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Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. 2)
Filed by the Registrant [ ]
Filed by a party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
TELXON CORPORATION
.................................................................
(Name of Registrant as Specified In Its Charter)
GUY P. WYSER-PRATTE
.................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
............................................................
(2) Aggregate number of securities to which transaction
applies:
.......................................................
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
.......................................................
(4) Proposed maximum aggregate value of transaction:
.......................................................
(5) Total fee paid:
.......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
.......................................................
(2) Form, Schedule or Registration Statement No.:
.......................................................
(3) Filing Party:
.......................................................
(4) Date Filed:
.......................................................
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SOLICITATION OF PROXIES
IN CONNECTION WITH THE
1998 ANNUAL MEETING OF SHAREHOLDERS
OF
TELXON CORPORATION
--------------------
PROXY STATEMENT
OF
MR. GUY P. WYSER-PRATTE
Wyser-Pratte & Co., Inc.
63 Wall Street
New York, New York 10005
(212) 495-5350
--------------------
This Proxy Statement and the accompanying [COLOR] Annual Meeting proxy
card are furnished in connection with the solicitation of proxies by Guy P.
Wyser-Pratte ("Mr. Wyser-Pratte") of Wyser-Pratte & Co., Inc. ("WPC") to be used
at the annual meeting of shareholders of Telxon Corporation, a Delaware
corporation ("Telxon" or the "Company"), to be held at [ ] on Tuesday,
September 15, 1998 and any adjournments or postponements thereof (the "Annual
Meeting"). This Proxy Statement and the enclosed proxy card are first being sent
to shareholders on or about _______ __, 1998. The solicitation is being made by
Mr. Wyser-Pratte on behalf of Mr. Wyser-Pratte and WPC. According to the
Company's proxy materials, the Company's board of directors has set July 17,
1998 as the record date for determining shareholders entitled to notice of and
to vote at the meeting.
SUMMARY AND INTRODUCTION
Between April and June of 1998, Symbol Technologies, Inc. ("Symbol")
made a series of offers to acquire the Company. Its last offer was for $40 per
share in cash or $42 per share in cash and Symbol shares, subject to due
diligence. The $40 all cash offer was more than 60% above the market price of
the stock on April 8 when Symbol made its initial proposal and the $42 hybrid
cash and stock offer represented a nearly 70% premium. Mr. Wyser-Pratte does
not know how Symbol proposed to allocate the $42 of consideration between cash
and Symbol stock. The Telxon board rejected the $40 cash offer and admitted
that it did not even consider the $42 cash and stock offer. The Company
asserted that the hybrid offer did not contain enough information to be
considered by the Company's board of directors. On June 8, 1998, the day Symbol
withdrew its acquisition proposal, the Telxon stock closed at $32 1/16, almost
$10 per share below Symbol's $42 offering price. Symbol stated on June 11, 1998
that it remains interested in a negotiated acquisition of the Company , subject
to due diligence.
Because the Symbol acquisition proposal represented an extremely large
premium over the prior market price of the Telxon stock, Mr. Wyser-Pratte
believes that the Telxon board should have given the shareholders an
opportunity to accept or reject the proposal, after the board had negotiated
the best possible offer from Symbol. The Telxon directors not only unilaterally
rejected the Symbol offer, they failed to explain to shareholders why a sale at
$40 in cash was not in their best interests or what information was required to
present the $42 cash and stock offer to the board and why management had not
obtained such information. Nor did the Telxon board announce any steps to
develop an alternative value-maximizing transaction that would bring
shareholders more than $40 for their shares.
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While Mr. Wyser-Pratte believes that shareholders should always have the
right to accept an an offer or proposal to acquire all of the Company's shares
(an "Acquisition Proposal"), he believes that this right is particularly
desirable at Telxon because the directors have a small financial stake in the
Company and, in Mr. Wyser-Pratte's opinion, lack sufficient independence.
According to the Company's 1997 Proxy Statement, the directors' total stock
ownership (excluding options) is just over 1% of the outstanding shares and,
the directors beneficially own less than 6% of the Company's outstanding
shares, including options exercisable within sixty days. Moreover, only one of
the six directors is completely independent, in Mr. Wyser-Pratte's opinion. Two
of the directors are present or past executives of the Company; and three have
special business arrangements with the Company.
Mr. Wyser-Pratte supports a two-pronged approach to giving shareholders
the ability to accept an Acquisition Proposal and encouraging potential bidders
including Symbol to pursue their interest in an acquisition of the Company. Mr.
Wyser-Pratte's proposals are not designed to force a sale of the Company, but
rather to give shareholders the ultimate ability to accept an Acquisition
Proposal.
Shareholders should eliminate the present board's power to block
Acquisition Proposals that shareholders wish to accept. Shareholders can not
accomplish this goal by voting the board out of office at the Annual Meeting.
The Company has a "staggered" board on which only a minority of the directors
come up for re-election each year. The staggered board is mandated by the
Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation"), which cannot be amended without board approval. Therefore, in
order to eliminate the board's power to unilaterally block Acquisition
Proposals that shareholders wish to accept, Mr. Wyser-Pratte is presenting
resolutions at the Annual Meeting to adopt bylaws that would give shareholders
the power to accept an Acquisition Proposal, whether or not the proposal was
approved by the board.
Shareholders should also demand that the board drop its opposition to
a sale of the Company at $40 per share. Instead, the board should seek
opportunities to sell the Company to Symbol or another buyer at the highest
possible price. Mr. Wyser-Pratte intends to nominate Professor Jonathan R.
Macey for a seat on the board. Professor Macey supports Mr. Wyser-Pratte's
corporate governance proposals and agrees that, subject to their fiduciary
duties, the directors should pursue opportunities to sell the Company for at
least $40 per share.
The Wyser-Pratte bylaw proposals would make the following changes in the
Company's corporate governance system:
SHAREHOLDER FRIENDLY BYLAW: If an Acquisition Proposal is made to
acquire the Company, the holders of 10% or more of the outstanding shares would
have the right to call a Special Meeting to vote on the Acquisition Proposal.
If the shareholders determined by a majority vote that the Acquisition Proposal
is in their best interests, the Acquisition Proposal would be deemed "friendly"
rather than "hostile," and the board would be required to stop using the
Company's Amended and Restated Rights Agreement between the Company and Keybank
National Association as Rights Agent (the "Poison Pill") against the
Acquisition Proposal (the "Shareholder Friendly Bylaw").
SHAREHOLDER INTERESTS PROTECTION BYLAW. The board would have to act
unanimously or obtain shareholder approval to take Defensive Actions (defined
below) against a takeover bid (the "Shareholder Interests Protection Bylaw"). If
Professor Macey is elected to the board, and the Shareholder Interests
Protection Bylaw is adopted, he would be able to block a board vote that favors
Defensive Actions he opposes; and in such event, the board would not be able to
take such Defensive Actions without shareholder approval.
Mr. Wyser-Pratte is also making proposals that would, if adopted:
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allow holders of 25% of the Shares to call a special meeting, and would
opt out of Section 203 of the Delaware General Corporation Law;
repeal any bylaws adopted by the board since June 11, 1998; and
recommend to the board that the Company reimburse Mr. Wyser-Pratte's
expenses in connection with this proxy solicitation if one of his bylaw
proposals is adopted or Professor Macey is elected to the board.
Although Mr. Wyser-Pratte beneficially owns less than 5% of the stock,
he is financing the cost of this proxy contest without assurance of
reimbursement because he believes that the Telxon board will not put shareholder
interests first unless there is a change in the Company's corporate governance
system. The board has claimed that Mr. Wyser-Pratte's fee arrangements with his
clients give him an incentive to maximize short-term profits for his clients,
whether or not the Company's other stockholders receive fair value for their
investment. Mr. Wyser-Pratte rejects this charge since he benefits from
maximizing the return on his clients' investment in Telxon regardless of the
holding period of such investment and, therefore, he believes that his interests
are aligned with the interests of other shareholders. Furthermore, his incentive
to maximize the value of the stock is his only financial interest in the
Company. Unlike the Telxon management and board, he does not receive fees and
salaries from the Company that may create a conflict of interest with their duty
to maximize shareholder value. See "CERTAIN INFORMATION CONCERNING MR.
WYSER-PRATTE AND OTHER PARTICIPANTS IN THE SOLICITATION."
REASONS FOR SOLICITATION
Mr. Wyser-Pratte believes that proper corporate governance requires that
shareholders make the ultimate decision on whether to accept an Acquisition
Proposal at a substantial premium above the prior market price. The board may
properly seek to raise the price through negotiations; but shareholders should
have the final word on whether the Acquisition Proposal is accepted.
Under these principles the Telxon board, after obtaining a final offer
from Symbol of $40 in cash or $42 in cash and securities, should have put the
offer to a shareholder vote. Mr. Wyser-Pratte believes that the high price
Symbol was offering gave the board an obligation to allow shareholders to accept
the proposal. Symbol's final all cash offer was more than 60% above the closing
price of the stock on April 8 when Symbol made its initial proposal and the
hybrid $42 per share cash/stock offer was almost 70% above that closing price.
Prior to the Symbol offer the Telxon stock had always traded for less than $30
per share.
Nevertheless, the Telxon board rejected the $40 cash offer and said that
combination cash/stock $42 offer "did not contain enough information to be
considered by the Telxon board." There was no explanation of why, if additional
information about the $42 offer was required, Telxon management did not obtain
the information and present it to the board. The Telxon board's press release
stated that "Symbol is unwilling to offer Telxon's shareholders a proposal that
gives them fair value for their shares;" but the board failed to explain why a
$40 or $42 price was not fair value for the Telxon shares or to announce any
plans for an alternative value-maximizing transaction that would give
shareholders an opportunity to receive more than $40 for their shares. On June
8, 1998, the day Symbol announced the withdrawal of its offer, the Telxon shares
closed at 32 1/16. The closing price on ________________, 1998, the last trading
day prior to the mailing of these materials, was $ per share.
Mr. Wyser-Pratte believes the shares would be trading even lower but for
the expectation of a possible sale of the Company.
Mr. Wyser-Pratte believes it may still be possible to sell the Company
for $40 per share or more to Symbol or another purchaser. A Symbol spokesman
stated on June 11, 1998: "We are encouraged that Telxon shareholders are taking
independent action and we remain very interested in a negotiated acquisition
subject to due diligence." To accomplish a sale of the Company, however,
shareholders must either persuade the board to support a sale at $40 or more or
change the Company's corporate governance system so that the board no longer has
the power to block an Acquisition Proposal favored by shareholders.
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Shareholders do not have the alternative of replacing the board at the
Annual Meeting with a slate of nominees who, subject to their fiduciary duties,
would pursue opportunities to sell the Company for $40 per share or more. The
Certificate of Incorporation mandates a "staggered" board in which directors
have three year terms and only a minority of the directors come up for
re-election at any annual meeting. Mr. Wyser-Pratte believes, based on his
experience with other unsolicited acquisition proposals, that Symbol is unlikely
to maintain its interest in acquiring the Company if it is required to wait
until the 1999 annual meeting to change the board's position on a sale of the
Company. Furthermore, because of the Company's cumulative voting system, a
simple majority of shareholders might not be able to change control of the board
by the 1999 annual meeting even if shareholders were prepared to wait that long.
To replace a majority of the directors by the 1999 annual meeting, shareholders
supporting a sale of the Company would have to elect two directors at both the
1998 and 1999 annual meeting. Under the cumulative voting system prescribed by
the Company's Certificate of Incorporation, which cannot be amended without
board approval, a super-majority vote of two-thirds of the shares represented at
the meeting could be required to elect two directors at each meeting. Given
these obstacles to replacing a majority of the Telxon board, Mr. Wyser-Pratte is
proposing bylaw amendments that would eliminate the board's power to block
Acquisition Proposals favored by shareholders.
While Mr. Wyser-Pratte believes that shareholders should always have the
right to accept an Acquisition Proposal, he believes that this right is
particularly important at Telxon because the directors have a small financial
stake in the Company and, in Mr. Wyser-Pratte's opinion, lack sufficient
independence. Their total stock ownership, exclusive of options, is just over 1%
of the outstanding shares, and the directors beneficially own less than 6% of
the Company's outstanding shares, including options exercisable within sixty
days. Furthermore, Mr. Wyser-Pratte believes that the board is composed
primarily of insiders and other directors who Mr. Wyser-Pratte believes are not
independent. Mr. Wyser-Pratte believes that only one of the six directors--Mr.
Richard J. Bogomolny, a retired super market executive--is completely
independent. Two of the six are insiders:
Mr. Frank E. Brick is the Company's president and chief executive
officer.
Mr. John H. Cribb is a retired Telxon executive.
The remaining three directors all have special business arrangements with the
Company that, in Mr. Wyser-Pratte's opinion, compromise their independence:
Mr. Robert A. Goodman is the Company's general counsel. His law firm
received $2,780,220 in legal fees from the Company in fiscal 1997 and
$1,691,226 in fiscal 1998. The Company has entered into a 10-year
consulting agreement with Mr. Goodman that becomes effective if his law
firm ceases to be primary outside counsel to the Company or he leaves or
becomes of counsel to his firm and entitles Mr. Goodman to payments of
$1.5 million dollars over a 10-year period following such event. In
January of 1998, the Company also entered into a letter agreement
engaging Mr. Goodman's firm to represent it in any change of control
transaction. The letter agreement provides for a $1.5 million value
added payment to the firm in addition to customary hourly time charges.
The letter agreement becomes inoperative if the Consulting Agreement is
in effect.
Dr. Raj Reddy, a professor of computing sciences, is chairman of the
board of the Company. As chairman of Aironet Wireless Communications,
Inc. ("Aironet"), one of the Company's privately-owned subsidiaries, Dr.
Reddy received stock options in that subsidiary in fiscal 1997 in
addition to his normal compensation as a director of the Company.
According to the Company's 10-K, Aironet "designs and develops universal
modular wireless local area network ("WLAN") radio products and networks
which it sells to Telxon, [Value-Added Resellers] and [Original
Equipment Manufacturers]", and "Aironet has essentially been [the
Company's] sole supplier of spread-spectrum radios, the key component in
a WLAN system."
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Mr. Norton W. Rose is a consultant and executive recruiter. According to
the Company's 1997 proxy statement, Mr. Rose was to provide an estimated
90 days of services to the Company in fiscal 1997 and fiscal 1998 for
which he was to be paid $3,500 per day plus a $150,000 severance benefit
(resulting in total compensation of $465,000 in that period).
Mr. Wyser-Pratte is also concerned about transactions involving Aironet,
certain aspects of which, Mr. Wyser-Pratte believes, were not in the best
interests of shareholders. On March 31, 1998, the Company sold 1,206,349 shares
of Aironet to certain outside investors for $3.50 per share and issued such
investors warrants to purchase an additional 361,905 shares for $3.50 per share.
The warrants are exercisable under certain circumstances including upon a change
on control of the Company. Following a hostile change of control of the Company
(any change of control that is not approved by a majority of the directors of
the Company who were directors of the Company on March 31, 1998 or successors
designated by at least a majority of such directors ), and following any change
of control after April 30, 2001, the outside investors gain the right to control
the board of directors of Aironet. The outside investors also have a one-time
"put" right 90 days after a non-hostile change of control of the Company to sell
their then owned Aironet shares to the non-hostile successor within 30 days, for
$10.50 per share.
Mr. Wyser-Pratte believes that this almost $11 million potential
windfall profit to the outside investors upon a friendly sale of the Company is
not in the shareholders' best interests because such a payment will likely
reduce the price that any acquiror will be willing to pay shareholders for their
shares, in the aggregate, by the amount of such profit. Mr. Wyser-Pratte also
believes that turning control of Aironet's board over to the outside investors
if there is a hostile takeover of the Company is not in the best interests of
shareholders because it will also likely reduce the price that a potential
acquiror is willing to pay shareholders for their shares because Aironet is an
important part of the Company's business.
In Mr. Wyser-Pratte's opinion the Telxon shareholders should have the
right to accept an Acquisition Proposal, whether or not such Proposal is
approved by the Board.
PLEASE SUPPORT OUR EFFORTS TO REFORM THE COMPANY'S CORPORATE GOVERNANCE
SYSTEM. YOU ARE URGED TO VOTE IN FAVOR OF THESE PROPOSALS BY PROMPTLY SIGNING,
DATING AND MAILING THE [COLOR] PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED.
ONLY YOUR LATEST-DATED PROXY WILL COUNT AT THE ANNUAL MEETING.
THEREFORE, DO NOT SIGN ANY PROXY THAT MANAGEMENT MAY DELIVER TO YOU.
If you have any questions concerning this Proxy Statement or need
assistance in voting your Common Stock, feel free to call our proxy solicitor,
[ ] (the "Proxy Solicitor") toll-free at 1 800 [ ] or Eric Longmire,
Senior Managing Director of WPC, at (212) 495-5357.
SHAREHOLDER PROPOSALS
PROPOSAL TO AMEND THE BYLAWS TO ALLOW SHAREHOLDERS TO DETERMINE WHETHER A
PROPOSAL TO ACQUIRE THE COMPANY SHALL BE TREATED AS FRIENDLY OR HOSTILE
(ITEM 1 ON PROXY CARD)
SHAREHOLDERS ARE ASKED TO CONSIDER AND VOTE UPON THE PROPOSAL TO AMEND THE
BYLAWS TO ALLOW SHAREHOLDERS TO DETERMINE WHETHER A PROPOSAL TO ACQUIRE THE
COMPANY SHALL BE TREATED AS FRIENDLY OR HOSTILE:
"RESOLVED, that the Shareholders hereby amend the Company's Bylaws (i)
by adding the words, "Except as provided in Article X," to the beginning of
Article I, Section 3 (ii) by changing the
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existing first work of Article I, Section 3 from "Special" to "special" and
(iii) by adding a new Article X, which shall read as follows:
`ARTICLE X
TREATMENT OF ACQUISITION PROPOSALS
Section 1. Notwithstanding anything in these Bylaws to the
contrary, following the public announcement of any Acquisition Proposal,
stockholders owning 10% in interest of the voting shares of the
Corporation may call, by written notice to the Secretary of the
Corporation at the Corporation's principal place of business, a special
meeting of stockholders of the Corporation at which a stockholder vote
shall be taken to determine whether the Acquisition Proposal is in the
stockholders' best interests. The date for such special meeting shall
not be less than ten nor more than ninety days after the date such
special meeting is duly called by such stockholders. "Acquisition
Proposal" means any offer or proposal, made in writing by press release,
letter to the Corporation or its shareholders or any other means, to
acquire the Corporation or all of its shares or all or substantially all
of its assets, for cash or securities or any other consideration or
combination thereof, by means of merger or other business combination
and/or acquisition of shares, including, without limitation, any tender
offer or exchange offer which is part of such offer or proposal and
including any amendments to such offer or proposal; provided, however,
that if any such offer or proposal is amended in any respect after
shareholders have duly called a special meeting in accordance with this
Article X but before the date of such special meeting, then such special
meeting shall be held in accordance with the time limit prescribed by
this Article X and Article Sixth, Paragraph C of the Corporation's
certificate of incorporation based on the date on which shareholders
gave the written notice requiring such meeting to be held, but the
Acquisition Proposal considered and voted upon by the shareholders at
such special meeting shall give effect to all such amendments.
Section 2. If the stockholders determine at such special meeting
by the affirmative vote of a majority in interest of the shares
represented and entitled to vote at the meeting that the Acquisition
Proposal is in the best interests of stockholders, then the Acquisition
Proposal shall be deemed to be "friendly" rather than "hostile" and the
board of directors shall Withdraw the Poison Pill with respect to such
Acquisition Proposal. "Withdraw the Poison Pill" shall mean: redeem the
outstanding rights under the Rights Agreement between the Corporation
and Key National Association, as Rights Agent, or take other action so
that the existence of such rights does not interfere with the
consummation of such Acquisition Proposal or any acquisition of the
Company's shares which forms a part of such Acquisition Proposal.
Section 3. If any particular provision of this Article X be
adjudicated to be invalid or unenforceable, such provision shall be
deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable so that the provisions of this Article X are
enforced to the maximum extent possible.
Section 4. This Article X may not be altered or repealed except
by a unanimous board vote of all the directors then in office or by the
shareholders.'"
The Poison Pill is one of the Company's principal anti-takeover devices.
The Poison Pill makes it economically infeasible to acquire control of the
Company in a transaction which is opposed by the board -- even if all, let alone
a majority, of the shareholders were to favor the acquisition. The Poison Pill
has this effect because it dilutes the ownership of stock by any purchaser who
acquires more than a threshold amount of the Company's stock without the board's
approval (see "OPERATION OF THE POISON PILL" below).
Mr. Wyser-Pratte approves of the limited use of the Poison Pill to delay
completion of an Acquisition Proposal for a reasonable period of time so that so
that there is an opportunity for higher bids to
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emerge and for the board to communicate its views to shareholders. He believes,
however, that the board should normally refrain from permanently blocking an
Acquisition Proposal that is favored by the Company's shareholders. Mr.
Wyser-Pratte believes that shareholders are generally able to judge for
themselves whether an Acquisition Proposal is in their best interests, provided
that they are given adequate information. Therefore, Mr. Wyser-Pratte is
proposing that shareholders adopt an amendment (the "Shareholder Friendly
Bylaw") to the Telxon bylaws. The Shareholder Friendly Bylaw would create a new
policy at Telxon whereby once a proposal was made to acquire the Company, 10% of
the Company's shareholders would have the right to call a special meeting of
shareholders to conduct a shareholder vote on the question of whether or not the
Acquisition Proposal was in the best interests of the shareholders. If the
shareholders determine that such Acquisition Proposal was in their best
interests, such Acquisition Proposal would be deemed to be a "friendly"
proposal, and the Company's board would be required to cease using the Poison
Pill to block the acquisition of shares pursuant to the Acquisition Proposal.
The shareholder vote would give the board an opportunity to persuade
shareholders that the continued use of the Poison Pill to block the Acquisition
Proposal was in the best interests of shareholders and that the Acquisition
Proposal should be deemed to be "hostile."
Mr. Wyser-Pratte believes that the Shareholder Friendly Bylaw will give
the ultimate decision about whether shareholders can sell their shares to those
most directly affected by the decision - the owners of the Company. Under the
Shareholder Friendly Bylaw a board of directors that wants to continue using the
Poison Pill to block the acquisition of shares pursuant to an Acquisition
Proposal would be subject to a shareholder referendum on the board's blocking
strategy. Although the board could temporarily block the acquisition of shares
pursuant to an unsolicited Acquisition Proposal and try to convince shareholders
of the merits of its position, the shareholders would have the ultimate ability
to exercise their property rights and business judgment to decide for themselves
whether they want to sell their shares - and would be able to do so without
being hindered by the board's use of the Poison Pill. If shareholders exercised
their right under the Shareholder Friendly Bylaw to call a shareholders meeting
to vote on an Acquisition Proposal, the board would be required by the
Certificate of Incorporation to schedule the shareholders meeting no more than
ninety days after the meeting was called; and the board would be required to
stop using the Poison Pill to block the Acquisition Proposal if shareholders
voted that the Acquisition Proposal was in their best interests.
The Shareholder Friendly Bylaw would not affect the ability of the board
under Sections 251 and 271 of the Delaware General Corporation Law to approve or
disapprove of a proposed merger or sale of all or substantially all of the
assets of the Company. The Bylaw follows an approach to tender offer regulation
that is followed in Canada, the United Kingdom and other European countries in
that it prevents the board from unilaterally electing to block the acquisition
of shares pursuant to a qualified Acquisition Proposal for an indefinite period
of time, but allows the board to protect shareholder interests by delaying the
consummation of a bid while the board seeks a better offer or tries to persuade
stockholders that the Acquisition Proposal is not in their best interests. A
qualified Acquisition Proposal is one that the Company's shareholders have
deemed to be "friendly" at a duly called and held shareholders' meeting. The
idea of allowing shareholders to control the use of the Poison Pill after a
period of time is not new. The Poison Pill described in Georgia Pacific Corp. v.
Great Northern Nekoosa Corp., 727 F. Supp. 31 (D. Me. 1989) followed a similar
approach. There the board was required, within 90 to 120 days after receiving an
Acquisition Proposal, to hold a shareholder referendum on whether to accept the
Acquisition Proposal and redeem the company's poison pill. Under Telxon's
Certificate of Incorporation, the board sets the date of all special meetings,
but such date cannot be later than 90 days after the meeting is called.
Similarly, the "second generation" pill, described in Amanda Acquisition Corp.
v. Universal Foods Corp. 708 F. Supp. 984 (E.D. Wis. 1989), allows a bidder,
under certain circumstances, to require the board to hold a special meeting of
shareholders within 120 days of the bidder's offer for the purpose of allowing
shareholders to consider the offer, and, if the shareholders vote to request
that the board accept the proposal, the pill is automatically withdrawn with
respect to such offer to enable the bidder to consummate a cash tender offer in
the next 60 days at a price not less than previously proposed. See Id. at 1007.
The Shareholder Friendly Bylaw is also similar to the "chewable" pill
which prevents the board from using the pill to block tender offers or exchange
offers that meet certain criteria. Mr. Wyser-Pratte
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recently settled a proxy contest with an agreement for Pennzoil Company
("Pennzoil") to adopt a chewable pill and other large companies such as Texaco,
Lockheed and USX also have chewable pills. Although Pennzoil's stock price
increased by $1.325 during the two days following the Company's announcement of
its adoption of the chewable pill, an aggregate increase in value to
shareholders of almost $60 million, Mr. Wyser-Pratte, who has retained his
Pennzoil stock position, is unable to determine the chewable pill's long-term
effect on the price of the stock because Pennzoil's stock price has
substantially declined due to numerous other factors including, without
limitation, earnings downgrades due to higher than projected exploration
expenses and a ten year low in oil prices. To Mr. Wyser-Pratte's knowledge,
Pennzoil has not received any acquisition proposals since its adoption of the
chewable pill.
OPERATION OF POISON PILL. Telxon's Poison Pill operates in the following
fashion: Pursuant to the Poison Pill, each certificate for shares of Common
Stock also represents the same number of rights ("Rights"). Each Right, when
exercisable, entitles the registered holder to purchase one share of Common
Stock at a price of One Hundred Dollars ($100.00) per share (the "Purchase
Price"). Both the Purchase Price and the number of shares issuable upon the
exercise of each right are subject to adjustments upon the occurrence of certain
events including, without limitation, in the event that any person shall become
the beneficial owner of 15% or more of the Company's outstanding common stock.
In such event, each holder of a right shall have the right to purchase at the
purchase price a number of shares equal to the quotient obtained by dividing (i)
the product of (x) the then current purchase price and (y) the number of shares
issuable upon the exercise of a right by (ii) 50% of the 30 day average trading
price of the Company's shares. Unless they become exercisable upon the
occurrence of certain events as described below or unless earlier redeemed by
the Company, the Rights will expire on July 31, 2006.
If the Company is party to a merger or other business combination
transaction (not approved by the Company's board) in which the Company is not
the surviving corporation, or where the Common Stock is changed or exchanged, or
50% or more of the Company's assets or earning power are sold, each holder of a
Right will have the right to receive shares of publicly traded common stock of
the acquiring company having a market value of two times the Purchase Price or,
in specified circumstances, cash in an amount determined under the Poison Pill.
If the Company is the surviving corporation in a merger and the Common
Stock is not changed or exchanged, or if any acquiring person engages in certain
self-dealing transactions specified in the Poison Pill, or becomes the
beneficial owner of 15% or more of the outstanding Common Stock, each holder of
a Right (other than the acquiring person) will have the right to receive Common
Stock having a market value of two times the then current Purchase Price.
The Poison Pill discourages Acquisition Proposals not solicited by the
Company's board of directors by effectively allowing the Company's stockholders
to purchase additional shares of Common Stock at a discount following an
acquisition of a large block of the Company's outstanding Common Stock by a
party not approved by the Company's board and by increasing the value of
consideration to be received by stockholders in certain transactions following
such an acquisition.
The Rights may be redeemed by the board at any time prior to the earlier
of (i) the tenth Business Day (an "Acquisition Date") after the date of the
public announcement that any person, other than an Exempt Person (as defined in
the Poison Pill), alone or together with such person's affiliates and
associates, has become the beneficial owner of 15% or more of the Company's then
outstanding common stock, or such specified or unspecified later date as may be
determined by the board prior to such tenth Business Day and (ii) the Final
Expiration Date. The Final Expiration Date is the later of (x) July 31, 2006 and
(y) two years after any Distribution Date occurring prior to July 31, 2006.
A Distribution Date occurs on the earlier of (i) an Acquisition Date, or
such specified or unspecified later date as may be determined by the board prior
to such Acquisition Date and (ii) the tenth Business Day following the day on
which a tender offer or exchange offer by any person (other than the Company,
any subsidiary of the Company or any employee benefit plan sponsored or
maintained by the
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Company or any of its subsidiaries) is first published sent or given to
shareholders and which, if successful, would result in such person becoming an
Acquiring Person.
The terms of the Rights may be amended by the Company's board without
the consent of the shareholders.
THE FOREGOING IS A SUMMARY OF THE RELEVANT MATERIAL PROVISIONS OF THE POISON
PILL AND IS QUALIFIED BY REFERENCE THERETO. THE DESCRIPTION OF THE RIGHTS SET
FORTH AS ITEM 5 OF THE COMPANY'S CURRENT REPORT ON FORM 8-K, DATED AUGUST 5,
1996, IS ATTACHED HERETO AS EXHIBIT A.
Under the Shareholder Friendly Bylaw, the board can temporarily use the
Poison Pill to block an Acquisition Proposal. However, if the Company received
an Acquisition Proposal that shareholders, by referendum at a special meeting,
determined was in their best interests and therefore deemed "friendly", the
board would be required thereafter to refrain from using the Poison Pill to
block this Acquisition Proposal. Accordingly, the board would be required to
exercise its powers under the Rights Agreement to either redeem the Rights or to
amend the Poison Pill so that it would no longer be an impediment to the
acquisition of shares pursuant to such an Acquisition Proposal. The board would
be required by the Shareholder Friendly Bylaw to take such action even if the
board believed in the exercise of its fiduciary duties that the Acquisition
Proposal was not advantageous for the shareholders of Telxon. Mr. Wyser-Pratte
believes that this result is in the best interest of shareholders because the
shareholders, rather than the board of directors, should have the ultimate
decision on whether to accept the Acquisition Proposal.
IMPACT ON BOARD'S EXERCISE OF FIDUCIARY DUTIES. The Shareholder Friendly
Bylaw would enable the Company's shareholders, including Mr. Wyser-Pratte, who
wished accept an Acquisition Proposal opposed by the board to require the board
to stop using the Poison Pill to block the acquisition of shares pursuant to the
Acquisition Proposal by the affirmative vote of a majority in interest of the
shares represented and entitled to vote at the meeting. While the Shareholder
Friendly Bylaw could require the board to terminate such use of the Poison Pill,
whether or not the Acquisition Proposal was advantageous for the Company's
shareholders, Mr. Wyser-Pratte believes that the shareholders' vote that the
Acquisition Proposal was in their best interests would be prima facie evidence
that the Acquisition Proposal was advantageous for the Company's shareholders,
and therefore, in his opinion, the adoption of the Shareholder Friendly Bylaw is
in the shareholders' best interests.
The Shareholder Friendly Bylaw has no effect on the board's use of the
Poison Pill unless shareholders affirmatively vote that an Acquisition Proposal
is in their best interests at a duly called and held special meeting. If an
Acquisition Proposal is made at a price which is unattractive to shareholders,
or which is unrealistically low in light of the value the Company can achieve
for shareholders over time, the board can use the Poison Pill to facilitate
competing bids, or in the absence of competing bids, to ward off Acquisition
Proposals that are not, in the opinion of the shareholders, in the shareholders'
best interests.
Mr. Wyser-Pratte is aware of only one instance of a public corporation
with a mechanism like the Shareholder Friendly Bylaw being acquired in a hostile
transaction at a price higher than the initial offer. The Great Northern Nekoosa
poison pill, described above, was similar to the Shareholder Friendly Bylaw
because it required the board within 90 to 120 days after receiving an offer, to
hold a shareholder referendum on whether to accept the offer and redeem the
company's poison pill. There, according to Wall Street Journal reports, Georgia
Pacific made an initial offer of $58 per share for Great Northern Nekoosa and
was ultimately successful in acquiring Great Northern Nekoosa at $65.75 per
share. Except for the Great Northern Nekoosa acquisition, the generalization
that target companies tend to receive subsequent offers higher than the initial
offers is based on companies that did not have in place a mechanism similar to
the Shareholder Friendly Bylaw. Mr. Wyser-Pratte believes, however, that the
enactment of the Shareholder Friendly Bylaw will not eliminate the competitive
process that produces subsequent offers higher than the initial Acquisition
Proposal. Rather, in his opinion, the Shareholder Friendly Bylaw will stimulate
the auction process and encourage potential bidders to come forward with higher
offers after an initial Acquisition Proposal is made because the board will not
have the power to discourage potential
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bidders by blocking their Acquisition Proposals indefinitely. Furthermore, he
believes that the up to ninety-day waiting period built into the Shareholder
Friendly Bylaw by the timeline in the Company's Certificate of Incorporation for
directors to set the date of any special meeting of shareholders will assure
that potential bidders have an adequate period of time in which to evaluate the
Company and formulate their Acquisition Proposals.
Under Article Sixth, Paragraph C of the Company's Certificate of
Incorporation, the board is empowered to set the date of all special meetings of
shareholders, and that date must be not less than 10 or more than 90 days after
date such meeting is duly called. This provision for setting the date of special
meetings applies to meetings called by shareholders as well as to meetings
called by the board. If a special meeting were called so that shareholders could
consider and vote upon an Acquisition Proposal and the Acquisition Proposal was
thereafter amended, the amendment would have no effect on the timing of the
special meeting. While shareholders would vote on the Acquisition Proposal, as
amended, the board would be required to hold the meeting within 90 days after it
was originally called.
Based on his experience as an investor in target company securities, Mr.
Wyser-Pratte believes that ninety days is normally sufficient time for a target
company, seeking a higher offer, to complete the bidding process. For example,
the Great Northern Nekoosa poison pill discussed above provided for a
shareholder referendum--90 to 120 days after an Acquisition Proposal was
received--on whether the Acquisition Proposal should be accepted and the pill
redeemed. Circumstances could arise in which a board of directors seeking a
higher offer was unable to complete the entire process of finding and closing an
alternative transaction before the shareholder vote on the pending proposal.
Similarly, if a board were trying to negotiate the terms of an acquisition with
a prospective purchaser, the inability to block a tender offer to the Company's
shareholders by that purchaser beyond the date of the shareholder meeting could
reduce the board's leverage to negotiate favorable terms for stockholders. Mr.
Wyser-Pratte believes that the Shareholder Friendly Bylaw need not prevent the
board from obtaining the best possible terms for stockholders in either of these
situations, because the board would be free to explain to shareholders why more
time was needed and to convince shareholders that the current Acquisition
Proposal was not in their best interests so that the board could continue using
the Poison Pill against an Acquisition Proposal. The adoption of the Shareholder
Friendly Bylaw would not force the acceptance of any Acquisition Proposal. If
shareholders did not believe that an Acquisition Proposal reflected the
Company's intrinsic values, they would be free to vote that the Acquisition
Proposal was not in their best interests, deeming the Acquisition Proposal
"hostile" and providing for the continued use of the Poison Pill against the
Acquisition Proposal. It is possible, however, that under the Shareholder
Friendly Bylaw the board would lose the power to use the Poison Pill against an
Acquisition Proposal that was not in the best interests of shareholders if the
board failed to convince shareholders of the detriments of the Acquisition
Proposal.
Mr. Wyser-Pratte believes that the provision for a shareholder vote
assures that the Bylaw will not be used to facilitate coercive Acquisition
Proposals. The courts have defined a coercive offer as "an offer which has the
effect of compelling shareholders to tender their shares out of fear of being
treated less favorably in the second stage." Moore Corp. v. Wallace Computer
Servs, Inc., 907 F. Supp. 1545, 1557 n.13 (D. Del. 1995) (interpreting Delaware
law). If a majority of the Company's shareholders consider an Acquisition
Proposal coercive, the shareholders will not vote to deem the Acquisition
Proposal a "friendly" Acquisition Proposal.
LEGAL VALIDITY. Mr. Wyser-Pratte believes, after consultation with legal
counsel, that the Shareholder Friendly Bylaw is valid under Delaware law because
Delaware law authorizes shareholders to adopt bylaws that relate to the powers
of the shareholders and the board of directors. However, he recognizes that the
Delaware courts have not specifically considered the validity of the Shareholder
Friendly Bylaw or any similar bylaw and, therefore, have not resolved the extent
to which stockholder-adopted bylaws may limit the authority of the board of
directors to oppose, or to adopt or employ defensive measures against, takeover
bids favored by a majority of the shareholders. Accordingly, it is uncertain
whether the Shareholder Friendly Bylaw would survive a court challenge.
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However, there is support for the validity of the Shareholder Friendly
Bylaw in a recent Oklahoma Federal Court decision involving provisions of the
Oklahoma Corporation Law that are substantially the same as the Delaware
provisions applicable to the Company. International Brotherhood of Teamsters
General Fund v. Fleming Companies, Inc., No. Civ-96-1650-A (W.D. Okla. Jan. 14,
1997). The Fleming court required a corporation to include in its proxy
statement for its 1997 annual shareholders meeting a proposal to adopt a bylaw
requiring the board of directors to redeem the existing poison pill and to
submit any successor poison pill to a shareholder vote. In reaching this
decision the court found that the shareholders had the power to nullify or amend
a poison pill adopted by the board. The court's decision has been appealed to
the Tenth Circuit Court of Appeals, which has requested a ruling on the validity
of the bylaw under Oklahoma law from the Oklahoma Supreme Court.
Mr. Wyser-Pratte believes that Section 109 of the Delaware General
Corporation Law authorizes the enactment of the Shareholder Friendly Bylaw.
Section 109(a) gives stockholders the power to "adopt, amend or repeal Bylaws."
Section 109(b) states: "The bylaws may contain any provision, not inconsistent
with law or with the certificate of incorporation, relating to the business of
the corporation, the conduct of its affairs, and its rights or powers or the
rights or powers of its stockholders, directors, officers or employees."
(emphasis added). The Shareholder Friendly Bylaw relates to "the rights or
powers of...stockholders, [or] directors" because it allows shareholders to take
away the board's power to use the Poison Pill against an Acquisition Proposal by
voting that such Acquisition Proposal is in the shareholder's best interests.
Section 109 does invalidate bylaws that are "inconsistent with law or
with the certificate of incorporation . . . ." In a review of the Delaware
General Corporation Law, the Company's Certificate of Incorporation and Amended
and Restated Bylaws (the "Bylaws"), Mr. Wyser-Pratte has not discovered any
provisions that bar stockholders from adopting the Shareholder Friendly Bylaw.
He believes that Section 141(a) of the Delaware General Corporation Law does not
bar the adoption of the Shareholder Friendly Bylaw. That section states: "The
business and affairs of every corporation organized under this chapter shall be
managed by or under the direction of a board of directors, except as may be
otherwise provided in this chapter or in its certificate of incorporation"
(emphasis added). Mr. Wyser-Pratte believes that the adoption of the Shareholder
Friendly Bylaw is not inconsistent with Section 141(a) for several reasons.
First, Mr. Wyser-Pratte believes that the enactment of the Shareholder Friendly
Bylaw does not involve management of the "business and affairs of the
corporation" within the meaning of Section 141(a), but rather the creation of a
framework or parameters within which such management takes place. Second, to the
extent that Section 141(a) is read as granting the board of directors authority
over the business and affairs of the corporation, that grant is not by its terms
exclusive and is qualified by the phrase "except as may be otherwise provided in
this chapter or in its certificate of incorporation." Therefore, Mr.
Wyser-Pratte believes, Section 141(a) leaves room for the grant of authority in
Section 109 for stockholders to adopt bylaws which relate to the rights and
powers of stockholders and directors and, in particular, permits the adoption of
bylaws like the Shareholder Friendly Bylaw that permit shareholder referendum on
important corporate governance decisions by the board, such as the decision to
continue using the Poison Pill to block an Acquisition Proposal for the
Company's shares. Finally, Mr. Wyser-Pratte believes that any reading of Section
141(a) that invalidated the Shareholder Friendly Bylaw would make meaningless
Section 109's broad grant of authority for stockholders to adopt bylaws relating
to the rights and powers of stockholders and directors.
While no case other than Fleming has considered the validity of bylaws
similar to the Shareholder Friendly Bylaw, there are cases that have upheld
bylaws allocating corporate governance powers to the shareholders, against
claims that these bylaws illegally invade the board's power to manage the
business and affairs of the corporation. Such cases include Securities and
Exchange Commission v. Transamerica Corp., 163 F. 2d 511 (3rd Cir. 1947), cert.
denied, 332 U.S. 847 (1948) (upholding bylaw allowing the shareholders of a
Delaware corporation to select the company's independent auditors) and Ripley v.
Storer, N.Y. Sup. Ct., 139 N.Y.S. 2d 786, aff'd N.Y. App. Div., 142 N.Y.S. 2d
269 (1955) (involving a New York corporation which adopted a bylaw requiring
shareholder approval of contracts entered into by the board of directors).
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More generally, the Delaware Supreme Court has strongly endorsed the
power of shareholders to adopt corporate bylaws. The Delaware Supreme Court has
stated: "The power [of stockholders] to make and amend the bylaws of a
corporation has been recognized as an inherent feature of the corporate
structure. The bylaws of a corporation are presumed to be valid, and the courts
will construe the bylaws in a manner consistent with the law rather than strike
down the bylaws." Frantz Manufacturing Co. v. EAC Industries, Del. Supr., 501
A.2d 401, 407 (1985) (citations omitted). Other courts have recognized that
shareholders, as the owners of a corporation, have "the power to prescribe rules
for the government of business corporations." Rogers v. Hill, 289 U.S. 582, 588
(1933). In Rogers, the United States Supreme Court rejected the argument that a
charter provision allowing directors to make or alter bylaws eliminates the
power of shareholders to do so. The Court also noted that such an interpretation
would be in direct conflict with a holding of the New Jersey Supreme Court,
which the Court quoted: "It would be preposterous to leave the real owners of
the corporate property at the mercy of their agents, and the law has not done
so." Id. at 589.
Courts interpreting Delaware law have also recognized that the use of
the Poison Pill against an Acquisition Proposal is a defensive action by the
board. Moran v. Household Int'l, Inc., 500 A.2d 1346, 1354 (Del. 1985) (board
faced with tender offer and request to redeem rights plan will be held to same
fiduciary duties under Unocal as would apply to any decision to adopt defensive
mechanism); Moore Corp. v. Wallace Computer Servs, Inc., 907 F. Supp. 1545, 1556
(D. Del. 1995) ("With respect to the failure to redeem the poison pill, the
Court finds this to be a defensive measure").
Mr. Wyser-Pratte also believes that there is no inconsistency between
the Shareholder Friendly Bylaw and Section 157 of the Delaware General
Corporation Law. While Section 157 states that rights or options to purchase a
company's stock shall be subject to agreements approved by the board of
directors, Section 157 does not require that the board of directors shall
exclusively control the exercise of the company's rights under such agreements,
and Mr. Wyser-Pratte believes that any agreement that purports to bar a company
from allowing shareholders to participate in the control of such rights is an
illegal infringement on the power of shareholders to enact bylaws. The opinion
in the Fleming case, cited above, rejected the company's argument that an
Oklahoma provision identical to Section 157 prevented shareholders from
requiring redemption of the company's Poison Pill. Section 157 differs from the
Georgia statutory provision that was at issue in Invacare Corp. v. Healthdyne
Technologies, Inc., 968 F. Supp. 1578 (N.D. Ga. 1997). There a federal district
court, interpreting the Georgia statute dealing with rights or options to
purchase a company's stock, held that the statute barred shareholders from
requiring the redemption of the Poison Pill. However, the Georgia statute,
unlike Delaware Section 157, states that the board shall have "sole discretion"
over the terms of rights to acquire the company's stock, language which, the
Invacare court determined, was enacted to give the board of a Georgia
corporation sole discretionary control over the terms and conditions of a Poison
Pill. Section 157 has no such language or statutory history and therefore, Mr.
Wyser-Pratte believes, the Invacare case does not apply to the Shareholder
Friendly Bylaw.
Mr. Wyser-Pratte also believes that the Shareholder Friendly Bylaw does
not conflict with Delaware case law dealing with the fiduciary duties of boards
of directors. In certain cases, courts interpreting Delaware law have, on the
basis of particular facts presented, upheld reasonable defensive measures
adopted by directors who, in good faith and upon reasonable investigation,
believed that a hostile offer posed a danger to corporate policy and
effectiveness, even though a majority of the stockholders may have tendered
their shares. Mr. Wyser-Pratte believes, however, that those cases do not
support invalidating the Shareholder Friendly Bylaw because those cases only
dealt with whether the board had properly exercised its powers, and not with
whether those powers can be circumscribed by bylaws previously adopted by the
shareholders pursuant to Section 109. In none of those cases was the board's
discretion limited by a bylaw previously adopted by stockholders pursuant to the
grant of authority in Section 109. Mr. Wyser-Pratte believes it is inherent in
the Delaware scheme of corporate law that while the board is entitled to
exercise its judgment in responding to a tender offer or other takeover bid, the
board must exercise its judgment within the framework of statutes (including
Section 109), charter provisions and bylaws, such as the Shareholder Friendly
Bylaw, which in certain instances limit the actions that directors may take even
when the directors believe that their chosen course of action is in the best
interests of
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stockholders. Mr. Wyser-Pratte further believes that the Shareholder Friendly
Bylaw is supported by Delaware case law recognizing that at some point in time
the failure to redeem a poison pill can constitute a fiduciary breach (See
Moore, 907 F. Supp. at 1556), and by Delaware case law recognizing that board
actions designed principally to interfere with the effectiveness of a
shareholder vote are a breach of the directors' fiduciary duties unless there is
a compelling justification for the board action, even if the directors believe
that their actions are in the shareholders' best interests. See, Blasius
Industries, Inc. v. Atlas Corporation, Del. Ch., 564 A.2d 651 (1988), and Stahl
v. Apple Bancorp, Del. Ch., 579 A.2d 1115, 1124 (1990)). It should be noted,
however, that the Blasius and Apple Bank cases involved actions by the board
taken to interfere with shareholder voting rights, rather than
shareholder-adopted bylaws that would allow shareholders to limit the board's
freedom to take actions that the directors believe are in the shareholders' best
interests.
In any event, Mr. Wyser-Pratte believes that if the existing Telxon
board attempts to use the Poison Pill to block a premium Acquisition Proposal,
the board will be subject to stricter judicial review than the courts applied in
the leading Delaware cases upholding the use of a poison pill to block a premium
offer. In each of those cases, the court explicitly stated that the board's
showing of good faith and reasonable investigation was "materially enhanced" by
the presence of a majority of outside independent directors. See, Unocal Corp.
v. Mesa Petroleum Co., 493 A.2d at 955; Unitrin v. American General Corp., 651
A.2d 1361, 1375 (1995); Moore Corp. v. Wallace Computer Servs, Inc., 907 F.
Supp. 1545 at 1560. Mr. Wyser-Pratte believes that the Telxon board does not
have a majority of outside independent directors. Therefore, in his opinion, it
is doubtful whether the existing Telxon board, composed primarily of inside and
otherwise interested directors, will be able to carry its Unocal burden in a
situation where it is blocking a premium Acquisition Proposal and has not
offered shareholders a value maximizing alternative.
The Complaint filed by the Company on July 13, 1998 seeking declaratory
and injunctive relief in the United States District Court for the District of
Delaware (the "Complaint") indicates that the Company believes that the
Shareholder Friendly Bylaw is invalid under Delaware law because the grant of
authority to manage the business and affairs of the corporation in Section
141(a) of the Delaware General Corporation Law is exclusive, and that any
deviation from this general rule must be explicitly spelled out in the Company's
Certificate of Incorporation. A copy of the Complaint is attached as Exhibit B
hereto and incorporated herein by reference. See, "Certain Litigation."
Mr. Wyser-Pratte does not agree with the Company's analysis of Section
141(a) of the Delaware General Corporation Law as it applies to the Shareholder
Friendly Bylaw. As described more fully above, Mr. Wyser-Pratte believes that,
to the extent that 141(a) is interpreted as granting authority to the board over
the business and affairs of a company, the savings clause in Section 141(a),
"except as may be otherwise provided in this chapter" (omitted from the
statutory language quoted in the Complaint), qualifies such grant of authority.
Therefore, Mr. Wyser-Pratte believes, Section 141(a) leaves room for the grant
of authority in Section 109 for stockholders to adopt bylaws which relate to the
rights and powers of stockholders and directors and, in particular, permits the
adoption of bylaws like the Shareholder Friendly Bylaw that create a framework
in which the board makes important corporate governance decisions, such as the
decision to continue using the Poison Pill to block an Acquisition Proposal for
the Company's shares.
The Complaint also indicates that the Company believes that the
Shareholder Friendly Bylaw limits the board's power to manage and direct the
affairs of the Company with respect to an Acquisition Proposal and "renders the
board helpless" to act with regard to an acquisition proposal and is therefore
invalid under Section 141 of the Delaware General Corporation Law which imposes
fiduciary duties on the board to adopt or maintain defensive measures in the
face of Acquisition Proposals that the board determines are not in the best
interest of shareholders.
Mr. Wyser-Pratte does not agree with the Company's analysis of the
effect that the Shareholder Friendly Bylaw has on the board's discharge of its
fiduciary duties. As described more fully above, Mr. Wyser-Pratte believes that
the board is required to exercise its powers and discharge its duties within a
framework of laws and charter and bylaw provisions that may limit the board's
powers to do what it thinks is in the best interests of shareholders, and the
Shareholder Friendly Bylaw would be a part of that
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framework. Moreover, the Shareholder Friendly Bylaw need not prevent the board
from taking defensive actions against an acquisition proposal it opposes because
the Bylaw gives the board discretion to use the Poison Pill against an offer for
up to 90 days after shareholders call a meeting to vote on the offer, and gives
the board an opportunity to persuade shareholders that the offer is not in their
best interests and that the board should be allowed to use the Poison Pill
against the offer for an indefinite time period.
Mr. Wyser-Pratte believes, after consultation with legal counsel, that
even if the Delaware courts did not uphold the provisions of the Shareholder
Friendly Bylaw that require the board to Withdraw the Poison Pill, there is no
question as to the legal validity of the provisions of the Shareholder Friendly
Bylaw giving shareholders the right to call and hold a special meeting to vote
on whether they consider an Acquisition Proposal to be in their best interests.
Article Sixth, Paragraph C of the Certificate of Incorporation provides that
special meetings of stockholders may be called "for any purpose by the Chairman
of the Board of Directors, by the President or by the Board of Directors of the
Corporation or as otherwise provided in the By-laws of the Corporation (emphasis
added). Section 211(d) of the Delaware General Corporation Law provides that
"Special meetings of the stockholders may be called by the board of directors or
by such person or persons as may be authorized by the certificate of
incorporation or by the bylaws."
IN ORDER TO GIVE SHAREHOLDERS A GREATER VOICE IN THE GOVERNANCE OF THE COMPANY,
MR. WYSER-PRATTE RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AMEND THE BYLAWS
TO ALLOW SHAREHOLDERS TO DETERMINE WHETHER A PROPOSAL TO ACQUIRE THE COMPANY
SHALL BE TREATED AS "FRIENDLY" OR "HOSTILE".
PROPOSAL TO ADOPT A "SHAREHOLDER INTERESTS PROTECTION BYLAW" THAT WOULD REQUIRE
A UNANIMOUS VOTE OF THE DIRECTORS TO APPROVE "DEFENSIVE ACTIONS" BY THE BOARD
UNLESS SUCH ACTIONS HAVE BEEN APPROVED BY A SHAREHOLDER VOTE
(ITEM 2 ON PROXY CARD)
SHAREHOLDERS ARE ASKED TO CONSIDER AND VOTE UPON THE PROPOSAL TO ADOPT A
"SHAREHOLDER INTERESTS PROTECTION BYLAW" THAT WOULD REQUIRE A UNANIMOUS VOTE OF
THE DIRECTORS TO APPROVE "DEFENSIVE ACTIONS" BY THE BOARD UNLESS SUCH ACTIONS
HAVE BEEN APPROVED BY SHAREHOLDERS:
"RESOLVED, that the Shareholders hereby amend the Company's Bylaws by
adding a new Article X, which shall read as follows:
`Notwithstanding any provision to the contrary contained
in these Bylaws, the unanimous vote of all the directors then in
office shall be required to approve any Defensive Action by the
board of directors, provided, however, that any such Defensive
Action may be authorized by the vote of a majority of the
directors present at a meeting at which a quorum is present if
such authorization is ratified by the affirmative vote of a
majority in interest of the shares represented and entitled to
vote at a shareholders meeting at which a quorum is present.
`Defensive Action shall mean: any action by the board with the
purpose or effect, in whole or in part, of impeding a change in
control of the Company or increasing the board's power to impede
such a change in control in the future, including without
limitation (1) a decision by the board not to redeem the
outstanding Rights (the "Rights") under the Amended and Restated
Rights Agreement between the Company and Key National
Association, as Rights Agent (the "Poison Pill") or not to take
other action so that the existence of such Rights does not
interfere with the acquisition of the Company's shares or an
offer to acquire such shares, (2) the extension of the
expiration date of the Poison Pill past the Final Expiration
Date (as defined therein) or the addition of a "Dead Hand"
provision to such Pill, (3) the expenditure of any corporate
funds on a proxy contest against a shareholder of the Company
(including
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litigation in connection with such proxy contest), unless the
Company agrees to reimburse all such costs incurred by such
shareholder if 10% of the Company's shares are voted in favor of
any of such shareholder's proposals or (4) the amendment of the
Shareholders Interests Protection Bylaw; provided, however, that
subject to clauses (2), (3) and (4) of this sentence, if an
offer is made to acquire the Company or all of the Company's
shares, and the Board determines in accordance with applicable
law that such offer will maximize the company's value at a sale
for the shareholders' benefit, no action taken by the Board to
facilitate such offer shall be a Defensive Action. A "Dead Hand"
provision shall mean: any provision of the Rights agreement
between the Company and Key National Association, as Rights
Agent, or any related document (the "Poison Pill") that limits
in any way the voting power of directors elected after a certain
date or event on matters relating to the Poison Pill, compared
to either the voting power of directors elected prior to such
date or event or the voting power of directors elected on the
recommendation of directors elected prior to a specified date or
event.'"
Mr. Wyser-Pratte is proposing the adoption of a bylaw (the "Shareholder
Interests Protection Bylaw") that would require a unanimous board vote to
approve any Defensive Action by the board, unless such action was approved by a
shareholder vote. If this bylaw is adopted and Professor Macey is elected to the
board, Professor Macey's vote would be required to approve any Defensive Action
by the board.
The proposed bylaw defines "Defensive Action" to include any action with
the purpose or effect, in whole or in part, of impeding a change in control of
the Company or increasing the board's power to impede such a change in control
in the future. Mr. Wyser-Pratte believes it is desirable to include a general
definition of Defensive Action in the bylaw, so that the bylaw covers any new
devices that are created to block takeover bids in the future. He also believes
that such a general definition can be applied by the courts, since the Delaware
courts already apply a similar test in determining whether a board is engaged in
anti-takeover defenses that give rise to "enhanced" duties under Unocal Corp. v.
Mesa Petroleum Co., 493 A.2d 946 (Del. 1985). With limited exceptions, the
definition of Defensive Action specifically excludes any action taken by the
board to facilitate an offer that a majority of the board determines will
maximize the Company's value in a sale for the benefit of stockholders.
Therefore, if after receiving an Acquisition Proposal, the Company determines,
in accordance with applicable law, that an offer from a "white knight" will
maximize the Company's value at a sale for the shareholders' benefit, the board
would not have to act by a unanimous vote to block the original Acquisition
Proposal and facilitate the offer from the white knight. This exclusion from the
definition of "Defensive Action" does not apply to a decision to extend the
expiration date of the Poison Pill, to add a "Dead Hand" clause (as defined
below) to the Poison Pill, to refuse to reimburse the costs incurred by a
shareholder in a proxy contest or to amend the Shareholder Interests Protection
Bylaw.
In addition to proscribing the use of the Poison Pill to block an
acquisition, the Shareholder Interests Protection Bylaw will require a unanimous
board vote (or shareholder approval) to extend the Pill past its present
expiration date or to amend the Pill to include a Dead Hand clause. A "Dead
Hand" clause typically prevents a newly elected board from voting to redeem the
Pill by only allowing such action to be taken by "Continuing Directors" (i.e.,
directors who were in office before a change in control, or their designees).
Mr. Wyser-Pratte believes that it would be a breach of the directors' fiduciary
duties to add a Dead Hand clause to the Company's Poison Pill. When the Delaware
Supreme Court upheld the adoption of a Poison Pill in Moran, its decision was
premised in part on the assumption that the Poison Pill would not prevent a
bidder from replacing the existing board through a successful proxy contest and
then redeeming the Poison Pill. A Dead Hand clause would prevent a bidder from
redeeming the Poison Pill by this means. Nevertheless, Mr. Wyser-Pratte has
included a specific reference to the Dead Hand Clause in the Shareholder
Interests Protection Bylaw, to reduce the risk that the board would adopt such a
provision and that it would be upheld.
Certain actions, which are a part of the board's normal corporate
governance, such as filling board vacancies, might come within the definition of
Defensive Actions if there were a contest for control of the Company. Under the
Shareholder Interests Protection Bylaw such actions, as well as other defenses
against
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a takeover bid, would have to be ratified by shareholders unless such defensive
actions were unanimously approved by the board. Because of the provision for
shareholder ratification, however, an individual director would not have the
power to block Defensive Actions against a takeover bid that was opposed by a
majority of the board and, therefore, Mr. Wyser-Pratte believes that the
adoption of the Shareholder Interests Protection Bylaw would not facilitate
coercive offers or unduly restrict the board's bargaining power. See discussion
of these issues under "Impact on Board's Exercise of Fiduciary Duties" in
section on Shareholder Friendly Bylaw, supra.
While it is possible that the Shareholder Interests Protection Bylaw
could delay board actions that might be beneficial to shareholders, Mr.
Wyser-Pratte believes, given the history of the Telxon board's response to the
Symbol Acquisition Proposal, that the present Telxon board cannot be relied upon
to act in the best interests of shareholders when responding to Acquisition
Proposals, and that there is a greater risk that without the Shareholder
Interests Protection Bylaw the board will take action that denies shareholders
an opportunity to receive or accept an advantageous Acquisition Proposal.
The Shareholder Interests Protection Bylaw would enable individual
directors (including Professor Macey if he is elected to the board) to block a
Defensive Action approved by a majority of the board unless such actions were
ratified by a shareholder vote. While the Shareholder Interests Protection Bylaw
would have this effect, whether or not such Defensive Action was in the best
interests of shareholders, Mr. Wyser-Pratte believes that the failure of such
Defensive Action to obtain approval by a unanimous board vote or majority
shareholder vote would be evidence that the Defensive Action was not
advantageous for shareholders and, therefore, he believes the adoption of the
Shareholder Interests Protection Bylaw is in the shareholders' best interests.
The Complaint indicates that the Company believes that Mr.
Wyser-Pratte's disclosure regarding the Shareholder Interests Protection Bylaw
is materially misleading because it gives the false impression that the
unanimous vote requirement can be easily circumvented by seeking shareholder
ratification and fails to make clear that because of the time required to obtain
shareholder approval, the Shareholder Interests Protection Bylaw might prevent
the Company from adopting a defensive measure in time for it to be effective
even if the measure was favored by a majority of both the board and the
shareholders.
Mr. Wyser-Pratte believes that this problem can be avoided if directors
who oppose the adoption of Defensive Actions against an Acquisition Proposal
allow the board to use the Poison Pill temporarily to prevent the consummation
of the Acquisition Proposal so that the board can evaluate the Acquisition
Proposal and seek shareholder approval to use Defensive Actions against it.
Professor Macey believes that his fiduciary duties as a Telxon director would
generally require him to support such temporary use of the Poison Pill.
Professor Macey recognizes, however, that in extraordinary circumstances, there
may be compelling reasons to allow an Acquisition Proposal to proceed on a
timetable that does not permit such a shareholder vote, such as a circumstance
in which a potential acquiror has made an Acquisition Proposal for the Company
that is particularly attractive to shareholders and that may not remain open
during the time required to hold a shareholder vote. Mr. Wyser-Pratte also
generally supports such use of the Poison Pill.
The definition of Defensive Actions also includes the expenditure of
Company funds on a proxy contest against a shareholder (including expenditures
on litigation) unless the board agrees to reimburse the shareholder's expenses
if at least 10% of the Company's shares are voted in favor of any of the
shareholder's proposals. Mr. Wyser-Pratte included this provision in the
definition of Defensive Action to help create a level playing field in future
proxy contests. Today management is able to utilize Company funds in a proxy
contest with shareholders, while the shareholders (who may be seeking to
vindicate the interests of all shareholders) must fund their own expenses.
Typically, the shareholder's expenses do not get reimbursed by a company unless
a court orders these expenses to be reimbursed or there is a change in control
of the company and the new board votes to reimburse the expenses.
Under the Shareholder Interests Protection Bylaw, the Company would be
required to reimburse the expenses incurred by a shareholder in a proxy contest
supported by as little as 10% of the outstanding
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shares unless the decision not to reimburse such expenses was approved by a
unanimous board vote or the vote of a majority of the shares represented and
entitled to vote at a shareholders meeting.
The definition of Defensive Actions also includes any amendment or
repeal of the Shareholder Interests Protection Bylaw. Mr. Wyser-Pratte has
included this element in the definition of Defensive Actions in order to prevent
less than all the Company's directors from repealing the Bylaw without
shareholder approval.
LEGAL VALIDITY. While there are no Delaware cases considering the
validity of a Shareholder Interests Protection Bylaw, Mr. Wyser-Pratte believes,
after consultation with legal counsel, that this bylaw is legally valid.
The essential feature of the Shareholder Interests Protection Bylaw is a
requirement for the board to act unanimously to authorize Defensive Actions. The
Bylaw also permits the board to authorize Defensive Actions by a lesser vote if
the shareholders ratify the board's action; but the board does not need
shareholder approval as long as the board acts unanimously.
A unanimous vote requirement for action by the board is authorized by
Section 141(b) of the Delaware General Corporation Law which states in relevant
part: "The vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the board of directors unless the
certificate of incorporation or the bylaws shall require a vote of a greater
number." (emphasis added). In Frantz Mfg. Co. v. EAC Indus., 501 A.2d 401, 407
(Del. 1985) (citations omitted) the Delaware Supreme Court ruled that a majority
shareholder may adopt a bylaw requiring a unanimous vote for action by the board
in order "to limit the Frantz board's anti-takeover maneuvering after EAC had
gained control of the corporation."
The Complaint indicates that the Company believes that the Shareholder
Interests Protection Bylaw is invalid under Delaware Law because it prohibits
the Company's board of directors from exercising its fiduciary duties by
preventing the board from responding to and resisting a takeover attempt it
believes to be against the best interests of the Company and the shareholders.
Mr. Wyser-Pratte does not agree with the Company's legal interpretation
of the Shareholder Interests Protection Bylaw because the bylaw does not prevent
the Board from taking actions it believes are necessary but instead requires
that the board take such actions by unanimous vote, as permitted by Section
141(b) of the Delaware General Corporation Law, or that such actions be ratified
by a shareholder vote.
The Complaint also indicates that the Company believes that the
Shareholder Interests Protection Bylaw is invalid under Delaware Law because the
definition of Defensive Action is vague and overbroad and not capable of being
properly interpreted, leaving almost any action of the board not approved by
unanimous vote subject to attack on the basis that it has not been properly
authorized.
Mr. Wyser-Pratte does not agree that the definition of Defensive Action
is vague and overbroad because this definition of Defensive Action is the same
definition that has been used by the Delaware courts in determining whether
board actions are subject to heightened scrutiny under Unocal, and Mr.
Wyser-Pratte believes that such actions can be, and have been, identified and
defined by the Delaware courts, see, e.g. Revlon, Inc. v. MacAndrews & Forbes
Holdings, Inc.506 A.2d 173 (Del 1986) (lock-up option); Blasius Industries, Inc.
v. Atlas Corporation, Del. Ch., 564 A.2d 651 (1988) (board packing); Paramount
Communications v. Time, Inc., 571 A.2d 1140, 1152 (Del 1989) (defensive merger);
Stahl v. Apple Bancorp, Del. Ch., 579 A.2d 1115, 1124 (1990) (postponement of
annual meeting); Unitrin v. American General Corp., 651 A.2d 1361, 1375 (1995)
(defensive stock repurchase).
IN ORDER TO GIVE SHAREHOLDERS A GREATER VOICE IN THE GOVERNANCE OF THE COMPANY,
MR. WYSER-PRATTE RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AMEND THE BYLAWS
TO REQUIRE A UNANIMOUS VOTE OF THE DIRECTORS TO APPROVE "DEFENSIVE ACTIONS" BY
THE BOARD UNLESS SUCH ACTIONS HAVE BEEN APPROVED BY A SHAREHOLDER VOTE
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PROPOSAL TO AMEND THE BYLAWS TO ALLOW THE HOLDERS OF 25% OF THE SHARES TO CALL A
SPECIAL MEETING OF SHAREHOLDERS
(ITEM 3 ON PROXY CARD)
"RESOLVED, that in accordance with Article IX of the Bylaws of the
Company, the Shareholders of the Company hereby amend Article I, Section 3 of
the Bylaws so that it reads in its entirety as follows:
'Special meetings of the stockholders or any class thereof entitled to
vote may be called by the Chairman of the Board, by the Chief Executive Officer,
by the President, by the Board of Directors or by shareholders holding 25% in
interest of the outstanding shares of the Corporation In the case of a meeting
called by shareholders, such meeting shall be called by written notice to the
Secretary of the Corporation at the Corporation's principal place of business.
This Bylaw may not be altered or repealed except by a unanimous board vote of
all the directors then in office or by the shareholders.'"
Mr. Wyser-Pratte believes that a 25% requirement for calling a special
meeting is reasonable and beneficial to shareholders because if a significant
number of shareholders want to bring an issue before the Company's other
shareholders, they should be able to do so. Under the Company's existing Bylaws,
even 49% of the Company's shareholders do not have the power to call a special
meeting because the Bylaws require the request of a majority in amount of the
entire capital stock of the Company in order to call a special meeting.
Such an amendment of the Bylaws is authorized by the Company's
Certificate of Incorporation and by the Delaware General Corporation Law.
Article Sixth, Paragraph C of the Certificate of Incorporation provides that
special meetings of stockholders may be called "for any purpose by the Chairman
of the Board of Directors, by the President or by the Board of Directors of the
Corporation or as otherwise provided in the By-laws of the Corporation (emphasis
added). Section 211(d) of the Delaware General Corporation Law provides that
"Special meetings of the stockholders may be called by the board of directors or
by such person or persons as may be authorized by the certificate of
incorporation or by the bylaws."
IN ORDER TO GIVE SHAREHOLDERS A GREATER VOICE IN THE GOVERNANCE OF THE COMPANY,
MR. WYSER-PRATTE RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AMEND THE BYLAWS
TO ALLOW THE HOLDERS OF 25% OF THE SHARES TO CALL A SPECIAL MEETING OF
SHAREHOLDERS.
PROPOSAL TO AMEND THE BYLAWS TO ELECT NOT TO BE GOVERNED BY THE BUSINESS
COMBINATION STATUTE (THE "SECTION 203 BYLAW")
(ITEM 4 ON PROXY CARD)
SHAREHOLDERS ARE ASKED TO CONSIDER AND VOTE UPON THE PROPOSAL TO AMEND
THE BYLAWS TO ELECT NOT TO BE GOVERNED BY THE BUSINESS COMBINATION STATUTE:
"RESOLVED, that pursuant to Section 203(b)(3) of the Delaware General
Corporation Law, the Shareholders hereby amend the Company's Bylaws by adding a
new Article XI which shall read as follows:
'Section 1. The corporation shall not be governed by Section 203
of the Delaware General Corporation Law.
Section 2. If any particular provision of this Bylaw be
adjudicated to be invalid or unenforceable, such provision shall be
deemed amended to delete therefrom the
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portion thus adjudicated to be invalid or unenforceable so that the
provisions of this Bylaw are enforced to the maximum extent possible.
Section 3. This Bylaw may not be altered or repealed except by a
unanimous vote of all the directors then in office or by the
shareholders.'"
Mr. Wyser-Pratte is proposing that stockholders adopt the Section 203
Bylaws electing not to be governed by Section 203 of the Delaware General
Corporation Law (the "Business Combination Statute").
As used in the Business Combination Statute, the term "Business
Combination" encompasses not only mergers, consolidations and sales of
substantially all the assets, but also certain other transactions with an
Interested Shareholder (as defined below) including sales of 10% or more of the
corporation's assets, certain issuances of stock, loans, guarantees and
transactions that increase the Interested Shareholder's proportional interest in
the corporation.
The Business Combination Statute provides, in effect, that if any person
acquires beneficial ownership of 15% or more of the Company's outstanding shares
(thereby becoming an "Interested Shareholder"), the Interested Shareholder may
not engage in a Business Combination with the Company for three years
thereafter, subject to certain exceptions. Among the exceptions are (i) the
board's prior approval of such acquisition; (ii) the acquisition of at least 85%
of the Company's shares (subject to certain exclusions) in the transaction in
which such person becomes an Interested Shareholder; and (iii) the approval of
such Business Combination by 66 2/3% of the outstanding stock not owned by the
Interested Shareholder. The Company's shareholders may, by a vote of a majority
of the outstanding shares, adopt an amendment to the Bylaws or Certificate of
Incorporation electing not to be governed by the Business Combination Statute.
Such amendment would become effective twelve months after adoption and would not
be subject to amendment by the board and would not apply to a Business
Combination with a person who became an Interested Shareholder prior to the
adoption of such amendment. Sub-section (b)(3) of the Business Combination
Statute states in relevant part that "A bylaw amendment adopted pursuant to this
paragraph shall not be further amended by the board of directors."
THE FOREGOING IS A SUMMARY OF THE RELEVANT MATERIAL PROVISIONS OF THE BUSINESS
COMBINATION STATUTE AND IS QUALIFIED BY REFERENCE THERETO. THE TEXT OF THE
BUSINESS COMBINATION STATUTE IS ATTACHED HERETO AS EXHIBIT C.
If the Company were to opt out of the Business Combination Statute,
there would be no specific vote of the public shareholders required by statute
to effect a second-stage merger or other Business Combination. In such event if
Symbol or one of its affiliates or another purchaser became an Interested
Shareholder and proposed to acquire the remainder of the Company's shares in a
second stage merger or to engage in another type of Business Combination with
the Company, it might be able to accomplish this Business Combination without
the favorable vote of a majority of the minority shareholders. As a result an
acquiror (including Symbol or one of its affiliates, if Symbol were to resume
its efforts to acquire the Company) might be able to accomplish a second-stage
merger or other Business Combination which was opposed by a majority of the
minority shareholders and which such shareholders believed was not in the best
interests of the Company.
While the Section 203 Bylaw could facilitate a Business Combination with
a 15% or greater shareholder, whether or not the transaction was advantageous
for shareholders, Mr. Wyser-Pratte believes that the adoption of the Section 203
Bylaw is in the best interests of shareholders because the Business Combination
Statute discourages Acquisition Proposals to acquire the Company's shares; and
Mr. Wyser-Pratte believes that the Delaware "entire fairness" doctrine provides
more than adequate protection of the interests of the other shareholders in a
Business Combination with a controlling shareholder. If the shareholders adopt
the Section 203 Bylaw, prospective bidders may be encouraged to make offers to
acquire control of the Company, thereby benefiting shareholders such as Mr.
Wyser-Pratte who wish to have the opportunity to consider offers to acquire a
controlling interest in the Company. It may be
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necessary for shareholders to initiate legal proceedings in order to ensure
conformity with the "entire fairness" standard while the operation of Section
203 is self-activating and delays certain combinations with related parties for
three years, unless an exemption is applicable.
The Business Combination Statute discourages offers to acquire the
Company's shares, in Mr. Wyser-Pratte's opinion, by creating obstacles to
second-stage mergers in which successful offerors acquire the remainder of the
Company's shares. The Business Combination Statute has this effect because it
requires the offeror to win the votes of a two-thirds super-majority of the
minority shareholders to approve a second-stage merger unless the offeror
acquired at least 85% of the Company's shares (subject to certain exclusions) in
the transaction in which the offeror became an Interested Shareholder or unless
such transaction was approved by the Board of Directors.
Mr. Wyser-Pratte believes that the Company's minority stockholders are
protected in a second-stage merger or other Business Combination because under
Delaware law a second-stage merger with a controlling shareholder would have to
satisfy the entire fairness test. This test requires the courts to conduct a
comprehensive review of the fairness of such a transaction. Its scope has been
described by the Delaware Supreme Court in Weinberger v. UOP, Inc., 457 A.2d
701, 711 (Del. 1983): "The concept of fairness has two basic aspects: fair
dealing and fair price. The former embraces questions of when the transaction
was timed, how it was initiated, structured, negotiated, disclosed to the
directors, and how the approvals of the directors and shareholders were
obtained. The latter aspect of fairness relates to the economic and financial
considerations of the proposed merger, including all relevant factors: assets,
market value, earnings, future prospects, and any other elements that affect the
intrinsic or inherent value of a company's stock."
The entire fairness test would not apply to a Business Combination with
an Interested Shareholder that was not a controlling shareholder; but Mr.
Wyser-Pratte believes that the public shareholders do not require the protection
of the entire fairness test or the Business Combination Statute in a Business
Combination with an Interested Shareholder if the Interested Shareholder does
not control the Company.
Mr. Wyser-Pratte's proposal to adopt the Section 203 Bylaw was made in a
letter delivered to the Company on June 11, 1998, one day before the deadline
for notice of shareholder proposals to be made at the Annual Meeting. In that
letter the Section 203 Bylaw was inadvertently included among the list of bylaws
that would be subject to amendment by a unanimous vote of the board although
Section 203(b)(3) denies the board the power to amend the Section 203 Bylaw. Mr.
Wyser-Pratte has decided not to amend Section 203 Bylaw to eliminate the
provision for amendment by unanimous vote of the board, because he believes he
may have lost the right to amend the Section 203 Bylaw, once the June 12, 1998
deadline for submitting shareholder proposals for the Annual Meeting has passed.
However, Mr. Wyser-Pratte also believes that if the Section 203 Bylaw were
adopted, Section 203(b)(3) would supersede the language of the bylaw, and the
board will not have the power to amend the bylaw by unanimous vote. The Section
203 Bylaw contains a "saving clause" under which any portion of the bylaw deemed
invalid or unenforceable is deleted, so that the bylaw is enforced to the
maximum extent possible.
The Complaint indicates that the board believes that the Section 203
Bylaw was not timely submitted to the Company and may not be presented to
Telxon's shareholders at the upcoming Annual Meeting. This statement is based on
the fact that the version of the Section 203 Bylaw described in Mr.
Wyser-Pratte's preliminary proxy statement filed with the SEC on June 18, 1998
("June 18 Preliminary Proxy Statement") did not include a provision for
amendment by a unanimous board vote. The Complaint said that for this reason the
Section 203 Bylaw described in the June 18 Preliminary Proxy Statement was
different from the Section 203 Bylaw described in the June 11 letter.
Accordingly, in the board's opinion, the proposal in the June 18 Preliminary
Proxy Statement was not timely submitted to the Company. As indicated above, the
Section 203 Bylaw that Mr. Wyser-Pratte intends to propose for adoption at the
Annual Meeting will include a provision for amendment by a unanimous board vote.
Therefore, Mr. Wyser-Pratte believes that this is the same proposal that was
described in the June 11 letter, and this proposal was timely submitted to the
Company.
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IN ORDER TO ENCOURAGE OFFERS FOR THE COMPANY'S SHARES, MR. WYSER-PRATTE
RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AMEND THE BYLAWS TO ELECT NOT TO BE
GOVERNED BY THE BUSINESS COMBINATION STATUTE.
PROPOSAL TO REPEAL ANY BYLAWS ADOPTED BY THE BOARD OF DIRECTORS SINCE JUNE 11,
1998 (THE "BYLAW REPEAL PROPOSAL").
(ITEM 5 ON PROXY CARD)
SHAREHOLDERS ARE ASKED TO CONSIDER AND VOTE UPON THE PROPOSAL TO REPEAL
ANY BYLAWS ADOPTED BY THE BOARD OF DIRECTORS SINCE JUNE 11, 1998:
"RESOLVED, that any Bylaws adopted by the board of directors since June
11, 1998 be, and they hereby are, repealed."
The purpose of this proposal is to prevent the board from interfering
with the implementation of the proposals being voted upon by the shareholders at
this Annual Meeting. However, the Bylaw Repeal Proposal would repeal any Bylaws
enacted by the board after June 11, 1998, regardless of the subject matter of
such Bylaws. Mr. Wyser-Pratte is not aware of any plans by the board to amend
the Bylaws. Mr. Wyser-Pratte and other similarly situated shareholders will
benefit from the adoption of this proposal to the extent of the benefits,
described above, that they will derive from the adoption of the other proposals
being voted upon at this Annual Meeting.
The Complaint indicates that the Company believes that the Bylaw Repeal
Proposal is materially misleading because it fails to inform shareholders which
bylaws they are being asked to repeal.
Mr. Wyser-Pratte agrees that the Bylaw Repeal Proposal and the related
disclosure in this Proxy Statement give no information about content of the
bylaws, if any, to be repealed by the Bylaw Repeal Proposal. However, Mr.
Wyser-Pratte does not believe, and is not aware of any legal authority to
support the claim, that this feature of the proposal and the Proxy Statement
makes them materially misleading since they reflect all the information about
any bylaws to be repealed known to Mr. Wyser-Pratte at the date of this Proxy
Statement. Mr. Wyser-Pratte did not have the option of waiting to review any
Bylaws adopted by the Board after June 11, 1998 and asking the shareholders to
repeal only those bylaws that interfered with the adoption of the proposals
being voted upon at the Annual Meeting. Under Article Sixth, Paragraph B of the
Certificate of Incorporation any proposal to repeal Bylaws, or take any other
action, at the Annual Meeting had to be made by June 12, 1998.
Mr. Wyser-Pratte recognizes the possibility that, although the Company's
Bylaws have been unchanged since 1989, the Board may consider it necessary to
the governance of the Company to amend the Bylaws before the Annual Meeting. In
that case, however the board will have ample opportunity to persuade
shareholders to vote against the Bylaw Repeal Proposal, and at the time of the
shareholder vote, shareholders will be aware of what, if any, bylaws they are
being asked to repeal. If the Board makes amendments to the Bylaws and Mr.
Wyser-Pratte becomes aware of such amendments prior to the adoption of the Bylaw
Repeal Proposal, Mr. Wyser-Pratte will take reasonable efforts to inform the
shareholders of such amendments and of the effect that the Bylaw Repeal Proposal
would have in relation to such amendments. While adoption of the Bylaw Repeal
Proposal would repeal all bylaws adopted by the board since June 11, 1998,
whether or not such bylaws were in the shareholders' best interests, Mr.
Wyser-Pratte believes that the shareholders would not adopt the Bylaw Repeal
Proposal unless the bylaws adopted by the board since June 11, 1998 were on
balance against the best interests of shareholders.
The Complaint also indicates that the Company believes that the Bylaw
Repeal Proposal is materially misleading because it does not make clear that the
proposal has the retroactive effect of preventing the board from adopting new
bylaws or changing any section of the bylaws regardless of whether such
amendment related to Mr. Wyser-Pratte's proposals.
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Mr. Wyser-Pratte does not agree with the Company's view that the Bylaw
Repeal Proposal has such effects. The Bylaw Repeal Proposal does not and cannot
have a retroactive effect and therefore would not constrain the ability of the
board to adopt new bylaws or change sections of the bylaws from June 11, 1998
through the date of the Annual Meeting nor would it prevent the board from
addressing corporate governance issues as they arise. If the board of directors
adopted a bylaw after June 11, 1998, that bylaw would be in effect and remain in
effect unless and until the shareholders adopted the Bylaw Repeal Proposal at
the Company's Annual Meeting. The Bylaw Repeal Proposal would not have
retroactive effect on the board's governance of the Company from June 11 through
the date of the Annual Meeting.
IN ORDER TO PREVENT THE BOARD FROM INTERFERING WITH THE IMPLEMENTATION OF THE
PROPOSALS BEING VOTED UPON BY THE SHAREHOLDERS AT THIS ANNUAL MEETING, MR.
WYSER-PRATTE RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO REPEAL ANY BYLAWS
ADOPTED BY THE BOARD OF DIRECTORS SINCE JUNE 11, 1998.
PROPOSAL TO ADOPT A RESOLUTION RECOMMENDING TO THE BOARD THAT THE
COMPANY REIMBURSE MR. WYSER-PRATTE'S EXPENSES IN CONNECTION WITH THIS PROXY
SOLICITATION
(ITEM 6 ON PROXY CARD)
SHAREHOLDERS ARE ASKED TO CONSIDER AND VOTE UPON THE PROPOSAL TO ADOPT A
RESOLUTION RECOMMENDING TO THE BOARD THAT THE COMPANY REIMBURSE MR.
WYSER-PRATTE'S EXPENSES IN CONNECTION WITH THIS PROXY SOLICITATION:
"RESOLVED, that the shareholders recommend to the board that the Company
reimburse all of Guy Wyser-Pratte's expenses (including any litigation expenses)
in connection with the solicitation of proxies for this shareholders meeting
provided that either or both of the following have occurred at the Company's
1998 Annual Meeting (i) Professor Jonathan R. Macey is elected to the Company's
board of directors and (ii) at least one of the bylaw amendment proposals set
forth in Mr. Wyser-Pratte's proxy materials is adopted by the Company's
shareholders."
The purpose of the proposals being made by Mr. Wyser-Pratte at this
Annual Meeting is to give shareholders, rather than the board, the ultimate
decision on whether to accept an acquisition proposal and to encourage Symbol to
pursue its interest in acquiring the Company. Mr. Wyser-Pratte believes that
these objectives are in the shareholders' best interests and, therefore,
believes his expenses in connection with the proxy solicitation (including any
litigation expenses) should be reimbursed. Mr. Wyser-Pratte estimates that his
expenses incurred through September __, 1998 are $______ and that his total
expenses will be $_____.
One of the bylaws being proposed by Mr. Wyser-Pratte would require a
unanimous board vote or shareholder approval for the board to spend any funds on
a proxy contest with a shareholder unless the board agreed to reimburse the
shareholder's expenses if any of the shareholder's proposals were approved by
the holders of 10% of the shares. However, this proposal will not assist Mr.
Wyser-Pratte in getting his expenses in the current proxy contest reimbursed,
because this proposal will only operate prospectively.
The proposed resolution is precatory and will not bind the board of
directors. If the shareholders adopted this proposal, and the board followed the
shareholders' recommendation, Mr. Wyser-Pratte would benefit by having his
expenses for this proxy contest reimbursed.
If the board does not reimburse Mr. Wyser-Pratte's expenses and the
proposed resolution is approved by a majority of the votes cast, Mr.
Wyser-Pratte intends to seek a court order requiring the board to reimburse
these expenses because of the benefits conferred on the Company's shareholders.
MR. WYSER-PRATTE RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO ADOPT A RESOLUTION
RECOMMENDING TO THE BOARD THAT THE COMPANY REIMBURSE MR. WYSER-PRATTE'S EXPENSES
IN CONNECTION WITH THIS PROXY SOLICITATION
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PROPOSAL TO ELECT JONATHAN R. MACEY TO THE BOARD OF DIRECTORS
(ITEM 7 ON PROXY CARD)
Two directors are to be elected at the 1998 Annual Meeting to a
three-year term ending at the 2001 Annual Meeting (or until their respective
successors are duly elected and qualified). The directors will be elected by a
plurality of the votes cast.
Jonathan R. Macey has been nominated as a director and Mr. Wyser-Pratte
is soliciting proxies to vote for his election. Mr. Wyser-Pratte is seeking
proxies with cumulative voting instructions to cast two votes per share for
Professor Macey. If Professor Macey received two votes per share from all
shareholders voting for him, he would need the votes of shareholders holding 33%
of the shares voted, plus one share, in order to be assured of being elected.
Professor Macey, age 42, is the J. DuPratt White Professor of Law and
the Director of the John M. Olin Program in Law and Economics at Cornell Law
School, specializing in corporation law, comparative corporate governance,
banking and corporate finance. Professor Macey's employment with the Cornell Law
School is his principal occupation. His business address is Cornell Law School,
306 Myron Taylor Hall, Ithica, New York 14853. His residence address is 28
Renwick Heights Road, Ithaca NY 14853. From late 1993 through mid-1994,
Professor Macey was a Research Fellow in Turin, Italy. Prior to that, he was a
visiting law professor at the Stockholm School of Economics. From 1990 to 1991,
Professor Macey was a Professor of Law at the University of Chicago, and from
1987 to 1990 he was a Professor of Law at Cornell University.
Professor Macey believes that when a corporation receives an acquisition
proposal at a substantial premium over market, the board should generally seek
to negotiate the highest possible offer for the corporation and then allow
shareholders to decide whether the offer shall be accepted. Professor Macey
believes that the directors have an obligation to inform shareholders if they
think that a sale at the price being offered will not maximize shareholder
value, but he believes that the board should not prevent shareholders from
accepting the offer. Therefore, while Professor Macey has not determined the
minimum price at which the Company should be sold, he disagrees with the Telxon
board's decision to reject the Symbol acquisition proposal without giving
shareholders an opportunity to vote on the offer. Professor Macey believes that
his election to the board would improve the chances that the Company would enter
into a value-maximizing transaction, although at least initially there would not
be a majority of directors who share Professor Macey's views. If he were
elected, and the shareholders adopted the bylaw requiring a unanimous vote for
Defensive Actions, Professor Macey would, subject to his fiduciary duties, cast
his vote to prevent the board from taking Defensive Actions unless they were
part of a strategy that he believed would maximize shareholder value. If the
bylaw were not adopted, Professor Macey believes that he could still be
effective as a director by pressing the board to negotiate and give serious
consideration to premium Acquisition Proposals. Professor Macey is not acting as
Mr. Wyser-Pratte's legal advisor.
Professor Macey has entered into an agreement with Mr. Wyser-Pratte
whereby WPC has agreed to pay Professor Macey a fee of between $10,000 and
$15,000 (the specific amount to be in the sole discretion of WPC) in the event
that he does not become a director of the Company. Additionally, WPC has agreed
to (i) reimburse Professor Macey for any reasonable out-of-pocket expenses
incurred in the performance of his service as a nominee and (ii) indemnify
Professor Macey with respect to any liabilities relating to or arising out of
such service.
REQUIRED VOTE
Under Article IX of the Bylaws, the affirmative vote of a majority in
interest of the shareholders represented and entitled to vote at any meeting of
stockholders at which a quorum is present is required to adopt Proposals 1
through 3 and 5, the amendments to the Bylaws and repeal of certain Bylaws being
proposed by Mr. Wyser-Pratte. Article I, Section 7 of the Bylaws requires the
same vote to adopt Proposal 6. A majority of the outstanding shares, present in
person or represented by proxy, constitute a quorum.
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The affirmative vote of a majority in interest of the issued and outstanding
shares is required to adopt Proposal No. 4 under Section 203 of the Delaware
General Corporation Law. With respect to abstentions and broker non-votes, the
shares represent issued and outstanding shares and will be considered present
and entitled to vote generally at the Annual Meeting, but since they are not
affirmative votes for the proposals, they will have the same effect as votes
against Proposals 1 through 6. Under the Company's cumulative voting system,
Professor Macey will need 33% of the votes cast, plus one vote, to be assured of
being elected to the Company's board. Abstentions and broker non-votes will have
no effect on the election of directors except to reduce the number of votes
cast.
BACKGROUND AND RECENT EVENTS
On April 8, 1998, Symbol sent a letter to the Company expressing serious
interest in acquiring all of the Company's outstanding shares for $38 per share
in cash. Symbol also indicted, on April 8, its willingness to provide a portion
of the consideration for the Company's shares in Symbol stock, if the Company
preferred. The Company's shares closed at 24 1/2 on April 7, the day before
Symbol's initial proposal, which represented a 55% premium over the April 7
closing stock price.
On April 21, 1998, Frank Brick, the Company's president and chief
executive officer, acknowledged receipt of Symbol's April 8 letter stated the
letter was "currently being reviewed by [the Company's] financial and legal
advisors and [would] be considered by Telxon's board of directors in due
course."
Also on April 21, Symbol stated that it was prepared to negotiate all
aspects of a potential transaction and that, to the extent the form of
consideration consists of cash, Symbol did not envision a negotiated transaction
would be subject to a financing out. Symbol also stated on April 21 that it has
been advised by its legal counsel that a combination of the two companies would
not present any significant regulatory issues. Symbol continued that its
interest remained subject to confirmatory diligence which could be completed
promptly to accommodate any reasonable schedule Telxon would require.
On May 1, 1998, prior to any public announcement regarding Telxon's
response to Symbol's initial proposal, Jerome Schwartz, Symbol's Chairman and
Chief Executive Officer sent a letter containing the following text to Frank
Brick:
"I was disappointed to learn of your response to our letter dated April
8, 1998, proposing to acquire Telxon at $38 per share in cash. Your
advisor, Goldman, Sachs, has advised our advisor, Bear Stearns, that you
are not even interested in discussing our proposal and that you believe
the $38 price level is inadequate. We expressed to you our flexibility
to more fully discuss this proposal, and we sincerely hope that we will
be able to negotiate a transaction between our two companies.
Furthermore, your advisors expressed reservations as to our ability to
finance the transaction, and they indicated that you would be interested
in receiving additional information concerning both our financing plan
and the various accounting and synergy assumptions made in connection
with the formulation of our proposal.
We believe that $38 is a very full and fair price. We note that $38
represents a premium of over 50% from the closing price of Telxon's
shares on the day prior to our April 8 letter. In addition, $38 per
share is well above the highest price Telxon's shares have ever traded
and is higher than any price Telxon could reasonably be expected to
reach on its own in the foreseeable future. We also note that virtually
all of the analysts and Telxon stockholders who have contacted us and/or
have published research comments regarding our proposal are enthusiastic
about it. We would be interested in understanding the valuation
methodology that you have used to justify a conclusion that the $38
offer price is inadequate.
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We can only assume that Telxon has not formed a special committee of
independent directors to fully consider whether Symbol's $38 proposal is
in the best interests of your shareholders since Telxon has made no
public announcement. As your legal advisors have undoubtedly informed
you, your Board of Directors is only entitled to a legal presumption of
having acted in good faith and in fulfillment of its duty of loyalty
with respect to its consideration of our offer if a majority of your
existing six person Board is disinterested.
Symbol has the financial resources to quickly consummate a transaction
with Telxon. We have met with three money center banks, each of which
expressed a willingness to finance the entire transaction. We would be
prepared to provide you and your board with copies of documentation of
such committed financing at the appropriate time.
As I publicly stated, the proposed transaction is significantly and
immediately accretive to Symbol's earnings per share (after one time
charges). Our analysis was based on assumptions regarding potential cost
savings that Symbol, Bear Stearns and the banks consider conservative
and reasonable. We have prepared a detailed plan regarding such
potential savings that could be expected from a combination of our two
companies. We would also be prepared to share that information with you
at the proper time.
Based on the positive reaction of your shareholders, I am still hopeful
that you will reconsider and discuss a friendly merger with us. We are
determined to complete this transaction and I therefore look forward to
a prompt response from you."
On May 8, 1998, Telxon publicly rejected Symbol's acquisition proposal,
stating that "Symbol's $38 price is inadequate. Moreover, we believe a
Symbol/Telxon combination raises troubling questions that have not been
addressed by Symbol." Mr. Brick not did indicate which aspects of the proposed
combination Telxon found "troubling."
Also on May 8, 1998, Symbol released the text of the May 1 letter,
above.
On June 1, 1998, Symbol delivered a revised written proposal to Telxon,
increasing its offer to $40 cash per share or up to $42 per share in cash and
Symbol stock, subject to due diligence. A subsequent Symbol press release
indicated that Symbol had conducted "limited and preliminary due diligence." On
June 2, 1998, Symbol announced that Telxon had rejected its sweetened offer and
challenged Telxon to explain why it was not in the shareholders' best interests
to negotiate a merger between the two companies. Symbol's revised offer
represented an approximately 71.4% premium over the closing price of Telxon's
shares on April 7, 1998, the day before Symbol's initial proposal.
On June 5, 1998 Frank Brick announced that the board had rejected
Symbol's $40 per share all cash offer and that Symbol's $42 per share hybrid
cash and stock offer did not contain enough information to even be considered by
the Company's board.
Brick also announced that Telxon's board had authorized management to
meet with Symbol following Telxon's rejection of Symbol's initial proposal.
Brick stated that the board had determined, following the discussions, that
Symbol was unwilling to offer Telxon's shareholders a proposal that gives them
fair value for their shares.
On June 8, 1998, Symbol withdrew its bid to acquire the Company.
Telxon's shares dropped more than 10% to close at 32 1/16, an almost 31% deficit
from Symbol's $42 dollar per share offer.
On June 11, 1998, Mr. Wyser-Pratte issued a press release announcing
that he had sent notice to the Company's board of directors of his intention to
introduce proposals for shareholder action and to nominate Professor Macey for
election to the Company's board at the Company's Annual Meeting.
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Also on June 11, 1998, Symbol issued a press release stating, "We are
encouraged that Telxon shareholders are taking independent action and we remain
very interested in a negotiated acquisition subject to due diligence."
On June 19, 1998, Mr. Wyser-Pratte filed his preliminary proxy materials
with the Securities and Exchange Commission.
CERTAIN LITIGATION
On July 13, 1998, the Company filed the Complaint in the United States
District Court for the District of Delaware seeking declaratory and injunctive
relief against Mr. Wyser-Pratte and WPC. In the action, the Company seeks
judgment (i) declaring that the Shareholder Friendly Bylaw and the Shareholder
Interests Protection Bylaw each violate Section 141(a) of the DGCL and are
therefore void; and (ii) declaring that the Business Combination Proposal is
untimely under Article Sixth, Paragraph B of the Company's Charter and therefore
invalid. The Complaint also seeks injunctive relief requiring Mr. Wyser-Pratte
and WPC. to correct what the Company has characterized as false and misleading
statements made in the Mr. Wyser-Pratte's Proxy Materials. The Company claims
that the Wyser-Pratte's Proxy Materials (a) fail fully to disclose information
regarding Mr. Wyser-Pratte personal economic interest in his proposals; (b) are
misleading with respect to the justifications and support for Mr. Wyser-Pratte's
proposals; and (c) are inherently misleading with respect to the scope and
effect of Mr. Wyser-Pratte's proposals. A copy of the Complaint is attached as
Exhibit B hereto and incorporated herein by reference.
On July 20, 1998 Mr. Wyser-Pratte and WPC filed a motion for dismissal
or transfer of the Company's action on the grounds that venue is improper in the
Delaware Federal District Court; that the Company's challenge to Mr.
Wyser-Pratte's proposals is not ripe for the court's review; and that the
Company's claims with respect to the disclosure in this Proxy Statement are
moot. Mr. Wyser-Pratte and WPC also filed a motion in opposition to the
Company's request for expedited consideration of its claims.
CERTAIN INFORMATION CONCERNING
MR. WYSER-PRATTE
AND OTHER PARTICIPANTS
IN THE SOLICITATION
Mr. Wyser-Pratte is President and Chief Executive Officer of
Wyser-Pratte Management Company and WPC, which are principally engaged in money
management and event arbitrage. An investor engaged in event arbitrage seeks to
identify and purchase stocks which are undervalued based on the investor's
analysis of the risk, future value and timing of an announced corporate event
such as a spin off, asset sale, self tender or takeover, is not fully reflected
in the market price of the stock. While Mr. Wyser-Pratte's event arbitrage
investment strategy may lead him to support a takeover proposal that is opposed
by management and the board, Mr. Wyser-Pratte would not oppose an alternative
value-maximizing strategy proposed by management if such alternative strategy
caused a company's stock price to rise above the price Mr. Wyser-Pratte believes
can be garnered by consummation of the announced event. The principal executive
offices of WPC are located at 63 Wall Street, New York, New York 10005. Mr.
Wyser-Pratte owns beneficially 800,000 shares of the Common Stock, representing
approximately 4.970% of the of the 16,095,367 shares of Common Stock outstanding
as of May 29, 1998, as reported in the Company's Annual Report on Form 10-K for
the year ended March 31, 1998 (the "1998 10-K"). Two thousand shares of the
Common Stock are held in non-discretionary accounts maintained with WPC. Neither
WPC nor Mr. Wyser-Pratte has any voting or investment power with respect to such
shares and WPC and Mr. Wyser-Pratte disclaim beneficial ownership of such
shares. This includes shares owned directly by Mr. Wyser-Pratte and shares owned
by investment partnerships and other managed accounts and other discretionary
for which affiliates of WPC are the general partner or investment manager.
Certain information about the directors and executive officers of WPC is set
forth in Schedule I attached hereto. Other than Mr. Wyser-Pratte, no other
officer of WPC owns any shares of Common Stock.
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As previously disclosed in Mr. Wyser-Pratte's publicly available Form
ADV, which is on file with the SEC, Wyser-Pratte Management Co., Inc. (the
`Firm') manages accounts on a discretionary basis. It invests for its clients in
risk arbitrage transactions, including mergers, acquisitions, reorganizations
and similar transactions. The Firm is normally entitled to a management fee
equal to 0.25% per calendar quarter (approximately 1.0% per annum) of the net
assets in the client's account as of the first day of each calendar quarter. In
addition, the Firm will be entitled to an incentive fee equal to 20% of the net
increase in value of the assets in the account for each `Year'. Advisory and
Management fees may be negotiable under certain circumstances. Mr. Wyser-Pratte
owns 100% of the Firm's equity.
The Complaint indicates that the board believes that the Proxy Statement
fails to disclose Mr. Wyser-Pratte's economic interest in the Proposals, as
required by the Proxy Rules, because the June 18 Preliminary Proxy Statement did
not disclose the Firm's compensation arrangements with its clients. The
Complaint also indicates that the Board believes that the June 18 Preliminary
Proxy Statement gave the misleading impression that Mr. Wyser-Pratte's economic
interests are aligned with those of other investors when, in fact, the Firm's
compensation arrangements show that he has an interest in maximizing short-term
gain for his clients, which differentiates his economic interests from those of
other shareholders. This Proxy Statement includes a description of the Firm's
compensation arrangements with its clients. Furthermore, Mr. Wyser-Pratte does
not agree that he has an interest in maximizing short-term gain, to the
detriment of achieving larger returns over a longer holding period. Mr.
Wyser-Pratte believes that it is in his interest to maximize his clients' rate
of return on their investment, regardless of the holding period.
Except as set forth in this Proxy Statement or in the Appendices hereto,
to the best knowledge of Mr. Wyser-Pratte, none of Mr. Wyser-Pratte, any of the
persons participating in this solicitation on behalf of Mr. Wyser-Pratte,
Professor Macey and any associate of any of the foregoing persons (i) owns
beneficially, directly or indirectly, or has the right to acquire, any
securities of the Company or any parent or subsidiary of the Company, (ii) owns
any securities of the Company of record but not beneficially, (iii) has
purchased or sold any securities of the Company within the past two years, (iv)
has incurred indebtedness for the purpose of acquiring or holding securities of
the Company, (v) is or has been a party to any contract, arrangement or
understanding with respect to any securities of the Company within the past
year, (vi) has been indebted to the Company or any of its subsidiaries since the
beginning of the Company's last fiscal year or (vii) has any arrangement or
understanding with respect to future employment by the Company or with respect
to any future transactions to which the Company or any of its affiliates will or
may be a party. In addition, except as set forth in this Proxy Statement or in
the Appendices hereto, to the best knowledge of Mr. Wyser-Pratte, none of Mr.
Wyser-Pratte, Professor Macey, any of the persons participating in this
solicitation on behalf of Mr. Wyser-Pratte, and any associate or immediate
family member of any of the foregoing persons has had or is to have a direct or
indirect material interest in any transaction with the Company since the
beginning of the Company's last fiscal year, or any proposed transaction, to
which the Company or any of its affiliates was or is a party.
VOTING RIGHTS
According to the Company's 1998 10-K, 16,095,367 shares of Common Stock
were outstanding as of at May 29, 1998. Only holders of record as of the close
of business on July 17, 1998 will be entitled to vote at the Annual Meeting. Mr.
Wyser-Pratte intends to vote all shares of Common Stock beneficially owned by
him in favor of the proposals set forth herein. Mr. Wyser-Pratte is not aware of
any matter to be considered at the Annual Meeting that entitles shareholders to
rights of appraisal or other similar rights of dissenters.
SHAREHOLDER PROPOSALS
According to the Company's proxy statement, proposals of security
holders intended to be presented at the Company's 1999 annual meeting must be
received by the Company by ____ __, 1999 in order to be included in the
Company's 1999 proxy statement.
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GENERAL INFORMATION
This Proxy Statement and the accompanying [COLOR] Proxy Card are first
being made available to shareholders on or about ________ __, 1998. Executed
Proxies will be solicited by mail advertisement, telephone, telecopier and in
person. Solicitation will be made by Mr. Wyser-Pratte, Professor Macey and Eric
Longmire, Senior Managing Director of WPC none of whom will receive additional
compensation for such solicitation. Proxies will be solicited from individuals,
brokers, banks, bank nominees and other institutional holders. Mr. Wyser-Pratte
has requested banks, brokerage houses and other custodians, nominees and
fiduciaries to forward all solicitation materials to the beneficial owners of
the shares they hold of record. Mr. Wyser-Pratte will reimburse these record
holders for their reasonable out-of-pocket expenses.
In addition, Mr. Wyser-Pratte has retained the Proxy Solicitor to
solicit proxies in connection with the Annual Meeting for which the Proxy
Solicitor will be paid a fee of approximately $______ and will be reimbursed for
its reasonable expenses. The Proxy Solicitor will employ approximately __ people
in its efforts. Costs incidental to this solicitation include expenditures for
printing, postage, legal and related expenses and are expected to be
approximately ______. The total costs incurred to date in connection with this
solicitation are not in excess of $______.
If the Shareholder Friendly Bylaw is adopted, or the board adopts a
change in policy or takes other action in response to this solicitation that
increases shareholder value, Mr. Wyser-Pratte will ask the board to have the
Company reimburse him for costs and expenses incurred in connection with this
proxy solicitation. Mr. Wyser-Pratte does not intend to request that its
reimbursement request be submitted to a vote of stockholders.
OTHER MATTERS TO BE CONSIDERED
AT THE ANNUAL MEETING
Mr. Wyser-Pratte is not aware of other matters to be considered at the
Annual Meeting. However, if any other matters properly come before the Annual
Meeting, Mr. Wyser-Pratte will vote his Common Stock and all proxies held by him
in accordance with his best judgment with respect to such maters.
CERTAIN OTHER INFORMATION REGARDING THE COMPANY
Shareholders are referred to the Company's Proxy Statement with respect
to other information related to beneficial ownership of the Company's
securities, including information regarding the beneficial ownership of the
Company's common stock, any arrangements regarding the Company's common stock,
the operation of which may result in a change of control of the Company, and any
change of control of the Company that may have occurred since the beginning of
the Company's last fiscal year and information regarding the Company's stock
option and other incentive compensation plans.
VOTING OF PROXY CARDS
Shares of Common Stock represented by properly executed [COLOR] Proxy
Cards will be voted at the Annual Meeting as marked, and in the discretion of
the persons named as proxies on all other matters as may properly come before
the Annual Meeting, including all motions for an adjournment or postponement of
Annual Meeting, unless otherwise indicated in the Proxy Statement.
IF YOU WISH TO VOTE FOR THE PROPOSAL AND IN THE DISCRETION OF THE
PERSONS NAMED AS PROXIES ON ALL MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL
MEETING, PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY CARD IN THE
PROVIDED POSTAGE-PAID ENVELOPE.
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REVOCABILITY OF SIGNED PROXIES
A proxy executed by a holder of the Company's Common Stock may be
revoked at any time before its exercise by sending a written revocation of such
proxy, by submitting another proxy with a later date marked on it or by
appearing in person at the Annual Meeting and voting. A written revocation must
clearly state that the proxy to which it relates is no longer effective and must
be executed and delivered prior to the time that the action authorized by the
executed proxy is taken. The written revocation may be delivered either to Mr.
Wyser-Pratte or the Secretary of the Company. Although a written revocation or
later dated proxy delivered only to Telxon will be effective, Mr. Wyser-Pratte
requests that a written revocation or subsequent proxy also be delivered to Mr.
Wyser-Pratte so that he will be aware of such written revocation.
THE RETURN OF A SIGNED AND DATED [COLOR] PROXY CARD WILL FULLY REVOKE
ANY PREVIOUSLY DATED PROXY YOU MAY HAVE RETURNED. THE LATEST DATED PROXY IS THE
ONE THAT COUNTS.
YOUR VOTE IS IMPORTANT. IT WILL HELP DECIDE WHETHER THE SHAREHOLDERS
WILL HAVE AN ADEQUATE VOICE IN THE AFFAIRS OF THE COMPANY. PLEASE MARK, SIGN AND
DATE THE ENCLOSED [COLOR] PROXY CARD AND RETURN IT PROMPTLY IN THE PROVIDED
POSTAGE-PAID ENVELOPE.
GUY P. WYSER-PRATTE
IF YOUR SHARES OF TELXON COMMON STOCK ARE HELD IN THE NAME OF A
BROKERAGE FIRM, BANK NOMINEE OR OTHER INSTITUTION, ONLY IT CAN SIGN A PROXY WITH
RESPECT TO YOUR COMMON STOCK. ACCORDINGLY, PLEASE CONTACT THE PERSON RESPONSIBLE
FOR YOUR ACCOUNT AND GIVE INSTRUCTIONS FOR A PROXY CARD TO BE SIGNED
REPRESENTING YOUR SHARES OF COMMON STOCK
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EXHIBIT A
ITEM 5. OTHER EVENTS.
On August 5, 1996, Telxon Corporation ("Telxon" or the "Company")
and KeyBank National Association, as Rights Agent, entered into Telxon's Amended
and Restated Rights Agreement (the "Rights Plan"), effective as of July 31,
1996, restating and amending the Company's Rights Plan originally adopted by its
Board of Directors (the "Directors") in 1987, at which time the Directors
declared a dividend of one Common Stock Purchase Right (a "Right") on each
outstanding share of Common Stock pursuant to the Rights Plan. The Rights Plan,
as amended, provides that each Right, when exercisable, entitles the registered
holder to purchase one share of Common Stock at a price of One Hundred Dollars
($100.00) per share (the "Purchase Price"), subject to adjustment. Unless they
become exercisable upon the occurrence of certain events as described below or
unless earlier redeemed by the Company, the Rights will expire on July 31, 2006.
If the Company is party to a merger or other business combination
transaction (not approved by the Directors) in which the Company is not the
surviving corporation, or where the Common Stock is changed or exchanged, or 50%
or more of the Company's assets or earning power are sold, each holder of a
Right will have the right to receive shares of publicly traded common stock of
the acquiring company having a market value of two times the Purchase Price of
the Right or, in specified circumstances, cash in an amount determined under the
Rights Plan.
If the Company is the surviving corporation in a merger and the
Common Stock is not changed or exchanged, or if any acquiring person engages in
certain self-dealing transactions specified in the Rights Plan, or becomes the
beneficial owner of 15% or more of the outstanding Common Stock, each holder of
a Right (other than the acquiring person) will have the right to receive Common
Stock having a market value of two times the then current Purchase Price of the
Right.
The Rights Plan discourages hostile takeovers by effectively
allowing the Company's stockholders to purchase additional shares of Common
Stock at a discount following a hostile acquisition of a large block of the
Company's outstanding Common Stock and by increasing the value of consideration
to be received by stockholders in certain transactions following such an
acquisition.
The Rights may be redeemed pursuant to the Rights Plan. The terms
of the Rights may be amended by the Directors without the consent of the holders
of the Rights.
The foregoing summary description of the Rights Plan and the
Rights thereunder (i) replaces and should be read in lieu of the discussion of
the Rights Plan contained (A) in Item 1 of the Form 8-A originally filed by the
Company on December 19, 1983, with respect to its Common Stock, par value $.01
per share ("Common Stock"), as amended by Amendment No. 1 thereto filed under
cover of a Form 8 dated May 1, 1992, and (B) on pages 37 and 38 of the
Prospectus, included as part of the Registration Statement on Form S-3 filed by
the Company with respect to its 5-3/4% Convertible Subordinated Notes due 2003,
which became effective February 23, 1996, and (ii) does not purport to be
complete and is qualified in its entirety by reference to the copy of the Rights
Plan filed as Exhibit 4 to this Current Report on Form 8-K.
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EXHIBIT B
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
- - - - - - - - - - - - - - - - - x
TELXON CORPORATION : :
: :
Plaintiff, :
: :
-v- C.A. No. 98-403
:
:
GUY P. WYSER-PRATTE and : :
WYSER-PRATTE & CO., INC., : :
: :
Defendants. :
- - - - - - - - - - - - - - - - - x
COMPLAINT
Plaintiff Telxon Corporation ("Telxon" or the "Company"), by its
undersigned attorneys, for its complaint alleges upon knowledge as to its own
conduct and upon information and belief as to all other matters, as follows:
Nature Of This Action
1. This is an action for declaratory and injunctive relief by
Telxon against Guy Wyser-Pratte (hereinafter "Wyser-Pratte") and Wyser-Pratte &
Co., Inc. (hereinafter, "WPC") (collectively "Defendants") arising out of
Wyser-Pratte's proposed solicitation of proxies (the "Proxy Solicitation") for
the 1998 annual meeting of shareholders of Telxon (the "Annual Meeting").
2. Pursuant to Sections 14(a) and 14(e) of the Securities
Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. 'SS' 78n(a) and (e), and
the applicable rules and regulations of the Securities and Exchange Commission
(the "SEC") promulgated thereunder (the "SEC Rules"), Telxon seeks preliminary
and permanent injunctive relief requiring Defendants to correct the false and
misleading statements made by Wyser-Pratte in the Preliminary Proxy Statement of
Mr. Guy P. Wyser-Pratte (the "Proxy Statement", attached as Exhibit A) filed
with the SEC in connection with the Proxy Solicitation. Telxon also seeks
judgment declaring that three of Wyser-Pratte's proposals are invalid and
enjoining any solicitation of votes or consents to adopt them.
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3. As more fully described below, Wyser-Pratte first became a
stockholder of Telxon early last month after it was publicly disclosed that the
board of directors of Telxon (the "Telxon Board") had rejected as inadequate a
proposal by Symbol Technologies, Inc. ("Symbol") to acquire Telxon for $38 in
cash per share. Wyser-Pratte continued to purchase shares of Telxon for
approximately the next ten days during which time a revised proposal by Symbol
to acquire Telxon for $40 in cash per share was also rejected as inadequate by
the Telxon Board. As soon as Symbol's revised proposal was rejected,
Wyser-Pratte became an instant and vociferous critic of the Telxon Board and now
plans to solicit shareholder support for the election of his nominee to the
Telxon board and for proposals which would severely limit the management
authority of the Telxon Board over the business and affairs of Telxon.
4. If adopted, Wyser-Pratte's bylaw proposals would strip
Telxon's directors of their statutory managerial authority to determine whether
an unsolicited acquisition proposal is in the best interest of the corporation
and its shareholders, and would unilaterally delegate such authority to
shareholders. Moreover, these proposals would also prohibit Telxon's directors
from exercising their fiduciary duties in the context of an unsolicited and
inadequate takeover proposal by paralyzing the Board from taking appropriate
defensive action. Telxon therefore seeks judgment declaring that Wyser-Pratte's
bylaw proposals are invalid under Delaware law.
5. In addition, the Proxy Statement filed with the SEC is false
and misleading in several respects. For example, the Proxy Statement fails fully
to disclose information regarding Wyser-Pratte's personal economic interest in
his proposals, and it is also misleading with respect to the justifications and
support for Wyser-Pratte's proposals. Corrective disclosures by Wyser-Pratte are
necessary to cure the false and misleading statements and omissions made in the
Proxy Statement so that Telxon's shareholders will have the benefit of full and
accurate disclosure concerning the Proxy Solicitation when they are deciding how
to cast their votes at the upcoming Annual Meeting.
6. Defendants' unlawful conduct has caused and will continue to
cause irreparable harm to Telxon and its shareholders by denying shareholders
the opportunity for informed decision-making in connection with Wyser-Pratte's
proposals. Unless the relief sought herein is granted, such statements and
conduct will continue to interfere with the right of Telxon shareholders to
evaluate information presented in
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an atmosphere of fair comment and full disclosure free from false and misleading
representations and omissions by the Defendants.
JURISDICTION AND VENUE
7. The action arises under the Declaratory Judgment Act, 28
U.S.C. 'SS''SS' 2201 et seq., and under Sections 14(a) and 14(e), of the
Exchange Act, 15 U.S.C. 'SS''SS' 78n(a), 78n(e) and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission, 17 C.F.R.
'SS''SS' 240.14d-1 et seq.
8. Venue is proper in the District of Delaware pursuant to 28
U.S.C. 'SS' 1391 and to Section 27 of the Exchange Act because acts and
transactions consisting of violations of the Exchange Act and the SEC Rules are
occurring in Delaware and because Wyser-Pratte conducts business in Delaware.
9. This Court has jurisdiction over the subject matter of this
action pursuant to Section 27 of the Exchange Act, 15 U.S.C. 'SS' 78aa, because
this action is brought to declare and enforce rights and duties created by the
Exchange Act and the SEC Rules and Regulations promulgated thereunder. This
Court thus has jurisdiction over this action pursuant to 28 U.S.C. 'SS' 1331. In
addition, this Court has jurisdiction over this matter pursuant to 28 U.S.C.
'SS' 1332, as the controversy here is between citizens of different states and
the amount in dispute exceeds $75,000, exclusive of costs.
10. This Court has personal jurisdiction over the defendants
pursuant to Section 27 of the Exchange Act.
THE PARTIES
11. Telxon is a Delaware corporation with its principal executive
offices located in Akron, Ohio. Telxon is a leading global designer and
manufacturer of wireless and mobile information systems. Telxon integrates
advanced mobile computing and wireless data communication technology with a wide
array of peripherals, application-specific software and global customer
services. Telxon's products are sold worldwide for use in vertical markets,
including retail, manufacturing, warehouse/distribution,
transportation/logistics, insurance/financial services and route sales. Telxon
has approximately 16.1 million shares of common stock outstanding which are
traded on the NASDAQ.
12. Defendant Wyser-Pratte is president, chief executive officer
and chairman of the board of directors of WPC and Wyser-Pratte Management Co.,
Inc. ("Wyser-Pratte Management"), which
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are principally engaged in money management and event arbitrage. WPC is
Wyser-Pratte's broker-dealer entity, and Wyser-Pratte Management is
Wyser-Pratte's investment adviser entity. Wyser-Pratte purports to beneficially
own 730,000 shares of Telxon common stock.
13. Defendant WPC is a New York corporation whose principal
executive offices are located at 63 Wall Street, New York, New York.
SYMBOL'S FAILED HOSTILE TAKEOVER BID FOR TELXON
14. On April 8, 1998, Symbol sent a letter to Telxon expressing
an interest in acquiring all of Telxon's outstanding shares for $38 in cash,
subject to due diligence. On April 21, 1998, Frank Brick, Telxon's president and
chief executive officer, acknowledged receipt of Symbol's April 8 letter and
stated that the letter was "currently being reviewed by [the Company's]
financial and legal advisors and [would] be considered by Telxon's board of
directors in due course."
15. The Telxon Board thereafter met to consider Symbol's
acquisition proposal. After much discussion, including presentations by its
legal and financial advisors, the Telxon Board concluded that the Symbol
proposal was inadequate and not in the best interests of Telxon's shareholders.
Accordingly, on May 8, 1998, Telxon announced that it had rejected Symbol's
acquisition proposal, stating that "Symbol's $38 price is inadequate. Moreover,
we believe a Symbol/Telxon combination raises troubling questions that have not
been addressed by Symbol."
16. On June 1, 1998, Symbol delivered a revised written proposal
to Telxon, increasing its proposal to $40 cash per share and $42 per share in
cash and Symbol stock.
17. On June 5, 1998, the Company announced that the Telxon Board
had rejected the $40 per share all cash proposal and that Symbol's $42 per share
cash and stock proposal did not contain enough information to even be considered
by Telxon's Board. The Company also announced that Telxon's Board had authorized
management to meet with Symbol following Telxon's rejection of Symbol's initial
proposal. Following such discussions, Telxon's Board determined that Symbol was
unwilling to offer Telxon's shareholders a proposal that would give them the
fair value for their shares.
18. On June 8, 1998, Symbol withdrew its bid to acquire Telxon.
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WYSER-PRATTE'S PROPOSALS
19. On June 2, 1998, Wyser-Pratte, a self-styled event risk
arbitrageur, began accumulating large amounts of Telxon stock, no doubt to
capitalize on the fluctuation of Telxon's stock price due to Symbol's proposal.
20. On June 11, 1998 (just three days after Symbol withdrew its
bid for Telxon ), Wyser-Pratte sent notice to Telxon of his intention to
introduce several new bylaws and to nominate Jonathan R. Macey for election to
Telxon's Board of Directors at the Company's next Annual Meeting. (Ex. B)
21. On June 18, 1998, Wsyer-Pratte filed with the SEC preliminary
proxy materials in anticipation of the 1998 Annual Meeting. These proxy
materials propose adoption of numerous amendments to the Company's bylaws and
certain other resolutions, each of which would limit the managerial authority of
the Telxon Board, particularly at times when such authority is most critical,
i.e., during attempted takeovers. These proposals include, among others:
a bylaw amendment which would allow the shareholders to determine
whether a proposal to acquire the company should be treated as
hostile of friendly, and in the event the shareholders deem the
acquisition proposal "friendly," the board would be required to
stop using the Company's shareholder rights plan against the
acquisition proposal ("Acquisition Bylaw") (Ex. A at 5-13);
a bylaw amendment which would impose a requirement for a
unanimous vote of all directors then in office in order to take
certain "Defensive Actions" unless such actions are approved by
Telxon's stockholders (the "Defensive Action Bylaw") (Exhibit A
at 13-15);
a bylaw electing not to be governed by Section 203 ("Section 203
Bylaw") (Exhibit A at 16-17);
a resolution "that any By-laws adopted by the board of directors
since June 11, 1998 be, and they hereby are, repealed"
("Retroactive Repeal Bylaw") (Exhibit A at 17).
22. In addition, Mr. Wyser-Pratte is soliciting proxies to elect
his nominee, Jonathan R. Macey, to the Telxon Board. (Exhibit A at 18-19) Macey,
an outspoken proponent of shareholder rights
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bylaws, "believes that the [Telxon] board of directors, subject to their
fiduciary duties, should seek to maximize shareholder value through a sale of
the Company." (Ex. A at 19) Wyser-Pratte has agreed to pay Macey a fee of
between $10,000 to $15,000 in the event Macey does not become a director of
Telxon. (Id.)
WYSER-PRATTE'S ACQUISITION BYLAW
VIOLATES DELAWARE LAW
23. Wyser-Pratte's first proposal, the Acquisition Bylaw, reads
as follows:
ITEM 1 ON PROXY CARD"
"RESOLVED, that the Shareholders hereby amend the Company's
Bylaws (i) by adding the words, "Except as provided in Article X." to the
beginning of Article I, Section 3(ii) by changing the existing first word of
Article I, Section 3 from "Special" to "special" and (iii) by adding a new
Article X which shall read as follows:
ARTICLE X
TREATMENT OF ACQUISITION PROPOSALS
Section 1. Notwithstanding anything in these Bylaws to the
contrary, following the public announcement of any Acquisition
Proposal, stockholders owning 10% in interest of the voting
shares of the Corporation at the Corporation's principal place of
business, a special meeting of stockholders of the Corporation at
which a stockholder vote shall be taken to determine whether the
Acquisition Proposal is in the stockholders' best interests. The
date for such special meeting shall not be less than ten nor more
than ninety days after the date such special meeting is duly
called by such stockholders. "Acquisition Proposal" means any
offer or proposal, made in writing by press release, letter to
the Corporation or its shareholders or any other means, to
acquire the Corporation or all of its shares, for cash or
securities or any other consideration or combination thereof, by
means of merger or other business combination and/or acquisition
of shares, including, without limitation, any tender offer or
exchange offer which is part of such offer or proposal and
including any amendments to such offer or proposal; provided,
however, that if any such offer or proposal is amended in any
respect after shareholders have duly called a special meeting in
accordance with this Article X but before the date of such
special meeting, then such special meeting shall be held in
accordance with the time limit prescribed by this Article X and
Article Sixth, Paragraph B of the Corporation's certificate of
incorporation based on the date on which shareholders gave the
written notice requiring such meeting to be held, but the
Acquisition Proposal considered and voted upon by the
shareholders at such special meeting shall give effect to all
such amendments.
Section 2. If the stockholders determine at such special
meeting by the affirmative vote of a majority in interest of the
shares represented and entitled to vote at the meeting that the
Acquisition Proposal is in the best interests of stockholders,
then the Acquisition Proposal shall be deemed to be "friendly"
rather than "hostile" and the board of directors shall Withdraw
the Poison Pill with respect to such Acquisition Proposal.
"Withdraw the Poison Pill" shall mean: redeem the outstanding
rights under the Rights Agreement between the Corporation and Key
National Association, as Rights Agent, or take other action so
that the existence of such rights does not interfere with the
consummation of such Acquisition Proposal of any acquisition of
the Company's shares which forms a part of such Acquisition
Proposal.
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Section 3. If any particular provision of this Article X
be adjudicated to be invalid or unenforceable, such provision
shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable so that the provisions
of this Article X are enforced to the maximum extent possible.
Section 4. This Article X may not be altered or repealed
except by a unanimous board vote of all the directors then in
office or by the shareholders.
(Exhibit A. at 5-6).
24. The Acquisition Bylaw is invalid under Delaware law because
it impermissibly intrudes upon the Board of Directors' managerial authority
under Section 141(a) of the Delaware General Corporation Law ("DGCL"). Section
141(a) of the DGCL provides that unless otherwise provided in the certificate of
incorporation, "[t]he business and affairs of every corporation . . . shall be
managed by or under the direction of a board of directors . . . ." Any deviation
from this general rule that the Board -- not stockholders -- manage the
corporation, must be explicitly spelled out in the certificate of incorporation.
Neither the DGCL nor the Telxon Certificate of Incorporation limit the exercise
of the Telxon Board's power to manage and direct the affairs of Telxon with
respect to an acquisition proposal. Wyser-Pratte, therefore, wrongfully seeks to
amend the Certificate of Incorporation in the guise of an amendment to the
bylaws.
25. The board of directors' broad statutory mandate to manage the
corporation in accordance with their fiduciary duties includes the authority to
determine the corporation's course of action in response to an unsolicited
acquisition proposal. In fact, Section 141 creates in Telxon's Board the
inherent right -- indeed, the affirmative duty -- to adopt and maintain
defensive measures in the face of such proposals.
26. Under the Acquisition Bylaw, the Telxon Board would be
stripped of its most important obligation to determine whether an acquisition
proposal is in the best interests of the corporation and its stockholders, and
whether to take action in response to an inadequate and otherwise threatening
proposal. The stockholders alone would determine whether the acquisition
proposal is "friendly," and the Board would be obligated to redeem its Rights
Plan based solely on the decision of the stockholders, even if the Board
concluded in the exercise of its fiduciary duties that the acquisition proposal
was not in the best interests of Telxon and its shareholders. Wyser-Pratte's
proposed bylaw would therefore abrogate the
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Board's managerial authority and render the Board helpless to act with regard to
an acquisition proposal. As such, the Acquisition Bylaw violates Section 141(a)
of the DGCL and is invalid under Delaware law.
WYSER-PRATTE'S DEFENSIVE ACTION BYLAW
IS MATERIALLY MISLEADING AND VIOLATES DELAWARE LAW
27. Wyser-Pratte's second proposal, the Defensive Action Bylaw,
reads as follows:
ITEM 2 ON PROXY CARD
RESOLVED, that the Shareholders hereby amend the Company's Bylaws
by adding a new Article X, which shall read as follows:
"Notwithstanding any provisions to the contrary contained
in theses Bylaws, the unanimous vote of all the directors then in office
shall be required to approve any Defensive Action by the board of
directors, provided, however, that any such Defensive Action may be
authorized by the vote of a majority of the directors present at a
meeting at which a quorum is present if such authorization is ratified
by the affirmative vote of a majority in interest of the shares
represented and entitled to vote at the meeting. Defensive Action shall
mean: any action by the board with the purpose or effect, in whole or in
part, of impeding a change in control of the Company or increasing the
board's power to impede such a change in control in the future,
including without limitation (1) a decision by the board not to redeem
the outstanding Rights (the "Rights") under the Amended and Restated
Rights Agreement between the Company and Key National Association, as
Rights Agent (the "Poison Pill") or not to take other action so that the
existence of such Rights does not interfere with the acquisition of the
Company's shares or an offer to acquire such shares, (2) the extension
of the expiration date of the Poison Pill past July 31, 2006 or the
addition of a "Dead Hand" provision to such Pill, (3) the expenditure of
any corporate funds on a proxy contest against a shareholder of the
Company (including litigation in connection with such proxy contest),
unless the Company agrees to reimburse all such costs incurred by such
shareholder if 10% of the Company's shares are voted in favor of any of
such shareholder's proposals or (4) the amendment of the Shareholders
Interest Protection Bylaw: provided, however, that subject to clauses
(2), (3) and (4) of this sentence, if an offer is made to acquire the
Company or all of the Company's shares, and the Board determines in
accordance with applicable law that such offer will maximize the
company's value at a sale for the shareholders' benefit, no action taken
by the board to facilitate such offer shall be a Defensive Action. A
"Dead Hand" provision shall mean: any provision of the Rights Agreement
between the Company and Key National Association, as Rights Agent, or
any related document (the "Poison Pill") that limits in any way the
voting power of directors elected after a certain date or event on
matters relating to the Poison Pill, compared to either the voting power
of directors elected prior to such date or event or the voting power of
directors elected on the recommendation of directors elected prior to a
specified date or event."
28. In essence, the Defensive Action Bylaw would require that
Telxon's directors unanimously approve "Defensive Action" designed to impede
hostile takeovers unless such actions are ratified by a stockholders vote. Thus,
if Wyser-Pratte's nominee Macey is elected to the Board and the
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Defensive Action Bylaw is adopted, Macey's vote would be required to approve any
Defensive Action by the Board. (Ex. A at 13)
29. Like Wyser-Pratte's first proposal, the Defensive Action
Bylaw is invalid under Delaware law because it prohibits Telxon's Board from
exercising its fiduciary duties. The Defensive Action Bylaw would take one of
the most important and fundamental business decisions faced by the Telxon Board
- - how to respond to unsolicited takeover attempts - and delegate it to the
stockholders. The Telxon Board has the affirmative legal duty under Delaware law
to respond to and resist takeover attempts that it determines in good faith to
be against the best interests of the Company and its stockholders, such as the
Symbol proposal. Wyser-Pratte's proposal would attempt to remove this legal
obligation from the Board of Directors. Such a delegation of statutory and
fiduciary responsibility may not be effected through a bylaw amendment under
Delaware law.
30. In addition, the Defensive Action Bylaw also fails under
Delaware law because it is inescapably vague and intrudes upon a whole range of
important business matters. In particular, the bylaws defines "Defensive Action"
as "any action by the board with the purpose or effect, in whole or in part, of
impeding a change in control of the Company or increasing the board's power to
impede such a change in control in the future, including without limitation ..."
Under this inordinately broad definition, nearly any transaction approved
by the Board could conceivably have the partial effect of impeding a change in
control of the Company, including, for example: a sale of a division or
subsidiary; an acquisition of a new business; a share repurchase; an issuance of
additional stock; and new employment agreements with senior management (with or
without "change in control" compensation arrangements). Since almost any
significant corporate action could be said to have some effect on the
possibility of a change of control, virtually any business matter with which
Wyser-Pratte's nominee (if elected) or any other single director disagreed could
be subject to challenge as not having met the requirement of the bylaw. This
proposal is hopelessly vague and thus invalid under Delaware law.
31. Finally, the Defensive Action Bylaw is materially misleading
in that is gives the false impression that the Board of Directors may easily
circumvent the drastic unanimity requirement by seeking shareholder ratification
of any "Defensive Action." In support of the Defensive Action Bylaw,
Wyser-Pratte states that "[t]he Bylaw also permits the Board to authorize
Defensive Actions by a lesser vote
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if the shareholders ratify the board's action." (Ex. A at 14) Wyser-Pratt fails
to disclose, however, that the extensive time necessary to obtain shareholder
approval, including preparation of proxy material, review by the SEC, printing,
mailing and allowing an adequate time for solicitation, could mean that action
on matters that may be viewed as "defensive" could not be taken in time to be
effective. Thus, the Proxy Statement misleads Telxon's shareholders into the
belief that shareholder ratification is an effective "check" on the unanimity
requirement.
WYSER-PRATTE'S SECTION 203 BYLAW
VIOLATES TELXON'S CHARTER
32. Wyser-Pratte also proposes a bylaw to elect not to be
governed by Delaware's Business Combination Statute, 8 Del. . 'SS' 203. As noted
below, this proposed bylaw amendment is untimely under Telxon's charter and is
therefore invalid.
33. Article 6(B) of Telxon's Restated Certificate of
Incorporation states that:
B. Stockholder Proposals at Annual Meetings. Business may
be properly brought before an annual meeting of
stockholders by a stockholder of the corporation only
upon the stockholder's timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a
stockholder's notice must be in writing and delivered
or mailed . . . to the Secretary of the Corporation so
that it is received at the principal place of business
not less than ninety (90) days prior to the first
anniversary of the date of the last annual meeting of
the Corporation's stockholders. A stockholder's notice
to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting
(i) a brief description if the business desired to be
brought before the annual meeting . . .
34. Telxon's 1997 Annual Meeting of Stockholders was held on
September 10, 1997. Thus, to be timely under Telxon's charter, notice of any
stockholder proposals for Telxon's 1998 Annual Meeting had to be received by
Telxon by June 12, 1998.
35. On June 11, 1998, Wyser-Pratte sent a letter outlining the
proposals he intended to make at Telxon's next Annual Meeting. (Ex. B) In that
letter, Wyser-Pratte indicated that he intended to propose, among other things,
"an amendment to the bylaws for the Company to elect not be governed by Section
203 of the Delaware General Corporation Law" (Ex. B at 3), which proposal "would
include a provision requiring unanimous board vote of all the directors then in
office for the board to alter or repeal the bylaw . . . ." (Ex. B at 2)
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36. In his preliminary proxy statement, however, which was not
filed with the SEC until June 18, 1998, six days after the notice deadline,
Wyser-Pratte describes a materially different proposal to Telxon shareholders
than that identified in his June 11 letter. His new proposal states that: "The
corporation shall not be governed by Section 203 of the Delaware General
Corporation Law." Unlike his earlier proposal, it makes no mention of unanimous
board vote required to repeal or alter the bylaw.
37. Since Wyser-Pratte's Section 203 Bylaw proposal, as stated in
the preliminary proxy statement, was not submitted within the ninety-day period
specified in Section 6B of Telxon's charter, the proposal is untimely.
WYSER-PRATTE RETROACTIVE REPEAL BYLAW
IS MATERIALLY MISLEADING
38. Wyser-Pratte also proposes a bylaw amendment to the effect
"that any By-laws adopted by the board of directors since June 11, 1998 be, and
they hereby are, repealed." (the "Retroactive Repeal Bylaw") The Retroactive
Repeal Bylaw is inherently misleading in that it fails to inform Telxon
shareholders precisely which bylaws they are being asked to repeal.
39. The Proxy Statement states that "[t]he purpose of this
proposal is to prevent the Board from interfering with the implementation of the
proposals being voted upon by the shareholders at this Annual Meeting." (Ex. A
at 17) But the Proxy Statement fails to disclose that this proposal would not
only prohibit the Telxon Board from interfering with the bylaws that
Wyser-Pratte is proposing (if those proposals are adopted), but would also
prevent the Telxon Board from adopting or changing the sections of the bylaws
dealing with any Telxon corporate governance issue (such as the calling of
special meetings, advance notice of nominations and stockholder proposals and
requirements for subsequent amendments of the bylaws), regardless of whether the
subject matter of any proposed subsequent amendment related to the subject
matter of the Wyser-Pratte proposals. Thus, the Proxy Statement is misleading
with respect to the scope and application of the Retroactive Repeal Bylaw.
40. The Retroactive Repeal Bylaw would effect the repeal of all
bylaws adopted by the Board since June 11, 1998. The Proxy Statement does not,
however, identify the particular bylaws the Retroactive Repeal Bylaw intends to
repeal. When shareholders vote on this proposal, they will not know specifically
which, if any, bylaws they are voting to repeal and, as such, they could not
understand the
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effect of such repeal. In failing to disclose the reasons for or effect of the
blanket repeal of all such bylaws, the Retroactive Repeal Bylaw is inherently
misleading because it deprives Telxon shareholders of the information they need
to cast an informed vote. Such a state of confusion is exactly the type of
situation which the Exchange Act and the SEC Rules were designed to prevent.
ADDITIONAL MISREPRESENTATION AND OMISSIONS
41. In addition to Wyser-Pratte's misleading statements regarding
the bylaw amendments themselves, the Proxy Statement contains other material
misrepresentations and omissions that substantially inhibit a full and fair
understanding of the Proxy Solicitation. The misleading nature of the Proxy
Statement is described below.
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WYSER-PRATTE'S PERSONAL ECONOMIC INTEREST
42. The Proxy Statement also fails to disclose Wyser-Pratte's
personal economic interest in his proposals and in his stated objective to
"maximize the value of the company's shares" (see Exhibit A at 3) that arises by
virtue of the compensation structure with Wyser-Pratte's clients. The Form ADV
filed with the SEC by Wyser-Pratte Management dated October 22, 1997 (attached
as Exhibit C) reports as follows:
Wyser-Pratte Management Co., Inc. (the `Firm') manages accounts
on a discretionary basis. It invests for its Clients in risk
arbitrage transactions, including mergers, acquisitions,
reorganizations and similar transactions.
* * *
The Firm's fee schedule is as follows:
Management Fee: The Firm is normally entitled to an Management
Fee equal to 0.25% per calendar quarter (approximately 1.0% per
annum) of the net assets in the Client's account as of the first
day of each calendar quarter...
* * *
Incentive Fee: In addition, the Firm will be entitled to an
Incentive Fee equal to 20% of the net increase in value of the
assets in the account for each `Year'.
* * *
Advisory and Management fees may be negotiable under certain
circumstances.
(Exhibit C at Schedule F)
43. Under the SEC Rules, Wyser-Pratte is required to disclose
"any substantial interest, direct or indirect, by security holdings or
otherwise" that he has in matters to be acted on at the meeting. 17 C.F.R. 'SS'
240.14a-101, Item 5(b)(1). In addition, Wyser-Pratte is required to name the
parties to and give the details of "any contract, arrangements or understandings
with any person with respect to any securities" of Telxon (including but not
limited to agreements relating to the division of losses or profit). 17 C.F.R.
'SS' 240.14a-101, Item 5(b)(1)(viii). However, Wyser-Pratte fails to disclose
the arrangement by which he is compensated by his clients. Such an incentive
compensation arrangement is inconsistent with the representation in the Proxy
Statement that "Mr. Wyser-Pratte is a Telxon shareholder who has only one
interest in his proposals: to maximize the value of the company's shares."
(Exhibit A at 3). Rather, Wyser-Pratte also has an interest in creating short
term gain for his clients so that he can maximize his own
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compensation. This interest is not shared by shareholders generally. By failing
to disclose this incentive compensation arrangement, Wyser-Pratte creates the
misleading impression that his interests are completely aligned with those of
the other Telxon shareholders.
WYSER-PRATTE'S MISCHARACTERIZATION OF CASE LAW
44. Furthermore, Wyser-Pratte mischaracterizes cases cited as
support for the validity of his proposals. For example:
(a) The Proxy Statement states that under Rogers v. Hill, 289
U.S. 582 (1993), "shareholders, as the owners of a corporation, have the
ultimate power over corporate governance." In Rogers, the United States Supreme
Court simply held that a charter provision conferring the power to make and
alter by-laws upon directors did not divest the stockholders of their statutory
power to adopt bylaws. Thus, the Proxy Statement misleads the stockholders of
Telxon into the false believe that Wyser-Pratte's broad statement is a principle
that has been endorsed by the United States Supreme Court.
(b) The Proxy Statement also states that "Delaware case law
recogniz[es] that directors' exercise of their fiduciary duties is limited by
the voting rights of shareholders." The Proxy Statement cites BLASIUS INDUS.
INC. V. ATLAS CORP., 564 A.2d 651 (Del. Ch. 1998) and STAHL V. APPLE BANCORP.
INC., 579 A. 2d 1115 (Del. Ch. 1990) as support for this statement. These cases
simply hold that it may constitute a breach of fiduciary duty for a board of
directors to act primarily to interfere with the exercise of the shareholder
franchise. The Proxy Statement thus misleads the stockholders to Telxon by
suggesting that stockholders may prevent directors from fulfilling their
fiduciary duties.
DECLARATORY RELIEF
45. The court may grant the declaratory relief sought herein
pursuant to 28 U.S.C. 'SS' 2201. There is a substantial controversy between the
parties. Wyser-Pratte's illegal bylaw amendments would dramatically alter the
corporate governance structure of Telxon by usurping the Board's statutory
authority to manage the business and affairs of the corporation. At the moment
of their adoption, the bylaw amendments will cause great and imminent harm to
Telxon and its shareholders by paralyzing the Board
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from exercising its fiduciary duties in response to an unsolicited acquisition
proposal. Thus, the adverse legal interest of the parties are real and
immediate.
IRREPARABLE HARM
46. Telxon and its shareholders are being irreparably harmed by
the false and misleading statements and omissions made by Wyser-Pratte in the
Proxy Statement and will continue to be irreparably harmed unless Wyser-Pratte
is preliminarily and permanently enjoined (1) from soliciting proxies for bylaw
amendments which are plainly invalid under Delaware law, (2) from making false
and misleading statements and omissions in connection with the Proxy
Solicitation and (3) to make corrective disclosures that cure all of the
materially false and misleading statements and omissions made to date. Telxon's
stockholders have been, and absent injunctive relief will continue to be, denied
material information to which they are lawfully entitled and which is essential
to making an informed decision on whether to vote for or against Wyser-Pratt's
proposals.
47. In addition, Wyser-Pratte's illegal bylaw proposals, if
adopted, would immediately tie the hands of the Board and leave Telxon
vulnerable to unsolicited and inadequate acquisition proposals, such as the
recent Symbol proposal. The resulting injury to Telxon and its shareholders will
not be compensable in money damages.
48. Telxon has no adequate remedy at law and is entitled to
injunctive relief against the Defendants.
COUNT I
(For Violations of Section 14(a) of the Exchange Act
and Rule 14a-9 thereunder)
49. Telxon realleges and incorporates by reference herein the
allegations set forth in paragraphs 1 through 48 above as if fully set forth
herein.
<PAGE>
<PAGE>
50. Section 14(a) of the Exchange Act and the proxy rules and
regulations promulgated thereunder govern the information that must be furnished
to security holders when their proxies are solicited with respect to any meeting
of security holders - here Telxon's Annual Meeting. Rule 14a-9, 17 C.F.R.
240.14a-9 promulgated pursuant to Section 14(a) of the Exchange Act, provides:
No solicitation subject to this regulation shall be made by means of any
proxy statement, form of proxy, notice of meeting or other
communication, written or oral, containing any statement which, at the
time and in the light of the circumstances under which it is made, is
false and misleading with respect to any material fact necessary in
order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with
respect to the solicitation of a proxy for the same meeting or subject
matter which has become false or misleading.
51. As detailed above, the Proxy Statement is false and misleading
because it makes untrue statements of material fact and fails to state material
facts that are necessary to make the statements made in the Proxy Statement, in
light of the circumstances in which they are made, not misleading. These false
and misleading statements are material because there is a substantial likelihood
that a reasonable Telxon shareholder would consider this information important
in deciding how to vote at the Annual Meeting.
52. These false and misleading statements constitute violations of
Section 14(a) of the Exchange Act and Rule 14a-9.
53. Because these proxy statements are an important link in
achieving an accurately informed shareholder vote at the Annual Meeting, Telxon
shareholders face irreparable injury in that Defendants' misstatements and
omissions may mislead shareholders and cause them to vote in favor of
Wyser-Pratte's proposed bylaw amendments.
54. Telxon has no adequate remedy at law.
COUNT II
(For a Declaratory Judgment: Acquisition Bylaw)
55. Telxon realleges and incorporates by reference herein the
allegations set forth in paragraph 1 through 54 above as if full set forth
herein.
<PAGE>
<PAGE>
56. As detailed above, Wyser-Pratte's first proposal, the
Acquisition Bylaw, impermissibly usurps the Telxon Board's statutory authority
under Section 141 of Delaware General Corporation Law to manage the business and
affairs of the corporation.
57. Telxon seeks a declaration pursuant to 28 US.C. 'SS' 2201
declaring that Wyser-Pratte's Acquisition bylaw proposal in its entirely is
illegal and void ab initio.
58. Telxon also seeks further necessary and proper relief pursuant
to 28 U.S.C. 'SS' 2202.
59. Telxon has no adequate remedy at law.
COUNT III
(For a Declaratory Judgment: Defensive Action Bylaw)
60. Telxon realleges and incorporates by reference herein the
allegations set forth in paragraphs 1 through 59 above as if fully set forth
herein.
61. As detailed above, Wyser-Pratte's second proposal, the
defensive Action Bylaw, impermissibly usurps the Telxon Board's statutory
authority under Section 141 of the Delaware General Corporation Law to manage
the business and affairs of the corporation.
62. Telxon seeks a declaration pursuant to 28 U.S.C. 'SS' 2201
declaring that Wyser-Pratte's Defensive Action Bylaw proposal in its entirety is
illegal and void ab initio.
63. Telxon also seeks further necessary and proper relief
pursuant to 28 U.S.C. 'SS' 2202.
64. Telxon has no adequate remedy at law.
COUNT IV
(For a Declaratory Judgment: Section 203 Bylaw)
65. Telxon realleges and incorporates by reference herein the
allegations set forth in paragraphs 1 through 64 above as if fully set forth
herein.
<PAGE>
<PAGE>
66. As detailed above, Wyser-Pratte's fourth proposal, the
Section 203 Bylaw, violates Telxon's certificate of incorporation which requires
that "[t]o be timely, a stockholder's notice must be...received at the
[Company's ] principal place of business not less than ninety (90) days prior to
the first anniversary of the date of the last annual meeting of the
Corporation's stockholders."
67. Telxon seeks a declaration pursuant to 28 U.S.C. 'SS' 2201
declaring that Wyser-Pratte's Section 203 Bylaw proposal is untimely under
Telxon's charter and void ab initio.
68. Telxon also seeks further necessary and proper relief
pursuant to 28 U.S.C. 'SS' 2202.
69. Telxon has no adequate remedy at law.
WHEREFORE, Telxon demands judgment against Defendants as follows:
(a) preliminarily and permanently enjoining defendant,
directly or indirectly, (1) from making false and misleading statements and
omissions in connection with the Proxy Solicitation, (2) to make corrective
disclosures that cure all of the materially false and misleading statements and
omissions made by Wyser-Pratte in the Proxy Statement, (3) from voting any
proxies obtained pursuant to the false and misleading Proxy Statement, and (4)
from soliciting proxies in support of Wyser-Pratte's illegal bylaw proposals;
(b) declaring that Wyser-Pratte's first proposal (Acquisition
Bylaw) and second proposal (Defensive Action Bylaw) are invalid and
unenforceable under Delaware law;
(c) declaring that Wyser-Pratte's fourth proposal (Section
203 Bylaw) in untimely under Telxon's charter and therefore invalid;
(d) awarding Telxon costs and attorneys fees in connection
with this action; and
(e) granting Telxon such other and further relief as the
court may deem just and proper.
<PAGE>
<PAGE>
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM Limited Partner
-------------------------------------------
Steven J. Rothschild (I.D. No. 659)
Kevin M. Maloy (I.D. No. 3305)
One Rodney Square
P.O. Box 636
Wilmington, DE 19899-0636
(302) 651-3000
Attorneys for Plaintiff Telxon Corporation
OF COUNSEL:
GOODMAN WEISS MILLER LLP
100 Erieview Plaza
27th Floor
Cleveland, Ohio 44114-1824
DATED: July 13, 1998
<PAGE>
<PAGE>
EXHIBIT C
203 BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS.
(a) Notwithstanding any other provisions of this chapter, a corporation shall
not engage in any business combination with any interested stockholder for a
period of 3 years following the time that such stockholder became an interested
stockholder, unless:
(1) prior to such time the board of directors of the corporation
approved either the business combination or the transaction which resulted
in the stockholder becoming an interested stockholder, or
(2) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned (i) by persons who are
directors and also officers and (ii) employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer, or
(3) At or subsequent to such time the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned
by the interested stockholder.
(b) The restrictions contained in this section shall not apply if:
(1) the corporation's original certificate of incorporation contains
a provision expressly electing not to be governed by this section;
(2) the corporation, by action of its board of directors, adopts an
amendment to its bylaws within 90 days of the effective date of this
section, expressly electing not to be governed by this section, which
amendment shall not be further amended by the board of directors.
(3) the corporation, by action of its stockholders, adopts an
amendment to its certificate of incorporation or bylaws expressly electing
not to be governed by this section, provided that, in addition to any other
vote required by law, such amendment to the certificate of incorporation or
bylaws must be approved by the affirmative vote of a majority of the shares
entitled to vote. An amendment adopted pursuant to this paragraph shall be
effective immediately in the case of a corporation that both (i) has never
had a class of voting stock that falls within any of the three categories
set out in subsection (b)(4) hereof, and (ii) has not elected by a
provision in its original certificate of incorporation or any amendment
thereto to be governed by this section. In all other cases, an amendment
adopted pursuant to this paragraph shall not be effective until 12 months
after the adoption of such amendment and shall not apply to any business
combination between such corporation and any person who became an
interested stockholder of such corporation on or prior to such adoption. A
bylaw amendment adopted pursuant to this paragraph shall not be further
amended by the board of directors;
(4) the corporation does not have a class of voting stock that is
(i) listed on a national securities exchange, (ii) authorized for quotation
on The NASDAQ Stock Market or (iii) held of record by more than 2,000
stockholders, unless any of the foregoing results from action taken,
directly or indirectly, by an interested stockholder or from a transaction
in which a person becomes an interested stockholder;
(5) a stockholder becomes an interested stockholder inadvertently
and (i) as soon as practicable divests itself of ownership of sufficient
shares so that the stockholder ceases to be an interested stockholder and
(ii) would not, at any time within the 3 year period immediately prior to a
business combination between the corporation and such stockholder, have
been an interested stockholder but for the inadvertent acquisition of
ownership;
<PAGE>
<PAGE>
(6) the business combination is proposed prior to the consummation
or abandonment of and subsequent to the earlier of the public announcement
or the notice required hereunder of a proposed transaction which (i)
constitutes one of the transactions described in the second sentence of
this paragraph; (ii) is with or by a person who either was not an
interested stockholder during the previous 3 years or who became an
interested stockholder with the approval of the corporation's board of
directors or during the period described in paragraph (7) of this
subsection (b); and (iii) is approved or not opposed by a majority of the
members of the board of directors then in office (but not less than 1) who
were directors prior to any person becoming an interested stockholder
during the previous 3 years or were recommended for election or elected to
succeed such directors by a majority of such directors. The proposed
transactions referred to in the preceding sentence are limited to (x) a
merger or consolidation of the corporation (except for a merger in respect
of which, pursuant to section 251(f) of the chapter, no vote of the
stockholders of the corporation is required); (y) a sale, lease, exchange,
mortgage, pledge, transfer or other disposition (in one transaction or a
series of transactions), whether as part of a dissolution or otherwise, of
assets of the corporation or of any direct or indirect majority-owned
subsidiary of the corporation (other than to any direct or indirect
wholly-owned subsidiary or to the corporation) having an aggregate market
value equal to 50% or more of either that aggregate market value of all of
the assets of the corporation determined on a consolidated basis or the
aggregate market value of all the outstanding stock of the corporation; or
(z) a proposed tender or exchange offer for 50% or more of the outstanding
voting stock of the corporation. The corporation shall give not less than
20 days notice to all interested stockholders prior to the consummation of
any of the transactions described in clauses (x) or (y) of the second
sentence of this paragraph; or
(7) The business combination is with an interested stockholder who
became an interested stockholder at a time when the restrictions contained
in this section did not apply by reason of any paragraphs (1) through (4)
of this subsection (b), provided, however, that this paragraph (7) shall
not apply if, at the time such interested stockholder became an interested
stockholder, the corporation's certificate of incorporation contained a
provision authorized by the last sentence of this subsection (b).
Notwithstanding paragraphs (1), (2), (3) and (4) of this subsection, a
corporation may elect by a provision of its original certificate of
incorporation or any amendment thereto to be governed by this section; provided
that any such amendment to the certificate of incorporation shall not apply to
restrict a business combination between the corporation and an interested
stockholder of the corporation if the interested stockholder became such prior
to the effective date of the amendment.
(c) As used in this section only, the term:
(1) 'affiliate' means a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under
common control with, another person.
(2) 'associate,' when used to indicate a relationship with any
person, means (i) any corporation, partnership, unincorporated association
or other entity of which such person is a director, officer or partner or
is, directly or indirectly, the owner of 20% or more of any class of voting
stock, (ii) any trust or other estate in which such person has at least a
20% beneficial interest or as to which such person serves as trustee or in
a similar fiduciary capacity, and (iii) any relative or spouse of such
person, or any relative of such spouse, who has the same residence as such
person.
(3) 'business combination,' when used in reference to any
corporation and any interested stockholder of such corporation, means:
(i) any merger or consolidation of the corporation or any direct
or indirect majority-owned subsidiary of the corporation with (A) the
interested stockholder, or (B) with any other corporation, partnership,
unincorporated association or other entity if the merger or
consolidation is caused by the interested stockholder and as a result of
such merger or consolidation subsection (a) of this section is not
applicable to the surviving entity;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions),
except proportionately as a stockholder of such corporation, to or with
the interested stockholder, whether as part of a dissolution or
otherwise, of assets of the
<PAGE>
<PAGE>
corporation or of any direct or indirect majority-owned subsidiary of
the corporation which assets have an aggregate market value equal to 10%
or more of either the aggregate market value of all the assets of the
corporation determined on a consolidated basis or the aggregate market
value of all the outstanding stock of the corporation;
(iii) any transaction which results in the issuance or transfer
by the corporation or by any direct or indirect majority-owned
subsidiary of the corporation of any stock of the corporation or of any
stock of the corporation or of such subsidiary to the interested
stockholder, except (A) pursuant to the exercise, exchange or conversion
of securities exercisable for, exchangeable for or convertible into
stock of such corporation or any such subsidiary which securities were
outstanding prior to the time that the interested stockholder became
such, (B) pursuant to a merger under Section 251(g) of this title; (C)
pursuant to a dividend or distribution paid or made, or the exercise,
exchange or conversion of securities exercisable for, exchangeable for
or convertible into stock of such corporation or any such subsidiary
which security is distributed, pro rata to all holders of a class or
series of stock of such corporation subsequent to the time the
interested stockholder became such, (D) pursuant to an exchange offer by
the corporation to purchase stock made on the same terms to all holders
of said stock, or (E) any issuance or transfer of stock by the
corporation, provided however, that in no case under (C)-(E) above shall
there be an increase in the interested stockholder's proportionate share
of the stock of any class or series of the corporation or of the voting
stock of the corporation;
(iv) any transaction involving the corporation or any direct or
indirect majority-owned subsidiary of the corporation which has the
effect, directly or indirectly, of increasing the proportionate share of
the stock of any class or series, or securities convertible into the
stock of any class or series, of the corporation or of any such
subsidiary which is owned by the interested stockholder, except as a
result of immaterial changes due to fractional share adjustments or as a
result of any purchase or redemption of any shares of stock not caused,
directly or indirectly, by the interested stockholder; or
(v) any receipt by the interested stockholder of the benefit,
directly or indirectly (except proportionately as a stockholder of such
corporation) of any loans, advances, guarantees, pledges, or other
financial benefits (other than those expressly permitted in
subparagraphs (i)-(iv) above) provided by or through the corporation or
any direct or indirect majority owned subsidiary.
(4) 'control,' including the term 'controlling,' 'controlled by' and
'under common control with,' means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting stock, by
contract, or otherwise. A person who is the owner of 20% or more of the
outstanding voting stock of any corporation, partnership, unincorporated
association or other entity shall be presumed to have control of such
entity, in the absence of proof by a preponderance of the evidence to the
contrary. Notwithstanding the foregoing, a presumption of control shall not
apply where such person holds voting stock, in good faith and not for the
purpose of circumventing this section, as an agent, bank, broker, nominee,
custodian or trustee for one or more owners who do not individually or as a
group have control of such entity.
(5) 'interested stockholder' means any person (other than the
corporation and any direct or indirect majority-owned subsidiary of the
corporation) that (i) is the owner of 15% or more of the outstanding voting
stock of the corporation, or (ii) is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the 3-year period immediately
prior to the date on which it is sought to be determined whether such
person is an interested stockholder; and the affiliates and associates of
such person; provided, however, that the term 'interested stockholder'
shall not include (x) any person who (A) owned shares in excess of the 15%
limitation set forth herein as of, or acquired such shares pursuant to a
tender offer commenced prior to, December 23, 1987, or pursuant to an
exchange offer announced prior to the aforesaid date and commenced within
90 days thereafter and either (I) continued to own shares in excess of such
15% limitation or would have but for action by the corporation or (II) is
an affiliate or associate of the corporation and so continued (or so would
have continued but for action by the
<PAGE>
<PAGE>
corporation) to be the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the 3-year period immediately prior
to the date on which it is sought to be determined whether such a person is
an interested stockholder or (B) acquired said shares from a person
described in (A) above by gift, inheritance or in a transaction in which no
consideration was exchanged; or (y) any person whose ownership of shares in
excess of the 15% limitation set forth herein in the result of action taken
solely by the corporation provided that such person shall be an interested
stockholder if thereafter such person acquires additional shares of voting
stock of the corporation, except as a result of further corporate action
not caused, directly or indirectly, by such person. For the purpose of
determining whether a person is an interested stockholder, the voting stock
of the corporation deemed to be outstanding shall include stock deemed to
be owned by the person through application of paragraph (8) of this
subsection but shall not include any other unissued stock of such
corporation which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options,
or otherwise.
(6) 'person' means any individual, corporation, partnership,
unincorporated association or other entity.
(7) 'Stock' means, with respect to any corporation, capital stock
and, with respect to any other entity, any equity interest.
(8) 'Voting stock' means, with respect to any corporation, stock of
any class or series entitled to vote generally in the election of directors
and, with respect to any entity that is not a corporation, any equity
interest entitled to vote generally in the election of the governing body
of such entity.
(9) 'owner' including the terms 'own' and 'owned' when used with
respect to any stock means a person that individually or with or through
any of its affiliates or associates:
(i) beneficially owns such stock, directly or indirectly; or
(ii) has (A) the right to acquire such stock (whether such right
is exercisable immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise;
provided, however, that a person shall not be deemed the owner of stock
tendered pursuant to a tender or exchange offer made by such person or
any of such person's affiliates or associates until such tendered stock
is accepted for purchase or exchange; or (B) the right to vote such
stock pursuant to any agreement, arrangement or understanding; provided,
however, that a person shall not be deemed the owner of any stock
because of such person's right to vote such stock if the agreement,
arrangement or understanding to vote such stock arises solely from a
revocable proxy or consent given in response to a proxy or consent
solicitation made to 10 or more persons; or
(iii) has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting (except voting pursuant to a
revocable proxy or consent as described in item (B) of clause (ii) of
this paragraph), or disposing of such stock with any other person that
beneficially owns, or whose affiliates or associates beneficially own,
directly or indirectly, such stock.
(d) No provision of a certificate of incorporation or bylaw shall require, for
any vote of stockholders required by this section a greater vote of stockholders
than that specified in this section.
(e) The Court of Chancery is hereby vested with exclusive jurisdiction to hear
and determine all matters with respect to this section.
<PAGE>
<PAGE>
SCHEDULE I
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF WPC
AND THEIR ADVISORS THAT MAY PARTICIPATE
IN THE SOLICITATION OF PROXIES
The name, business address, and present principal occupation or
employment of each of the directors and executive officers of WPC and its
advisors and certain other employees and representatives of WPC that may
participate in the solicitation of proxies are set forth below. Unless otherwise
indicated, the principal business address of each director or executive officer
of Wyser-Pratte & Co. is, 63 Wall Street, New York, NY 10005.
PARTICIPANT DIRECTORS AND EXECUTIVE OFFICERS OF WPC.
Present Office or Other
Name Principal Occupation or Employment
- ---- ----------------------------------
Guy P. Wyser-Pratte President
Eric Longmire Senior Managing Director
<PAGE>
<PAGE>
SCHEDULE II
The following sets forth the name, business address and the number of
shares of Common Stock of the Company owned beneficially by the participants in
this solicitation of proxies, or their associates. No shares are held of record
but not beneficially by the participants or their associates.
<TABLE>
<CAPTION>
Number of Shares of Common
Name & Stock Beneficially Owned
Business Address (June _19, 1998) Percent of Common Stock
---------------- ---------------- -----------------------
<S> <C> <C>
Guy P. Wyser-Pratte
Wyser-Pratte & Co., Inc.
63 Wall Street
New York, New York 10005 800,000 ~4.970%
</TABLE>
<PAGE>
<PAGE>
SCHEDULE III
The following tables set forth information with respect to all purchases
and sales of Common Stock of the Company by Mr. Wyser-Pratte and his affiliates
during the past two years.(1) Except as set forth below, no participant in this
solicitation has purchased or sold securities of the Company within the past two
years.
<TABLE>
<CAPTION>
TRADE DATE QUANTITY PURCHASE OR (SOLD)
---------- ---------------------------
<S> <C>
06-02-98 100
06-08-98 1,500
06-08-98 34,500
06-08-98 2,000
06-08-98 8,800
06-08-98 12,300
06-08-98 1,900
06-08-98 1,900
06-08-98 2,200
06-09-98 12,400
06-09-98 285,700
06-09-98 16,500
06-09-98 72,800
06-09-98 101,700
06-09-98 15,700
06-09-98 15,700
06-09-98 18,200
06-10-98 1,900
06-10-98 7,000
06-10-98 43,000
06-10-98 10,000
06-10-98 2,500
06-10-98 11,000
06-10-98 4,900
06-10-98 15,300
06-10-98 2,400
06-10-98 10,000
06-10-98 5,000
06-10-98 2,400
06-10-98 2,700
06-11-98 200
06-11-98 4,400
06-11-98 200
06-11-98 1,000
06-11-98 1,500
06-11-98 200
06-11-98 200
06-11-98 300
06-30-98 900
06-30-98 20,900
06-30-98 1,200
</TABLE>
- ---------------------
(1) All securities beneficially owned by Mr. Wyser-Pratte's securities are
contained in a margin account in the regular course of business of a broker,
including in connection with the purchases listed in the table. As of July
__, 1998, $[ ] of this indebtedness was outstanding.
<PAGE>
<PAGE>
<TABLE>
<S> <C>
06-30-98 5,300
06-30-98 10,000
06-30-98 7,700
06-30-98 1,100
06-30-98 1,100
06-30-98 1,300
07-22-98 9,400
07-22-98 600
07-24-98 6,500
07-24-98 700
07-24-98 1,600
07-24-98 400
07-24-98 600
07-24-98 700
Total 800,000
</TABLE>
<PAGE>
<PAGE>
APPENDIX I
[COLOR] PROXY
TELXON CORPORATION
ANNUAL MEETING OF SHAREHOLDERS -SEPTEMBER 15, 1998
THIS PROXY IS SOLICITED BY GUY P. WYSER-PRATTE
IN OPPOSITION TO THE TELXON BOARD OF DIRECTORS
The undersigned shareholder of Telxon Corporation ("Telxon") hereby
appoints Guy P. Wyser-Pratte, Eric Longmire and Daniel H. Burch each of them
with full power of substitution, to vote all shares of Common Stock, par value
$0.01 per share, of Telxon that the undersigned is entitled to vote if
personally present at the 1998 Annual Meeting of Shareholders of Telxon to be
held on September 15, 1998, and at any adjournments or postponements thereof as
indicated below and in the discretion of the proxies, to vote cumulatively for
the election of Professor Macey as director (other than if authority to vote for
Professor Macey is withheld below) and upon such other business as may properly
come before the meeting, and any adjournment or postponement thereof. The
undersigned hereby revokes any previous proxies with respect to matters covered
by this Proxy.
MR. WYSER-PRATTE RECOMMENDS A VOTE FOR PROPOSALS 1 THROUGH 7.
1. To amend the bylaws to determine whether a proposal to acquire the Company
shall be treated as "friendly" or "hostile".
FOR AGAINST ABSTAIN
2. To amend the bylaws to require a unanimous vote of the directors to approve
"defensive actions" by the board unless shareholders approve such actions.
FOR AGAINST ABSTAIN
3. To amend the bylaws to allow the holders of 25% of the shares to call a
special meeting of shareholders.
FOR AGAINST ABSTAIN
4. To amend the bylaws to elect not to be governed by the Business Combination
Statute.
FOR AGAINST ABSTAIN
5. To repeal any bylaws adopted by the board of directors since June 11, 1998.
FOR AGAINST ABSTAIN
6. To adopt a resolution recommending to the board that the Company reimburse
Mr. Wyser-Pratte's expenses in connection with this proxy solicitation.
FOR AGAINST ABSTAIN
7. To elect Jonathan R. Macey to the board of directors.
FOR nominee WITHHOLD AUTHORITY for nominee
<PAGE>
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER MARKED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO MARKING IS MADE, THIS PROXY WILL BE DEEMED TO
BE A DIRECTION TO VOTE FOR PROPOSALS 1 THROUGH 7 AND IN THE DISCRETION OF THE
PROXIES, TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING, AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
------------------------------------
(Date)
------------------------------------
(Signature)
-------------------------------------
(Title)
------------------------------------
(Signature, if held jointly)
When shares are held by joint tenants, both should sign. When
signing an attorney, executor, administrator, trustee, guardian, corporate
officer or partner, please give full title as such. If a corporation, please
sign in corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person. This Proxy
votes all shares held in all capacities.
PLEASE MARK, SIGN, DATE AND MAIL PROMPTLY
<PAGE>
<PAGE>
IMPORTANT
Your proxy is important. No matter how many shares you own,
please give Mr. Wyser-Pratte your proxy FOR approval of the his Proposals by:
MARKING the enclosed [COLOR] Annual Meeting proxy card,
SIGNING the enclosed [COLOR] Annual Meeting proxy card,
DATING the enclosed [COLOR] Annual Meeting proxy card and
MAILING the enclosed [COLOR] Annual Meeting proxy card TODAY in
the envelope provided (no postage is required if mailed in the
United States).
If you have already submitted a proxy to Telxon for the Annual
Meeting, you may change your vote to a vote FOR Mr. Wyser-Pratte's Proposals by
marking, signing, dating and returning the enclosed [COLOR] proxy card for the
Annual Meeting, which must be dated after any proxy you may have submitted to
Telxon. Only your latest dated proxy for the Annual Meeting will count at such
meeting.
If you have any question or require any addition information concerning this
Proxy Statement or the proposals by Mr. Wyser-Pratte, please contact the Proxy
Solicitor at the address and telephone number set forth below.
IF ANY OF YOUR SHARES ARE HELD IN THE NAME OF A BROKERAGE FIRM, BANK, BANK
NOMINEE OR OTHER INSTITUTION, ONLY IT CAN VOTE SUCH SHARES AND ONLY UPON RECEIPT
OF YOUR SPECIFIC INSTRUCTIONS. ACCORDINGLY, PLEASE CONTACT THE PERSON
RESPONSIBLE FOR YOUR ACCOUNT AND INSTRUCT THAT PERSON TO EXECUTE THE [COLOR]
ANNUAL MEETING PROXY CARD.
STATEMENT OF DIFFERENCES
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The section symbol shall be expressed as ............................. 'SS'
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