<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(Amendment No. 2)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________TO __________
COMMISSION FILE NUMBER 0-11402
TELXON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 74-1666060
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3330 WEST MARKET STREET, AKRON, OHIO 44333
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 664-1000
Securities registered pursuant Name of each exchange
to Section 12(b) of the Act: on which registered:
---------------------------- --------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
7-1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2012
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of registrant's Common Stock held by non-affiliates
as of May 29, 1998, based on the last reported sales price of the Common Stock
as reported on the Nasdaq National Market for such date, was $526,439,071.
At May 29, 1998, there were 16,095,367 outstanding shares of the registrant's
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
This Amendment No. 2 on Form 10-K/A includes the information required by Part
III of Form 10-K in lieu of the incorporation thereof by reference from
the registrant's definitive proxy statement for its 1998 Annual Meeting of
Stockholders scheduled to be held on September 15, 1998.
<PAGE> 2
This Amendment No. 2 on Form 10-K/A supplements the Form 10-K as originally
filed by the registrant, Telxon Corporation ("Telxon" or the "Company"), on June
29, 1998 with respect to its fiscal year ended March 31, 1998 ("Fiscal 1998"),
as amended by Amendment No. 1 on Form 10-K/A filed on July 15, 1998 (the
Company's 10-K for Fiscal 1998, as amended by Amendment No. 1 and this
Amendment No. 2, being referred to as this "Annual Report on Form 10-K"), by
adding the Part III information originally contemplated to be incorporated by
reference to the Company's definitive proxy statement for its 1998 Annual
Meeting of Stockholders scheduled to be held September 15, 1998. This Amendment
No. 2 also restates Item X of Part I of the Form 10-K as originally filed to
reflect an interim change in the age of one of the Company's executive officers.
PART I
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of the Company, who have been either
elected by the Board of Directors of the Company or appointed by the Chief
Executive Officer and ratified and approved by the Board of Directors:
Frank E. Brick, age 50, has been President of the Company since June
1996 and the Company's Chief Executive Officer since February 1997. Mr.
Brick was Chief Operating Officer of the Company from June 1996 until
being named Chief Executive Officer. He had also previously served the
Company as President and Chief Operating Officer, Telxon International
from February 1995 to June 1996 and as Senior Executive Vice President
from October 1993 to February 1995. Mr. Brick was President of
Basicomputer Corporation (business computer sales, integration and
network services; "Basicomputer") from 1985 until it was acquired in
September 1993 by The Future Now, Inc. ("The Future Now", since
consolidated into Intelligent Electronics) and also served as Chief
Executive Officer and a director of Basicomputer from 1988 until the
acquisition. He has been a director of the Company since July 1996.
Kenneth W. Haver, age 39, has been Senior Vice President, Finance and
Administration, and Chief Financial Officer of the Company since March
1995. He has also served the Company as Treasurer from May 1994 to
October 1996 and as Vice President, Financial Planning from September
1993 to March 1995. Mr. Haver joined the Company from Basicomputer,
where he had served as a Vice President and Treasurer for more than
five years.
James G. Cleveland, age 46, has been President, North America of the
Company since May 1997. He has also served the Company as Senior Vice
President, North America from September 1996 to May 1997; Senior Vice
President, North American Sales from February 1996 to September 1996;
Senior Vice President, North American Sales and Operations from October
1995 to February 1996; Senior Vice President, Vertical Systems Group
from March 1995 to October 1995; and Vice President, Sales and
Marketing from September 1993 to March 1995. Mr. Cleveland joined the
Company from Basicomputer, where he had served as Vice President, Sales
from January 1993 to August 1993 and as Area Vice President, Midwest
Operations from February 1992 to January 1993.
David D. Loadman, age 37, has been Senior Vice President, Global
Product and Systems Development of the Company since September 1996.
Other capacities in which Mr. Loadman has served the Company since
joining it in October 1988 include Senior Vice President, Global
Wireless Systems and Advanced Research and Development from June 1996
to September 1996; Senior Vice President, Technical Operations from
August 1994 to June 1996; Vice President, Global Technology from May
1994 to August 1994; Vice President, Systems Engineering Group from
August 1993 to May 1994; Vice President, Systems Integration from
February 1993 to August 1993; Director, Communications Systems from
November 1992 to February 1993; Director, Software Communications
Systems from August 1992 to November 1992; and Product Manager,
Hardware from September 1991 to August 1992.
David W. Porter, age 40, has been Senior Vice President, Global
Operations of the Company since September 1996. He has also served the
Company as Vice President, Operations from July 1996 to September 1996
and as Vice President, Asset Management from May 1996 to July 1996. Mr.
Porter joined the Company from The Future Now, where he had served as
Vice President, Operations from the time of its acquisition of
Basicomputer to May 1996, and prior to that time he worked for
Basicomputer as Vice President, Operations from August 1989 to August
1993.
Dan R. Wipff, age 55, has been the President and Chief Executive
Officer of the Company's Telxon Products manufacturing division since
July 1994. He was President and Chief Operating Officer of the Company
from October 1992, and the Company's Chief Financial Officer from
December 1991 until July 1994. Mr. Wipff was Senior Executive Vice
President and Chief Operating Officer of the Company from October 1989
to October 1992. He also served as the Company's Chief Financial
Officer from October 1989 to July 1990 and from October 1990 to
September 1991. Mr. Wipff served as a director of the Company from
April 1974 until September 1979 and from September 1980 until January
1995.
<PAGE> 3
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICER BIOGRAPHICAL INFORMATION
For certain information relating to the Company's executive officers, see Item
X in Part I of this Annual Report on Form 10-K, which information is
incorporated in this Item 10 by this reference.
Included among the executive officers about whom information is included in Part
I, Item X, is Frank E. Brick, who is also a director of the Company. The
remaining directors of the Company and corresponding information about them are
as follows:
Richard J. Bogomolny, age 63, retired as Chairman of the Board and
Chief Executive Officer of First National Supermarkets, Inc., in January
1992, positions which he held since June 1975. From May 1992 through May
1998, Mr. Bogomolny was a member of the Supervisory Board (board of
directors) of Royal Ahold n.v., the Netherlands' largest food retailer with
operations also in the United States (Stop-N-Shop Cos. New England, Finast,
BI-LO, Giant, Tops and Edwards), South America, Portugal, Spain, China,
Thailand and the Czech Republic. For ten years prior to his retirement he
was a board member of the Food Marketing Institute, the industry's
international trade association. Mr. Bogomolny has been a director of the
Company since August 1995. He is the Chairman of the Compensation Committee
of the Board and also serves on its Audit, Option and Stock, and Special
Compensation Committees. His current term as a director expires at the
1998 annual meeting.
John H. Cribb, age 65, retired from active employment with the Company
as Chairman, Telxon International in December 1996, as which he had served
since January 1995. From January 1993 to January 1995 he served the Company
as President, International, and from January 1990 to January 1993, as
Senior Vice President, International Operations. Mr. Cribb was a Vice
President of the Company and Managing Director of Telxon Limited, the
Company's United Kingdom subsidiary, from 1982 to 1990. He has been a
director and Vice Chairman of the Board of the Company since January 1995
and is a member of the Audit and Compensation Committees of the Board.
His current term as a director expires at the 1998 annual meeting.
Robert A. Goodman, age 63, has been the Company's General Counsel
since 1979 and Secretary since 1983. He has been senior partner of Goodman
Weiss Miller LLP, a Cleveland, Ohio law firm, since 1986. Mr. Goodman has
been a director of the Company since October 1991. His current term as a
director expires at the 2000 annual meeting. He is a member of the Audit
Committee of the Board.
Raj Reddy, age 61, has been Dean of the School of Computer Science,
and Herbert A. Simon University Professor, at Carnegie Mellon University
since July 1992. Since 1984 he had held the rank of University Professor
and for eleven years prior to that time held the rank of Professor of
Computer Science. He has been the Director of The Robotics Institute at
Carnegie Mellon since 1980. He also serves as a consultant in the area of
computer science, robotics and related disciplines. Dr. Reddy has been a
director of the Company since April 1987 and Chairman of the Board of
Directors since February 1997. His current term as a director expires at
the 2000 annual meeting. He is a member of the Audit, Compensation,
Nominating, Option and Stock, and Special Compensation Committees of
the Board.
Norton W. Rose, age 69, has been President and principal/owner of
Norton W. Rose & Co., Cleveland, Ohio (consulting firm) since August 1990
and has headed the Beachwood, Ohio office of Kenzer Corporation (executive
search firm) since July 1997. He was Executive Vice President of Creative
Art Activities, Inc. (craft kit manufacturer) from January 1994 to June
1997 and Chairman of the Board of Premier Travel (formerly Prescott Travel)
from July 1991 until it was acquired by Travel One in January 1997. Mr.
Rose has been a director of the Company since October 1990, and his current
term as a director expires at the 1999 annual meeting. He is the Chairman
of the Audit Committee of the Board and also serves on its Compensation,
Option and Stock, and Special Compensation Committees.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the Securities and Exchange Commission (the "SEC") initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than
ten percent stockholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers and directors with respect to Fiscal 1998 were complied with, except
that Len Abeita, a former reporting officer, was late in filing his initial
ownership report and each of Dr. Raj Reddy, one of the directors, and Gary
Grand, a reporting officer, were late in filing a transaction report for his
exercise of a Company stock option and, in the case of Mr. Grand's exercise,
which was made on a broker-assisted cashless basis, the related sale of the
option shares. The Company does not believe it had any greater than ten percent
beneficial owners at any time during Fiscal 1998 based on its records and
because it has not received copies of, and is not otherwise aware of, any
filings by any such beneficial owner with the SEC under Section 13 or 16(a) of
the Exchange Act.
<PAGE> 4
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows all annual, long-term and other compensation for
services rendered to the Company in all capacities paid or awarded during each
of its three most recently completed fiscal years to the Company's Chief
Executive Officer during Fiscal 1998 and to the other four executive officers of
the Company who received the highest combined salary and bonus compensation
during Fiscal 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- ---------------------
OTHER RESTRICTED
ANNUAL STOCK STOCK ALL
NAME AND PRINCIPAL COMPEN- AWARDS OPTIONS OTHER
POSITION YEAR SALARY BONUS SATION ($) (SHARES) COMPENSATION(1)
------------------ ---- ------- ------- ------------ ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank E. Brick 1998 750,006 250,000 17,272(2) 0(3) 0(4) 7,187(5)
President and Chief 1997(6) 421,154 500,000 0 0 500,000+ 8,288
Executive Officer
James G. Cleveland 1998 275,000 200,000 0 0 0(4) 3,173
President, North 1997 250,000 150,000 0 0 80,000+ 6,615
America Division
Dan R. Wipff 1998 275,000 100,000 0 0 0(4) 4,125
President and Chief Executive Officer, 1997 275,000 70,000 0 0 10,000+ 5,375
Telxon Products 1996 277,885(7) 0 0 0 11,250+ 4,187
Division
Kenneth W. Haver 1998 200,000 150,000 0 0(8) 25,000+(4) 2,308
Senior Vice President, Finance and 1997 200,000 250,000 0 0 50,000+ 7,192
Administration, and 1996 198,177 50,000 0 0 48,000+ 6,207
Chief Financial Officer
David D. Loadman 1998 225,000 125,000 30,865(2) 0(9) 0 3,470
Senior Vice President, 1997 200,000 175,000 0 0 75,000+ 5,688
Global Product and 60,000*
Systems Development, and Chief
Technical Officer
</TABLE>
- ---------------
+ Option for the purchase of the indicated number of shares of Telxon Common
Stock granted to the named executive officer pursuant to the Company's 1990
Stock Option Plan (as amended, the "Employee Option Plan"). See the table
of Option Grants in Fiscal 1998 below for further information regarding
each option granted during Fiscal 1998.
* Option for the purchase of the indicated number of shares of common stock of
the Company's Aironet Wireless Communication, Inc. subsidiary ("Aironet")
for the purchase of 60,000 shares of Aironet common stock at an exercise
price of $1.86 per share under the Aironet 1996 Stock Option Plan for
employees, directors and advisors (as amended, the "Aironet Option Plan"),
granted by Aironet to the named executive officer as an advisor to Aironet.
(1) Except as otherwise footnoted, the amounts shown are matching contributions
made by the Company under its Retirement and Uniform Matching Profit Sharing
(401(k)) Plan.
(2) The amount shown was paid for relocation expenses.
(3) At March 31, 1998, 10,000 of the 50,000 Shares awarded to Mr. Brick in
October 1993 under the Company's 1992 Restricted Stock Plan (as amended,
the "Restricted Stock Plan") remained unvested, which unvested Shares had a
value, based on the closing sale price per Share as reported on The Nasdaq
National Market tier of The Nasdaq Stock Market (the "Nasdaq NNM") for
March 31, 1998, of $265,000.
(4) On March 30, 1998, the Aironet Board of Directors approved the granting of a
pool of options to purchase an aggregate of 300,000 shares of Aironet common
stock to, and to be allocated among, Telxon employees serving as advisors to
Aironet, as designated by
<PAGE> 5
Telxon's Chief Executive Officer. The exercise price for the options
included in the pool was fixed at $3.50 per share, corresponding to the
negotiated arm's-length price paid by third party investors purchasing a
minority position in Aironet common stock in a contemporaneous private
placement. In April 1998, subsequent to the end of the most recent fiscal
year required to be disclosed in this Summary Compensation Table, the pool
was fully allocated, based on a review of the designated recipients and the
allocation among them by the Compensation Committee of Telxon's Board of
Directors, with the following named executive officers receiving the
respective number of Aironet stock options indicated: Mr. Brick, 70,000; Mr.
Cleveland, 40,000; Mr. Haver, 50,000 (in addition to the 25,000 share Telxon
stock option shown for him in the body of the table); and Mr. Wipff, 20,000.
The remaining pool shares were allocated to other Telxon employees. For
further information regarding these Aironet stock option grants, see
footnote (4) to the table of Option Grants in Fiscal 1998 below.
(5) The amount shown also includes $4,591 representing the premiums that would
have had to be paid in order to provide Mr. Brick with a term life
equivalent of the death benefit payable to his estate under the
"split-dollar" universal life insurance arrangements described under
"Employment Agreements and Termination of Employment Arrangements" below.
(6) Mr. Brick became the Company's Chief Executive Officer on February 26, 1997,
having been the Company's President and Chief Operating Officer since June
1996 and served the Company in other executive capacities prior thereto. The
amounts shown in the Summary Compensation Table reflect all compensation
paid to Mr. Brick in all capacities in respect of Fiscal 1997.
(7) Includes $2,885 paid under Mr. Wipff's previous compensation arrangements.
(8) At March 31, 1998, 2,000 of the 5,000 Shares awarded to Mr. Haver in July
1994 under the Restricted Stock Plan remained unvested (1,000 of which have
since vested), which unvested Shares had a value, based on the closing sale
price per Share as reported on the Nasdaq NNM for March 31, 1998, of
$53,000.
(9) At March 31, 1998, 2,000 of the 5,000 Shares awarded to Mr. Loadman in July
1994 under the Restricted Stock Plan remained unvested (1,000 of which have
since vested), which unvested Shares had a value, based on the closing sale
price per Share as reported on the Nasdaq NNM for March 31, 1998, of
$53,000.
Employment Agreements and Termination of Employment Arrangements
Mr. Brick has an employment agreement with the Company to serve as its
Chief Executive Officer through March 31, 2000 at a base salary of $750,000 per
year. In addition, Mr. Brick's employment agreement provides for the following
performance-based bonuses: (1) annual "Bonus Compensation" of $250,000 per year
if the Company meets 100% of the operating earnings target for each fiscal year
(measured before interest and taxes and excluding capital and extraordinary
gains and losses, and after accrual for all executive bonuses, including Mr.
Brick's Bonus Compensation and Incentive Compensation), or $125,000 per year if
the Company meets at least 90% but less than 100% of the operating earnings
target; (2) annual "Incentive Compensation" equal to eight percent of all
operating earnings in excess of the operating earnings target for each fiscal
year; and (3) a long-term "Market Appreciation Bonus" equal to one and one-half
percent of the Company's market capitalization in excess of $417 million up to
and including $585 million, and two percent of the Company's market
capitalization in excess of $585 million, determined based on the Company's
market capitalization at March 31, 2000, subject to earlier determination in the
event of the termination of his employment by the Company without "cause",
expiration of his employment agreement without renewal by the Company, his death
or the Company becoming privately held or otherwise subject to a "change in
control" (as defined below), and is payable by April 30, 2000 or within 30 days
after earlier
<PAGE> 6
determination of the amount thereof upon termination of employment without
"cause" (as defined below), non-renewal of the employment agreement, death or a
"change in control."
As provided in his employment agreement, the Company has obtained $5
million in "split-dollar" universal life insurance on Mr. Brick , with the
insurance being owned and the $130,267 annual premiums therefor paid by the
Company and the death benefit remaining after a return to the Company of the
premiums paid being payable to Mr. Brick's designated beneficiaries; provided
that Mr. Brick remains in the Company's employ until age 60, then, upon his
retirement, the Company 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 an annual rate of $158,000 or such lesser amount 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 the
Company to its executive employees generally.
If Mr. Brick's employment is terminated by the Company for other than
"cause" (defined in his employment agreement as behavior of Employee which is
adverse to the Company's interest, including dishonesty, grossly negligent
misconduct, willful misconduct, disloyalty, acts of bad faith, neglect of duty
or material breach of the agreement), his employment agreement obligates the
Company to pay a severance benefit to him at a rate equal to his base salary for
the greater of 24 months or the remaining term of the agreement, as well as his
basic medical insurance premiums for 18 months. A resignation by Mr. Brick
following the Company's assignment of him to serve in any capacity other than
his current offices or to perform tasks inconsistent with such position will be
deemed a termination by the Company without "cause" entitling him to the
foregoing severance and insurance benefits as well as accelerated determination
and payment of the Market Appreciation Bonus. Mr. Brick is also entitled to the
severance benefit and accelerated determination of the Market Appreciation Bonus
if his employment agreement expires without renewal or extension. If any of the
foregoing employment terminations occurs after a "change in control" of the
Company of a nature which the Company would be required to report in its filings
with the SEC (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 the Company's securities in the election of directors, (b) liquidation
of all or substantially all of the Company's assets or a merger, consolidation
or reorganization in which neither the Company nor any entity in which the
Company's stockholders own at least 50% of the voting power is the surviving
entity, and (c) the current directors of the Company, or persons approved by
them to succeed them (such current and successor directors constituting
"Continuing Directors"), ceasing to constitute at least a majority of the Board)
and such "change in control" is not approved by the affirmative vote of at least
a majority of the Continuing Directors (an "Un-Approved Change in Control"), the
severance benefit payable to Mr. Brick is increased to an amount 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 the Company would constitute,
alone or in the aggregate, an "excess parachute payment" under Section 280G of
the Internal Revenue Code, payment by the Company of any excise tax imposed on
such payments and any taxes due as the result of the Company'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. In the event
of an Un-Approved Change in Control, Mr. Brick has the right to elect to
terminate his employment within 30 days of such event and, upon any such
election, to receive the increased severance benefit.
Mr. Cleveland has an employment agreement with the Company for a term
ending March 31, 2000, at a base salary of $275,000 per year. His employment
agreement further provides for bonus compensation for each fiscal year during
the term as determined by the Board of Directors in its discretion based upon
the recommendation of the Chief Executive Officer. Mr. Cleveland or
<PAGE> 7
his estate is entitled under the employment agreement to the same disability and
death benefits as are extended by the Company to its executive employees
generally, and he is also entitled to severance benefits of twelve months base
salary in the event that his employment is terminated by the Company for other
than "cause".
Mr. Wipff has an employment agreement with the Company for a term ending
March 31, 2000, at a base salary of $275,000 per year. His employment agreement
further provides for bonus compensation for each fiscal year during the term as
determined by the Board of Directors in its discretion based upon the
recommendation of the Chief Executive Officer. Mr. Wipff or his estate is
entitled under the employment agreement to the same disability and death
benefits as are extended by the Company to its executive employees generally,
and he is also entitled to severance benefits of twelve months base salary in
the event that his employment is terminated by the Company for other than
"cause".
Mr. Haver has an employment agreement with the Company for a term ending
March 31, 2000, at a base salary of $200,000 per year. His employment agreement
further provides for bonus compensation for each fiscal year during the term as
determined by the Board of Directors in its discretion based upon the
recommendation of the Chief Executive Officer. Mr. Haver or his estate is
entitled under the employment agreement to the same disability and death
benefits as are extended by the Company to its executive employees generally,
and he is also entitled to severance benefits of twelve months base salary in
the event that his employment is terminated by the Company for other than
"cause".
Mr. Loadman has an employment agreement with the Company for a term ending
March 31, 2000, at a base salary of $225,000 per year. His employment agreement
further provides for bonus compensation for each fiscal year during the term as
determined by the Board of Directors in its discretion based upon the
recommendation of the Chief Executive Officer. Mr. Loadman or his estate is
entitled under the employment agreement to the same disability and death
benefits as are extended by the Company to its executive employees generally,
and he is also entitled to severance benefits of twelve months base salary in
the event that his employment is terminated by the Company for other than
"cause".
In February 1998, the Company entered into letter agreements with each of
its executive officers (other than Mr. Brick, with respect to whom the subject
matter is already addressed in his employment agreement as discussed above)
providing for certain severance benefits in the event such officer's employment
with the Company is terminated under certain circumstances within two years
after a "change in control" of the Company. If the executive officer's
employment is terminated by the Company or its successor other than for "cause",
disability or at retirement age or by the officer for "good reason", the officer
is entitled to a lump sum payment equal to two times his annual salary as in
effect prior to the change in control, continued benefits under all insured and
self-insured welfare benefit plans in effect prior to the employment termination
date for a period of two years or until such earlier date as the officer
receives equivalent benefits from a new employer or reaches retirement age (in
which case the terms of any retirement plan shall apply), and to the extent that
such payment and/or any other payments which he has the right to receive from
the Company would constitute, alone or in the aggregate, an "excess parachute
payment" under Section 280G of the Internal Revenue Code, payment by the Company
of any excise tax imposed on such payments and any taxes due as the result of
the Company's payment of such excise tax and other taxes. "Good reason" will
exist for an officer to terminate his own employment without losing his
entitlement to such benefits if, without the officer's prior written consent,
his job status, positions or responsibilities are reduced or otherwise
inconsistent with those prior to the change in control, his salary or benefits
are reduced from pre-change in control levels or he is required to relocate
from, or be based anywhere other than the metropolitan area where his office is
located prior to the change in control. The events constituting a "change in
control" following which the letter agreement's severance provisions apply are
events of a nature which the Company would be required to
<PAGE> 8
report in its filings with the SEC, 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 the Company's securities in the election of
directors, (b) liquidation of all or substantially all of the Company's assets
or a merger, consolidation or reorganization in which neither the Company nor
any entity in which the Company's stockholders own at least 50% of the voting
power is the surviving entity, and (c) the current directors of the Company, or
persons approved by them to succeed them, ceasing to constitute at least a
majority of the Board; provided that any of the foregoing events shall not
constitute a "change in control" if the officer or a group of which he is a part
acquires, directly or indirectly, 15% or more of the combined voting power of
the Company's securities.
Each of the Employee Option Plan, Aironet Option Plan and Restricted Stock
Plan under which one or more of the Company's executive officers have received a
grant or award provide for the cancellation or forfeiture of then unvested stock
options or restricted stock, and a limited, 30-day post-termination period for
exercising his then vested stock options (generally extended to three months in
the case of retirement, six months in the case of death and one year in the case
of disability), in the event the recipient ceases to be employed by or an
advisor to the granting or awarding entity, subject to the acceleration of
vesting and/or the extension of the post-termination exercise period by the
administering authority in its discretion. In the event of a "change in control"
of the issuing entity, each of the Plans provides that, except as otherwise
determined at the time by the board of directors of the issuing entity, all
grants and awards then outstanding thereunder shall become fully vested, and the
Employee Option Plan and the Aironet Option Plan further provide that, except as
otherwise determined at the time by the applicable board of directors, a cash
payment shall be made to the holders of outstanding options equal to the amount
by which (i) the highest price paid or offered in any transaction related to the
"change in control", or at which the underlying stock has traded on any
securities market, within the preceding 60 days, as determined by the board,
exceeds (ii) the exercise price. The Employee Option Plan and the Restricted
Stock Plan define "change in control" to mean (1) the acquisition by any person,
entity or group of beneficial ownership of 50% or more of the combined voting
power of the issuing entity's then outstanding securities, or (2) the
consummation of a transaction requiring stockholder approval and involving the
sale of all or substantially all of the assets, or a merger or consolidation, of
the issuing entity; "change in control" is defined under the Aironet Option
Plan, as in effect prior to the March 30, 1998 amendment thereof, and by which
pre-amendment terms such options continue to be governed, to also occur upon any
person, entity or group acquiring 15% or more of the combined voting power of
Telxon's then outstanding securities.
<PAGE> 9
Employee Stock Options
The following tables provide information with respect to options granted
to, and exercises by, the persons indicated during Fiscal 1998 and the value of
unexercised options held by such persons at the end of Fiscal 1998.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------
PERCENT OF
TOTAL
OPTIONS
GRANTED TO GRANT
OPTIONS EMPLOYEES EXERCISE DATE
GRANTED IN FISCAL PRICE EXPIRATION PRESENT
NAME (SHARES)(1) 1998 (PER SHARE)(2) DATE VALUE(3)
---- ----------- ----------------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Frank E. Brick......... --(4) -- -- -- --
James G. Cleveland..... --(4) -- -- -- --
Dan R. Wipff........... --(4) -- -- -- --
Kenneth W. Haver....... 25,000(4) 4% $25.31 10/4/05 $297,178
David D. Loadman....... -- -- -- -- --
</TABLE>
- ---------------
(1) The option grant shown in the body of the table was made under the Employee
Option Plan for the purchase of the indicated number of shares of Telxon
Common Stock and becomes exercisable as to one-third of the underlying
shares on a cumulative basis on each of the first three anniversaries of its
October 4, 1997 grant date.
(2) The exercise price shown in the body of the table is equal to the closing
sale price for the Common Stock as reported on the Nasdaq NNM for the last
trading day prior to the grant date specified in footnote (1).
(3) Present value of the option as of the date of its grant, calculated using
the Black-Scholes option valuation model under the following assumptions:
(a) based upon the Company's review of historical data concerning the
exercise by employees of options for Shares granted under the Company's
stock option plans and survey data concerning the experience of other
companies, an executive may typically be expected to hold an option with a
stated term of eight years (as in the case of the option granted to Mr.
Haver under the Employee Option Plan during Fiscal 1998 shown in the above
table) for five years prior to exercise; (b) a stock price volatility of
44.66% (based on the changes in the market price for Shares over the five
fiscal year period ended March 31, 1998, the length of which period
corresponds to the expected holding period assumed in (a) above); (c) an
interest rate of 5.85% (based on the published yield as of the grant date of
Treasury securities at "constant maturity" as interpolated by the U.S.
Treasury for a five-year maturity, corresponding to the assumed holding
period); and (d) a continuation of the $0.01 per Share annual dividend
historically paid by the Company.
(4) On March 30, 1998, the Aironet Board of Directors approved the granting of a
pool of options to purchase an aggregate of 300,000 shares of Aironet common
stock to, and to be allocated among, Telxon employees serving as advisors to
Aironet, as designated by Telxon's Chief Executive Officer. Each option
grant will vest as to one-third of the underlying shares on a cumulative
basis on each of March 30, 1999, 2000 and 2001, becoming exercisable upon,
but only after, (i) an underwritten registered public offering by Aironet of
its common stock at a price of at least $8 per share netting proceeds of at
least $8 million to Aironet or (ii) a "change in control" of Aironet (for
the definition of such an event for purposes of the Aironet Option Plan and
a description of certain other effects of such an event, see the discussion
under "Employment Agreements and Termination of Employment Arrangements"
above), have an exercise price of $3.50 per share (corresponding to the
negotiated arm's-length price paid by third party investors purchasing a
<PAGE> 10
minority position in Aironet common stock in a contemporaneous private
placement) and expire March 30, 2008, subject to earlier termination in the
event the grantee ceases to serve as an advisor to Aironet. In April 1998,
subsequent to the end of the most recent fiscal year required to be
disclosed in this Summary Compensation Table, the pool was fully allocated,
based on a review of the designated recipients and the allocation among them
by the Compensation Committee of Telxon's Board of Directors, pursuant to
which the following named executive officers received options for the
respective number of shares of Aironet common stock, with the stated
percentage representing that which the respective grant bears to the total
number of options granted through the pool to Telxon officers and employees
and to all other Aironet employees, directors and advisors under the Aironet
Option Plan during Fiscal 1998: Mr. Brick, 70,000 shares (14%); Mr.
Cleveland, 40,000 shares (8%); Mr. Haver, 50,000 shares (in addition to the
25,000 share Telxon stock option shown for him in the body of the table)
(10%); and Mr. Wipff, 20,000 shares (4%).
Although there has not been a trading market for Aironet common stock, there
is only a limited history of exercises under the Aironet Option Plan and
exercisability of the options described in this footnote (4) are subject to
the preconditions described in the preceding paragraph, present values of
these options as of the date of its grant can be calculated using the
Black-Scholes option valuation model under the following assumptions
utilized by Aironet in the preparation of the disclosures in its separate
audited financial statements under Financial Accounting Standards No. 123
("FAS 123"): (a) though reflective of the terms of the minority investment
made by third party investors in the March 1998 private placement of Aironet
common stock made contemporaneously with these option grants and not
necessarily representative of the per share price that would exist were
there (which there neither then was nor currently is) a regular trading
market for such stock, the $3.50 per share private placement price is
assumed as the value of the underlying Aironet common stock; (b) given the
limited history of exercises under the Aironet Option Plan, the same five
year period adopted by Telxon as discussed in footnote (3) above is used as
the period for which executives may be expected to hold these options prior
to exercise; (c) stock price volatility of 56%; (d) an interest rate of
5.54% (based on the published yield as of the grant date of Treasury Strips
maturing as of the end of the holding period assumed in (b) above in this
paragraph); and (e) no dividends are paid by Aironet during that assumed
holding period. Based on those assumptions, the calculated grant date
present values of these Aironet stock options would be as follows: Mr.
Brick, $132,258; Mr. Cleveland, $75,576; Mr. Haver, $94,470; and Mr. Wipff,
$37,788.
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
EXERCISES DURING
FISCAL 1998 FISCAL YEAR-END
---------------------- ----------------------------------------------------------
SHARES NUMBER OF VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank E. Brick........ -- -- 416,666+ 83,334+(3) $4,845,823 $991,677
James G. Cleveland.... -- -- 84,332+ 75,668+(3) $ 799,326 $554,175
Dan R. Wipff.......... 11,519 $139,668 10,833+ 10,417+(3) $ 114,997 $106,253
Kenneth W. Haver...... -- -- 75,664+ 74,336+(3) $ 743,477 $523,273
David D. Loadman...... -- -- 83,925+ 67,765+ $ 843,160 $514,156
-- -- 40,000* 20,000* $ 65,600(4) $ 32,800(4)
</TABLE>
- ---------------
+ Options for the purchase of the indicated number of shares of Telxon Common
Stock granted to the named executive officer pursuant to the Employee Option
Plan.
<PAGE> 11
* Option for the purchase of the indicated number of shares of common stock of
the Company's Aironet subsidiary granted to Mr. Loadman as an advisor to
Aironet pursuant to the Aironet Option Plan.
(1) Excess of the closing price for the Telxon Common Stock as reported on the
Nasdaq NNM for the last trading day prior to the date of exercise over the
exercise price, multiplied by the number of Shares acquired upon exercise.
(2) Aggregate fair market value, based on the amount by which the closing sale
price for Telxon Common Stock as reported on the Nasdaq NNM for March 31,
1998 exceeded the exercise price, of all unexercised "in-the-money" (fair
market value per Share in excess of exercise price) Telxon stock options
then held. See footnote (4) below regarding the valuation of Aironet stock
options.
(3) In addition to his holdings of Telxon stock options as of the end of Fiscal
1998 as shown in the body of the table, the named executive officer, as an
advisor to Aironet, received an option to purchase Aironet stock pursuant to
an option pool established under the Aironet Option Plan during Fiscal 1998
as described in footnote (4) of the table of Option Grants in Fiscal 1998
above. See footnote (4) below regarding the valuation of Aironet stock
options.
(4) Consistent with the assumptions made by Aironet in the FAS 123 calculations
discussed in footnote (4) to the table of Option Grants in Fiscal 1998 above
and subject to the qualifications there noted, the value of Aironet common
stock as of March 31, 1998 is assumed to be $3.50 per share. Since such
assumed price is equal to the exercise price of the Aironet stock options
described in footnote (3) immediately above, those stock options were not
"in the money" as of the time of the creation of the option pool at the end
of Fiscal 1998.
<PAGE> 12
COMPENSATION OF DIRECTORS
Cash Compensation
The Company's non-employee directors each receive an annual fee of
$50,000 per year. The non-employee directors also receive $2,500 plus travel
expenses for each day of attendance at directors' meetings ($1,250 for a
telephonic meeting), and $2,500 for each Audit Committee or Compensation
Committee meeting attended (either as a member thereof or at the request of the
Committee), unless the committee and the full Board meet on the same day, in
which event compensation in the amount of $1,250 is paid for attendance at such
committee meeting.
In July 1996, the Audit Committee of the Board of Directors engaged Mr.
Rose to act as the Committee's delegate to advise Company management by
analyzing, assessing and recommending improvements to the Company's operating
systems and processes and assisting in the recruitment, training and
integration of personnel. The engagement anticipated a total of 90 days of
service over a period ending December 31, 1997 at a fee of $3,500 per day, one
half of which he performed during the fiscal year ended March 31, 1997 ("Fiscal
1997"), completing the balance of the engagement during Fiscal 1998; Mr. Rose
received $140,000 for those services during Fiscal 1998. In recognition of the
other commitments which Mr. Rose had to resign or forego in order to undertake
it, the engagement also provides for him to receive a severance benefit of
$150,000 payable from January through December 1998, $37,500 of which was
paid during Fiscal 1998. In connection with the engagement, Mr. Rose is also
receiving coverage for himself and his wife under the Company's medical, dental
and vision plans, with Mr. Rose paying the customary employee contributions for
participation in those plans; those plans are self-insured by the Company,
subject to individual ($100,000 annually) and group stop-loss insurance it
maintains.
Mr. Brick, by reason of also being an employee of the Company, does not
receive any compensation from the Company for his services as a director (see
the Summary Compensation Table under "COMPENSATION OF EXECUTIVE OFFICERS"
above for the compensation paid to him in his capacity as an executive officer
of the Company).
Stock Options
Directors who are not employees of the Company or a subsidiary receive
options to purchase Shares under the Company's 1990 Stock Option Plan for
Non-Employee Directors, as amended (the "Director Option Plan"). Under the
Director Option Plan, each non-employee director is automatically granted an
option to purchase 25,000 Shares upon first being elected to the Board (an
"Initial Grant") and annually thereafter is also automatically granted a 10,000
Share option (each a "Continuing Grant") on each anniversary of his last
election to the Board during his continued service on the Board. An Initial
Grant becomes exercisable in equal thirds on each of the first three
anniversaries of the grant date, whereas each Continuing Grant becomes
exercisable in full on the third anniversary of its grant date. The Director
Option Plan also permits the Board to make discretionary option grants under
the Director Option Plan to any one or more of the Company's non-employee
directors from time to time in addition to the foregoing automatic grants;
pursuant to that authority, a 10,000 Share grant, exercisable in full upon
grant, was made to each of the non-employee directors (Messrs. Bogomolny,
Cribb, Goodman and Rose and Dr. Reddy) in September 1997. Each option granted
under the Director Option Plan has a seven-year term and an option price per
Share equal to the closing sales price of the Common Stock as reported on the
Nasdaq NNM for the trading day immediately preceding the date of grant. The
options terminate three months following the optionee no longer being a
director of the Company, six months following death and one year following
disability. Options granted under the Director Option Plan are subject to the
same "change in control" provisions as apply under the Employee Option Plan
described under "COMPENSATION OF EXECUTIVE OFFICERS -- Employment Agreements
and Termination of Employment Arrangements" above.
<PAGE> 13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the outstanding Shares, as of June 30, 1998, by all
directors of the Company, by the executive officers of the Company named in the
Summary Compensation Table, and by all directors and executive officers of the
Company as a group. Based on the most recent information available to the
Company, the Company believes that there are not currently any stockholders who
beneficially own more than five percent of its outstanding Shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS(1) --------------------------
OF BENEFICIAL OWNER NUMBER PERCENTAGE(2)
------------------- --------- -------------
<S> <C> <C>
Richard J. Bogomolny.................................. 76,666(3) *
Frank E. Brick........................................ 487,483(4) 2.9%
James G. Cleveland.................................... 98,929(5) *
John H. Cribb......................................... 27,500(6) *
Robert A. Goodman..................................... 107,190(7) *
Kenneth W. Haver...................................... 90,730(8) *
David D. Loadman...................................... 104,355(9) *
Raj Reddy............................................. 88,600(10) *
Norton W. Rose........................................ 80,500(11) *
Dan R. Wipff.......................................... 86,502(12) *
All directors and executive officers as a group
(11 persons)........................................ 1,263,787(13) 7.4%
</TABLE>
- ---------------
* less than 1 percent
(1) The address for the named individuals is 3330 West Market Street, Akron,
Ohio 44333.
(2) Computed based upon the 16,111,215 Shares outstanding as of June 30, 1998,
as adjusted with respect to the Shares which may be acquired within 60 days
(measured from June 30, 1998) by exercise of options by the person(s) whose
percentage ownership is being computed.
(3) Includes 26,666 Shares which he may acquire within 60 days by exercise of
options.
(4) Includes 433,333 Shares which he may acquire within 60 days by exercise of
options. Also includes 10,000 Shares awarded to Mr. Brick under the
Restricted Stock Plan which will vest on October 27, 1998, provided that he
is then employed by the Company, and are subject to transfer restrictions
during the vesting period.
(5) Includes 96,999 Shares which he may acquire within 60 days by exercise of
options.
(6) Includes 1,000 Shares owned by Mr. Cribb's wife as to which Shares Mr.
Cribb disclaims beneficial ownership and 17,500 Shares which he may acquire
within 60 days by exercise of options.
(7) Includes 8,900 Shares owned by Mr. Goodman's wife as to which Shares Mr.
Goodman disclaims beneficial ownership and 85,000 Shares which he may
acquire within 60 days by exercise of options.
(8) Includes 86,665 Shares which he may acquire within 60 days by exercise of
options and 997 Shares (rounded) allocated to Mr. Haver's account under the
Company's 401(k) plan. Also includes 2,000 Shares awarded to Mr. Haver
under the Restricted Stock Plan, 1,000 of which have vested since June 30,
1998, with the remaining Shares vesting on July 17, 1999, provided that he
is then employed by the Company, and being subject to transfer restrictions
during the vesting period.
(9) Includes 98,355 Shares which he may acquire within 60 days by exercise of
options. Also includes 2,000 Shares awarded to Mr. Loadman under the
Restricted Stock Plan, 1,000 of which have vested since June 30, 1998, with
the remaining Shares vesting on July 17, 1999, provided that he is then
employed by the Company, and being subject to transfer restrictions during
the vesting period.
(10) Includes 66,000 Shares which he may acquire within 60 days by exercise of
options.
(11) Includes 70,000 Shares which he may acquire within 60 days by exercise of
options.
(12) Includes 14,583 Shares which he may acquire within 60 days by exercise of
options.
(13) Includes 1,004,433 Shares which may be acquired within 60 days by exercise
of options and 16,000 Shares awarded under the Restricted Stock Plan, of
which 2,000 Shares have vested since June 30, 1998, and provided the
respective awardees are then employed by the Company, 10,400 Shares will
vest during the remaining portion of Fiscal 1999; 2,400 Shares will vest in
the fiscal year ending March 31, 2000, and 400 Shares will vest in each of
the fiscal years ending March 31, 2001 through 2003.
<PAGE> 14
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
In August 1995, the Company announced a program of providing key Telxon
employees with a long-term incentive opportunity to purchase stock in its
technology subsidiaries, thereby encouraging them to support the development of
the subsidiaries and their businesses with the same effort and dedication as in
their service to Telxon so as to more closely align their objectives with the
long-term goals of the Company as a whole. Such investments are subject to
certain risks and restrictions and are based on outside opinions of the issuing
subsidiary's market value. During the fiscal year ended March 31, 1996 ("Fiscal
1996") the Company sold shares of common stock in its Metanetics Corporation
subsidiary ("Metanetics") under the program at a price per share equal to that
paid in a contemporaneous sale negotiated at arm's length with a third party
investor. Certain of those program purchases, including that of Frank E. Brick,
the Company's President and Chief Executive Officer and a director, were made
with loans approved by the Telxon Board of Directors, due September 30, 1998,
bearing interest at eight percent per annum and secured by the stock purchased
with the loan proceeds. The original principal amount of Mr. Brick's loan, which
remains outstanding in full, was $16,618, and the largest amount of indebtedness
thereunder (principal plus accrued interest) outstanding during Fiscal 1998 was
$19,280 and with additional interest increased at June 30, 1998 to $19,612. Mr.
Brick currently owns 0.8%, and the Company currently owns 60.3%, of Metanetics'
outstanding common shares.
In December 1993 and January 1994, Mr. Brick received loans of $75,985 and
$58,000, respectively, from the Company, for his use in payment of withholding
and estimated tax obligations incurred with respect to the 25,000 Share portion
of the 50,000 Shares awarded to him in October 1993 under the Restricted Stock
Plan with respect to which he had elected under the applicable regulations under
the Internal Revenue Code to be taxed as of the time of the award. The loans are
secured by the restricted stock and originally bore interest at two percent in
excess of the prime rate, adjusted quarterly. In January 1997, Mr. Brick
borrowed an additional $30,932 from the Company for his use in the payment of
his tax obligations with respect to 5,000 additional Shares of his restricted
stock award which vested during Fiscal 1997 but were not included in his
earlier tax election. While Mr. Brick repaid the tax loans in full in July
1997, they were subsequently readvanced to him, and in December 1997 he
borrowed an additional $52,082 for his use in the payment of his tax
obligations with respect to 10,000 additional Shares of his restricted stock
award which vested during Fiscal 1998 but were not included in his earlier tax
election. All of the Fiscal 1998 borrowings, which bear interest at a rate of
one percent in excess of the prime rate and are due March 31, 2000, remain
outstanding in full. The largest aggregate amount of indebtedness (principal
and accrued interest) outstanding during Fiscal 1998 under these tax loans was
$279,930 and with additional interest increased at June 30, 1998 to $285,431.
In November 1997, Dan R. Wipff, the President and Chief Executive Officer
of the Company's Telxon Products manufacturing division, received a $120,000
personal loan from the Company. The loan is due November 30, 2000, bears
interest at a rate of one percent in excess of the prime rate and remains
outstanding in full. The largest aggregate amount of indebtedness (principal and
accrued interest) outstanding during Fiscal 1998 under the loan was $124,002 and
with additional interest increased at June 30, 1998 to $126,903.
In connection with the consolidation and relocation of the Company's
engineering and research and development functions from Akron, Ohio to the
Company's new World Technology Center in The Woodlands, Texas (north of
Houston), the Company made interest free bridge loans aggregating $140,000 in
principal amount to David L. Loadman, the Company's Senior Vice President,
Global Product and Systems Development, and Chief Technical Officer, in July
1997 to assist him in the relocation of his family. The loans are due December
31, 1998. Since the end of Fiscal 1998, payments and credits for unreimbursed
relocation costs have reduced the outstanding balance of these loans to $71,291.
In December 1995, 1996 and 1997, the Company made loans of $8,019, $4,192
and $5,706, respectively, to Mr. Loadman for his use in the payment of his tax
obligations with respect to the three 1,000 Share installments of his restricted
stock award which vested during Fiscal 1996, 1997 and 1998. These borrowings,
bearing interest at a rate of one percent in excess of the prime rate, remain
outstanding in full. The largest aggregate amount of indebtedness (principal and
accrued interest) outstanding during Fiscal 1998 under these tax loans was
$19,584 and with additional interest increased at June 30, 1998 to $19,969.
During Fiscal 1998, the Company paid to the law firm of Goodman Weiss
Miller LLP, of which Robert A. Goodman, a director and Secretary of the Company,
is senior partner, $1,691,226 for legal services and $159,539 in reimbursement
of expenses. It is anticipated that payments will continue to be made to said
firm in the future for additional services. In addition, in January 1998, the
Company entered into a letter agreement engaging the law firm to represent the
Company in any potential change in control transaction involving the Company.
The firm would provide the full range of services reasonably associated with
such a transaction which it is in a position to provide, with Mr. Goodman and
his partner, Steven J. Miller, to be primarily responsible for and involved in
the engagement. In recognition of the magnitude of the time commitment that
would be involved in such an event and the intensity and duration of such an
engagement, and the significance of the firm's role and the importance of its
expertise and its contribution to the results obtained, the agreement
contemplates that the fees payable to the firm in respect of such services would
include a value added component of approximately $1.5 million in addition to
customary hourly time charges. This letter agreement becomes inoperative,
however, in the event that the consulting agreement described in the next
paragraph becomes effective prior to the commencement of a change in control
transaction to which this letter agreement would otherwise apply.
In January 1998, the Company, in order to assure itself of the continued
availability to it of Mr. Goodman's legal services, entered into a letter
agreement with Mr. Goodman in which he has agreed to provide advice to the
Company on a non-exclusive basis regarding legal matters relating to the
Company's business after he ceases full-time practice with his law firm. The
consulting engagement will not take effect until the earliest of the date Mr.
Goodman withdraws from his current law firm, becomes "of counsel" thereto, or
the date on which Mr. Goodman's firm ceases to be the Company's primary
outside counsel and will expire on the tenth anniversary of the commencement
date, unless sooner terminated in accordance with the consulting agreement.
Consulting fees of $150,000 per annum (the "Consulting Payments") will be paid
by the Company over the term of the agreement, along with reimbursement of
reasonable expenses incurred by Mr. Goodman. Earlier termination may occur (1)
by Mr. Goodman for "Good Reason", defined as a material breach of the agreement
by the Company which is not cured within ten (10) business days of receipt by
the Company of written notice, (2) by the Company for "Cause", defined as a
material breach of the agreement by Mr. Goodman which is not cured within ten
(10) business days of receipt by Mr. Goodman of written notice, (3) by death or
disability of Mr. Goodman or (4) by a "Change in Control" of the Company. For
purposes of the consulting agreement, the occurrence of any of the following
shall constitute a "Change in Control": (i) the acquisition, directly or
indirectly, of at least 30% of the outstanding common stock of, or voting power
in, the Company calculated on a fully diluted basis; (ii) a merger or
consolidation of the Company with any company other than one in which the
Company then owns at least a majority of the outstanding common stock or voting
power; (iii) a sale (whether in one or a series of transactions) of all or
substantially all of the assets of the Company; (iv) any recapitalization,
restructuring or liquidation of the Company; or (v) events during any period of
two consecutive years as a result of which individuals who at the beginning of
any such period constitute the directors of the Company cease for any reason to
constitute at least a majority thereof, provided, however, that for purposes of
this clause (v), each director who is first appointed or elected by the Board
or whose nomination for election by the Company's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors on the date of the consulting agreement or
whose appointment, election or nomination was previously so approved or
recommended will be deemed to have been a Director of the Company at the
beginning of such period. In the event of a termination by Mr. Goodman for Good
Reason or termination because of death, disability or the occurrence of a
Change in Control, Mr. Goodman is entitled to a lump sum cash payment of the
unpaid balance of the Consulting Payments, payable within 10 days of such
termination. If the Company terminates the consulting agreement for Cause, Mr.
Goodman is entitled to no further compensation under the consulting agreement.
The consulting agreement will also be of no effect if the consulting period has
not commenced prior to the commencement of a change in control transaction to
which the letter agreement described in the preceding paragraph applies.
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Amendment No. 2 on Form 10-K/A to be signed
on its behalf by the undersigned, thereunto duly authorized.
TELXON CORPORATION
Date: July 29, 1998 By: /s/ Kenneth W. Haver
--------------------------
Kenneth W. Haver, Senior
Vice President and Chief
Financial Officer
