<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from __________to __________
Commission file number 0-11402
TELXON CORPORATION
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 74-1666060
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3330 West Market Street, Akron, Ohio 44333
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(330) 664-1000
---------------------------------------------------
(Registrant's telephone number, including area code)
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 [ ].
At June 30, 1997, there were 15,608,926 outstanding shares of the
registrant's Common Stock.
<PAGE>
TELXON CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1: Consolidated Financial Statements
Balance Sheet . . . . . . . . . . . . . 3
Statement of Operations . . . . . . . . 4
Statement of Cash Flows . . . . . . . . 5
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . 6-9
Item 2: Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . . . 10-16
PART II. OTHER INFORMATION:
Item 1: Legal Proceedings . . . . . . . . . . . . . 17
Item 6: Exhibits and Reports on Form 8-K . . . . . 17-24
All Items of Form 10-Q other than those listed above have been omitted as
inapplicable.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, March 31,
ASSETS 1997 1997
-------- --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash (including cash equivalents of
$22,100 and $38,100) . . . . . . . . . . $ 31,302 $ 45,386
Accounts receivable, net of allowance for
doubtful accounts of $1,731 and $1,596 . 106,408 111,959
Notes and other accounts receivable . . . 15,572 16,312
Inventories . . . . . . . . . . . . . . . 85,814 84,499
Prepaid expenses and other . . . . . . . 12,092 11,956
-------- --------
Total current assets . . . . . . . . . 251,188 270,112
Property and equipment, net . . . . . . . . 45,936 45,578
Intangible and other assets, net . . . . . 45,061 46,094
-------- --------
Total . . . . . . . . . . . . . . . . . $342,185 $361,784
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable . . . . . . . . . . . . . . $ -- $ 50
Current portion of long-term debt . . . . 383 383
Capital lease obligations due within
one year . . . . . . . . . . . . . . . 632 627
Accounts payable . . . . . . . . . . . . 35,206 47,917
Income taxes payable . . . . . . . . . . 3,392 3,077
Accrued liabilities . . . . . . . . . . . 41,241 49,000
-------- --------
Total current liabilities . . . . . . . 80,854 101,054
Capital lease obligations . . . . . . . . . 806 968
Convertible subordinated notes
and debentures . . . . . . . . . . . . . 107,224 107,224
Other long-term liabilities . . . . . . . . 5,926 5,837
-------- --------
Total liabilities. . . . . . . . . . . . 194,810 215,083
Stockholders' equity:
Preferred Stock, $1.00 par value per share;
500 shares authorized, none issued . . . . -- --
Common Stock, $.01 par value per share; 50,000
shares authorized, 16,203 and 16,186 shares
issued . . . . . . . . . . . . . . . . . 162 162
Additional paid-in capital . . . . . . . . 86,962 87,105
Retained earnings . . . . . . . . . . . . 72,387 70,821
Equity adjustment for foreign currency
translation . . . . . . . . . . . . . . (2,930) (2,643)
Unearned compensation relating to restricted
stock awards . . . . . . . . . . . . . (150) (210)
Treasury stock; 594 and 557 shares of
common stock at cost . . . . . . . . . (9,056) (8,534)
-------- --------
Total stockholders' equity . . . . . . . 147,375 146,701
-------- --------
Commitments and contingencies . . . . . . . -- --
-------- --------
Total . . . . . . . . . . . . . . . . . $342,185 $361,784
-------- --------
-------- --------
</TABLE>
See accompanying notes to
consolidated financial statements
3
<PAGE>
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Product, net . . . . . . . . . . . . . . $ 86,691 $ 94,025
Customer service, net . . . . . . . . 18,222 18,358
-------- --------
Total net revenues . . . . . . . . . 104,913 112,383
Cost of revenues:
Product . . . . . . . . . . . . . . . 52,561 65,825
Customer service . . . . . . . . . . . 11,126 11,048
-------- --------
Total cost of revenues . . . . . . . 63,687 76,873
-------- --------
Gross profit . . . . . . . . . . . . . 41,226 35,510
Operating expenses:
Selling expenses . . . . . . . . . . . 18,100 21,183
Product development and engineering
expenses . . . . . . . . . . . . . 9,126 11,108
General and administrative expenses . 9,703 11,163
-------- --------
36,929 43,454
-------- --------
Income (loss) from operations . . . 4,297 (7,944)
Interest income . . . . . . . . . . . . . 498 215
Interest expense . . . . . . . . . . . . (1,792) (1,970)
Other non-operating (expense) income . . . (157) 105
-------- --------
Income (loss) before income taxes. . 2,846 (9,594)
Provision (benefit) for income taxes . . . 1,252 (4,797)
-------- --------
Net income (loss) . . . . . . . . . $1,594 $(4,797)
-------- --------
-------- --------
Earnings per common and common equivalent
share:
Net income (loss) per share . . . . $ .10 $ (.29)
-------- --------
-------- --------
Average number of common and common
equivalent shares outstanding . . . . . 15,776 16,544
</TABLE>
See accompanying notes to
consolidated financial statements
4
<PAGE>
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . $1,594 $(4,797)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization. . . . . . . . . . 5,941 6,874
Amortization of restricted stock
awards, net . . . . . . . . . . . . . . . . . 60 123
Provision for doubtful accounts. . . . . . . . . 274 124
Provision for inventory
obsolescence. . . . . . . . . . . . . . . . . 2,018 2,298
Deferred income taxes. . . . . . . . . . . . . . 210 (1,026)
Loss on disposal of assets . . . . . . . . . . . 225 277
Trading securities, net. . . . . . . . . . . . . -- 26
Changes in assets and liabilities:
Accounts and notes receivable . . . . 4,528 11,558
Inventories . . . . . . . . . . . . . (3,862) 1,192
Prepaid expenses and other . . . . . . (146) 1,266
Intangible and other assets . . . . . (307) (272)
Accounts payable and accrued
liabilities . . . . . . . . . . . (19,133) (35,779)
Other long-term liabilities . . . . . 89 1,455
------- -------
Total adjustments . . . . (10,103) (11,884)
------- -------
Net cash used in operating activities. . . . . . . . . (8,509) (16,681)
Cash flows from investing activities:
Additions to property and equipment. . . . . . . . . . (4,208) (5,012)
Software investments . . . . . . . . . . . . . . . . (1,290) (1,714)
Proceeds from the sale of assets . . . . . . . . . . . 866 150
Purchase of non-marketable investments . . . . . . . . -- (400)
Additions to long-term notes receivable. . . . . . . . -- (100)
------- -------
Net cash used in investing activities. . . . . . . . . (4,632) (7,076)
Cash flows from financing activities:
Notes payable, net . . . . . . . . . . . . . . . . . . (50) 7,804
Principal payments on capital leases . . . . . . . . . (157) (280)
Principal payments on long-term borrowing. . . . . . . -- (66)
Purchase of treasury stock . . . . . . . . . . . . . (3,256) (1,051)
Debt issue costs paid . . . . . . . . . . . . . . . . -- (38)
Proceeds from exercise of stock options
(includes tax benefit) . . . . . . . . . . . . . . . 2,563 490
------- -------
Net cash (used in) provided by financing
activities . . . . . . . . . . . . . . . . . . . . (900) 6,859
Effect of exchange rate changes on cash. . . . . . . . (43) (125)
------- -------
Net decrease in cash and cash
equivalents. . . . . . . . . . . . . . . . . . . . . (14,084) (17,023)
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . . . . . . 45,386 34,828
------- -------
Cash and cash equivalents at end of
period . . . . . . . . . . . . . . . . . . . . . . . $31,302 $17,805
------- -------
------- -------
</TABLE>
See accompanying notes to
consolidated financial statements
5
<PAGE>
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share amounts)
1. Management Representation
The consolidated financial statements of Telxon Corporation ("Telxon")
and its subsidiaries (collectively, the "Company") have been prepared
without audit. In the opinion of the Company, all adjustments, consisting
of normal recurring adjustments necessary for a fair statement of results
for the interim period(s), have been made. The statements, including the
March 31, 1997, condensed balance sheet data derived from audited
financial statements, do not include all of the information and notes
required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the audited
consolidated financial statements as contained in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997.
2. 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 increased by the net shares
issuable on the assumed exercise of stock options using the
treasury stock method. 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.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS No. 128"). SFAS No. 128 revises the standards for computing
and presenting earnings per share. The Company is required to adopt the
provisions of SFAS No. 128 beginning with the third quarter ending
December 31, 1997, at which time all prior and interim period earnings
per share amounts will be restated. The Company has determined that, once
adopted, the restated basic and fully diluted earnings per share amounts
for the quarters ended June 30, 1997 and 1996, would not be materially
different from the earnings per share amounts presented in the accompanying
consolidated statement of operations.
3. Inventories
Inventories consisted of the following:
June 30,
1997 March 31,
(Unaudited) 1997
----------- ---------
Purchased components . . . . . $26,447 $29,983
Work-in-process . . . . . . . 37,298 31,579
Finished goods . . . . . . . . 22,069 22,937
--------- --------
$85,814 $84,499
--------- --------
--------- --------
4. Accrued Liabilities
Accrued liabilities consisted of the following:
June 30,
1997 March 31,
(Unaudited) 1997
------------ ---------
Deferred customer service
revenues . . . . . . . . . . . $13,771 $14,329
Accrued payroll and other
employee compensation . . . . 9,090 15,799
Other accrued liabilities . . . 18,380 18,872
--------- --------
$41,241 $49,000
--------- --------
--------- --------
6
<PAGE>
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share amounts)
5. Supplemental Cash Flow Information
Three Months
Ended June 30,
1997 1996
----- -----
(Unaudited)
Cash paid during the period for:
Interest . . . . . . . . . . . . . $1,104 $1,173
Income taxes . . . . . . . . . . . 1,289 2,613
Effective April 1, 1996, the Company sold the assets of certain
retail application software operations, with net assets of
approximately $5,000, to a third-party in exchange for $150 in cash
and $7,000 in secured promissory notes, including interest. The
$7,000 of secured promissory notes received in connection with the
sale have been excluded from the accompanying consolidated
statement of cash flows as a non-cash transaction.
6. Litigation 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 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 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 appealed to the United States Sixth Circuit Court of
Appeals. The appeal was heard on October 24, 1996, and the parties
are awaiting the decision from the Court of Appeals. 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
7
<PAGE>
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share amounts)
stockholder of Telxon derivatively on behalf of Telxon. The named
defendants are the Company; Robert F. Meyerson, former Chairman of
the Board, Chief Executive Officer and director; 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. 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 but allowed the claims relating to
breach of fiduciary duty to continue.
On October 31, 1996, plaintiff's counsel filed a Motion to
Intervene in the derivative action on behalf of a new plaintiff
stockholder. As part of the Motion to Intervene, the intervening
plaintiff asked that the Court designate as operative for the
action the intervening plaintiff's proposed Complaint, which
alleges that a series of transactions in which the Company acquired
certain technology from a corporation affiliated with Mr. Meyerson
was wrongful in that Telxon already owned the technology by means
of a pre-existing consulting agreement with another affiliate of
Mr. Meyerson; the intervenor's complaint also names Raymond D.
Meyo, President, Chief Executive Officer and director at the time
of the first acquisition transaction, as a new defendant. The
defendants opposed the Motion on grounds that the new claim alleged
in the proposed Complaint and the addition of Mr. Meyo were
time-barred by the statute of limitations and the intervening
plaintiff did not satisfy the standards for intervention. After
taking legal briefs, the Court ruled on June 13, 1997, to permit the
intervention. Discovery is continuing, and no deadline for its
completion has yet been set by the Court. The defendants believe
that the post-intervention claims lack merit, and they intend to
continue vigorously defending 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 and accordingly has not made provisions
for any loss or related insurance recovery in the accompanying
consolidated financial statements.
In the normal course of its operations, the Company is subject to
performance under contracts and assertions that technologies it
utilizes may infringe third party intellectual properties, 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
soil contamination at the facility and may be responsible for
possible diminution in the economic value of the premises allegedly
resulting from the contamination. The Company, with professional
assistance, is continuing to investigate the scope, nature and
cause of the 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 the information currently available to it, continues to believe
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 held responsible for the alleged
contamination, the associated loss could have a material adverse
effect on results of operations for one or more quarters in which
the associated
8
<PAGE>
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share amounts)
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.
7. Income Taxes
The Company's consolidated effective income tax rate reflects income
before taxes plus non-deductible goodwill amortization and the tax effect
of subsidiaries' net operating loss benefits not currently utilized,
which sum is multiplied by the United States statutory rate and increased
by foreign tax rate differentials. The effective income tax rate was
decreased by the favorable tax treatment of the Company's foreign sales
corporation.
The decrease in the Company's first quarter fiscal 1998
consolidated effective income tax rate from the rate experienced
during the first quarter of fiscal 1997 was due primarily to the
decrease in non-deductible goodwill amortization and an increase in
consolidated pre-tax income without a corresponding increase in
non-deductible reconciling items.
8. Other Transactions
During the first quarter of fiscal 1998, the Company repurchased
215,700 shares of its common stock, at a weighted average price of
$15.09 per share, pursuant to its open market repurchase program.
Additionally, the Company re-issued 179,290 shares of treasury
stock to satisfy the stock options exercised under the Company's
stock option plans during the first quarter of fiscal 1998.
The Company also repurchased during the first quarter of fiscal 1998
80,000 shares of voting common stock of its Metanetics Corporation
("Metanetics") subsidiary at a price of $1.04 per share from former
employees, increasing the Company's interest in Metanetics to 51%.
9. Subsequent Transactions and Events
Subsequent to June 30, 1997, the Company re-issued 36,140 shares of
treasury stock to satisfy purchases made by employees through the
Telxon Corporation 1995 Employee Stock Purchase Plan.
Additionally, the Company re-issued 60,763 shares of treasury stock
in July 1997 to satisfy stock options exercised under the Company's
stock option plans.
Also subsequent to June 30, 1997, the Company extended to August
4, 1998, the $20.0 million in bank credit which it maintains under
its business purpose revolving promissory note in addition to its
ongoing $100.0 million credit agreement.
10. Newly Issued Accounting Pronouncements
During June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 establishes standards for reporting comprehensive income,
which has been defined as the change in equity of an entity during a
period from transactions and other events and circumstances from nonowner
sources, in the basic financial statements. The Company is required to
adopt the provisions of SFAS No. 130 for the fiscal year ending March 31,
1999, beginning with the quarter ended June 30, 1998, and redisplay any
prior period financial statements included for comparative purposes to
reflect the application of SFAS No. 130. As the adoption of this
pronouncement will only modify disclosures, there will be no effect on
the Company's consolidated financial position or results of operations or
cash flows.
Also during June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131 revises the manner in
which an entity determines the operating segments it must report as well
as requires the disclosure of additional segment information. The Company
is required to adopt the provisions of SFAS No. 131 for the fiscal year
ending March 31, 1999, and restate any prior period financial statements
included for comparative purposes to reflect the application of SFAS No.
131. As the adoption of this pronouncement will only modify
disclosures, there will be no effect on the Company's consolidated
financial position or results of operations or cash flows.
11. Reclassifications
Certain items in the fiscal 1997 consolidated financial statements
and notes thereto have been reclassified to conform to the fiscal
1998 presentation.
9
<PAGE>
TELXON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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
REGARDING CERTAIN TRENDS OR OF OTHER FORWARD-LOOKING INFORMATION CONCERNING
THE COMPANY'S ANTICIPATED REVENUES, COSTS, FINANCIAL RESOURCES OR OTHERWISE
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-Q ARE
INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES WHICH COULD CAUSE THE COMPANY'S
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS. THE
SUMMARY OF CERTAIN OF THE RISKS AND OTHER IMPORTANT FACTORS WHICH MAY AFFECT
THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL AND OTHER CONDITION
UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS" BELOW SHOULD BE READ IN
CONJUNCTION WITH THE MORE COMPLETE DISCUSSION OF THOSE AND OTHER RISKS AND
IMPORTANT FACTORS AFFECTING THE BUSINESS, OPERATING RESULTS AND CONDITION OF
THE COMPANY UNDER "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION -- FACTORS THAT MAY AFFECT FUTURE
RESULTS" (WHICH IS INCORPORATED HEREIN BY THIS REFERENCE), AND OTHER
CAUTIONARY STATEMENTS APPEARING UNDER "ITEM 1. BUSINESS" AND ELSEWHERE, IN
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31,
1997.
OVERVIEW
The Company recorded net income of $1.6 million or $.10 per share for
the first quarter of fiscal 1998. In comparison, the Company recorded a
net loss of $4.8 million or $.29 per share for the same period in fiscal
1997.
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 management will identify the risks (especially those
newly emerging from time to time) affecting, and their impact on, the
Company and its business, that the Company's strategies and plans will
take into account all market conditions and changes thereto or that such
strategies and plans will be successfully implemented. Accordingly,
neither the historical results presented in the Company's consolidated
financial statements and discussed herein, nor any forward-looking
statements in this Form 10-Q, are necessarily indicative of the
Company's 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 Company's business, operating results and financial and other
condition may be affected by a number of risks and other important
factors, including, without limitation, the following, some of which are
inherently difficult to identify and predict and/or are beyond the
Company's control: general and industry-specific economic conditions;
the identification and implementation of appropriate cost saving and
operational efficiency initiatives; sales and manufacturing cycles from
quarter to quarter and within each quarter; serving markets
characterized by increasingly rapid technological change and associated
changes in market demand, product obsolescence and price erosion;
intense competition; concentration of revenues in the retail industry;
ability to penetrate and expand revenues in new and existing markets;
risks associated with foreign sales and operations; timely and efficient
enhancement of appropriate product offerings through internal
development and acquisition of or investment in new businesses and
technologies; dependence on, and freedom from infringement of,
technologies and other proprietary rights of or by third parties;
government regulation of radio and other products and product health and
safety concerns; dependence on sole source, or limited number of,
suppliers; and attracting and retaining qualified employees. In addition
to being subject to the foregoing factors and other cautionary
statements elsewhere in this Form 10-Q, the Company's conduct of its
business and the results and condition thereof are also subject to the
possible adverse effects of certain pending litigation and other
contingencies discussed in Note 6 to the accompanying consolidated
financial statements included in Item 1 above.
10
<PAGE>
RESULTS OF OPERATIONS
Revenues
1998 vs. 1997
<TABLE>
<CAPTION>
Quarter ended June 30, (Decrease)
---------------------- ------------------
1997 1996 Dollar Percentage
---- ---- ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Net Revenues:
Product, net . . . . . $ 86,691 $ 94,025 $ (7,334) (7.8)%
Customer service,
net . . . . . . . . 18,222 18,358 (136) (.7)%
--------- --------- --------
Total net revenues . . $ 104,913 $ 112,383 $ (7,470) (6.6)%
--------- --------- --------
--------- --------- --------
</TABLE>
Product revenues include the sale of portable tele-transaction computers
("PTCs"), including rugged, wireless mobile computers and 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 decrease in first quarter fiscal 1998 consolidated product revenues from
first quarter fiscal 1997 levels was due primarily to the absence of product
revenues from the Company's former Itronix subsidiary, which it sold
effective December 31, 1996. During the first quarter of fiscal 1997, Itronix
recorded total product revenues of $20.6 million. The impact of the sale of
Itronix on the Company's consolidated product revenues was reduced by an
increase in the Company's consolidated product revenues from continuing
operations. This increase in consolidated product revenues from continuing
operations from first quarter fiscal 1997 levels was due primarily to an
increase in PTC unit volume, partially offset by a decrease in the average
selling price per PTC unit.
Revenues from the Company's international operations (including Canada)
increased $1.7 million or 5% in the first quarter of fiscal 1998 from first
quarter fiscal 1997 levels. This increase was attributable primarily to
increased revenues recorded by certain of the Company's Canadian operations
as well as to increased sales to foreign distributors.
The Company anticipates consolidated revenues from continuing operations for
the remainder of fiscal 1998 to increase from fiscal 1997 levels.
Cost of Revenues
1998 vs. 1997
<TABLE>
<CAPTION>
Quarter ended June 30, Increase (Decrease)
---------------------- -----------------------
1997 1996 Dollar Percentage
-------- -------- --------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Cost of Revenues:
Product . . . . . . $ 52,561 $ 65,825 $ (13,264) (20.2)%
Customer service . . 11,126 11,048 78 .7%
-------- -------- ---------
Total cost of
revenues . . . . . $ 63,687 $ 76,873 $ (13,186) (17.2)%
-------- -------- ---------
-------- -------- ---------
Cost of product
revenues as a
percentage of
product revenues,
net . . . . . . . . 60.6% 70.0%
Cost of customer
service revenues
as a percentage of
customer service
revenues, net . . . 61.1% 60.2%
</TABLE>
The decrease in the first quarter fiscal 1998 consolidated product cost
percentage from first quarter fiscal 1997 levels was due to the benefit
recognized during the quarter from the Company's fiscal 1997 cost reduction
and efficiency initiatives, workforce reductions and early retirements. The
improved first quarter fiscal 1998 product gross margins also reflect the
absence of large-volume/low margin business and new product rollouts
experienced by the Company during the first quarter of fiscal 1997.
11
<PAGE>
The Company anticipates the consolidated product cost percentage for the
remainder of fiscal 1998 to decrease from fiscal 1997 levels as a result of
the continued benefit of the Company's cost reduction and efficiency
initiatives.
For the quarter ended June 30, 1997, consolidated inventory allowance
accounts increased to $18.1 million from $16.0 million at March 31,
1997. As a percentage of consolidated gross inventories, the Company's
consolidated inventory allowances increased to 17% at June 30, 1997,
from 16% at March 31, 1997. The Company anticipates continuing to
provide for inventory obsolescence resulting from technological change.
Operating Expenses
1998 vs. 1997
<TABLE>
<CAPTION>
Quarter ended June 30, (Decrease)
---------------------- --------------------
1997 1996 Dollar Percentage
-------- -------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Operating Expenses:
Selling expenses . . . $ 18,100 $ 21,183 $ (3,083) (14.6)%
Product development
and engineering
expenses . . . . . . 9,126 11,108 (1,982) (17.8)%
General and
administrative
expenses . . . . . . 9,703 11,163 (1,460) (13.1)%
-------- -------- -------- -------
Total operating
expenses . . . . . . $ 36,929 $ 43,454 $(6,525) (15.0)%
-------- -------- -------- -------
-------- -------- -------- -------
</TABLE>
Selling expenses as a percentage of total revenues decreased to 17% in the
first quarter of fiscal 1998 from 19% in the first quarter of fiscal 1997.
The decrease in the consolidated selling expense percentage was due primarily
to the benefit recognized during the quarter from the Company's fiscal 1997
workforce reductions and early retirements. The Company anticipates
consolidated selling expenses as a percentage of total revenues to decrease
throughout the remainder of fiscal 1998 from fiscal 1997 levels as a result
of the continued benefit of the Company's workforce reduction and early
retirement initiatives.
Product development and engineering expenses as a percentage of total
revenues decreased to 9% in the first quarter of fiscal 1998 from 10% in the
first quarter of fiscal 1997. The decrease in consolidated product
development and engineering expenses was due primarily to the absence of such
expenses for the Company's former Itronix subsidiary. During the first
quarter of fiscal 1997, Itronix recorded product development and engineering
expenses of approximately $1.6 million. The Company initiated plans during
the first quarter of fiscal 1998 to consolidate and relocate engineering and
product development operations to Houston, Texas. Though the relocation will
entail certain expenditures in the near term, the consolidation of
engineering operations is expected to reduce operating costs and
product-development time as well as improve the Company's ability to
integrate new technologies through concurrent engineering.
During the first quarter of fiscal 1998, the Company capitalized internal
software development costs in accordance with the requirements of Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS No. 86")
aggregating $.7 million. The Company anticipates the dollar amount of
internal software development costs capitalized during the remainder of
fiscal 1998 to decrease from fiscal 1997 levels.
General and administrative expenses as a percentage of total revenues
decreased to 9% in the first quarter of fiscal 1998 from 10% in the first
quarter of fiscal 1997. The decrease in consolidated general and
administrative expenses was due primarily to the benefit recognized during
the quarter from the Company's fiscal 1997 workforce reductions, early
retirements and other cost reduction initiatives as well as the absence of
the general and administrative expenses of the Company's former Itronix
subsidiary. Included in the Company's first quarter fiscal 1997 consolidated
results were approximately $.6 million of general and administrative
12
<PAGE>
expenses incurred by Itronix. The Company anticipates consolidated general
and administrative expenses to decrease throughout the remainder of fiscal
1998 from fiscal 1997 levels as a result of its continued realization of the
aforementioned expense reductions.
Income Taxes
1998 vs. 1997
<TABLE>
<CAPTION>
Quarter ended June 30, Increase
---------------------- --------------------
1997 1996 Dollar Percentage
-------- -------- ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Income Taxes:
Provision (benefit)
for income taxes . . $ 1,252 $(4,797) $ 6,049 N.M.
</TABLE>
The Company's consolidated effective income tax rate was 44% in the first
quarter of fiscal 1998 and 50% in the first quarter of fiscal 1997. The
consolidated effective income tax rate for the first quarter of fiscal 1998
reflects income before taxes multiplied by the United States federal
statutory tax rate. The tax rate was increased by nondeductible goodwill
amortization, international tax rate differentials and subsidiaries' net
operating loss benefits not currently utilized. The effective income tax rate
was decreased by the favorable tax treatment of the Company's foreign sales
corporation. No benefit was recorded for increasing research and development
expenditures during the first quarter of fiscal 1998 due to the expiration of
the credit for research and development expenditures at June 1, 1997. There
were no other significant tax law changes during the first quarter of fiscal
1998 that had a significant effect on the calculation of the Company's income
tax liability.
The consolidated effective income tax rate for the first quarter of fiscal
1997 reflects income before taxes increased by nondeductible goodwill
amortization, the sum of which was multiplied by the United States federal
statutory tax rate and increased by international tax rate differentials and
subsidiaries' net operating loss benefits not currently utilized. These
increases in the consolidated effective income tax rate were partially offset
by the favorable tax treatment of the Company's foreign sales corporation.
FINANCIAL CONDITION
Liquidity
1998 vs. 1997
<TABLE>
<CAPTION>
Dollar
June 30, March 31, Increase
1997 1997 (Decrease)
-------- --------- ----------
(in thousands except ratios)
<S> <C> <C> <C>
Cash and cash equivalents . . $ 31,302 $ 45,386 $ (14,084)
Accounts and notes
receivable . . . . . . . . 121,980 128,271 (6,291)
Inventories . . . . . . . . 85,814 84,499 1,315
Other . . . . . . . . . . . 12,092 11,956 136
--------- --------- ---------
Total current assets . . . . $ 251,188 $ 270,112 $ (18,924)
--------- --------- ---------
--------- --------- ---------
Notes payable . . . . . . . $ -- $ 50 $ (50)
Accounts payable . . . . . . 35,206 47,917 (12,711)
Income taxes payable . . . . 3,392 3,077 315
Accrued liabilities . . . . . 41,241 49,000 (7,759)
Other . . . . . . . . . . . . 1,015 1,010 5
--------- --------- ---------
Total current liabilities . . $ 80,854 $ 101,054 $ (20,200)
--------- --------- ---------
--------- --------- ---------
Working capital (current
assets less current
liabilities) . . . . . . . $ 170,334 $ 169,058 $ 1,276
--------- --------- ---------
--------- --------- ---------
Current ratio (current assets
divided by current
liabilities) . . . . . . . 3.1 2.7
</TABLE>
The increase in the Company's working capital at June 30, 1997, from
March 31, 1997, was due primarily to the decreases in accounts payable
and accrued liabilities, which
13
<PAGE>
were partially offset by a decrease in cash, as detailed in the preceding
table. The decreases in accounts payable and accrued liabilities as well as
the corresponding decrease in cash at June 30, 1997, from amounts recorded at
March 31, 1997, was due primarily to increased payments to vendors during the
first quarter of fiscal 1998. Consolidated days sales outstanding increased
to 92 days at June 30, 1997, from 88 days at March 31, 1997.
The Company believes its existing resources, including available cash and
cash equivalents, internally generated funds and bank credit facilities will
be sufficient to meet working capital requirements for the next twelve months.
Cash Flows from Operations
1998 vs. 1997
<TABLE>
<CAPTION>
Dollar
Increase
Quarter ended June 30, in
---------------------- Cash Flow
1997 1996 Impact
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Cash Flows from Operations:
Net income (loss) . . . . $ 1,594 $ (4,797) $ 6,391
Depreciation and
amortization . . . . . 6,001 6,997 (996)
Deferred income taxes . . 210 (1,026) 1,236
Accounts and notes
receivable . . . . . . . 4,528 11,558 (7,030)
Inventories . . . . . . . (3,862) 1,192 (5,054)
Prepaid expenses and
other . . . . . . . . . (146) 1,266 (1,412)
Accounts payable and
accrued liabilities . . (19,133) (35,779) 16,646
Other . . . . . . . . . . 2,299 3,908 (1,609)
-------- --------- ---------
Net cash used in
operating activities . . $(8,509) $(16,681) $ 8,172
-------- --------- ---------
-------- --------- ---------
</TABLE>
The Company's first quarter of fiscal 1998 cash flows from operations were
positively impacted by the increase in net earnings, the change in the cash
flow impact of accounts payable and accrued liabilities and the change in the
cash flow impact of the non-cash provision for deferred income taxes, as
detailed in the preceding table. These positive cash flow impacts were
partially offset by the change in the cash flow impact of accounts and notes
receivable, inventories, prepaid expenses and other, the non-cash charge for
depreciation and amortization, and other operating items, as detailed in the
preceding table.
Investing Activities
1998 vs. 1997
<TABLE>
<CAPTION>
Dollar
Increase
Quarter ended June 30, in
---------------------- Cash Flow
1997 1996 Impact
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Cash Flows from Investing
Activities:
Additions to property and
equipment . . . . . . . . . $ (4,208) $ (5,012) $ 804
Software investments . . . . . (1,290) (1,714) 424
Proceeds from sale of assets . 866 150 716
Purchase of non-marketable
investments . . . . . . . . -- (400) 400
Additions to long-term notes
receivable . . . . . . . . -- (100) 100
-------- -------- --------
Net cash used in investing
activities . . . . . . . . $ (4,632) $ (7,076) $ 2,444
-------- -------- --------
-------- -------- --------
</TABLE>
The increase in the Company's cash flows from investing activities in
the first quarter of fiscal 1998 from first quarter fiscal 1997 levels
was due to the decrease
14
<PAGE>
in additions to property and equipment and software investments, the proceeds
from the sale-leaseback of certain office computer equipment, the absence of
non-marketable investment purchases and the absence of additions to long-term
notes receivable, as detailed in the preceding table.
Effective April 1, 1996, the Company sold the assets of certain retail
application software operations, with net assets of approximately $5.0
million to a third-party for approximately $.2 million in cash and $7.0
million in secured promissory notes, including interest. 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 $6.6 million. The $7.0 million in promissory notes
received in connection with the divestiture have been excluded from the
accompanying consolidated statement of cash flows as a non-cash transaction.
Financing Activities
1998 vs. 1997
<TABLE>
<CAPTION>
Dollar
Increase
(Decrease)
Quarter ended June 30, in
---------------------- Cash Flow
1997 1996 Impact
---- ---- ----------
(in thousands)
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Notes payable, net . . . . . . . . . . $ (50) $ 7,804 $(7,854)
Purchase of treasury stock . . . . . . (3,256) (1,051) (2,205)
Proceeds from exercise of stock
options . . . . . . . . . . . . . . . 2,563 490 2,073
Other . . . . . . . . . . . . . . . . . (157) (384) 227
------- ------- -------
Net cash (used in) provided by
financing activities . . . . . . . . . $ (900) $ 6,859 $(7,759)
------- ------- -------
------- ------- -------
</TABLE>
The decrease in the Company's first quarter fiscal 1998 cash flows from
financing activities from first quarter fiscal 1997 levels was due primarily
to the cash flow impact of the decrease in borrowings against the Company's
credit facilities through the use of proceeds from the sale of Itronix to pay
down amounts outstanding during fiscal 1997 and the Company's repurchase of
an additional 215,700 shares of common stock during the first quarter of
fiscal 1998 under its open market repurchase program, as detailed in the
preceding table. These negative cash flow impacts were partially offset by
the increase in proceeds from the exercise of stock options, as detailed in
the preceding table. The increase in proceeds from stock option exercises
reflects increased exercise activity by optionees in response to the increase
in market price of the Company's common stock.
OTHER TRANSACTIONS
During the first quarter of fiscal 1998, the Company repurchased 215,700
shares of its common stock, at a weighted average price of $15.09 per
share, pursuant to its open market repurchase program. Additionally,
the Company re-issued 179,290 shares of treasury stock to satisfy the
stock options exercised under the Company's stock option plans during
the first quarter of fiscal 1998.
The Company also repurchased during the first quarter of fiscal 1998 80,000
shares of voting common stock of its Metanetics Corporation
("Metanetics") subsidiary at a price of $1.04 per share from
former key employees, increasing the Company's interest in Metanetics to 51%.
SUBSEQUENT TRANSACTIONS AND EVENTS
Subsequent to June 30, 1997, the Company re-issued 36,140 shares of
treasury stock to satisfy purchases made by employees through the Telxon
Corporation 1995 Employee Stock Purchase Plan. Additionally, the
Company re-issued 60,763 shares of treasury
15
<PAGE>
stock in July 1997 to satisfy stock options exercised under the Company's
stock option plans.
Also subsequent to June 30, 1997, the Company extended to August 4, 1998, the
$20.0 million in bank credit which it maintains under its business purpose
revolving promissory note in addition to its ongoing $100.0 million credit
agreement.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
During June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS NO. 130
establishes standards for reporting comprehensive income, which has been
defined as the change in equity of an entity during a period from
transactions and other events and circumstances from nonowners sources, in
the basic financial statements. The Company is required to adopt the provisions
of SFAS No. 130 for the fiscal year ending March 31, 1999, beginning with the
quarter ended June 30, 1998, and redisplay any prior period financial
statements included for comparative purposes to reflect the application of
SFAS No. 130. As the adoption of this pronouncement will only modify
disclosures, there will be no effect on the Company's consolidated financial
position or results of operations or cash flows.
Also during June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 revises the manner in which an
entity determines the operating segments it must report as well as requires
the disclosure of additional segment information. The Company is required to
adopt the provisions of SFAS No. 131 for the fiscal year ending March 31,
1999, and restate any prior period financial statements included for
comparative purposes to reflect the application of SFAS No. 131. As the
adoption of this pronouncement will only modify disclosures,
there will be no effect on the Company's consolidated financial position or
results of operations or cash flows.
16
<PAGE>
ITEM 1. LEGAL PROCEEDINGS
See Note 6 to the consolidated financial statements included in Part I
of this Quarterly Report on Form 10-Q for a discussion of the material
pending legal proceedings to which the Company is a party, which
footnote discussion is incorporated in this Part II by this reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
2 Asset Purchase Agreement by and among Dynatech
Corporation, IAQ Corporation, Registrant and Itronix
Corporation, a wholly owned subsidiary of Registrant,
dated as of December 28, 1996, incorporated herein by
reference to Exhibit 2 to Registrant's Form 8-K dated
December 31, 1996.
3.1 Restated Certificate of Incorporation of Registrant,
incorporated herein by reference to Exhibit No. 3.1 to
Registrant's Form 10-K 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 and
Amendment No. 2 thereto filed on Form 8-A/A.
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 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 for the quarter ended June 30,
1995.
4.3 Rights Agreement between Registrant and KeyBank National
Association, as Rights Agent, dated as of August 25,
1987, as amended and restated as of July 31, 1996,
incorporated herein by reference to Exhibit 4 to
Registrant's Form 8-K dated August 5, 1996.
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.
17
<PAGE>
4.3.2 Letter agreement among Registrant, KeyBank
National Association and Harris Trust and Savings
Bank, dated June 11, 1997, with respect to the
appointment of Harris Trust and Savings Bank as
successor Rights Agent under the Rights Agreement
included as Exhibit 4.3 above, incorporated herein
by reference to Exhibit 4.3.2 to Registrant's Form
10-K for the year ended March 31, 1997.
4.4 Indenture by and between 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 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
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 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 for the year
ended March 31, 1994.
10.1.1.a Amendment, dated January 1, 1994, to
the Plan included as Exhibit 10.1.1 above,
incorporated herein by reference to
Exhibit 10.1.1.a to Registrant's Form 10-K
for the year ended March 31, 1994.
10.1.1.b Amendment, dated April 1, 1994, to
the Plan included as Exhibit 10.1.1 above,
18
<PAGE>
incorporated herein by reference to
Exhibit 10.1.1.b to Registrant's Form 10-K
for the year ended March 31, 1994.
10.1.1.c Amendment, dated January 1, 1994, to
the Plan included as Exhibit 10.1.1 above,
incorporated herein by reference to
Exhibit 10.1.1.c to Registrant's Form 10-Q
for the quarter ended December 31, 1994.
10.1.2 1990 Stock Option Plan for employees of
Registrant, as amended, incorporated herein by
reference to Exhibit 10.1.3 to Registrant's
Form 10-Q for the quarter ended September 30,
1995.
10.1.3 1990 Stock Option Plan for Non-Employee
Directors of Registrant, as amended,
incorporated herein by reference to Exhibit
10.1.4 to Registrant's Form 10-Q for the
quarter ended September 30, 1995.
10.1.4 Non-Qualified Stock Option Agreement
between 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 for the year ended March 31, 1994.
10.1.4.a Description of amendment extending
the term of the Agreement included as
Exhibit 10.1.4 above, incorporated herein
by reference to Exhibit 10.1.6.a to
Registrant's Form 10-Q for the quarter
ended September 30, 1994.
10.1.5 1992 Restricted Stock Plan of Registrant,
incorporated herein by reference to Exhibit
10.1.17 to Registrant's Form 10-Q for the
quarter ended December 31, 1993.
10.1.5.a Amendment, dated December 7, 1993, to
the Plan included as Exhibit 10.1.5 above,
incorporated herein by reference to
Exhibit 10.1.17.a to Registrant's Form
10-Q for the quarter ended December 31,
1993.
10.1.5.b Amendment, dated July 18, 1994, to
the Plan included as Exhibit 10.1.5 above,
incorporated herein by reference to
Exhibit 10.1.17.b to Registrant's Form
10-Q for the quarter ended September 30,
1994.
10.1.6 1995 Employee Stock Purchase Plan of
Registrant, as amended, incorporated herein by
reference to Exhibit 10.1.7 to Registrant's
Form 10-Q for the quarter ended September 30,
1995.
10.1.7 1996 Stock Option Plan for employees,
directors and advisors of Aironet Wireless
Communications, Inc., a subsidiary of
Registrant, incorporated herein by
19
<PAGE>
reference to Exhibit 10.1.7 to Registrant's Form 10-K
for the year ended March 31, 1997.
10.1.8 Non-Competition Agreement by and between
Registrant and Robert F. Meyerson, effective
February 27, 1997, incorporated herein by
reference to Exhibit 10.1.8 to Registrant's
Form 10-K for the year ended March 31, 1997.
10.1.9 Description of terms of employment of
Frank E. Brick with Registrant for the three
fiscal years ending March 31, 2000, filed
herewith.
10.1.10 Employment Agreement between Registrant and
Leonard D. Abeita, effective as of April 1,
1997, incorporated herein by reference to
Exhibit 10.1.10 to Registrant's Form 10-K for
the year ended March 31, 1997.
10.1.11 Employment Agreement between Registrant and
James G. Cleveland, effective as of April 1,
1997, incorporated herein by reference to
Exhibit 10.1.11 to Registrant's Form 10-K for
the year ended March 31, 1997.
10.1.12 Employment Agreement between Registrant and
Kenneth W. Haver, effective as of April 1,
1997, incorporated herein by reference to
Exhibit 10.1.12 to Registrant's Form 10-K for
the year ended March 31, 1997.
10.1.13 Employment Agreement between Registrant and
David D. Loadman, effective as of April 1,
1997, incorporated herein by reference to
Exhibit 10.1.13 to Registrant's Form 10-K for
the year ended March 31, 1997.
10.1.14 Employment Agreement between Registrant and
David W. Porter, effective as of April 1, 1997,
incorporated herein by reference to Exhibit
10.1.14 to Registrant's Form 10-K for the year
ended March 31, 1997.
10.1.15 Employment Agreement between Registrant and Dan
R. Wipff, effective as of April 1, 1997,
incorporated herein by reference to Exhibit
10.1.15 to Registrant's Form 10-K for the year
ended March 31, 1997.
10.1.16 Letter of the Audit Committee of Registrant's
Board of Directors, dated July 22, 1996,
engaging Norton Rose to act as the Committee's
delegate to advise and assist Registrant's
management, incorporated herein by reference to
Exhibit 10.1.16 to Registrant's Form 10-K for
the year ended March 31, 1997.
10.2 Material Leases of 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
20
<PAGE>
to Registrant's Form 10-K for
the year ended March 31, 1994.
10.2.2 Standard Office Lease (Modified Net Lease)
between Registrant and John D. Dellagnese III,
dated as of July 19, 1995, including an
Addendum thereto, incorporated herein by
reference to Exhibit 10.2.4 to Registrant's
Form 10-K for the year ended March 31, 1996.
10.2.2.a Second Addendum, dated as of October
5, 1995, to the Lease included as Exhibit
10.2.2 above, incorporated herein by
reference to Exhibit 10.2.4.a to
Registrant's Form 10-K for the year ended
March 31, 1996.
10.2.2.b Third Addendum, dated as of March 1,
1996, to the Lease included as Exhibit
10.2.2 above, incorporated herein by
reference to Exhibit 10.2.4.b to
Registrant's Form 10-K for the year ended
March 31, 1996.
10.2.2.c Fourth Addendum, dated as of April
16, 1996, to the Lease included as Exhibit
10.2.2 above, filed herewith.
10.2.2.d Fifth Addendum, dated as of June 24,
1997, to the Lease included as Exhibit
10.2.2 above, filed herewith.
10.3 Credit Agreements of Registrant.
10.3.1 Credit Agreement by and among 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,
incorporated herein by reference to Exhibit
10.3.2 to Registrant's Form 10-K for the year
ended March 31, 1996.
10.3.1.a Amendment No. 1, dated as of August
6, 1996, to the Agreement included as
Exhibit 10.3.1 above, incorporated herein
by reference to Exhibit 10.3.2.a to
Registrant's Form 8-K dated August 16,
1996.
10.3.1.b Security Agreement, dated as of
August 6, 1996, by and among Registrant
and The Bank of New York, as Agent,
incorporated herein by reference to
Exhibit 10.3.2.b to Registrant's Form 8-K
dated August 16, 1996.
10.3.1.c Amendment No. 2, dated as of December
16, 1996, to the Agreement included as
Exhibit 10.3.1 above, incorporated herein
by reference to Exhibit 10.3.2.c to
Registrant's Form 8-K dated December 16,
1996.
21
<PAGE>
10.3.2 Business Purpose Revolving Promissory Note made
by 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 for the quarter ended
September 30, 1995.
10.3.3 Business Purpose Revolving Promissory Note
made by 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 for
the quarter ended December 31, 1995.
10.3.4 Business Purpose Revolving Promissory Note
made by 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 for
the quarter ended December 31, 1995.
10.3.5 Business Purpose Revolving Promissory Note
made by Registrant in favor of Bank One, Akron,
N.A., dated February 29, 1996, and related
Letter Agreement between them dated of even
date, incorporated herein by reference to
Exhibit 10.3.6 to Registrant's Form 10-K for
the year ended March 31, 1996.
10.3.6 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of
Bank One, Akron, N.A., dated March 20, 1996,
incorporated herein by reference to Exhibit
10.3.7 to Registrant's Form 10-K for the year
ended March 31, 1996.
10.3.7 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of
Bank One, Akron, NA, dated August 6, 1996 (in
replacement of the Note included as Exhibit
10.3.6 above), incorporated herein by reference
to Exhibit 10.3.8 to Registrant's Form 8-K
dated August 16, 1996.
10.3.7.a Bank One Security Agreement, dated as
of August 6, 1996, by and among Registrant
and Bank One, Akron, NA, incorporated
herein by reference to Exhibit 10.3.8.a to
Registrant's Form 8-K dated August 16,
1996.
10.3.8 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of
Bank One, NA (fka Bank One, Akron, NA), dated
August 5, 1997 (extending the credit facility
evidenced by the Note included as Exhibit
10.3.7 above), filed herewith.
10.4 Amended and Restated Agreement between 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.
22
<PAGE>
10.5 Agreement of Purchase and Sale of Assets by and among
Vision Newco, Inc., a subsidiary of 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 for the quarter ended June 30,
1995.
10.6 Subscription Agreement by and among New Meta Licensing
Corporation, a subsidiary of Registrant, and certain
officers of Registrant as Purchasers, dated as of
September 19, 1995, incorporated herein by reference to
Exhibit 10.8 to Registrant's Form 10-Q for the quarter
ended September 30, 1995.
10.7 Shareholder Agreement by and among New Meta Licensing
Corporation, a subsidiary of Registrant, and its
Shareholders, including the officers of Registrant party
to the Agreement included as Exhibit 10.6 above, dated as
of September 29, 1995, incorporated herein by reference
to Exhibit 10.9 to Registrant's Form 10-Q for the quarter
ended September 30, 1995.
10.7.1 First Amendment, dated as of September 29,
1995, to the Agreement included as Exhibit 10.7
above, incorporated herein by reference to
Exhibit 10.9.1 to Registrant's Form 10-Q for
the quarter ended December 31, 1995.
10.7.2 Second Amendment, dated as of January,
1996, to the Agreement included as Exhibit 10.7
above, incorporated herein by reference to
Exhibit 10.9.2 to Registrant's Form 10-Q for
the quarter ended December 31, 1995.
10.7.3 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 Agreement included as Exhibit
10.7 above, as amended by the First and Second
Amendments thereto included as Exhibits 10.7.1
and 10.7.2 above, incorporated herein by
reference to Exhibit 10.9.3 to Registrant's
Form 10-K for the year ended March 31, 1996.
10.7.4 First Amendment, dated as of March 30,
1996, to the Agreement included as Exhibit
10.7.3 above, incorporated herein by reference
to Exhibit 10.9.4 to Registrant's Form 10-K for
the year ended March 31, 1996.
10.8 Stock Purchase Agreement by and among Meta Holding
Corporation, a subsidiary of Registrant, and certain
officers of Registrant as Purchasers, dated as of March
30, 1996, incorporated herein by reference to Exhibit
10.8 to Registrant's Form 10-K for the year ended March
31, 1997.
10.9 Stock Purchase Agreement by and between Metanetics
Corporation, a subsidiary of Registrant fka New Meta
Licensing Corporation, and Accipiter II, Inc., dated as
of September 30, 1996, incorporated herein by reference
to Exhibit 10.8 to Registrant's Form 10-Q for the quarter
ended September 30, 1996.
23
<PAGE>
10.10 Stock Purchase Agreement by and between Registrant
and Telantis Capital, Inc., dated as of March 31, 1997,
incorporated herein by reference to Exhibit 10.10 to
Registrant's Form 10-K for the year ended March 31, 1997.
11. Computation of earnings per share for the three months
ended June 30, 1997 and 1996, filed herewith.
27. Financial Data Schedule as of June 30, 1997, filed
herewith.
(b) Reports on Form 8-K
Registrant did not file any Current Reports on Form 8-K during the
fiscal quarter for which this Quarterly Report on Form 10-Q is
filed.
24
<PAGE>
TELXON CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1997
TELXON CORPORATION
---------------------------
(Registrant)
/s/ Kenneth W. Haver
--------------------------
Kenneth W. Haver, Senior
Vice President and Chief
Financial Officer
<PAGE>
TELXON CORPORATION
EXHIBITS TO
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Where
Filed
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<S> <C> <C>
* 2 Asset Purchase Agreement by and among Dynatech Corporation,
IAQ Corporation, Registrant and Itronix Corporation, a
wholly owned subsidiary of Registrant, dated as of December
28, 1996, incorporated herein by reference to Exhibit 2 to
Registrant's Form 8-K dated December 31, 1996.
* 3.1 Restated Certificate of Incorporation of Registrant,
incorporated herein by reference to Exhibit No. 3.1 to
Registrant's Form 10-K 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 and Amendment No. 2
thereto filed on Form 8-A/A.
* 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 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 for the
quarter ended June 30, 1995.
* 4.3 Rights Agreement between Registrant and KeyBank National
Association, as Rights Agent, dated as of August 25, 1987,
as amended and restated as of July 31, 1996, incorporated
herein by reference to Exhibit 4 to Registrant's Form 8-K
dated August 5, 1996.
* 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.
* 4.3.2 Letter agreement among Registrant, KeyBank
National Association and Harris Trust and Savings
Bank, dated June 11, 1997, with respect to the
appointment of Harris Trust and Savings Bank as
successor Rights Agent under the Rights Agreement
included as Exhibit 4.3 above, incorporated herein
by reference to Exhibit 4.3.2 to Registrant's Form
10-K for the year ended March 31, 1997.
* 4.4 Indenture by and between 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.
<PAGE>
* 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 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
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 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 for the year ended March 31, 1994.
* 10.1.1.a Amendment, dated January 1, 1994, to the
Plan included as Exhibit 10.1.1 above,
incorporated herein by reference to
Exhibit 10.1.1.a to Registrant's Form 10-K
for the year ended March 31, 1994.
* 10.1.1.b Amendment, dated April 1, 1994, to the
Plan included as Exhibit 10.1.1 above,
incorporated herein by reference to
Exhibit 10.1.1.b to Registrant's Form 10-K
for the year ended March 31, 1994.
* 10.1.1.c Amendment, dated January 1, 1994, to the
Plan included as Exhibit 10.1.1 above,
incorporated herein by reference to
Exhibit 10.1.1.c to Registrant's Form 10-Q
for the quarter ended December 31, 1994.
* 10.1.2 1990 Stock Option Plan for employees of
Registrant, as amended, incorporated herein by
reference to Exhibit 10.1.3 to Registrant's Form
10-Q for the quarter ended September 30, 1995.
* 10.1.3 1990 Stock Option Plan for Non-Employee
Directors of Registrant, as amended, incorporated
herein by reference to Exhibit 10.1.4 to
Registrant's Form 10-Q for the quarter ended
September 30, 1995.
* 10.1.4 Non-Qualified Stock Option Agreement between
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 for the year
ended March 31, 1994.
<PAGE>
* 10.1.4.a Description of amendment extending the
term of the Agreement included as
Exhibit 10.1.4 above, incorporated
herein by reference to Exhibit 10.1.6.a
to Registrant's Form 10-Q for the
quarter ended September 30, 1994.
* 10.1.5 1992 Restricted Stock Plan of Registrant,
incorporated herein by reference to Exhibit 10.1.17
to Registrant's Form 10-Q for the quarter ended
December 31, 1993.
* 10.1.5.a Amendment, dated December 7, 1993, to
the Plan included as Exhibit 10.1.5
above, incorporated herein by reference
to Exhibit 10.1.17.a to Registrant's
Form 10-Q for the quarter ended December 31, 1993.
* 10.1.5.b Amendment, dated July 18, 1994, to the
Plan included as Exhibit 10.1.5 above,
incorporated herein by reference to
Exhibit 10.1.17.b to Registrant's Form 10-Q
for the quarter ended September 30, 1994.
* 10.1.6 1995 Employee Stock Purchase Plan of Registrant,
as amended, incorporated herein by reference to
Exhibit 10.1.7 to Registrant's Form 10-Q
for the quarter ended September 30, 1995.
* 10.1.7 1996 Stock Option Plan for employees,
directors and advisors of Aironet Wireless
Communications, Inc., a subsidiary of Registrant,
incorporated herein by reference to Exhibit 10.1.7
to Registrant's Form 10-K for the year ended March
31, 1997.
* 10.1.8 Non-Competition Agreement by and between
Registrant and Robert F. Meyerson, effective
February 27, 1997, incorporated herein by
reference to Exhibit 10.1.8 to Registrant's Form
10-K for the year ended March 31, 1997.
** 10.1.9 Description of terms of employment of Frank
E. Brick with Registrant for the three fiscal
years ending March 31, 2000, filed herewith.
* 10.1.10 Employment Agreement between Registrant and
Leonard D. Abeita, effective as of April 1, 1997,
incorporated herein by reference to Exhibit
10.1.10 to Registrant's Form 10-K for the year
ended March 31, 1997.
* 10.1.11 Employment Agreement between Registrant and
James G. Cleveland, effective as of April 1, 1997,
incorporated herein by reference to Exhibit
10.1.11 to Registrant's Form 10-K for the year
ended March 31, 1997.
* 10.1.12 Employment Agreement between Registrant and
Kenneth W. Haver, effective as of April 1, 1997,
incorporated herein by reference to Exhibit
10.1.12 to Registrant's Form 10-K for the year
ended March 31, 1997.
* 10.1.13 Employment Agreement between Registrant and
David D. Loadman, effective as of April 1, 1997,
incorporated herein by reference to Exhibit
10.1.13 to Registrant's Form 10-K for the year
ended March 31, 1997.
* 10.1.14 Employment Agreement between Registrant and
David W. Porter, effective as of April 1, 1997,
incorporated herein by reference to Exhibit
10.1.14 to Registrant's Form 10-K for the year
ended March 31, 1997.
<PAGE>
* 10.1.15 Employment Agreement between Registrant and
Dan R. Wipff, effective as of April 1, 1997,
incorporated herein by reference to Exhibit
10.1.15 to Registrant's Form 10-K for the year
ended March 31, 1997.
* 10.1.16 Letter of the Audit Committee of Registrant's
Board of Directors, dated July 22, 1996, engaging
Norton Rose to act as the Committee's delegate to
advise and assist Registrant's management,
incorporated herein by reference to Exhibit
10.1.16 to Registrant's Form 10-K for the year
ended March 31, 1997.
10.2 Material Leases of 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 for the year ended March
31, 1994.
* 10.2.2 Standard Office Lease (Modified Net Lease)
between Registrant and John D. Dellagnese III,
dated as of July 19, 1995, including an Addendum
thereto, incorporated herein by reference to
Exhibit 10.2.4 to Registrant's Form 10-K for the
year ended March 31, 1996.
* 10.2.2.a Second Addendum, dated as of October 5,
1995, to the Lease included as Exhibit
10.2.2 above, incorporated herein by
reference to Exhibit 10.2.4.a to
Registrant's Form 10-K for the year
ended March 31, 1996.
* 10.2.2.b Third Addendum, dated as of March 1,
1996, to the Lease included as Exhibit
10.2.2 above, incorporated herein by
reference to Exhibit 10.2.4.b to
Registrant's Form 10-K for the year
ended March 31, 1996.
** 10.2.2.c Fourth Addendum, dated as of April 16,
1996, to the Lease included as Exhibit
10.2.2 above, filed herewith.
** 10.2.2.d Fifth Addendum, dated as of June 24,
1997, to the Lease included as Exhibit
10.2.2 above, filed herewith.
10.3 Credit Agreements of Registrant.
* 10.3.1 Credit Agreement by and among 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, incorporated herein by
reference to Exhibit 10.3.2 to Registrant's Form
10-K for the year ended March 31, 1996.
* 10.3.1.a Amendment No. 1, dated as of August 6,
1996, to the Agreement included as
Exhibit 10.3.1 above, incorporated
herein by reference to Exhibit 10.3.2.a
to Registrant's Form 8-K dated August
16, 1996.
* 10.3.1.b Security Agreement, dated as of August
6, 1996, by and among Registrant and The
Bank of New York, as Agent, incorporated
herein by reference to Exhibit 10.3.2.b
to Registrant's Form 8-K dated August
16, 1996.
<PAGE>
* 10.3.1.c Amendment No. 2, dated as of December
16, 1996, to the Agreement included as
Exhibit 10.3.1 above, incorporated
herein by reference to Exhibit 10.3.2.c
to Registrant's Form 8-K dated December
16, 1996.
* 10.3.2 Business Purpose Revolving Promissory Note
made by 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 for the quarter ended
September 30, 1995.
* 10.3.3 Business Purpose Revolving Promissory Note
made by 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 for the quarter ended
December 31, 1995.
* 10.3.4 Business Purpose Revolving Promissory Note
made by 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 for the quarter ended
December 31, 1995.
* 10.3.5 Business Purpose Revolving Promissory Note
made by Registrant in favor of Bank One, Akron,
N.A., dated February 29, 1996, and related Letter
Agreement between them dated of even date,
incorporated herein by reference to Exhibit 10.3.6
to Registrant's Form 10-K for the year ended March
31, 1996.
* 10.3.6 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of Bank
One, Akron, N.A., dated March 20, 1996,
incorporated herein by reference to Exhibit 10.3.7
to Registrant's Form 10-K for the year ended March
31, 1996.
* 10.3.7 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of Bank
One, Akron, NA, dated August 6, 1996 (in
replacement of the Note included as Exhibit 10.3.6
above), incorporated herein by reference to
Exhibit 10.3.8 to Registrant's Form 8-K dated
August 16, 1996.
* 10.3.7.a Bank One Security Agreement, dated as of
August 6, 1996, by and among Registrant
and Bank One, Akron, NA, incorporated
herein by reference to Exhibit 10.3.8.a
to Registrant's Form 8-K dated August
16, 1996.
** 10.3.8 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of Bank
One, NA (fka Bank One, Akron, NA), dated August 5,
1997 (extending the credit facility evidenced by
the Note included as Exhibit 10.3.7 above), filed
herewith.
* 10.4 Amended and Restated Agreement between 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 Agreement of Purchase and Sale of Assets by and among
Vision Newco, Inc., a subsidiary of 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 for the quarter ended June 30, 1995.
* 10.6 Subscription Agreement by and among New Meta Licensing
Corporation, a subsidiary of Registrant, and certain
officers of Registrant as Purchasers,
<PAGE>
dated as of September 19, 1995, incorporated herein by reference
to Exhibit 10.8 to Registrant's Form 10-Q for the quarter ended
September 30, 1995.
* 10.7 Shareholder Agreement by and among New Meta Licensing
Corporation, a subsidiary of Registrant, and its
Shareholders, including the officers of Registrant party to
the Agreement included as Exhibit 10.6 above, dated as of
September 29, 1995, incorporated herein by reference to
Exhibit 10.9 to Registrant's Form 10-Q for the quarter ended
September 30, 1995.
* 10.7.1 First Amendment, dated as of September 29,
1995, to the Agreement included as Exhibit 10.7
above, incorporated herein by reference to Exhibit
10.9.1 to Registrant's Form 10-Q for the quarter
ended December 31, 1995.
* 10.7.2 Second Amendment, dated as of January, 1996,
to the Agreement included as Exhibit 10.7 above,
incorporated herein by reference to Exhibit 10.9.2
to Registrant's Form 10-Q for the quarter ended
December 31, 1995.
* 10.7.3 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 Agreement
included as Exhibit 10.7 above, as amended by the
First and Second Amendments thereto included as
Exhibits 10.7.1 and 10.7.2 above, incorporated
herein by reference to Exhibit 10.9.3 to
Registrant's Form 10-K for the year ended March
31, 1996.
* 10.7.4 First Amendment, dated as of March 30, 1996,
to the Agreement included as Exhibit 10.7.3 above,
incorporated herein by reference to Exhibit 10.9.4
to Registrant's Form 10-K for the year ended March
31, 1996
* 10.8 Stock Purchase Agreement by and among Meta Holding
Corporation, a subsidiary of Registrant, and certain
officers of Registrant as Purchasers, dated as of March 30,
1996, incorporated herein by reference to Exhibit 10.8 to
Registrant's Form 10-K for the year ended March 31, 1997.
* 10.9 Stock Purchase Agreement by and between Metanetics
Corporation, a subsidiary of Registrant fka New Meta
Licensing Corporation, and Accipiter II, Inc., dated as of
September 30, 1996, incorporated herein by reference to
Exhibit 10.8 to Registrant's Form 10-Q for the quarter ended
September 30, 1996.
* 10.10 Stock Purchase Agreement by and between Registrant and
Telantis Capital, Inc., dated as of March 31, 1997,
incorporated herein by reference to Exhibit 10.10 to
Registrant's Form 10-K for the year ended March 31, 1997.
** 11. Computation of earnings per share for the three months
ended June 30, 1997 and 1996, filed herewith.
** 27. Financial Data Schedule as of June 30, 1997, filed herewith.
- ----------
</TABLE>
* Previously filed
** Filed herewith
<PAGE>
Exhibit 10.1.9
DESCRIPTION OF TERMS OF EMPLOYMENT OF FRANK E. BRICK
As Registrant's Chief Executive Officer, Mr. Brick will receive a base
salary of $750,000 per year for the three fiscal years ending March 31, 2000.
In addition to his base salary, he will be entitled to receive incentive
bonuses under Registrant's 1997 Section 162(m) Performance-Based Compensation
Plan for Mr. Brick (as further described below, the "Performance Plan"),
provided that such bonuses are approved by Registrant's stockholders in
accordance with Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), and the regulations and
interpretations promulgated thereunder (collectively, "Section 162(m)"),
prior to the payment thereof. Registrant will obtain at least $5 million in
"split-dollar" universal life insurance on Mr. Brick to be owned and the
premiums therefor paid by Registrant, with the death benefit remaining after
a return to Registrant of the premiums paid being payable to Mr. Brick's
designated beneficiaries; provided that Mr. Brick remains in Registrant's
employ until age 60, then, upon his retirement, Registrant will be obligated
to make 15 years of deferred salary continuation payments to him, from, but
only from, the cash value of such policies, at such annual rate as the
policies' investment earnings experience, as reflected in their then cash
value, will support. In addition to the "split-dollar" arrangements, Mr.
Brick or his estate is entitled to the same disability and death benefits as
are extended by Registrant to its executive employees generally. If Mr.
Brick's employment is terminated by Registrant for other than "cause",
Registrant will pay a severance benefit to him at a rate equal to his base
salary for the greater of 24 months or his remaining employment term, as well
as his basic medical insurance premiums for 18 months. A resignation by Mr.
Brick following any demotion from his current offices, change in
responsibilities or relocation will be deemed a termination by Registrant
without "cause" entitling him to the foregoing severance and insurance
benefits. Mr. Brick is also entitled to the severance benefit if his
employment agreement expires without renewal or extension. In the event that
a "change in control" of Registrant occurs of a nature which Registrant would
be required to report in its filings with the Securities and Exchange
Commission (including, without limitation, (a) the acquisition by any person,
entity or group of beneficial ownership of 15% or more of the combined voting
power of Registrant's securities in the election of directors, (b)
liquidation of all or substantially all of Registrant's assets or a merger,
consolidation or reorganization in which Registrant's stockholders prior to
the transaction so not own at least 50% of the voting power in the surviving
entity, (c) the current directors of Registrant, or persons approved by them
to succeed them, ceasing to constitute at least a majority of Registrant's
Board of Directors; provided that any of such foregoing events shall not
constitute a "change in control" if it is approved by the affirmative vote of
the directors described in clause (c)), Mr. Brick has the right within 30
days of such event to elect to terminate his employment; upon such election,
Mr. Brick is entitled to a termination payment from Registrant equal to 2.99
times his base salary and, to the extent that such payment and/or any other
payments which he has the right to receive from Registrant would constitute,
alone or in the aggregate, an "excess parachute payment" under Section 280G
of the Internal Revenue Code, payment by Registrant of any excise tax imposed
on such payments and any taxes due as the result of Registrant's payment of
such excise tax and other taxes, as well as the acceleration of the vesting
of all then outstanding stock option grants and restricted stock awards and
the ability to exercise all of his stock options for their full original
terms.
The Performance Plan was adopted by the Performance-Based Compensation
Committee of Registrant's Board of Directors (the "162(m) Committee"), and
is being submitted to Registrant's stockholders for their approval at
Registrant's September 10, 1997 Annual Meeting, in order to qualify the
compensation payable to Mr. Brick thereunder as
<PAGE>
"performance-based compensation" under Section 162(m) and thereby maximize
the deductibility thereof by Registrant. The Performance Plan provides for
the payment of the following compensation to Mr. Brick upon the achievement
of the respective specified performance objectives:
OPERATING EARNINGS PERFORMANCE: Prior to the beginning of the
applicable fiscal year (or at such other date as may be permitted or
required under Section 162(m)), the 162(m) Committee determines an
operating earnings target for Registrant for performance-based
compensation purposes for the upcoming fiscal year. If Registrant
meets at least 90% but less than 100% of the target, then Mr. Brick
receives a cash bonus of $125,000, or if Registrant meets 100% of the
target, then he receives a cash bonus of $250,000. In addition, he
will receive a further cash bonus equal to eight percent of all
operating earnings in excess of the target for each fiscal year.
STOCK PRICE PERFORMANCE: Mr. Brick is entitled to receive a
payment equal to one and one half percent of Registrant's market
capitalization value at March 31, 2000 based on the 30 trading day
average last sales price of Registrant's common stock, in excess of a
market capitalization based on an average share price of $26 up to a
market capitalization based on an average share price of $35, and two
percent of the market capitalization in excess of that based on an
average share price of $35. If the performance objectives for this
Stock Price Performance component of the Performance Plan have already
been achieved as of the time of any election (as discussed above) by
Mr. Brick to terminate his employment following a "change in control",
he will be entitled to receive the amount earned with respect to this
Stock Price Performance component.
The foregoing summary of the Performance Plan is qualified by reference to
the full test of the Performance Plan included as Annex I to this Exhibit
10.1.9.
2
<PAGE>
ANNEX I
TELXON CORPORATION
1997 SECTION 162(m) PERFORMANCE-BASED
COMPENSATION PLAN
1. PURPOSE
The Purpose of this Plan is to provide incentives to Telxon
Corporation's (the "Company") President and Chief Executive Officer (the
"Executive") to achieve financial performance objectives and to reward the
Executive when those objectives are met. The Plan is intended to ensure that
all performance-based compensation paid to the Executive is deductible by the
Company under Section 162(m) of the Internal Revenue Code of 1986, as amended
from time to time, and the regulations and interpretations promulgated
thereunder (the "Code").
2. COVERED INDIVIDUAL
The individual who is the President and Chief Executive Officer of the
Company at April 1, 1997 is eligible to receive performance-based
compensation in accordance with this Plan.
3. THE COMMITTEE
The Company's Board of Directors shall form a committee comprised of
solely two or more outside Directors as required under Code Section 162(m).
The committee shall have the sole discretion and authority to administer and
interpret this Plan. All performance goals will be preestablished by the
committee in writing not later than ninety (90) days after the commencement
of the period of service to which the performance goals relate, and prior to
such time that twenty-five percent (25%) of the period of service has
elapsed. No performance-based compensation shall be paid unless and until
the committee certifies in writing that the performance goals of this Plan
have been satisfied. The committee may amend or terminate this Plan at any
time with respect to future services of the Executive, and such amendments or
termination will require stockholder approval only to the extent required by
applicable law, and in order to maintain the deductibility of the
performance-based compensation under Code Section 162(m).
4. PERFORMANCE-BASED COMPENSATION AND BUSINESS CRITERIA
A. Upon the Company's release of earnings following the
completion of each fiscal year, the Executive shall be entitled to
receive Two Hundred Fifty Thousand Dollars ($250,000) if the Company
meets the operating earnings target established by the committee for
the fiscal year then ended, or One Hundred Twenty-Five Thousand
Dollars ($125,000) if the Company meets at least ninety percent (90%)
but less than one hundred percent (100%) of that target.
B. Upon the Company's release of earnings following the
completion of each fiscal year, the Executive shall be entitled to
receive an amount in cash equal to eight percent (8%) of the Company's
operating earnings in excess of its operating earnings target
established by the committee for that fiscal year.
I-1
<PAGE>
C. If the average of the last sale price of shares of the
Company's common stock on the quotation system or exchange which is
the principal trading market of the shares, calculated over the thirty
(30) consecutive trading days for which a sale price was reported
immediately preceding, but not including, April 1, 2000 (the "Average
Share Value"), is higher than Twenty-Six Dollars ($26) per share,
then the Executive shall be entitled, as of and at April 1, 2000, to
receive a payment (in share of the Company's common stock and/or cash
within the discretion of the committee) calculated as follows:
1. an amount equal to one and one-half percent (1-1/2%) of the
market capitalization value of the Company in excess of that
based on an Average Share Value of Twenty-Six Dollars ($26)
up to Thirty-Five Dollars ($35); and
2. an amount equal to two percent (2%) of the market
capitalization value of the Company in excess of
that based on an Average Share Value of Thirty-Five
Dollars ($35).
Market capitalization value shall be determined by multiplying the
Average Share Value by the total number of shares of the Company's
common stock which are issued and outstanding on March 31, 2000.
5. GENERAL
The establishment of this Plan shall not confer any rights upon the
Executive or any other person, whether for continuation of employment or
otherwise. The laws of the State of Ohio will govern any legal dispute
involving the Plan.
I-2
<PAGE>
Exhibit 10.2.2.c
FOURTH ADDENDUM TO LEASE
------------------------
This Fourth Addendum to Lease is made and entered into as of this 16th day
of April , 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, Second Addendum to Lease dated October 5, 1995, and Third
Addendum to Lease dated March 1, 1996 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 Fourth Addendum is made necessary because Lessee is leasing additional
space in the Waterford building. It is accordingly agreed to by and between
the parties as follows:
1. Lessee is leasing 2,706 rentable square feet located on the first
floor of the Waterford building. Said space, shown on the attached
floor plan, shall be known as 3875 Embassy Parkway, Suite 150, Bath
Township, Ohio 44333. Lessee's total space in the Waterford building
is therefore increased from 53,462 rentable square feet to 56,168
rentable square feet.
2. The term for this additional space shall be for a period of four (4)
years and eleven (11) months, commencing on April 1, 1996 and expiring
on February 28, 2001.
3. The Annual Base Rent for this additional space shall be $41,943.00 per
year, with the monthly payment being $3,495.25. Lessee's total Annual
Base Rent shall be $941,040.12 per year, with the total monthly
payment being $78,420.01.
4. Lessee's Share, per Section 4(e) of the Lease, shall be increased from
57.5% to 60.4%.
5. Lessee shall be responsible for any tenant [sic] improvements to the
attached floor plan.
6. All other terms and conditions of Lease will remain in effect.
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands on the dates
hereinafter noted.
Signed and acknowledged LESSOR:
in the presence of:
/s/ Laura M. Metzger /s/ John D. Dellagnese III
- ---------------------------- ----------------------------------
John D. Dellagnese III
/s/ Thomas Karcher (Executed this 16th day of
- ---------------------------- April, 1996)
Signed and acknowledged LESSEE:
in the presence of:
TELXON CORPORATION
/s/ Susan Ritzman /s/ Dennis K. Oleksuk
- ---------------------------- ----------------------------------
Title Director, Corporate Services
/s/ Laurie K. Fahrer
- ---------------------------- (Executed this 2nd day of
April, 1996)
<PAGE>
Exhibit 10.2.2.d
FIFTH ADDENDUM TO LEASE
-----------------------
This Fifth Addendum to Lease is made and entered into as of this 24th
day of June, 1997, 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, Second Addendum to Lease dated October 5, 1995,
Third Addendum to Lease dated March 1, 1996, and Fourth Addendum to Lease
dated April 16, 1996, 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 Fifth Addendum is made necessary because Lessee is leasing
additional space in the Waterford building. It is accordingly agreed to by
and between the parties as follows:
1. This Addendum is subject to a termination agreement between
Distributed Data Systems, Inc. (the current Lessee) and John D.
Dellagnese III, Lessor.
2. Lessee is leasing approximately 1,332 rentable square feet located on
the first floor of the Waterford building. Said space, shown on the
attached floor plan labeled Exhibit A-5, shall be known as 3875
Embassy Parkway, Suite 145, Bath Township, Ohio 44333. Lessee's total
space in the Waterford building is therefore increased from 56,168
rentable square feet to 57,500 rentable square feet.
3. The term for this additional space shall be for a period of three (3)
years and nine (9) months, commencing on May 1, 1997 and expiring on
February 28, 2001.
4. The Annual Base Rent for this additional space shall be $20,646.00 per
year, with the monthly payment being $1720.50. Lessee's total Annual
Base Rent shall be $961,686.12 per year, with the total monthly
payment being $80,140.51.
5. Lessee's Share, per Section 4(e) of the Lease, shall be increased from
60.4% to 61.8%.
<PAGE>
6. Lessee shall be responsible for any tenant [sic] improvements to the
attached floor plan; however, Lessor shall credit Lessee in the amount
of $1,278 toward tenant improvements.
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.
Signed and acknowledged LESSOR:
in the presence of:
/s/ Linda Burnside /s/ John D. Dellagnese III
- -------------------------- ------------------------------
John D. Dellagnese III
/s/ Maria Danka
- -------------------------- (Executed this 24th day of
June, 1997)
Signed and acknowledged LESSEE:
in the presence of:
TELXON CORPORATION
/s/ Monica Jamison /s/ Dennis K. Oleksuk
- --------------------------- ----------------------------------
Title Director, Corporate Services
/s/ Katrina Petit
- --------------------------- (Executed this 30th day of
April, 1997)
<PAGE>
Exhibit 10.3.8
BANK ONE, NA
BUSINESS PURPOSE REVOLVING PROMISSORY NOTE
(Swing Line)
$20,000,000.00 Akron, Ohio
August 5, 1997
FOR VALUE RECEIVED, the undersigned, TELXON CORPORATION, a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of BANK
ONE, NA FKA 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 monthly upon this Note and shall be payable for each month on the fifth
day of the next subsequent month commencing on the fifth day of the month
next subsequent to the date of this Note. If not sooner paid, this Note
shall mature and all principal, interest and unpaid expenses shall be due and
payable in full on August 4, 1998. 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>
Borrower is a party to a Credit Agreement, dated March 8, 1996, as
amended by Amendment No. 1 dated as of August 6, 1996 and Amendment No. 2
dated as of December 16, 1996, with The Bank of New York ("BNY") acting as
agent, issuer and swing line lender. Such amended agreement, as the same may
be further 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 neither 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 thereof) 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>
This Note evidences the Credit Line under, and as such term is defined
in, the Intercreditor Agreement by and between Bank and BNY, as acknowledged
by Borrower, and is subject to, and should be construed in conjunction with,
the provisions thereof.
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 and Chief
Financial Officer
3
<PAGE>
EXHIBIT 11
----------
TELXON CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1997 1996
----------- ------------
<S> <C> <C>
Net income (loss) applicable to common shares $1,594 $(4,797)
----------- ------------
----------- ------------
Weighted average common shares outstanding for the period 15,776 16,544
----------- ------------
----------- ------------
Earnings (loss) per common share:
On the weighted average common
shares outstanding for the year * $.10 $(.29)
</TABLE>
* 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 Subordinated
Debentures were omitted from the fully diluted calculation due to their
antidilutive effect.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 31,302
<SECURITIES> 0
<RECEIVABLES> 123,711
<ALLOWANCES> 1,731
<INVENTORY> 85,814
<CURRENT-ASSETS> 251,188
<PP&E> 132,812
<DEPRECIATION> 86,876
<TOTAL-ASSETS> 342,185
<CURRENT-LIABILITIES> 80,854
<BONDS> 108,030
0
0
<COMMON> 162
<OTHER-SE> 147,213
<TOTAL-LIABILITY-AND-EQUITY> 342,185
<SALES> 86,691
<TOTAL-REVENUES> 104,913
<CGS> 52,561
<TOTAL-COSTS> 63,687
<OTHER-EXPENSES> 36,929
<LOSS-PROVISION> 274
<INTEREST-EXPENSE> 1,294
<INCOME-PRETAX> 2,846
<INCOME-TAX> 1,252
<INCOME-CONTINUING> 1,594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,594
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>