit, in Dollars, of any Lender or any other depository
institution chartered under the laws of the United
- 64 -
<PAGE> 65
States of America or any State thereof the deposits of which are insured by the
Federal Deposit Insurance Corporation and which has capital and undivided
surplus of not less than $500,000,000, (d) Investments by the Borrower or any
Subsidiary thereof in commercial paper having a commercial paper rating of not
lower than any two of the following: (i) A-2 by S&P, (ii) P-2 by Moody's, or
(iii) F-2 by Fitch Investors Service, L.P., (e) Investments in
overcollateralized repurchase agreements with primary dealers reporting daily
to the Federal Reserve Bank of New York with a net worth of not less than
$100,000,000, (f) Investments in United States and foreign bank money market
obligations, provided that if the applicable institution is a foreign bank,
such institution, together with any Affiliates of such institution, has a net
worth of at least $200,000,000, and if the applicable institution is a United
States bank, such institution is a depository institution chartered under the
laws of the United States of America or any State thereof, has a net worth,
together with any Affiliates of such institution, of at least $200,000,000, has
a BankWatch rating of at least B/C and has commercial paper, if issued, rated
at least A-2 by S&P or P-2 by Moody's, (g) bank and corporate bonds with
maturities of not more than 5 years, provided that the issuers thereof have a
rating of at least A by S&P or A-2 by Moody's, (h) Investments in short-term
municipal securities rated at least MIG-1 by Moody's or backed by a letter of
credit issued by any Lender or any other depository institution chartered under
the laws of the United States of America or any State thereof the deposits of
which are insured by the Federal Deposit Insurance Corporation and which has
capital and undivided surplus of not less than $500,000,000, (i) Investments in
intermediate to long-term municipal securities rated at least A by S&P or A-2
by Moody's, provided in any case that the maturities of such municipal
securities are less than 5 years, (j) Investments existing on the date hereof
and set forth on Schedule 8.5 (which shall be deemed to include equity
Investments in a Person to the extent made after the date hereof with the
proceeds of each debt Investment in such Person which is listed on Schedule
8.5), (k) Investments by the Borrower or any Subsidiary thereof in Domestic
Intercompany Debt or Other Intercompany Debt, provided that any such Domestic
Intercompany Debt or Other Intercompany Debt shall be evidenced by a promissory
note and such note (except a note which evidences Indebtedness payable to a
Foreign Subsidiary) shall be pledged to the Agent, (l) Acquisitions permitted
by Section 8.4, (m) Investments existing on and as of the Effective Date in
Subsidiaries, (n) other Investments by the Borrower, provided that (1)
immediately before and after giving effect to each such Investment no Default
or Event of Default shall or would exist, (2) immediately after giving effect
to each such Investment, all of the representations and warranties contained in
Section 4 shall be true and correct as if then made, and
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<PAGE> 66
(3) the aggregate consideration paid for all such Investments in any fiscal
year shall not exceed $7,500,000, (o) additional Investments by the Borrower,
provided that (1) immediately before and after giving effect to each such
Investment no Default or Event of Default shall or would exist, (2) immediately
after giving effect to each such Investment, all of the representations and
warranties contained in Section 4 shall be true and correct as if then made,
and (3) the aggregate consideration paid for all such Investments shall not
exceed the net cash proceeds of all Dispositions made pursuant to clauses (g)
and (h) of Section 8.3, (p) Investments in non-speculative foreign exchange and
interest rate protection arrangements in the ordinary course of business, (q)
Investments in Foreign Subsidiaries in amounts equal to dividends and other
distributions received by the Borrower from Foreign Subsidiaries, provided that
any such Investment shall be made in the same Foreign Subsidiary from which the
Borrower received such dividend or other distribution, and such Investment
shall be made within 10 Domestic Business Days of the Borrower's receipt of
such dividend or other distribution, (r) Investments (other than Investments
made pursuant to Section 8.5(q)) made after the date hereof by the Borrower in
Foreign Subsidiaries (including Investments of amounts received by the Borrower
from Foreign Subsidiaries as cash dividends or other cash equity
distributions), provided, however, that the aggregate cost of all such
Investments, together with the aggregate sum of Indebtedness outstanding under
and pursuant to Section 8.1(e), shall not exceed $25,000,000, (s) additional
Investments in one or more Domestic Subsidiaries which are Guarantors, and new
equity Investments in other Persons provided that, prior to or simultaneously
with the making of any such Investment, such Person is both a Domestic
Subsidiary and a Guarantor, and (t) Investments by Foreign Subsidiaries in (1)
short-term direct obligations of any nation, (2) short-term debt securities
issued or guaranteed as to payments of principal and interest by any nation,
and (3) short-term money market instruments denominated in foreign currencies,
provided that the aggregate fair market value of all such Investments made
pursuant to this Section 8.5(t) shall not exceed $20,000,000 at any one time.
8.6 Restricted Payments
-------------------
Make any Restricted Payment or permit any Subsidiary so to do,
except any one or more of the following Restricted Payments: (a) any Subsidiary
may pay dividends and other distributions, and (b) provided that immediately
before and after giving effect thereto no Default or Event of Default shall or
would exist, the Borrower may pay dividends and make distributions on and
redemptions of any class of Stock or other type or class of equity interest or
equity investment
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<PAGE> 67
not in excess of $2,000,000 in the aggregate during any fiscal year.
8.7 Limitation on Upstream Dividends by Subsidiaries
------------------------------------------------
Permit, cause or suffer to exist, any Subsidiary of the Borrower to
enter into or agree, or otherwise be or become subject, to any agreement,
contract or other arrangement (other than this Agreement) with any Person
pursuant to the terms of which (a) such Subsidiary is or would be prohibited
from declaring or paying any cash dividends on any class of its stock owned
directly or indirectly by the Borrower or any other Subsidiary of the Borrower
or from making any other distribution on account of any class of any such stock
(herein referred to as "UPSTREAM DIVIDENDS"), or (b) the declaration or payment
of Upstream Dividends by a Subsidiary to the Borrower or another Subsidiary of
the Borrower, on an annual or cumulative basis, is or would be otherwise
limited or restricted.
8.8 Line of Business
----------------
Engage in any business, or permit any Subsidiary thereof so to do,
that is materially different from the business conducted by the Borrower and
its Subsidiaries on the Effective Date.
8.9 Amendment of Certain Documents and Agreements
---------------------------------------------
Except as set forth on Schedule 8.9, amend, supplement or otherwise
modify (a) its certificate of incorporation or by-laws, or cause, permit or
otherwise allow any Subsidiary to amend, supplement or otherwise modify its
certificate of incorporation or by-laws or, if such Subsidiary is not a
corporation, any analogous counterpart thereof, or (b) the Subordinated
Debentures Indenture or the Subordinated Notes Indenture, each as in effect on
the date hereof, unless, in any such case, such amendment, supplement or
modification would not materially and adversely affect the Issuer, the Swing
Line Lender, the Agent or any Lender.
8.10 Transactions with Affiliates
----------------------------
Become, or permit any Subsidiary to become, a party to any
transaction with any Affiliate of the Borrower on a basis less favorable to the
Borrower and its Subsidiaries than if such transaction were not with an
Affiliate.
8.11 Compliance with ERISA
---------------------
Cause or permit any Pension Plan to have a Funded Current Liability
Percentage of less than 60 percent.
- 67 -
<PAGE> 68
8.12 Prepayments of Indebtedness
---------------------------
(a) Prepay or, except as set forth on Schedule 8.12, obligate
itself to prepay, or permit any Subsidiary so to do, in whole or in part, the
Existing Subordinated Notes.
(b) Prepay or obligate itself to prepay, or permit any Subsidiary
so to do, in whole or in part, any other Indebtedness, including, without
limitation, the Existing Subordinated Debentures, if immediately before or
after giving effect to such prepayment, an Event of Default shall or would
exist.
9. DEFAULT
-------
9.1 Events of Default
-----------------
The following shall each constitute an "EVENT OF DEFAULT"
hereunder:
(a) The failure of the Borrower (i) to make any principal
payment on any Note, or any reimbursement payment hereunder or under any
Reimbursement Agreement when due and payable, or (ii) to make any deposit into
the Cash Collateral Account when required hereby; or
(b) The failure of the Borrower to make payment of any
installment of interest on any Loan or any Fee on any date when due and payable
and such default shall continue unremedied for a period of three Domestic
Business Days after the same shall have become due; or
(c) The failure of the Borrower to observe or perform any
covenant or agreement contained in Section 2.14, 7.1(a), 7.10, 7.11, 7.12,
7.13, or 7.14, or in Section 8; or
(d) The failure of the Borrower to observe or perform any
other covenant or agreement contained in this Agreement, and such failure shall
have continued unremedied for a period of 30 days after the Borrower shall have
become aware of such failure; or
(e)(i) Any representation or warranty of any Loan Party (or of
any of its officers on its behalf) made in any Loan Document shall in any such
case prove to have been incorrect or misleading (whether because of
misstatement or omission) in any respect when made, or (ii) any representation
or warranty of any Loan Party (or of any of its officers on its behalf) made in
any certificate, report, opinion (other than an opinion of counsel) or other
document delivered on or after the date hereof pursuant to any Loan Document,
shall in
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<PAGE> 69
any such case prove to have been incorrect or misleading (whether because of
misstatement or omission) in any material respect when made; or
(f) (i) Liabilities and/or other obligations in an aggregate
amount in excess of $500,000 of the Borrower or any Material Subsidiary (other
than the obligations hereunder and under the Notes), whether as principal,
guarantor, surety or other obligor, for the payment of any Indebtedness, (A)
shall become or shall be declared to be due and payable prior to the expressed
maturity thereof, or (B) shall not be paid when due or within any grace period
for the payment thereof, or (ii) any holder of any such liabilities and/or
obligations in excess of $500,000 shall have the right to declare the
Indebtedness evidenced thereby due and payable prior to its stated maturity; or
(g) The Borrower or any Material Subsidiary shall (i) suspend
(except for any suspension not in excess of 60 consecutive days due to the
occurrence of a force majeure) or discontinue its business (except as may
otherwise be expressly permitted herein), or (ii) make an assignment for the
benefit of creditors, or (iii) generally not be paying its debts as such debts
become due, or (iv) admit in writing its inability to pay its debts as they
become due, or (v) file a voluntary petition in bankruptcy, or (vi) become
insolvent (however such insolvency shall be evidenced), or (vii) file any
petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment of debt, liquidation or dissolution or similar relief
under any present or future statute, law or regulation of any jurisdiction, or
(viii) petition or apply to any tribunal for any receiver, custodian or any
trustee for any substantial part of its Property, or (ix) be the subject of any
such proceeding filed against it which remains undismissed for a period of 65
days, or (x) file any answer admitting or not contesting the material
allegations of any such petition filed against it, or of any order, judgment or
decree approving such petition in any such proceeding, or (xi) seek, approve,
consent to, or acquiesce in any such proceeding, or in the appointment of any
trustee, receiver, custodian, liquidator, or fiscal agent for it, or any
substantial part of its Property, or an order is entered appointing any such
trustee, receiver, custodian, liquidator or fiscal agent and such order remains
unstayed and in effect for 65 days, or (xii) take any formal action for the
purpose of effecting any of the foregoing or looking to the liquidation or
dissolution of the Borrower or any such Material Subsidiary (except as may
otherwise be expressly permitted herein); or
(h) An order for relief is entered under the United States
bankruptcy laws or any other decree or order is entered by a court having
jurisdiction and continues unstayed and in
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<PAGE> 70
effect for a period of 65 days (i) adjudging the Borrower or any Material
Subsidiary as bankrupt or insolvent, or (ii) approving as properly filed a
petition seeking reorganization, liquidation, arrangement, adjustment or
composition of, or in respect of the Borrower or any Material Subsidiary under
the United States bankruptcy laws or any other applicable Federal or state law,
or (iii) appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Borrower or any Material
Subsidiary or of any substantial part of the Property of any thereof, or (iv)
ordering the winding up or liquidation of the affairs of the Borrower or any
Material Subsidiary and any such decree or order continues unstayed and in
effect for a period of 65 days; or
(i) Judgments or decrees in an aggregate amount in excess of
$250,000 (net of insurance coverage therefor which is not being contested by
the insurer) against the Borrower or any Material Subsidiary shall remain
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of 65 days; or
(j) A Change in Control shall have occurred or been agreed upon; or
(k) (i) any Termination Event shall occur with respect to any
Pension Plan (other than a Multiemployer Plan), (ii) any Accumulated Funding
Deficiency, whether or not waived, shall exist with respect to any Pension Plan
(other than a Multiemployer Plan), (iii) any Person shall engage in any
Prohibited Transaction involving any Employee Benefit Plan, (iv) the Borrower,
any of its Subsidiaries or any ERISA Affiliate shall fail to pay when due an
amount which is payable by it to the PBGC or to a Pension Plan (including a
Multiemployer Plan) under Title IV of ERISA, (v) the imposition of any tax
under Section 4980(B)(a) of the Code, or (vi) the final determination of a
civil penalty with respect to any Employee Benefit Plan under Section 502(c) of
ERISA, which in the case of clauses (i) through (vi) above, individually or in
the aggregate, would have a Material Adverse effect; or
(l) The Subsidiary Guaranty shall cease to be in full force and
effect, or an "Event of Default" shall have occurred under, and as such term is
defined in, the Subsidiary Guaranty; or
(m) A "Repurchase Event" under, and as such term is defined
in, the Subordinated Notes Indenture as in effect on the date hereof, shall
have occurred; or
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<PAGE> 71
(n) Any security interest granted (i) under Section 2.13, or
(ii) in accordance with Section 8.5(k), shall, in either such case, cease to be
valid, enforceable or perfected.
9.2 Contract Remedies
-----------------
(a) Upon the occurrence or at any time during the continuance
of an Event of Default, the Agent, at the written request of the Required
Lenders, shall notify the Borrower that the Letter of Credit Commitment and all
of the Aggregate Commitments have been terminated and/or that all of the Notes
and all of the Reimbursement Obligations have been declared immediately due and
payable, provided that upon the occurrence of an Event of Default under Section
9.1(g) or (h) with respect to the Borrower only, the Letter of Credit
Commitment and all of the Aggregate Commitments shall automatically terminate
and all of the Notes and all of the Reimbursement Obligations shall become
immediately due and payable without declaration or notice to the Borrower. To
the fullest extent not prohibited by law, except for the notice provided for in
the preceding sentence and any other notice expressly provided for herein, the
Borrower hereby expressly waives any presentment, demand, protest, notice of
protest or other notice of any kind in connection with the Loan Documents and
its obligations thereunder. To the fullest extent not prohibited by law, the
Borrower hereby further expressly waives and covenants not to assert any
appraisement, valuation, stay, extension, redemption or similar law, now or at
any time hereafter in force which might delay, prevent or otherwise impede the
performance or enforcement of this Agreement and the other Loan Documents.
(b) In the event that the Letter of Credit Commitment and all
of the Aggregate Commitments shall have been terminated or all of the Notes and
the Reimbursement Obligations shall have been declared due and payable pursuant
to the provisions of this Section 9.2, the Issuer, the Swing Line Lender and
the Lenders agree, among themselves, that any funds received from or on behalf
of the Borrower or, except as otherwise required by law or the Subsidiary
Guaranty, any other Loan Party under any Loan Document by the Issuer, the Swing
Line Lender or any Lender (except funds received by the Issuer, the Swing Line
Lender or any Lender as a result of a purchase from the Issuer, the Swing Line
Lender or such Lender, as the case may be, pursuant to the provisions of
Section 11.9) shall be remitted to the Agent, and shall be applied by the Agent
in payment of the Loans, the Reimbursement Obligations and the other
obligations of the Borrower under the Loan Documents in the following manner
and order: (i) first, to reimburse the Agent, the Issuer and the Lenders, in
that order, for any expenses due from the Borrower pursuant to
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<PAGE> 72
the provisions of Section 11.5 and the Reimbursement Agreements, (ii) second,
to the payment of the Reimbursement Obligations and the outstanding principal
balance of the Swing Line Loans (together with all interest thereon), (iii)
third, to the payment of the Fees, pro rata according to the Fees due and owing
the Agent, the Issuer, the Swing Line Lender and the Lenders, (iv) fourth, to
the payment of any other fees, expenses or amounts (other than the principal of
and interest on the Notes) payable by the Borrower to the Agent, the Issuer,
the Swing Line Lender or any of the Lenders under the Loan Documents, (v)
fifth, to the payment, pro rata according to the Outstanding Percentage of each
Lender, of interest due on the Notes (other than the Swing Line Note), (vi)
sixth, to the payment, pro rata according to the aggregate outstanding
principal balance of the Notes (other than the Swing Line Note) of such
principal, and (vii) seventh, any remaining funds shall be paid to whomsoever
shall be entitled thereto or as a court of competent jurisdiction shall direct.
(c) In the event that the Notes and the Reimbursement
Obligations shall have been declared due and payable pursuant to the provisions
of this Section 9.2, the Agent
(i) upon the written request of the Required Lenders, shall proceed
to enforce the Reimbursement Obligations and the rights of the holders of
the Notes by suit in equity, action at law and/or other appropriate
proceedings, whether for payment or the specific performance of any covenant
or agreement contained in the Loan Documents and, in the event that the
Agent shall fail or refuse so to proceed, the Issuer, the Swing Line Lender
and each Lender shall be entitled so to proceed on its own behalf, and
(ii) may exercise any and all rights and remedies (1) granted to a
secured party in the State of New York or otherwise allowed at law, and (2)
otherwise provided to the Agent by this Agreement, and
(iii) may dispose of the Cash Collateral as it may choose, so long
as every aspect of the disposition including the method, manner, time, place
and terms are commercially reasonable, and the Borrower agrees that three
Domestic Business Days' prior notice of such disposition shall be
commercially reasonable.
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<PAGE> 73
10. THE AGENT
---------
10.1 Appointment
-----------
The Issuer, the Swing Line Lender and each Lender hereby
irrevocably designates and appoints BNY as the Agent of the Issuer, the Swing
Line Lender and such Lender under the Loan Documents and the Issuer, the Swing
Line Lender and each Lender hereby irrevocably authorizes BNY, as Agent, to
take such action on its behalf under the provisions of the Loan Documents and
to exercise such powers and perform such duties as are expressly delegated to
the Agent by the terms of the Loan Documents, together with such other powers
as are reasonably incidental thereto. Notwithstanding any provision to the
contrary contained elsewhere in this Agreement or in any other Loan Document,
the Agent shall not have any duties or responsibilities except those expressly
set forth herein or therein, or any fiduciary relationship with the Issuer, the
Swing Line Lender or any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into the
Loan Documents or otherwise exist against the Agent.
10.2 Delegation of Duties
--------------------
The Agent may execute any of its duties under the Loan Documents by
or through agents or attorneys-in-fact and shall be entitled to rely upon the
advice of counsel concerning all matters pertaining to such duties.
10.3 Exculpatory Provisions
----------------------
Neither the Agent nor any of its respective officers, directors,
employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any
action lawfully taken or omitted to be taken by it or such Person under or in
connection with the Loan Documents (except the Agent for its own gross
negligence or willful misconduct), or (ii) responsible in any manner to the
Issuer, the Swing Line Lender or any Lender for any recitals, statements,
representations or warranties made by any party contained in the Loan Documents
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Agent under or in connection with, the Loan
Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any of the Loan Documents or for any failure
of the Borrower, any of its Subsidiaries, or any other Person to perform its
obligations hereunder or thereunder. The Agent shall not be under any
obligation to the Issuer, the Swing Line Lender or any Lender to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, the Loan Documents, or to inspect the
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<PAGE> 74
properties, books or records of the Borrower or any of its Subsidiaries. The
Agent shall not be under any liability or responsibility to the Borrower or any
other Person solely as a consequence of any failure or delay in performance, or
any breach, by the Issuer, the Swing Line Lender or any Lender of any of its
obligations under any of the Loan Documents, provided that the foregoing
exculpation of the Agent shall in no way prejudice any rights which the
Borrower may have against the Issuer, the Swing Line Lender or any Lender with
respect to any such failure or delay in performance or breach. The Issuer, the
Swing Line Lender and the Lenders acknowledge that the Agent shall not be under
any duty to take any discretionary action permitted hereunder unless the Agent
shall be requested in writing to do so by the Required Lenders.
10.4 Reliance by Agent
-----------------
The Agent shall be entitled to rely, and shall be fully protected
in relying, upon any writing, resolution, notice, consent, certificate,
affidavit, opinion, letter, cablegram, telegram, facsimile, telex or teletype
message, statement, order or other document or conversation reasonably believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other experts
reasonably selected by the Agent. The Agent may treat each Lender, or the
Person designated in the last notice filed with the Agent under Section 11.7,
as the holder of all of the interests of such Lender in its Loans and in its
Note until written notice of transfer, signed by such Lender (or the Person
designated in the last notice filed with the Agent) and by the Person
designated in such written notice of transfer, in form and substance
satisfactory to the Agent, shall have been filed with the Agent. The Agent
shall not be under any duty to examine or pass upon the validity, effectiveness
or genuineness of the Loan Documents or any instrument, document or
communication furnished pursuant thereto or in connection therewith, and the
Agent shall be entitled to assume that the same are valid, effective and
genuine, have been signed or sent by the proper parties and are what they
purport to be. The Agent shall be fully justified in failing or refusing to
take any action under the Loan Documents unless it shall first receive such
advice or concurrence of the Required Lenders as it deems appropriate. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under the Loan Documents in accordance with a request of the Required
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon the Issuer, the Swing Line Lender and all the
Lenders and all future holders of the Notes.
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<PAGE> 75
10.5 Notice of Default
-----------------
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default unless the Agent shall have
received written notice thereof from the Issuer, the Swing Line Lender or the
Borrower. In the event that the Agent receives such a notice, the Agent shall
promptly give notice thereof to the Issuer, the Swing Line Lender, the Lenders
and the Borrower. The 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 the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action or
give such directions, or refrain from taking such action or giving such
directions, with respect to such Default or Event of Default as it shall deem
to be in the best interests of the Issuer, the Swing Line Lender and the
Lenders.
10.6 Non-Reliance
------------
Each of the Issuer, the Swing Line Lender and each Lender expressly
acknowledges that neither the Agent nor any of its respective officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter,
including any review of the affairs of the Borrower or its Subsidiaries, shall
be deemed to constitute any representation or warranty by the Agent to the
Issuer, the Swing Line Lender or any Lender. The Issuer, the Swing Line Lender
and each Lender represents to the Agent that it has, independently and without
reliance upon the Agent, the Issuer, the Swing Line Lender or any other Lender,
and based on such documents and information as it has deemed appropriate, made
its own evaluation of and investigation into the business, operations,
Property, financial and other condition and creditworthiness of the Borrower
and its Subsidiaries and made its own decision to enter into this Agreement.
The Issuer, the Swing Line Lender and each Lender also represents that it will,
independently and without reliance upon the Agent, the Issuer, the Swing Line
Lender or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
evaluations and decisions in taking or not taking action under the Loan
Documents, and to make such investigation as it deems necessary to inform
itself as to the business, operations, Property, financial and other condition
and creditworthiness of the Borrower and its Subsidiaries. Except for notices,
reports and other documents expressly required to be furnished to the Issuer
and the Lenders by the Agent hereunder, the Issuer and the Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information
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<PAGE> 76
concerning the business, operations, Property, financial and other condition or
creditworthiness of the Borrower or any of its Subsidiaries which may come into
the possession of the Agent or any of its respective officers, directors,
employees, agents, attorneys-in-fact or affiliates.
10.7 Indemnification
---------------
Each Lender agrees to indemnify the Agent in its capacity as such
(to the extent not promptly reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to its Commitment
Percentage or, in the event any Loans shall be outstanding, its Outstanding
Percentage, from and against any and all liabilities, obligations, claims,
losses, damages, penalties, actions, judgments, suits, costs, expenses and
disbursements of any kind whatsoever, including any amounts paid to the Lenders
(through the Agent) by or for the account of the Borrower pursuant to the terms
hereof, that are subsequently rescinded or avoided (or must otherwise be
restored or returned) which may at any time (including at any time following
the payment of the Notes) be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this Agreement, any other Loan
Document or any other document contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted to be taken by
the Agent under or in connection with any of the foregoing; provided, however,
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements to the extent resulting solely from the
gross negligence or willful misconduct of the Agent. The agreements in this
Section 10.7 shall survive termination of the Aggregate Commitments, the
payment of the Notes, the Reimbursement Obligations and all other amounts
payable under the Loan Documents and the performance and observance by the
Borrower of all of its other obligations under the Loan Documents.
10.8 Agent in Its Individual Capacity
--------------------------------
BNY and its respective affiliates may make loans to, accept
deposits from, issue letters of credit for the account of and generally engage
in any kind of business with, the Borrower and its Subsidiaries as though BNY
was not the Issuer or the Agent hereunder. With respect to the Aggregate
Commitments made or renewed by BNY and each Note issued to BNY, BNY shall have
the same rights and powers under this Agreement as any Lender and may exercise
the same as though it was not the Issuer, the Swing Line Lender or the Agent
and the term "Lender" shall include BNY.
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<PAGE> 77
10.9 Successor Agent
---------------
If at any time the Agent deems it advisable, in its sole
discretion, it may submit to the Issuer, the Swing Line Lender and each Lender
a written notification of its resignation as Agent under this Agreement, such
resignation to be effective on the earlier to occur of (a) the thirtieth day
after the date of such notice, and (b) the date upon which any successor agent,
in accordance with the provisions of this Section 10.9, shall have accepted in
writing its appointment as such successor agent. Upon any such resignation,
the Required Lenders shall have the right to appoint from among the Lenders a
successor agent reasonably acceptable to the Borrower. If no successor agent
shall have been so appointed by the Required Lenders and accepted such
appointment within 30 days after the retiring agent's giving of notice of
resignation, then the retiring agent may, on behalf of the Issuer, the Swing
Line Lender and the Lenders, appoint a successor agent, which successor agent
shall be a commercial bank organized under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $500,000,000. Upon the written acceptance of any appointment as Agent
hereunder by a successor agent, such successor agent shall automatically become
a party to this Agreement and shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent's rights, powers, privileges and duties as Agent under this
Agreement shall be terminated. The Borrower, the Issuer, the Swing Line Lender
and the Lenders shall execute such documents as shall be necessary to effect
such appointment. After any retiring Agent's resignation as Agent, the
provisions of this Section 10 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement. If
at any time there shall not be a duly appointed and acting Agent, upon notice
duly given, the Borrower agrees to make each payment when due hereunder and
under the Notes and the other Loan Documents directly to the Issuer, the Swing
Line Lender and the Lenders entitled thereto during such time.
11. OTHER PROVISIONS
----------------
11.1 Amendments, Waivers, Etc.
-------------------------
(a) Except as otherwise provided in Section 11.1(b), with the
written consent of the Required Lenders, the Agent and the appropriate Loan
Parties may, from time to time, enter into written amendments, supplements or
modifications thereof and, with the consent of the Required Lenders, the Agent
may, on behalf of the Issuer, the Swing Line Lender and the Lenders, execute
and deliver to any such parties a written
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<PAGE> 78
instrument waiving or consenting to the departure from, on such terms and
conditions as the Agent may specify in such instrument, any of the requirements
of the Loan Documents or any Default or Event of Default and its consequences,
provided, however, that no such amendment, supplement, modification, waiver or
consent shall, without the consent of the Super-Majority Lenders, release all
or substantially all of the obligations of any Loan Party under the Subsidiary
Guaranty (other than in connection with a Disposition of such Loan Party
permitted by Section 8.3), provided further that no such amendment,
supplement, modification, waiver or consent shall, without the consent of all
of the Lenders (i) increase the Revolving Commitment Amount of any Lender
(provided that neither (A) a waiver of a Default or an Event of Default, nor
(B) an Assignment to a Lender shall be deemed to constitute such an increase),
(ii) extend the Commitment Period, except as provided in Section 2.6, (iii)
reduce the amount, or extend the time of payment, of the Commitment Fee, the
Utilization Fee or the Letter of Credit Fee, (iv) reduce the rate (other than
the Default Rate), or extend the time of payment of, interest on any Loan or
any Note, (v) reduce the amount, or extend the time of payment of any
installment or other payment of principal on any Loan or any Note, (vi)
decrease or forgive the principal amount of any Loan or any Note, (vii) consent
to any assignment or delegation by the Borrower or any of its Subsidiaries, or
any other Loan Party, of any of its rights or obligations under any Loan
Document, (viii) change the provisions of Sections 3.5, 3.6, 3.7, 3.8, 3.10,
9.1(a), this Section 11.1, Section 11.5, or Section 11.10, (ix) change the
definition of Required Lenders, (x) change sharing provisions among the
Lenders, or (xi) change the several nature of the obligations of the Lenders,
and provided further that no such amendment, supplement, modification, waiver
or consent shall (A) amend, modify or waive any provision of Section 10 or
otherwise change any of the rights or obligations of the Agent under any Loan
Document without the written consent of the Agent, (B) amend, modify or waive
any provision of Section 2.10, 2.11, 2.12 or 2.13 or otherwise change any of
the rights and obligations of the Issuer under any Loan Document without the
written consent of the Issuer, or (C) amend, modify or waive any provision of
Section 2.3, 2.4 or 2.8 or otherwise change any of the rights and obligations
of the Swing Line Lender under any Loan Document without the written consent of
the Swing Line Lender. Any such amendment, supplement, modification, waiver or
consent shall apply equally to each of the Lenders and shall be binding upon
the parties to the applicable agreement, the Lenders, the Issuer, the Swing
Line Lender, the Agent and all future holders of the Notes. In the case of any
waiver, the parties to the applicable agreement, the Lenders, the Issuer, the
Swing Line Lender, and the Agent shall be restored to their former position and
rights hereunder and under the other Loan Documents, and any Default or
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<PAGE> 79
Event of Default waived shall not extend to any subsequent or other Default or
Event of Default, or impair any right consequent thereon.
(b) Notwithstanding anything to the contrary contained in
Section 11.1(a), the Agent may, at any time and from time to time without the
consent of the Issuer, the Swing Line Lender or any one or more of the Lenders,
release all or any of the obligations of a Loan Party under the Subsidiary
Guaranty in connection with a Disposition of such Loan Party permitted by
Section 8.3.
11.2 Notices
-------
Except as otherwise expressly provided herein, all notices,
requests and demands to or upon the respective parties hereto to be effective
shall be in writing and, if in writing, shall be deemed to have been duly given
or made (a) when delivered by hand, (b) one Domestic Business Day after having
been sent by receipted overnight courier service, (c) five Domestic Business
Days after having been deposited in the mail, first-class postage prepaid,
return-receipt requested, or (d) in the case of facsimile notice, when sent,
provided that such transmission is confirmed, addressed as follows in the case
of the Borrower, the Issuer and the Agent, and as set forth in Exhibit A in the
case of each of the Lenders, or to such other addresses as to which the Agent
may be hereafter notified by the respective parties hereto or any future
holders of the Notes:
the Borrower:
Telxon Corporation
3330 West Market Street
Akron, Ohio 44334
Attention: Kenneth W. Haver,
Chief Financial Officer
Facsimile: (216) 873-2860
Telephone: (216) 867-3700,
with a copy to:
Telxon Corporation
3330 West Market Street
Akron, Ohio 44334
Attention: Glenn S. Hansen,
Vice President, Legal Administration
and Corporate Counsel
Facsimile: (216) 873-2240
Telephone: (216) 867-3700,
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<PAGE> 80
the Agent, the Issuer or the Swing Line Lender:
The Bank of New York
One Wall Street
18th Floor
New York, New York 10286
Attention: Kalyani Bose,
Assistant Treasurer
Facsimile: (212) 635-6365 or x.6366 or x.6367
Telephone: (212) 635-4693,
with a copy to:
The Bank of New York
One Wall Street
22nd Floor
New York, New York 10286
Attention: Robert J. Joyce,
Vice President
Facsimile: (212) 635-6434
Telephone: (212) 635-7917,
except that any notice, request or demand by the Borrower to or upon the Agent,
the Issuer, the Swing Line Lender or the Lenders pursuant to Sections 2.5 or
3.3 shall not be effective until received. Any party to a Loan Document may
rely on signatures of the parties thereto which are transmitted by facsimile or
other electronic means as fully as if originally signed.
11.3 No Waiver; Cumulative Remedies
------------------------------
No failure to exercise and no delay in exercising, on the part of
the Agent, the Issuer, the Swing Line Lender or any Lender, any right, remedy,
power or privilege under any Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, remedy, power or
privilege under any Loan Document preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The
rights, remedies, powers and privileges under the Loan Documents are cumulative
and not exclusive of any rights, remedies, powers and privileges provided by
law.
11.4 Survival of Representations and Warranties
------------------------------------------
All representations and warranties made in the Loan Documents and
in any document, certificate or statement delivered pursuant thereto or in
connection therewith shall survive the execution and delivery of this
Agreement, the Notes and the other Loan Documents.
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<PAGE> 81
11.5 Payment of Expenses and Taxes
-----------------------------
The Borrower agrees, promptly upon presentation of a statement or
invoice therefor, and whether any Loan is made or any Letter of Credit issued,
(a) to pay or reimburse the Agent for all its reasonable out-of-pocket costs
and expenses incurred in connection with the development, syndication,
preparation and execution of, and any amendment, waiver, consent, supplement or
modification to, the Loan Documents, any documents prepared in connection
therewith and the consummation of the transactions contemplated thereby whether
such Loan Documents or any such amendment, waiver, consent, supplement or
modification to the Loan Documents or any documents prepared in connection
therewith are executed and whether the transactions contemplated thereby are
consummated, including the reasonable fees and disbursements of counsel, (b) to
pay or reimburse the Agent, the Issuer, the Swing Line Lender and the Lenders
for all of their respective reasonable out-of-pocket costs and expenses
incurred in connection with the enforcement or preservation of any rights under
the Loan Documents, including reasonable fees and disbursements of counsel, (c)
to pay, indemnify, and hold each Lender, the Issuer, the Swing Line Lender and
the Agent harmless from any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or consummation of
any of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, the Loan
Documents and any such other documents, and (d) to pay, indemnify and hold each
Lender, the Issuer, the Swing Line Lender and the Agent and each of their
respective affiliates, officers, directors and employees harmless from and
against any and all other liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever (including reasonable counsel fees and disbursements)
with respect to the enforcement and performance of the Loan Documents (all the
foregoing, collectively, the "INDEMNIFIED LIABILITIES") and, if and to the
extent that the foregoing indemnity may be unenforceable for any reason, the
Borrower agrees to make the maximum payment permitted under applicable law to
each other party hereto seeking indemnification hereunder (except to the extent
that such unenforceability is a result of the actions of such party); provided,
however, that the Borrower shall have no obligation hereunder to pay
Indemnified Liabilities to the Agent, the Issuer, the Swing Line Lender or any
Lender arising from the gross negligence or willful misconduct of such party.
The agreements in this Section 11.5 shall survive the termination of the
Aggregate Commitments, the payment of the Notes, the Reimbursement Obligations
and all other amounts payable under
- 81 -
<PAGE> 82
the Loan Documents, and the performance and observance by the Borrower of all
of its other obligations under the Loan Documents.
11.6 Lending Offices
---------------
The Issuer, the Swing Line Lender and each Lender shall have the
right at any time and from time to time to transfer any Loan, or the
Reimbursement Obligations to a different office of the Issuer, the Swing Line
Lender and such Lender.
11.7 Successors and Assigns
----------------------
(a) This Agreement, the Notes and the other Loan Documents to
which the Borrower is a party shall be binding upon and inure to the benefit of
the Borrower, the Lenders, the Issuer, the Swing Line Lender, the Agent, all
future holders of the Notes and the Reimbursement Agreements and their
respective successors and assigns. Each Loan Party agrees that, without the
prior written consent of each Lender, it shall not assign its rights or
delegate its duties and obligations under any Loan Document.
(b) Subject to Section 11.7(e), the Issuer, the Swing Line
Lender and any Lender may at any time assign all or any portion of its rights
under any Loan Document to any Federal Reserve Bank.
(c) In addition to its rights under Section 11.7(b), the
Swing Line Lender and each Lender shall have the right to sell, assign,
transfer or negotiate (each an "ASSIGNMENT") one hundred percent, or any lesser
percentage, of its Loans, its Letter of Credit Participation, its Revolving
Commitment and its Notes to any subsidiary or Affiliate of such Lender, to any
other Lender, or, with the consent of the Agent (such consent not to be
unreasonably withheld), to any other bank, insurance company, financial
institution, pension fund, mutual fund or other similar fund, provided that (i)
each such Assignment shall be of a constant, and not a varying, percentage of
the assignor Lender's rights and obligations under the Loan Documents, (ii) the
Revolving Commitment Amount of the Revolving Commitment assigned shall be not
less than $5,000,000, or the full Revolving Commitment Amount of such assignor
Lender's Revolving Commitment, (iii) unless the assignee is another Lender or a
subsidiary or Affiliate of any Lender, or unless at the time of such Assignment
an Event of Default shall exist, the Borrower shall have consented thereto in
writing (such consent not to be unreasonably withheld), and (iv) the assignor
Lender and such assignee shall deliver to the Agent three copies of an
Assignment and Acceptance Agreement executed by each of them, along with an
assignment fee in
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<PAGE> 83
the sum of $3,000 for the account of the Agent. Upon receipt of such number of
executed copies of each such Assignment and Acceptance Agreement together with
the assignment fee therefor and the Borrower's consent to such Assignment, if
required, the Agent shall record the same and execute not less than two copies
of such Assignment and Acceptance Agreement in the appropriate place, deliver
one such copy to the assignor and one such copy to the assignee, and deliver
one photocopy thereof, as executed, to the Borrower. From and after the
Assignment Effective Date specified in, and as defined in, such Assignment and
Acceptance Agreement, the assignee thereunder shall be a party hereto and shall
for all purposes of this Agreement and the other Loan Documents be deemed a
"Lender" and, to the extent provided in such Assignment and Acceptance
Agreement, the assignor Lender thereunder shall be released from its
obligations under this Agreement and the other Loan Documents. The Borrower
agrees that, in connection with each such Assignment, it shall at its own cost
and expense execute and deliver (1) to the Agent or such assignee a Revolving
Note in a maximum principal amount equal to the Revolving Commitment Amount of
the Revolving Commitment assumed by such assignee, payable to the order of such
assignee and dated the Effective Date, and (2) to the Agent or such assignor
Lender, in the event that such assignor Lender shall not have assigned all of
its Revolving Commitment, a Revolving Note in a maximum principal amount equal
to the Revolving Commitment Amount of the Revolving Commitment retained by such
assignor, either in escrow pending the delivery of, or against receipt of, such
assignor Lender's existing Revolving Note. The Agent shall be entitled to rely
upon the representations and warranties made by the assignee under each
Assignment and Acceptance Agreement.
(d) In addition to the participations provided for in Section
11.9(b), the Swing Line Lender and each Lender may grant participations in all
or any part of its Loans, its Note and its Revolving Commitment to one or more
banks, insurance companies, pension funds, mutual funds or other financial
institutions, provided that (i) such Lender's obligations under this Agreement
and the other Loan Documents shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties to this Agreement and the other
Loan Documents for the performance of such obligations, (iii) the Borrower, the
Agent and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents and such Lender shall retain the sole
right to enforce the obligations of the Borrower relating to the Advances and
to approve any modification, amendment, or waiver of any provision of this
Agreement, subject to the provisions of Section 11.7(d)(vi), (iv) no
sub-participations shall be permitted, (v) the granting of such participation
- 83 -
<PAGE> 84
does not require that any immediate out-of-pocket cost or expense be borne by
the Borrower, and (vi) the voting rights of any holder of any participation
shall be limited to the right to consent to any action taken or omitted to be
taken by such Lender under the Loan Documents which would (A) increase the
Revolving Commitment Amount of any Lender (provided that no waiver of a Default
or Event of Default or of any mandatory reduction of any of the foregoing shall
be deemed to constitute such a change), (B) extend the Commitment Period, (C)
reduce the amount or extend the time of payment of the Commitment Fee, (D)
reduce the rate (other than the Default Rate) or extend the time of payment of
interest on any Loan or any Note, (E) reduce the amount or extend the time of
payment of any installment or other payment of principal on any Loan or any
Note, (F) decrease or forgive the principal amount of any Loan or any Note, (G)
consent to any assignment or delegation by the Borrower or any of its
Subsidiaries, or any other Loan Party, of all of its rights or obligations
under all of the Loan Documents, or (H) release all of the obligations of or by
any Loan Party under the Subsidiary Guaranty (other than in connection with a
Disposition of such Loan Party permitted by Section 8.3).
(e) No Lender shall, as between and among the Borrower, the
Agent, the Issuer, the Swing Line Lender and such Lender, be relieved of any of
its obligations under the Loan Documents as a result of any assignment of or
granting of participations in, all or any part of its Loans, its Revolving
Commitment and its Note, except that a Lender shall be relieved of its
obligations to the extent of any such Assignment of all or any part of its
Loans, its Revolving Commitment or its Note pursuant to Section 11.7(c).
11.8 Counterparts
------------
Each of the Loan Documents (other than the Notes) may be executed
on any number of separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same agreement. It shall
not be necessary in making proof of any Loan Document to produce or account for
more than one counterpart signed by the party to be charged. A set of the
copies of this Agreement and each of the other Loan Documents signed by all of
the parties thereto shall be lodged with each of the Borrower and the Agent.
Any party to a Loan Document may rely upon the signatures of any other party
thereto which are transmitted by facsimile or other electronic means to the
same extent as if originally signed.
11.9 Set-off and Sharing of Payments
-------------------------------
(a) In addition to any rights and remedies of the Issuer, the
Swing Line Lender and each Lender, as the case may
- 84 -
<PAGE> 85
be, provided by law, upon the occurrence of an Event of Default and
acceleration of the Notes and the Reimbursement Obligations, or at any time
upon the occurrence and during the continuance of an Event of Default under
Sections 9.1(a) or 9.1(b), the Issuer, the Swing Line Lender and each Lender,
as the case may be, shall have the right, without prior notice to the Borrower
or any other Loan Party, any such notice being expressly waived by the Borrower
and each such other Loan Party to the extent permitted by applicable law, to
set-off and apply against any indebtedness or other liability, whether matured
or unmatured, of the Borrower or any other Loan Party to the Issuer, the Swing
Line Lender or such Lender, as the case may be, arising under the Loan
Documents, any amount owing from the Issuer, the Swing Line Lender or such
Lender, as the case may be, to the Borrower or such other Loan Party. To the
extent permitted by applicable law, the aforesaid right of set-off may be
exercised by the Issuer, the Swing Line Lender or such Lender, as the case may
be, against the Borrower or any other Loan Party or against any trustee in
bankruptcy, custodian, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor of the
Borrower or any other Loan Party, or against anyone else claiming through or
against the Borrower or any other Loan Party or such trustee in bankruptcy,
custodian, debtor in possession, assignee for the benefit of creditors,
receivers, or execution, judgment or attachment creditors, notwithstanding the
fact that such right of set-off shall not have been exercised by the Issuer,
the Swing Line Lender or such Lender, as the case may be, prior to the making,
filing or issuance of, service upon the Issuer, the Swing Line Lender or such
Lender, as the case may be, of, or notice to such of the Issuer, the Swing Line
Lender or such Lender, as the case may be, of, any petition, assignment for the
benefit of creditors, appointment or application for the appointment of a
receiver, or issuance of execution, subpoena, order or warrant. The Issuer,
the Swing Line Lender and each Lender, as the case may be, agrees promptly to
notify the Borrower and the Agent after each such set-off and application made
by the Issuer, the Swing Line Lender or such Lender, as the case may be,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
(b) If any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of its Loans, its Notes or the Reimbursement Obligations
in excess of its Outstanding Percentage of payments then due and payable on
account of the Loans, the Notes and the Reimbursement Obligations received by
all the Lenders, such Lender shall forthwith purchase, without recourse, for
cash, from the other Lenders such participations in their Loans and Notes as
shall be necessary to cause such purchasing Lender to share such excess
- 85 -
<PAGE> 86
payment with each of them according to their Outstanding Percentages, provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender; such purchase from such other Lenders
shall be rescinded and such other Lenders shall repay to the purchasing Lender
the purchase price to the extent of such recovery, together with an amount
equal to the Lender's pro rata share (according to the proportion of (i) the
amount of other Lender's required repayment to (ii) the total amount so
recovered from the purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect of the total amount so recovered.
The Borrower agrees that any Lender so purchasing a participation from such
other Lenders, as the case may be, pursuant to this Section 11.9(b) may
exercise such rights to payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of
the Borrower in the amount of such participation.
11.10 Indemnity
---------
The Borrower agrees to indemnify and hold harmless the Agent, the
Issuer, the Swing Line Lender and each Lender from and against (x) any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses and disbursements of any kind whatsoever
which may at any time (including at any time following the payment of the
Notes) be imposed on, reasonably incurred by or asserted against the Agent, the
Issuer, the Swing Line Lender or any Lender relating to or arising out of this
Agreement, any other Loan Document or any other document contemplated by or
referred to herein or the transactions contemplated hereby or any action taken
or omitted to be taken by the Agent, the Issuer, the Swing Line Lender or such
Lender under or in connection with any of the foregoing, and/or (y) any loss,
cost, liability, damage or expense, including the reasonable fees and
disbursements of counsel (including the allocated costs and expenses of
in-house counsel to the extent that outside counsel is not utilized) to the
Agent, the Issuer, the Swing Line Lender and each Lender incurred by the Agent,
the Issuer, the Swing Line Lender or such Lender in investigating, preparing
for, defending against, or providing evidence, producing documents or taking
any other action in respect of, any commenced or threatened litigation,
administrative proceeding or investigation under any federal securities law or
any other statute of any jurisdiction, or any regulation, or at common law or
otherwise, which is alleged to arise out of or is based upon (1) any untrue
statement or alleged untrue statement of any material fact, in any document or
schedule executed or filed with any Governmental Authority by or on behalf of
the Borrower or any of its Subsidiaries which relates to the transactions
contemplated by the Loan Documents, (2) any
- 86 -
<PAGE> 87
omission or alleged omission to state any material fact required to be stated
in such document or schedule, or necessary to make the statements made therein,
in light of the circumstances under which made, not misleading, (3) any acts,
practices or omissions or alleged acts, practices or omissions of the Borrower
or its agents relating to the use of the proceeds of any Loan which is alleged
to be in violation of Section 2.14, or in violation of any federal securities
law or of any other statute, regulation or other law of any jurisdiction
applicable thereto, or (4) this Agreement, any other Loan Document or any other
document contemplated by or referred to herein or the transactions contemplated
hereby or any action taken or omitted to be taken by the Agent, the Issuer, the
Swing Line Lender or such Lender under or in connection with any of the
foregoing. The indemnity set forth herein shall be in addition to any other
obligations or liabilities of the Borrower to the Agent, the Issuer, the Swing
Line Lender and the Lenders hereunder or at common law or otherwise, shall
include the fees and expenses of counsel (including the allocated costs and
expenses of in-house counsel to the extent that outside counsel is not
utilized) incurred in connection with establishing liability under this Section
11.10 or collecting amounts payable under this Section 11.10 and shall survive
any termination of this Agreement, the expiration of the Aggregate Commitments
and the payment of all indebtedness of the Borrower hereunder and under the
other Loan Documents, provided that the Borrower shall have no obligation under
this Section 11.10 to the Agent, the Issuer, the Swing Line Lender or any
Lender with respect to any of the foregoing to the extent the same (1) is
determined in a final judgment, after available appeals, to have arisen from
the gross negligence or willful misconduct of the Agent, the Issuer, the Swing
Line Lender or such Lender, or (2) arises out of a final judgment relating
hereto, rendered against the Agent, the Issuer, the Swing Line Lender or such
Lender, in favor of the Borrower.
11.11 Governing Law
-------------
The Loan Documents and the rights and obligations of the parties
thereto shall be governed by, and construed and interpreted in accordance with,
the laws of the State of New York, without regard to principles of conflict of
laws.
11.12 Severability
------------
Every provision of this Agreement and the other Loan Documents is
intended to be severable, and if any term or provision hereof or thereof shall
be invalid, illegal or unenforceable for any reason, the validity, legality and
enforceability of the remaining provisions hereof or thereof shall not be
affected or impaired thereby, and any invalidity, illegality or
unenforceability in any jurisdiction shall not
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<PAGE> 88
affect the validity, legality or enforceability of any such term or provision
in any other jurisdiction.
11.13 Integration
-----------
All exhibits to this Agreement and any other Loan Document shall be
deemed to be a part of this Agreement or such other Loan Document, as the case
may be. Each Loan Document embodies the entire agreement and understanding
between or among the parties thereto with respect to the subject matter thereof
and supersedes all prior agreements and understandings between or among the
parties thereto with respect to the subject matter thereof.
11.14 Acknowledgments
---------------
Each Loan Party acknowledges that (a) it has been advised by
counsel in the negotiation, execution and delivery of the Loan Documents, (b)
by virtue of the Loan Documents, neither the Agent, the Issuer, the Swing Line
Lender nor any Lender has any fiduciary relationship to such Loan Party, and
the relationship between the Agent, the Issuer, the Swing Line Lender and the
Lenders, on the one hand, and such Loan Party, on the other hand, is solely
that of debtor and creditor, and (c) by virtue of the Loan Documents, no joint
venture exists among the Agent, the Issuer, the Swing Line Lender and the
Lenders or among such Loan Party and the Agent and/or the Lenders and/or the
Issuer and/or the Swing Line Lender.
11.15 Consent to Jurisdiction
-----------------------
Each Loan Party irrevocably submits to the jurisdiction of any New
York State or Federal Court sitting in the City of New York over any suit,
action or proceeding arising out of or relating to the Loan Documents. Each
Loan Party irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding brought in such a court and any claim that any
such suit, action or proceeding brought in such a court has been brought in an
inconvenient forum. Each Loan Party agrees that a final judgment in any such
suit, action or proceeding brought in such a court, after all appropriate
appeals, shall be conclusive and binding upon it.
11.16 Service of Process
------------------
Each Loan Party agrees that process may be served against it in any
suit, action or proceeding referred to in Section 11.15 by sending the same by
first class mail, return-receipt requested or by receipted overnight courier
service, to the address of such Loan Party set forth in Section 11.2 or
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<PAGE> 89
in the applicable Loan Document executed by such Loan Party. Each Loan Party
agrees that any such service (i) shall be deemed in every respect effective
service of process upon it in any such suit, action, or proceeding, and (ii)
shall to the fullest extent enforceable by law, be taken and held to be valid
personal service upon and personal delivery to it.
11.17 No Limitation on Service or Suit
--------------------------------
Nothing in the Loan Documents or any modification, waiver, or
amendment thereto shall affect the right of the Agent, the Issuer, the Swing
Line Lender or any Lender to serve process in any manner permitted by law or
limit the right of the Agent, the Issuer, the Swing Line Lender or any Lender
to bring proceedings against any Loan Party in the courts of any jurisdiction
or jurisdictions.
11.18 WAIVER OF TRIAL BY JURY
-----------------------
EACH OF THE AGENT, THE ISSUER, THE SWING LINE LENDER, THE LENDERS
AND EACH LOAN PARTY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF,
UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREBY. FURTHER, EACH LOAN PARTY HEREBY CERTIFIES THAT NO REPRESENTATIVE OR
AGENT OF THE AGENT, THE ISSUER, THE SWING LINE LENDER OR THE LENDERS, OR
COUNSEL TO THE AGENT, THE ISSUER, THE SWING LINE LENDER OR THE LENDERS, HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE AGENT, THE ISSUER, THE SWING LINE
LENDER, OR THE LENDERS WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO
ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. EACH LOAN PARTY
ACKNOWLEDGES THAT THE AGENT, THE ISSUER, THE SWING LINE LENDER AND THE LENDERS
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, INTER ALIA, THE PROVISIONS
OF THIS SECTION 11.18.
11.19 Treatment of Certain Information
--------------------------------
Each Lender, the Issuer, the Swing Line Lender and the Agent agrees
(on behalf of itself and each of its affiliates, directors, officers, employees
and representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential
information of the same nature, all non-public information obtained from or
made available by the Borrower or any Subsidiary pursuant to this Agreement
which (a) is identified by such Person as being confidential at the time the
same is delivered to such Lender, the Issuer, the Swing Line Lender or the
Agent, or (b) constitutes any financial statement, financial projections or
forecasts, budget, compliance certificate, audit report, management letter or
accountants' certification delivered hereunder, provided, however, that nothing
herein
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<PAGE> 90
shall limit the disclosure of any such information (i) to the extent required
by statute, rule, regulation or judicial process, (ii) on a confidential basis,
to counsel for any of the Lenders, the Issuer, the Swing Line Lender or the
Agent, (iii) to bank examiners, auditors or accountants, and any analogous
counterpart thereof, (iv) to the Agent, the Issuer, the Swing Line Lender or
the Lenders, (v) in connection with any litigation to which any one or more of
the Lenders, the Issuer, the Swing Line Lender or the Agent is a party, (in
which event such party shall reasonably endeavor to notify the Borrower of such
disclosure prior thereto in order to provide the Borrower with the opportunity
to obtain a protective order with respect to such information), (vi) to any
assignee or participant (or prospective assignee or participant) so long as
such assignee or participant (or prospective assignee or participant) agrees to
keep such information confidential on substantially the same basis as set forth
in this Section 11.19, or (vii) to affiliates of the Agent, the Issuer, the
Swing Line Lender and each Lender.
11.20 Effective Date
--------------
This Agreement shall be effective at such time (the "EFFECTIVE
DATE") as executed counterparts hereof shall have been delivered to the Agent
and the Borrower by the Agent, the Borrower, the Issuer, the Swing Line Lender
and each Lender.
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<PAGE> 91
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Agreement to be
executed on its behalf.
TELXON CORPORATION
By: /s/ Kenneth W. Haver
--------------------------------
Name: Kenneth W. Haver
------------------------------
Senior Vice President
Title: Chief Financial Officer
and Treasurer
------------------------------
THE BANK OF NEW YORK,
in its capacity as a Lender,
the Issuer, the Swing Line Lender
and the Agent
By: /s/ Robert J. Joyce
--------------------------------
Name: Robert J. Joyce
------------------------------
Title: Vice President
------------------------------
BANK ONE, AKRON, N.A.
By: /s/ Susan D. Steiger
--------------------------------
Name: Susan D. Steiger
------------------------------
Title: Vice President
------------------------------
COMERICA BANK
By: /s/ Charles L. Weddell
--------------------------------
Name: Charles L. Weddell
------------------------------
Title: Vice President
------------------------------
THE HUNTINGTON NATIONAL BANK
By: /s/ Timothy M. Ward
--------------------------------
Name: Timothy M. Ward
------------------------------
Title: A.V.P.
------------------------------
<PAGE> 92
PNC BANK, N.A.
By: /s/ Bryon A. Pike
--------------------------------
Name: Bryon A. Pike
------------------------------
Title: Vice President
------------------------------
SOCIETE GENERALE
By: /s/ Joseph A. Philbin
--------------------------------
Name: Joseph A. Philbin
------------------------------
Title: Vice President
------------------------------
U.S. NATIONAL BANK OF OREGON
By: /s/ Chris J. Karlin
--------------------------------
Name: Chris J. Karlin
------------------------------
Title: Vice President
------------------------------
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: /s/ Hiroaki Nakamura
--------------------------------
Name: Hiroaki Nakamura
------------------------------
Title: Joint General Manager
------------------------------
<PAGE> 1
EXHIBIT 10.3.6
BUSINESS PURPOSE REVOLVING PROMISSORY NOTE
[BANK1ONE(R) logo]
Date: February 29, 1996 Executed at Akron, Ohio
Amount $25,000,000.00
For value received, receipt of which is hereby acknowledged, the undersigned
jointly and severally promises to pay to the order of Bank One, Akron, NA
("Bank One") at its principal office located at 50 South Main Street, Akron,
Ohio or at such other place as Bank One may designate from time to time, in
lawful money of the United States of America, the principal sum of Twenty-Five
Million and 00/100 Dollars or such lesser portion thereof as may have from time
to time been disbursed to, or for the benefit of the undersigned, and remaining
unpaid pursuant to the books or records of Bank One, together with interest on
the unpaid balance of principal advanced from the date(s) of disbursement until
paid in full as set forth below. The principal amount of this Note may be
advanced, repaid and readvanced in full or part during the term of this Note
provided no event of default or demand for payment exists hereunder.
RATE OF INTEREST AND ITS CALCULATION
/X/ Fixed: SEE ATTACHED EXHIBIT A percent (________%) per annum
/__/ Variable: Prime rate plus _____________________ percent (_____%) per
annum which will be adjusted to reflect the change in the
Prime Rate:
/_/ on the first day of each month following the month
in which the Prime Rate changes
/_/ on the same day as the Prime Rate changes
"Prime Rate" means the rate announced from time to time by Bank One as its
prime rate.
Interest shall be calculated on a 360 day year basis and shall be calculated by
dividing the actual number of days which elapsed during the period interest
accrued by a year of 360 days times the interest rate in effect.
After this Note becomes due and payable, whether at maturity, by acceleration
or otherwise, the interest rate on the outstanding principal sum and accrued
interest will be the rate stated above plus five percent (5%) per annum.
Bank One shall have the right to assess a late payment processing fee in the
amount of the greater of $50.00 or five (5)% of the schedule payment in the
event of a default in payment that remains uncured for a period of at least ten
(10) days.
<PAGE> 2
TIME AND METHOD OF PAYMENT
/X/ PRINCIPAL DUE AND PAYABLE ON THE MATURITY DATE, INTEREST DUE AND
PAYABLE ON THE MATURITY DATE OR PERIODICALLY:
MATURITY DATE: April 1, 1996
PRINCIPAL: The principal balance is immediately due and payable on the
MATURITY DATE
INTEREST: Interest is immediately due and payable:
/X/ on the MATURITY DATE
/_/ beginning ______________________ and continuing
/_/ Monthly /_/ Quarterly thereafter, until the
MATURITY DATE on which date all accrued and unpaid
interest shall be immediately due and payable.
/_/ PRINCIPAL AND INTEREST DUE AND PAYABLE ON DEMAND. Principal and interest
are immediately due and payable on demand but until such time as demand for
payment is made, accrued interest thereon is due and payable as hereinafter
provided:
INTEREST: Date of first interest payment:__________________, and continuing
/_/ Monthly /_/ Quarterly thereafter, until demand is made.
This Note /X/ is /_/ is not issued in conjunction with an agreement or letter
dated Feb. 29, 1996, to which reference is made, and /_/ is /X/ is not
supported by other security documents.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE
TELXON CORPORATION
By: /s/ Kenneth W. Haver
------------------------
Kenneth W. Harver, Senior Vice President,
Chief Financial Officer and Treasurer
Additional terms and conditions of this Promissory Note
are contained on the reverse side of this document.
<PAGE> 3
[reverse side]
ADDITIONAL TERMS AND CONDITIONS OF PROMISSORY NOTE
1. All credits, deposits, accounts, securities or moneys of any
signer, endorser or guarantor hereof ("Obligor", meaning each jointly and
severally), and all other property or rights belonging to or in which Obligor
has any interest, now or hereafter pledged or hypothecated to Bank One or in
the possession or control of Bank One ("Collateral") shall be held by Bank One
as security for the payment of this Note, and of every other liability now or
hereafter existing of Obligor, absolute or contingent, due or to become due,
and in whatsoever manner acquired by or accruing to Bank One ("Obligations").
Bank One shall have the right to setoff any such Collateral at any time without
prior notice of Obligor.
2. If this Note is due and payable on demand it is subject to
being called at any time upon actual demand by Bank One. The inclusion of a
payment schedule is merely to provide terms for payment in the absence of
actual demand and does not affect or impair Bank One's absolute right to demand
payment of this Note at any time. Obligor agrees that Bank One may delay
demand until, or make demand at anytime before, any payment date specified in
the demand payment section of this Note.
3. At the option of Bank One, and without in any way limiting its
right to demand payment in full of this Note if it is due and payable on
demand, all Obligations shall become immediately due and payable without prior
notice or demand upon the occurrence of any of the following events of default:
(a) failure of Obligor to make payment when due of the principal or interest of
this Note and/or any of the Obligations; (b) failure of Obligor to furnish
satisfactory collateral or additional collateral, as the case may be, as
hereinafter agreed; (c) failure of Obligor to comply with any of the terms and
conditions of this Note and/or any of the Obligations or contained in any
security agreement or instrument securing this Note and/or any of the
Obligations; (d) death of Obligor; (e) dissolution of, termination of existence
of, insolvency of, business failure of, appointment of a receiver for, or
assignment for the benefit of creditors or a commencement of any proceeding
under any bankruptcy, reorganization, arrangement or liquidation law by or
against Obligor or any property of Obligor; (f) failure of Obligor to pay when
due any premium on any policy of life or other insurance pledged hereunder, or
held in connection with any Collateral; (g) [deleted by interlineation]; (h)
the institution of any garnishment proceedings by attachment, levy or otherwise
against any deposit balance or Collateral maintained or deposited with Bank One
by Obligor; (i) failure of Obligor to either furnish Bank One within thirty
(30) days after written request by Bank One, current financial statements,
including income tax returns, in form satisfactory to Bank One or to permit
inspection of any of Obligor's books or records; (j) any representation,
warranty, statement, report, or application made, or furnished, by Obligor
proving to have been false, erroneous or misleading, in any material respect at
the time of the making thereof; (k) the issuance of any tax levy or lien
against Obligor or Obligor's failure to pay, withhold, collect or remit any tax
when assessed or due; (l) sale or transfer of Collateral out of Obligor's
ordinary course of business; (m) a bulk sale of Obligor's assets; or (n)
suspension or liquidation of Obligor's business.
<PAGE> 4
4. No delay or omission on the part of Bank One in exercising any
right hereunder shall operate as a waiver of such right or of any other right
under this Note. A waiver on any one occasion shall not be construed as a bar
to or waiver of any such right and or remedy on any future occasion.
5. Obligor waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note; and assents to any extension
or postponement of the time of payment, modification or waiver of any payment
amount or any other indulgence, and/or to the addition or release of any other
party or person liable hereon or of any Collateral herefore.
6. This Note shall be governed by and construed in accordance
with the laws of the State of Ohio in all respects.
7. Obligor will pay on demand all costs of collection and
attorneys' fees incurred or paid by Bank One in enforcing this Note when the
same have become due, whether by acceleration or otherwise, if allowable by
law.
8. Bank One shall have the right to charge interest on the amount
of any interest payment not paid as provided in this Note at the same rate as
applicable to the principal sum.
9. Payments shall be allocated between principal, interest and
fees, if any, in the discretion of Bank One, and, when applicable, any
prepayments will be applied to principal in the inverse order of scheduled
maturity.
10. All rights, powers, privileges and immunities herein granted
to Bank One shall extend to its successors and assigns and any other legal
holder of this Note. All rights, powers, privileges and immunities of Obligor
hereunder may not in any way be assigned, transferred or sold. Bank One at any
time is authorized to correct patent errors and fill in any blanks herein.
11. Obligor acknowledges that this Note evidences a loan made
primarily for business, commercial or agricultural purposes and not primarily
for personal, family or household purposes.
12. When any Obligation becomes due, whether by acceleration or
otherwise, and at any time thereafter, Bank One shall have all of the remedies
provided in the security documents including the remedies of a secured party
under the Uniform Commercial Code. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Bank One will give Obligor reasonable notice of the time and
place of any public sale thereof or of the time after which any private sale or
other intended disposition is to be made. The requirement of reasonable notice
shall be met if such notice is mailed, postage prepaid, to the last known
address of Obligor at least ten (10) days before the time of the sale or
disposition.
<PAGE> 5
13. When any Obligation becomes due, whether by acceleration or
otherwise, and at any time thereafter, Bank One is empowered to collect, sell,
assign, transfer, set over and deliver the whole or any part of any Collateral
through any stock exchange, broker or agent or at any public or private sale,
either for cash or credit or for future delivery, without assumption of credit
risk, and at any such sale Bank One may become the purchaser of any part of the
Collateral discharged from right of redemption. Upon any such sale, after
deducting all costs and expenses of every kind related to retaking, storing and
selling the Collateral, the residue of the proceeds thereof may be applied as
Bank One may determine toward the payment of any or all of the Obligations,
whether due or not, returning the overage, if any, to Obligor and Obligor shall
be and remain liable to Bank One for every and any deficiency after application
of such proceeds.
14. Right is expressly granted to Bank One at its option to
transfer at any time to itself or to its nominee any securities pledged
hereunder, to receive and retain the income thereon, all splits, substitutions
and divisions, and hold the same as security herefore, or apply it on the
principal or interest which has become due on any Obligation, whether by
acceleration or otherwise, and, in the case of voting shares or interests
pledged to vote the same when Bank One deems the exercise of such power
necessary to maintain or protect such Collateral.
15. When any Obligation becomes due, whether by acceleration or
otherwise, and at any time thereafter, Bank One may, at its option, demand, sue
for, collect or make any compromise or settlement it deems desirable with
reference to the Collateral. Bank One shall not be bound to take any steps
necessary to preserve any rights in the Collateral against prior parties,
inasmuch as Obligor agrees to assume such responsibility. Bank One shall have
no duty with respect to collection or protection of the Collateral or of any
income on the Collateral as to the preservation of any rights pertaining to the
Collateral beyond safe custody.
16. Obligor will deliver to Bank One satisfactory collateral or
additional collateral, as the case may be, should Bank One so require.
17. Obligor agrees that Bank One may take possession of any
Collateral without prior judicial hearing or process, hereby expressly waives
any right to such judicial hearing process, and hereby assents to any
substitution, exchange or release of Collateral.
18. When any Obligation becomes due, by acceleration or otherwise,
Bank One shall have the right, without notice to Obligor, any party claiming
under Obligor, or any other party, such notice being hereby expressly waived,
and without regard to the adequacy of value of the Collateral or the solvency
or insolvency of Obligor, to the appointment of a receiver by a court of
competent jurisdiction chosen solely by Bank One, upon application at any time,
whether prior to or after a judgment has been obtained against Obligor, to take
possession of the assets and/or business of Obligor together with its books and
records, to maintain or to liquidate said assets and/or business, to collect
the proceeds of the Collateral and apply the net proceeds to any Obligation.
Obligor consents to jurisdiction and venue for the appointment of such receiver
by such court and agrees that any receiver so appointed may take possession of
the assets and/or business of the Obligor, together with the Collateral in any
other jurisdiction in which the Collateral may be located.
<PAGE> 6
19. Obligor authorizes Bank One to exchange Bank One deposit,
credit and borrowing information about Obligor with third parties.
20. Obligor jointly and severally hereby authorizes any attorney
at law to appear in an action on this Note at any time after the same becomes
due, whether by acceleration or otherwise, in any court of record in or of the
State of Ohio, or of elsewhere, and to waive the issuing and service of process
against any or all of said parties, enter an appearance and to confess judgment
is in favor of Bank One against any or all of said parties for the amount that
may be due, together with costs of suit, and to release all errors and waive
all rights of appeal and stay of execution from the judgment rendered. After
the judgment is entered against one or more of said parties, the powers wherein
conferred may be exercised as to one or more of the others. The death of
Obligor shall not impair the authority herein granted as to the survivor or
survivors of Obligor.
<PAGE> 7
EXHIBIT A
The interest rate options available to Borrower shall be as follows, if, as and
when offered by Bank:
MONEY MARKET RATE - meaning interest shall be calculated daily on the current
outstanding principal balance at a variable rate equal to the Money Market
rate, as determined solely by Bank, plus 75 basis points.
Telxon Corporation
By: /s/ Kenneth W. Haver
---------------------
Kenneth W. Haver, Senior Vice President,
Chief Financial Officer and Treasurer
<PAGE> 8
Bank One, Akron, NA
50 South Main Street
Akron, Ohio 44308-1888
[BANK1ONE(R) logo]
February 29, 1996
Mr. Kenneth Haver
Chief Financial Officer
Telxon Corporation
3330 West Market Street
P.O. Box 5582
Akron, Ohio 44334-0582
Dear Mr. Haver:
This Letter Agreement is issued in conjunction with the Business Purpose
Revolving Promissory Note (the "Note") in the amount of $25,000,000.00 executed
on the 29th day of February, 1996, and the terms and conditions contained
herein are considered to be an integral part of that Note. Bank One, Akron,
N.A. (the "Bank") agrees to disburse funds to Telxon Corporation (the
"Borrower") subject to the Borrower meeting all of the Terms and Conditions
contained in the Note and all of the terms and conditions contained in this
Letter Agreement.
The Borrower is currently a party to the Amended and Restated Revolving Credit,
Term Loan and Security Agreement (the "Agreement"), dated March 31, 1995, with
the Bank of New York Commercial Corporation acting as lender and as agent. In
this Agreement, the Borrower has agreed to provide a security interest in all
Receivables, all Equipment, all General Intangibles, all Inventory, the Texas
Real Property and other property as further described in Section 1.2. With the
exception of these liens, the Borrower shall not, without prior written consent
of the Bank, create any additional liens, except Permitted Encumbrances as
further described in Section 1.2 of the Agreement.
This Agreement required the Borrower to meet a number of Affirmative and
Negative Covenants, with a failure to do so resulting in a Default as further
described in the Events of Default section of the Agreement. By executing this
Letter Agreement, the Borrower hereby agrees to meet each Affirmative and
Negative Covenant contained in the Agreement, and provides the same Default
remedies to the Bank for principal advances under the Note in the event of a
failure to properly cure a Default. In addition, in the event that the Bank of
New York Commercial Corporation declares a Default under the Agreement, the
Bank may also declare a default under the Note.
<PAGE> 9
Mr. Kenneth W. Haver
February 29, 1996
Page 2
If, for any calendar month during the term of this Note, the average daily
unpaid balance of the disbursements does not equal the committed face amount of
the Note, the Borrower agrees to pay to the Bank an Unused Line fee of 1/8
percent per annum on a monthly basis on the unused portion of the Note. The
Borrower may terminate the Note at any time prior to the expiration date of
April 1, 1996 and incur an Unused Line Fee on a pro rate basis up to the point
of termination. The Borrower may reduce the committed face amount of the Note
at any time prior to the expiration and incur an Unused Line Fee on the lower
amount of the Note.
This Letter Agreement and the Note comprise all of the terms and conditions
underlying the extension of credit by the Bank to the Borrower. By executing
this Letter Agreement below, the Borrower agrees to be bound by all terms and
conditions.
Very truly yours,
/s/ Steven B. Currier
Steven B. Currier
Vice President
Acknowledged and agreed to this 29th day of February, 1996:
Telxon Corporation
By: /s/ Kenneth W. Haver
----------------------
Name: Kenneth Haver
---------------
Title: Senior Vice President & CFO
-----------------------------
<PAGE> 1
EXHIBIT 10.3.7
BANK ONE, AKRON, NA
BUSINESS PURPOSE REVOLVING PROMISSORY NOTE
(SWING LINE)
$20,000,000.00 Akron, Ohio
March 20, 1996
FOR VALUE RECEIVED, the undersigned, TELXON CORPORATION, an Ohio
corporation (the "Borrower"), hereby promises to pay to the order of BANK ONE,
AKRON, NA (hereinafter called the "Bank," which term shall include any holder
hereof), at such place as the Bank may designate or, in the absence of such
designation, at any of the Bank's offices, the sum of Twenty Million and
no/100ths Dollars ($20,000,000.00) or so much thereof as shall have been
advanced by the Bank at any time and not hereafter repaid, together with
interest calculated daily on the current outstanding principal balance at a
variable rate at the time of each request for a money advance under this Note
equal to the "Money Market rate", as determined solely by Bank, plus the
"Applicable Margin" as defined with respect to Eurodollar Advances in Section 1
of the Agreement referred to below. Interest shall be due and payable upon
this Note commencing on the first day of the month next subsequent to the date
hereof. If not sooner paid, this Note shall mature and all principal, interest
and unpaid expenses shall be due and payable in full on March 19, 1997. Bank
shall have the right to assess a late payment processing fee in the amount of
Fifty and no/100ths Dollars ($50.00) or five percent (5%) of the scheduled
payment in the event of default in payment that remains uncured for a period of
at least ten (10) days. The proceeds of the loan evidenced hereby may be
advanced, repaid and re-advanced, in partial amounts, until maturity. Each
money advance may be made to the Borrower during the term hereof, in the Bank's
sole discretion, upon receipt by the Bank of the Borrower's request therefor,
which request shall be made in accordance with reasonable procedures which Bank
shall from time to time prescribe. Telephonic requests received by appropriate
Bank representatives prior to 3:00 p.m. local time (Akron, Ohio) shall be
funded the same business day. Telephonic requests received after 3:00 p.m.
local time may not be funded until the next subsequent business day. The Bank
shall be entitled to rely on any oral or telephonic communication requesting a
money advance and/or providing disbursement instructions hereunder, which shall
be received by it in good faith from anyone reasonably believed by the Bank to
be the Borrower, or the Borrower's authorized agent. The Borrower agrees that
all money advances made by the Bank, and interest thereon, will be evidenced by
entries made by the Bank to a loan account through its electronic data
processing system and/or internal memoranda maintained by the Bank. The
Borrower further agrees that the sum or sums shown on loan account from the
Bank's electronic data processing system and/or such memoranda shall be
conclusively binding evidence of the amount of the principal sum and of the
amount of any accrued interest, except as to manifest errors.
There shall be no penalty for prepayment. All payments shall be
applied in the following order (i) fees and expenses (including reasonable
attorney fees) incurred by Bank in connection with the enforcement of this
Note, (ii) accrued but unpaid interest, and last (iii) principal.
<PAGE> 2
Borrower is a party to a Credit Agreement, dated March 8, 1996, with
the Bank of New York acting as agent issuer and swing line lender. Such
agreement as amended, modified or replaced from time to time is hereafter
referred to as the "Agreement". Borrower agrees that so long as this Note
remains in effect and until paid in full, Borrower shall create nor permit any
lien, mortgage, deed of trust, or security interest in its property or assets
other than those granted or permitted (including under Section 8.2) under the
terms of the Agreement. Borrower further agrees that a default under the
Agreement, including but not limited to a default under the affirmative or
negative covenants under the Agreement (whether the default is declared or
undeclared, waived or not waived, by the lender under the Agreement), shall, at
Bank's option, constitute a default under this Note. Borrower shall not amend
or modify the material terms of the Agreement, without the Bank's consent.
Borrower shall notify Bank in writing within twenty-four hours of its receipt
of notice of a claimed default under the Agreement. The terms and conditions
of the Agreement with respect to events of defaults, notices and cure rights
and remedies are incorporated herein by reference to the extent applicable.
Upon the occurrence of any one or more defaults under this Note, the
holder hereof, at its option, may declare the entire unpaid balance of
principal and interest on this Note to be immediately due and payable, without
notice or demand, and may, at its option, cumulatively exercise any other right
or remedy provided at law or equity. Failure to exercise any such option shall
not constitute a waiver of the right to exercise the same in the event of any
subsequent default. Upon Bank's declaration that the entire unpaid balance is
immediately due, the unpaid balance of principal shall bear interest at 2% plus
the rate otherwise applicable to this Note.
All of the parties hereto, including the Borrower, and any endorser,
surety, or guarantor, hereby severally waive presentment, notice of dishonor,
protest, notice of protest, and diligence in bringing suit against any party
hereto, and consent that, without discharging any of them, the time of payment
may be extended an unlimited number of times before or after maturity by the
Bank without notice to them.
The obligations evidenced hereby may from time to time be evidenced by
amendments hereto or another note or note given in substitution, renewal or
extension hereof.
The obligations of the Borrower under this Note shall constitute
"Designated Senior Indebtedness" under, and as such term is defined and used as
of the date hereof in, the Indenture, dated as of December 1, 1995, between the
Borrower and Bank One Trust Company, N.A., as Trustee, as the same may be
amended, supplemented or otherwise modified from time to time, with respect to
the $82,500,000 in issued and outstanding principal amount of the Borrower's
5-3/4% Convertible Subordinated Notes due 2003.
2
<PAGE> 3
If any terms or provisions of this Note shall be deemed unenforceable,
the enforceability of the remaining terms and provisions shall not be affected.
This Note shall be governed by and construed in accordance with the laws of the
State of Ohio.
BORROWER:
TELXON CORPORATION
By: /s/ Kenneth W. Haver
----------------------------------------
Kenneth W. Haver, Senior Vice President,
Chief Financial Officer and Treasurer
3
<PAGE> 1
EXHIBIT 10.9.3
AMENDED AND RESTATED SHAREHOLDER AGREEMENT
------------------------------------------
THIS AMENDED AND RESTATED SHAREHOLDER AGREEMENT (this "Agreement"), is
made and effective as of March 28, 1996, by and among METANETICS CORPORATION
(fka New Meta Licensing Corporation), a Delaware corporation (the
"Corporation"), and each of the undersigned (collectively referred to as the
"Original Shareholders" and individually as an "Original Shareholder") (any
person, partnership, association, trust, corporation, limited liability company,
or other entity acquiring any Shares (defined below) in accordance with the
terms and conditions of this Agreement or otherwise, and any transferee that
acquires any Shares from any such person or entity, and the estate, heirs,
executors, administrators, successors and assigns of any such person or entity,
as may be applicable, is referred to as an "Additional Shareholder" and
collectively are referred to as the "Additional Shareholders," and together with
the Original Shareholders are referred to as the "Shareholders"):
WITNESSETH:
WHEREAS, on September 22, 1995, the Certificate of Incorporation of New
Meta Licensing Corporation was filed by the Secretary of State for the State of
Delaware (as thereafter amended, the "Certificate");
WHEREAS, pursuant to the Certificate the authorized capital stock of
the Corporation consists solely of Ten Million (10,000,000) shares of Voting
Common Stock $.01 par value (the "Voting Common"), Three Million (3,000,000)
shares of NonVoting Common Stock $.01 par value and Three Million (3,000,000)
shares of Preferred Stock $.01 par value (collectively the "Shares");
WHEREAS, as of the date hereof, the issued and outstanding Shares of
the Corporation's Voting Common is as indicated in Exhibit A to this Agreement.
There are no shares of Non-Voting Common Stock or Preferred Stock issued or
outstanding;
WHEREAS, on September 29, 1995, the Corporation and its then current
shareholders entered into a Shareholder Agreement (as thereafter amended, the
"Original Agreement");
WHEREAS, the parties desire to amend and restate the Original Agreement
in anticipation of a realignment (i) of the material property of the Corporation
whereby it will obtain legal title to certain intellectual property rights, and
(ii) of the ownership of the Corporation.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement,
intending to be legally and equitably bound, agree as follows:
ARTICLE 1. AMENDMENT AND GOVERNING LAW
--------------------------------------
The Original Agreement is hereby amended and restated in its entirety,
and shall no longer be of any force or effect. This Agreement shall be governed
under, and in accordance with the laws of the State of Delaware, without regard
to conflict of laws principles.
ARTICLE 2. MANAGEMENT
---------------------
(a) GENERAL. The Corporation shall have a Board of Directors comprised
of up to seven (7) directors, but no fewer than three (3) directors. In the
event the Board is deadlocked its Chairman shall cast the deciding vote. Subject
to applicable law governing the responsibilities and liabilities of directors,
which shall in any event take precedence, the Board's power and authority shall
be restricted such that it may take no action which conflicts with the terms
hereof or which is reserved to the Shareholders hereunder. Except as otherwise
provided in this Agreement or as required by applicable law, all matters
requiring action by the Shareholders shall be determined by a Two Thirds (2/3)
majority vote based on the number of shares of Voting Common then owned by them.
Each Shareholder agrees that the Directors of the Corporation shall be the
following persons (and each Shareholder agrees to vote his shares to effectuate
the election of such directors if so required) until their successors are
elected in accordance with this Agreement, the Certificate and the Corporation's
By-laws:
<PAGE> 2
Two Holding Designees,
who on the date hereof are Yung Fu Chang and Robert A. Eberle
One Founders Designee,
who on the date hereof is Ynjiun P. Wang
One LazerData Designee,
who on the date hereof is Michael Hone
One Executives Designee,
who on the date hereof is David B. Swank
For the purpose of the foregoing: "Holding" shall be Meta Holding
Corporation ("Holding") or Telxon Corporation ("Telxon"), within Holding's
discretion; "Founders" shall be the majority of Ynjiun P. Wang ("Wang"), John
Chu ("Chu") and Yung Fu Chang ("Chang"); "LazerData" shall be LazerData
Corporation ("LazerData") or PSC Inc., within LazerData's discretion; and
"Executives" shall be the majority of the individual (non-entity) Original
Shareholders and Accipiter Corporation, but excluding Wang, Chu and Chang.
The LazerData Designee shall be named solely by LazerData from time to
time, and such designee shall be entitled to sit on the Board so long as Lazer
then owns at least 5% of the issued and outstanding shares of the Corporation's
capital stock. Both of the Holding Designees shall be named solely by Holding
from time to time, and such designees shall be entitled to sit on the Board so
long as Holding (or Telxon) then owns at least 10% of the issued and outstanding
shares of the Corporation's capital stock (or one designee so long as Holding
(or Telxon) then owns at least 5% of the issued and outstanding shares of the
Corporation's capital stock). The Founders Designee shall be named solely by the
Founders from time to time, and such designee shall be entitled to sit on the
Board so long as Wang, Chang and Chu then own an aggregate of at least 5% of the
issued and outstanding shares of the Corporation's capital stock. The Executives
Designee shall be named solely by the Executives from time to time, and such
designee shall be entitled to sit on the Board so long as they then own an
aggregate of at least 5% of the issued and outstanding shares of the
Corporation's capital stock.
A designee may be named at any time, and from time to time, by
delivering written notice duly executed by the designator to the Secretary of
the Corporation, for inclusion in the Corporation's minute book. In the event
the Board establishes an Executive Committee, then the LazerData Designee and
the Holding Designees have the right to sit on Such Committee.
(b) BY-LAWS. The Corporation's By-laws shall continue in full force and
effect from and after the date hereof. To the extent that the terms and
conditions of this Agreement conflict with the Corporation's By-Laws, the terms
and conditions of this Agreement shall control.
(c) ACTION BY WRITTEN CONSENT. Unless otherwise required by law, any
vote, approval, authorization or other action to be taken by the Shareholders or
directors of the Corporation may be taken without a meeting, without prior
notice and without a vote if a consent or consents in writing, setting forth the
action so taken, shall be signed by Two Thirds (2/3) of the Shareholders
entitled to vote on matters put before the Shareholders, or Two Thirds (2/3) of
the directors entitled to vote on matters put before the directors, as the case
may be. The original of such consent(s) shall be entered in the corporation's
minute book.
ARTICLE 3. TRANSFER OF SHARES
-----------------------------
(a) PROHIBITION ON TRANSFER. No Shareholder shall sell, exchange, give,
transfer, assign, pledge, encumber, hypothecate, or otherwise dispose of any
Shares, or any legal, beneficial or other interest in any Shares, whether now
owned or hereafter acquired, whether voluntarily, involuntarily, by operation of
law, or otherwise, including by way of intestacy, will, gift, bankruptcy,
execution, or seizure and sale by legal process (such events separately and
collectively are referred to as a "Transfer"), except as provided in this
Agreement. The rights and obligations set forth in this Article 3 are subject in
their entirety to the rights and obligations set forth in Article 4.
2
<PAGE> 3
(b) CORPORATION RIGHT OF FIRST REFUSAL. In the event that a Shareholder
at any time desires to Transfer all or any portion of his Shares to any third
party (the "Offeror"), he must first offer to Transfer his Shares to the
Corporation. Such offer must be upon the same terms and conditions as he
proposes to Transfer such Shares to the Offeror, which terms and conditions
shall be set forth in a written notice of offer (the "Notice of Offer"). The
Notice of Offer shall state with particularity the terms upon which the Transfer
of the Shares is proposed to be made, including, without limitation, the
purchase price to be paid for the Shares, if any, the time and method of
payment, and if payment is to be made other than in cash, the rate of interest
to be paid on the non-cash portion of said purchase price (collectively the
"Offer Price and Terms"). The Corporation shall have a period of thirty (30)
days after receipt of the Notice of Offer within which to accept or reject in
writing said offer of Transfer. Should the Corporation accept such offer, it
shall forthwith acquire the tendered Shares at the Offer Price and Terms.
Failure of the Corporation to respond in writing to a Notice of Offer within
such thirty (30) day period shall be deemed a rejection of said offer.
(c) ORIGINAL SHAREHOLDER RIGHT OF FIRST REFUSAL. Should any of the
subject Shares remain un-acquired by the Corporation at the expiration of the
period specified in Section 3(b), the tendering Shareholder shall offer to
Transfer his Shares to the Original Shareholders (excluding the tendering
Shareholder if he is an Original Shareholder), if any, pro-rata to their Share
interests, respectively at the Offer Price and Terms. The Original Shareholders
shall have a period of thirty (30) days after receipt of the Notice of Offer
within which to accept or reject in writing said offer of Transfer. Should any
Original Shareholder accept such offer, he shall forthwith acquire the tendered
Shares at the Offer Price and Terms. Failure of any Original Shareholder to
respond in writing to a Notice of Offer within such thirty (30) day period shall
be deemed a rejection of said offer. Should any, but not all, of the subject
Shares remain un-acquired following the expiration of such thirty (30) day
period, the remaining Original Shareholders electing to acquire tendered Shares
shall have an additional Seven (7) day period to acquire the unsold Shares, pro
rata to their Share interests, respectively (as between themselves).
(d) ADDITIONAL SHAREHOLDER RIGHT OF FIRST REFUSAL. Should any of the
subject Shares remain un-acquired by the Original Shareholders at the expiration
of the periods specified in Section 3(c), or should there be no Original
Shareholders at the time the subject Shares are offered, the tendering
Shareholder shall offer to Transfer his Shares to the Additional Shareholders
(excluding the tendering Shareholder if he is an Additional Shareholder), if
any, pro rata to their Share interests, respectively. The Additional
Shareholders shall have a period of fifteen (15) days after receipt of the
Notice of Offer within which to accept or reject in writing said offer of
Transfer. Should any Additional Shareholder accept such offer, he shall
forthwith acquire the tendered Shares at the Offer Price and Terms. Failure of
any Additional Shareholder to respond in writing to a Notice of Offer within
such fifteen (15) day period shall be deemed a rejection of said offer. Should
any, but not all, of the subject Shares remain un-acquired following the
expiration of such fifteen (15) day period, the remaining Additional
Shareholders electing to acquire tendered Shares shall have an additional Seven
(7) day period to acquire the unsold Shares, pro rata to their Share interests,
respectively (as between themselves).
(e) TRANSFER AND TAG ALONG. If all of the tendered Shares are not
acquired by either the Corporation, the Original Shareholders and/or the
Additional Shareholders, within the time periods provided for in Sections 3(b),
(c) and (d), respectively, the tendering Shareholder may Transfer the remaining
un-acquired Shares to the Offeror; provided, however, that if the tendering
Shareholder holds more than five percent (5%) of the then issued and outstanding
Shares, then each of the non-tendering Original Shareholders who hold less than
five percent (5%) of the then issued and outstanding Shares may participate with
the tendering Shareholder in such Transfer, at the Offer Price and Terms, pro
rata to their respective Share interests (as between themselves and the
tendering Shareholder). Any such Original Shareholder that desires to
participate in the Transfer shall have a period of fifteen (15) days after
receipt of the Notice of Offer within which to notify the tendering Shareholder
in writing of his election to participate in the Transfer. The tendering and
participating Shareholders' Transfer must be completed within fifteen (15) days
following the last day on which the last party could have acquired the Shares
under Article 3(d), and must be at the Offer Price and Terms set forth in the
applicable Notice of Offer.
(f) ALTERATION OF TERMS. Each time the Offer Price and Terms are
altered in any fashion, including, but not limited to, changes in the identity
of the proposed Offeror or the consideration to be paid for the Shares to be
Transferred, or in the event that a Transfer is not completed within the time
period provided for in Section 3(e), then the subject Shares shall be re-offered
to the Corporation, Original Shareholders and Additional Shareholders in
accordance with Section 3(b), (c) and (d), respectively, as if a totally new
transaction were proposed.
(g) PERMITTED TRANSFER. A non-entity Shareholder is permitted to
Transfer his Shares during his life without first offering his Shares to the
Corporation, Original Shareholders or Additional Shareholders in accordance with
Section 3(b), (c) and (d), respectively if, but only if, the Transfer is to a
trust created by the Shareholder for his benefit, or his spouse's benefit or the
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<PAGE> 4
benefit of his lineal descendants, or to a corporation wholly owned by the
Original Shareholder or his spouse; and his estate may hold and transfer his
shares in accordance with Section 3(h) and Article 4 to the Shareholder's
devisees and heirs at law.
A corporate Shareholder is permitted to Transfer its Shares without
first offering its Shares to the Corporation, Original Shareholders or
Additional Shareholders in accordance with Section 3(b), (c) and (d),
respectively, if, but only if, the Transfer is to a corporation of which at
least 80% of the issued and outstanding shares of its capital stock are owned by
the Shareholder or its affiliates, or if at least 80% of the issued and
outstanding shares of the Shareholder's capital stock are owned by the
Transferee or an affiliate of the Shareholder, and each such transferee may
similarly Transfer such Shares to similarly controlled or controlling affiliate
corporations; in addition to the foregoing, Holding may Transfer its Shares,
without first offering its Shares to the Corporation, Original Shareholders or
Additional Shareholders in accordance with Section 3(b), (c) and (d), and no
Shareholder shall have the right to participate in any such Transfer in
accordance with Section 3(e), at any time and from time to time, so long as
Holding then owns more than 19% of the then issued and outstanding shares of the
Corporation's capital stock. If a Transfer is consummated under this Paragraph
of Section 3(g) by an Original Shareholder, than its immediate transferee shall
be deemed to be an Original Shareholder.
In the event of a permitted Transfer, the transferor shall promptly
furnish written notice thereof to the Corporation. Concurrently therewith, the
transferee shall execute a written agreement to be bound by the terms and
provisions of this Agreement, as provided in Section 3(h). All such transferees
(except as provided in the preceding paragraph) shall be deemed to be Additional
Shareholders.
(h) ADDENDUM. Before the holdings of the successor in interest of any
Shareholder shall be honored by the Corporation or accepted upon its stock
register and before any right, title or interest whatsoever therein shall vest
in such successor, and before the Corporation shall issue or agree to issue any
previously unissued (or reissue or agree to reissue from treasury) Shares of, or
any securities convertible into or exercisable for, stock of the Corporation,
the Corporation shall require, as a condition to the issuance of a stock
certificate or other instrument evidencing such stock or other security, that
said successor in interest or the person to whom any such previously unissued
(or reissued) Shares or other securities are to be issued, as the case may be,
execute and deliver to the Secretary of the Corporation an Addendum to this
Agreement in substantially the following form with appropriate insertions:
ADDENDUM
Pursuant to the AMENDED AND RESTATED SHAREHOLDER AGREEMENT
(the "Agreement") dated March ___, 1996 by and among
Metanetics Corporation, a Delaware corporation (the
"Corporation") and its Shareholders, the undersigned, now the
holder of __________ shares of _______ stock, with $.01 par
value, of the Corporation evidenced by certificate(s)
numbered __________, does hereby become a party to the
Agreement entitled to the rights, and subject to the
obligations, as set forth therein with the same force and
effect as though he had executed said Agreement as an initial
signatory party thereto. The undersigned acknowledges that he
has read said Agreement and is familiar with and understands
its terms.
Dated this _____ day of __________, 199__.
_______________________________
(signature of new shareholder)
Whether or not such Addendum is executed, each successor in interest or new
holder of Shares or other security shall in any event be bound by, and shall
perform the obligations imposed by, this Agreement with the same force and
effect as if such successor in interest had signed this instrument.
ARTICLE 4. TRANSFER OF SHARES AFTER DEATH OF A SHAREHOLDER OR
-------------------------------------------------------------
TERMINATION OF EMPLOYMENT OF AN EMPLOYEE SHAREHOLDER
----------------------------------------------------
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<PAGE> 5
(a) GENERAL. Notwithstanding anything in this Agreement to the
contrary, all Shares shall be subject to Article 4, whether such Shares are
owned by the an Original Shareholder, Additional Shareholder or any transferee
of a Shareholder, or an immediate or subsequent transferee thereof.
(b) CORPORATION'S CALL OPTION. Upon the death of any individual
Shareholder, the voluntary or involuntary termination of employment of a
Shareholder who is employed by the Corporation, Holding or Telxon or any
involuntary transfer of the Shares of any Shareholder, including transfers by
reason of dissolution, liquidation, change in control, levy or execution, in
connection with a divorce or dissolution proceeding, by judicial sale, sale by a
receiver or in any bankruptcy or insolvency proceeding (individually an
"Involuntary Event" and collectively "Involuntary Events"), the Corporation
shall have an option to purchase such Shareholder's Shares for an amount equal
to the Applicable Value (defined below) (if the Corporation is unable to or does
not for any reason exercise any right under this Section 4(b), then Telxon shall
succeed to such rights). The Corporation shall have a period of thirty (30) days
after receipt of notice of the Involuntary Event to exercise this option in
writing. If such Involuntary Event is the death of a Shareholder, then said
thirty (30) day exercise period shall not begin to run until an executor or
administrator of the deceased Shareholder's estate has been appointed by a court
of competent jurisdiction. Should the Corporation exercise this option, it shall
forthwith acquire the subject Shares at a price equal to the Applicable Value.
This option shall automatically expire if not exercised within such thirty (30)
day period. Nothing herein is intended to or shall be construed as an implied
promise of employment or continued employment of any Shareholder by either the
Corporation, Holding or Telxon.
(c) TELXON'S VOTING TRUST. At any time and from time to time, from and
after the date hereof, Telxon shall have the right to require the Telxon
Shareholders, who are identified in Exhibit B to this Agreement, to place any or
all of their Shares in a voting trust the form and substance of which shall be
determined by Telxon.
(d) APPLICABLE VALUE. "Applicable Value" shall be determined as
follows:
(i) If the Involuntary Event is the death of a Shareholder,
then the Applicable Value shall be Fair Market Value (defined below);
(ii) If the Involuntary Event is the termination of a
Shareholder's employment by the Corporation, Holding and/or Telxon, for
other than gross misconduct or a voluntary separation by the
Shareholder, then the Applicable Value shall be Fair Market Value;
(iii) If the Involuntary Event is the termination of a
Shareholder's employment by the Corporation, Holding and/or Telxon, for
gross misconduct or voluntary separation by the Shareholder for any
reason, then the Applicable Value shall be Fair Market Value for the
Fixed (defined herein) portion of the Shareholder's Shares and the
lower of Fair Market Value or the original purchase price on the
un-Fixed portion.
(A) One fifth (1/5) of the Shares owned on September
29, 1995, by Chang and Chu, respectively, are deemed to have
"Fixed" on January 1, 1995, and one fifth (1/5) shall Fix on
each of the next four (4) anniversaries of January 1, 1995.
The Shares of Wang owned on September 29, 1995, are deemed to
have Fixed on January 1, 1995.
(B) One third (1/3) of the Shares owned on September
29, 1995 by any employee of the Corporation, Holding and/or
Telxon, respectively, other than Wang, Chang and Chu, shall
Fix on each of the next three (3) anniversaries of September
29, 1995, and One third (1/3) of the Shares thereafter
acquired by any employee of the Corporation, Holding and/or
Telxon, respectively (other than by the exercise of any stock
options granted to any such employee or any Shares issued to
prevent dilution of the Anti-Dilution Shares (defined
herein)), shall Fix on each of the next three (3)
anniversaries of the date such Shares are acquired; provided,
however, that all Shares owned by Wang on the date of this
Agreement are deemed to have fixed at the time of their issue.
(iv) If the Involuntary Event giving rise to the Corporation's
right to exercise its call option is any other Involuntary Event, then
the Applicable Value shall be Fair Market Value.
(e) FAIR MARKET VALUE. "Fair Market Value" shall be either (i) the per
share price paid by purchasers in the most recent private placement (within the
past one (1) year) of Shares, the aggregate proceeds from which exceeded One
Million Dollars
5
<PAGE> 6
($1,000,000), or (ii) if no private placement has taken place within the past
one (1) year, Fair Market Value shall be determined by Hambrecht and Quist or
any other investment banking firm mutually agreed upon by the parties to the
transaction, as of the date of the Involuntary Event giving rise to the
valuation, without regard to the Corporation's loss or replacement of any
Shareholder/employee. The fees and costs incurred with such investment banking
firm shall be paid by the purchaser; provided, however that the seller shall
pay a portion of such fees and costs in proportion to his or her ownership of
the then issued and outstanding Shares. In the event that either seller or
purchaser is dissatisfied with the valuation then a dissatisfied party may
obtain its own valuation from a qualified, nationally recognized investment
banking firm, which must be completed within sixty (60) days after completion
of the initial valuation. If no valuation obtained by a dissatisfied party
varies from the initial valuation by more than 10%, then the two or three
valuations, as the case may be, shall be averaged and that average shall be the
Fair Market Value of the Shares. The cost of a dissatisfied party's valuation
shall be paid by the dissatisfied party. If the valuation obtained by any
dissatisfied party varies from the initial valuation by more than 10%, then the
valuation issue shall be submitted to the American Arbitration Association for
its determination of value in accordance with its commercial arbitration rules;
provided that such valuation shall be based solely on the valuations already
obtained pursuant to this Section, and in no event shall exceed the greatest
such valuation nor be less than the lowest such valuation. The cost of the
arbitration shall be paid equally by seller and purchaser.
ARTICLE 5. REGISTRATION RIGHTS
------------------------------
(a) DEFINITIONS. As used in this Article 5, the following terms have
the following meanings:
"Commission" means the United States Securities and Exchange
Commission.
"IPO" means an underwritten, firm commitment, public offering
by Metanetics Corporation of its Voting Common Stock.
"NASD" means the National Association of Securities Dealers,
Inc.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government, or any agency or
political subdivision thereof.
"Registrable Securities" means (a) Voting Common; and (b) any
stock or other securities of the Corporation acquired by a Shareholder
in a stock split or reclassification of, or a stock dividend or other
distribution on or in substitution or exchange for, or otherwise
acquired in connection with the securities described in clause (a)
above.
"Rule 144" means Rule 144 promulgated under the Securities Act
or any successor rule thereto or Rule 144A or any other rule
promulgated under the Securities Act complementary thereto.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
(b) INCIDENTAL REGISTRATION. Each time the Corporation shall determine
to proceed with the actual preparation and filing of a registration statement
under the Securities Act in connection with the proposed offer and sale for
money of any of its securities by it or any of its security holders (other than
a registration statement on Forms S-4, S-8 or other limited purpose form), the
Corporation will give written notice of its determination to each Shareholder.
Upon the written request of a Shareholder given within thirty (30) days after
receipt of any such notice from the Corporation, the Corporation will cause the
Shareholder's Registrable Securities to be included in such registration
statement. Nothing herein shall prevent the Corporation from, at any time,
abandoning or delaying such registration. If any registration pursuant to this
section shall be underwritten, in whole or in part, the Corporation may require
that, and any holder of the Registrable Securities shall be entitled, upon
request, to have the Registrable Securities included in the underwriting on the
same terms and conditions as the securities otherwise being sold through the
underwriters.
(c) REGISTRATION PROCEDURES. If and whenever the Corporation attempts
to effect the registration of any Registrable Securities under the Securities
Act pursuant to the provisions hereof, the Corporation will:
(i) prepare and file with the Commission a registration
statement with respect to such securities, and use its best efforts to
cause such registration statement to become and remain effective for
such period as may be reasonably necessary to effect the sale of such
securities, but not to exceed nine months;
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<PAGE> 7
(ii) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement
effective for such period as may be reasonably necessary to effect the
sale of such securities, but not to exceed nine months;
(iii) furnish to the Shareholder such registration and to the
underwriters of the securities being registered such reasonable number
of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably
request in order to facilitate the public offering of such securities;
(iv) use its best efforts to register or qualify the
securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as the Shareholder
may require;
(v) notify the Shareholder, promptly after it shall receive
notice thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(vi) notify the Shareholder promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(vii) prepare and file with the Commission, promptly upon the
request of the Shareholder, any amendments or supplements to such
registration statements or prospectus which, in the opinion of counsel
for the Shareholder, is required under the Securities Act or the rules
and regulations thereunder in connection with the distribution of the
Registrable Securities by the Shareholder;
(viii) prepare and promptly file with the Commission and
promptly notify the Shareholder of the filing of such amendment or
supplement to such registration statement or prospectus, as may be
necessary to correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be delivered
under the Securities Act, any event shall have occurred as a result of
which any such prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact or fail to state
any material fact necessary to make the statements therein, in the
light of the circumstances in which they were made, not misleading;
(ix) advise the Shareholder, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order
by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that
purpose and promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal, if such stop order should
be issued;
(x) not file any amendment or supplement to such registration
statement or prospectus to which the Shareholder shall have reasonably
objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities
Act or the rules and regulations thereunder, after having been
furnished with a copy thereof at least five (5) business days prior to
the filing thereof, unless in the opinion of counsel for the
Corporation the filing of such amendment or supplement is reasonably
necessary to protect the Corporation from any liabilities under any
applicable federal or state law; and
(xi) at the request of the Shareholder, furnish on the
effective date of the registration statement and, if such registration
includes an underwritten public offering, at the closing provided for
in the underwriting agreement: (a) opinions, dated such respective
dates, of the counsel representing the Corporation for the purposes of
such registration, addressed to the underwriters, if any, and to the
Shareholder, covering such matters as such underwriters and the
Shareholder may reasonably request; and (b) letters, dated such
respective dates, from the independent certified public accountants of
the Corporation, addressed to the underwriters, if any, and to the
Shareholder, covering such matters as such underwriters and the
Shareholder may reasonably request, in which letters such accountants
shall state (without limiting the generality of the foregoing) that
they are independent certified public accountants within the meaning of
the Securities Act and that in the opinion of such accountants the
financial statements and other financial data of the Corporation
included in the registration statement or any amendment or supplement
thereto comply in all material respects with the applicable accounting
requirements of the Securities Act.
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<PAGE> 8
(d) EXPENSES. The Corporation shall bear all fees, costs and expenses
of any registration hereunder, including but not limited to all registration,
filing and NASD fees, printing expenses, fees and disbursements of counsel and
accountants for the Corporation and the Shareholder and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered or qualified, except that underwriting discounts and commissions and
transfer taxes for the Shareholder shall be borne by the Shareholder.
(e) INDEMNIFICATION. The Corporation will defend, indemnify and hold
harmless the Shareholder and any underwriter (as defined in the Securities Act)
for the Shareholder and each person, if any, who controls the Shareholder or
such underwriter within the meaning of the Securities Act, from and against any
and all loss, damage, liability, cost and expense to which the Shareholder or
any such underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, damages, liabilities, costs
or expenses are caused by any untrue statement or alleged untrue statement of
any material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading; PROVIDED,
HOWEVER, that the Corporation will not be liable in any such case to the extent
that any such loss, damage, liability, cost or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by the Shareholder,
such underwriter or such controlling person in writing specifically for use in
the preparation thereof.
(f) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Corporation will
not take any action, or permit any change within its control to occur, with
respect to the Registrable Securities, which would adversely affect the ability
of the Shareholder to include such securities in a registration undertaken
pursuant to this Agreement or which would adversely affect the marketability of
such Registrable Securities in any such registration.
(g) ASSIGNMENT. The rights under this Article 5 are fully assignable by
the Shareholders, and shall inure to the benefit of the Shareholders and their
respective successors and assigns.
(h) RULE 144. From the first date that any Shareholder's Registrable
Securities are registered pursuant to the terms hereof, or such earlier date as
of which a registration statement filed by the Corporation pursuant to the
Securities Exchange Act of 1934 (as amended, the "1934 Act"), relating to any
class of the Corporation's securities shall become effective, and until the
Original Shareholders shall own less than an aggregate of two (2) percent of any
class or series of equity securities of the Corporation, the Corporation shall
comply with all of the reporting requirements of the 1934 Act, whether or not it
shall be required to do so, and shall comply with all other public information
reporting requirements of the Commission which are conditions to the
availability of Rule 144 for the sale of the Voting Common Stock. The
Corporation shall cooperate with the Shareholder in supplying such information
as may be necessary for it to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of Rule 144.
ARTICLE 6. MISCELLANEOUS
------------------------
(a) In order to effectuate the terms and restrictions of this
Agreement, each certificate of stock evidencing Shares owned by the Shareholders
or issued by the Corporation shall bear the following legend:
OWNERSHIP, ENCUMBRANCE, PLEDGE, ASSIGNMENT, TRANSFER, OR
OTHER DISPOSITION OF THIS CERTIFICATE OF STOCK, OR ANY SHARES
ISSUED IN LIEU THEREOF, ARE SUBJECT TO RESTRICTIONS CONTAINED
IN AN AMENDED AND RESTATED SHAREHOLDER AGREEMENT DATED AND
EFFECTIVE AS OF THE ___ DAY OF MARCH, 1996, BY AND AMONG THE
CORPORATION AND ITS SHAREHOLDERS, A COPY OF WHICH IS ON FILE
IN THE OFFICE OF THE SECRETARY OF THE CORPORATION. A COPY OF
THE AMENDED AND RESTATED SHAREHOLDER AGREEMENT AND THE
CORPORATION'S BY-LAWS WILL BE MAILED BY THE CORPORATION TO
ANY SHAREHOLDER WITHOUT CHARGE WITHIN FIVE (5) DAYS AFTER
WRITTEN REQUEST THEREFOR.
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND APPLICABLE
8
<PAGE> 9
STATE SECURITIES LAWS ("STATE LAWS") AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT REGISTERING THE SHARES UNDER THE ACT AND STATE LAWS OR
(ii) A TRANSACTION PERMITTED BY RULE 144 OR RULE 145 UNDER THE
ACT OR EQUIVALENT STATE LAWS FOR WHICH THE ISSUER HAS RECEIVED
REASONABLY SATISFACTORY EVIDENCE OF COMPLIANCE WITH THE
PROVISIONS OF SUCH APPLICABLE RULE OR (iii) AN OPINION OF
COUNSEL SATISFACTORY TO ISSUER THAT SUCH SHARES ARE EXEMPT FROM
THE REGISTRATION PROVISIONS OF THE ACT AND STATE LAWS OR (iv) A
NO-ACTION LETTER FROM THE STAFF OF THE SECURITIES AND EXCHANGE
COMMISSION AND THE STATE DIVISION OF SECURITIES THAT
REGISTRATION IS NOT REQUIRED UNDER THE ACT OR STATE LAWS."
(b) If a Shareholder or his executor, administrator, or transferee
shall be in default under any of the terms and conditions of this Agreement, or
if any Shares are held in any manner contrary to the terms and conditions of
this Agreement, the Corporation may avail itself of all remedies afforded at law
or in equity, and, in addition, no dividends shall be paid upon the Shares with
respect to which such default exists and the holder of such Shares shall not be
entitled to vote.
(c) Failure of the Corporation or remaining Shareholders to acquire
Shares as to which notice has been given hereunder or for which a right or
option to acquire has become exercisable, and the Transfer of any Shares to any
transferee or any subsequent transferee, shall not be deemed to release said
Shares from any of the restrictions herein contained. All restrictions imposed
in this Agreement shall apply to any future Transfer of Shares, whether acquired
through voluntary acts or by operation of law. Any purported Transfer of Shares
in violation of this Agreement will not affect the beneficial ownership of such
Shares, nor shall such Transfer be recognized in the books and records of the
Corporation. The Shareholder, or his successor, making the purported Transfer
will retain the right to vote, the right to receive dividends and liquidated
proceeds upon, and any other rights under, his Shares. Neither the Corporation,
nor any director or officer of the Corporation, nor any transfer agent shall be
liable for any refusal to Transfer any Shares or issue any new certificates when
it or he in good faith believes that such Transfer or issuance would be in
violation of this Agreement.
(d) This Agreement shall terminate and the Shares shall cease to be
subject to this Agreement upon (i) the merger of the Corporation with or into
any other corporation in an arms length transaction, (ii) the consolidation of
the Corporation with any other corporation in an arms length transaction, (iii)
the sale of all of the issued and outstanding Shares of the Corporation to a
single purchaser, (iv) the sale of substantially all of the Corporation's assets
(v) an IPO (as defined in Article 5); provided, however that the parties rights
and obligations under Article 5 shall survive any IPO.
(e) This Section 6(e) supersedes the Anti-Dilution Agreement dated
September 29, 1995, by and among the Corporation and its Shareholders, which
shall be of no further force or effect. The one hundred sixty thousand (160,000)
Shares owned by Wang on September 29, 1995 are "Anti-Dilution Shares". The
Corporation shall not issue any additional shares of its capital stock
("Shares") or any other security of the Corporation or grant, issue or make, any
option, warrant or other right, subscription, put or other agreement, commitment
or obligation of any kind exercisable or exchangeable for or convertible into
such Shares or any other such security (the consideration paid to the
Corporation for any of the forgoing is referred to as "New Capital") unless (a)
the Corporation issues a number of Shares to Wang (the consideration for such
Shares shall be equal to the par value thereof and shall be paid by Wang) such
that the Anti-Dilution Shares at all times equal four percent (4%) of the issued
and outstanding Shares, or (b) the Fair Market Value (as defined in and
determined in accordance with the Shareholder Agreement) of the Corporation at
that time is One Hundred Million Dollars ($100,000,000) (inclusive of the New
Capital being raised by the transaction in question). Upon an IPO of the
Corporation's capital stock, the agreement in this Section 6(e) and Wang's
anti-dilution rights hereunder shall terminate automatically and be of no force
or effect.
(f) Section and Article headings are not to be considered part of this
Agreement; they are included solely for convenience and are not intended to be
full or accurate descriptions of the contents hereof.
(g) All of the terms and words used in this Agreement, regardless of
the number and gender in which they are used, shall be deemed and construed to
include any other number, singular or plural, and any other gender, masculine,
feminine or neuter,
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<PAGE> 10
(h) This Agreement constitutes the entire agreement between the parties
with respect to the within subject matter, and supersedes all prior agreements
or understandings with respect thereto.
(i) All clauses of this Agreement are distinct and severable. If any
clause shall be held to be unenforceable or overly broad, a court of competent
jurisdiction is hereby authorized to modify such clause so as to render the
terms, provisions and restrictions hereof enforceable to the maximum extent
permitted by law.
(j) This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original, but all of which, when taken together, shall
constitute one and the same instrument. Faxed signatures shall be deemed to be
original for evidentiary purposes.
(k) Notices required hereunder shall be deemed to have been given when
mailed, by certified mail, addressed to the Shareholders as set forth in the
Share Journal of the Corporation, or as set forth in any notice of change of
address previously given in writing by the addressee to the addressor, and to
the Corporation at its principal offices, with a copy to Robert A Goodman, Esq.,
Goodman Weiss Miller Goldfarb, 100 Erieview Plaza, 27th Floor, Cleveland, Ohio
44114, or as set forth in any notice of change of address previously given in
writing by the addressee to the addressor.
(l) The terms, provisions and restrictions set forth in this Agreement
shall be binding upon the Shareholders of the Corporation and their respective
heirs, executors, administrators, personal representatives, successors and
assigns, and upon the Corporation and any successors-in-interest to the
Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first appearing above.
METANETICS CORPORATION
By: /s/ Ynjiun P. Wang
----------------------------
Ynjiun P. Wang
Its: President
----------------------------
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<PAGE> 1
EXHIBIT 10.9.4
FIRST AMENDMENT
---------------
TO
--
AMENDED AND RESTATED SHAREHOLDER AGREEMENT
------------------------------------------
THIS FIRST AMENDMENT TO AMENDED AND RESTATED SHAREHOLDER AGREEMENT
(this "Amendment"), is made, and is effective as of March 30, 1996, by and among
Metanetics Corporation ("Metanetics"), and each of the undersigned
(collectively referred to as the "Shareholders"):
W I T N E S S E T H:
--------------------
WHEREAS, on March 28, 1996, Metanetics and the then existing
Shareholders entered into an Amended and Restated Shareholder Agreement (the
"Agreement");
WHEREAS, on March 30, 1996, Roundwood Capital, L.P. ("Roundwood")
became a shareholder of Metanetics, and by addendum thereto, became a signatory
to the Agreement; and
WHEREAS, Roundwood requires this Amendment to address its peculiar
needs as a partnership.
NOW, THEREFORE, in consideration of these premises, and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally and equitably bound, hereby agree as follows:
1. Section 3(g) of the Agreement is amended by adding the
following thereto:
A partnership Shareholder is permitted to Transfer
its Shares without first offering its Shares to the
Corporation, Original Shareholders or Additional Shareholders
in accordance with Section 3(b), (c) and (d), respectively,
if, but only if, the Transfer is a liquidating distribution to
its partners in accordance with the terms and conditions
contained in its partnership agreement, and applicable law.
2. Section 2(a) of the Agreement is amended by adding the
following thereto:
Any amendment to this Agreement shall require the
unanimous consent of all Shareholders.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first appearing above.
METANETICS CORPORATION
By: /s/ Ynjiun P. Wang
--------------------------
Ynjiun P. Wang, President
<PAGE> 1
EXHIBIT 11
TELXON CORPORATION
COMPUTATION OF COMMON SHARES OUTSTANDING
AND EARNINGS PER SHARE
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Net income (loss) applicable to common
shares $16,521 $ 9,018 $(2,799)
======= ======= =======
Weighted average common shares outstand-
ing for the year 16,490 15,909 15,210
======= ======= =======
Earnings (loss) per common share:
On the weighted average common
shares outstanding for the year* $1.00 $.57 $(.18)
<FN>
* 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 5-3/4% Convertible
Subordinated Notes and 7-1/2% Convertible Debentures were omitted from the fully
diluted calculation due to their anti-dilutive effect.
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
Aironet Canada Inc. Ontario, Canada
Aironet Canada Limited Ontario, Canada
Aironet International Limited United Kingdom
Aironet Wireless Communications, Inc. Delaware
Itronix Corporation Washington
Meta Holding Corporation Delaware
N.V. Telxon Belgium S.A. Belgium
PenRight! Corporation Delaware
PTC Airco, Inc. Delaware
Teletransaction, Inc. Delaware
Telxon Australia Pty., Ltd. Australia
Telxon Canada Corporation Ltd. Ontario, Canada
Telxon Corporation Systems Espana, S.A. Spain
Telxon Data Systems A.G. Switzerland
Telxon France S.A. France
Telxon Foreign Sales Corporation U.S. Virgin Islands
Telxon International Procurement Services, Inc. Delaware
Telxon Italia S.r.l. Italy
Telxon Japan Ltd. Japan
Telxon Limited United Kingdom
Telxon mde GMBH Germany
Telxon Products, Inc. Delaware
Telxon Trading Co., Inc. Delaware
The Retail Technology Group, Inc. Delaware
Virtual Vision, Inc. 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. 33-16939, 33-32600, 33-43314, 33-43318, 33-56205, 33-62957, 333-00449,
333-01189) of our report, dated June 28, 1996, on our audits of the consolidated
financial statements and financial statement schedule of Telxon Corporation and
Subsidiaries, as of March 31, 1996 and 1995, and for each of the three years in
the period ended March 31, 1996, appearing on page 36 of the Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Akron, Ohio
June 28, 1996
<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 Larry E. Shai his true and lawful attorneys-in-fact and agents, each with
full power to act alone without any other and of substitution and
resubstitution, to prepare or cause to be prepared, to execute for and on his
behalf and in his name in his capacity as a Director of the Company, and to
deliver and file or cause to be delivered and filed with the Securities and
Exchange Commission (the "Commission") the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996, together with any amendments and any
exhibits and other documents in support thereof or supplemental thereto and any
and all other documents, reports and 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 Commission pursuant 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 this instrument
effective as of the 21st day of May, 1996.
/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/ Richard J. Bogomolny
---------------------------- ------------------------------
John H. Cribb, Director Richard J. Bogomolny, Director
/s/ Robert A. Goodman
----------------------------
Robert A. Goodman, Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 34,828
<SECURITIES> 902
<RECEIVABLES> 135,323
<ALLOWANCES> 1,731
<INVENTORY> 111,132
<CURRENT-ASSETS> 299,915
<PP&E> 128,758
<DEPRECIATION> 74,085
<TOTAL-ASSETS> 389,209
<CURRENT-LIABILITIES> 113,920
<BONDS> 110,537
<COMMON> 161
0
0
<OTHER-SE> 161,029
<TOTAL-LIABILITY-AND-EQUITY> 389,209
<SALES> 417,725
<TOTAL-REVENUES> 486,469
<CGS> 249,120
<TOTAL-COSTS> 288,136
<OTHER-EXPENSES> 167,005
<LOSS-PROVISION> 1,538
<INTEREST-EXPENSE> 6,770
<INCOME-PRETAX> 26,835
<INCOME-TAX> 10,314
<INCOME-CONTINUING> 16,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,521
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
