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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________TO __________
COMMISSION FILE NUMBER 0-11402
TELXON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 74-1666060
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3330 WEST MARKET STREET, AKRON, OHIO 44333
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 664-1000
Securities registered pursuant Name of each exchange
to Section 12(b) of the Act: on which registered:
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
7-1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2012
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of registrant's Common Stock held by non-affiliates
as of May 29, 1998, based on the last reported sales price of the Common Stock
as reported on the Nasdaq National Market for such date, was $526,439,071.
At May 29, 1998, there were 16,095,367 outstanding shares of the registrant's
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for its 1998 Annual Meeting of
Stockholders to be held in September 1998, which the registrant intends to
file with the Securities and Exchange Commission within 120 days of the close of
its fiscal year ended March 31, 1998, is incorporated by reference in Part III
of this Annual Report on Form 10-K from the date of filing such document.
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PART I
ITEM 1. BUSINESS
GENERAL
DESCRIPTION OF COMPANY'S BUSINESS
Telxon Corporation (including its subsidiaries, "Telxon" or the "Company")
designs, manufactures, integrates, markets and supports transaction-based
wireless workforce automation systems. The Company's mobile computing devices
and wireless local area network ("WLAN") products are integrated with its
customers' host enterprise computer systems and third-party wide area networks
("WANs"), enabling mobile workers to process data on a real-time basis at the
point of transaction. Telxon customers' needs to reduce cycle times, improve
asset management and create new services drive their requirements for real-time
information throughout their organizations. Telxon's products are sold worldwide
for use in key vertical markets, including retail, warehouse/logistics and
manufacturing. The Company also serves several segments of the emerging mobile
services market, such as field service, insurance claims processing and work
force automation.
HISTORICAL OVERVIEW
The Company was incorporated in Delaware in 1969 as "Electronic Laboratories,
Inc.", as the successor to a business established in Texas in 1967. The
Company's name was changed to "Telxon Corporation" in 1974.
Telxon completed its initial public offering of 1,600,000 shares of common stock
in July 1983, a secondary offering of 1,150,000 common shares in July 1985, a
$46 million issue of 7-1/2% Convertible Subordinated Debentures due 2012 in June
1987, and an $82.5 million issue of 5-3/4% Convertible Subordinated Notes due
2003 in December 1995. During fiscal 1991, the Company purchased and retired
$21.3 million of the 7-1/2% Debentures, and to date, the holders of $.3 million
of the 7-1/2% Debentures have elected to convert them into common shares.
For more than two decades, the Company has developed and marketed portable
handheld terminals to retailers and wholesalers in the grocery, drug, hardware,
mass merchandising, full-line department store and specialty retail chain
segments. An increasing number of markets outside retail are also adopting
mobile transaction-based systems, including warehouse/logistics, manufacturing
and mobile services.
Telxon pioneered the commercialization of spread spectrum radio frequency ("RF")
technology in WLANs for vertical market applications. Telxon is the leading
supplier of RF-enabled devices, having shipped over 500,000 units to date.
The Company's core mobile computing and wireless data communication products
integrate a wide array of electronic and RF components and advanced data
collection technologies. Through a combination of proprietary
application-specific integrated circuit ("ASIC") technology, data radio
technology and market-responsive packaging, the Company seeks to deliver
cost-effective products that meet the technical and ergonomic needs of the
Company's targeted markets. The Company's wireless data networks are designed
to take advantage of Telxon's patented microcellular network architecture to
allow mobile devices to roam seamlessly through large buildings and groups of
buildings with uninterrupted data flow.
The Company competes in a highly competitive marketplace characterized by
rapidly evolving technology. Certain of the important factors, risks and
uncertainties affecting its business and results of operations are referenced in
the discussion of the Company's business that follows. For a more detailed
discussion of those and other such factors, risks and uncertainties, see
"FACTORS THAT MAY AFFECT FUTURE RESULTS" under "Item 7. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" below in this
Form 10-K, which discussion should be read in conjunction with the discussion
under this Item 1.
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TRANSITION TO NEW BUSINESS MODEL
To improve returns to shareholders and to position the Company as a world-class
provider of wireless mobile information system solutions, Telxon's board and
senior management in June 1996 began implementing a new, three-phase business
model focusing on continuous improvement in operations and new product
development.
In the first phase, implemented during fiscal 1997, the Company focused on
continuous improvement in operations and new product development. The Company
implemented a number of programs aimed at reducing the cost of its products
through new design procedures, improved sourcing and model consolidations. The
Company believes this phase has been successful in increasing its gross margin
from an average of approximately 32 percent in the first half of fiscal 1997 to
an average of over 40 percent in fiscal 1998.
The second phase, implemented during fiscal 1997, focused on improving operating
efficiencies and lowering the overall cost of serving the Company's global
markets. Key management changes were made in sales, product marketing, product
development, customer service and operations to drive greater efficiencies
throughout the Company's business processes. The Company believes this phase is
largely completed. Aggregate selling, product development and engineering, and
general and administrative expenses have been reduced on an annual run-rate
basis by approximately $2-$3 million per quarter from peak levels incurred in
the first half of fiscal 1997. In fiscal 1998, the Company began the
consolidation and relocation of certain of its engineering, product development
and customer enable Telxon to realize the benefits of concurrent engineering and
improve its ability to integrate world class technology and customer service
capabilities. In addition to a reduction in its overall operating costs, the
Company expects the consolidation to result in a reduction of its product
development time to market and an enhanced ability to support its customers on a
worldwide basis.
To complete the transition, the Company has begun the third phase of its new
business model, focusing on redesigning Telxon's infrastructure and logistics
systems to address changing market conditions more effectively. As part its
program of continuous improvement, all operations of the Company will be subject
to ongoing review. In addition, Telxon continues to evaluate alternative
strategies to better reflect the embedded value of investments in its technical
subsidiaries in its market value.
GLOBAL SALES AND MARKETING
The Company's sales in the United States and Canada are made directly through
its own sales force as well as through selected distributors, Value-Added
Resellers ("VARs"), independent software vendors ("ISVs"), system integrators,
OEMs and strategic partners.
The Company's international sales are made through subsidiaries located in
Australia, Belgium, France, Germany, Italy, Japan, Spain and the United Kingdom,
and through distributors in Africa, Asia, Europe, Mexico, the Middle East and
South America. Distributor support offices are located in Belgium, Brazil and
Singapore. (For further information regarding geographical segments and revenues
from the Company's International Division, see Note 13 to the consolidated
financial statements and Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.")
No customer accounted for 10% or more of the Company's total revenues in fiscal
1998.
WORLD CLASS SYSTEMS INTEGRATION WITH VERTICAL MARKET FOCUS
Telxon delivers transaction-based wireless workforce automation systems to its
customers on a world-wide basis. The Company utilizes its global technical
resources to integrate its full line of mobile computing products with a wide
array of operating systems and application software, advanced data collection
technologies and wireless networking systems. The end result is a fully
integrated solution that seamlessly connects the customers' mobile workers with
its host enterprise system, providing them with real-time access to the
information they need. The Company has developed a full menu of system
integration services, including engineering site surveys and project management.
The Company's global technical resources are available in each of its targeted
vertical markets. Telxon employs marketing specialists with industry-specific
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knowledge to partner with its direct sales representatives and systems
engineers, VARs and system integrators to provide industry specific solutions
for its customers.
TECHNICAL SUBSIDIARIES
To more fully participate in rapidly growing sectors of the wireless
communications and computing industries, Telxon in fiscal 1993, began a program
to accelerate advanced research, technology and product development. The major
initiative in this strategy was forming or purchasing new product and
technology companies exhibiting entrepreneurial innovation and leadership.
Telxon also increased its investment in its own research and product
development operations.
Products and technologies that have been identified through this strategy
include:
- Ruggedized mobile computers with wide area radio capabilities
- Wireless pen-based workslates
- Advanced character recognition software
- Advanced 2D bar code encoding and autodiscriminating decode
software
- Advanced image processing
- Advanced 900 Mhz and 2.4 Ghz spread spectrum radios and wireless
networks
- Advanced CPU and ASIC design
The Company's technical subsidiaries have been structured to work together with
its own advanced research and product development resources to design, develop
and produce leading-edge technology products for the future. The Company's
current subsidiaries acquired or formed through this program are detailed below.
Aironet Wireless Communications(TM), Inc.
In January 1994, the Company formed Aironet Wireless Communications,
Inc. ("Aironet"(R)) of Akron, Ohio, to continue development and
marketing of WLAN systems. Aironet was formed from one subsidiary
company and two units of the Company:
- Telesystems SLW, Inc. -- designer and manufacturer of wireless
spread spectrum WLAN radios that was purchased by Telxon in 1992.
- Telxon's Radio and Wireless Network Engineering Group --
designers of advanced spread spectrum radio technology and
network software.
- Telxon's RF Software Engineering Group -- advanced software
designers of universal wireless connectivity systems for
integration to other computer manufacturers' networks.
Aironet developed one of the first commercial applications for spread
spectrum radio technology and currently designs and develops universal
modular WLAN radio products and networks which it sells to Telxon, VARs
and OEMs.
Metanetics(R) Corporation
Metanetics Corporation ("Metanetics") was formed in January 1994 in
Fort Myers, Florida, in part from the acquisition of Metamedia
Corporation of Port Jefferson, New York.
Metanetics develops 2D bar code encoding and autodiscriminating decode
software and advanced image processing technology.
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Teletransaction(TM), Inc.
In February 1993, the Company acquired Teletransaction, Inc.
("Teletransaction") of Akron, Ohio. Teletransaction is a developer of
advanced pen and touch-screen wireless mobile workslates for vertical
markets served by the Company.
PenRight!(R) Corporation
In February 1994, the Company acquired PenRight! Corporation
("PenRight!") of Fremont, California. PenRight! is a leading developer
of pen-based character recognition software. PenRight! Pro(R) software
acts as a DOS based software development tool for creating pen-based
applications in Microsoft(R)"C". PenRight! Pro supports ten
international languages. The Company has developed a new version to
support 486 platforms and Pen for Windows(R).
The Company has realized the value of two of its former technical
subsidiaries through sale transactions, under the terms of which the
Company retained access to the technologies developed by the former
subsidiaries important to the Company's business going forward.
In addition to their technological value, the Company's technical subsidiaries
are also a potential source of financial value. The Company sold its ruggedized
notebook computer subsidiary, Itronix Corporation, which it had acquired in
March 1993 for $4 million, to Dynatech Corporation of Burlington, Massachusetts
in December 1996 for $65 million in cash. The Company also sold its head mounted
display subsidiary, Virtual Vision(R), Inc., to FED Corporation of Hopewell
Junction, NY in March 1998 for $5 million in cash and stock. The Company had
acquired Virtual Vision in July 1995 for $3 million.
The Company's Strategic Plan for Aironet
Overview
The Company has been an early leader in the WLAN industry with over 350,000
RF-enabled devices installed, serving over 2,000 customers worldwide. Aironet,
the Company's WLAN subsidiary, has essentially been its sole supplier of
spread-spectrum radios, the key component in a WLAN system. The Company was
Aironet's largest customer in FY 1998, representing approximately 70% of their
volume.
The Company and Aironet, have identified emerging market opportunities that will
be driven by the evolution of WLAN technologies from proprietary to
open-systems. In June 1997, the long-expected IEEE 802.11 interoperability
standard for WLAN products was ratified. This evolution is expected to expand
market acceptance of WLAN technologies through lower costs, new applications and
new users among the Company's traditional vertical markets and new markets such
as those that serve the occasionally-connected mobile professional or the needs
of the small office/home office. These new markets will adopt WLAN products as a
mobile or flexible low-cost alternative to typical wired-line connections.
Over the last 3 years, the Company has designed and initiated a plan to expand
the Company's and Aironet's leadership in the WLAN industry, maximize the value
of its investment in Aironet and generate increased value for the Company's
shareholders ("Aironet Plan"). Key elements of the Aironet Plan address how the
Company and Aironet can most effectively support their legacy WLAN installed
base, manage and assist customer's transition from proprietary to open WLAN
systems, access and compete in the high growth new emerging markets, and attract
and retain the highest quality technical resources.
Independent Ownership
The Company believes that as the use of WLAN technology expands and these
emerging opportunities are realized, the incremental value being generated by
Aironet, will likely be under-recognized, as an imbedded asset within the
Company's traditional valuation multiples. In early 1996, The Company and
Aironet initiated discussions with outside advisors and potential investors, to
outline and initiate the next phase of the Aironet Plan to expose and unlock
this imbedded value.
The Company's board approved a plan to position Aironet as an independent
organization by initiating outside minority ownership and outside participation
on the Aironet board. The plan expects to draw on the prior experience,
expertise and relationships of these outside investors and board members to
help drive the process of increasing and unlocking the value in Aironet and to
assess possible strategies that include a public offering, private sale of
Aironet,a spin-off of the Company's shares in Aironet to the Company
shareholders or some combination of these alternatives. Aironet as an
independent organization, is expected to create an entrepreneurial environment,
effective in the competitive recruitment of technical WLAN and RF resources ,
utilizing a variety of incentives to key employees including equity
participation and employee stock options.
As a result of Aironet's increased focus of its resources on leading technology
development and these emerging opportunities and the benefits and incentives of
the entrepreneurial environment, the Company expects Aironet as an independent
organization, to achieve higher revenues and earnings growth than it would as a
wholly owned subsidiary of the Company.
Manufacturing Rights, Software License and Supply Agreements ("Agreements")
The Company and Aironet executed various Agreements in March 1998 assure that
the Company continued access to Aironet's WLAN products and technology
necessary to continue to support its current and future customers WLAN
requirements.
These Agreements provide for the Company to assume full control of sourcing and
support for its own legacy RF product requirements. Since July 1997, the
Company has assumed the sourcing duties for its legacy WLAN product
requirements, effectively moving the production management of 70% of Aironet's
traditional volume to The Company's Houston-based manufacturing group. Shifting
these sourcing duties to the Company allows Aironet to focus its resources on
the development of new products for current markets and the high growth, high
volume emerging markets
Under these Agreements, the Company pays royalties to Aironet that approximate
the inter-company mark-up amount previously reflected in Aironet's pricing to
the Company, subject to various annual caps, declining rates and sunset
provisions. For example, royalties under the Manufacturing Rights Agreement
become fully paid-up after 3 years or sooner in the event certain reductions in
the Company's ownership in Aironet. The Company has no guarantees or minimum
obligations to Aironet under the Agreements.
The Company and Aironet have also entered into a Supply Agreement which outlines
the terms under which the Company may purchase new products from Aironet,
including recently announced 802.11 compliant products. The Company does not
have manufacturing rights for these new products, with certain exceptions for
discontinued products.
The Company estimates that 85% of its FY 1999 RF requirements will be for legacy
products fulfilled under the manufacturing rights, with the remaining 15% being
new products, including 802.11 compliant products, sourced from Aironet or other
suppliers.
Private Placement Overview
In late 1997, the Company and Aironet initiated discussions with selected
venture capital firms, soliciting equity investment commitments into Aironet,
under terms reflective of a late-stage investment venture and the rights,
benefits and value retained by the Company under the Manufacturing Rights and
Software License, including various annual caps, declining rates and sunset
provisions on royalties payable to Aironet. These terms, while assuring the
Company continued and favorable access to Aironet's products and technology,
effectively eliminates over three years or less the legacy product income
Aironet earns from the Company. The value of Aironet to outside investors
therefore is heavily tied to the future success of Aironet's new products and
ability to access the new emerging market opportunities outside the traditional
inter-company business with the Company.
After several months of negotiation, a $3.4 million private placement was
completed in March 1998 with two open commitments (under the same March 1998)
terms totaling $700,000, completed in April 1998. Approximately 1.1 million
shares where issued by Aironet at $3.50 per share with approximately 400,000
warrants, exercisable within 3 years under certain conditions, at $3.50
Other key terms of this $4.2 million private placement include the right for the
investor group to designate one board seat and one observer seat on the Aironet
board with expanded rights if the Company's ownership interest in Aironet is
reduced below certain levels or in the event of a hostile change of control of
the Company; three demand registration rights after 12 months or certain changes
in Aironet ownership. Investors who purchased shares in the private placement
will have a one-time opportunity 90 days after a change of control of the
Company to sell their then owned Aironet shares to the non-hostile successor
within 30 days, at $10.50 per share.
An Aironet stock option plan was adopted in April 1996, and subsequently
amended, which authorized a pool of 1.95 million stock options. Approximately
1.7 million options have been granted at fair market value through June 29, 1998
at exercise prices of $1.86 - $3.50 per share.
As of June 29, 1998, the Company owned 76% of the common shares outstanding in
Aironet and 62% after the effect of all dilutive stock options and warrants.
Telxon's future growth will depend in part on the success of both its global
sales and marketing efforts and its systems integration and project management
services, as well as further penetration of its targeted vertical markets and
its ability to capitalize on the investment in its technical subsidiaries.
ADVANCED RESEARCH AND PRODUCT DEVELOPMENT
The Company focuses on advanced hardware, software, and firmware designs that
utilize Telxon proprietary ASIC chips. The Company's product development
strategy is to enhance the functionality and improve the price and performance
of its hardware and software, and to improve the packaging of its mobile
computing devices to address the specific requirements of each targeted market.
Products and systems are designed for modularity and the ability to upgrade,
where possible.
There can be no assurance that the Company's research and development activities
will lead to the successful introduction of new or improved products or that the
Company will not encounter delays or problems in connection therewith.
Furthermore, customers may defer purchases of existing products in anticipation
of new or improved versions of those products. Although the Company contemplates
the introduction of new products in fiscal 1999, the majority are scheduled for
introductions in the second half of the year. There can be no assurance that
there will not be delays in commencing volume production of such products or
that such products will ultimately be commercially successful.
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- Aironet and Aironet Wireless Communications are registered
trademarks, of Aironet Wireless Communications, Inc.
- Metanetics is a registered trademark of Metanetics
Corporation.
- Teletransaction is a trademark of Teletransaction, Inc.
- PenRight! and PenRight! Pro are registered trademarks of
PenRight! Corporation.
- Microsoft and Pen for Windows are registered trademarks of
Microsoft Corporation.
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During fiscal 1998, 1997 and 1996, the Company spent $37.5 million, $44.4
million and $45.4 million, respectively, for Company-sponsored research,
development and engineering. For further discussion, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -
Operating Expenses."
VIII. MANUFACTURING AND PRODUCT MAINTENANCE
* MANUFACTURING OPERATIONS
Manufacturing operations consist of the assembly, testing and quality
assurance of components, sub-assemblies and finished products. The
Company's products are built and configured with various memory sizes,
packaging, peripherals, keyboards and displays.
In 1994, the Company's principal manufacturing operations were
consolidated into a newly constructed, Company-owned 116,000 square
foot facility. The facility provides a more efficient plant layout and
an opportunity for expansion of manufacturing capacity in the future.
For information regarding subsidiaries' manufacturing operations, see
"Item 2 -- PROPERTIES."
All component parts in the Company's products are purchased from
outside sources. Packaging, custom-integrated circuits, keyboards and
printed circuit boards are produced to the Company's specifications. A
number of peripheral products, including wands, laser scanners,
controllers and receivers, are purchased as completed assemblies and
attached to and staged with Telxon's own products before delivery. Some
products are produced by outside contract manufacturers.
Telxon's International Procurement Office ("IPO") located in Singapore
provides the Company with an opportunity to procure materials from
lower cost, Far East suppliers. As more commodities are procured by the
IPO staff, continued cost savings are expected. The Company has not to
date experienced any adverse effects from its Singapore procurement
operations as the result of the recent economic difficulties
experienced in Southeast Asia, though there can be no assurance that
future events, including government economic regulation, civil unrest
or otherwise, will not materially adversely affect the Singapore
operations and, in turn, the operations and financial results of the
Company.
The Company has in the past encountered, and may in the future
encounter, shortages of supplies and delays in deliveries of necessary
components. While such shortages and delays could have a material
adverse effect on the Company's ability to ship products, the Company
has not suffered any such effects as the result of past shortages and
delays. Additionally, the Company does not believe that the loss of any
one supplier or subassembly manufacturer would have a material
long-term adverse effect on its business, although set-up costs and
delays could occur if the Company changed any single source supplier.
* PRODUCT MAINTENANCE OPERATIONS
The Company provides maintenance and repair services for Telxon
customers from its 36,000 square foot National Service Center in
Houston, Texas. The Company also services various third-party products,
including personal computers, printers and communication devices.
During fiscal 1998, the Company began to relocate certain of its
product repair and maintenance operations related to its high volume,
low-end products, to a newly constructed 50,000 square foot leased
facility in Ciudad Juarez, Mexico. The Company also maintains a number
of customer specific service depots to provide service to users with
large concentrations of Telxon products.
The Company offers a broad array of repair services and maintenance
agreements ranging from time and material charges to sophisticated
plans, such as the "just in time" program that offers spare Telxon
equipment supplied on-site to the customer, virtually eliminating any
system downtime.
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PRODUCTS AND SYSTEMS
HANDHELDS, WORKSLATES AND OTHER MOBILE COMPUTING DEVICES
The Company has developed a broad line of handheld devices, which range from
low-end batch terminals to highly integrated mobile computers incorporating
laser bar code readers and spread spectrum radios, including a variety of
pen-based and touch-screen workslate devices.
WIRELESS DATA COMMUNICATION PRODUCTS, NETWORK SYSTEMS AND SOFTWARE
Telxon provides wireless data communication solutions for mobile, distributed
data processing application systems through computing devices equipped with
radios to transfer programs or data to and from other computers or peripheral
devices while remaining mobile. The four types of available radios are (1)
spread spectrum (both direct sequence and frequency hopping) radios, (2) wide
area radios, (3) micro radios, and (4) narrow band FM radios. The Company uses
industry standard "open" system protocols to provide seamless connectivity
across a wide range of host computer systems, including SNA and TCP/IP and other
manufacturers' communication networks.
The portable computer wireless local area network markets in which Telxon
participates have exhibited rapid rates of growth, and are projected to continue
to grow rapidly. According to Frost & Sullivan the worldwide market for
portable computing products totaled roughly $30 billion in 1996, and has grown
at a compound annual rate of over 25 percent from 1992 to 1996. Frost &
Sullivan projects that the major segments of this market will grow at compound
annual rates of between 17-25 percent through 2003.
According to Frost & Sullivan the North American market for wireless local area
networks totaled approximately $166 million in 1995, and has grown at a
compound annual rate of over 30 percent from 1992 to 1995. Frost & Sullivan
projects this market will continue to grow at this rate through 2002.
Through Aironet, the Company has developed a series of spread spectrum data
radios, access points, repeaters, routers and bridges. The current products use
the 900 Mhz or 2.4 Ghz frequency bands, available utilizing either direct
sequence or frequency hopping technology, at data rates ranging up to 2 Mbps.
These radio products are built upon Telxon's AirAWARE(TM) family of enterprise
software for mobile information solutions, and are integrated with Telxon's
Microcellular Architecture ("TMA") software to build wireless networks.
The Company has been granted a number of patents for its spread spectrum
technology and was the first company in the wireless industry to receive FCC and
Canadian Department of Communication approval for its spread spectrum radios. In
June 1996, Aironet received approval from the United States Federal
Communication Commission ("FCC") for its new 2.4 Ghz frequency hopping family of
WLAN products, making Aironet the only company that currently designs and
manufactures both 900 Mhz and 2.4 Ghz direct sequence and 2.4 Ghz frequency
hopping spread spectrum radios. The designs of the Company's wireless WLAN
systems and products are based upon the Institute of Electrical and Electronic
Engineer's (IEEE) 802.11 specification for RF protocol standards, which was
ratified by the IEEE Standards Activity Board on June 26, 1997. The Company
intends to bring its systems and products into compliance with the IEEE 802.11
standards. In April 1998, Aironet became the first company in the wireless WLAN
industry to break the 10 Mbps barrier and receive FCC approval for its newly
announced 11 Mbps wireless PC card for operation in the unlicensed 2.4 Ghz ISM
band.
Telxon's Air-I/O(TM) System provides 900 Mhz and 2.4 Ghz spread spectrum radio
technology for fast, robust wireless data communications by using spread
spectrum technology and the Company's Gateway Connectivity System(TM)
("GCS"(TM)) to create a wireless interface between Telxon mobile devices and
customers' host computers. The Company's spread spectrum radios are designed to
fit into Telxon's mobile devices and a variety of personal computers (PCs),
client servers and other mobile devices.
The Air-I/O System creates one or more radio cells, with each cell supporting an
area of coverage. TMA allows mobile devices to move from cell to cell while
maintaining a wireless connection to the host computer. Implementation of the
system have included an installation providing coverage for over 4 million
square feet.
The Company makes a line of base station and client/server card transceivers
that interface portable wireless products with a client/server or mainframe. The
Company also offers customers optional built-in acoustic couplers and integrated
modems that allow data transmission from remote telecommunication locations into
a host computer or client servers.
- ----------
- Air-I/O, AirAWARE, Gateway Connectivity System and GCS
are trademarks of Telxon Corporation.
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Third-party wide area network radios are integrated with the Company's mobile
computing devices for access to the ARDIS(R) or RAM(R) wireless wide area packet
data networks such as ARDIS(R), RAM(R), or CDPD.
"Micro radios" are small, low-power FM radios designed and manufactured by the
Company and integrated into Telxon mobile devices and peripherals to provide
cable-free data communications between system components.
Narrow band FM radios from major manufacturers have been provided by Telxon
since 1984. These radios operate in the 450 Mhz band and require FCC site
licensing.
Subsequent to March 31, 1998, the Company announced ShopKeeper(TM), a low cost
wireless solution that will enable retail chains with small store formats to
link their in-store processors, POS systems and wireless mobile computers
together on the same network. ShopKeeper(TM) is based on the new Company's
MiniNet(TM) 2.4 Ghz radio and new low cost Connection Manager, which combine
with AirAWARE to create a single cell wireless network supporting up to eight
Telxon wireless PTC-921 DOS or PTC-960LE mobile computers for a single site
retail environment.
PERIPHERALS
The Company integrates a variety of peripheral products into or with its regular
product line, including laser bar code readers (internal and external), modular
printers (24, 40 and 80 columns), chargers, cradles, modems and communication
interfaces. Many of these products or components are purchased from outside
vendors.
SOFTWARE OPERATING SYSTEMS, LANGUAGES AND APPLICATIONS
The Company is transitioning to a new generation of modularly designed mobile
computers, which embrace thin-client, industry standard, open systems
architectures in order to offer its customers access to a multitude of operating
systems, including Windows NT(R), Windows CE(R) and Windows 95(R) and Sun
Microsystems' JavaOS(TM) and HotJava(TM) Browser.
The Company develops, through its PenRight! and Metanetics subsidiaries,
advanced character recognition software, advanced image processing and 2D bar
code encoding and autodiscriminating decode software.
INTELLECTUAL PROPERTY
The Company regards certain of its hardware and software products as proprietary
and relies on a combination of United States and foreign patent, copyright,
trademark and trade secret laws and license and other contractual
confidentiality provisions to protect its proprietary rights. In addition, the
Company's products also utilize hardware and software technologies licensed from
third parties. Given the rapidly changing nature of the industry's technology,
however, the competence and creative ability of the Company's development,
engineering, programming, marketing and service personnel may be as or more
important to its competitive position as the legal protections and rights
afforded by patent and other owned or licensed intellectual
- ----------
- ARDIS is a registered trademark of IBM Corporation and
Motorola Corporation.
- RAM is a registered trademark of RAM Mobile Data, Inc.
- ShopKeeper and MiniNet are trademarks of Telxon Corporation.
- Windows NT, Windows CE and Windows 95 are registered
trademarks of Microsoft Corporation.
- JavaOS and HotJava Browser are trademarks of Sun Microsystems,
Inc.
8
<PAGE> 9
property rights. The Company believes that its products and trademarks do not
infringe on the rights of third parties, but there can be no assurance that
third parties will not assert infringement claims.
GOVERNMENT REGULATION
The Company believes that its products are in material compliance with current
government regulations; however, regulatory changes may require modifications to
Company products in order for the Company to continue to be able to manufacture
and market these products. There can be no assurances that more stringent
regulations will not be issued in the future which could have an adverse effect
on the business of the Company. In addition, sales of the Company's products
could be adversely affected if more stringent safety standards are adopted by
customers.
Certain Company products intentionally transmit radio signals as part of their
normal operation. These products are subject to regulatory approval by the FCC
and corresponding authorities in each country in which they are marketed. Such
approvals are typically valid for the life of the product unless and until the
circuitry of the product is altered in material respects, in which case a new
approval may be required.
BACKLOG
Backlog at any particular date is dependent on timing of receipt of orders and,
therefore, is not a reliable indicator of future sales over an extended period
of time.
Historically, shipments made by the Company during any particular quarter have
generally represented orders received either during that quarter or shortly
before the beginning of that quarter, and shipments for orders received in a
fiscal quarter have generally been filled from products manufactured in that
quarter. The Company maintains significant levels of raw materials to facilitate
meeting delivery requirements of its customers, but there can be no assurance
that during any given quarter, the Company has or can procure the appropriate
mix of raw materials in order to accommodate such orders. Therefore, the
Company's financial performance in any quarter has generally been dependent to a
significant degree upon obtaining orders in that quarter which can be
manufactured and delivered to its customers in that quarter. As a result,
financial performance for any given quarter cannot be known or fully assessed
until near the end of that quarter. However, the Company's product line
streamlining and standardization initiatives are intended, among other things,
to reduce its dependence on same quarter sales fulfillment through normalized
production levels. There can be no assurances that such initiatives will be
successfully implemented or produce the intended benefits.
COMPETITION
The computer industry, of which Telxon's mobile computing systems are a part, is
highly competitive and characterized by advances in technology which frequently
result in the introduction of new products with improved performance
characteristics. Failure to keep pace with product and technological advances
could negatively affect the Company's competitive position and prospects for
growth and, in turn, its business, results of operations and financial
condition.
The Company competes directly and indirectly with a number of companies in its
market segments. Frequent competitors include Symbol Technologies, Inc.,
Holtsville, New York, and the Intermec and Norand divisions of UNOVA, Inc.,
Beverly Hills, California. In addition, companies that are participants in the
broader computer industry are potential competitors. Some of the Company's
competitors and potential competitors have substantially greater financial,
technical, intellectual property, marketing and human resources than the
Company.
9
<PAGE> 10
EMPLOYEES
As of May 31, 1998, the Company employed approximately 1,550 full-time
personnel. The Company also employs temporary production and other personnel.
ITEM 2. PROPERTIES
The Company's corporate offices are located in Akron, Ohio in a 100,000 square
foot office building constructed in 1979 and occupied under a lease expiring
December 31, 2001. The lease provides the Company with an option, exercisable on
September 1, 2001, to purchase the office building and the land on which it is
situated for its then current fair market value.
The Company leases approximately 66,300 square feet of office space at locations
within a three mile radius of its corporate offices pursuant to leases expiring
from February 28, 1999, through February 28, 2001. These facilities have housed
the Company's engineering and customer support functions and the corporate
offices of its Aironet subsidiary as well as the Company's market research and
product marketing, systems development and testing, integration and product
quality management groups and certain corporate development and support
functions. The Company has during the first quarter of fiscal 1999, completed
the consolidation and relocation to the Houston, Texas facilities discussed
below of certain of those engineering product development and customer support
operations as announced on May 30, 1997 to bring them in closer proximity to the
Company's pre-existing manufacturing and services facilities there.
The manufacturing operations and related office functions of the Aironet
subsidiary were relocated during the second quarter of fiscal 1998 to a
one-story, 32,500 square foot facility owned by the Company within
approximately one mile from its corporate offices and previously used for its
Customer Support Center. Training Group and New Product Support Department,
which functions have been relocated to other Akron locations. Those Aironet
operations had previously occupied approximately 14,400 square feet of leased
space in Markham, Ontario, Canada.
In May 1998, the Company opened its World Technology Center in The Woodlands,
Texas (north of Houston). The one-story 70,000 square feet leased building of
concrete and glazed curtain wall construction was designed and constructed
specifically to support the engineering, research, software and product
development functions of the Company relocated there as part of the
consolidation discussed above. In addition to the Company's technical
operations and supporting administration, the facility houses a new Customer
Support Call Center, the Company's Industry and Product Marketing operations
and a Customer Conferencing and Executive Briefing Center. Expiring in May
2008, the lease includes a renewal option for an additional ten-year term.
The Company owns two buildings in Houston, Texas of concrete construction,
located on a 15 acre site. The first building is a 116,000 square foot
manufacturing facility that was completed in April 1994. That building houses
all Telxon manufacturing operations, as well as warehousing operations and
administrative and manufacturing engineering offices. The second building is the
Company's 36,000 square foot National Service Center, completed in November
1993, which houses its product repair and maintenance operations. The Company
maintains an additional 12,000 square feet of warehousing space at a separate
location in Houston leased through May 31, 2000.
As of the end of the second quarter of fiscal 1998, the Company relocated its
product repair and maintenance operations (other than radio-equipped units and
its top-of-the-line Depot Express maintenance program) to a new 50,000 square
foot facility of masonry construction built for it in Ciudad Juarez, Chihuahua,
Mexico. The facility is leased for an initial term of seven years, with two
five-year renewal options, and the Company has an option to purchase the
facility at the end of the initial term or any renewal term for its then
current fair market value. The Company is also leasing 20,000 square feet of
warehouse space in El Paso, Texas as a companion receiving, staging and
parts-stocking facility for the Mexican operations for an initial term of five
years, with two five-year renewal options.
In addition to these principal locations, the Company maintains 53 locations in
the United States, Canada, Western Europe, Australia, Japan and Southeast Asia
which are used principally for sales and customer service offices, as well as
for executive and engineering offices for certain of its domestic and
international subsidiaries. These locations are generally leased for terms which
range from one to three years.
The Company believes that its existing and planned facilities will be adequate
for its reasonably foreseeable level of operations. Should the operations of the
Company's principal corporate offices, engineering and research and
development, manufacturing, or repair and maintenance facilities be lost or
disrupted by natural disaster, fire or other cause, the Company's operations
would be materially adversely affected until replacement operations could be
established.
10
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
In December 1992, four class action suits were filed in the United States
District Court, Northern District of Ohio, by certain alleged stockholders of
the Company on behalf of themselves and purported classes consisting of Telxon
stockholders, other than defendants and their affiliates, who purchased the
Company's common stock between May 20, 1992, and January 19, 1993. The named
defendants were the Company, former President and Chief Executive Officer
Raymond D. Meyo, and then President, Chief Operating Officer and Chief Financial
Officer Dan R. Wipff. On February 1, 1993, the plaintiffs filed their Amended
and Consolidated Class Action Complaint related to the four actions alleging
claims for fraud on the market and negligent misrepresentation, arising from
alleged misrepresentations and omissions with respect to the Company's financial
performance and prospects, and alleged improper trading activities by the named
individual defendants. The defendants, including the Company, filed a Motion to
Dismiss which was denied by the Court on June 3, 1993. Following the completion
of discovery (other than of experts), each defendant filed a Motion for Summary
Judgment on May 19, 1995, all of which were opposed by the plaintiffs. On
September 14, 1995, the Court granted each defendant summary judgment on all
counts, which the plaintiffs appealed to the United States Sixth Circuit Court
of Appeals. The appeal was heard on October 24, 1996, and on November 12, 1997,
the Court of Appeals affirmed the summary judgment as to all defendants. The
plaintiffs did not seek further appeal of the District Court judgment in favor
of the defendants.
On September 21, 1993, a derivative Complaint was filed in the Court of Chancery
of the State of Delaware, in and for Newcastle County, by an alleged stockholder
of the Company derivatively on behalf of Telxon. The named defendants are the
Company; Robert F. Meyerson, former Chairman of the Board, Chief Executive
Officer and director; Dan R. Wipff, then President, Chief Operating Officer and
Chief Financial Officer and director; Robert A. Goodman, Corporate Secretary and
outside director; Norton W. Rose, outside director; and Dr. Raj Reddy, outside
director. The Complaint alleges breach of fiduciary duty to the Company and
waste of the Company's assets in connection with certain transactions entered
into by Telxon and compensation amounts paid by the Company. The Complaint seeks
an accounting, injunction, rescission, attorneys' fees and costs. While the
Company is nominally a defendant in this derivative action, no monetary relief
is sought by the plaintiff from the Company. On November 12, 1993, Telxon and
the individual director defendants filed a Motion to Dismiss. The plaintiff
filed his brief in opposition to the Motion on May 2, 1994, and the defendants
filed a final responsive brief. The Motion was argued before the Court on March
29, 1995, and on July 18, 1995, the Court issued its ruling. The Court dismissed
all of the claims relating to the plaintiff's allegations of corporate waste,
however the claims relating to breach of fiduciary duty survived the Motion to
Dismiss.
On October 31, 1996, plaintiff's counsel filed a Motion to Intervene in the
derivative action on behalf of a new plaintiff stockholder. As part of the
Motion to Intervene, the intervening plaintiff asked that the Court designate as
operative for the action the intervening plaintiff's proposed Complaint, which
alleges that a series of transactions in which the Company acquired certain
technology from a corporation affiliated with Mr. Meyerson was wrongful in that
Telxon already owned the technology by means of a pre-existing consulting
agreement with another affiliate of Mr. Meyerson; the intervenor's complaint
also names Raymond D. Meyo, President, Chief Executive Officer and director at
the time of the first acquisition transaction, as a new defendant. The
defendants opposed the Motion on grounds that the new claim alleged in the
proposed Complaint and the addition of Mr. Meyo were time-barred by the statute
of limitations and the intervening plaintiff did not satisfy the standards for
intervention. After taking legal briefs, the Court ruled on June 13, 1997 to
permit the intervention. On March 18, 1998, defendant Meyo filed a Motion for
Judgment on the Pleadings (as to himself), in response to which Plaintiff has
filed his Answer and Brief in Opposition, and which remains pending before the
Court. The post-intervention claims are the subject of ongoing discovery, and no
deadline for the completion of the discovery has yet been set by the Court.
The defendants believe that the post-intervention claims lack merit, and they
intend to continue vigorously defending this action. While the ultimate outcome
of this
11
<PAGE> 12
action cannot presently be determined, the Company does not anticipate that this
matter will have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows and accordingly has not
made provisions for any loss or related insurance recovery in the accompanying
consolidated financial statements.
On February 17, 1998, a complaint was filed against the Company in the District
Court of Harris County, Texas, by Southwest Business Properties, the landlord of
the Company's former Wynnwood Lane facility in Houston, Texas. The complaint
alleges counts for breach of contract and temporary and permanent injunctive
relief, all related to alleged environmental contamination at the Wynnwood
property, and seeks specific performance, unspecified monetary damages for all
injuries suffered by plaintiff, payment of pre-judgment interest, attorneys'
fees and costs and other unspecified relief. In its Answer, Telxon denied
plaintiff's allegations. Plaintiff's claim for temporary injunctive relief is
set to be heard by the Court on July 16, 1998. Pursuant to the Court's
Scheduling Order in this action, trial is set for March 8, 1999. Telxon believes
that the these claims lack merit, and it intends to vigorously defend this
action.
On May 8, 1998, two class action suits were filed in the Court of Chancery of
the State of Delaware, in and for the County of New Castle, by certain alleged
stockholders of Telxon on behalf of themselves and purported classes consisting
of Telxon stockholders, other than defendants and their affiliates, relating to
an alleged offer by Symbol Technologies, Inc. ("Symbol") to acquire the Company.
The named defendants are Telxon and its current Board of Directors, namely,
Frank E. Brick, Robert A. Goodman, Dr. Raj Reddy, John H. Cribb, Richard J.
Bogomolny, and Norton W. Rose.
The plaintiffs allege that on April 21, 1998, Symbol made an offer to purchase
Telxon for $38.00 per share in cash and that on May 8, 1998, Telxon rejected
Symbol's proposal. Plaintiffs further allege that Telxon has certain
anti-takeover devices in place purportedly designed to thwart hostile bids for
the Company. Plaintiffs charge the Director defendants with breach of fiduciary
duty and claim that they are entrenching themselves in office. The plaintiffs
seek certification of the purported class, unspecified compensatory damages,
equitable and/or injunctive relief requiring the defendants to act in specified
manners consistent with the defendant Directors' fiduciary duties, and payment
of attorneys' fees and costs. The parties have stipulated that the plaintiffs
will file an Amended Complaint and that the defendants will answer only the
Amended Complaint.
On June 2, 1998, the Court ordered consolidation of the above-captioned cases.
This action is in its early stages and no scheduling order has been issued by
the Court, and discovery has not yet commenced. The defendants believe that
these claims lack merit and intend to vigorously defend the consolidated
action.
In the normal course of its operations, the Company is subject to performance
under contracts and assertions that technologies it utilizes may infringe third
party intellectual properties, and has various legal actions and certain
contingencies pending. In management's opinion, all such outstanding matters
have either been reflected in the consolidated financial statements, are covered
by insurance or would not have a material adverse effect on the Company's
consolidated financial position or results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
ended March 31, 1998.
12
<PAGE> 13
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of the Company, who have been either
elected by the Board of Directors of the Company or appointed by the Chief
Executive Officer and ratified and approved by the Board of Directors:
Frank E. Brick, age 49, has been President of the Company since June
1996 and the Company's Chief Executive Officer since February 1997. Mr.
Brick was Chief Operating Officer of the Company from June 1996 until
being named Chief Executive Officer. He had also previously served the
Company as President and Chief Operating Officer, Telxon International
from February 1995 to June 1996 and as Senior Executive Vice President
from October 1993 to February 1995. Mr. Brick was President of
Basicomputer Corporation (business computer sales, integration and
network services; "Basicomputer") from 1985 until it was acquired in
September 1993 by The Future Now, Inc. ("The Future Now", since
consolidated into Intelligent Electronics) and also served as Chief
Executive Officer and a director of Basicomputer from 1988 until the
acquisition. He has been a director of the Company since July 1996.
Kenneth W. Haver, age 39, has been Senior Vice President, Finance and
Administration, and Chief Financial Officer of the Company since March
1995. He has also served the Company as Treasurer from May 1994 to
October 1996 and as Vice President, Financial Planning from September
1993 to March 1995. Mr. Haver joined the Company from Basicomputer,
where he had served as a Vice President and Treasurer for more than
five years.
James G. Cleveland, age 46, has been President, North America of the
Company since May 1997. He has also served the Company as Senior Vice
President, North America from September 1996 to May 1997; Senior Vice
President, North American Sales from February 1996 to September 1996;
Senior Vice President, North American Sales and Operations from October
1995 to February 1996; Senior Vice President, Vertical Systems Group
from March 1995 to October 1995; and Vice President, Sales and
Marketing from September 1993 to March 1995. Mr. Cleveland joined the
Company from Basicomputer, where he had served as Vice President, Sales
from January 1993 to August 1993 and as Area Vice President, Midwest
Operations from February 1992 to January 1993.
David D. Loadman, age 37, has been Senior Vice President, Global
Product and Systems Development of the Company since September 1996.
Other capacities in which Mr. Loadman has served the Company since
joining it in October 1988 include as Senior Vice President, Global
Wireless Systems and Advanced Research and Development from June 1996
to September 1996; Senior Vice President, Technical Operations from
August 1994 to June 1996; Vice President, Global Technology from May
1994 to August 1994; Vice President, Systems Engineering Group from
August 1993 to May 1994; Vice President, Systems Integration from
February 1993 to August 1993; Director, Communications Systems from
November 1992 to February 1993; Director, Software Communications
Systems from August 1992 to November 1992; and Product Manager,
Hardware from September 1991 to August 1992.
David W. Porter, age 40, has been Senior Vice President, Global
Operations of the Company since September 1996. He has also served the
Company as Vice President, Operations from July 1996 to September 1996
and as Vice President, Asset Management from May 1996 to July 1996. Mr.
Porter joined the Company from The Future Now, where he had served as
Vice President, Operations from the time of its acquisition of
Basicomputer to May 1996, and prior to that time he worked for
Basicomputer as Vice President, Operations from August 1989 to August
1993.
Dan R. Wipff, age 55, has been the President and Chief Executive
Officer of the Company's Telxon Products manufacturing division since
July 1994. He was President and Chief Operating Officer of the Company
from October 1992, and the Company's Chief Financial Officer from
December 1991 until July 1994. Mr. Wipff was Senior Executive Vice
President and Chief Operating Officer of the Company from October 1989
to October 1992. He also served as the Company's Chief
13
<PAGE> 14
Financial Officer from October 1989 to July 1990 and from October 1990
to September 1991. Mr. Wipff served as a director of the Company from
April 1974 until September 1979 and from September 1980 until January
1995.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been publicly traded since July 21, 1983, in the
over-the-counter market under the symbol TLXN. The principal trading market for
the Company's Common Stock is The Nasdaq Stock Market's National Market ("NNM").
The following table sets forth, with respect to the past two fiscal years of the
Company, the range of high and low closing prices as reported in the NNM and
cash dividends paid. The Company has not paid other than nominal dividends. The
Company intends to follow a policy of retaining earnings in order to finance the
continued growth and development of its business. Payment of dividends is within
the discretion of the Company's Board of Directors and will depend on, among
other factors, earnings, capital requirements and the operating and financial
condition of the Company.
<TABLE>
<CAPTION>
FISCAL QUARTER
----------------
YEAR ENDED MARCH 31 FIRST SECOND THIRD FOURTH YEAR
- ------------------- ----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
1998
High $19.25 $24.88 $29.00 $26.63 $29.00
Low 13.63 18.00 22.00 21.63 13.63
Dividends paid -- -- -- .01 .01
1997
High $27.50 $14.00 $13.75 $17.75 $27.50
Low 9.88 11.00 11.25 13.50 9.88
Dividends paid -- -- -- .01 .01
</TABLE>
As of May 31, 1998, there were approximately 897 holders of record of the
Company's Common Stock.
Historically, variations in the Company's actual or expected results of
operations and changes in analysts' earnings estimates and investment
recommendations have resulted in significant changes in the market price of the
Company's Common Stock. As a result, the market price of the Company's Common
Stock, like that of other technology companies, has been subject to significant
volatility. The Company's stock may also be affected by broader market trends
unrelated to the Company's own performance involving the Company's competitors,
technology stocks in general or the economy as a whole.
While the Company does, from time to time, communicate with securities analysts,
any opinions, projections and forecasts contained in reports issued by
securities analysts have been prepared by each analyst based on his own judgment
and research and are not the responsibility of the Company. It should not be
assumed that the Company agrees with any report issued by any analyst.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are selected financial data for the five years ended March 31,
1998, which have been derived from the Company's audited financial statements
for the periods indicated. The selected financial data should be read in
conjunction with the financial statements, including the notes thereto, for the
three years ended March 31, 1998, 1997 and 1996, as included in Item 8 herein.
For further details on fiscal 1998 results, also refer to Item 7.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Product, net $ 389,124 $ 391,406 $ 417,725 $ 323,916 $ 252,341
Customer service, net 76,746 74,606 68,744 55,603 43,652
--------- --------- --------- --------- ---------
Total net revenues 465,870 466,012 486,469 379,519 295,993
Costs and expenses:
Cost of product revenues 228,318 266,624 249,120 189,568 143,347
Cost of customer service revenues 48,836 47,248 39,016 32,455 31,958
Selling expenses 77,858 88,321 82,207 68,279 59,894
Product development and engineering
expenses 37,500 44,439 45,383 33,728 29,058
General and administrative expenses 39,028 53,230 39,415 34,583 31,854
--------- --------- --------- --------- ---------
Total costs and expenses 431,540 499,862 455,141 358,613 296,111
--------- --------- --------- --------- ---------
Income (loss) from operations 34,330 (33,850) 31,328 20,906 (118)
Interest income 1,573 1,489 760 658 653
Interest expense (7,181) (8,056) (6,770) (4,354) (2,459)
Gain on sale of subsidiary stock 1,637 -- 1,116 -- --
Other non-operating (expense) income (1,504) 34,726 401 -- --
--------- --------- --------- --------- ---------
Income (loss) before income taxes
and cumulative effect of an
accounting change 28,855 (5,691) 26,835 17,210 (1,924)
Provision for income taxes 12,408 1,368 10,314 8,192 875
--------- --------- --------- --------- ---------
Income (loss) before cumulative
effect of an accounting change 16,447 (7,059) 16,521 9,018 (2,799)
Cumulative effect of an accounting
change, net of taxes 1,240 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ 15,207 $ (7,059) $ 16,521 $ 9,018 $ (2,799)
========= ========= ========= ========= =========
Earnings per common and common
equivalent share:
Income (loss) before cumulative
effect of an accounting change
Basic $ 1.04 $ (.44) $ 1.04 $ .58 $ (.18)
Diluted 1.01 (.44) 1.00 .57 (.18)
Cumulative effect of an
accounting change
Basic (.08) -- -- -- --
Diluted (.08) -- -- -- --
Net income (loss)per share
Basic $ .96 $ (.44) $ 1.04 $ .58 $ (.18)
========= ========= ========= ========= =========
Diluted $ .93 $ (.44) $ 1.00 $ .57 $ (.18)
========= ========= ========= ========= =========
Average number of common and common
equivalent shares outstanding
Basic 15,809 16,062 15,910 15,485 15,210
Diluted 16,289 16,062 16,479 15,873 15,210
Cash dividends $ .01 $ .01 $ .01 $ .01 $ .01
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
MARCH 31,
---------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $390,539 $361,784 $389,209 $276,127 $259,968
Notes payable, capital lease and other
obligations due within one year 3,968 1,060 2,119 27,507 25,207
Total long-term debt and capital lease
obligations 109,100 108,192 110,537 32,209 27,534
Working capital 188,647 169,058 185,995 101,617 80,066
Stockholders' equity 164,725 146,701 161,190 138,578 124,715
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SUMMARY
The following table sets forth for the periods indicated (1) certain expense and
income items expressed as a percentage of total revenues, and (2) the percentage
increase or decrease of such items as compared to the corresponding prior
period. This table and the textual discussion and analysis which follows should
be read in conjunction with the accompanying consolidated financial statements,
including the notes thereto, for each of the three years in the period ended
March 31, 1998, as included in Item 8 herein.
<TABLE>
<CAPTION>
PERIOD TO PERIOD
PERCENTAGE OF TOTAL REVENUES INCREASE(DECREASE)
---------------------------- ------------------
1998 1997
YEAR ENDED MARCH 31, COMPARED COMPARED
1998 1997 1996 TO 1997 TO 1996
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Product revenues, net 83.5% 84.0% 85.9% (.6)% (6.3)%
Customer service revenues, net 16.5 16.0 14.1 2.9 8.5
----- ------ -----
Total net revenues 100.0 100.0 100.0 N.M. (4.2)
Cost of product revenues 49.0 57.2 51.2 (14.4) 7.0
Cost of customer service revenues 10.5 10.1 8.0 3.4 21.1
Selling expenses 16.7 19.0 17.0 (11.8) 7.4
Product development and engineering expenses 8.0 9.5 9.3 (15.6) (2.1)
General and administrative expenses 8.4 11.5 8.1 (26.7) 35.1
----- ------ -----
92.6 107.3 93.6 (13.7) 9.8
----- ------ -----
Income (loss) from operations 7.4 (7.3) 6.4 201.4 (208.1)
Interest income .3 .3 .2 5.6 95.9
Interest expense (1.5) (1.7) (1.4) (10.9) 19.0
Gain on sale of subsidiary stock .3 -- .2 N.M. N.M.
Other non-operating (expense) income (.3) 7.5 .1 N.M. N.M.
----- ------ -----
Income (loss) before income taxes
and cumulative effect of an
accounting change 6.2 (1.2) 5.5 607.0 (121.2)
Provision for income taxes 2.7 .3 2.1 807.0 (86.7)
----- ------ -----
Net income (loss) before cumulative
effect of an accounting change 3.5 (1.5) 3.4 333.0 (142.7)
----- ------ -----
Cumulative effect of an accounting change,
net of taxes .2 -- -- N.M. --
----- ------ -----
Net income (loss) 3.3% (1.5)% 3.4% 4.8% (142.7)
===== ====== =====
</TABLE>
17
<PAGE> 18
IN ADDITION TO DISCUSSING AND ANALYZING THE COMPANY'S RECENT HISTORICAL
FINANCIAL RESULTS AND CONDITION, THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDES STATEMENTS
CONCERNING CERTAIN TRENDS AND OTHER FORWARD-LOOKING INFORMATION AFFECTING OR
RELATING TO THE COMPANY WHICH ARE INTENDED TO QUALIFY FOR THE PROTECTIONS
AFFORDED "FORWARD-LOOKING STATEMENTS" UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995, PUBLIC LAW 104-67. THE FORWARD-LOOKING STATEMENTS MADE
HEREIN AND ELSEWHERE IN THIS FORM 10-K ARE INHERENTLY SUBJECT TO RISKS AND
UNCERTAINTIES WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS. SEE "FACTORS THAT MAY AFFECT
FUTURE RESULTS" BELOW AND CAUTIONARY STATEMENTS APPEARING UNDER "ITEM 1.
BUSINESS" AND ELSEWHERE IN THIS FORM 10-K FOR A DISCUSSION OF THE IMPORTANT
FACTORS AFFECTING THE REALIZATION OF THOSE RESULTS.
OVERVIEW
For fiscal 1998, the Company recorded income before the cumulative effect of an
accounting change of $16.4 million or $1.01 per share. This compares to a net
loss of $7.1 million or $.44 per share for fiscal 1997. Inflation has not had a
significant impact on the Company's consolidated results of operations.
The Company operates in a rapidly changing and dynamic market, and the Company's
strategies and plans are designed to adapt to changing market conditions where
and when possible. However, there can be no assurance that the Company's
management will identify the risks (especially those newly emerging from time to
time) affecting, and their impact on, the Company and its business, that the
Company's strategies and plans will take into account all market conditions and
changes thereto or that such strategies and plans will be successfully
implemented. Accordingly, neither the historical results presented in the
Company's consolidated financial statements and discussed herein, nor any
forward-looking statements in this Form 10-K, are necessarily indicative of the
Company's future results. See "Factors That May Affect Future Results" for a
discussion of risk factors which may affect the Company's future results of
operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The risks and other important factors which may affect the Company's business,
operating results, and financial and other conditions include, without
limitation, the following:
The Company's results of operations are affected by a variety of factors,
including economic conditions generally (both domestic and foreign) as well as
those specific to the industry in which it competes, decreases in average
selling price over the life of any particular product, the timing, manufacturing
complexity and expense of new product introductions (both by the Company and its
competitors), the timely implementation of new manufacturing technologies, the
ability to safeguard patents and other intellectual property in a rapidly
evolving market, the rapid increase in demand for some products and the rapid
decline in demand for others and the Company's ability to anticipate and plan
for that changing market demand. Certain of these factors are beyond the
Company's control.
Historically, the Company's shipments during any particular quarter generally
represent orders received either during that quarter or shortly before the
beginning of that quarter. The Company endeavors to maintain sufficient levels
of purchased components to meet the delivery requirements of its customers, but
there can be no assurance that during any given quarter, the Company has or can
procure the appropriate mix of purchased components to accommodate such orders.
Therefore, the Company's financial performance in any quarter is dependent to a
significant degree upon obtaining orders which can be manufactured and delivered
to its customers in that quarter. As a result, financial performance for any
given quarter cannot be known or fully assessed until near the end of that
quarter.
The Company has also historically recognized a substantial portion of its
product revenues in the last month of each quarter. A significant portion of the
Company's expenses are relatively fixed, and timing of increases in such
expenses is based in
18
<PAGE> 19
large part on the Company's forecast of future revenues. As a result, if
revenues do not meet expectations, the Company may be unable to quickly adjust
expenses to levels appropriate to actual revenues, which could have a materially
adverse effect on the Company's results of operations.
The Company's sales efforts have increasingly been focused on sales, both by
the Company directly and though OEMs, VARs, ISVs and other indirect sales
channels, of complete data transaction systems rather than on sales of handheld
computer products alone. System sales tend to be more costly and, therefore,
require a longer selling cycle, longer payment terms and more complex
integration and installation services.
The markets in which the Company competes are intensely competitive and
characterized by increasingly rapid technological change, introduction of new
products with improved performance characteristics, product obsolescence and
price erosion. Failure to keep pace with product and technological advances
could negatively affect the Company's competitive position and prospects for
growth. Customers' anticipation of new or enhanced product offerings by the
Company or a competitor may lead them to defer purchases of the Company's
existing products. In addition, companies that are participants in the broader
computer industry are potential competitors. Some of the Company's competitors
and potential competitors have substantially greater financial, technical,
intellectual property, marketing and human resources than the Company.
The Company's future success depends on its ability to develop and rapidly bring
to market technologically advanced products. From time to time the Company
invests in development stage and other entities who possess or who could
potentially possess strategically important technologies. Due to the nature of
these entities and their operations, there can be no assurance that these
investments will be realizable or will result in marketable and/or successful
products. There can be no assurance that the Company's research and development
activities will lead to the commercially successful introduction of new or
improved products or that the Company will not encounter delays or problems in
connection with those products. The cost of perfecting new and improved
technologies to satisfy customer quality and delivery expectations as they are
brought to market cannot always be fully anticipated and may adversely affect
Company operating profits during such introductions. In addition, the average
selling prices for computer products generally decrease over the products'
lives. To mitigate such decreases, the Company seeks to reduce manufacturing
costs of existing products and to introduce new products, functions and other
price/performance-enhancing features. To the extent that these product
enhancements do not occur on a timely basis or do not result in a sufficient
increase in sales prices to end users, the Company's operating results could be
materially adversely affected.
To date, the Company's revenues have been concentrated in the retail industry,
historically representing over 50% of its total revenues. Among other factors,
the economic condition and prospects of current and prospective customers in the
markets which the Company serves may affect the Company's own financial results.
The Company's future growth depends, in part, on its ability to successfully
penetrate and expand its revenues in new markets as well as increased
penetration in the retail market. There can be no assurance that penetration and
expansion into new and existing markets can be profitably achieved.
The Company believes its future success is also dependent, in part, upon its
ability to continue to enhance its product offerings through internal
development and the acquisition of new businesses and technologies, but there
can be no assurance that the Company will be able to identify, acquire or
profitably operate new businesses or otherwise implement its growth strategy
successfully. For the Company to manage its growth and integrate any newly
acquired entities, it must continue to improve operations and financial and
management information systems and effectively motivate and manage employees. If
the Company is unable to successfully pursue and manage such growth, its
business and results of operations could be adversely affected.
The Company regards certain of its hardware and software technologies as
proprietary and relies on a combination of United States and foreign patent,
copyright, trademark and trade secret laws, as well as license and other
contractual confidentiality provisions, to protect its proprietary rights.
Despite the Company's efforts to safeguard its proprietary rights, there can be
no assurance that the Company will be successful in doing so or that the
Company's competitors will not independently develop or patent technologies that
are substantially equivalent or superior to or otherwise circumvent the
Company's technologies and proprietary rights.
19
<PAGE> 20
The Company's products utilize hardware and software technologies licensed from
third parties. There can be no assurance that the Company will be able to
license needed technology in the future. An early termination of certain of
these license agreements (including patent rights licensed from Symbol
Technologies, Inc., one of its principal competitors, necessary for the
Company's manufacture and sale of its integrated laser scanning terminals which
account for a material portion of the Company's current sales) could have a
materially adverse effect on the Company's ability to market certain of its
products and, hence, on its business, results of operations and financial
condition. The Company believes that its products, processes and trademarks do
not infringe on the rights of third parties, but third parties have asserted,
and there can be no assurance that they will not in the future assert,
infringement or other related claims against the Company or its licensors. Any
infringement claim or related litigation against the Company, or any challenge
to the validity of the Company's own intellectual property rights, and the
expense of defending the same could materially adversely effect the Company's
ability to market its products and, hence, its business, results of operations
and financial condition.
Certain of the Company's products, sub-assemblies and components are procured
from single source suppliers, and others are procured from only a limited number
of suppliers. The Company has in the past encountered, and may in the future
encounter, shortages of supplies and delays in deliveries of products,
sub-assemblies and components from its third party suppliers. Such shortages
and delays, or should any third party supplier become unable or unwilling to
supply such items to the Company consistent with the Company's volume and
quality requirements, on the Company's ability to ship products, and, in turn,
its business and results of operations could be materially adversely affected.
As a substantial portion of the Company's total revenues, ranging from
approximately 25%-30% in recent years, is from customers located outside of the
United States, the Company's results could be negatively affected by global and
regional economic conditions, changes in foreign currency exchange rates, trade
protection measures, regulatory acceptance of the Company's products in foreign
countries, longer accounts receivable collection patterns and other
considerations peculiar to the conduct of international business. Additionally,
the Company is subject to similar risks in its procurement of certain of its
products, components and sub-assemblies outside the United States. As a
particular instance, the financial press has widely reported the significant
economic difficulties being experienced by a number of Asian economies. While
the Company's cost of doing business in the affected countries has declined as
a result of those difficulties, the revenues derived from such countries are
likely to be adversely affected by those difficulties. Since sales to Asia have
historically not been material in amount, the Company does not believe that the
economic difficulties in Asia of the nature, scope and extent recently
experienced will have a material adverse effect of the Company's results of
operations. However, in the event of a significant adverse change in Asian
business conditions due to government economic regulation, civil unrest or
otherwise, or should the economic difficulties in such countries spread or
have an adverse impact of business activities in North America, Europe and/or
elsewhere in the world, the Company's results of operations could be
materially adversely affected.
Certain of the Company's products intentionally transmit radio signals as part
of their normal operation. These products are subject to regulatory approval,
restrictions on the use of certain frequencies and the creation of interference,
and other requirements by the Federal Communications Commission and
corresponding authorities in each country in which they are marketed. Regulatory
changes could significantly impact the Company's operations by restricting the
Company's development efforts, making current products obsolete or increasing
the opportunity for additional competition. The intentional emission of
electromagnetic radiation has also been the subject of recent public concern
regarding possible health and safety risks, and though the Company believes that
the low power output and the distance typically maintained between a product and
the user means that its products do not pose material safety concerns, there can
be no assurance that such safety issues will not arise in the future and will
not have a materially adverse effect on the Company's business.
Among other things, the Company's future success depends in large part on the
continued service of its key technical, marketing and management personnel and
on its ability to continue to attract and retain qualified employees,
particularly those highly skilled design, process and test engineers involved in
the manufacture of existing products and the development of products and
processes. The competition for such personnel is intense, and the loss of key
employees could have a materially adverse effect on the Company's business,
financial condition and results of operations.
In addition to the factors discussed above and elsewhere in this Form 10-K which
may adversely affect the Company's conduct of its business and the results
thereof, the Company's financial condition is also subject to the possible
adverse effects of certain pending litigation and other contingencies discussed
above under "Item 3. LEGAL PROCEEDINGS", and in Note 18 to the financial
statements included below in Item 8 in this Form 10-K.
20
<PAGE> 21
READINESS FOR THE YEAR 2000
Customary computer programming practices, developed prior to the upcoming change
in the century becoming a concern, have used two digits rather than four to
identify the year in date fields. If not corrected, many computer applications
may fail to treat year dates intended to represent years in the twenty-first
century as such but instead treat them as still in the twentieth century,
potentially resulting in system failure or miscalculations disruptive of
business operations, including, among other things, an inability to initiate,
receive, process, invoice or otherwise complete normal business activities.
These Year 2000 issues affect virtually all companies and organizations.
The Year 2000 issues affect both the Company's own internal operations and the
computer products and related services it provides. As further discussed under
"FINANCIAL CONDITION - Cash Flows from Investing Activities" below, the Company
is working with outside contractors to develop and install a new corporate-wide
information system. The new system was identified as a strategic business
initiative independent of Year 2000 considerations. While the new information
system will be a dynamic one permitting ongoing improvements as business needs
are identified, the basic operational systems are expected to be substantially
completed during early 1999 at a total estimated capital expenditure of
approximately $23.0 million. Those time and cost targets are management's
current best estimates based on presently available information and numerous
assumptions. Given the uncertainties and complexities inherent in any new system
installation, there can be no assurance that the project will be completed
within the expected time and cost parameters. The portions of the Company's
existing information system which would require correction for Year 2000 issues
will be superseded as part of this larger, new system installation, which is
being designed to be Year 2000 ready.
With respect to its own products, the Company has identified those of its
existing products (released prior to December 31, 1997) that are or will be made
Year 2000 ready. Those already- or to-be-made-Year 2000 ready products represent
the existing products which management believes will continue to be a
significant part of the Company's ongoing product line. Customers may continue
to order the Company's other existing products, but with no assurance from the
Company as to their Year 2000 readiness or the feasibility or availability of an
upgrade path to readiness. All new products released after December 31, 1997,
will be Year 2000 ready when released.
The Company has substantially completed the initial writing of the
software/firmware upgrades for the existing products which are not presently,
but are to be made Year 2000 ready, and has completed a majority of the testing
of those upgrades. Subject to negotiated contractual commitments, the Company
will make the upgrades available free of charge for products purchased after
December 31, 1997, but customers will be responsible for installing the
upgrades (or they may retain the Company to do so for a fee). Given the
technical nature of the task of isolating and correcting non-compliant
programming and the limited internal resources available, and the increasing
demand for available external resources, to perform the work, there can be no
assurance as to if, when and at what cost the upgrades can be completed.
The Company could be adversely affected by the Year 2000 readiness of its
customers as well as of its suppliers of raw materials, components,
peripherals, finished products and software and its providers of facilities,
equipment and services and any failure on their part to achieve readiness in
their own operations or with respect to the items they supply or otherwise
provide to the Company. While the Company is in the process of determining what
inquiries might be appropriate to make of such other parties (principally of
its suppliers and other providers) in these regards, there can be no assurance
that the Year 2000 issues confronting such other parties and any failure on
their part to timely address them will not have a material adverse effect on
the Company. Disruptions in the economy generally resulting from Year 2000
issues could also materially adversely affect the Company.
21
<PAGE> 22
RESULTS OF OPERATIONS
REVENUES
1998 VS. 1997
The table below sets forth the consolidated net revenues of the Company for
fiscal 1998 and 1997, without adjustments for the sale of its former Itronix
Corporation ("Itronix") subsidiary, which was effective December 31, 1996. As
further explained below, after adjusting fiscal 1997 revenues to exclude the
Itronix operations, consolidated revenues from the Company's continuing
operations increased $63.7 million or 15.8%, as compared to fiscal 1997.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1998 1997 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Product, net $ 389,124 $ 391,406 $ (2,282) (0.6)%
Customer service, net 76,746 74,606 2,140 2.9 %
--------- --------- --------
Total net revenues $ 465,870 $ 466,012 $ (142) N.M.
========= ========= ========
</TABLE>
Product revenues include the sale of portable tele-transaction computers
("PTCs"), including rugged, wireless mobile computers and pen-based and
touch-screen workslates; hardware accessories; wireless data communication
products; custom application software and software licenses; and a variety of
professional services, including system integration and project management.
Consolidated product revenues from continuing operations increased $60.4 million
or 18.5% during fiscal 1998 as compared to fiscal 1997. The reported results of
fiscal 1997 included $62.6 million of product revenues recorded by Itronix. The
increase in consolidated product revenues was due to a 19.9% increase in
consolidated volume with a 2.1% reduction in the average selling price per PTC
unit. The increase in consolidated volume was comprised of a 10.0% increase in
non pen-based units, reflecting continued growth in customers' demand for the
Company's newer, more sophisticated units, and a 53.4% increase in pen-based
unit volume, the result of the Company's development and increased market
penetration of its more powerful workslate models. The Company expects increased
consolidated product revenues in fiscal 1999.
The $3.3 million or 4.5% increase in consolidated customer service revenue from
continuing operations during fiscal 1998 as compared to fiscal 1997 was due
primarily to the continued increase in the installed base of the Company's
products, in turn generating increased maintenance and "time & material"
billings. Consolidated customer service revenue, as a percentage of consolidated
product revenue, has remained relatively constant, 21.1% in fiscal 1998 vs.
23.7% in fiscal 1997, illustrating the correlative relationship between
consolidated customer service revenue and consolidated product revenue. The
Company anticipates increased consolidated customer service revenues in fiscal
1999.
The Company's international operations (including Canada) provided revenues of
$133.7 million and $134.2 million in fiscal 1998 and 1997, respectively. This
slight decrease was the result of the $6.5 million decline in Canadian sales
caused by the relocation of the Aironet Canadian operations to Akron, Ohio
during the second and third quarters of fiscal 1998 partially offset by the $6.0
million of increased revenue reported by the Company's other foreign
subsidiaries, primarily the Company's subsidiaries in the United Kingdom and
Germany, as well as increased sales to foreign distributors. The strength of the
United States dollar against the local, functional currencies of certain of the
Company's foreign subsidiaries negatively impacted international revenues by
$6.2 million or 6.3% during fiscal 1998 as compared to the $3.3 million or 3.4%
foreign currency effect of fiscal 1997.
22
<PAGE> 23
1997 VS. 1996
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1997 1996 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Product, net $ 391,406 $ 417,725 $ (26,319) (6.3)%
Customer service, net 74,606 68,744 5,862 8.5%
--------- --------- ---------
Total net revenues $ 466,012 $ 486,469 $ (20,457) (4.2)%
========= ========= =========
</TABLE>
The decrease in consolidated product revenues in fiscal 1997 from fiscal 1996
levels was due primarily to the absence in fourth quarter of product revenues
from Itronix as the result of the sale of that subsidiary's business at December
31, 1996. During the fourth quarter of fiscal 1996, Itronix recorded total
product revenues of $30.8 million. The Company's fiscal 1997 and 1996
consolidated product revenues, adjusted for the sale of Itronix by excluding
Itronix total product revenues of $62.6 million for the first nine months of
fiscal 1997 and $61.5 million for the twelve months of fiscal 1996, amounted to
$328.8 million and $356.2 million, respectively. In addition to the impact of
the sale of Itronix, the Company's fiscal 1997 product revenues were negatively
impacted by a decrease in PTC unit volume that was partially offset by an
increase in the average selling price per PTC unit. The increased average
selling price per PTC unit was primarily due to the increase in the Company's
sales volume of comprehensive wireless systems and other more complex and costly
products (such as pen-based and touch-screen workslates) as a percentage of
total product revenues.
The increase in consolidated customer service revenue in fiscal 1997 from fiscal
1996 levels was due primarily to the continued increase in the installed base of
the Company's products.
Revenues from the Company's international operations (including Canada) were
$134.2 million and $123.5 million in fiscal 1997 and 1996, respectively. This
increase was primarily attributable to increased revenues recorded by the
Company's Australian subsidiary and certain of its Canadian operations as well
as increased sales to foreign distributors. The strengthening of the United
States Dollar against the local, functional currency of certain of the Company's
foreign subsidiaries negatively impacted international revenues by $3.3 million
or 3.4% during fiscal 1997 as compared to less than $.1 million or .3% in fiscal
1996.
COST OF REVENUES
<TABLE>
<CAPTION>
1998 VS. 1997
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1998 1997 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Product $ 228,318 $ 266,624 $ (38,306) (14.4)%
Customer service 48,836 47,248 1,588 3.4 %
--------- --------- ---------
Total cost of revenues $ 277,154 $ 313,872 $ (36,718) (11.7)%
========= ========= =========
Cost of product revenues as a
percentage of product revenues,
net 58.7% 68.1%
Cost of customer service revenues
as a percentage of customer
service revenues, net 63.6% 63.3%
</TABLE>
The consolidated cost of product revenues from continuing operations increased
$5.4 million or 2.4% during fiscal 1998 as compared to fiscal 1997. The reported
consolidated results of fiscal 1997 included $43.7 million of cost of product
revenue recorded by Itronix. The increase in cost of product revenue from
continuing operations is directly related to the increase in consolidated
product revenue. Consolidated product gross margins from continuing operations
increased to 41.3% in fiscal 1998 from 35.4% in fiscal 1997, due primarily to
the absence of non-recurring
23
<PAGE> 24
charges recorded in fiscal 1997 for the decreased carrying value of the
inventory affected by the streamlining of the Company's product lines ($7.2
million) and the Company's workforce reduction and early retirement initiatives
($1.8 million). Fiscal 1998's consolidated product gross margin was also
positively impacted by the reduced provisions for inventory obsolescence due to
improved inventory management and the streamlining of the Company's product
offerings. The Company expects fiscal 1999 product gross margins to remain
consistent with the levels recorded during fiscal 1998.
Consolidated inventory allowance accounts decreased to $11.5 million at March
31, 1998, from $16.0 million at March 31, 1997. This decrease was primarily the
result of the physical disposition of $9.1 million of fully reserved obsolete
material during the third quarter of fiscal 1998 that had previously been
identified during the streamlining of the Company's product lines in fiscal
1997, partially offset by the continued provision for inventory obsolescence. As
a percentage of consolidated gross inventories, the Company's consolidated
inventory allowances decreased to 9.6% at March 31, 1998, from 15.9% at March
31, 1997.
<TABLE>
<CAPTION>
1997 VS. 1996
YEAR ENDED MARCH 31, INCREASE
-------------------- --------
1997 1996 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Product $ 266,624 $ 249,120 $ 17,504 7.0%
Customer service 47,248 39,016 8,232 21.1%
--------- --------- --------
Total cost of revenues $ 313,872 $ 288,136 $ 25,736 8.9%
========= ========= ========
Cost of product revenues as a
percentage of product revenues,
net 68.1% 59.6%
Cost of customer service revenues
as a percentage of customer
service revenues, net 63.3% 56.8%
</TABLE>
The increase in the fiscal 1997 consolidated product revenues cost percentage
from fiscal 1996 levels was primarily due to non-recurring charges recorded
during the third quarter of fiscal 1997. These non-recurring items included
provisions for the decreased carrying value of the Company's inventories
affected by the streamlining of its product lines and charges related to the
Company's workforce reduction and early retirement initiatives, which accounted
for approximately $7.2 million and $1.8 million or 2.7% and .7%, respectively,
of the fiscal 1997 consolidated cost of product revenues. In addition to the
impact of these non-recurring charges, product gross margins declined from
fiscal 1996 levels due to an increase in the amount of large-volume/low margin
business and early stage rollouts of new products during fiscal 1997. Included
in the fiscal 1996 results were revenues related to the sale of non-exclusive
software licenses and manufacturing rights to a third-party business partner
which reduced the fiscal 1996 consolidated product revenues cost percentage by
approximately 1%.
The increase in the fiscal 1997 consolidated customer service cost percentage
from fiscal 1996 levels was primarily due to non-recurring charges recorded
during the third quarter of fiscal 1997 as well as the increased direct material
and labor costs required to repair the Company's more sophisticated and complex
products. These non-recurring items, which included provisions for the decreased
carrying value of the Company's service inventories affected by the streamlining
of its product lines and charges related to the consolidation of field service
operations, accounted for approximately $1.0 million or 2% of the fiscal 1997
consolidated cost of customer service revenues.
For the year ended March 31, 1997, inventory allowance accounts increased to
$16.0 million from $10.1 million at March 31, 1996. As a percentage of gross
inventories, inventory allowances increased to 15.9% at March 31, 1997, from
8.3% at March 31, 1996. The increase in the inventory allowance accounts as well
as the increase in the
24
<PAGE> 25
allowance as a percentage of gross inventories reflects the additional
provisions recorded primarily during the third quarter of fiscal 1997 in
conjunction with the Company's streamlining of its product lines.
OPERATING EXPENSES
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, (DECREASE)
-------------------- ----------
1998 1997 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Selling expenses $ 77,858 $ 88,321 $ (10,463) (11.8)%
Product development and
engineering expenses 37,500 44,439 (6,939) (15.6)%
General and administrative
expenses 39,028 53,230 (14,202) (26.7)%
--------- --------- ---------
Total operating expenses $ 154,386 $ 185,990 $ (31,604) (17.0)%
========= ========= =========
</TABLE>
Consolidated selling expenses as a percentage of total revenues were 17% and 19%
in fiscal 1998 and 1997, respectively. The selling expenses reported in fiscal
1997 included $6.2 million of selling expenses recorded by Itronix. Consolidated
selling expenses from continuing operations decreased $4.3 million or 6% in
fiscal 1998 from fiscal 1997. The decrease in consolidated selling expenses
from continuing operations was due primarily to the absence of the $6.0 million
of non-recurring charges recorded during fiscal 1997 related to the Company's
workforce reduction and early retirement initiatives and the redesign of the
Company's worldwide distribution and logistics operations. This reduction was
partially offset by increased marketing expenses during fiscal 1998 related to
the creation of a new product marketing group as well as Aironet's increased
emphasis on the development of its external sales and the building of greater
customer awareness and name recognition. The Company expects fiscal 1999
selling expenses as a percentage of total revenues to remain generally
consistent with the fiscal 1998 percentage.
Product development and engineering expenses as a percentage of total revenues
were 8% in fiscal 1998 as compared to 10% in fiscal 1997. The Company's fiscal
1997 consolidated results included $5.2 million of product development and
engineering expenses incurred by Itronix. Product development and engineering
expenses from continuing operations decreased $1.7 million or 4% in fiscal 1998
from fiscal 1997. This decrease was the result of the absence of $2.2 million of
non-recurring charges related to the Company's workforce reduction and early
retirement initiatives recorded during fiscal 1997, offset by the expenses
incurred in fiscal 1998 to relocate certain of the Company's engineering and
product development operations from Akron, Ohio to Houston, Texas. The Company
expects its fiscal 1999 product development and engineering expenses to decrease
from fiscal 1998 due to the absence of relocation expenses as well as the
benefit derived from the consolidation of its engineering and product
development operations.
During fiscal 1998, the Company capitalized internal software development costs
in accordance with the requirements of the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS No.
86") aggregating $.5 million, net of amortization of $6.4 million. The Company
expects the capitalization of internal software development costs in fiscal 1999
to continue at fiscal 1998 levels.
General and administrative expenses as a percentage of total revenues were 8% in
fiscal 1998 as compared to 11% in fiscal 1997. The decrease in consolidated
general and administrative expenses during fiscal 1998 was due primarily to the
absence of the $5.9 million of non-recurring charges related to the Company's
workforce reduction and early retirement initiatives, corporate information
systems and certain consulting agreements as well as the $5.5 million charge
related to the retirement of Robert F. Meyerson, the Company's former Chairman
and CEO, all of which were recorded during fiscal 1997. The Company expects
fiscal 1999 general and administrative
25
<PAGE> 26
expenses as a percentage of total revenues to remain generally consistent with
the percentage recorded during fiscal 1998.
1997 VS. 1996
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1997 1996 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Selling expenses $ 88,321 $ 82,207 $ 6,114 7.4%
Product development and
engineering expenses 44,439 45,383 (944) (2.1)%
General and administrative
expenses 53,230 39,415 13,815 35.1%
--------- --------- --------
Total operating expenses $ 185,990 $ 167,005 $ 18,985 11.4%
========= ========= ========
</TABLE>
Selling expenses as a percentage of total revenues were 19% in fiscal 1997 as
compared to 17% in fiscal 1996. The increase in the fiscal 1997 consolidated
selling expenses as a percentage of total revenues from fiscal 1996 levels was
primarily due to non-recurring charges recorded during the third quarter of
fiscal 1997. These non-recurring items included charges related to the redesign
of the Company's worldwide distribution and logistics operations as well as
charges related to the Company's workforce reduction and early retirement
initiatives. In total, these non-recurring items accounted for approximately
$6.0 million or 7% of the selling expenses recorded during fiscal 1997.
Product development and engineering expenses as a percentage of total revenues
were 10% in fiscal 1997 as compared to 9% in fiscal 1996. Included in the
Company's fiscal 1997 consolidated product development and engineering expenses
were non-recurring charges related to the Company's workforce reduction and
early retirement initiatives and the consolidation of certain product
development and engineering functions. These non-recurring charges, which were
recorded during the third quarter of fiscal 1997 and accounted for approximately
$2.2 million or 5% of the fiscal 1997 consolidated product development and
engineering expenses, were substantially offset by the absence of fourth quarter
product development and engineering expenses of Itronix. During the fourth
quarter of fiscal 1996, Itronix recorded product development and engineering
expenses of approximately $1.6 million. Included in the Company's consolidated
fiscal 1997 results were approximately $5.2 million of product development and
engineering expenses incurred by Itronix during the first nine months of fiscal
1997. The Company's fiscal 1996 consolidated results included approximately $4.4
million of product development and engineering expenses incurred by Itronix.
Additionally, Itronix's fiscal 1996 product development and engineering expenses
included a $1.0 million reimbursement from a customer for certain development
expenses incurred by Itronix during fiscal 1996 specific to that customer.
During fiscal 1997, the Company capitalized internal software development costs
in accordance with the requirements of SFAS No. 86 aggregating $3.9 million, net
of amortization of $3.8 million.
General and administrative expenses as a percentage of total revenues were 11%
in fiscal 1997 and 8% in fiscal 1996. The increase in the Company's fiscal 1997
consolidated general and administrative expenses from fiscal 1996 levels was
primarily due to non-recurring charges recorded during the third and fourth
quarters of fiscal 1997. The non-recurring third quarter items, which included
charges related to the Company's workforce reduction and early retirement
initiatives, corporate information systems, and certain consulting agreements,
accounted for approximately $5.9 million or 11% of the fiscal 1997 consolidated
general and administrative expenses. During the fourth quarter of fiscal 1997,
the Company recorded a non-recurring charge of $5.5 million or 10% of the fiscal
1997 consolidated general and administrative expenses related to the retirement
of Robert F. Meyerson. The $5.5 million was comprised of $2.5 million cash
payment for the non-renewal of the Company's consulting agreement with a company
affiliated with Mr. Meyerson and a $3.0 million cash retirement package.
Included in the Company's fiscal 1997 consolidated results were approximately
$1.8 million of general and administrative expenses incurred by Itronix for the
first nine months of fiscal 1997. The Company's fiscal
26
<PAGE> 27
1996 consolidated results included approximately $1.8 million of general and
administrative expenses incurred by Itronix.
INTEREST EXPENSE
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1998 1997 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income $ 1,573 $ 1,489 $ 84 5.6 %
Interest expense (7,181) (8,056) (875) (10.9)%
--------- -------- ------
Net interest expense $ (5,608) $ (6,567) $ (959) (14.6)%
======== ======== ======
</TABLE>
Net interest expense as a percentage of revenues was approximately 1% in both
fiscal 1998 and fiscal 1997. The decrease in the Company's consolidated net
interest expense between fiscal 1998 and fiscal 1997 was the result of the
decrease in the Company's use of its credit agreements. The Company had a
weighted average of $3.5 million outstanding under its credit agreements during
fiscal 1998 as compared to a weighted average of $7.8 million outstanding during
fiscal 1997. This was partially offset by an increase in the weighted average
interest rate (8.9% per annum in fiscal 1998 as compared to 7.0% per anum in
fiscal 1997).
1997 VS. 1996
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE
-------------------- --------
1997 1996 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income $ 1,489 $ 760 $ 729 95.9%
Interest expense (8,056) (6,770) 1,286 19.0%
-------- -------- ------
Net interest expense $ (6,567) $ (6,010) $ 557 9.3%
======== ======== ======
</TABLE>
Net interest expense as a percentage of revenues was approximately 1% in both
fiscal 1997 and 1996. The increase in the Company's fiscal 1997 consolidated net
interest expense from fiscal 1996 was primarily due to the fact that the
Company's 5-3/4% convertible subordinated notes, which were issued during the
third quarter of fiscal 1996, were outstanding for the entire 1997 fiscal year.
27
<PAGE> 28
INCOME TAXES
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE
-------------------- --------
1998 1997 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes $ 12,408 $ 1,368 $ 11,040 N.M.
</TABLE>
The Company's consolidated effective tax rate was 43% in fiscal 1998 as compared
to 24% in fiscal 1997. The consolidated effective tax rate for fiscal 1998
reflects income before taxes multiplied by the United States federal statutory
tax rate. This was increased by nondeductible goodwill amortization, other
miscellaneous items such as state income tax expense and tax reserve and
international rate differentials. The effective tax rate was decreased by
research and development credits and the favorable tax treatment of the foreign
sales corporation.
1997 VS. 1996
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, (DECREASE)
-------------------- ----------
1997 1996 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Provision for income taxes $ 1,368 $ 10,314 $ (8,946) (86.7)%
</TABLE>
The Company's consolidated effective tax rate was 24% in fiscal 1997 and 38% in
fiscal 1996. The consolidated effective tax rate for fiscal 1997 reflects income
before taxes multiplied by the United States federal statutory tax rate. The
rate was increased by the net taxes on repatriated foreign earnings,
nondeductible goodwill amortization, international rate differentials and
separate company net operating loss benefits not currently utilized. The
effective tax rate was decreased by research and development credits and the
favorable tax treatment of the foreign sales corporation. The credit for
increasing research and development expenditures, which had expired at June 30,
1995, was reinstated at July 1, 1996. There were no other significant tax law
changes during fiscal 1997 that had a significant effect on the calculation of
the income tax liability.
The consolidated effective tax rate for fiscal 1996 reflects income before taxes
increased by nondeductible goodwill amortization, the sum of which was
multiplied by the United States federal statutory tax rate and increased by
international tax rate differentials. The increase in the consolidated effective
tax rate arising from the addition of nondeductible goodwill and international
tax rate differentials was partially offset by research and development credits
earned through the first quarter of fiscal 1996 and benefits from research and
development credit carryforwards from prior fiscal years.
NON-OPERATING INCOME
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1998 1997 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gain on sale of subsidiary
stock $ 1,637 $ -- $ 1,637 N.M.
Other non-operating (expense)
income (1,504) 34,726 (36,230) N.M.
-------- -------- --------
Total non-operating income $ 133 $ 34,726 $(34,593)
======== ======== ========
</TABLE>
During fiscal 1998, the Company sold 984,126 shares of voting common stock of
its Aironet subsidiary to third-party investors at a price of $3.50 per share.
Proceeds from this sale of stock totaled $3.4 million. The resulting pre-tax
gain of
28
<PAGE> 29
$.4 million, net of related transaction costs, was recorded as non-operating
income in the accompanying consolidated statement of operations. The Company's
remaining interest in the voting common stock of Aironet at March 31, 1998, was
78%, as compared to 90% at March 31, 1997.
During fiscal 1998, certain employees of the Company's Aironet subsidiary
exercised 270,000 options to purchase Aironet voting common stock at $1.86 per
share. The pre-tax gain of $.2 million was recorded as non-operating income in
the accompanying consolidated statement of operations.
Effective March 31, 1998, the Company sold the stock of its Virtual Vision
subsidiary to a third party in exchange for $.5 million in cash and $4.5 million
in Series F Preferred Shares of FED Corporation at a value of $6.50 per share or
692,307 shares. The Company recorded a pre-tax gain of $.7 million, net of
transaction costs, as non-operating income in the accompanying consolidated
statement of operations.
During fiscal 1997, the Company also engaged in a certain transaction involving
the stock of its Aironet subsidiary, which, as further discussed in Note 16 of
the accompanying consolidated financial statements, resulted in a deferred gain
at March 31, 1997, as the criteria for the recognition of gain on the sale of
subsidiary stock had not been met. During fiscal 1998, the criteria for the
recognition of gain on the sale of subsidiary stock were fulfilled and
accordingly, the $1.0 million of deferred gain was recorded as non-operating
income in the accompanying consolidated statement of operations.
During the fourth quarter of fiscal 1998, the Company recorded $1.4 million of
non-operating expense related to the revaluation of certain non-marketable
investments.
1997 VS. 1996
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- -------------------
1997 1996 DOLLAR PERCENTAGE
---- ---- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gain on sale of subsidiary
stock $ -- $ 1,116 $ (1,116) N.M.
Other non-operating income 34,726 401 34,325 N.M.
-------- ------- --------
Total non-operating income $ 34,726 $ 1,517 $ 33,209 N.M.
======== ======= ========
</TABLE>
Effective December 31, 1996, the Company sold substantially all of the assets of
Itronix, with a net book value of $30.8 million, as well as all of the
subsidiary's associated business, for $65.5 million in cash, plus the assumption
by the buyer of certain specified liabilities of the transferred business
totaling $8.2 million. The transaction resulted in a $32.7 million gain, net of
transaction costs of $10.3 million, which was recorded as other non-operating
income in the accompanying consolidated statement of operations. The buyer is
entitled to customary indemnification from the Company with respect to retained
liabilities and taxes. Under the terms of the sale, the Company is precluded
from competing with the buyer in the manufacture and sale of ruggedized notebook
computers for a period of five years after the date of sale, other than the
Company's resale of products obtained from the buyer under a mutual reseller
agreement.
During fiscal 1997, the Company also engaged in certain transactions involving
the stock of its Aironet and Metanetics Subsidiaries, which transactions, as
further discussed in Note 16 of the accompanying consolidated financial
statements, had no net effect on the Company's consolidated non-operating
income.
29
<PAGE> 30
FINANCIAL CONDITION
LIQUIDITY
1998 VS. 1997
<TABLE>
<CAPTION>
MARCH 31, DOLLAR
--------- INCREASE
1998 1997 (DECREASE)
---- ---- ----------
(IN THOUSANDS EXCEPT RATIOS)
<S> <C> <C> <C>
Cash and cash equivalents $ 27,500 $ 45,386 $ (17,886)
Accounts and notes receivable 148,688 128,271 20,417
Inventories 108,178 84,499 23,679
Other 11,307 11,956 (649)
--------- --------- ---------
Total current assets $ 295,673 $ 270,112 $ 25,561
========= ========= =========
Notes payable $ 3,000 $ 50 $ 2,950
Accounts payable 58,634 47,917 10,717
Income taxes payable 3,390 3,077 313
Accrued liabilities 41,034 49,000 (7,966)
Other 968 1,010 (42)
--------- --------- ---------
Total current liabilities $ 107,026 $ 101,054 $ 5,972
========= ========= =========
Working capital (current assets
less current liabilities) $ 188,647 $ 169,058 $ 19,589
========= ========= =========
Current ratio (current assets divided
by current liabilities) 2.8 to 1 2.7 to 1
</TABLE>
As illustrated in the preceding table, the increase in the Company's working
capital at March 31, 1998, from March 31, 1997, was primarily attributable to
the increases in accounts and notes receivable and inventories and the decrease
in accrued liabilities. The increase in accounts receivable was primarily the
result of the increase in domestic sales in the fourth quarter of fiscal 1998
versus the fourth quarter of fiscal 1997. Additionally, domestic days sales
outstanding increased to 85 days at March 31, 1998, from 83 days at March 31,
1997. The increase in inventories at March 31, 1998, was due to increased
purchases of raw materials to take advantage of volume discounts and inventory
required for the initial production of the Company's two new pen-based product
models. Consolidated inventory turns decreased to 2.4 at March 31, 1998, from
2.8 at March 31, 1997. The increases in the components of the Company's working
capital were partially reduced by a decrease in cash and cash equivalents and an
increase in accounts payable. The decrease in cash, as illustrated in the
"Consolidated Statement of Cash Flows" included in Item 8 of this Form 10-K was
due primarily to the increase in accounts receivable. The increase in accounts
payable was the result of increased liabilities for inventory purchases offset
by increased payments to vendors.
The Company believes its existing resources, including cash and cash
equivalents, internally generated funds and bank credit facilities ($100 million
credit agreement and $20 million promissory note) will be sufficient to meet
working capital requirements for the next twelve months.
30
<PAGE> 31
1997 VS. 1996
<TABLE>
<CAPTION>
MARCH 31, DOLLAR
--------- INCREASE
1997 1996 (DECREASE)
---- ---- ----------
(IN THOUSANDS EXCEPT RATIOS)
<S> <C> <C> <C>
Cash and cash equivalents $ 45,386 $ 34,828 $ 10,558
Accounts and notes receivable 128,271 143,114 (14,843)
Inventories 84,499 111,132 (26,633)
Other 11,956 10,841 1,115
--------- --------- ---------
Total current assets $ 270,112 $ 299,915 $ (29,803)
========= ========= =========
Notes payable $ 50 $ 66 $ (16)
Accounts payable 47,917 59,620 (11,703)
Income taxes payable 3,077 7,029 (3,952)
Accrued liabilities 49,000 45,152 3,848
Other 1,010 2,053 (1,043)
--------- --------- ---------
Total current liabilities $ 101,054 $ 113,920 $ (12,866)
========= ========= =========
Working capital (current assets
less current liabilities) $ 169,058 $ 185,995 $ (16,937)
========= ========= =========
Current ratio (current assets divided
by current liabilities) 2.7 to 1 2.6 to 1
</TABLE>
The decrease in the Company's working capital at March 31, 1997, from March 31,
1996, was primarily comprised of the decrease in accounts and notes receivable
and inventories and the increase in accrued liabilities, as detailed in the
preceding table. The decrease in accounts and notes receivable at March 31,
1997, from amounts recorded at March 31, 1996, was primarily due to the sale of
the trade receivables of Itronix. Included in the Company's consolidated balance
sheet at March 31, 1996, were accounts and notes receivable totaling $8.8
million recorded by Itronix. Consolidated days sales outstanding, adjusted for
the sale of Itronix by excluding Itronix's results from both periods, decreased
to 88 days at March 31, 1997, from 95 days at March 31, 1996. The decrease in
inventories at March 31, 1997, from March 31, 1996, was primarily due to the
sale of the inventory of Itronix as well as the increase in the Company's
inventory allowance accounts. Included in the Company's consolidated balance
sheet at March 31, 1996, were inventories of $12.8 million recorded by Itronix.
These decreases in the Company's working capital were partially offset by the
increase in cash and cash equivalents and the decrease in accounts payable and
income taxes payable, as detailed in the preceding table. The increase in cash
and cash equivalents at March 31, 1997, from March 31, 1996, was primarily due
to the receipt of cash proceeds from the sale of Itronix. Similarly, the
decrease in accounts payable at March 31, 1997, from March 31, 1996, was
primarily the result of the buyer's assumption of the accounts payable of
Itronix. Included in the Company's consolidated balance sheet at March 31, 1996,
were accounts payable of $14.1 million recorded by Itronix.
31
<PAGE> 32
CASH FLOWS FROM OPERATING ACTIVITIES
1998 VS. 1997
<TABLE>
<CAPTION>
DOLLAR
INCREASE
(DECREASE)
YEAR ENDED MARCH 31, IN
-------------------- CASH FLOW
1998 1997 IMPACT
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss) $ 15,207 $ (7,059) $22,266
Cumulative effect of an accounting change 2,176 -- 2,176
Depreciation and amortization 25,373 28,689 (3,316)
Provision for inventory obsolescence 4,135 11,521 (7,386)
Deferred income taxes (419) (947) 528
Gain on sale of assets (669) (32,653) 31,984
Minority interest 2,122 669 1,453
Accounts and notes receivable (17,936) 171 (18,107)
Inventories (28,934) (131) (28,803)
Intangibles and other assets 2,082 (2,783) 4,865
Accounts payable and accrued liabilities 1,654 (7,472) 9,126
Income taxes payable 732 (3,005) 3,737
Other 3,816 248 3,568
-------- --------- -------
Net cash provided by (used in)
operating activities $ 9,339 $ (12,752) $ 22,091
======== ========= ========
</TABLE>
As detailed in the preceding table, the increase in the Company's cash flows
from operations for fiscal 1998 was primarily the result of the cash flow impact
of the increase in net income, the absence of the cash flow impact from the gain
on the sale of Itronix, the change in the cash flow impact of intangibles and
other assets and the change in the cash flow impact of accounts payable and
accrued liabilities. The effect of these positive cash flow items was partially
offset by the negative cash flow impact of the change in accounts and notes
receivable and the change in the cash flow impact of inventories.
1997 VS. 1996
<TABLE>
<CAPTION>
DOLLAR
INCREASE
(DECREASE)
YEAR ENDED MARCH 31, IN
-------------------- CASH FLOW
1997 1996 IMPACT
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Net (loss) income $ (7,059) $ 16,521 $ (23,580)
Depreciation and amortization 28,689 23,747 4,942
Provision for inventory obsolescence 11,521 2,026 9,495
Deferred income taxes (947) 4,161 (5,108)
Gain on sale of assets (32,653) -- (32,653)
Minority interest 669 -- 669
Accounts and notes receivable 171 (54,103) 54,274
Inventories (131) (41,139) 41,008
Intangibles and other assets (2,783) (2,416) (367)
Accounts payable and accrued liabilities (7,472) 38,238 (45,710)
Income taxes payable (3,005) (2,302) (703)
Other 248 2,019 (1,771)
--------- --------- ---------
Net cash used in operating activities $ (12,752) $ (13,248) $ 496
========= ========= =========
</TABLE>
The Company's fiscal 1997 cash flows from operations were positively impacted by
the change in the cash flow impact of the non-cash charge for depreciation and
amortization, the change in the cash flow impact of the non-cash provision for
inventory obsolescence, the change in the cash flow impact of accounts and notes
32
<PAGE> 33
receivable and the change in the cash flow impact of inventories, as detailed in
the preceding table. These positive cash flow impacts were substantially offset
by the negative cash flow impact of the decrease in net income, the change in
the cash flow impact of the non-cash provision for income taxes, the change in
the cash flow impact of the gain on the sale of assets, the change in the cash
flow impact of accounts payable and accrued liabilities and the change in the
cash flow impact of other operating items, as detailed in the preceding table.
CASH FLOWS FROM INVESTING ACTIVITIES
1998 VS. 1997
<TABLE>
<CAPTION>
DOLLAR
INCREASE
(DECREASE)
YEAR ENDED MARCH 31, IN
-------------------- CASH FLOW
1998 1997 IMPACT
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sale of assets $ 5,444 $ 65,674 $(60,230)
Additions to property and equipment (26,124) (14,576) (11,548)
Software investments (6,936) (7,731) 795
Purchase of non-marketable investments (5,600) (6,691) 1,091
Other 453 (2,000) 2,453
-------- --------- --------
Net cash (used in) provided by investing
activities $(32,763) $ 34,676 $(67,439)
======== ========= ========
</TABLE>
The Company's cash flows from investing activities decreased in fiscal 1998 from
fiscal 1997, primarily as the result of the absence of the cash proceeds from
the sale of Itronix, the capitalization of $8.6 million of expenditures relating
to the installation of a new corporate-wide information system, the increase
in the Company's investment in a development and marketing equity partnership
and the non-marketable investment in a foreign distributor. As detailed in the
preceding table, these negative cash flow items were partially offset by the
positive cash flow effect of other investing activities. The Company anticipates
the continued capitalization of costs associated with the installation of its
new corporate-wide information system during fiscal 1999.
1997 VS. 1996
<TABLE>
<CAPTION>
DOLLAR
INCREASE
(DECREASE)
YEAR ENDED MARCH 31, IN
-------------------- CASH FLOW
1997 1996 IMPACT
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sale of assets $ 65,674 $ -- $ 65,674
Additions to property and equipment (14,576) (22,749) 8,173
Software investments (7,731) (9,025) 1,294
Purchase of non-marketable investments (6,691) (1,562) (5,129)
Other (2,000) (3,053) 1,053
-------- --------- --------
Net cash provided by (used in) investing
activities $ 34,676 $ (36,389) $ 71,065
======== ========= ========
</TABLE>
The increase in the Company's cash flows from investing activities in fiscal
1997 from fiscal 1996 was primarily due to the receipt of cash proceeds from the
sale of the Company's former Itronix subsidiary and the positive cash flow
impact of the decrease in additions to property and equipment, as detailed in
the preceding table.
33
<PAGE> 34
These positive cash flow impacts were partially offset by the negative cash flow
impact of other investing activities, as detailed in the preceding table.
Effective April 1, 1996, the Company sold the assets of certain retail
application software operations, with net assets of approximately $5.0 million,
to a third-party for approximately $.2 million in cash and $7.0 million in
secured promissory notes, including interest. In addition to the proceeds from
the sale, the Company also entered into a software license agreement with the
third-party purchaser. The agreement provides for the Company to receive, over
the next five years, license fees amounting to 20% of the revenue generated by
the purchased software, with minimum required payments aggregating $6.6 million.
The $7.0 million in promissory notes received in connection with the divestiture
have been excluded from the accompanying consolidated statement of cash flows as
a non-cash transaction.
During fiscal 1997, the Company sold 808,500 shares of voting common stock of
its Aironet subsidiary to a corporation owned by Mr. Meyerson at a price of
$1.86 per share in exchange for a secured promissory note in the amount of
approximately $1.5 million. This transaction resulted in the establishment of a
minority interest of approximately $.7 million which has been included in other
long-term liabilities in the consolidated balance sheet at March 31, 1997. At
March 31, 1997, the Company has deferred a gain related to this transaction as
the criteria for the recognition of gain on the sale of subsidiary stock had not
been met. This sale of Aironet common stock has been excluded from the
accompanying fiscal 1997 consolidated statement of cash flows as a non-cash
transaction.
CASH FLOWS FROM FINANCING ACTIVITIES
1998 VS. 1997
<TABLE>
<CAPTION>
DOLLAR
INCREASE
YEAR ENDED MARCH 31, IN
-------------------- CASH FLOW
1998 1997 IMPACT
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable, net $ 2,567 $ (16) $ 2,583
Purchase of treasury stock (5,070) (9,328) 4,258
Proceeds from exercise of stock options 9,400 1,615 7,785
Other (1,018) (3,428) 2,410
-------- --------- --------
Net cash provided by (used in) financing
activities $ 5,879 $ (11,157) $ 17,036
======== ========= ========
</TABLE>
The increase in the Company's cash flows from financing activities was the
result of the positive cash flow impact of the increase in the Company's notes
payable, the positive cash flow impact of the reduction in the number of shares
of common stock repurchased under the Company's open market repurchase programs
during fiscal 1998 (294,200 shares during fiscal 1998 at a weighted average
price of $17.23 vs. 633,000 shares during fiscal 1997 at a weighted average
price of $14.74) as well as the positive cash flow impact of the increase in the
proceeds from the exercise of stock options. This activity is detailed in the
preceding table.
Effective August 5, 1997, the Company's $20 million business purpose revolving
promissory note was extended to August 4, 1998. During fiscal 1998, the Company
had a weighted average of $3.5 million outstanding under its $100 million credit
agreement and $20 million promissory note with a weighted average interest rate
of 8.9% per annum. At March 31, 1998, the Company had $3 million outstanding
under the promissory note and was in compliance with all restrictive covenants
of the credit agreements.
34
<PAGE> 35
1997 VS. 1996
<TABLE>
<CAPTION>
DOLLAR
INCREASE
(DECREASE)
YEAR ENDED MARCH 31, IN
-------------------- CASH FLOW
1997 1996 IMPACT
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable, net $ (16) $ (30,084) $ 30,068
Proceeds from convertible debt -- 82,500 (82,500)
Purchase of treasury stock (9,328) -- (9,328)
Proceeds from exercise of stock options 1,615 5,977 (4,362)
Other (3,428) (4,821) 1,393
--------- --------- ---------
Net cash (used in) provided by financing
activities $ (11,157) $ 53,572 $ (64,729)
========= ========= =========
</TABLE>
The decrease in the Company's cash flows from financing activities was primarily
due to the cash flow impact of the absence in fiscal 1997 of proceeds from the
issuance of the 5-3/4% convertible subordinated notes in fiscal 1996 and the
Company's repurchase of 633,000 shares of common stock during fiscal 1997 under
its open market repurchase program, as detailed in the preceding table. These
negative cash flow impacts were partially offset by the positive change in the
cash flow impact of notes payable, as detailed in the preceding table.
Effective August 6, 1996, the Company's $20 million business purpose revolving
promissory note was extended to August 5, 1997. Additionally, during August
1996, the Company's $100 million credit agreement and $20 million business
purpose revolving promissory note were amended to conditionally grant to the
lenders a security interest in certain assets of the Company which will only
become effective if the Company were to become in default under the credit
agreement and then only if the requisite lenders under that facility were to
direct that the security documents be filed. At March 31, 1997, the Company had
no amounts outstanding under either agreement and was in compliance with all
restrictive covenants.
During fiscal 1997, the Company had a weighted average of $7.8 million
outstanding under its bank credit facilities with a weighted average interest
cost of 7.0%.
ACCOUNTING CHANGE
On November 20, 1997, the FASB's Emerging Issues Task Force issued a new
consensus ruling, "Accounting for Costs Incurred in Connection with a Consulting
Contract of an Internal Project That Combines Business Process Reengineering and
Information Technology Transformation" ("EITF 97-13"). EITF 97-13 requires
business process reengineering costs associated with information system
development to be expensed as incurred. The Company has been involved in a
corporate-wide information systems implementation project that was affected by
this pronouncement. In accordance with this ruling, during the quarter ended
December 31, 1997, the Company recorded a one-time, after-tax, non-cash charge
of $1.2 million or $.08 per share to expense previously capitalized costs
associated with this project. Such costs had primarily been incurred during the
second quarter of fiscal 1998.
NEW ACCOUNTING STANDARDS
During fiscal 1998, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting comprehensive income, which has been defined
as the change in equity of an entity during a period from transactions and other
events and circumstances from nonowner sources, in the basic financial
statements. The Company is required to adopt the provisions of SFAS No. 130 for
the fiscal year ending March 31, 1999, beginning with the quarter ended June 30,
1998, and to restate any prior period financial statements included for
comparative purposes to reflect the application of SFAS No. 130. As the
adoption of this pronouncement will only modify disclosures, there will be no
effect on the Company's consolidated financial position or results of
operations or cash flows.
35
<PAGE> 36
During fiscal 1998, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 revises the manner in which an entity determines
the operating segments it must report as well as requires the disclosures of
additional segment information. The Company is required to adopt the provisions
of SFAS No. 131 for the fiscal year ending March 31, 1999, and restate any prior
period financial statements included for comparative purposes to reflect the
application of SFAS No. 131. As the adoption of this pronouncement will only
modify disclosures, there will be no effect on the Company's consolidated
financial position or results of operations or cash flows.
In fiscal 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2).
SOP 97-2 provides guidance on the recognition of revenue for the licensing,
selling, leasing and marketing of computer software to customers. The Company is
required to adopt the provisions of SOP 97-2 for the fiscal year ending March
31, 1999. Management believes that the adoption of this pronouncement will not
have a material effect on the Company's consolidated financial position, results
of operations or cash flows.
In fiscal 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 requires the capitalization of certain costs incurred in the
development of software used by a company for its own internal operations. The
Company is required to adopt the provisions of SOP 98-1 for the fiscal year
ending March 31, 1999. Management believes that the adoption of this
pronouncement will not have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
Subsequent to fiscal 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging" ["SFAS
No. 133"]. SFAS No. 133 provides accounting and reporting standards for
derivative instruments. This standard will require the Company to recognize
all derivatives as either assets or liabilities in the statement of financial
position and to measure those instruments at fair value. The Company is
required to adopt the provisions of SFAS No. 133 during the first quarter of
fiscal 2000. Management believes that the adoption of this pronouncement will
not have a material effect on the Company's consolidated financial position,
results of operations or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
36
<PAGE> 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Financial Reports:
Report of Management 38
Report of Independent Accountants 39
Consolidated Financial Statements:
Consolidated Balance Sheet 40
Consolidated Statement of Operations 41
Consolidated Statement of Cash Flows 42
Consolidated Statement of Changes in Stockholders' Equity 43
Notes to Consolidated Financial Statements 44 - 64
Financial Statement Schedule:
II - Valuation and Qualifying Accounts and Reserves 73
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is presented in the financial statements or the notes thereto.
37
<PAGE> 38
REPORT OF MANAGEMENT
To the Board of Directors and Stockholders
of Telxon Corporation
The management of Telxon is responsible for the preparation, integrity and
objectivity of the financial statements and all other financial information
included in this report. Management believes that the financial statements have
been prepared in accordance with generally accepted accounting principles and
that any amounts included herein which are based on estimates of the expected
effects of events and transactions have been made with sound judgment and
approved by qualified personnel.
Telxon maintains an internal control structure to provide reasonable assurance
that assets are safeguarded and that transactions and events are recorded
properly. The internal control structure is regularly reviewed, evaluated and
revised as necessary by management. Additionally, the Telxon Statement of
Corporate Ethics requires every Company employee to maintain the highest level
of ethical standards in the conduct of all aspects of the Company's business,
and their compliance is regularly monitored.
The financial statements in this report have been audited by the independent
accounting firm of Coopers & Lybrand L.L.P. Their audits were conducted in
accordance with generally accepted auditing standards and included a study and
evaluation of our internal control structure as they considered necessary to
determine the extent of tests and audit procedures required for expressing an
opinion on the Company's financial statements.
The Audit Committee of the Board of Directors, of which all outside directors
are members, meets periodically with the independent auditors and management to
review accounting, auditing, internal control and financial reporting matters.
The external auditors have full and free access to the Audit Committee and its
individual members at any time.
/s/ Frank E. Brick
Frank E. Brick
President and Chief Executive Officer
/s/ Kenneth W. Haver
Kenneth W. Haver
Senior Vice President and Chief Financial Officer
38
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Telxon Corporation
We have audited the consolidated financial statements and the financial
statement schedule of Telxon Corporation and Subsidiaries listed in the index on
page 40 of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Telxon
Corporation and Subsidiaries as of March 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1998, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
Akron, Ohio
June 26, 1998
39
<PAGE> 40
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
----------------------
ASSETS 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash (including cash equivalents of $6,778 and
$38,100) $ 27,500 $ 45,386
Accounts receivable, net of allowance for
doubtful accounts of $1,142 and $1,596 125,739 111,959
Notes and other accounts receivable 22,949 16,312
Inventories 108,178 84,499
Prepaid expenses and other 11,307 11,956
--------- ---------
Total current assets 295,673 270,112
Property and equipment, net 52,108 45,578
Intangible and other assets, net 42,758 46,094
--------- ---------
Total $ 390,539 $ 361,784
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,000 $ 50
Current portion of long-term debt -- 383
Capital lease obligations due within one year 968 627
Accounts payable 58,634 47,917
Income taxes payable 3,390 3,077
Accrued liabilities 41,034 49,000
--------- ---------
Total current liabilities 107,026 101,054
Capital lease obligations 1,876 968
Convertible subordinated notes and debentures 107,224 107,224
Long-term debt -- --
Other long-term liabilities 6,897 5,168
--------- ---------
Total liabilities 223,023 214,414
Minority interest (Note 1) 2,791 669
Stockholders' equity:
Preferred Stock, $1.00 par value per share; 500
shares authorized, none issued -- --
Common Stock, $.01 par value per share; 50,000
shares authorized, 16,219 and 16,186 shares issued 162 162
Additional paid-in capital 87,994 87,105
Retained earnings 85,053 70,821
Equity adjustment for foreign currency translation (4,929) (2,643)
Unearned compensation relating to restricted stock awards (493) (210)
Treasury stock; 162 and 557 shares of common stock at cost (3,062) (8,534)
--------- ---------
Total stockholders' equity 164,725 146,701
--------- ---------
Commitments and contingencies (Note 18) -- --
--------- ---------
Total $ 390,539 $ 361,784
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
40
<PAGE> 41
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Product, net $ 389,124 $ 391,406 $ 417,725
Customer service, net 76,746 74,606 68,744
--------- --------- ---------
Total net revenues 465,870 466,012 486,469
--------- --------- ---------
Cost of revenues:
Product 228,318 266,624 249,120
Customer service 48,836 47,248 39,016
--------- --------- ---------
Total cost of revenues 277,154 313,872 288,136
--------- --------- ---------
Gross profit 188,716 152,140 198,333
Operating expenses:
Selling expenses 77,858 88,321 82,207
Product development and
engineering expenses 37,500 44,439 45,383
General and administrative
expenses 39,028 53,230 39,415
--------- --------- ---------
Total operating expenses 154,386 185,990 167,005
--------- --------- ---------
Income (loss) from operations 34,330 (33,850) 31,328
Interest income 1,573 1,489 760
Interest expense (7,181) (8,056) (6,770)
Gain on sale of subsidiary stock 1,637 -- 1,116
Other non-operating (expense) income (1,504) 34,726 401
--------- --------- ---------
Income (loss) before income taxes and
cumulative effect of an accounting change 28,855 (5,691) 26,835
Provision for income taxes 12,408 1,368 10,314
--------- --------- ---------
Income (loss) before cumulative
effect of an accounting change 16,447 (7,059) 16,521
--------- --------- ---------
Cumulative effect of an accounting change,
net of taxes 1,240 -- --
--------- --------- ---------
Net income (loss) $ 15,207 $ (7,059) $ 16,521
========= ========= =========
Net income (loss) per share before
cumulative effect of an accounting change:
Basic $ 1.04 $ (.44) $ 1.04
Diluted $ 1.01 $ (.44) $ 1.00
========= ========= =========
Cumulative effect of an accounting change:
Basic $ (.08) -- --
Diluted $ (.08) -- --
========= ========= =========
Net income (loss) per common share:
Basic $ .96 $ (.44) $ 1.04
Diluted $ .93 $ (.44) $ 1.00
========= ========= =========
Average number of common shares outstanding:
Basic 15,809 16,062 15,910
Diluted 16,289 16,062 16,479
</TABLE>
See accompanying notes to consolidated financial statements
41
<PAGE> 42
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 15,207 $ (7,059) $ 16,521
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Cumulative effect of an accounting change 2,176 -- --
Depreciation and amortization 25,174 28,570 22,945
Amortization of restricted stock awards, net 199 119 802
Provision for doubtful accounts 513 378 1,538
Provision for inventory obsolescence 4,135 11,521 2,026
Deferred income taxes (419) (947) 4,161
Gain on sale of assets (669) (32,653) --
Trading securities, net -- 902 (902)
Minority interest 2,122 669 --
Loss on disposal of assets 800 592 393
Changes in assets and liabilities:
Accounts and notes receivable (17,936) 171 (54,103)
Refundable income taxes -- -- 935
Inventories (28,934) (131) (41,139)
Prepaid expenses and other 627 (2,561) (976)
Intangibles and other assets 2,082 (2,783) (2,416)
Accounts payable and accrued liabilities 1,654 (7,472) 38,238
Income taxes payable 732 (3,005) (2,302)
Other long-term liabilities 3,998 1,606 1,031
-------- -------- --------
Total adjustments (5,868) (5,693) (29,769)
Net cash provided by (used in) operating
activities 9,339 (12,752) (13,248)
Cash flows from investing activities:
Proceeds from sale of assets 5,444 65,674 --
Additions to property and equipment (26,124) (14,576) (22,749)
Software investments (6,936) (7,731) (9,025)
Purchase of non-marketable investments (5,600) (6,691) (1,562)
Additions to long-term notes receivable (580) (2,000) (650)
Proceeds from non-marketable investments 1,033 -- --
Payments for acquisitions, net of cash
acquired -- -- (2,403)
-------- -------- --------
Net cash (used in) provided by investing
activities (32,763) 34,676 (36,389)
Cash flows from financing activities:
Notes payable, net 2,567 (16) (30,084)
Principal payments on long-term financing
agreement -- (2,104) (230)
Principal payments on capital leases (832) (856) (968)
Proceeds from convertible debt -- -- 82,500
Debt issue costs paid (24) (306) (3,463)
Proceeds from exercise of stock options 9,400 1,615 5,977
Purchase of treasury stock (5,070) (9,328) --
Payment of cash dividends (162) (162) (160)
-------- -------- --------
Net cash provided by (used in)
financing activities 5,879 (11,157) 53,572
Effect of exchange rate changes on cash (341) (209) (471)
-------- -------- --------
Net (decrease) increase in cash and
cash equivalents (17,886) 10,558 3,464
Cash and cash equivalents at beginning
of year 45,386 34,828 31,364
-------- -------- --------
Cash and cash equivalents at end of year $ 27,500 $ 45,386 $ 34,828
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
42
<PAGE> 43
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
IN THOUSANDS (EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOREIGN UNEARNED
ADDITIONAL CURRENCY COMPENSATION TREASURY
COMMON PAID-IN RETAINED TRANSLATION RESTRICTED STOCK AT
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK COST
----- ------- -------- ---------- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 $156 $78,548 $62,954 $(1,525) $(1,555) $ --
Exercise of stock options, net of
tax 5 7,260 (734) -- -- --
Retirement of common stock (80,206 shares) -- (241) (485) -- -- --
Amortization of restricted stock -- -- -- -- 802 --
Stock issued under employee stock
purchase plan (8,815 shares) -- 183 -- -- -- --
Currency translation adjustment -- -- -- (539) -- --
Dividends paid ($.01 per share) -- -- (160) -- -- --
Net income for 1996 -- -- 16,521 -- -- --
---- -------- -------- -------- ------- -------
Balance at March 31, 1996 161 85,750 78,096 (2,064) (753) --
Exercise of stock options, net of
tax 1 1,670 (51) -- -- --
Retirement of common stock (15,037 shares) -- (2) (3) -- -- --
Amortization of restricted stock -- -- -- -- 376 --
Forfeiture of restricted stock -- (424) -- -- 167 --
Repurchase of common stock (633,000 shares) -- -- -- -- -- (9,328)
Reissue of treasury stock under employee
stock purchase plan (75,560 shares) -- 111 -- -- -- 794
Currency translation adjustment -- -- -- (579) -- --
Dividends paid ($.01 per share) -- -- (162) -- -- --
Net loss for 1997 -- -- (7,059) -- -- --
---- -------- -------- -------- ------- --------
Balance at March 31, 1997 162 87,105 70,821 (2,643) (210) (8,534)
Exercise of stock options, net of
tax -- 580 (813) -- -- 9,634
Amortization of restricted stock -- -- -- -- 199 --
Grants of restricted stock -- 482 -- -- (482) --
Repurchase of common stock (294,200 shares) -- -- -- -- -- (5,070)
Reissue of treasury stock under employee
stock purchase plan (57,112 shares) -- (173) -- -- -- 908
Currency translation adjustment -- -- -- (2,286) -- --
Dividends paid ($.01 per share) -- -- (162) -- -- --
Net income for 1998 -- -- 15,207 -- -- --
---- -------- -------- -------- ------- --------
Balance at March 31, 1998 $162 $ 87,994 $ 85,053 $ (4,929) $ (493) $ (3,062)
==== ======== ======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements
43
<PAGE> 44
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The Company's consolidated financial statements include the financial statements
of the Company and its wholly-owned and majority-owned subsidiaries. All
significant intercompany transactions have been eliminated in consolidation.
MINORITY INTERESTS
- ------------------
The difference between the proceeds from the sale of stock by a subsidiary and
the Company's carrying value of such stock is recorded as a non-operating gain
or loss at the time of the sale, provided that the criteria for gain recognition
on the sale of subsidiary stock have been met. Minority interests then represent
the unaffiliated stockholders' interests in the cumulative earnings of the
subsidiary.
At March 31, 1998 and 1997, the Company has recorded minority interests of
approximately $2,791 and $669, respectively, in the caption titled Minority
Interest in the accompanying consolidated financial statements related to the
sales of common stock of its Aironet Wireless Communications, Inc. ("Aironet")
subsidiary. Refer to Note 16 -- Subsidiary Stock Transactions for additional
details on the sales of Aironet common stock.
FOREIGN CURRENCY TRANSLATION
- ----------------------------
The financial statements of foreign operations are translated into U.S. dollars
using the local currency as the functional currency in accordance with the
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation". Accordingly, all assets and
liabilities are translated at current rates of exchange, and operating
transactions are translated at weighted average rates during the year. The
translation gains and losses are accumulated as a separate component of
stockholders' equity until realized. There were no income taxes allocated to the
translation adjustments and transfers to net income in 1998, 1997 and 1996. Net
transaction gains or losses are included in the results of operations and were
not material in 1998, 1997 and 1996. For further detail by geographic areas, see
Note 13 -- Business Segment.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- -------------------------------------------
The Company enters into forward foreign currency exchange contracts, which
generally involve the exchange of one currency for a second currency at some
future date, to hedge against the impact of changes in foreign currency exchange
rates on specific foreign currency commitments. Unrealized gains and losses on
these forward foreign exchange contracts are deferred and realized upon
settlement of the commitment transaction. Refer to Note 11 -- Fair Value of
Financial Instruments for additional details on forward foreign currency
exchange contracts.
CASH AND CASH EQUIVALENTS
- -------------------------
The Company considers all highly liquid investments which are both readily
convertible to cash and have a maturity of three months or less when purchased
to be cash equivalents. At March 31, 1998, the Company had cash of $900 held in
escrow; $500 related to a Standstill Agreement with a third-party and $400
related to the sale of a non-marketable investment. At March 31, 1997, the
Company had cash of $500 held in escrow related to a Standstill Agreement with a
third-party.
44
<PAGE> 45
TRADING SECURITIES
- ------------------
Trading securities, which consist of marketable securities that the Company has
purchased with the intent of selling within the near term, have been stated at
fair value in accordance with the FASB Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). Under SFAS No. 115, the Company records all
unrealized holding gains and losses as non-operating income or loss.
During fiscal 1996, the Company recognized $339 of net unrealized holding gains
on trading securities.
INVENTORIES
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
- ----------------------
Property and equipment are recorded at historical cost and depreciated over the
estimated useful lives of the assets using the straight-line method for
financial reporting purposes. The ranges of the estimated useful lives are:
buildings, 19-25 years; machinery and equipment, furniture and fixtures, and
transportation equipment, 3-10 years; marketing and customer service equipment
and tooling, 3 years; and leasehold improvements, over the shorter of the useful
life of the asset or the life of the lease. Gains and losses from the sale or
retirement of property and equipment are included in income. Fully depreciated
assets are written off against accumulated depreciation.
SOFTWARE COSTS, INTANGIBLES AND OTHER ASSETS
- --------------------------------------------
Software costs are capitalized in accordance with the FASB Statement of
Financial Accounting Standards No. 86, "Accounting for the Cost of Computer
Software to Be Sold, Leased, or Otherwise Marketed" and are included in
intangible and other assets in the accompanying consolidated balance sheet.
Purchased computer software is capitalized and amortized for both financial and
tax reporting purposes, using the straight-line method, over the expected useful
life of the software, generally three years. Similarly, internally developed
computer software for sale or lease is capitalized and amortized for financial
reporting purposes using the straight-line method over three years; for tax
purposes, these costs are generally expensed as incurred, though certain of
these costs have been capitalized and will be amortized using the straight-line
method over three years. Product development and engineering expenses are
expensed as incurred for both financial and tax reporting purposes.
The excess of the purchase cost over the fair value of net assets acquired in an
acquisition (goodwill) is included in intangible and other assets in the
accompanying consolidated balance sheet. Goodwill is amortized on a
straight-line basis over five to ten years. The Company periodically reviews
goodwill to assess recoverability, and impairments, if any, would be recognized
in results of operations if a permanent reduction in value were to occur.
The non-compete agreements, deferred financing costs and license agreements have
also been included in intangible and other assets in the accompanying
consolidated balance sheet. Non-compete and license agreements are amortized on
a straight-line basis over the life of the related contract. Deferred financing
costs are amortized on a straight-line basis over the life of the related debt,
with accelerated amortization recorded on any indebtedness retired prior to its
scheduled maturity. All other assets included in intangible and other assets are
recorded at cost and are amortized on a straight-line basis over their expected
useful lives.
45
<PAGE> 46
REVENUE RECOGNITION
- -------------------
Revenues from computer hardware sales and software licenses are recognized at
the time of shipment or, if professional services are also performed, at the
time of title transfer. Professional services revenues, which include system
integration and project management fees, are recognized as services are
performed. In accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement of Position 91-1, "Software Revenue
Recognition", revenues from custom application software sales are recognized
using a percentage-of-completion method. Revenues from customer service
contracts are recognized ratably over the maintenance contract period or as the
services are performed.
During fiscal 1997, the Company entered into certain software license agreements
and manufacturing rights contracts with third-parties. The sale of these rights
was recorded as product revenue.
PRODUCT DEVELOPMENT AND ENGINEERING EXPENSES
- --------------------------------------------
Expenditures for the development and engineering of products are expensed as
incurred in accordance with the requirements of the FASB Statement of Financial
Accounting Standards No. 2, "Accounting for Research and Development Costs".
During fiscal 1996, the Company was reimbursed $1,000 by a major customer for
product development and engineering costs incurred by the Company during the
year in connection with a product development agreement between the Company and
the customer. The reimbursement has been recorded as a reduction to the
Company's product development and engineering expenses.
STOCK OPTION AND STOCK PURCHASE PLANS
- -------------------------------------
Stock options, which are granted to employees and non-employee directors under
the Company's stock option plans at the quoted closing market price of the
Company's common stock as of the last trading day prior to the grant date, and
stock purchased by eligible employees under the Company's employee stock
purchase plan are accounted for under Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25"). As the stock options are
granted at the quoted market price of the Company's common stock as of the grant
date, no compensation expense has been recorded in accordance with APB 25. The
Employee Stock Purchase Plan meets the criteria of a non-compensatory plan under
APB 25.
EARNINGS PER SHARE
- ------------------
Computations of basic and diluted earnings per share of common stock have been
made in accordance with the FASB Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128). The Company was required to adopt the
provisions of SFAS No. 128 beginning with the quarter ended December 31, 1997.
All prior and interim period earnings per share amounts have been restated
accordingly. All securities having an anti-dilutive effect on earnings per share
have been excluded from such computations. Common stock purchase rights
outstanding under the Company's stockholder rights plan, which potentially have
a dilutive effect, have been excluded from the weighted common shares
computation as preconditions to the exercisablity of such rights were not
satisfied.
46
<PAGE> 47
RECONCILIATION OF NUMERATORS AND DENOMINATORS OF THE BASIC
AND DILUTED EPS COMPUTATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
In the following table, income (loss) represents the numerator and the shares
represent the denominator in the Earnings Per Share Calculation.
<TABLE>
<CAPTION>
For the Year ended For the Year ended For the Year ended
March 31, 1998 March 31, 1997 March 31, 1996
-------------------------- -------------------------- -------------------------
Per-Share Per-Share Per-Share
Income Shares Amount (Loss) Shares Amount Income Shares Amount
------ ------ --------- ------ ------ --------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $15,207 $(7,059) $16,521
BASIC EPS
Income available to
common stockholders $15,207 15,809 $ 0.96 $(7,059) 16,062 $(0.44) $16,521 15,910 $ 1.04
====== ====== ======
EFFECT OF DILUTIVE SECURITIES
Options 480 -- 569
DILUTED EPS
Income (loss) available to
stockholders of common
shares and common share
equivalents $15,207 16,289 $ 0.93 $(7,059) 16,062 $(0.44) $16,521 16,479 $ 1.00
======= ====== ====== ======= ====== ====== ======= ====== ======
</TABLE>
Options to purchase 737,626 shares of common stock at prices of $22.25 to $25.31
per share were outstanding at March 31, 1998, but were not included in the
computation of diluted EPS because the options' exercise prices were greater
than the average market price for the common shares for fiscal 1998. The shares
issuable upon conversion of Telxon's 5-3/4% Convertible Subordinated Notes and
7-1/2% Convertible Subordinated Debentures were omitted from the diluted EPS
calculations because their inclusion at March 31, 1998, 1997 and 1996, would
have had an anti-dilutive effect on earnings.
As more fully described in Note 21 -- Subsequent Events, Telxon reissued 44,848
shares of treasury stock subsequent to March 31, 1998, to satisfy stock options
exercised under its stock option plans.
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
47
<PAGE> 48
CONTINGENT AND UNUSUAL ITEMS
- ----------------------------
Contingent and unusual items are expensed as incurred when events giving rise to
such items are probable and the amounts are estimable in accordance with the
requirements of the FASB Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies".
RECLASSIFICATIONS
- -----------------
Certain items in the fiscal 1997 and 1996 consolidated financial statements and
notes thereto have been reclassified to conform to the fiscal 1998 presentation.
NOTE 2 -- INVENTORIES
Inventories at March 31, consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Purchased components $ 49,514 $29,983
Work-in-process 37,375 31,579
Finished goods 21,289 22,937
-------- -------
$108,178 $84,499
======== =======
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment, at cost, at March 31, consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Machinery and equipment $ 59,849 $ 56,187
Tooling 28,624 24,356
Furniture and office equipment 19,620 19,104
Capital lease assets and other 14,386 4,553
Buildings, improvements and leasehold
interest 11,672 12,242
Leasehold improvements 7,680 7,992
Land 1,978 1,978
Transportation equipment 660 2,988
-------- --------
144,469 129,400
Less-accumulated depreciation and
amortization 92,361 83,822
-------- --------
$ 52,108 $ 45,578
======== ========
</TABLE>
Depreciation expense for fiscal 1998, 1997 and 1996 amounted to $14,369, $18,893
and $15,184, respectively.
Net capital lease additions (retirements) were $1,698, $(1,008) and $1,348 in
fiscal 1998, 1997 and 1996, respectively. These additions and retirements were
non-cash transactions and, accordingly, have been excluded from property and
equipment additions in the accompanying consolidated statement of cash flows.
Amortization of capital lease assets has been included in depreciation expense.
Accumulated depreciation related to capital lease assets aggregated $1,732,
$1,177 and $1,680 in fiscal 1998, 1997 and 1996, respectively.
48
<PAGE> 49
NOTE 4 -- INTANGIBLE AND OTHER ASSETS
Intangible and other assets, net, consisted of the following at March 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Investments in non-traded, closely
held companies $12,853 $ 8,403
Capitalized software, net of amortization
of $12,670 and $7,379 11,954 11,451
Long-term notes receivable 6,401 9,855
Goodwill relating to acquisitions, net of
amortization of $18,540 and $16,889 3,463 8,962
Deferred financing costs, net of amortization
of $2,339 and $1,708 2,935 3,542
Other, net of amortization of $464 and
$95 5,152 3,881
------- -------
$42,758 $46,094
======= =======
</TABLE>
Amortization expense for the years ended March 31, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Capitalized software $ 6,433 $3,862 $2,385
Goodwill 3,500 4,126 4,100
Deferred financing costs 631 612 164
Non-compete agreements -- 600 720
Licenses -- -- 350
Other 241 127 42
------ ------ ------
$10,805 $9,327 $7,761
======= ====== ======
</TABLE>
During fiscal 1998, the Company sold the stock of its Virtual Vision subsidiary.
Included in the sale was goodwill with a net book value of $2,001 and patents
and trademarks with a net book value of $207. Refer to Note 15 -- Divestitures
for additional details on the sale.
During fiscal 1997, the Company sold the assets of certain retail application
software operations, including capitalized software with a net book value of
$2,545. Refer to Note 15 -- Divestitures for additional details on the sale.
During fiscal 1997, the Company sold substantially all of the assets of its
Itronix Corporation subsidiary, including capitalized software with a net book
value of $439. Additionally, the Company expensed $1,589 of unamortized goodwill
during fiscal 1997 related to the sale. Refer to Note 15 -- Divestitures for
additional details on the sale.
In connection with the acquisition of Teletransaction, Inc. in fiscal 1993, the
Company acquired the rights to consulting services (principally performed by
Robert F. Meyerson, then Chairman of the Board and Chief Executive Officer of
the Company) from Accipiter Corporation ("Accipiter"), a company owned by Mr.
Meyerson's wife, and also secured a non-competition covenant from Accipiter and
Mr. Meyerson. Aggregate payments for these rights were $3,600. The costs of
these rights were amortized over the five year terms of the agreements and were
fully amortized at March 31, 1997.
NOTE 5 -- SHORT-TERM FINANCING
Effective March 8, 1996, the Company replaced its previous revolving credit,
term loan, and security agreement with a new credit agreement with a group of
eight banks. The credit agreement, which expires on March 8, 2001, provides the
Company with a maximum credit facility of $100,000 and permits the Company to
borrow funds as domestic or Eurodollar advances. Funds borrowed as domestic
advances bear interest at the greater of the agent bank's "Prime Commercial
Lending Rate" or the Federal Funds
49
<PAGE> 50
rate plus .50% while Eurodollar advances bear interest at the agent bank's
Eurodollar rate plus .50% to 1.25% based on certain capitalization levels. At
March 31, 1998, the interest rate in effect under this credit agreement for
domestic advances was 8.50% and for Eurodollar advances was 6.40%. In addition,
the agreement requires the Company to pay a commitment fee of .15% to .375% per
annum, based on certain capitalization levels, on the unused portion of the
revolving commitment amount. The Company is also required to pay a utilization
fee of .125% to .25% per annum, based on certain capitalization levels, on
Eurodollar advances at certain borrowing levels. At March 31, 1998, the
commitment fee and utilization fee rates were .20% and .125% per annum,
respectively. The agreement also contains certain restrictive covenants which
require the Company to maintain certain leverage, net worth and fixed charge
coverage ratios. The Company had no borrowings outstanding under the credit
agreement at March 31, 1998. At March 31, 1998, the Company was in compliance
with all restrictive covenants contained in the credit agreement.
Effective March 20, 1996, the Company entered into a business purpose revolving
promissory note with a bank. The note provides the Company with a maximum credit
facility of $20,000 and bears interest at the lending bank's "Money Market Rate"
plus .50% to 1.25% per annum, based on certain capitalization levels. Effective
August 5, 1997, the note was extended to August 4, 1998. At March 31, 1998, the
interest rate in effect under the note was 7.126%. The Company had $3,000
outstanding under the promissory note at March 31, 1998.
Both credit facilities were amended in August 1996 to conditionally grant to the
lenders a security interest in certain assets of the Company which will only
become effective if the Company were to become in default under the credit
agreement and then only if the requisite lenders under that facility were to
direct that the security documents be filed.
During fiscal 1998, the Company had a weighted average of $3,463 outstanding
under its $100,000 credit agreement and $20,000 promissory note with a weighted
average interest rate of 8.9% per annum. During fiscal 1997, the Company had a
weighted average of $7,760 outstanding with a weighted average interest rate of
7.0% per annum.
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities at March 31, consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred customer service revenues $13,448 $14,329
Accrued payroll and other employee compensation 9,559 15,799
Accrued royalties 3,781 4,516
Accrued taxes other than payroll and income taxes 3,000 3,162
Accrued commissions 2,794 3,510
Accrued interest 1,875 1,847
Other accrued liabilities 6,577 5,837
------- -------
$41,034 $49,000
======= =======
</TABLE>
50
<PAGE> 51
NOTE 7 -- INCOME TAXES
Components of income (loss) before taxes:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Domestic operations $20,495 $(19,589) $13,758
International operations 8,360 13,898 13,077
------- -------- -------
$28,855 $ (5,691) $26,835
======= ======== =======
</TABLE>
The Company accounts for income taxes in accordance with the FASB Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). Under SFAS No. 109, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the tax rates and laws that are currently in
effect.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Components of the provision for income taxes by taxing jurisdiction are as
follows:
<TABLE>
<CAPTION>
Currently payable (refundable): 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. $ 6,565 $ (450) $ 3,796
State and local 498 196 264
Foreign 3,470 5,090 4,727
-------- -------- --------
10,533 4,836 8,787
-------- -------- --------
Deferred:
U.S. 2,051 (2,900) 1,586
State and local (46) (393) 178
Foreign (130) (175) (237)
-------- -------- --------
1,875 (3,468) 1,527
-------- -------- --------
Provision for Income Taxes $ 12,408 $ 1,368 $ 10,314
======== ======== ========
</TABLE>
The reconciliation between the reported total income tax expense (benefit) and
the amount computed by multiplying income (loss) before income taxes by the U.S.
federal statutory tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory tax rate 35.0% (35.0)% 35.0%
Net taxes on repatriated foreign earnings -.- 41.8 -.-
Foreign tax rate differential .9 7.8 1.7
Research and development credits (.7) (19.7) (2.2)
Goodwill 4.2 25.5 5.6
Foreign sales corporation tax benefit (1.0) (6.3) -.-
Net operating losses not currently utilized -.- 7.4 -.-
Other 4.7 2.5 (1.7)
---- ---- ----
Consolidated effective income tax rate 43.0% 24.0% 38.4%
==== ==== ====
</TABLE>
51
<PAGE> 52
The reconciliation between the reported total income tax expense (benefit) and
the amount computed by multiplying income (loss) before income taxes by the U.S.
statutory tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory tax rate $ 10,099 $ (1,992) $ 9,392
Net taxes on repatriated foreign earnings -- 2,380 --
Foreign tax rate differential 249 422 468
Research and development credits (207) (1,121) (593)
Goodwill 1,202 1,449 1,494
Foreign sales corporation tax benefit (291) (357) --
Net operating losses not currently utilized -- 442 --
Other 1,356 145 (447)
-------- -------- --------
Consolidated effective income tax rate $ 12,408 $ 1,368 $ 10,314
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at March 31, are presented below:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Foreign tax credit carryover $ 1,289 $ 4,827
Allowance for doubtful accounts 1,504 1,195
Inventory obsolescence and capitalization 4,242 5,794
State and local income benefits 127 2,092
Net operating loss and research and development
and alternative minimum tax credit carryovers 3,862 1,839
Warranty reserves 1,007 1,374
Employee benefits and compensation 1,116 1,929
Other 5,552 1,816
-------- --------
Total gross deferred tax assets 18,699 20,866
Less valuation allowance (3,919) (7,559)
-------- --------
Total deferred tax assets 14,780 13,307
-------- --------
Deferred tax liabilities:
Depreciation and amortization (7,522) (5,191)
Other (2,282) (1,265)
-------- --------
Total gross deferred tax liabilities (9,804) (6,456)
-------- --------
Net deferred tax asset $ 4,976 $ 6,851
======== ========
</TABLE>
The net change in the total valuation allowance for deferred tax assets for the
years ended March 31, 1998 and 1997, was a decrease of $3,640 and an increase of
$5,175, respectively. The net deferred tax asset is deemed realizable by
management and is classified as a prepaid expense in the accompanying
consolidated balance sheet.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of March 31, will be allocated as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Income tax benefit that would be reported in the
consolidated statement of income $ -- $1,402
Income tax benefit that would reduce goodwill and
other noncurrent intangible assets 3,919 6,157
------ ------
Total $3,919 $7,559
====== ======
</TABLE>
No provision for U.S. income taxes on $5,337 of undistributed earnings of
international subsidiaries at March 31, 1998, was made because these earnings
were indefinitely reinvested in the subsidiaries. Determination of the amount of
the unrecognized deferred tax liability for temporary differences related to
investment in foreign subsidiaries is not practicable.
52
<PAGE> 53
Income taxes paid in fiscal 1998, 1997 and 1996 were $9,428, $8,734 and $6,340,
respectively. Income tax refunds received in fiscal 1998, 1997 and 1996
aggregated $473, $604 and $1,620, respectively.
As of March 31, 1998, the Company had foreign operating loss carryovers of
$3,506 for both tax and financial reporting purposes. These foreign carryovers
expire at various dates through fiscal 2005.
As a result of acquisitions in prior years, the Company had domestic operating
loss carryovers and domestic research and development credit carryovers for tax
and financial reporting purposes in the amounts of $1,018 and $753,
respectively. These domestic carryovers expire at various dates through fiscal
2008. As of March 31, 1998, the Company had domestic alternative minimum tax
credit carryovers of $1,239. The domestic alternative minimum tax credit
carryforward period is indefinite. There can be no assurance that foreign and
domestic tax carryovers will be utilized.
As of March 31, 1998, the Company had foreign tax credit carryovers of $1,289.
The carryforward period is five years and expires in fiscal 2002.
NOTE 8 -- STOCK OPTIONS AND RESTRICTED STOCK
The Company accounts for stock based compensation issued to its employees and
non-employee directors in accordance with APB 25 and has elected to adopt the
"disclosure-only" provisions of the FASB Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS No. 123").
During the periods shown below, the Company had in effect two stock option plans
for the officers and other key employees of the Company - the Telxon Corporation
1988 Stock Option Plan (the "1988 Plan") and the Telxon Corporation 1990 Stock
Option Plan (the "1990 Plan"). The persons to whom options are granted, the
number of shares granted to each and the period over which the options become
exercisable (generally in equal installments over a three-year period on the
first three anniversaries after the date of grant) are determined by the Option
and Stock Committee of the Board of Directors ("the Committee"). The exercise
price is equal to the closing market price for the Company's Common Stock as of
the last trading day prior to the grant date.
The following is a summary of the activity in the Company's employee stock
option plans during fiscal 1996, 1997 and 1998:
<TABLE>
<CAPTION>
STOCK OPTIONS
-------------
AVERAGE PRICE
SHARES PER SHARE
------ ---------
<S> <C> <C>
March 31, 1995 2,286,221 12.66
Granted 1,184,626 19.10
Exercised (513,927) 10.94
Returned to pool due to employee
terminations (5,990) 12.28
---------
March 31, 1996 2,950,930 15.54
Granted 956,500 14.89
Exercised (127,337) 11.84
Returned to pool due to employee
terminations (665,471) 16.27
---------
March 31, 1997 3,114,622 15.23
Granted 727,475 23.19
Exercised (745,358) 13.28
Returned to pool due to employee
terminations (151,154) 19.19
---------
March 31, 1998 2,945,585 17.59
=========
</TABLE>
53
<PAGE> 54
At March 31, 1998, there were 2,945,585 options outstanding under the 1990 Plan
at the exercise prices of $8.75 to $25.38 per share, with a remaining weighted
average contractual life of 6.58 years. Of the outstanding options, 1,644,852
are vested.
Outstanding and Excercisable
at March 31, 1998
<TABLE>
<CAPTION>
Options Outstanding Options Excercisable
------------------------------ ----------------------------
Range of Weighted Ave. Weighted Ave. Weighted Ave.
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 3/31/98 Life Price at 3/31/98 Price
- --------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 8.750-$11.500 443,048 5.64 $11.18 443,048 $ 9.68
$12.500-$14.500 464,237 6.72 $13.71 401,848 $13.89
$15.250-$15.500 371,866 6.81 $15.40 295,511 $15.38
$16.750-$19.625 608,333 6.81 $17.32 202,778 $17.32
$20.125-$21.875 405,475 6.13 $20.77 185,000 $20.21
$22.250-$23.375 274,001 6.28 $22.69 116,667 $22.30
$25.310-$25.375 378,625 7.60 $25.32 - -
------------- ---------- ------------ -------------- -----------
2,945,585 6.58 $17.59 1,664,852 $14.75
============= ========== ============ ============== ===========
</TABLE>
During fiscal 1998, the Company's stockholders approved an amendment to the 1990
Plan that increased the number of shares available for issuance by 750,000
shares, to a total of 4,100,000 shares. During fiscal 1996, the Company's
stockholders approved an amendment to the 1990 Plan which authorized an
additional 850,000 shares for issuance. Options available to be granted under
the 1990 Plan at March 31, 1998, were 292,036. No further options can be granted
under the 1988 Plan.
The Company also has in effect a stock option plan for non-employee directors
(the "Director Plan"). During fiscal 1996, the Company's stockholders approved
an amendment to the Director Plan that increased the number of shares available
for issuance by 150,000 shares, to a total of 400,000 shares. During the fiscal
year ended March 31, 1998, 105,000 options were granted at an average price per
share of $23.62. At March 31, 1998, there were 340,000 options outstanding under
the Director Plan at exercises prices of $9.125 to $25.25 per share, with a
weighted average contractual life of 5.44 years. Of the outstanding options,
186,667 are vested. At March 31, 1998, there were 1,667 options available to be
granted under the Director Plan.
Outstanding and Excercisable
at March 31, 1998
<TABLE>
<CAPTION>
Options Outstanding Options Excercisable
------------------------------ ----------------------------
Range of Weighted Ave. Weighted Ave. Weighted Ave.
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 3/31/98 Life Price at 3/31/98 Price
- --------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 9.125-$11.500 60,000 5.42 $10.63 40,000 $10.38
$11.750-$14.750 50,000 5.49 $13.98 46,667 $14.13
$15.750-$21.250 65,000 4.9 $18.88 50,000 $19.05
$22.500-$23.250 80,000 4.95 $22.91 43,333 $22.85
$23.375-$25.250 85,000 6.29 $23.79 6,667 $23.50
------------- ---------- ------------ -------------- -----------
340,000 5.44 $18.88 186,667 $15.36
============= ========== ============ ============== ===========
</TABLE>
At March 31, 1998 and 1997, there were 6,000 options outstanding and exercisable
at $14.63 per share which were granted to a non-employee Director prior to the
adoption of the Director plan.
During fiscal 1993, the Company adopted a Restricted Stock Plan (the "Restricted
Stock Plan"), under which 250,000 shares may be issued. The Committee determines
the persons to whom restricted stock is granted, the number of shares granted to
each and the time periods during which and the criteria upon which the
restricted stock is subject to forfeiture (generally, the forfeiture
restrictions lapse as to equal installments of each grant over a five-year
period on the first five anniversaries of the date of grant, provided that the
grantee then continues in the Company's employ). At March 31, 1998, 187,000
shares granted under the Restricted Stock Plan had vested, 52,000 shares were
outstanding subject to forfeiture, and 11,000 shares were available to be
granted as a result of forfeited shares.
During fiscal 1996, the Company's stockholders approved the 1995 Employee Stock
Purchase Plan (the "1995 Stock Purchase Plan"), under which 500,000 shares of
common stock were authorized for sale to eligible employees at a 15% discount
from market value. During fiscal 1998, the Company re-issued 57,112 shares of
its treasury stock in satisfaction of purchases made under the 1995 Stock
Purchase Plan. At March 31, 1998, a total of 141,487 shares had been issued and
purchased under the 1995 Stock Purchase Plan since its inception and 358,513
shares remained available for future purchases.
For SFAS No. 123 purposes, the fair value of each option granted under the 1990
and Director Plans is estimated as of the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
stock options granted in fiscal 1998 and 1997, respectively: dividend yield of
.038% and .047%, expected volatility of 44.66% and 56.22%, risk-free interest
rates of 5.88% and 6.40%, and an expected life of five years for grants in both
fiscal 1998 and 1997.
The fair value of each right to purchase stock under the 1995 Stock Purchase
Plan is estimated as of the first day of each six-month payment period (during
which payroll deductions for purchases are made) using the Black-Scholes option
pricing model with the following weighted average assumptions used in fiscal
1998 and 1997, respectively: dividend yield of .038% and .047%, expected
volatility of 44.66% and 56.22%, risk-free interest rates of 5.29% and 5.18%,
and an expected life of six months in both fiscal 1998 and 1997.
If the Company had elected to recognize the compensation cost of its stock
option and stock purchase plans based on the fair value of the awards under
those plans in accordance with SFAS No. 123, net income (loss) and earnings
(loss) per share would have been reduced (increased) to the pro forma amounts
below:
54
<PAGE> 55
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C> <C>
Net income (loss): As reported $15,207 $ (7,059)
Pro forma 7,934 (11,651)
Earnings per share:
Basic As reported $.96 $(.44)
Pro forma .50 (.73)
Diluted As reported $.93 $(.44)
Pro forma .49 (.73)
</TABLE>
The significant increase in the Pro Forma compensation expense in fiscal 1998
was the result of 495,000 options that were granted March 17, 1997. The
compensation expense recorded in the pro forma disclosure of fiscal 1997
included 14 days of expense as compared to the full year of expense recorded
in fiscal 1998.
NOTE 9 -- LEASES
The Company leases certain equipment under capital leases generally for terms of
five years or less with renewal and purchase options. The present value of
future minimum lease payments for these capital lease obligations is reflected
in the consolidated balance sheet as current and noncurrent capital lease
obligations. In addition, the Company leases office facilities, customer service
locations and certain equipment under noncancellable operating leases.
Future minimum lease payments for the fiscal years ending March 31, are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------ ------
<S> <C> <C>
1999 $1,109 $8,113
2000 648 7,241
2002 519 6,133
2002 519 3,403
2003 499 1,676
2004 and thereafter 63 6,400
---- -------
3,357 $32,966
=======
Amount representing interest (513)
------
Present value of net minimum lease payments 2,844
Current portion (968)
------
Long-term portion $1,876
======
</TABLE>
The Company has an option to purchase the 100,000-square-foot facility currently
occupied by its corporate offices. The purchase option is exercisable for a
price equal to the fair market value of the premises as determined by an
independent appraisal prior to September 1, 2001.
Rent expense for fiscal 1998, 1997 and 1996 amounted to $10,820, $12,296 and
$10,623, respectively.
NOTE 10 -- CONVERTIBLE SUBORDINATED NOTES AND DEBENTURES
Convertible subordinated notes and debentures at March 31, 1998 and 1997,
consisted of $82,500 of 5-3/4% Convertible Subordinated Notes (the "5-3/4%
Notes") and $24,724 of 7-1/2% Convertible Subordinated Debentures (the "7-1/2%
Debentures").
The 5-3/4% Notes, which were issued December 12, 1995, are due January 1, 2003.
The conversion price for the 5-3/4% Notes is $27.50 per common share and is
subject to adjustment in certain events. Interest is payable on January 1 and
July 1 in each year, and commenced July 1, 1996. On or after January 5, 1999,
the 5-3/4% Notes are redeemable at any time at the option of the Company, in
whole or in part, at the following prices for the following calendar years:
1999, 103.286%; 2000, 102.464%; 2001, 101.643% and 2002, 100.821%.
The 7-1/2% Debentures, which were issued June 1, 1987, are due June 1, 2012. The
conversion price for the 7-1/2% Debentures of $26.75 is subject to adjustment in
55
<PAGE> 56
certain events. Interest is payable on June 1 and December 1 in each year, and
commenced December 1, 1987. At March 31, 1997, the Debentures were redeemable at
any time at the option of the Company, in whole or in part, at 100.75% of the
principal amount redeemed. On and after June 1, 1997, the Debentures are
redeemable at par. The sinking fund requires mandatory annual payments of 5% of
the original $46,000 principal amount commencing June 1, 1997, calculated to
retire 75% of the issue prior to maturity. During fiscal 1991, the Company
purchased and retired Debentures with a principal face amount aggregating
$21,266, which will be applied to the earliest of the Company's sinking fund
payment obligations.
Total interest paid by the Company in fiscal 1998, 1997 and 1996 (including but
not limited to the interest on the Convertible Subordinated Notes and
Debentures) was $7,417, $8,368 and $5,046, respectively.
NOTE 11 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The FASB Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value Financial Instruments", requires that the Company disclose the fair
value of its financial instruments for which it is practicable to estimate fair
value.
The following methods and assumptions were used by the Company in estimating the
fair value of the following financial instruments:
Cash and Cash Equivalents
-------------------------
The carrying amounts reported in the accompanying consolidated balance
sheets for cash and cash equivalents approximate fair value due to the
short-term nature of these instruments.
5-3/4% Notes
------------
The fair value of the Company's 5-3/4% Notes is based on discounted
cash flow analysis (there being no regular public trading market for
the 5-3/4% Notes). Refer to Note 10 -- Convertible Subordinated Notes
and Debentures for additional information concerning the 5-3/4% Notes.
7-1/2% Debentures
-----------------
The fair value of the Company's 7-1/2% Debentures is based on quoted
market prices. Refer to Note 10 -- Convertible Subordinated Notes and
Debentures for additional information concerning the 7-1/2% Debentures.
<TABLE>
<CAPTION>
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash and cash equivalents $27,500 $27,500 $45,386 $45,386
5-3/4% Notes 82,500 79,907 82,500 79,314
7-1/2% Debentures 24,724 25,713 24,724 23,982
</TABLE>
Forward Foreign Currency Exchange Contracts
-------------------------------------------
The fair value of forward foreign currency exchange contracts is
estimated based on quotes from currency brokers. At March 31, 1998, the
Company had several forward foreign currency exchange contracts to
purchase various foreign currencies with an aggregate contract value of
$4,534 and an aggregate fair value of $4,574. At March 31, 1998, these
contracts were scheduled to mature in April 1998.
Investments in Non-traded Companies
-----------------------------------
It was not practicable for the Company to estimate the fair value of
its investments in certain non-traded, closely held companies because
of the lack of quoted market prices for those investments and the
inability to estimate fair values without incurring excessive costs.
These investments, which the Company holds for purposes other than
trading, totaled $12,853 and $8,403 at March 31, 1998 and 1997,
respectively, and are carried at cost in intangible and other assets in
the accompanying consolidated balance sheets. Refer to Note
56
<PAGE> 57
4 -- Intangible and Other Assets for additional information concerning
the Company's investments in non-traded companies.
Long-term Notes Receivable
--------------------------
It was not practicable for the Company to estimate the fair value of
its long-term notes receivable from certain non-traded, closely held
companies because of the lack of quoted market prices for similar
financial instruments and the inability to estimate fair values without
incurring excessive costs. The notes, which the Company intends to hold
to maturity, bear interest at various fixed and variable rates and have
maturities ranging from one to four years. The long-term notes
receivable, which total $6,401 and $9,855 at March 31, 1998 and 1997,
respectively, are carried at cost in intangible and other assets in the
accompanying consolidated balance sheets. Refer to Note 4 -- Intangible
and Other Assets for additional information concerning long-term notes
receivable.
NOTE 12 -- STOCKHOLDERS' EQUITY
The exercise of non-qualified stock options results in state and federal income
tax benefits to the Company equal to the difference between the market price at
the date of exercise and the option price. During fiscal 1998, 1997 and 1996,
$2,180, $353 and $1,751, respectively, was credited to additional paid-in
capital as a result of such option exercises.
NOTE 13 -- BUSINESS SEGMENT
The Company designs, develops, manufactures, markets and services mobile and
wireless transaction systems and solutions for vertical markets. The Company's
business is a single segment. The Company does not believe that it is dependent
upon any one customer or group of customers. No customer accounted for 10% or
more of total revenues in fiscal 1998, 1997 or 1996.
The Company sells its products to customers in diversified industries, primarily
in North America and Europe. The Company realizes approximately one-half of its
revenues from customers in retail industries who are in widely diversified
geographic locations and markets. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. The
Company maintains reserves for potential credit losses, and such losses have
historically been within management's expectations.
The Company has operations in the United States, Europe, Canada, Mexico,
Australia and Asia. Information for fiscal 1998, 1997 and 1996 follows below.
Of the U.S. revenues from unaffiliated customers in fiscal 1998, 1997 and 1996,
$28,625, $24,425 and $20,070 were exports to Europe, Canada, South America,
Asia, Africa and the Middle East.
Transfers between geographic areas were at cost plus a negotiated mark-up.
Assets of geographic areas are identified with the operations of each area.
Corporate assets consist of property and equipment.
57
<PAGE> 58
<TABLE>
<CAPTION>
UNITED ADJUSTMENT &
1998 STATES EUROPE OTHER ELIMINATION CONSOLIDATED
---- ------ ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers $362,776 $71,835 $31,259 $ -- $465,870
Transfers between geo-
graphic areas 44,978 567 21,122 (66,667) --
-------- ------- ------- -------- --------
Total revenues $407,754 $72,402 $52,381 $(66,667) $465,870
======== ======= ======= ======== ========
Operating income $ 63,797 $ 5,692 $ 3,070 $ (8,596) $ 63,963
======== ======= ======= ======== ========
Interest expense, net (5,608)
Non-operating income 133
Foreign currency
transaction gain
(loss), net 140 (183) (15) -- (58)
Corporate expenses, net (29,575)
Income before income --------
taxes $ 28,855
========
Identifiable assets at
March 31, 1998 $316,849 $38,556 $22,046 $ -- $377,451
======== ======= ======= ========
Corporate assets 13,088
Total assets at --------
March 31, 1998 $390,539
========
</TABLE>
<TABLE>
<CAPTION>
UNITED ADJUSTMENT &
1997 STATES EUROPE OTHER ELIMINATION CONSOLIDATED
---- ------ ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers $355,256 $65,292 $45,464 $ -- $466,012
Transfers between geo-
graphic areas 70,251 463 43,874 (114,588) --
-------- ------- ------- -------- --------
Total revenues $425,507 $65,755 $89,338 $(114,588) $466,012
======== ======= ======= ========= ========
Operating income $ 17,105 $ 1,680 $22,036 $ (25,641) $ 15,180
======== ======= ======= ========= ========
Interest expense, net (6,566)
Non-operating income 34,726
Foreign currency
transaction (loss), net (19) (387) (58) -- (464)
Corporate expenses, net (48,567)
(Loss) before income --------
taxes $ (5,691)
========
Identifiable assets at
March 31, 1997 $287,644 $32,578 $27,157 $ -- $347,379
======== ======= ======= ========
Corporate assets 14,405
Total assets at --------
March 31, 1997 $361,784
========
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
UNITED ADJUSTMENT &
1996 STATES EUROPE OTHER ELIMINATION CONSOLIDATED
---- ------ ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues from
unaffiliated customers $382,156 $69,588 $34,725 $ -- $486,469
Transfers between geo-
graphic areas 45,508 896 38,603 (85,007) --
-------- ------- ------- -------- --------
Total revenues $427,664 $70,484 $73,328 $(85,007) $486,469
======== ======= ======= ======== ========
Operating income $ 50,935 $ 6,506 $ 5,759 $ 996 $ 64,196
======== ======= ======= ======== ========
Interest expense, net (6,010)
Non-operating income 1,517
Foreign currency
transaction (loss) gain
net (18) 115 (157) -- (60)
Corporate expenses, net (32,808)
Income before income --------
taxes $ 26,835
========
Identifiable assets at
March 31, 1996 $297,154 $43,142 $35,130 $ -- $375,426
======== ======= ======= ========
Corporate assets 13,783
Total assets at --------
March 31, 1996 $389,209
========
</TABLE>
NOTE 14 -- INTERNATIONAL OPERATIONS
The consolidated financial statements include the following with respect to the
net income and net assets of the Company's international subsidiaries and
branches during the three years ended March 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income $ 5,020 $18,484 $ 7,695
Net assets $45,642 $36,727 $58,764
</TABLE>
NOTE 15 -- DIVESTITURES
Effective March 31, 1998, the Company sold the stock of its Virtual Vision
subsidiary to a third party in exchange for $500 in cash and $4,500 in Series F
Preferred Shares of FED Corporation at a value of $6.50 per share or 692,307
shares. The amount of these preferred shares is recorded in notes and other
accounts receivable in the accmpanying consolidated balance sheet. The Company
recorded a pre-tax gain of $669, net of transaction costs, as non-operating
income in the accompanying consolidated statement of operations.
Effective April 1, 1996, the Company sold the assets of certain application
software operations, with net assets of approximately $5,000, to a third-party
in exchange for $150 in cash and $7,000 in secured promissory notes, including
interest. In addition to the proceeds from the sale, the Company also entered
into a software license agreement with the third-party purchaser. The agreement
provides for the Company to receive, over the next five years, license fees
amounting to 20% of the revenue generated by the purchased software, with
minimum required payments agregated $6,000. The $7,000 in promissory nots
received in connection with the divestiture have been excluded from the
accompanying fiscal 97 consolidated statement of cash flows as a non-cash
transaction.
Effective December 31, 1996, the Company sold substanttially all of the assets
of its Itronix Corporation subsidiary, with a net book value of $30,848, as well
as all of the subsidiary's associated business, in exchange for $65,524 in cash,
plus the buyer's assumption of certain specified liabilities of the transferred
business totaling $8,229. The transaction resulted in a $32,653 gain, net of
transaction cost of $10,252, which has been recorded as other non-operating
income in the accompanying consolidated statement of operations. The buyer is
entitled to customary indemnification from the Company with respect to retained
liabilities and taxes. Under the terms of the sale, the Company is precluded
from competitng with the buyer in the manufacture and sale of ruggedized
notebook computers for a period of five years after the date of sale, other than
the Company's resale of products obtained from the buyer under a mutual reseller
agreement.
NOTE 16 -- SUBSIDIARY STOCK TRANSACTIONS
During fiscal 1998, the Company's Aironet subsidiary sold 984,126 shares of its
voting common stock to various third-party investors at a price of $3.50 per
share. Proceeds from this sale of stock were $3,444 in cash. The resulting
pre-tax gain of $402, net of related transaction costs, was recorded as
non-operating income in the accompanying consolidated statement of operations.
In addition to the sale of the shares of stock, 295,237 warrants for the
purchase of Aironet voting common stock were issued. A gain of $251 relating to
these warrants has been deferred until the warrants are exercised or lapse. The
Company's remaining interest in the voting common stock of Aironet at March 31,
1998, was 78%.
During fiscal 1998, certain Aironet employees exercised 270,000 options to
purchase Aironet voting common stock at $1.86 per share. The pre-tax gain of
$241 was recorded as non-operating income in the accompanying consolidated
statement of operations.
During fiscal 1997, the Company repurchased 432,558 shares of the voting common
stock of its Metanetics Corporation ("Metanetics") subsidiary, a liscensor and
developer of image reading technology, from the former employee. The shaes were
repurchased by the Company at a price of #1.04 per share and resulted in a $449
non-operating loss. The Company subsequently re-sold the repurchased shares
during fiscal 1997 to a corporation owned by Mr. Meyerson and his wife at a
price of $1.04 per share price, resulting in a non-operating gain of $449. the
Company's remaining percentage interest in the voting common stock of
Metanetics at March 31, 1997, was 49%.
During fiscal 1997, the Company sold 808,500 shares of voting common stock of
its Aironet subsidiary, a developer, manufacturer, and marketer of wireless LAN
systems, to a corporation owned by Mr. Meyerson at a price of $1.86 per share in
exchange for a promissory note, secured by a purchased stock, in the amount of
$1,504. This transaction resulted in the establishment of a minority interst of
$669 which has been included in other long-term liabilities in the accompanying
consolidated balance sheets at March 31, 1997. The Company's remaining
percentage interest in the voting common of Aironet at March 31, 1997, was 90%.
The sale of Aironet commons stock has been excluded from the accompanying fiscal
97 consolidated statement of cash flows as a non-cash transaction.
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<PAGE> 60
At March 31, 1997, the Company deferred recognition of the gain as the criteria
for the recognition of gain on the sale of subsidiary stock had not been met.
During fiscal 1998, the criteria for the recognition of gain on the sale of
subsidiary stock were fulfilled and accordingly, the $1.0 million of deferred
gain was recorded as non-operating income in the accompanying consolidated
statement of operations.
During fiscal 1998, the Company repurchased 80,000 shares of the voting common
stock of its Metanetics Corporation ("Metanetics") subsidiary, a licensor and
developer of image reading technology, from former key employees, at a price of
$1.04 per share. Giving effect to this repurchase of shares resulted in an
increase of the Company's interest in the voting common stock of Metanetics to
51%.
During fiscal 1997, the Company repurchased 432,558 shares of the voting common
stock of its Metanetics Corporation ("Metanetics") subsidiary, a licensor and
developer of image reading technology, from a former employee. The shares were
repurchased by the Company at a price of $1.04 per share and resulted in a $449
non-operating loss. The Company subsequently re-sold the repurchased shares
during fiscal 1997 to a corporation owned by Mr. Meyerson and his wife at a
price of $1.04 per share price, resulting in a non-operating gain of $449. The
Company's remaining percentage interest in the voting common stock of
Metanetics at March 31, 1997, was 49%.
NOTE 17 -- TREASURY STOCK TRANSACTIONS
During fiscal 1998, the Company repurchased 294,200 shares of its common stock,
at a weighted average price of $17.23 per share, pursuant to its open market
repurchase programs. Additionally, during fiscal 1998, the Company re-issued
57,112 shares of its treasury stock at a weighted average price of $15.91 per
share to satisfy purchases made by employees through the 1995 Stock Purchase
Plan and 632,111 shares at a weighted average price of $16.00 per share to
satisfy stock options exercised under the Company's stock options plans. The
remaining 162,417 shares of treasury stock have been accounted for at cost plus
brokerage fees under the caption of treasury stock in the accompanying
consolidated financial statements. The re-issuances of treasury stock in
satisfaction of the purchases made through the 1995 Stock Purchase Plan and
exercises of stock options under the Company's stock option plans have been
excluded from the accompanying consolidated statement of cash flows as non-cash
transactions.
NOTE 18 -- COMMITMENTS AND CONTINGENCIES
On September 21, 1993, a derivative Complaint was filed in the Court of Chancery
of the State of Delaware, in and for Newcastle County, by an alleged stockholder
of the Company derivatively on behalf of Telxon. The named defendants are the
Company; Robert F. Meyerson, former Chairman of the Board, Chief Executive
Officer and director; Dan R. Wipff, then President, Chief Operating Officer and
Chief Financial Officer and director; Robert A. Goodman, Corporate Secretary and
outside director; Norton W. Rose, outside director; and Dr. Raj Reddy, outside
director. The Complaint alleges breach of fiduciary duty to the Company and
waste of the Company's assets in connection with certain transactions entered
into by Telxon and compensation amounts paid by the Company. The Complaint seeks
an accounting, injunction, rescission,
60
<PAGE> 61
attorneys' fees and costs. While the Company is nominally a defendant in this
derivative action, no monetary relief is sought by the plaintiff from the
Company. On November 12, 1993, Telxon and the individual director defendants
filed a Motion to Dismiss. The plaintiff filed his brief in opposition to the
Motion on May 2, 1994, and the defendants filed a final responsive brief. The
Motion was argued before the Court on March 29, 1995, and on July 18, 1995, the
Court issued its ruling. The Court dismissed all of the claims relating to the
plaintiff's allegations of corporate waste, however the claims relating to
breach of fiduciary duty survived the Motion to Dismiss.
On October 31, 1996, plaintiff's counsel filed a Motion to Intervene in the
derivative action on behalf of a new plaintiff stockholder. As part of the
Motion to Intervene, the intervening plaintiff asked that the Court designate as
operative for the action the intervening plaintiff's proposed Complaint, which
alleges that a series of transactions in which the Company acquired certain
technology from a corporation affiliated with Mr. Meyerson was wrongful in that
Telxon already owned the technology by means of a pre-existing consulting
agreement with another affiliate of Mr. Meyerson; the intervenor's complaint
also names Raymond D. Meyo, President, Chief Executive Officer and director at
the time of the first acquisition transaction, as a new defendant. The
defendants opposed the Motion on grounds that the new claim alleged in the
proposed Complaint and the addition of Mr. Meyo were time-barred by the statute
of limitations and the intervening plaintiff did not satisfy the standards for
intervention. After taking legal briefs, the Court ruled on June 13, 1997 to
permit the intervention. On March 18, 1998, defendant Meyo filed a Motion for
Judgment on the Pleadings (as to himself), in response to which Plaintiff has
filed his Answer and Brief in Opposition, and which remains pending before the
Court. The post-intervention claims are the subject of ongoing discovery, and no
deadline for the completion of the discovery has yet been set by the Court.
The defendants believe that the post-intervention claims lack merit, and they
intend to continue vigorously defending this action. While the ultimate outcome
of this action cannot presently be determined, the Company does not anticipate
that this matter will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows and
accordingly has not made provisions for any loss or related insurance recovery
in the accompanying consolidated financial statements.
On February 17, 1998, a complaint was filed against the Company in the District
Court of Harris County, Texas, by Southwest Business Properties, the landlord of
the Company's former Wynnwood Lane facility in Houston, Texas. The complaint
alleges counts for breach of contract and temporary and permanent injunctive
relief, all related to alleged environmental contamination at the Wynnwood
property, and seeks specific performance, unspecified monetary damages for all
injuries suffered by plaintiff, payment of pre-judgment interest, attorneys'
fees and costs and other unspecified relief. In its Answer, Telxon denied
plaintiff's allegations. Plaintiff's claim for temporary injunctive relief is
set to be heard by the Court on July 16, 1998. Pursuant to the Court's
Scheduling Order in this action, trial is set for March 8, 1999. Telxon believes
that the these claims lack merit, and it intends to vigorously defend this
action.
On May 8, 1998, two class action suits were filed in the Court of Chancery of
the State of Delaware, in and for the County of New Castle, by certain alleged
stockholders of Telxon on behalf of themselves and purported classes consisting
of Telxon stockholders, other than defendants and their affiliates, relating to
an alleged offer by Symbol Technologies, Inc. ("Symbol") to acquire the Company.
The named defendants are Telxon and its current Board of Directors, namely,
Frank E. Brick, Robert A. Goodman, Dr. Raj Reddy, John H. Cribb, Richard J.
Bogomolny, and Norton W. Rose.
The plaintiffs allege that on April 21, 1998, Symbol made an offer to purchase
Telxon for $38.00 per share in cash and that on May 8, 1998 Telxon rejected
Symbol's proposal. Plaintiffs further allege that Telxon has certain
anti-takeover devices in place purportedly designed to thwart hostile bids for
the Company. Plaintiffs charge the Director defendants with breach of fiduciary
duty and claim that they are
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<PAGE> 62
entrenching themselves in office. The plaintiffs seek certification of the
purported class, unspecified compensatory damages, equitable and/or injunctive
relief requiring the defendants to act in specified manners consistent with the
defendant Directors' fiduciary duties, and payment of attorneys' fees and costs.
The parties have stipulated that the plaintiffs will file an Amended Complaint
and that the defendants will answer only the Amended Complaint.
On June 2, 1998, the Court ordered consolidation of the above-captioned cases.
This action is in its early stages and no scheduling order has been issued by
the Court, and discovery has not yet commenced. The defendants believe that
these claims lack merit and intent to vigorously defend the consolidated
action.
In the normal course of its operations, the Company is subject to performance
under contracts and assertions that technologies it utilizes may infringe third
party intellectual properties, and has various legal actions and certain
contingencies pending. In management's opinion, all such outstanding matters
have either been reflected in the consolidated financial statements, are covered
by insurance or would not have a material adverse effect on the Company's
consolidated financial position or results of operations or cash flows.
NOTE 19 -- CHANGE IN ACCOUNTING PRINCIPLE
On November 20, 1998, the FASB's Emerging Issues Task Force issued a new
consensus ruling, "Accounting for Costs Incurred in Connection with a Consulting
Contract of an Internal Project That Combines Business Process Reengineering and
Information Technology Transformation" ("EITF 97-13"). EITF 97-13 requires
business process reengineering costs associated with information systems
development to be expensed as incurred. The Company has been involved in a
corporate-wide information systems implementation project that is affected by
this pronouncement. In accordance with this ruling, during the quarter ended
December 31, 1997, the Company recorded a one-time, after-tax, non-cash charge
of $1.2 million to expense previously capitalized costs associated with this
project. Such costs had primarily been incurred during the second quarter of
fiscal 1998.
NOTE 20 -- NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In fiscal 1998, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting comprehensive income, which has been defined
as the change in equity of an entity during a period from transactions and other
events and circumstances from nonowner sources, in the basic financial
statements. The Company is required to adopt the provisions of SFAS No. 130 for
the fiscal year ending March 31, 1999, beginning with the quarter ended June 30,
1998, and to restate any prior period financial statements included for
comparative purposes to reflect the application of SFAS No. 130. As the
adoption of this pronouncement will only modify disclosures, there will be no
effect on the Company's consolidated financial position or results of
operations or cash flows.
During fiscal 1998, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 revises the manner in which an entity determines
the operating segments it must report as well as requires the disclosure of
additional segment information. The Company is required to adopt the provisions
of SFAS No. 131 for the fiscal year ending March 31, 1999, and to restate any
prior period financial statements included for comparative purposes to reflect
the application of SFAS No. 131. As the adoption of this pronouncement will
only modify disclosures, there will be no effect
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<PAGE> 63
on the Company's consolidated financial position or results of operations or
cash flows.
In fiscal 1998, the AICPA issued Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"). SOP 97-2 provides guidance on the recognition of
revenue for the licensing, selling, leasing and marketing of computer software
to customers. The Company is required to adopt the provisions of SOP 97-2 for
the fiscal year ending March 31, 1999. Management believes that the adoption of
this pronouncement will not have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
In fiscal 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 requires the capitalization of certain costs incurred in the
development of software used by a company for its own internal operations. The
Company is required to adopt the provisions of SOP 98-1 for the fiscal year
ending March 31, 1999. Management believes that the adoption of this
pronouncement will not have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
Subsequent to fiscal 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging" ("SFAS
No. 133"). SFAS No. 133 provides accounting and reporting standards for
derivative instruments. This standard will require the Company to recognize all
derivatives as either assets or liabilities in the statement of financial
position and to measure those instruments at fair value. The Company is
required to adopt the provisions of SFAS No. 133 during the first quarter of
fiscal 2000. Management believes that the adoption of this pronouncement will
not have a material effect on the Company's consolidated financial position,
results of operations or cash flows.
NOTE 21 -- SUBSEQUENT EVENTS
On April 21, 1998, an article was published in THE WALL STREET JOURNAL reporting
that Symbol Technologies, Inc. "ha[d] made an offer to purchase smaller rival
Telxon Corp. for $38 a share" in a letter to the Company dated April 8, 1998. On
May 8, 1998, the Company issued a press release announcing that its board of
directors had determined that Symbol's suggested business combination was not in
the best interest of the Company and its stockholders. Symbol subsequently
issued a press release on June 2, 1998 announcing that the Company "had
rejected Symbol's written proposal of June 1, 1998 to acquire Telxon for $40 per
share in cash or up to $42 per share in cash and Symbol shares, subject to due
diligence, "noting that the "acquisition proposal will expire by its terms at
noon on June 8, 1998." On June 5, 1998, the Company issued a press release
announcing that, following private discussions with Symbol in an attempt to
reach a mutual agreement, the Company's board of directors had rejected Symbol's
unsolicited $40 cash proposal. The Company's press release further noted that
the second Symbol proposal involving a combination of cash/stock did not contain
enough information to be considered by the Company's board. A Symbol press
release issued June 8, 1998 announced that the proposals described in the June
2, 1998 Symbol press release had been withdrawn.
Subsequent to March 31, 1998, $311 in aggregate principal amount of the
Company's Convertible 7-1/2% Debentures were surrendered for conversion into
11,621 shares of the Company's Common Stock. The surrendered Convertible
Debentures have been cancelled effective as of their conversion into common
stock.
Subsequent to March 31, 1998, the Company repurchased 400,000 shares of
Metanetics common stock from a third-party at $4.875 per share, resulting in a
non-operating loss of $1,950, which was recorded during the first quarter of
fiscal 1999. This repurchase of common stock resulted in an increase of the
Company's interest in the voting common stock of Metanetics to 60%.
Subsequent to March 31, 1998, the Company issued 44,848 shares of treasury
stock, at a weighted average cost of $19.27, to satisfy stock options exercised
under its stock option plans during the first quarter of fiscal 1999.
Subsequent to March 31, 1998, Aironet sold 222,222 shares of its voting common
stock to various third-party investors at a price of $3.50 per share. Proceeds
from this sale of stock were $778. The Company's remaining interest in the
voting common stock of Aironet after giving effect to these additional sales is
76%.
63
<PAGE> 64
NOTE 22 -- QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
-------
1998 FIRST SECOND THIRD FOURTH(a) YEAR(b)
- ---- ----- ------ ----- --------- -------
<S> <C> <C> <C> <C> <C>
Revenues $104,913 $110,320 $117,307 $133,330 $465,870
Gross profit 41,226 43,708 48,576 55,206 188,716
Income before
cumulative effect of
an accounting change $ 1,594 $ 2,388 $ 4,357 $ 8,108 $ 16,447
======== ======== ======== ======== ========
Income per share before
cumulative effect of
an accounting change:
Basic $ .10 $ .15 $ .28 $ .52 $ 1.04
Diluted $ .10 $ .15 $ .27 $ .50 $ 1.01
Net Income $ 1,594 $ 2,388 $ 3,117 $ 8,108 $ 15,207
======== ======== ======== ======== ========
Net income per share:
Basic $ .10 $ .15 $ .20 $ .52 $ .96
Diluted $ .10 $ .15 $ .19 $ .50 $ .93
</TABLE>
(a) Fourth quarter adjustments were not material to the quarterly results
of operations.
(b) The net income per share for the quarters does not equal net income per
share for the year due to differentials in the impact of quarterly and
annual weighted new stock issuances on the weighted average number of
shares outstanding for each respective period.
<TABLE>
<CAPTION>
QUARTER
-------
1997 FIRST SECOND THIRD FOURTH(a) YEAR
- ---- ----- ------ ----- --------- ----
<S> <C> <C> <C> <C> <C>
Revenues $112,383 $108,314 $123,575 $121,740 $466,012
Gross profit 35,510 34,335 33,963 48,332 152,140
Net (loss) income $ (4,797) $ (4,702) $ 2,135 $ 305 $ (7,059)
======== ======== ======== ======== ========
Earnings per common
and common
equivalent share:
Net (loss) income
per share
Basic $ (.30) $ (.29) $ .13 $ .02 $ (.44)
Diluted $ (.30) $ (.29) $ .13 $ .02 $ (.44)
</TABLE>
(a) Fourth quarter adjustments were not material to the quarterly results
of operations.
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<PAGE> 65
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not Applicable.
PART III
Except for certain information relating to the Company's executive officers
included in Part I of this Form 10-K, the information called for by this Part
III is not set forth herein but is incorporated by reference from the definitive
proxy statement which the Company intends to file with the Securities and
Exchange Commission within 120 days of the close of its fiscal year ended March
31, 1998, with respect to the 1998 Annual Meeting of the Company's stockholders
scheduled to be held in September 1998, or will otherwise be timely filed.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements: Reference is made
to the Index on page 37 herein.
(2) Financial Statement Schedule: Reference is made to
the Index on page 40 herein. All other schedules are
omitted because they are not applicable or the
required information is shown in the financial
statements of the notes thereto.
(3) Exhibits required by Item 601 of Regulation S-K:
2 Asset Purchase Agreement by and among
Dynatech Corporation, IAQ Corporation,
Registrant and Itronix Corporation, a wholly
owned subsidiary of Registrant, dated as of
December 28, 1996, incorporated herein by
reference to Exhibit 2 to Registrant's Form
8-K dated December 31, 1996.
3.1 Restated Certificate of Incorporation of
Registrant, incorporated herein by reference
to Exhibit No. 2(b) to Registrant's
Registration Statement on Form 8-A with
respect to its Common Stock filed pursuant
to Section 12(g) of the Securities Exchange
Act, as amended by Amendment No. 1 thereto
filed under cover of a Form 8 and Amendment
No. 2 thereto filed on Form 8-A/A.
3.2 Amended and Restated By-Laws of Registrant,
as amended, incorporated herein by reference
to Exhibit No. 2(b) to Registrant's
Registration Statement on Form 8-A with
respect to its Common Stock filed pursuant
to Section 12(g) of the Securities Exchange
Act, as amended by Amendment No. 1 thereto
filed under cover of a Form 8 and Amendment
No. 2 thereto filed on Form 8-A/A.
4.1 Portions of the Restated Certificate of
Incorporation of Registrant pertaining to
the rights of holders of Registrant's Common
Stock, par value $.01 per share,
incorporated herein by reference to Exhibit
No. 2(b) to Registrant's Registration
Statement on Form 8-A with respect to its
Common Stock filed pursuant to Section 12(g)
of the Securities Exchange Act, as amended
by Amendment No. 1 thereto filed under cover
of a Form 8 and Amendment No. 2 thereto
filed on Form 8-A/A.
65
<PAGE> 66
4.2 Text of form of Certificate for Registrant's
Common Stock, par value $.01 per share, and
description of graphic and image material
appearing thereon, incorporated herein by
reference to Exhibit 4.2 to Registrant's
Form 10-Q for the quarter ended June 30,
1995.
4.3 Rights Agreement between Registrant and
KeyBank National Association, as Rights
Agent, dated as of August 25, 1987, as
amended and restated as of July 31, 1996,
incorporated herein by reference to Exhibit
4 to Registrant's Form 8-K dated August 5,
1996.
4.3.1 Form of Rights Certificate
(included as Exhibit A to the
Rights Agreement included as
Exhibit 4.3 above). Until the
Distribution Date (as defined in
the Rights Agreement), the
Rights Agreement provides that
the common stock purchase rights
created thereunder are evidenced
by the certificates for
Registrant's Common Stock (the
text of which and description
thereof is included as Exhibit
4.2 above, which stock
certificates are deemed also to
be certificates for such common
stock purchase rights) and not
by separate Rights Certificates;
as soon as practicable after the
Distribution Date, Rights
Certificates will be mailed to
each holder of Registrant's
Common Stock as of the close of
business on the Distribution
Date.
4.3.2 Letter agreement among
Registrant, KeyBank National
Association and Harris Trust and
Savings Bank, dated June 11,
1997, with respect to the
appointment of Harris Trust and
Savings Bank as successor Rights
Agent under the Rights Agreement
included as Exhibit 4.3 above,
incorporated herein by reference
to Exhibit 4.3.2 to Registrant's
Form 10-K for the year ended
March 31, 1997.
4.4 Indenture by and between Registrant and
AmeriTrust Company National Association, as
Trustee, dated as of June 1, 1987, regarding
Registrant's 7-1/2% Convertible Subordinated
Debentures Due 2012, incorporated herein by
reference to Exhibit 4.2 to Registrant's
Registration Statement on Form S-3,
Registration No. 33-14348, filed May 18,
1987.
4.4.1 Form of Registrant's 7-1/2%
Convertible Subordinated
Debentures Due 2012 (set forth
in the Indenture included as
Exhibit 4.4 above).
4.5 Indenture by and between Registrant and Bank
One Trust Company, N.A., as Trustee, dated
as of December 1, 1995, regarding
Registrant's 5-3/4% Convertible Subordinated
Notes due 2003, incorporated herein by
reference to Exhibit 4.1 to Registrant's
Registration Statement on Form S-3,
Registration No. 333-1189, filed February
23, 1996.
4.5.1 Form of Registrant's 5-3/4%
Convertible Subordinated Notes
due 2003 issued under the
Indenture included as Exhibit
4.5 above, incorporated herein
by reference to Exhibit 4.2 to
Registrant's Registration
Statement on Form S-3,
Registration No. 333-1189, filed
February 23, 1996.
66
<PAGE> 67
4.5.2 Registration Rights Agreement by
and among Registrant and Hambrecht &
Quist LLC and Prudential Securities
Incorporated, as the Initial
Purchasers of Registrant's 5-3/4%
Convertible Subordinated Notes due
2003, with respect to the registration
of said Notes under applicable
securities laws, incorporated
herein by reference to Exhibit
4.3 to Registrant's Registration
Statement on Form S-3,
Registration No. 333-1189, filed
February 23, 1996.
10.1 Compensation and Benefits Plans of
Registrant.
10.1.1 Amended and Restated Retirement
and Uniform Matching
Profit-Sharing Plan of
Registrant, effective July 1,
1993, incorporated herein by
reference to Exhibit 10.1.1 to
Registrant's Form 10-K for the
year ended March 31, 1994.
10.1.1.a Amendment, dated
January 1, 1994,
to the Plan
included as
Exhibit 10.1.1
above,
incorporated
herein by
reference to
Exhibit 10.1.1.a
to Registrant's
Form 10-K for
the year ended
March 31, 1994.
10.1.1.b Amendment, dated
April 1, 1994,
to the Plan
included as
Exhibit 10.1.1
above,
incorporated
herein by
reference to
Exhibit 10.1.1.b
to Registrant's
Form 10-K for
the year ended
March 31, 1994.
10.1.1.c Amendment, dated
January 1, 1994,
to the Plan
included as
Exhibit 10.1.1
above,
incorporated
herein by
reference to
Exhibit 10.1.1.c
to Registrant's
Form 10-Q for
the quarter
ended December
31, 1994.
10.1.2 1990 Stock Option Plan for
employees of Registrant, as
amended, incorporated herein by
reference to Exhibit 10.1.2 to
Registrant's Form 10-Q for the
quarter ended September 30,
1997.
10.1.3 1990 Stock Option Plan for
Non-Employee Directors of
Registrant, as amended,
incorporated herein by reference
to Exhibit 10.1.3 to
Registrant's Form 10-Q for the
quarter ended September 30,
1997.
67
<PAGE> 68
10.1.4 Non-Qualified Stock Option
Agreement between Registrant and
Raj Reddy, dated as of October
17, 1988, incorporated herein by
reference to Exhibit 10.1.6 to
Registrant's Form 10-K for the
year ended March 31, 1994.
10.1.4.a Description of
amendment
extending the term
of the Agreement
included as
Exhibit 10.1.4
above,
incorporated
herein by
reference to
Exhibit 10.1.6.a
to Registrant's
Form 10-Q for the
quarter ended
September 30,
1994.
10.1.5 1992 Restricted Stock Plan of
Registrant, incorporated herein
by reference to Exhibit 10.1.17
to Registrant's Form 10-Q for
the quarter ended December 31,
1993.
10.1.5.a Amendment, dated
December 7, 1993,
to the Plan
included as
Exhibit 10.1.5
above,
incorporated
herein by
reference to
Exhibit 10.1.17.a
to Registrant's
Form 10-Q for the
quarter ended
December 31, 1993.
10.1.5.b Amendment, dated
July 18, 1994, to
the Plan included
as Exhibit 10.1.5
above,
incorporated
herein by
reference to
Exhibit 10.1.17.b
to Registrant's
Form 10-Q for the
quarter ended
September 30,
1994.
10.1.6 1995 Employee Stock Purchase
Plan of Registrant, as amended,
incorporated herein by reference
to Exhibit 10.1.7 to
Registrant's Form 10-Q for the
quarter ended September 30,
1995.
10.1.7 1996 Stock Option Plan for
employees, directors and
advisors of Aironet Wireless
Communications, Inc., a
subsidiary of Registrant,
incorporated herein by reference
to Exhibit 10.1.7 to
Registrant's Form 10-K for the
year ended March 31, 1997.
10.1.7.a Amended and
Restated 1996
Stock Option Plan
for employees,
directors and
advisors of
Aironet Wireless
Communications,
Inc., a subsidiary
of Registrant,
filed herewith.
10.1.8 Non-Competition Agreement by and
between Registrant and Robert F.
Meyerson, effective February 27,
1997, incorporated herein by
reference to Exhibit 10.1.8 to
Registrant's Form 10-K for the
year ended March 31, 1997.
10.1.9 Employment Agreement between
Registrant and Frank E. Brick,
filed herewith.
68
<PAGE> 69
10.1.9.a 1997 Section
162(m)
Performance-Based
Compensation Plan
of Registrant with
respect to its
President and
Chief Executive
Officer adopted by
the
Performance-Based
Compensation
Committee of
Registrant's Board
of Directors and
approved by
Registrant's
Stockholders at
the Annual Meeting
thereof, held
September 10,
1997, filed
herewith.
10.1.10 Amended and Restated Employment
Agreement between Registrant and
James G. Cleveland, effective as
of April 1, 1997, filed
herewith.
10.1.11 Amended and Restated Employment
Agreement between Registrant and
Kenneth W. Haver, effective as
of April 1, 1997, filed
herewith.
10.1.12 Amended and Restated Employment
Agreement between Registrant and
David D. Loadman, effective as
of April 1, 1997, filed
herewith.
10.1.13 Amended and Restated Employment
Agreement between Registrant and
David W. Porter, effective as of
April 1, 1997, filed herewith.
10.1.14 Amended and Restated Employment
Agreement between Registrant and
Danny R. Wipff, effective as of
April 1, 1997, filed herewith.
10.1.15 Description of Key Employee
Retention Program, filed herewith.
10.1.15.a Form of letter
agreement made
with key employees
selected under the
retention program
described in
Exhibit 10.1.15
above, filed
herewith.
10.1.16 Letter of the Audit Committee of
Registrant's Board of Directors,
dated July 22, 1996, engaging
Norton Rose to act as the
Committee's delegate to advise
and assist Registrant's
management, incorporated herein
by reference to Exhibit 10.1.16
to Registrant's Form 10-K for
the year ended March 31, 1997.
10.1.17 Letter agreement of Registrant
with Robert A. Goodman, dated as
of December 29, 1997 and
executed and delivered January
20, 1998, for continued
consulting services following
certain changes in his law
practice, filed herewith.
69
<PAGE> 70
10.2 Material Leases of Registrant.
10.2.1 Lease between Registrant and
3330 W. Market Properties, dated
as of December 30, 1986, for
premises at 3330 W. Market
Street, Akron, Ohio,
incorporated herein by reference
to Exhibit 10.2.1 to
Registrant's Form 10-K for the
year ended March 31, 1994.
10.2.2 Lease Agreement between The
Woodlands Commercial Properties
Company, L.P. and Registrant,
made and entered into as of
January 16, 1998, including
Rider No. 1 thereto, for
premises at 8302 New Trails
Drive, The Woodlands, Texas,
filed herewith.
10.2.3 Standard Office Lease (Modified
Net Lease) between Registrant
and John D. Dellagnese III,
dated as of July 19, 1995,
including an Addendum thereto,
for premises at 3875 Embassy
Parkway, Bath Township (Akron),
Ohio, incorporated herein by
reference to Exhibit 10.2.4 to
Registrant's Form 10-K for the
year ended March 31, 1996.
10.2.3.a Second Addendum,
dated as of
October 5, 1995,
to the Lease
included as
Exhibit 10.2.3
above,
incorporated
herein by
reference to
Exhibit 10.2.4.a
to Registrant's
Form 10-K for the
year ended March
31, 1996.
10.2.3.b Third Addendum,
dated as of March
1, 1996, to the
Lease included as
Exhibit 10.2.3
above,
incorporated
herein by
reference to
Exhibit 10.2.4.b
to Registrant's
Form 10-K for the
year ended March
31, 1996.
10.2.3.c Fourth Addendum,
dated as of April
16, 1996, to the
Lease included as
Exhibit 10.2.3
above,
incorporated
herein by
reference to
Exhibit 10.2.2.c
to Registrant's
Form 10-Q for the
quarter ended June
30, 1997.
10.2.3.d Fifth Addendum,
dated as of June
24, 1997, to the
Lease included as
Exhibit 10.2.3
above,
incorporated
herein by
reference to
Exhibit 10.2.2.d
to Registrant's
Form 10-Q for the
quarter ended June
30, 1997.
70
<PAGE> 71
10.2.4 Lease Contract between
Desarrollos Inmobiliarios Paso
del Norte, S.A. de C.V. and
Productos y Servicios de Telxon,
S.A. de C.V., a subsidiary of
Registrant, for in Ciudad
Juarez, Chihuahua, Mexico, made
and entered into as of April 10,
1997, filed herewith.
10.3 Credit Agreements of Registrant.
10.3.1 Credit Agreement by and among
Registrant, the lenders party
thereto from time to time and
The Bank of New York, as letter
of credit issuer, swing line
lender and agent for the
lenders, dated as of March 8,
1996, incorporated herein by
reference to Exhibit 10.3.2 to
Registrant's Form 10-K for the
year ended March 31, 1996.
10.3.1.a Amendment No. 1,
dated as of August
6, 1996, to the
Agreement included
as Exhibit 10.3.1
above,
incorporated
herein by
reference to
Exhibit 10.3.2.a
to Registrant's
Form 8-K dated
August 16, 1996.
10.3.1.b Security
Agreement, dated
as of August 6,
1996, by and among
Registrant and The
Bank of New York,
as Agent,
incorporated
herein by
reference to
Exhibit 10.3.2.b
to Registrant's
Form 8-K dated
August 16, 1996.
10.3.1.c Amendment No. 2,
dated as of
December 16, 1996,
to the Agreement
included as
Exhibit 10.3.1
above,
incorporated
herein by
reference to
Exhibit 10.3.2.c
to Registrant's
Form 8-K dated
December 16, 1996.
10.3.1.d Amendment No. 3,
dated as of
December 12,
1997, to the
Agreement included
as Exhibit 10.3.1
above, filed
herewith.
71
<PAGE> 72
10.3.2 Business Purpose Revolving
Promissory Note (Swing Line)
made by Registrant in favor of
Bank One, Akron, N.A., dated
March 20, 1996, incorporated
herein by reference to Exhibit
10.3.7 to Registrant's Form 10-K
for the year ended March 31,
1996.
10.3.3 Business Purpose Revolving
Promissory Note (Swing Line)
made by Registrant in favor of
Bank One, Akron, N.A., dated
August 6, 1996 (in replacement
of the Note included as Exhibit
10.3.2 above), incorporated
herein by reference to Exhibit
10.3.8 to Registrant's Form 8-K
dated August 16, 1996.
10.3.3.a Bank One Security
Agreement, dated
as of August 6,
1996, by and among
Registrant and
Bank One, Akron,
N.A., incorporated
herein by
reference to
Exhibit 10.3.8.a
to Registrant's
Form 8-K dated
August 16, 1996.
10.3.4 Business Purpose Revolving
Promissory Note (Swing Line)
made by Registrant in favor of
Bank One, NA (fka Bank One,
Akron, N.A.), dated August 5,
1997 (extending the credit
facility evidenced by the Note
included as Exhibit 10.3.3
above), incorporated herein by
reference to Exhibit 10.3.8 to
Registrant's Form 10-Q for the
quarter ended June 30, 1997.
10.4 Amended and Restated Agreement between
Registrant and Symbol Technologies, Inc.,
dated as of September 30, 1992, filed
herewith.
10.5 License, Rights, and Supply Agreement
between Aironet Wireless Communications,
Inc., a subsidiary of Registrant, and
Registrant, dated as of March 31, 1998,
filed herewith.
10.6 Agreement of Purchase and Sale of Assets by
and among Vision Newco, Inc., a subsidiary
of Registrant, Virtual Vision, Inc., as
debtor and debtor in possession, and the
Official Unsecured Creditors' Committee, on
behalf of the bankruptcy estate of Virtual
Vision, dated as of July 13, 1995,
incorporated herein by reference to Exhibit
10.8 to Registrant's Form 10-Q for the
quarter ended June 30, 1995.
10.7 Stock Purchase Agreement by and among
Registrant and FED Corporation, dated as of
March 31, 1998, with respect to FED
Corporation's purchase of all of the stock
of Virtual Vision, Inc. (fka Vision Newco,
Inc.), filed herewith.
10.7.1 Escrow Agreement by and among
FED Corporation, Registrant and
First Union National Bank, with
respect to the transactions
under the Stock Purchase
Agreement included as Exhibit
10.7 above, filed herewith.
72
<PAGE> 73
10.8 Subscription Agreement by and among New Meta
Licensing Corporation, a subsidiary of
Registrant, and certain officers of
Registrant as Purchasers, dated as of
September 19, 1995, incorporated herein by
reference to Exhibit 10.8 to Registrant's
Form 10-Q for the quarter ended September
30, 1995.
10.9 Amended and Restated Shareholder Agreement
by and among Metanetics Corporation, a
subsidiary of Registrant fka New Meta
Licensing Corporation, and its Shareholders,
including the officers of Registrant party
to the Agreement included as Exhibit 10.8
above, dated as of March 28, 1996,
incorporated herein by reference to Exhibit
10.9.3 to Registrant's Form 10-K for the
year ended March 31, 1996.
10.10 First Amendment, dated as of March 30,
1996, to the Agreement included as
Exhibit 10.9 above, incorporated herein by
reference to Exhibit 10.9.4 to
Registrant's Form 10-K for the year ended
March 31, 1996.
10.11 Stock Purchase Agreement by and among Meta
Holding Corporation, a subsidiary of
Registrant, and certain officers of
Registrant as Purchasers, dated as of
March 30, 1996, incorporated herein by
reference to Exhibit 10.8 to Registrant's
Form 10-K for the year ended March 31, 1997.
10.12 Stock Purchase Agreement by and between
Metanetics Corporation, a subsidiary of
Registrant fka New Meta Licensing
Corporation, and Accipiter II, Inc., dated
as of September 30, 1996, incorporated
herein by reference to Exhibit 10.8 to
Registrant's Form 10-Q for the quarter ended
September 30, 1996.
10.13 Stock Purchase Agreement by and between
Registrant and Telantis Capital, Inc., dated
as of March 31, 1997, incorporated herein by
reference to Exhibit 10.10 to Registrant's
Form 10-K for the year ended March 31, 1997.
10.14 Subscription Agreement by and among Aironet
Wireless Communications, Inc., a subsidiary
of Registrant, and the investors who
executed the same, dated as of March 31,
1998, filed herewith.
10.14.1 Form of Warrant issued
pursuant to the
Subscription Agreement
included as Exhibit 10.14
above, filed herewith.
10.14.2 Stockholders Agreement by
and among Aironet Wireless
Communications, Inc. and
its Stockholders party
thereto, including
Registrant and the
investors party to the
Subscription Agreement
included as Exhibit 10.14
above, entered into as of
March 31, 1998 in
connection with the
transactions under the
Subscription Agreement,
filed herewith.
10.14.3 Registration Rights
Agreement by and among
Aironet Wireless
Communications, Inc. and
certain of its security
holders, including
Registrant and the
investors party to the
Subscription Agreement
included as Exhibit 10.14
above, entered into as of
March 31, 1998 in
73
<PAGE> 74
connection with the
transactions under the
Subscription Agreement,
filed herewith.
21. Subsidiaries of Registrant, filed herewith.
23. Consent of Coopers & Lybrand, L.L.P., filed herewith.
24. Power of Attorney, executed by members of the Board
of Directors of Registrant, filed herewith.
27.1 Financial Data Schedule as of March 31, 1998, filed
herewith.
27.2 Financial Data Schedule as of September 30, 1997,
restated in compliance with SFAS No. 128, filed
herewith.
27.3 Financial Data Schedule as of June 30, 1997,
restated in compliance with SFAS No. 128, filed
herewith.
27.4 Financial Data Schedule as of March 31, 1997,
restated in compliance with SFAS No. 128, filed
herewith.
27.5 Financial Data Schedule as of December 31, 1996,
restated in compliance with SFAS No. 128, filed
herewith.
27.6 Financial Data Schedule as of September 30, 1996,
restated in compliance with SFAS No. 128, filed
herewith.
27.7 Financial Data Schedule as of June 30, 1996,
restated in compliance with SFAS No. 128, filed
herewith.
27.8 Financial Data Schedule as of March 31, 1996,
restated in compliance with SFAS No. 128, filed
herewith.
(b) Reports on Form 8-K
No Current Report on Form 8-K was filed by Registrant during the last
quarter of the fiscal year ended March 31, 1998, for which this Annual
Report on Form 10-K is filed. Subsequent to the end of that fiscal
quarter, Registrant filed the following Current Reports on Form 8-K:
(i) Current Report dated April 21, 1998, reporting that Registrant had
received a letter from Symbol Technologies, Inc. ("Symbol") expressing
interest in a business combination with Registrant; (ii) Current Report
dated May 8, 1998, reporting that Registrant's board of directors had
determined that Symbol's suggested business combination was not in the
best interest of the Company and its shareholders as well as the filing
of two purported class action lawsuits alleging claims relating to the
suggested business combination against Registrant and its directors;
and (iii) Current Report dated June 5, 1998 reporting that, following
private discussions with Symbol in an attempt to reach a mutual
agreement, Registrant's board of directors had rejected an unsolicited
$40 cash acquisition proposal from Symbol and that a second Symbol
proposal involving up to $42 per share in cash and Symbol shares did
not contain enough information to be considered by the board.
74
<PAGE> 75
TELXON CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ------ -------- ---------- ------
Valuation account for accounts receivable:
<S> <C> <C> <C> <C>
Year ended March 31, 1998: $ 1,596 $ 513 $ 967 (a) $ 1,142
Year ended March 31, 1997: $ 1,731 $ 378 $ 513 (a) $ 1,596
Year ended March 31, 1996: $ 1,832 $ 1,538 $ 1,639 (a) $ 1,731
Valuation account for inventory:
Year ended March 31, 1998: $15,983 $ 4,135 $ 8,993 (b) $ 11,125
Year ended March 31, 1997: $10,063 $ 11,521 $ 5,601 (b) $ 15,983
Year ended March 31, 1996: $10,942 $ 2,026 $ 2,905 (b) $ 10,063
</TABLE>
(a) Doubtful accounts charged off, net of recoveries.
(b) Write off of excess and/or obsolete material.
75
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELXON CORPORATION
Date: June 29, 1998 By: /s/ Frank E. Brick
Frank E. Brick, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. This report may be
signed in multiple counterparts, all of which taken together shall constitute a
single document.
<TABLE>
<S> <C> <C>
President,
/s/ Frank E. Brick Chief Executive Officer June 29, 1998
Frank E. Brick (principal executive officer)
and Director
/s/ Kenneth W. Haver Senior Vice President and June 29, 1998
Kenneth W. Haver Chief Financial Officer
(principal financial officer)
/s/ Gary L. Grand Corporate Controller June 29, 1998
Gary L. Grand (principal accounting officer)
* Dr. Raj Reddy Chairman of the Board June 29, 1998
Dr. Raj Reddy and Director
* John H. Cribb Vice Chairman of the Board June 29, 1998
John H. Cribb and Director
* Robert A. Goodman Director June 29, 1998
Robert A. Goodman
* Norton W. Rose Director June 29, 1998
Norton W. Rose
* Richard J. Bogomolny Director June 29, 1998
Richard J. Bogomolny
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute
this Annual Report on Form 10-K pursuant to the Power of Attorney filed with the
Securities and Exchange Commission as Exhibit 24 hereto on behalf of the
Directors named therein unless otherwise indicated by manual signature on this
Annual Report on Form 10-K.
Date: June 29, 1998 By: /s/ Kenneth W. Haver
Kenneth W. Haver, Attorney-in-fact
76
<PAGE> 77
TELXON CORPORATION
EXHIBITS TO
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
77
<PAGE> 78
INDEX TO EXHIBITS
WHERE
FILED
* 2 Asset Purchase Agreement by and among Dynatech Corporation,
IAQ Corporation, Registrant and Itronix Corporation, a wholly
owned subsidiary of Registrant, dated as of December 28, 1996,
incorporated herein by reference to Exhibit 2 to Registrant's
Form 8-K dated December 31, 1996.
* 3.1 Restated Certificate of Incorporation of Registrant,
incorporated herein by reference to Exhibit No. 2(b) to
Registrant's Registration Statement on Form 8-A with respect
to its Common Stock filed pursuant to Section 12(g) of the
Securities Exchange Act, as amended by Amendment No. 1 thereto
filed under cover of a Form 8 and Amendment No. 2 thereto
filed on Form 8-A/A.
* 3.2 Amended and Restated By-Laws of Registrant, as amended,
incorporated herein by reference to Exhibit No. 2(b) to
Registrant's Registration Statement on Form 8-A with respect
to its Common Stock filed pursuant to Section 12(g) of the
Securities Exchange Act, as amended by Amendment No. 1 thereto
filed under cover of a Form 8 and Amendment No. 2 thereto
filed on Form 8-A/A.
* 4.1 Portions of the Restated Certificate of Incorporation of
Registrant pertaining to the rights of holders of Registrant's
Common Stock, par value $.01 per share, incorporated herein by
reference to Exhibit No. 2(b) to Registrant's Registration
Statement on Form 8-A with respect to its Common Stock filed
pursuant to Section 12(g) of the Securities Exchange Act, as
amended by Amendment No. 1 thereto filed under cover of a Form
8 and Amendment No. 2 thereto filed on Form 8-A/A.
* 4.2 Text of form of Certificate for Registrant's Common Stock,
par value $.01 per share, and description of graphic and image
material appearing thereon, incorporated herein by reference
to Exhibit 4.2 to Registrant's Form 10-Q for the quarter ended
June 30, 1995.
* 4.3 Rights Agreement between Registrant and KeyBank National
Association, as Rights Agent, dated as of August 25, 1987, as
amended and restated as of July 31, 1996, incorporated herein
by reference to Exhibit 4 to Registrant's Form 8-K dated
August 5, 1996.
* 4.3.1 Form of Rights Certificate (included as Exhibit A
to the Rights Agreement included as Exhibit 4.3
above). Until the Distribution Date (as defined
in the Rights Agreement), the Rights Agreement
provides that the common stock purchase rights
created thereunder are evidenced by the
certificates for Registrant's Common Stock (the
text of which and description thereof is included
as Exhibit 4.2 above, which stock certificates
are deemed also to be certificates for such
common stock purchase rights) and not by separate
Rights Certificates; as soon as practicable after
the Distribution Date, Rights Certificates will
be mailed to each holder of Registrant's Common
Stock as of the close of business on the
Distribution Date.
* 4.3.2 Letter agreement among Registrant, KeyBank
National Association and Harris Trust and Savings
Bank, dated June 11, 1997, with respect to the
appointment of Harris Trust and Savings Bank as
successor Rights Agent under the Rights Agreement
included as Exhibit 4.3 above, incorporated
herein by reference to Exhibit 4.3.2 to
Registrant's Form 10-K for the year ended March
31, 1997.
78
<PAGE> 79
* 4.4 Indenture by and between Registrant and AmeriTrust Company
National Association, as Trustee, dated as of June 1, 1987,
regarding Registrant's 7-1/2% Convertible Subordinated
Debentures Due 2012, incorporated herein by reference to
Exhibit 4.2 to Registrant's Registration Statement on Form
S-3, Registration No. 33-14348, filed May 18, 1987.
* 4.4.1 Form of Registrant's 7-1/2% Convertible
Subordinated Debentures Due 2012 (set forth in
the Indenture included as Exhibit 4.4 above).
* 4.5 Indenture by and between Registrant and Bank One Trust
Company, N.A., as Trustee, dated as of December 1, 1995,
regarding Registrant's 5-3/4% Convertible Subordinated Notes
due 2003, incorporated herein by reference to Exhibit 4.1 to
Registrant's Registration Statement on Form S-3, Registration
No. 333-1189, filed February 23, 1996.
* 4.5.1 Form of Registrant's 5-3/4% Convertible
Subordinated Notes due 2003 issued under the
Indenture included as Exhibit 4.5 above,
incorporated herein by reference to Exhibit 4.2
to Registrant's Registration Statement on Form
S-3, Registration No. 333-1189, filed February
23, 1996.
* 4.5.2 Registration Rights Agreement by and among
Registrant and Hambrecht & Quist LLC and
Prudential Securities Incorporated, as the
Initial Purchasers of Registrant's 5-3/4%
Convertible Subordinated Notes due 2003, with
respect to the registration of said Notes under
applicable securities laws, incorporated herein
by reference to Exhibit 4.3 to Registrant's
Registration Statement on Form S-3, Registration
No. 333-1189, filed February 23, 1996.
10.1 Compensation and Benefits Plans of Registrant.
* 10.1.1 Amended and Restated Retirement and Uniform
Matching Profit-Sharing Plan of Registrant,
effective July 1, 1993, incorporated herein by
reference to Exhibit 10.1.1 to Registrant's Form
10-K for the year ended March 31, 1994.
* 10.1.1.a Amendment, dated January 1, 1994, to
the Plan included as Exhibit 10.1.1
above, incorporated herein by
reference to Exhibit 10.1.1.a to
Registrant's Form 10-K for the year
ended March 31, 1994.
* 10.1.1.b Amendment, dated April 1, 1994, to
the Plan included as Exhibit 10.1.1
above, incorporated herein by
reference to Exhibit 10.1.1.b to
Registrant's Form 10-K for the year
ended March 31, 1994.
* 10.1.1.c Amendment, dated January 1, 1994, to
the Plan included as Exhibit 10.1.1
above, incorporated herein by
reference to Exhibit 10.1.1.c to
Registrant's Form 10-Q for the
quarter ended December 31, 1994.
* 10.1.2 1990 Stock Option Plan for employees of
Registrant, as amended, incorporated herein by
reference to Exhibit 10.1.2 to Registrant's Form
10-Q for the quarter ended September 30, 1997.
* 10.1.3 1990 Stock Option Plan for Non-Employee Directors
of Registrant, as amended, incorporated herein by
reference to Exhibit 10.1.3 to Registrant's Form
10-Q for the quarter ended September 30, 1997.
79
<PAGE> 80
* 10.1.4 Non-Qualified Stock Option Agreement between
Registrant and Raj Reddy, dated as of October 17,
1988, incorporated herein by reference to Exhibit
10.1.6 to Registrant's Form 10-K for the year
ended March 31, 1994.
* 10.1.4.a Description of amendment extending
the term of the Agreement included
as Exhibit 10.1.4 above,
incorporated herein by reference to
Exhibit 10.1.6.a to Registrant's
Form 10-Q for the quarter ended
September 30, 1994.
* 10.1.5 1992 Restricted Stock Plan of Registrant,
incorporated herein by reference to Exhibit
10.1.17 to Registrant's Form 10-Q for the quarter
ended December 31, 1993.
* 10.1.5.a Amendment, dated December 7, 1993,
to the Plan included as Exhibit
10.1.5 above, incorporated herein by
reference to Exhibit 10.1.17.a to
Registrant's Form 10-Q for the
quarter ended December 31, 1993.
* 10.1.5.b Amendment, dated July 18, 1994, to
the Plan included as Exhibit 10.1.5
above, incorporated herein by
reference to Exhibit 10.1.17.b to
Registrant's Form 10-Q for the
quarter ended September 30, 1994.
* 10.1.6 1995 Employee Stock Purchase Plan of Registrant,
as amended, incorporated herein by reference to
Exhibit 10.1.7 to Registrant's Form 10-Q for the
quarter ended September 30, 1995.
* 10.1.7 1996 Stock Option Plan for employees, directors
and advisors of Aironet Wireless Communications,
Inc., a subsidiary of Registrant, incorporated
herein by reference to Exhibit 10.1.7 to
Registrant's Form 10-K for the year ended March
31, 1997.
** 10.1.7.a Amended and Restated 1996 Stock
Option Plan for employees, directors
and advisors of Aironet Wireless
Communications, Inc., a subsidiary
of Registrant, filed herewith.
* 10.1.8 Non-Competition Agreement by and between
Registrant and Robert F. Meyerson, effective
February 27, 1997, incorporated herein by
reference to Exhibit 10.1.8 to Registrant's Form
10-K for the year ended March 31, 1997.
** 10.1.9 Employment Agreement between Registrant and Frank
E. Brick, filed herewith.
** 10.1.9.a 1997 Section 162(m)
Performance-Based Compensation Plan
of Registrant with respect to its
President and Chief Executive
Officer adopted by the
Performance-Based Compensation
Committee of Registrant's Board of
Directors and approved by
Registrant's Stockholders at the
Annual Meeting thereof, held
September 10, 1997, filed herewith.
** 10.1.10 Amended and Restated Employment Agreement between
Registrant and James G. Cleveland, effective as
of April 1, 1997, filed herewith.
80
<PAGE> 81
** 10.1.11 Amended and Restated Employment Agreement between
Registrant and Kenneth W. Haver, effective as of
April 1, 1997, filed herewith.
** 10.1.12 Amended and Restated Employment Agreement between
Registrant and David D. Loadman, effective as of
April 1, 1997, filed herewith.
** 10.1.13 Amended and Restated Employment Agreement between
Registrant and David W. Porter, effective as of
April 1, 1997, filed herewith.
** 10.1.14 Amended and Restated Employment Agreement between
Registrant and Danny R. Wipff, effective as of
April 1, 1997, filed herewith.
** 10.1.15 Description of Key Employee Retention Program and
form of letter agreements made by Registrant with
key employees thereunder, filed herewith.
** 10.1.15.a Form of letter agreement made with
key employees selected under the
retention program described in
Exhibit 10.1.15 above, filed
herewith.
* 10.1.16 Letter of the Audit Committee of Registrant's
Board of Directors, dated July 22, 1996, engaging
Norton Rose to act as the Committee's delegate to
advise and assist Registrant's management,
incorporated herein by reference to Exhibit
10.1.16 to Registrant's Form 10-K for the year
ended March 31, 1997.
** 10.1.17 Letter agreement of Registrant with Robert A.
Goodman, dated as of December 29, 1997 and
executed and delivered January 20, 1998, for
continued consulting services following certain
changes in his law practice, filed herewith.
10.2 Material Leases of Registrant.
* 10.2.1 Lease between Registrant and 3330 W. Market
Properties, dated as of December 30, 1986, for
premises at 3330 W. Market Street, Akron, Ohio,
incorporated herein by reference to Exhibit
10.2.1 to Registrant's Form 10-K for the year
ended March 31, 1994.
** 10.2.2 Lease Agreement between The Woodlands Commercial
Properties Company, L.P. and Registrant, made and
entered into as of January 16, 1998, including
Rider No. 1 thereto, for premises at 8302 New
Trails Drive, The Woodlands, Texas, filed
herewith.
* 10.2.3 Standard Office Lease (Modified Net Lease)
between Registrant and John D. Dellagnese III,
dated as of July 19, 1995, including an Addendum
thereto, for premises at 3875 Embassy Parkway,
Bath Township (Akron), Ohio, incorporated herein
by reference to Exhibit 10.2.4 to Registrant's
Form 10-K for the year ended March 31, 1996.
* 10.2.3.a Second Addendum, dated as of October
5, 1995, to the Lease included as
Exhibit 10.2.3 above, incorporated
herein by reference to Exhibit
10.2.4.a to Registrant's Form 10-K
for the year ended March 31, 1996.
* 10.2.3.b Third Addendum, dated as of March 1,
1996, to the Lease included as
Exhibit 10.2.3 above, incorporated
herein by reference to Exhibit
10.2.4.b to Registrant's Form 10-K
for the year ended March 31, 1996.
* 10.2.3.c Fourth Addendum, dated as of April
16, 1996, to the Lease included as
Exhibit 10.2.3 above, incorporated
herein by reference to Exhibit
10.2.2.c to Registrant's Form 10-Q
for the quarter ended June 30, 1997.
81
<PAGE> 82
* 10.2.3.d Fifth Addendum, dated as of June 24,
1997, to the Lease included as
Exhibit 10.2.3 above, incorporated
herein by reference to Exhibit
10.2.2.d to Registrant's Form 10-Q
for the quarter ended June 30, 1997.
** 10.2.4 Lease Contract between Desarrollos Inmobiliarios
Paso del Norte, S.A. de C.V. and Productos y
Servicios de Telxon, S.A. de C.V., a subsidiary
of Registrant, for in Ciudad Juarez, Chihuahua,
Mexico, made and entered into as of April 10,
1997, filed herewith.
10.3 Credit Agreements of Registrant.
* 10.3.1 Credit Agreement by and among Registrant, the
lenders party thereto from time to time and The
Bank of New York, as letter of credit issuer,
swing line lender and agent for the lenders,
dated as of March 8, 1996, incorporated herein
by reference to Exhibit 10.3.2 to Registrant's
Form 10-K for the year ended March 31, 1996.
* 10.3.1.a Amendment No. 1, dated as of August
6, 1996, to the Agreement included
as Exhibit 10.3.1 above,
incorporated herein by reference to
Exhibit 10.3.2.a to Registrant's
Form 8-K dated August 16, 1996.
* 10.3.1.b Security Agreement, dated as of
August 6, 1996, by and among
Registrant and The Bank of New York,
as Agent, incorporated herein by
reference to Exhibit 10.3.2.b to
Registrant's Form 8-K dated August
16, 1996.
* 10.3.1.c Amendment No. 2, dated as of
December 16, 1996, to the Agreement
included as Exhibit 10.3.1 above,
incorporated herein by reference to
Exhibit 10.3.2.c to Registrant's
Form 8-K dated December 16, 1996.
** 10.3.1.d Amendment No. 3, dated as of
December 12, 1997, to the Agreement
included as Exhibit 10.3.1 above,
filed herewith.
* 10.3.2 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of Bank
One, Akron, N.A., dated March 20, 1996,
incorporated herein by reference to Exhibit
10.3.7 to Registrant's Form 10-K for the year
ended March 31, 1996.
* 10.3.3 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of Bank
One, Akron, N.A., dated August 6, 1996 (in
replacement of the Note included as Exhibit
10.3.2 above), incorporated herein by reference
to Exhibit 10.3.8 to Registrant's Form 8-K dated
August 16, 1996.
* 10.3.3.a Bank One Security Agreement, dated
as of August 6, 1996, by and among
Registrant and Bank One, Akron,
N.A., incorporated herein by
reference to Exhibit 10.3.8.a to
Registrant's Form 8-K dated August
16, 1996.
* 10.3.4 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of Bank
One, NA (fka Bank One, Akron, N.A.), dated August
5, 1997 (extending the credit facility evidenced
by the Note included as Exhibit 10.3.3 above),
incorporated herein by reference to Exhibit
10.3.8 to Registrant's Form 10-Q for the quarter
ended June 30, 1997.
82
<PAGE> 83
** 10.4 Amended and Restated Agreement between Registrant and Symbol
Technologies, Inc., dated as of September 30, 1992, filed
herewith.
** 10.5 License, Rights, and Supply Agreement between Aironet Wireless
Communications, Inc., a subsidiary of Registrant, and
Registrant, dated as of March 31, 1998, filed herewith.
* 10.6 Agreement of Purchase and Sale of Assets by and among Vision
Newco, Inc., a subsidiary of Registrant, Virtual Vision, Inc.,
as debtor and debtor in possession, and the Official Unsecured
Creditors' Committee, on behalf of the bankruptcy estate of
Virtual Vision, dated as of July 13, 1995, incorporated herein
by reference to Exhibit 10.8 to Registrant's Form 10-Q for the
quarter ended June 30, 1995.
** 10.7 Stock Purchase Agreement by and among Registrant and FED
Corporation, dated as of March 31, 1998, with respect to FED
Corporation's purchase of all of the stock of Virtual Vision,
Inc. (fka Vision Newco, Inc.), filed herewith.
** 10.7.1 Escrow Agreement by and among FED Corporation,
Registrant and First Union National Bank, with
respect to the transactions under the Stock
Purchase Agreement included as Exhibit 10.7
above, filed herewith.
* 10.8 Subscription Agreement by and among New Meta Licensing
Corporation, a subsidiary of Registrant, and certain officers
of Registrant as Purchasers, dated as of September 19, 1995,
incorporated herein by reference to Exhibit 10.8 to
Registrant's Form 10-Q for the quarter ended September 30,
1995.
* 10.9 Amended and Restated Shareholder Agreement by and among
Metanetics Corporation, a subsidiary of Registrant fka New
Meta Licensing Corporation, and its Shareholders, including
the officers of Registrant party to the Agreement included as
Exhibit 10.8 above, dated as of March 28, 1996, incorporated
herein by reference to Exhibit 10.9.3 to Registrant's Form
10-K for the year ended March 31, 1996.
* 10.10 First Amendment, dated as of March 30, 1996, to the Agreement
included as Exhibit 10.9 above, incorporated herein by
reference to Exhibit 10.9.4 to Registrant's Form 10-K for the
year ended March 31, 1996.
* 10.11 Stock Purchase Agreement by and among Meta Holding
Corporation, a subsidiary of Registrant, and certain officers
of Registrant as Purchasers, dated as of March 30, 1996,
incorporated herein by reference to Exhibit 10.8 to
Registrant's Form 10-K for the year ended March 31, 1997.
* 10.12 Stock Purchase Agreement by and between Metanetics
Corporation, a subsidiary of Registrant fka New Meta Licensing
Corporation, and Accipiter II, Inc., dated as of September 30,
1996, incorporated herein by reference to Exhibit 10.8 to
Registrant's Form 10-Q for the quarter ended September 30,
1996.
* 10.13 Stock Purchase Agreement by and between Registrant and
Telantis Capital, Inc., dated as of March 31, 1997,
incorporated herein by reference to Exhibit 10.10 to
Registrant's Form 10-K for the year ended March 31, 1997.
83
<PAGE> 84
** 10.14 Subscription Agreement by and among Aironet Wireless
Communications, Inc., a subsidiary of Registrant, and the
investors who executed the same, dated as of March 31, 1998,
filed herewith.
** 10.14.1 Form of Warrant issued pursuant to the
Subscription Agreement included as Exhibit 10.14
above, filed herewith.
** 10.14.2 Stockholders Agreement by and among Aironet
Wireless Communications, Inc. and its
Stockholders party thereto, including Registrant
and the investors party to the Subscription
Agreement included as Exhibit 10.14 above,
entered into as of March 31, 1998 in connection
with the transactions under the Subscription
Agreement, filed herewith.
** 10.14.3 Registration Rights Agreement by and among
Aironet Wireless Communications, Inc. and certain
of its security holders, including Registrant
and the investors party to the Subscription
Agreement included as Exhibit 10.14 above,
entered into as of March 31, 1998 in connection
with the transactions under the Subscription
Agreement, filed herewith.
** 21. Subsidiaries of Registrant, filed herewith.
** 23. Consent of Coopers & Lybrand, L.L.P., filed herewith.
** 24. Power of Attorney, executed by members of the Board of
Directors of Registrant, filed herewith.
** 27.1 Financial Data Schedule as of March 31, 1998, filed herewith.
herewith.
** 27.2 Financial Data Schedule as of September 30, 1997, restated
in compliance with SFAS No. 128, filed herewith.
** 27.3 Financial Data Schedule as of June 30, 1997, restated in
compliance with SFAS No. 128, filed herewith.
** 27.4 Financial Data Schedule as of March 31, 1997, restated in
compliance with SFAS No. 128, filed herewith.
** 27.5 Financial Data Schedule as of December 31, 1996, restated in
compliance with SFAS No. 128, filed herewith.
** 27.6 Financial Data Schedule as of September 30, 1996, restated in
compliance with SFAS No. 128, filed herewith.
** 27.7 Financial Data Schedule as of June 30, 1996, restated in
compliance with SFAS No. 128, filed herewith.
** 27.8 Financial Data Schedule as of March 31, 1996, restated in
compliance with SFAS No. 128, filed herewith.
* Previously filed
** Filed herewith
84
<PAGE> 1
Exhibit 10.1.7.a
AMENDED AND RESTATED
AIRONET WIRELESS COMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purpose of the Plan (defined herein) is to
promote the best interests of the Company (defined herein) and its stockholders
by enabling the Company to attract and retain highly qualified personnel through
rewarding valued Employees (defined herein) and directors with the opportunity,
pursuant to Options (defined herein) granted hereunder, to acquire a proprietary
interest in the Company and thereby encourage them to put forth their maximum
efforts for the continued success and growth of the Company.
2. DEFINITIONS. In addition to other initially capitalized terms which
are defined elsewhere in the Plan, the following terms shall have the respective
meanings set forth in this Section 2:
(a) "Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(b) "Authorized Shares" means the maximum aggregate number of
shares of Common Stock specified in Section 3(a) as being authorized
and reserved for the granting of Options hereunder, subject to
adjustment in accordance with Section 12.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Commission" means the United States Securities and
Exchange Commission.
(f) "Committee" means (i) the Committee appointed by the Board
in accordance with Section 4(a), or (ii) if no Committee has been
appointed, the Board.
(g) "Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
(h) "Company" means Aironet Wireless Communications, Inc., a
Delaware corporation.
(i) "Continuous Employment" means the continued employment of
an Employee by the Company, the Parent or any Subsidiary, without
interruption or termination after the grant of an Option. Continuous
Employment shall not be considered
<PAGE> 2
interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Board (provided that such leave is for
a period of not more than ninety (90) days or re-employment upon the
expiration of such leave is mandated by contract or statute) or in the
case of transfers between locations of the Company or between the
Company, the Parent, any Subsidiary or any of their respective
successors.
(j) "Employee" means any person, including officers and
directors, who are, at the time of grant, employed by or independent
contractors of (or in the case of directors serving) the Company, the
Parent or any Subsidiary.
(k) "Fair Market Value" means fair market value as defined in
Section 7(b).
(l) "IPO" means an underwritten public offering by the Company
of the Common Stock (or units of which the Common Stock is a part) for
at least $8.00 per share, pursuant to a registration statement filed by
the Company under the Securities Act (other than a registration
statement on Form S-4 or a Form S-8 or any other special purpose
forms), and pursuant to which the Company receives net proceeds of not
less than $8,000,000.
(m) "Option" means a right granted to an Employee pursuant to
the Plan to purchase a specified number of shares of Common Stock at a
specified price during a specified period and on such other terms and
conditions as may be specified pursuant to the Plan. Options may be
granted as Tax Qualified Options or as Options which do not qualify as
Tax Qualified Options.
(n) "Option Agreement" means the written agreement evidencing
an Option by and between the Company and the Optionee as required by
Section 14.
(o) "Option Price" means the option price as defined in
Section 7(a).
(p) "Optioned Stock" means the Common Stock subject to an
Option.
(q) "Optionee" means an Employee who receives an Option.
(r) "Parent" means Telxon Corporation, a Delaware corporation,
and any successor thereto, or any other corporation which hereafter
owns not less than fifty percent (50%) of the then voting shares of the
Company.
(s) "Plan" means the Amended and Restated Aironet Wireless
Communications, Inc. 1996 Stock Option Plan.
(t) "Rule 16b-3" means Rule 16b-3 promulgated by the
Commission under the Act or any similar successor regulation exempting
certain transactions involving stock
Page 2 of 20
<PAGE> 3
-based compensation arrangements from the "short-swing" liability
provisions of Section 16 of the Act, as adopted and amended from time
to time and as interpreted by formal or informal opinions of, and
releases published or other interpretive advice provided by, the Staff
of the Commission.
(u) "Section 16 Person" means, at such times as the Company is
a reporting company under the Act, if ever, an Employee who is subject
to Section 16 of the Act, as interpreted by the rules and regulations
promulgated by the Commission thereunder, as adopted and amended from
time to time, and by formal or informal opinions of, and releases
published or other interpretive advice provided by, the Staff of the
Commission.
(v) "Securities Act" means the Securities Act of 1933, as
amended from time to time.
(w) "Securities Law Requirements" means the Act and the rules
and regulations promulgated by the Commission thereunder, as adopted
and amended from time to time, including but not limited to Rule 16b
-3, and as interpreted by formal or informal opinions of, and releases
published or other interpretive advice provided by, the Staff of the
Commission, and the requirements of any stock exchange, automated
inter-dealer quotation system or other recognized securities market on
which the Common Stock is listed or traded or in which the Common
Stock is included, as adopted and amended from time to time and as
interpreted by formal or informal opinions of, and other interpretive
advice, provided by the representatives of such stock exchange,
quotation system or other securities market.
(x) "Shares" means the Common Stock as adjusted in accordance
with Section 12 of the Plan.
(y) "Staff" means the staff of the Commission.
(z) "Subsidiary" means a corporation of which not less than
fifty percent (50%) of the voting shares are owned by the Company, the
Parent or a Subsidiary of either the Company or the Parent, whether or
not such corporation now exists or is hereafter organized or acquired
by the Company, the Parent or a Subsidiary.
(aa) "Successor" means the estate of an Optionee or a person
who succeeds by will or the laws of descent and distribution to an
Optionee' s right to exercise an Option.
(bb) "Tax Qualified Option" means an Option which is intended
at the time of grant to qualify for special tax treatment under Section
422A or other particular provisions of the Code and the regulations,
rulings and procedures promulgated, published or otherwise provided
thereunder, as adopted and amended from time to time.
Page 3 of 20
<PAGE> 4
3. STOCK SUBJECT TO THE PLAN.
(a) NUMBER OF SHARES ISSUABLE. Subject to adjustment in
accordance with Section 12, the maximum aggregate number of shares of
Common Stock which may be issued and sold under Options granted
pursuant to the Plan is 2,150,500. The Shares issued and sold upon the
exercise of Options may be treasury Shares, Shares of original issue or
a combination thereof.
(b) COMPUTATION OF SHARES AVAILABLE FOR GRANT. For purposes of
computing the number of Authorized Shares available from time to time
under the Plan for the grant of Options, the number of Shares subject
to each Option granted pursuant to the Plan shall be provisionally
counted against the Authorized Shares from and after the grant of such
Option but only for so long as and to the extent that such Option shall
remain outstanding and unexercised. Upon the exercise, in whole or in
part, of an Option, the number of Shares issued upon such exercise
shall be permanently deducted from the Authorized Shares, provided that
no such permanent deduction shall be made, and the provisional
deduction against the Authorized Shares shall be reversed, to the
extent that the exercise price and/or the withholding taxes with
respect to such exercise are paid through the delivery to the Company
by the person exercising the option of Shares already owned by such
person and/or through the withholding by the Company of Shares from the
total number of Shares with respect to which the Option is exercised.
The provisional deduction against the Authorized Shares shall likewise
be reversed to the extent of the unexercised portion of an Option upon
the expiration, lapse, cancellation, surrender, forfeiture or other
termination of such Option. The Shares covered by any such reversal of
a provisional deduction against the Authorized Shares shall immediately
become available for the granting of new Options under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board or
the Board may, in its discretion, appoint a Committee to administer the
Plan subject to such terms and conditions as the Board may prescribe;
provided, however, that the terms upon which, including the time or
times at or within which, and the price or prices at which Shares may
be purchased upon the exercise of Options shall be approved or ratified
by such action of the Board or a committee duly designated by the Board
from its members as may be required by the Delaware General Corporation
Law, as amended from time to time; and provided further, however, that,
unless otherwise deemed, under all of the circumstances, to be in the
best interest of the Company, neither the Board nor any such Committee
shall make any decision concerning the Plan with respect to any Section
16 Person unless the Board or such Committee making such decision is
constituted so that such decision complies with the applicable
requirements of Rule 16b -3. Once appointed, the Committee shall
continue to serve until otherwise directed by the Board. From time to
time the Board may increase the size of the Committee and may appoint
additional members thereof,
Page 4 of 20
<PAGE> 5
remove members (with or without cause), fill vacancies however caused
and remove all members of the Committee and thereafter directly
administer the Plan.
(b) POWERS OF THE COMMITTEE. Subject to the Delaware General
Corporation Law and the provisions of the Plan, the Committee shall
have the authority, in its sole discretion:
(i) To determine in accordance with Section 7(b) the
Fair Market Value of the Shares;
(ii) To determine the Employees to whom, and the time
or times at which, Options shall be granted and the number of
Shares subject to purchase upon exercise of each Option (there
being no limit on the number of Options which may be granted
to any one Employee or on the aggregate number of Shares
subject to purchase thereunder, except such restrictions
thereon as may be imposed by applicable tax laws which will
have to be observed if the Committee intends that a particular
Option qualify as a Tax Qualified Option);
(iii) To determine the terms and provisions of each
Option (which terms and provisions need not be identical),
including, but not limited to, the following:
(A) The Option Price subject to the
provisions of Section 7(a); and
(B) Whether Options shall become exercisable
over a period of time and when they shall be
partially or fully exercisable;
(iv) To accelerate the time as of which any Option
may be exercised;
(v) To amend any outstanding Option, subject to the
provisions of Section 19;
(vi) To authorize any person to prepare and execute
on behalf of the Company any instrument deemed by the
Committee to be necessary or advisable to evidence or
effectuate the Plan, any Option granted hereunder or any
amendment to the Plan or any Option Agreement;
(vii) To interpret the Plan;
(viii) To prescribe, amend and rescind, if deemed
necessary or appropriate, rules and regulations relating to
the Plan; and
(ix) To make all other determinations the Committee
may deem
Page 5 of 20
<PAGE> 6
necessary or advisable in connection with the administration
of the Plan.
(c) EFFECT OF BOARD AND COMMITTEE DECISIONS. All decisions,
determinations and actions of the Board and the Committee in connection
with the construction, interpretation, administration, application,
operation and implementation of the Plan shall be final, conclusive and
binding on the Company, its stockholders and Subsidiaries, all
Employees, Optionees, and Successors and the respective legal
representatives, heirs, and estates, and successors and assigns of all
of the foregoing and all other persons claiming under or through any of
them.
(d) EXCULPATION AND INDEMNIFICATION. No member of the Board or
the Committee, and no Employee or other agent acting on behalf of the
Board or the Committee, shall be personally liable for any decision,
determination or action made or taken, or failed to be made or taken,
with respect to the Plan or any Option granted hereunder, and the
Company shall fully protect each such person in respect of any such
decision, determination or action and shall indemnify each such person
against any and all claims, losses, damages, expenses and liabilities
arising from or in connection with any such decision, determination or
action.
5. ELIGIBILITY. Options may be granted only to Employees who, in the
sole judgment of the Committee, have contributed or will contribute to the
success and growth of the Company. An Employee to whom the Company has
previously granted a stock option pursuant to the Plan or otherwise may, if he
is otherwise eligible, be granted additional Options.
The existence of the Plan shall not create in any Employee any right to
be granted an Option hereunder, and neither the existence of the Plan nor the
granting of any Options to any Employee hereunder shall confer upon such
Employee any right with respect to continuation of the employment of such
Employee by the Company, the Parent or any Subsidiary or shall in any way
interfere with or limit the right which such Employee or the Company, the Parent
or any Subsidiary may otherwise have to terminate such employment at any time
with or without cause. Upon the termination of any Employee's employment with
the Company, the Parent or any Subsidiary, neither the Company nor the Parent or
any Subsidiary shall have any liability or obligation to such Employee under the
Plan any Option Agreement or any Options granted to such Employee hereunder
unless such Options are then currently exercisable in accordance with Section
10(a) hereof and, if so exercisable, the Company's sole obligation shall be to
issue the appropriate number of Shares to such Employee upon the exercise of any
Option granted to such Employee under the Plan prior to such termination of
employment, provided that such exercise is duly and timely made in accordance
with the provisions of the Plan and such Option.
6. TERM OF OPTIONS. Except as may otherwise be specified by the
Committee in its sole discretion at the time of grant thereof and reflected in
the Option Agreement evidencing such Option, the term of each Option shall be
ten (10) years from the date of grant thereof, provided that the Committee, if
it intends that a particular Option qualify as a Tax Qualified
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<PAGE> 7
Option, will have to observe such restrictions on the term of such Option as may
be imposed by the applicable tax laws in order for such Option so to qualify.
Each Option shall continue in effect in accordance with its terms
notwithstanding that the Plan may be terminated prior to the expiration of the
term of such Option.
7. EXERCISE PRICE.
(a) MINIMUM PRICE REQUIRED. The per Share exercise price for
the Optioned Stock shall be such price as is determined by the
Committee at the time of grant of an Option and reflected in the Option
Agreement evidencing the same. Notwithstanding the foregoing, in no
event shall such exercise price per Share be less than the Fair Market
Value per Share as of the day prior to the date of grant of such
Option.
(b) DEFINITION OF "FAIR MARKET VALUE". For all purposes under
the Plan, "Fair Market Value" per Share shall be determined by the
Board in its sole discretion taking into consideration such data as the
Board shall in its sole discretion deem appropriate; provided, however,
that if the Shares are included in the Nasdaq Stock Market National
Market System or listed on a stock exchange on the date as of which the
same is to be determined, the Fair Market Value per Share shall be the
closing price on such quotation system or exchange which is the
principal trading market for the Shares on the date of determination
or, if no sale price was reported for the Shares on the date of
determination, the closing price on such principal trading market for
the last trading day prior to the date of determination for which a
sale price was reported; provided further, however, that if the
foregoing method of determining Fair Market Value is inconsistent with
the then existing tax law requirements with respect to any Option which
the Committee intends to qualify as a Tax Qualified Option, then the
Fair Market Value per Share shall be determined by the Committee in
such manner as is required for such Tax Qualified Option to qualify as
such.
8. WITHHOLDING TAXES. Before a stock certificate evidencing the Shares
being acquired through exercise of an Option will be issued to the Optionee, the
Optionee must pay, or make arrangements acceptable to the Company for the
payment of, any and all federal, state and local withholding taxes, whether
domestic or foreign, required to be withheld in connection with the exercise of
an Option.
9. FORM OF PAYMENT.
(a) ACCEPTABLE FORMS OF CONSIDERATION. Except as may otherwise
be specified by the Committee in its sole discretion at the time of
grant thereof and reflected in the Option Agreement evidencing such
Option, the following forms of consideration will be accepted in
payment of the exercise price for the Shares to be issued upon exercise
of an Option and of the taxes required to be withheld in connection
with such exercise: (i) cash, (ii) personal check, (iii) bank cashier's
check, (iv) already owned Shares (duly endorsed
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<PAGE> 8
for transfer with signature guaranteed), or (v) any combination of the
foregoing. Except as may otherwise be specified by the Committee in its
sole discretion at the time of grant thereof and reflected in the
Option Agreement evidencing such Option, Shares withheld from the
Shares to be issued upon exercise of the Option, either alone or in any
combination with any of the other acceptable forms of consideration
recited in this Paragraph (a), will also be an accepted form of
consideration for payment of the taxes required to be withheld in
connection with the exercise of an Option. In addition to the
acceptable forms of consideration hereinabove recited in this Paragraph
(a), the Committee may determine in its sole discretion at the time of
grant of an Option, and if the Committee so determines, shall provide
in the Option Agreement evidencing such Option, that one or both of the
following additional forms of consideration will be accepted, either
alone or in any combination with any of the other acceptable forms of
consideration recited in this Paragraph (a), in payment of the items
specified: (vi) in payment of the exercise price for the Shares to be
issued upon exercise of an Option, Shares withheld from the Shares to
be issued upon such exercise, and/or (vii) in payment of the exercise
price for the Shares to be issued upon exercise of an Option and the
taxes required to be withheld in connection with such exercise, a
commitment for the delivery to the Company of proceeds from the sale,
pursuant to a brokerage or similar arrangement approved in advance by
the Committee in its sole discretion, of Shares to be issued upon
exercise of the Option. The forms of consideration which will be
accepted in payment of the exercise price for an Option and related
withholding taxes shall be specified in the Option Agreement evidencing
such Option, and the person or persons entitled to exercise the Option
shall be entitled to elect from those so specified form(s) to be used
in effecting payment with respect to a particular exercise; provided,
however, that any election by a Section 16 Person to use already owned
Shares or have Shares withheld from those issuable upon such exercise
shall be effective only if made in accordance with the applicable
requirements of Rule 16b-3; and provided further that a commitment for
the delivery to the Company of proceeds from the sale, pursuant to a
brokerage or similar arrangement, of Shares to be issued upon exercise
of an Option will not be accepted from a Section 16 Person if under
Securities Law Requirements such a sale would be matched with such
exercise to result in "short-swing" profit liability under Section
16(b) of the Act on the part of such Section 16 Person with respect to
such transaction.
(b) WITHHOLDING TAX LOANS. In addition to any one or more of
the acceptable forms of consideration recited in Paragraph (a) of this
Section 9 which the Committee may permit in the Option Agreement to be
used for the payment of withholding taxes, the Committee may determine
in its discretion at the time of grant of an Option to permit the
Optionee (but not any Successor) to, and if the Committee so
determines, shall provide in the Option Agreement evidencing such
Option that such Optionee may, borrow from the Company an amount
sufficient to pay the taxes required to be withheld in connection with
the exercise of such an Option, with each such borrowing to be
evidenced by a promissory note of the Optionee payable to the order of
the Company. Except as may otherwise be specified by the Committee in
its sole discretion at the time of grant thereof and reflected
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<PAGE> 9
in the Option Agreement evidencing an Option, each such loan shall be
for a term of five (5) years at a rate of interest equal to the
Company's then primary domestic commercial lender's prime or base rate
as in effect from time to time, with payments of interest on such loan
due quarterly and payments toward the principal of such loan due, to
the extent of the net proceeds therefrom, within fifteen (15) days
after any disposition by the Optionee of any Shares acquired upon
exercise of any stock option granted by the Company to the Optionee
pursuant to the Plan or otherwise (excluding any disposition of such
Shares by gift or to the Company in payment of the exercise price of a
stock option granted by the Company to the Optionee pursuant to the
Plan or otherwise and/or any related withholding taxes), provided that
the entire unpaid principal balance shall be due at the earlier of (i)
the expiration of the five (5) year term, or (ii) the termination of
the Optionee's Continuous Employment (other than by reason of
Optionee's "disability" (as defined in Section 10(d)) or "retirement"
(as defined in Section 10(e))).
(c) COMPANY WITHHOLDING OF TAXES. If, upon being notified by
the Company of the amount of the taxes required to be withheld in
connection with an exercise of an Option, the Optionee fails promptly
to pay, or to make arrangements acceptable to the Company for the
payment of, such taxes, the Company shall have the right to elect (but
shall be under no obligation) to cover such taxes through:
(i) withholding Shares from those issuable upon such
exercise, provided that any such election so to withhold
Shares with respect to the exercise of an Option by a Section
16 Person shall be effective only if made in accordance with
the applicable requirements of Rule 16b-3; and/or
(ii) deducting such taxes from any amounts payable in
cash to the Optionee by the Company for any reason as of the
time of such exercise or any time thereafter.
(d) VALUATION OF SHARES DELIVERED OR WITHHELD. Where already
owned Shares, or Shares withheld from those issuable upon such
exercise, are used in payment of the exercise price and/or related
withholding taxes, such Shares shall be valued (i) with respect to the
payment of the exercise price, at Fair Market Value as of the day
immediately preceding the date of exercise and (ii) with respect to the
payment of withholding taxes, at Fair Market Value as of the day
immediately preceding the date tax withholding is required to be made.
(e) OPTIONEE CERTIFICATION OF ALREADY OWNED SHARES. Already
owned Shares which were acquired through a previous exercise of a stock
option granted to an Optionee by the Company pursuant to the Plan or
otherwise may be used in payment of the exercise price of an Option
and/or related withholding taxes only if the previous exercise through
which such Shares were acquired was made as of a date not less than six
(6) months prior to the date of the exercise of the Option in
connection with which such Shares are being
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<PAGE> 10
tendered as payment. A tender of already owned Shares in payment of the
exercise price of an Option and/or related withholding taxes will not
be accepted by the Company unless accompanied by a written statement
signed by the person or persons entitled to exercise such Option
certifying that either (i) the Shares tendered in payment were acquired
other than through the exercise of a stock option granted by the
Company or (ii) the Shares tendered in payment were acquired through
the exercise, on such date(s) as shall be recited in such statement
(which date(s) shall be not less than six (6) months prior to the date
of tender), of stock option(s) granted by the Company.
(f) DELIVERY OF ALREADY OWNED SHARES. Where the person
exercising an Option elects to use already owned Shares in full or
partial payment of the exercise price and/or related withholding taxes,
the Committee may, in its sole discretion, accept, in lieu of physical
delivery of the stock certificates evidencing such Shares, such
constructive delivery of such Shares as may be satisfactory to the
Committee.
10. METHOD OF EXERCISE.
(a) EXERCISE ELIGIBILITY. An Option may be exercised in
accordance with the terms hereof at any time after, and only after, one
or more of the following has occurred:
(i) a Change in Control (as defined in Paragraph (c)
of Section 12) or
(ii) an IPO.
In the event of any conflict or apparent conflict between the
provisions of this Section 10(a) and any other provision in the Plan,
the provisions of this Section 10(a) shall control.
(b) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any
Option granted hereunder shall be exercisable at such times and under
such conditions as determined by the Committee and as permitted under
the Plan. An Option may not be exercised for a fraction of a Share. In
order to exercise an Option, the person or persons entitled to exercise
it shall deliver to the Company written notice of the number of Shares
with respect to which the Option is being exercised, accompanied by
payment in full of the aggregate exercise price for the Shares so to be
acquired. To constitute an effective exercise of an Option, such notice
and payment shall be addressed to the attention of the Treasurer of the
Company and must be received at the principal executive office of the
Company (i) with respect to an Option that is terminated for
"Misconduct" (as defined below) pursuant to Paragraph (b) of this
Section 10 or for "Prohibited Conduct" (as defined in Section 16(a))
pursuant to Section 16(a), prior to the time of the occurrence of the
event constituting such Misconduct or Prohibited Conduct or (ii) with
respect to any other Option, by 5:00 p.m., local time, on the date of
expiration or termination of the Option. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to
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<PAGE> 11
vote or receive dividends nor any other rights as a stockholder shall
exist with respect to the Optioned Stock notwithstanding the exercise
of the Option. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 12.
Exercise of an Option shall result in a decrease in the number
of Shares which thereafter shall be available for sale under such
Option by the number of Shares as to which the Option is exercised,
including any Shares withheld from the Shares to be issued pursuant to
such exercise to cover the exercise price and/or related withholding
taxes.
(c) TERMINATION OF EMPLOYMENT. Subject to the limitations in
Section 10(a) on exercise prior to a Change in Control or an IPO, and
except as may otherwise be specified by the Committee in its sole
discretion at the time of grant thereof and reflected in the Option
Agreement evidencing such Option, upon the termination of an Optionee's
Continuous Employment (other than by reason of the Optionee's death,
disability or retirement), he may exercise his Option (to the extent,
if any, that he was entitled to exercise it at the time of such
termination of employment) until the earlier of (i) the date thirty
(30) days (or such longer period of time as is determined by the
Committee in its sole discretion at the time of such termination of
employment, provided that if the Committee intends that a particular
Option continue to qualify as a Tax Qualified Option, the Committee
will observe such restrictions as may be imposed by applicable tax laws
on the post-termination period within which a Tax Qualified Option may
be exercised if it wishes to ensure that any post-termination exercise
of such Option is made only within the period permitted by such laws)
after the effective date of the termination of his employment or (ii)
the expiration date of such Option, and the Option shall terminate on
the earlier of such dates; provided, however, that if the Optionee is
terminated by the Company for Misconduct, then such Option shall
terminate effective as of the time of the conduct constituting such
Misconduct. As used in the Plan, "Misconduct" means that the Optionee
has engaged in Prohibited Conduct, committed an act of embezzlement,
fraud or theft with respect to the property or business of the Company
or any of its affiliates, or deliberately disregarded the rules of the
Company in such a manner as to cause material loss, damage or injury to
or otherwise endanger the property, reputation, employees or business
prospects of the Company. The Committee shall determine whether an
Optionee's employment was terminated by reason of Misconduct. In making
such determination, the Committee may, but shall not be required to,
give the Optionee an opportunity to be heard and to present evidence on
his behalf.
(d) DEATH OF OPTIONEE. Subject to the limitations in Section
10(a) on exercise prior to a Change in Control or an IPO, and except as
may otherwise be specified by the Committee in its sole discretion at
the time of grant thereof and reflected in the Option Agreement
evidencing such Option, upon the death of an Optionee who is at the
time of his death in the employ of the Company or a Subsidiary and who
shall have been in Continuous Employment since the date of grant of the
Option, the Option may be exercised
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<PAGE> 12
(to the extent, if any, the Optionee was entitled to do so as of the
date of his death) by his Successor until the earlier of (i) the date
six (6) months following the date of death (or, if the Committee
intends that a particular Option qualify as a Tax Qualified Option,
such lesser period of time following the date of the Optionee's death
within which the applicable tax laws may require that the Option be
exercised in order for such Option so to qualify) and (ii) the
expiration date of such Option, and the Option shall terminate on the
earlier of such dates.
(e) DISABILITY OF OPTIONEE. Subject to the limitations in
Section 10(a) on exercise prior to a Change in Control or an IPO, and
except as may otherwise be specified by the Committee in its sole
discretion and reflected in the Option Agreement evidencing such
Option, if an Optionee's Continuous Employment terminates due to his
having become permanently and totally disabled within the meaning of
Section 22(e)(3) of the Code ("disability"), the Option may be
exercised (to the extent, if any, the Optionee was entitled to do so as
of the effective date of the termination of his employment by reason of
such disability) until the earlier of (i) the later of June 1, 1998 or
the date one (1) year after the effective date of such termination of
employment and (ii) the expiration date of such Option, and the Option
shall terminate on the earlier of such dates.
(f) RETIREMENT OF OPTIONEE. Subject to the limitations in
Section 10(a) on exercise prior to a Change in Control or an IPO, and
except as may otherwise be specified by the Committee in its sole
discretion and reflected in the Option Agreement evidencing such
Option, if an Optionee's Continuous Employment terminates by reason of
(i) his retirement at any age entitling him to benefits under the
provisions of any retirement plan of the Company, the Parent, or any
Subsidiary in which such Optionee participates; or (ii) retirement at
any time after attaining age 65 (whichever circumstance is applicable
constituting "retirement"), the Option may be exercised (to the extent
the Optionee shall be entitled, if any, to do so as of the effective
date of the termination of his employment by reason of such retirement)
until the earlier of (A) the date three (3) months after the effective
date of the termination of his employment and (B) the expiration date
of such Option, and the Option shall terminate on the earlier of such
dates.
11. NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner by the Optionee
except at death by will or by the laws of descent and distribution and may be
exercised during the life of the Optionee only by the Optionee. No lien,
obligation or liability of an Optionee or a Successor shall attach to or
otherwise encumber the right and interest of such Optionee or Successor in and
to any Options outstanding under the Plan.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) ADJUSTMENTS, IN GENERAL. Subject to the provisions of
Paragraph (b) of this Section 12 and to any required action by the
stockholders of the Company, the number of
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<PAGE> 13
Shares covered by each outstanding Option, and the number of Shares
which have been authorized for issuance under the Plan but as to which
no Options have yet been granted or which due to the expiration, lapse,
cancellation, surrender, forfeiture or other termination of a stock
option under the Plan are again available for grant, as well as the
price per Share covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of
issued and outstanding Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of Shares
or any other similar increase or decrease in the aggregate number of
issued and outstanding Shares effected without receipt of consideration
by the Company; provided, however, that neither the issuance of Shares
pursuant to the exercise, conversion or exchange of any securities of
the Company exercisable for, convertible into or exchangeable for
Shares nor the issuance of Shares pursuant to any anti-dilution
agreement shall be deemed to have been "effected without receipt of
consideration." Any fractional Shares which would otherwise result from
any such adjustments shall be eliminated either by deleting all
fractional Shares or by appropriate rounding to the next higher
(fractions of one-half or more) or lower (fractions of less than one-
half) whole Share. All such adjustments shall be made by the Board in
its sole discretion. Except as expressly provided herein, no issuance
by the Company of shares of stock of any class, or securities
convertible into or exchangeable for shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made to, the
number of or exercise price for Shares subject to an Option.
Subject to the provisions of Paragraph (b) of this Section 12,
in the event of a sale of all or substantially all of the assets of the
Company, the sale of all issued and outstanding shares of the Company
to a single purchaser, or the merger or consolidation of the Company
with or into another corporation, each outstanding Option shall be
assumed, or an equivalent option shall be substituted, by such
successor corporation or a parent or subsidiary of such successor
corporation, unless the Board, in the exercise of its sole discretion,
determines that, in lieu of such assumption or substitution, the
Optionee shall have the right to exercise the Option as to all or any
part of the Optioned Stock, including Shares as to which the Option
would not otherwise then be exercisable. If in the event of a merger,
consolidation or sale of the Company by stock or asset sale, the Board
makes an Option fully exercisable in lieu of assumption or
substitution, the Company shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the
date of such notice, and the Option will terminate upon the expiration
of such period.
(b) SPECIAL ADJUSTMENTS UPON CHANGE IN CONTROL. In the event
of a "Change in Control" of the Company (as defined in Paragraph (c) of
this Section 12), unless otherwise determined by the Board in its sole
discretion prior to the occurrence of such Change in Control, the
following acceleration and valuation provisions shall apply:
(i) Any Options outstanding as of the date of such
Change in Control that are not yet fully vested on such date
shall become fully vested; and
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<PAGE> 14
(ii) The value of all outstanding Options, measured
by the excess of the "Change in Control Price" (as defined in
Paragraph (d) of this Section 12) over the exercise price,
shall be cashed out, and the Options so cashed out shall
terminate. The cash out proceeds shall be paid to the Optionee
or, in the event of death of an Optionee prior to payment, to
his Successor.
(c) DEFINITION OF "CHANGE IN CONTROL". For purposes of this
Section 12, a "Change in Control" means the happening of any of the
following:
(i) When any "person," as such term is used in
Sections 13(d) and 14(d) of the Act becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated by the Commission
under the Act, as adopted and amended from time to time and as
interpreted by formal or informal opinions of, and releases
published or other interpretive advice provided by, the Staff
of the Commission), directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding
securities;
(ii) The consummation of a transaction requiring
stockholder approval and involving the sale of all or
substantially all of the assets of the Company or the merger
or consolidation of the Company with or into another
corporation.
(iii) For purposes of determining whether there has
been a Change In Control under Section 12(c)(i), a Company or
affiliate employee benefit plan, including any trustee of such
a plan acting as trustee (who himself is not a beneficial
owner, directly or indirectly (other than the securities in
such trust), of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the
Company's then outstanding securities), acting as trustee
shall not be considered to be a person who has become the
beneficial owner, directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding
securities.
(d) DEFINITION OF "CHANGE IN CONTROL PRICE". For purposes of
this Section 12, "Change in Control Price" shall be: (i) the highest
price paid or offered, as determined by the Board, in any bona fide
transaction or bona fide offer related to the Change in Control at any
time within the sixty (60) day period immediately preceding the date of
the Change in Control (the "Sixty-Day Period") or if the Shares are
then traded on the Nasdaq Stock Market National Market System, a stock
exchange or other recognized securities market, then, at the election
of the Board, (ii) the highest closing sale price of a Share, as
reported by the Nasdaq Stock Market National Market System, any stock
exchange on which the Shares are listed or any other recognized
securities market on which the Shares are traded, at any time within
the Sixty-Day Period.
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<PAGE> 15
13. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Committee makes the determination
granting such Option; provided, however, that the Committee may approve an
earlier grant date if required to ratify a prior promise by the Corporation to
an Employee to grant the Option. Notice of such determination shall be given to
each Employee to whom an Option is so granted within a reasonable time after the
date of such grant.
14. OPTION AGREEMENTS. As a condition to the effectiveness of each
grant of an Option under the Plan, the Optionee shall enter into a written
Option Agreement in such form as may be authorized by the Committee from time to
time. Subject to the provisions of Section 20(a), each such Option Agreement
shall contain such provisions as are required by the terms of the Plan and may
contain such additional provisions not inconsistent with the terms of the Plan
as the Committee in its sole discretion may from time to time authorize. Each
Option Agreement evidencing an Option granted to a Section 16 Person shall also
provide for such minimum waiting period from the date of grant before the Option
may be exercised, and such minimum holding period from the date of the
acquisition of Shares upon exercise of an Option for which such Shares must be
held before making any disposition of such Shares, as may be required by Rule
16b-3.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an Option unless the exercise of such Option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
Securities Law Requirements and all other applicable provisions of law,
including, without limitation, any applicable state "blue sky" laws and foreign
(national and provincial) securities laws and the rules and regulations
promulgated under any of such laws, and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
As a condition to the grant or exercise of an Option or the issuance of
Shares upon exercise of an Option, the Company may require the person exercising
such Option to become a party to a stockholders agreement restricting
transferability of the Shares and to make such representations and warranties to
the Company as may be required by the Committee in its sole discretion,
including those which, in the opinion of counsel for the Company, are required
by any of the aforementioned Securities Law Requirements and other laws, which
may include, without limitation, representations and warranties that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares.
The Company shall not have any liability to any Optionee in respect of
any delay in the sale or issuance of Shares hereunder until the Company is able
to obtain authority from any governmental authority (domestic or foreign) or
self-regulatory organization having jurisdiction thereover, which authority is
deemed by the Company's counsel to be necessary to the lawful sale and issuance
of such Shares, or any failure to sell or issue such Shares as to which such
requisite authority the Company is unable to obtain. In no event shall the
Company be required to take any action to make it possible to issue Shares
hereunder.
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<PAGE> 16
16. FORFEITURE OF OPTIONS AND REALIZED BENEFITS.
(a) LOSS OF UNEXERCISED OPTIONS. If an Optionee holding an
outstanding Option, without the written consent of the Company as
authorized by the Committee in its sole discretion, engages in any of
the following (any such conduct being referred to as "Prohibited
Conduct") at any time during the period beginning on the date the
Optionee first entered the employ of the Company, the Parent or a
Subsidiary and continuing for so long as any portion of such Option
remains outstanding and unexercised (the "Grant Period"):
(i) rendering services for any organization or
engaging directly or indirectly in any business which, in the
sole judgment of the Committee, is or becomes competitive with
the Company, the Parent or a Subsidiary, or where such
rendering of services or engaging in business, in the sole
judgment of the Committee, is or becomes otherwise prejudicial
to or in conflict with the interests of the Company, the
Parent or a Subsidiary; provided, however, that the ownership
of a not more than ten percent (10%) equity interest in any
organization or business whose equity is listed on a
recognized securities exchange or traded over-the-counter
shall not constitute Prohibited Conduct within the meaning of
this Subparagraph (i);
(ii) disclosing to anyone outside the Company, the
Parent or any Subsidiary, or use in other than the business of
the Company, the Parent or any Subsidiary, any confidential or
proprietary information relating to the business of the
Company, the Parent or any Subsidiary, acquired by the
Optionee either during or after employment with the Company,
the Parent or a Subsidiary;
(iii) except as may otherwise be permitted by any
agreement otherwise made by the Company, the Parent or a
Subsidiary with the Optionee, failing to disclose fully and
promptly in writing and assign to the Company, the Parent or
to the Subsidiary by which the Optionee is or was employed all
right, title and interest in any discovery, invention,
process, method, improvement or idea, whether or not
patentable or subject to copyright protection and whether or
not reduced to tangible form or reduced to practice, made or
conceived by such person during employment by the Company, the
Parent or such Subsidiary, relating in any manner to the
actual or contemplated business, research or development work
of the Company, the Parent or such Subsidiary or to do
anything reasonably necessary to enable the Company, the
Parent or such Subsidiary to secure a patent, copyright or
similar protection in the United States of America and/or in
foreign countries as the Company, the Parent or such
Subsidiary may elect; or
(iv) inducing or attempting to induce any customer or
supplier of the Company, the Parent or a Subsidiary to breach
any contract with the Company,
Page 16 of 20
<PAGE> 17
the Parent or a Subsidiary or otherwise terminate its
relationship with the Company, the Parent or a Subsidiary;
then the Committee shall have the right, upon determining that
the Optionee has engaged in any Prohibited Conduct at any time
during the Grant Period (in making such determination, the
Committee may, but shall not be required to, give the Optionee
an opportunity to be heard and to present evidence on his
behalf), to declare the Option forfeited and canceled
effective as of the time of the conduct constituting such
Prohibited Conduct.
(b) OPTIONEE CERTIFICATION UPON EXERCISE. Each time an
Optionee exercises an Option, the Optionee shall be deemed to certify
to the Company that such Optionee did not, without the written consent
of the Company as authorized by the Committee in its sole discretion,
engage in any Prohibited Conduct at any time during the period
beginning on the date the Optionee first entered the employ of the
Company, the Parent or a Subsidiary and ending on the date of such
exercise (the "Pre-Exercise Period").
(c) LOSS OF REALIZED BENEFITS. In the event that the Committee
determines with respect to a particular exercise of an Option that the
Optionee engaged in any Prohibited Conduct at any time during the
Pre-Exercise Period or within one (1) year after such exercise (in
making such determination, the Committee may, but shall not be required
to, give the Optionee an opportunity to be heard and to present
evidence on his behalf), such Optionee shall be liable to the Company
(i) to the extent such Optionee has, prior to his receipt of the
"Forfeiture Notice" (as defined below), disposed of the Shares acquired
through such exercise, for payment to the Company of an amount in cash
equal to the excess of (A) the net cash proceeds from such disposition
(or if such Shares were disposed of other than for cash, the aggregate
Fair Market Value of such Shares as of the date of disposition) over
(B) that portion of the sum of the cash and the aggregate Fair Market
Value as of the exercise date of any already owned Shares used by the
Optionee to pay the exercise price for such Shares (such sum being
referred to as the "Exercise Payment") which is allocable to the Shares
disposed of in the proportion that such number of Shares bears to the
total number of Shares issued pursuant to such Option exercise and (ii)
to the extent such Optionee still owns at the time he receives the
Forfeiture Notice the Shares acquired through such exercise, at the
option of the Committee, either (A) for the return of such Shares to
the Company in exchange for a cash refund from the Company to such
Optionee in an amount equal to that portion of the Exercise Payment
which is allocable to the Shares still owned in the proportion that
such number of Shares bears to the total number of Shares issued
pursuant to such Option exercise (such portion being referred to as the
"Retained Shares Exercise Payment") or (B) for payment to the Company
of an amount in cash equal to the excess of the aggregate Fair Market
Value as of the exercise date of the Shares still owned over the
Retained Shares Exercise Payment. To enforce such liability against
such Optionee, the Committee shall notify the Optionee thereof in
writing within three (3) years of the date of the affected Option
exercise, which notice (the "Forfeiture Notice") shall include a
statement of the form of payment which the Committee has elected to
receive from the Optionee with respect to Shares still owned by the
Page 17 of 20
<PAGE> 18
Optionee. Within ten (10) days after receiving the Forfeiture Notice,
the Optionee shall make full payment of such liability to the Company
in cash, or to the extent such Optionee still owns Shares acquired
through the affected exercise and the Committee elects in the
Forfeiture Notice to receive such Shares, stock certificates evidencing
such Shares still owned by the Optionee (duly endorsed for transfer
with signature guaranteed). In the event that the Committee elects to
receive, and the Optionee returns, Shares, the Company shall make the
refund payment required to be made to the Optionee with respect to such
Shares upon the Company's receipt of such Shares as hereinabove
required.
(d) CUMULATIVE RIGHTS. The obligation of an Optionee under
this Section 16 to refrain from Prohibited Conduct is in addition to,
and does not in any way supersede or diminish, any other obligation of
such Optionee with respect to such matters which such Optionee may owe
to the Company, the Parent, any Subsidiary or any other person under
any agreement, applicable law or otherwise (a "Similar Obligation").
Any action taken by the Company or the Committee to enforce,
compromise, settle or waive the provisions of this Section 16 with
respect to any particular event constituting Prohibited Conduct shall
not in any way affect the rights of the Company, the Committee, the
Parent, any Subsidiary or any other person against an Optionee with
respect to any other event constituting Prohibited Conduct or any
Similar Obligation, nor shall any action taken or failed to be taken by
the Company, the Parent, any Subsidiary or any other person against an
Optionee to enforce, compromise, settle or waive any Similar Obligation
have any effect on the rights of the Company and the Committee under
this Section 16.
17. RESERVATION OF SHARES. As of the date of adoption of the Plan, the
Company has sufficient authorized but unissued Shares to satisfy the
requirements of the Plan. The Company shall reserve and hereafter keep available
such number of Shares as shall be sufficient to satisfy the requirements of the
Plan.
18. EFFECTIVENESS OF PLAN. The Plan was duly adopted by the Board and
by the unanimous written consent of the Stockholders, as required by the
Delaware General Corporation Law. The Plan shall continue in full force and
effect until (i) terminated by resolution of the Board or (ii) both (A) all
Options granted under the Plan have been exercised in full and (B) no Authorized
Shares remain available for the granting of additional Options. The termination
of the Plan shall not affect Options already granted, which Options shall remain
in full force and effect in accordance with their respective terms and the terms
hereof as if the Plan had not been terminated.
19. AMENDMENT OF PLAN AND OUTSTANDING OPTIONS. The Board may,
in its sole discretion, amend the Plan from time to time, provided that any
amendment which Rule 16b-3 or any other Securities Law Requirement requires be
approved by the stockholders of the Company shall be made only with the approval
of such stockholders. Amendments to the Plan shall apply prospectively to all
Options then outstanding under the Plan, except in the case of any amendment
which is adverse to an Optionee, in which case the amendment shall apply with
respect
Page 18 of 20
<PAGE> 19
to the outstanding Options held by the adversely affected Optionee only upon the
consent of such Optionee to such amendment. In exercising its authority under
Section 4(b)(v) to amend outstanding Options, the Committee likewise may make an
amendment which adversely affects the Optionee only upon the consent of such
Optionee to such amendment. Notwithstanding the provisions of this Section 19,
the consent of the Optionee shall not be required with respect to an amendment
to the Plan or to any outstanding Option which is made in order to comply with
Securities Law Requirements or which causes a Tax Qualified Option no longer to
qualify as such.
20. GENERAL PROVISIONS.
(a) GRANTS TO FOREIGN EMPLOYEES. Notwithstanding any other
provision of the Plan to the contrary but subject to applicable
Securities Law Requirements and tax laws, to the extent deemed
necessary or appropriate by the Committee in its sole discretion in
order to further the purposes of the Plan with respect to Employees who
are foreign nationals and/or employed outside the United States of
America, an Option granted to any such Employee may be on terms and
conditions different from those specified in the Plan in recognition of
the differences in the laws, tax policies and customs applicable to
such an Employee, without the necessity of the Plan being amended to
provide for such different terms and conditions.
(b) NATURE OF BENEFITS. Benefits realized by an Optionee under
the Plan or any Option granted hereunder shall not be deemed a part of
such Optionee's regular, recurring compensation for purposes of the
termination, indemnity or severance pay law of any country and shall
not be included in, nor have any effect on, the determination of
benefits under any other employee benefit plan or similar arrangement
provided to such Optionee by the Company unless expressly so provided
by such other plan or arrangement, or except where the Committee
expressly determines in its sole discretion that an Option or portion
thereof should be so included in order accurately to reflect
competitive compensation practices or to recognize that an Option has
been granted in lieu of a portion of competitive annual cash
compensation.
(c) DETERMINATION OF DEADLINES. If any day on or before which
action under the Plan or any Option granted hereunder must be taken
falls on a Saturday, Sunday or Company-recognized holiday, such action
may be taken on the next succeeding day which is not a Saturday, Sunday
or Company-recognized holiday; provided, however, that the provisions
of this Paragraph (c) shall not apply to, and shall not extend the time
for exercise of, any Option which is terminated for Misconduct pursuant
to Section 10(b) or for Prohibited Conduct pursuant to Section 16(a).
(d) GOVERNING LAW. To the extent that federal laws (such as
the Act or the Code) or the Delaware General Corporation Act do not
otherwise control, the Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of
Ohio and construed accordingly.
Page 19 of 20
<PAGE> 20
(e) GENDER AND NUMBER. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns
shall include the plural and vice versa.
(f) CAPTIONS. The captions contained in the Plan are for
convenience of reference only and do not affect the meaning of any term
or provision hereof.
Page 20 of 20
<PAGE> 1
Exhibit 10.1.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of April 1, 1997 (the "Effective Date"), at Akron, Ohio, by and between
TELXON CORPORATION ("Employer"), a Delaware corporation with offices at 3330
West Market Street, Akron, Ohio 44333- 3352, and FRANK E. BRICK ("Employee").
All initially capitalized terms which are not defined where first used
are defined in EXHIBIT A attached hereto and incorporated herein by this
reference.
In consideration of the mutual promises and agreements contained
herein, the parties hereto agree as follows:
1. EMPLOYMENT PERIOD. Employer agrees to employ Employee and Employee
agrees to serve Employer for the three (3) year period (the "Employment Period")
beginning on the Effective Date and ending at 11:59 p.m., Akron, Ohio, local
time, on March 31, 2000. This Agreement may be terminated earlier pursuant to
Section 4 hereof.
2. NATURE OF DUTIES.
(a) Employee shall serve as Employer's President and Chief
Executive Officer. As such, Employee shall act in conformity with the
management policies, guidelines and directions issued by Employer's
Board of Directors (the "Board"), and shall have general charge and
supervision of those functions and such other responsibilities as the
Board shall determine and assign as are typically performed by and the
responsibility of a chief executive officer of a publicly-held
corporation. Employee shall report to the Board.
(b) Employee shall work exclusively for Employer on a
full-time basis in such capacity and shall carry on his employment at
such location as shall be required by the Board, except for time spent
traveling on business on behalf of Employer. During normal business
hours, Employee shall devote all of his time and attention to
Employer's business.
(c) Employee shall perform his duties and responsibilities
hereunder diligently, faithfully and loyally in order to cause the
proper, efficient and successful operation of Employer's business.
3. COMPENSATION AND BENEFITS.
(a) BASE SALARY AND EXPENSES.
(i) During the Employment Period, Employer shall pay
to Employee a salary at the rate of Seven Hundred Fifty
Thousand Dollars ($750,000) per annum (the "Base Salary"). The
Base Salary shall be earned and paid in arrears, in equal
installments, every second Friday, or at such other interval
as the Board shall direct.
<PAGE> 2
(ii) Employer shall reimburse Employee for all
reasonable out-of-pocket expenses incurred by Employee on
Employer's behalf during the Employment Period, as approved by
Employer's Chief Financial Officer, to be periodically
reviewed by the Board.
(b) BONUS COMPENSATION.
(i) In addition to the Base Salary, in each year
during the Employment Period, Employer shall pay to Employee
bonus compensation of up to Two Hundred Fifty Thousand Dollars
($250,000) (the "Bonus Compensation"). The Bonus Compensation
shall be earned, if at all, if Employer meets or exceeds the
Operating Earnings target provided for in the Budget.
(ii) The Bonus Compensation shall have no pro rata
components thereto, except that in any fiscal year that ninety
percent (90%) or more, but less than one hundred percent
(100%), of the Operating Earnings target is met, Employer
shall pay to Employee One Hundred Twenty-Five Thousand Dollars
($125,000), or one-half of the potential Bonus Compensation,
for that fiscal year.
(iii) Bonus Compensation shall be earned, if at all,
at such time as the relevant goal is met, but no later than
the end of the fiscal year in question, and shall be paid
within thirty (30) days after the end of the fiscal year in
which it is earned.
(c) INCENTIVE COMPENSATION.
(i) In addition to the Base Salary and the Bonus
Compensation provided for in Sections 3(a) and 3(b), in each
year during the Employment Period that Employer's Operating
Earnings exceed the Operating Earnings target in the Budget,
Employer shall pay to Employee incentive compensation in an
amount equal to eight percent (8%) of such excess (the
"Incentive Compensation").
(ii) Incentive Compensation shall be earned, if at
all, at such time as the relevant goal is met, but no later
than the end of the fiscal year in question, and shall be paid
within thirty (30) days after the end of the fiscal year in
which it is earned.
(d) STOCK OPTIONS.
(i) On March 17, 1997, Employer granted Employee
options (the "Options") under Employer's then current employee
stock option plan, to purchase three hundred thousand
(300,000) shares of Employer's common stock ("Shares").
(ii) The Options vest as follows: on each of the
first three (3) anniversaries of the grant date of the
Options, either (A) Options to purchase fifty thousand
(50,000) Shares will vest for each Thirty Million Dollar
($30,000,000)
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<PAGE> 3
incremental increase in Employer's market capitalization value
(determined in accordance with Section 3(d)(iii)) during that
year (Employer's market value must then exceed Three Hundred
Million Dollars ($300,000,000)), or (B) Options to purchase
one hundred thousand (100,000) Shares will vest, whichever is
greater.
(iii) Market capitalization value for purposes of
determining the vesting schedule of the Options shall be the
price of one Share at the close of business on each of the
annual measurement dates, multiplied by the total number of
Shares issued and outstanding on each of those dates.
(iv) All of Employee's then outstanding un-vested
Employer stock options (including the Options) and restricted
stock shall immediately vest and be exercisable for the
remainder of their original term:
(1) upon Employer's termination of Employee
other than for Cause pursuant to Sections 4(b) and
(c);
(2) upon Employee's death prior to
termination or expiration of this Agreement;
(3) after an Un-Approved Change in Control
(defined in Exhibit A) if Employee terminates his
employment no more than thirty (30) days after such
Un-Approved Change in Control; or
(4) if this Agreement expires and is not
renewed by Employer.
(v) This Section 3(d) amends all prior agreements
between Employer and Employee relating to Employer stock
options and restricted stock.
(e) MARKET APPRECIATION BONUS.
(i) So long as the average closing sale price of the
Shares on the Nasdaq Stock Market quotation system calculated
over the twenty (20) consecutive trading days for which a sale
price was reported immediately preceding, but not including,
April 1, 2000 (the "Average Share Value"), is higher than
Twenty Six Dollars ($26) per Share and this Agreement has not
been terminated or expired, Employer shall pay to Employee (in
Shares and/or cash, at the discretion of the Board), subject
to Section 5, an amount calculated as follows (the "Market
Appreciation Bonus"):
(1) one and one-half percent (1-1/2%) of
that portion of Employer's market capitalization
value in excess of Four Hundred Seventeen Million
Dollars ($417,000,000) but equal to or less than Five
Hundred Eighty-Five Million Dollars ($585,000,000);
and
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<PAGE> 4
(2) two percent (2%) of that portion of
Employer's market capitalization value in excess of
Five Hundred Eighty-Five Million Dollars
($585,000,000).
If any extraordinary events or transactions, such as
acquisitions by Employer in stock-for-stock mergers, or the
issuance of additional capital stock or other securities, have
contributed to the market capitalization values in Sections
3(e)(i)(1) and (2), the amounts to be paid to Employee as
Market Appreciation Bonus shall be equitably adjusted as
agreed upon and negotiated in good faith by the Board and
Employee.
(ii) The date with reference to which the Average
Share Value is determined (but not the payment date) shall be
accelerated in the following circumstances:
(1) if prior to April 1, 2000, either
Employer terminates Employee other than for Cause
pursuant to Section 4(b) or (c), or Employee has died
prior to the expiration of this Agreement, or this
Agreement expires and is not renewed by Employer,
then the Average Share Value shall be determined
based on the twenty (20) consecutive trading days
immediately preceding the date of such termination,
expiration or death, not April 1, 2000;
(2) in further consideration for Employee's
covenant not to compete under Section 7(a), if prior
to April 1, 2000, Employee resigns his employment
following an Un-Approved Change in Control, or an
Approved Change in Control, then the Average Share
Value shall be determined based on the twenty (20)
consecutive trading days immediately preceding the
date of such resignation, not April 1, 2000; or
(3) if Employer becomes privately held, then
the Average Share Value shall be determined based on
the twenty (20) consecutive trading days immediately
preceding the last day on which Employer's stock is
publicly traded.
(iii) Market capitalization value shall be determined
by multiplying the relevant Average Share Value by the total
number of Shares which are issued and outstanding at the time
of measurement.
(iv) The Average Share Value used in this Section
3(e) shall be adjusted ratably up or down from time to time
for all increases and decreases in the total number of Shares
issued and outstanding as a result of stock dividends,
stock-splits and reverse stock-splits which have been approved
by the Board.
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<PAGE> 5
(v) Market Cap Bonus shall be earned, if at all, at
the following dates:
(1) April 1, 2000 if the Average Share Value
is determined under Section 3(e)(i);
(2) the date of termination, expiration or
death, as the case may be, if the Average Share Value
is determined under Section 3(e)(ii)(1); and
(3) the date of resignation if the Average
Share Value is determined under Section 3(e)(ii)(2).
Market Cap Bonus shall be paid within thirty (30)
days after the date of being earned.
(f) SEVERANCE. In addition to all other amounts due hereunder:
(i) other than after an Un-Approved Change in
Control, if:
(1) Employer terminates Employee other than
for Cause pursuant to Section 4(b) or (c); or
(2) this Agreement expires and is not
renewed by Employer,
then Employer shall continue to pay to Employee as severance,
his Base Salary during the twenty-four (24) month period
following the date of such termination or expiration, or for
the remaining term of this Agreement, whichever is longer; or
(ii) after an Un-Approved Change in Control, if:
(1) Employee terminates his employment no
more than thirty (30) days after such Un-Approved
Change in Control;
(2) Employer terminates Employee other than
for Cause pursuant to Section 4(b) or (c); or
(3) this Agreement expires and is not
renewed by Employer,
then Employer shall immediately upon such event pay
to Employee a lump sum amount equal to two and
ninety-nine one-hundredths (2.99) times his Base
Salary.
(g) VACATION. During the Employment Period, Employee shall be
entitled to take vacation time in accordance with Employer's policies.
In the event that all or any part of said vacation is not taken for any
reason during any such year, there will be no compensation
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<PAGE> 6
paid in lieu thereof, and accrued and unused vacation time shall not be
carried over and added to the vacation time for the succeeding year in
accordance with such policy, unless otherwise approved by the Board.
(h) HEALTH, DISABILITY, RETIREMENT, DEATH AND INSURANCE
BENEFITS.
(i) Employer shall provide Employee with the same
health, disability, retirement and death and other fringe
benefits as are generally provided to the executive employees
of Employer in accordance with such terms, conditions and
eligibility requirements as may from time to time be
established or modified by Employer.
(ii) Employer shall obtain "split-dollar" universal
policies of life insurance with aggregate death benefits of at
least Five Million Dollars ($5,000,000) on the life of
Employee. Such policies shall provide that at the time of
Employee's death, Employer is entitled to receive a return of
any premium paid by it, and Employee's designated
beneficiaries shall receive the balance of the policies' death
benefit. If Employee remains employed by Employer until at
least age sixty (60), Employer shall pay to Employee from, but
only from, the cash value of the policies deferred salary
continuation of $158,000 per year for 15 years, or such lesser
amount as may then be payable to Employer from the cash value
of the policies at the time of Employee's retirement. Employer
is the owner of such policies of life insurance.
Employee shall have the right and option to purchase
such life insurance policies from Employer if Employee
resigns, is terminated by Employer, or this Agreement expires
and is not renewed by Employer, prior to Employee reaching age
sixty (60). Employee must provide Employer with written notice
of Employee's election to purchase the life insurance policies
no more than ten (10) days after such triggering event. The
purchase price shall be equal to the policy's cash surrender
value (as determined by the insurance company) on the date
Employer receives Employee's written notice (less any
indebtedness against such policy), plus any unearned premium
as of such date.
After any life insurance policy is transferred to
Employee, he shall be solely responsible for all premium
payments and entitled to all proceeds from such policy. Any
transfer of a life insurance policy is subject to the terms of
the policy and the consent, if required, of the insurer.
(iii) Employer shall, to the extent allowable by law,
regulation, contract and policy, continue to pay Employee's
basic medical insurance premiums for eighteen (18) months
following a termination of Employee by Employer other than for
Cause, or if this Agreement expires and is not renewed by
Employer.
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<PAGE> 7
4. TERMINATION.
(a) This Agreement shall terminate automatically upon
Employee's death.
(b) Employer may terminate Employee at any time upon not less
than thirty (30) days prior written notice to Employee:
(i) other than for Cause; or
(ii) if at any time Employee is unable to perform the
essential functions of his job, even with reasonable
accommodations, as a result of a disability or illness
(determined in accordance with the same standards applicable
to the employees of Employer generally under the disability
benefits referred to in Section 3(h)(i)). If Employer
terminates Employee for disability or illness reasons, such
termination shall be deemed to be a termination by Employer
other than for Cause.
(c) If at any time during the Employment Period Employer
assigns Employee to serve in a capacity other than as Employer's
President and Chief Executive Officer or assigns Employee to perform
tasks inconsistent with such position ("Demotion"), then Employee may
resign his employment within thirty (30) days of such event and such
resignation shall be deemed to be a termination by Employer other than
for Cause.
(d) Employer shall have the right to terminate Employee at any
time, immediately, for Cause. "Cause" shall mean behavior of Employee
which is adverse to Employer's interest, including, without limitation,
Employee's dishonesty, grossly negligent misconduct, willful
misconduct, disloyalty, acts of bad faith, neglect of duty or material
breach of this Agreement.
5. EFFECTS OF TERMINATION.
(a) In the event of automatic termination of his employment
pursuant to Section 4(a) by reason of Employee's death, all of
Employer's obligations under this Agreement shall end except for
Employer's obligations to pay Employee's Base Salary, Bonus
Compensation, if any, Incentive Compensation, if any, and Market Cap
Bonus, if any, in each case earned and accrued but unpaid to the date
of death. In such event, Employee's designated beneficiaries (or his
estate if there are no designated beneficiaries) shall have the right
to receive the death benefits due under the life insurance policies
provided to Employee pursuant to Sections 3(h)(i) and (ii), if any.
(b) In the event that Employer exercises its right of
termination other than for Cause pursuant to Section 4(b) or 4(c),
Employee resigns within thirty (30) days following an Un-Approved
Change in Control or an Approved Change in Control, or if this
Agreement expires and is not renewed or extended by Employer, all of
Employer's obligations under this Agreement shall end except:
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<PAGE> 8
(i) for Employer's obligations to pay Employee's Base
Salary, Bonus Compensation, if any, Incentive Compensation, if
any, and Market Cap Bonus, if any, in each case earned and
accrued but unpaid to the date of termination (which, for
purposes of this Section 5(b), shall be thirty (30) days after
the date on which notification is provided by Employer to
Employee pursuant to Section 4(b) or at the expiration of this
Agreement, whichever the case may be);
(ii) if such termination is for disability or
illness, Employee shall have the right to receive the benefits
due under the disability insurance policies provided to
Employee pursuant to Section 3(h)(i), if any; and
(iii) payment of health insurance premiums under
Section 3(h)(iii) and severance payments due under Section
3(f), if any.
(c) In the event that Employer exercises its right of
termination pursuant to Section 4(d) for Cause, or Employee voluntarily
leaves the employ of Employer prior to the expiration of this Agreement
for any reason other than following a Demotion (as permitted in Section
4(c)) or within thirty (30) days after either an Un-Approved Change in
Control or an Approved Change in Control (which event is governed by
Section 5(b)), all of Employer's obligations under this Agreement shall
end except for Employer's obligations to pay Employee's Base Salary, if
any, earned and accrued but unpaid to the date of termination (which,
for the purposes of this Section 5(c), shall be at the date of
termination or at the date Employee otherwise leaves the employ of
Employer).
(d) All payments to be made to Employee under this Agreement
are subject to offset by Employer for any claims for damages,
liabilities, expenses or other indebtedness which Employer may have
against Employee.
(e) Any controversy or claim arising out of or relating to the
benefits and entitlements of Employee following a Change of Control (as
defined in Exhibit A as an "approved change of control" or an
"unapproved change of control") under this Section 5, as well as those
provided for in Sections 3 and 6, shall be settled by submitting the
matter to binding arbitration in Cleveland, Ohio, by and pursuant to
the rules of the American Arbitration Association then in effect. The
determination of the arbitrator shall be conclusive and binding on the
Employer and Employee, and judgment may be entered on the arbitrator's
award in any court of competent jurisdiction. Employer shall pay to
Employee all legal fees and expenses incurred by Employee in disputing
in good faith any issue arising hereunder related to such benefits or
entitlements of Employee. Such payments shall be made within five (5)
business days after delivery of Employee's written request for payment
accompanied by such evidence of fees and expenses incurred as Employer
reasonably may require.
6. EXCESS PARACHUTE PAYMENTS. Anything in this Agreement to the
contrary notwithstanding, in the event that any amounts payable to Employee
hereunder, alone or together
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<PAGE> 9
with other payments which Employee has a right to receive from Employer, would
constitute an "excessive parachute payment" (as defined in Section 280G of the
Internal Revenue Code of 1954, as amended (the "Code")), then Employer shall pay
the excise tax imposed by Section 4999 of the Code as well as any taxes that
would be due from Employee as a result of Employer's payment of the excise tax
and the payment of such taxes, until the payments due to employee are fully
grossed-up.
7. COVENANT NOT TO COMPETE.
(a) INDUCEMENT. This covenant between Employee and Employer is
being executed and delivered by Employee in consideration of Employee's
employment with employer and Employer's obligations hereunder
(including, without limitation, the Base Salary, Bonus Compensation,
Incentive Compensation, Market Cap Bonus, and other benefits and
payments set forth herein). Employer and Employee agree that in further
consideration for this covenant, the Average Share Value shall be
determined as set forth in Section 3(e)(ii)(2) in the event that
Employee resigns his employment following an Approved or Un-Approved
Change in Control. Employee acknowledges that Employer's business and
Employee's responsibilities are international in scope. Employee
further acknowledges that the covenant not to compete with Employer
contained in this Section 7 was and has been a condition of his
employment since Employee was originally employed by Employer.
(b) RESTRICTED ACTIVITIES - DURATION. Except as otherwise
consented to or approved by the Board in writing, Employee agrees that,
in addition to being operative during the term of this Agreement, the
provisions of Sections 7(b)(i) through (iii) hereof, inclusive, shall
be operative for a period of twenty-four (24) months after Employee's
termination of employment with Employer, regardless of the time, manner
or reasons for termination, and regardless of whether terminated by
Employee or Employer. During such period, Employee will not, directly
or indirectly, acting alone or as a member of a partnership or as an
owner, director, officer, employee, manager, representative or
consultant of any corporation or other business entity:
(i) engage in any business in competition with or
adverse to the business that is conducted by Employer, or,
without limiting the generality of the foregoing, engage in
any business which manufactures, sells, distributes, services
or supports products which are of the type manufactured, sold,
marketed, serviced or supported by Employer, or which are in
the process of development in which Employee has participated
or has knowledge of, at the time of the termination of
Employee's employment with Employer, in the United States,
Canada or any European, Asian, Pacific or other foreign
country in which Employer then or thereafter transacts
business or is making a bona fide attempt to do so;
(ii) induce, request or attempt to influence any
customers or suppliers of Employer to curtail or cancel their
business or prospective business with Employer or in any way
interfere with Employer's business relationships; or
9
<PAGE> 10
(iii) induce, solicit, assist or facilitate the
inducement or solicitation by a third person of any employee,
officer, agent or representative of Employer, to terminate
their respective relationship with Employer or in any way
interfere with Employer's employee, officer, agent or
representative relationships.
(c) TOLLING; RELIEF OF OBLIGATIONS. In the event that Employee
breaches any provision of this Section 7, such violation (i) shall toll
the running of the twenty-four (24) month period set forth in Section
7(b) from the date of commencement of such violation until such
violation ceases, and (ii) shall relieve Employer of any obligations to
Employee under this Agreement.
(d) "BLUE PENCILING" OR MODIFICATION. If either the length of
time, geographic area or scope of restricted business activity set
forth in Section 7(b) is deemed unreasonably restrictive or
unreasonable in any other respect in any court proceeding, Employee and
Employer agree and consent to such court's modifying or reducing such
restriction(s) to the extent deemed reasonable under the circumstances
then presented.
8. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee acknowledges that the discharge of Employee's
duties under this Agreement will necessarily involve his access to
Confidential Information. Employee acknowledges that the unauthorized
use by him or disclosure by him of such Confidential Information to
third parties might cause irreparable damage to Employer and Employer's
business. Accordingly, Employee agrees that at all times after the date
hereof he will not copy, publish, disclose, divulge to or discuss with
any third party nor use for his own benefit or that of others, without
the prior express written consent of the Board, except in the normal
conduct of his duties under this Agreement, any Confidential
Information, it being understood and acknowledged by Employee that all
Confidential Information created, compiled or obtained by Employee or
Employer, or furnished to Employee by any person while Employee is
associated with Employer remains its exclusive property.
(b) Promptly upon termination of his employment, irrespective
of the time or manner thereof or reason therefor, and whether such
termination is by Employer or Employee, Employee agrees to return and
surrender to Employer all Confidential Information in any manner in his
control or possession, as well as all other Employer property.
9. REMEDIES INADEQUATE.
(a) Employee acknowledges that the services to be rendered by
him to Employer as contemplated by this Agreement are special, unique
and of extraordinary character. Employee expressly agrees and
understand that the remedy at law for any breach by him of Section 7 or
8 of this Agreement will be inadequate and that the damages flowing
from such breach are not readily susceptible to being measured in
monetary terms. Accordingly, upon
10
<PAGE> 11
adequate proof of Employee's violation of any legally enforceable
provision of Section 7 or 8, Employer shall be entitled to immediate
injunctive relief, including, without limitation, a temporary order
restraining any threatened or further breach. In the event any
equitable proceedings are brought to enforce the provisions of any of
Section 7, 8 or 9, Employee agrees that he will not raise in such
proceedings any defense that there is an adequate remedy at law, and
Employee hereby waives any such defense. Nothing in this Agreement
shall be deemed to limit Employer's remedies at law or in equity for
any breach by Employee of any of the provisions of Section 7 or 8 which
may be pursued or availed of by Employer. Without limiting the
generality of the immediately preceding sentence, any covenant on
Employee's part contained in Section 7 or 8, which may not be
specifically enforceable shall nevertheless, if breached, give rise to
a cause of action for monetary damages.
(b) Employee has carefully considered, and has had adequate
time and opportunity to consult with his own counsel or other advisors
regarding the nature and extent of the restrictions upon him and the
rights and remedies conferred upon Employer under Sections 7, 8 and 9,
and hereby acknowledges and agrees that such restrictions are
reasonable in time, territory and scope, are designed to eliminate
competition which otherwise would be unfair to Employer, do not stifle
the inherent skill and experience of Employee, would not operate as a
bar to Employee's sole means of support, are fully required to protect
the legitimate interests of Employer and do not confer a benefit upon
Employer disproportionate to the detriment to Employee.
(c) The covenants and agreements made by Employee in Sections
7, 8 and 9 shall survive full payment by Employer to Employee of the
amounts to which Employee is entitled under this Agreement, the
expiration of the Employment Period and this Agreement.
10. RIGHTS. Employee acknowledges and agrees that any procedure, design
feature, schematic, invention, improvement, development discovery, know how,
concept, idea or the like (whether or not patentable, registrable under
copyright or trademark laws, or otherwise protectable under similar laws) that
Employee may conceive of, suggest, make, invent, develop or implement, during
the course of his service pursuant to this Agreement (whether individually or
jointly with any other person or persons), relating in any way to the business
of Employer or to the general industry of which Employer is a part, as shall all
physical embodiments and manifestations thereof, and all patent rights,
copyrights, trademarks (or applications therefor) and similar protections
therein (all of the foregoing referred to as "Work Product"), shall be the sole,
exclusive and absolute property of Employer. All Work Product shall be deemed to
be works for hire, and to the extent that any Work Product may not constitute a
work for hire, Employee hereby assigns to Employer all right, title and interest
in, to and under such Work Product, including without limitation, the right to
obtain such patents, copyright registrations, trademark registrations or similar
protections as Employer may desire to obtain. Employee will immediately disclose
all Work Product to Employer and agrees, at any time, upon Employer's request
and without additional compensation, to execute any documents and otherwise to
cooperate with Employer respecting the perfection of its right, title and
interest in, to and under such Work Product, and in nay litigation or
controversy in connection therewith, all expenses incident thereto to be borne
by Employer.
11
<PAGE> 12
11. ASSIGNMENT OF EMPLOYEE'S RIGHTS. In no event shall Employer be
obligated to make any payment under this Agreement to any assignee or creditor
of Employee. Prior to the time of payment under this Agreement, neither Employee
nor his legal representative shall have any right by way of anticipation or
otherwise dispose of any interest under this Agreement.
12. EMPLOYER'S OBLIGATIONS UNFUNDED. Except as to any benefits that may
be required to be funded under any benefit plan of Employer pursuant to law or
pursuant to other agreements and which are not for the sole benefit of Employee,
the obligations of Employer under this Agreement are not funded and Employer
shall not be required to set aside or deposit in escrow any monies in advance of
the due date for payment thereof to Employee.
13. NOTICES. Any notice to be given hereunder by Employer to Employee
shall be deemed to be given if delivered to Employee in person, or if mailed to
Employee, by certified mail, postage prepaid, return receipt requested, at his
address last known on the records of Employer, and any notice to be given by
Employee to Employer shall be deemed to be given if delivered in person or by
mail, postage prepaid, return receipt requested, to the Chairman of the Board of
Employer at Employer's offices in Akron, Ohio, unless Employee or Employer shall
have duly notified the other parties in writing of a change of address. If
mailed, such notice shall be deemed to have been given when deposited in the
mail as set forth above.
14. AMENDMENTS. This Agreement shall not be modified or discharged, in
whole or in part, except by an agreement in writing signed by the parties
hereto.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties. The parties are not relying on any other representation,
express or implied, oral or written. This Agreement supersedes any prior
employment agreement, written or oral, between Employee and Employer.
16. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not affect the meaning of any terms or
provisions hereof. References to "termination of employment," "termination of
Employee," "termination of this Agreement," "termination of the Employment
Period," "resigns" and any other terms of similar meaning shall all be deemed
equivalent.
17. BINDING EFFECT; STOCKHOLDER APPROVAL. The rights and obligations of
Employer hereunder shall inure to the benefit of, and shall be binding upon,
Employer and its successors and assigns, and the rights and obligations of
Employee hereunder shall inure to the benefit of, and shall be binding upon,
Employee and his heirs, personal representatives and estate. Prior to the
payment of the Bonus Compensation, Incentive Compensation or Market Cap Bonus,
such compensation must be approved by Employer's stockholders in accordance with
Section 162(m) of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder. Employer hereby represents that a "Section
162(m) Performance-Based Bonus Plan" was approved by its stockholders at
Employer's September 1997 stockholders meeting.
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<PAGE> 13
18. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions and any
partially enforceable provision shall be binding and enforceable to the extent
enforceable in any jurisdiction.
19. GOVERNING LAW AND VENUE. This Agreement shall be interpreted,
construed, and enforced in all respects in accordance with the laws of the State
of Ohio. Any and all actions brought arising out of, or based in whole or in
part upon this Agreement or the employment relationship, shall be brought in
either a federal or state court sitting in the State of Ohio, specifically and
exclusively in either the Cuyahoga County Court of Common Pleas sitting in
Cleveland, Ohio, the Summit County Court of Common Pleas sitting in Akron, Ohio,
or the Federal District Court for the Northern District of Ohio, Eastern
Division, and the parties consent to jurisdiction thereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first above written, effective the Effective Date.
EMPLOYER:
TELXON CORPORATION
By: /s/ Raj Reddy
-------------------------------------
Dr. Raj Reddy, Chairman of the
Board of Directors
EMPLOYEE:
/s/ Frank E. Brick
-----------------------------------------
Frank E. Brick
13
<PAGE> 14
EXHIBIT A
EMPLOYMENT AGREEMENT
FRANK E. BRICK/TELXON CORPORATION
DEFINITIONS
"Approved Change in Control" of Employer shall mean a change in control
of Employer of a nature which would be required to be reported in response to
Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") if the transaction causing such a change shall have
been approved by the affirmative vote of at least a majority of the Continuing
Directors. Without limitation, such an Approved Change in Control shall be
deemed to have occurred at such time as: (i) any "person" (as such term is used
in Section 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of fifteen percent (15%) or more of the combined voting power of
Employer's Voting Securities; (ii) liquidation of all or substantially all of
the assets of Employer, or any merger, consolidation, or reorganization to which
Employer is a party and as the result of which Employer's stockholders prior to
the transaction do not own at least fifty percent (50%) of the voting power of
the surviving entity in the election of directors; or (iii) individuals who
constitute the Continuing Directors cease for any reason to constitute at least
a majority of Employer's Board of Directors.
"Average Share Value" shall have the meaning defined in Section
3(e)(i).
"Base Salary" shall have the meaning defined in Section 3(a)(i).
"Board" shall have the meaning defined in Section 2(a).
"Bonus Compensation" shall have the meaning defined in Section 3(b)(i).
"Budget" shall mean for each fiscal year, Employer's management budget
presented to and approved by the Board for the fiscal year in question.
"Code" shall have the meaning defined in Section 6.
"Confidential Information" means all information or trade secrets of
any type or description belonging to Employer which are proprietary and
confidential to Employer and which are not publicly disclosed or are only
disclosed with restrictions. Without limiting the generality of the foregoing,
Confidential Information includes strategic plans for carrying on business,
other business plans, cost data, internal financial information, customer lists,
employee lists, vendor lists, business partner or alliances lists manufacturing
methods or processes, product research or engineering data, drawings, designs,
schematics, flow charts, computer programs, program decks, routines,
subroutines, translators, compilers, operating systems, object and source codes,
specifications, inventions, calculations, discoveries and any letters, papers,
documents or instruments disclosing or
<PAGE> 15
reflecting any of the foregoing, and all information revealed to, acquired or
created by Employee during Employee's employment by Employer relating to any of
the foregoing.
"Continuing Directors" shall mean and include the persons constituting
Employer's Board of Directors as of the date of this Agreement, and any person
who becomes a director of Employer subsequent to the date hereof whose election,
or nomination for election by Employer's stockholders, was approved by an
affirmative vote of at least a majority of the then Continuing Directors (either
by a specific vote or by approval of the proxy statement of Employer in which
such person is named as a nominee for director or of the inclusion of such
person in such Proxy Statement as such a nominee, in any case without objection
by any member of such approving majority of the then Continuing Directors to the
nomination of such person or the naming of such person as a director nominee).
"Demotion" shall have the meaning defined in Section 4(c).
"Employment Period" shall have the meaning defined in Section 1.
"Excessive parachute payment" shall have the meaning defined in Section
6.
"Incentive Compensation" shall have the meaning defined in Section
3(c)(i).
"Voting Securities" shall mean Employer's outstanding securities
ordinarily having the right to vote at elections of directors.
"Market Cap Bonus" shall have the meaning defined in Section 3(e)(i).
"Operating Earnings" shall be generally defined as operating earnings
before interest and taxes and excluding capital and extraordinary gains and
losses, and after accrual for all executive bonuses including Employee's Bonus
Compensation under Section 3(b) and Incentive Compensation under Section 3(c).
"Options" shall have the meaning defined in Section 3(d)(i).
"Shares" shall have the meaning defined in Section 3(d)(i).
"Un-Approved Change in Control" of Employer shall mean a change in
control of Employer of a nature which would be required to be reported in
response to Item 1(a) of the Current Report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") if the transaction causing such a change
shall not have been approved by the affirmative vote of at least a majority of
the Continuing Directors. Without limitation, such an Un-Approved Change in
Control shall be deemed to have occurred at such time as: (i) any "person" (as
such term is used in Section 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of fifteen percent (15%) or more of the combined voting
power of
2
<PAGE> 16
Employer's Voting Securities; (ii) liquidation of all or substantially all of
the assets of Employer, or any merger, consolidation, or reorganization to which
Employer is a party and as the result of which Employer's stockholders prior to
the transaction do not own at least fifty percent (50%) of the voting power of
the surviving entity in the election of directors; or (iii) individuals who
constitute the Continuing Directors cease for any reason to constitute at least
a majority of Employer's Board of Directors.
"Work Product" shall have the meaning defined in Section 10.
3
<PAGE> 1
Exhibit 10.1.9.a
TELXON CORPORATION
1997 SECTION 162 (m) PERFORMANCE-BASED
COMPENSATION PLAN
1. PURPOSE
The Purpose of this Plan is to provide incentives to Telxon
Corporation's (the "Company") President and Chief Executive Officer (the
"Executive") to achieve financial performance objectives and to reward the
Executive when those objectives are met. The Plan is intended to ensure that all
performance-based compensation paid to the Executive is deductible by the
Company under Section 162(m) of the Internal Revenue Code of 1986, as amended,
and the regulations and interpretations promulgated thereunder (the "Code").
2. COVERED INDIVIDUAL
The individual who is the President and Chief Executive Officer of the
Company at April 1, 1997 is eligible to receive performance-based compensation
in accordance with this Plan.
3. THE COMMITTEE
The Company's Board of Directors shall form a committee comprised of
solely two or more outside Directors as required under Code Section 162(m). The
committee shall have the sole discretion and authority to administer and
interpret this Plan. All performance goals will be preestablished by the
committee in writing not later than ninety (90) days after the commencement of
the period of service to which the performance goals relate, and prior to such
time that twenty five percent (25%) of the period of service has elapsed. No
performance-based compensation shall be paid unless and until the committee
certifies in writing that the performance goals of this Plan have been
satisfied. The committee may amend or terminate this Plan at any time with
respect to future services of the Executive, and such amendments or termination
will require stockholder approval only to the extent required by applicable
law, and in order to maintain the deductibility of performance-based
compensation under Code Section 162(m).
4. PERFORMANCE-BASED COMPENSATION AND BUSINESS CRITERIA
A. Upon the Company's release of earnings following the
completion of each fiscal year, the Executive shall be entitled to
receive Two Hundred Fifty Thousand Dollars ($250,000) if the Company
meets the operating earnings target established by the committee for
the fiscal year then ended, or One Hundred Twenty-Five Thousand Dollars
($125,000) if the Company meets at least ninety percent (90%) but less
than one hundred (100%) of that target.
B. Upon the Company's release of earnings following the
completion of each fiscal year, the Executive shall be entitled to
receive an amount is cash equal to eight percent (8%) of the Company's
operating earnings in excess of its operating earnings target
established by the committee for that fiscal year.
C. If the average of the last sale price of shares of the
Company's common stock on the quotation system or exchange which is the
principal trading market of the shares, calculated over the thirty (30)
consecutive trading days for which a sale price was reported
immediately preceding, but not including, April 1, 2000 (the "Average
Shares Value"), is higher than Twenty-Six Dollars ($26) per share, then
the Executive shall be entitled, as of and at April 1, 2000, to receive
a payment (in share of the Company's common stock and/or cash within
the discretion of the committee) calculated as follows:
1. an amount equal to one and one-half percent (1 1/2%) of the
market capitalization value of the Company in excess of that
based on an Average Share Value of Twenty-Six Dollars ($26)
up to Thirty-Five Dollars ($35); and
2. an amount equal to two percent (2%) of the market
capitalization value of the Company in excess of that based
on an Average Share Value of Thirty-Five Dollars ($35).
Market capitalization value shall be determined by multiplying the
Average Share Value by the total number of shares of the Company's
common stock which are issued and outstanding on March 31, 2000.
5. GENERAL
The establishment of this Plan shall not confer any rights upon the
Executive or any other person, whether for continuation of employment or
otherwise. The laws of the State of Ohio will govern any legal dispute involving
the Plan.
<PAGE> 1
EXHIBIT 10.1.10
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of April 1, 1997
(the "Effective Date") at Akron, Ohio between TELXON CORPORATION ("Employer"), a
Delaware corporation with offices at 3330 West Market Street, Akron, Ohio 44333,
and JAMES G. CLEVELAND ("Key Employee") in amendment and restatement in full of
the Employment Agreement previously made by them as of the Effective Date.
WITNESSETH:
WHEREAS, Employer desires to employ Key Employee initially as President,
North America of Employer, and thereafter, in such capacity as Employer's chief
executive officer (the "Chief Executive Officer"), or such other officer of
Employer as the Chief Executive Officer shall direct (the Chief Executive
Officer or such other officer being Key Employee's "Supervisor"), shall direct,
and Key Employee desires to be so employed, upon the terms and conditions herein
contained.
NOW, THEREFORE, in consideration of the foregoing and in consideration of
the mutual promises and agreements contained herein, the parties hereto agree as
follows:
1. EMPLOYMENT PERIOD. Employer agrees to employ Key Employee, and Key
Employee agrees to be so employed, on the terms and conditions set
forth herein for the period beginning on the Effective Date and
ending March 31, 2000, which period shall thereafter be
automatically extended for successive additional twelve (12) month
periods, subject to the earlier termination of such employment, as
so extended, by Employer or Key Employee pursuant to paragraph 4
(the "Employment Period").
2. NATURE OF DUTIES.
a. Key Employee's duties and responsibilities shall be to serve
as President, North America of Employer or in such other
capacity as the Supervisor may at any time and from time to
time in its discretion direct, in conformity with management
policies, guidelines and directions issued by Employer. Key
Employee shall report directly to the Supervisor, and shall
have general charge and supervision of those functions and
such other responsibilities as the Supervisor shall from time
to time determine in his discretion.
b. Key Employee shall work exclusively for Employer on a
full-time basis in such capacity as he is to serve pursuant to
paragraph 2(a), devoting all of his time and attention during
normal business hours to Employer's business.
c. Key Employee shall perform his duties and responsibilities
hereunder diligently, faithfully and loyally in order to cause
the proper, efficient and successful operation of Employer's
business.
3. COMPENSATION AND BENEFITS.
a. Base Salary and Expenses. As compensation for Key Employee's
services, Employer shall pay to Key Employee during the
Employment Period a salary (the "Base Salary") at the annual
rate of $275,000 for FY '98. Any salary increases for future
fiscal years will be determined by the Board of Directors of
Employer or an appropriate committee thereof (the "Board") in
its discretion based upon the recommendation of the Chief
Executive Officer. Base salary will be
<PAGE> 2
payable in arrears, in equal bi-weekly installments or at such
other interval as the Board or applicable Employer policies
shall direct. Employer shall reimburse Key Employee for all
reasonable out-of-pocket expenses incurred by Key Employee on
Employer's behalf during the Employment Period and approved by
the Supervisor or such other officer as the Supervisor or
applicable Employer policies shall direct.
b. Bonus Compensation. In addition to the Base Salary, Key
Employee shall, at the discretion of the Board, be eligible to
receive bonus compensation ("Bonus Compensation") with respect
to the Employment Period on such basis as shall be approved by
the Board. For FY '98, Key Employee shall be eligible for a
potential bonus of up to $200,000 based upon achieving goals
and achievements agreed upon by Key Employee and the
Supervisor, subject to such approval thereof as may be
required by the Chief Executive Officer and/or the Board.
Bonus compensation for subsequent fiscal years will be
determined by the Board in its discretion based upon the
recommendation of the Chief Executive Officer.
c. Stock Options. During the Employment Period, Key Employee
shall be eligible to receive grants of stock option(s) and
other awards and benefits pursuant to such employee stock
option and other stock-based employee benefit plans as
Employer may maintain from time to time during the Employment
Period with respect to its key employees of like stature and
compensation, in such amounts as may be determined by the
Board in its discretion based upon the recommendation of the
Chief Executive Officer. In the event that, during the
Employment Period, Key Employee is re-assigned by Employer to
a position carrying duties and responsibilities of lesser
stature than his present position as recited in paragraph 2(a)
or such position in which Key Employee serves as of the time
that any such options or other rights or benefits were
previously (including any period prior to the Employment
Period during which Key Employee had duties and
responsibilities substantially similar in stature to those of
his present position) or are hereafter granted or awarded to
or otherwise received by Key Employee during the Employment
Period (other than a re-assignment occurring as the result of
or in connection with any change in control of Employer, in
which case the provisions of the governing benefit plan, or
any other written agreement between Telxon and Employee,
applicable in such a circumstance shall control), such
options, rights and benefits shall, to the extent unvested as
of the time of such re-assignment, be subject to such
reduction, cancellation and/or forfeiture as may then be
determined to be appropriate by the Board in its discretion.
d. Vacation. During the Employment Period, Key Employee shall be
entitled to vacation in accordance with Employer's policies.
e. Health, Disability, Retirement and Death Benefits. Employer
shall provide Key Employee with the same health, disability,
retirement and death and other fringe benefits as are
generally provided to the executive employees of Employer in
accordance with such terms, conditions and eligibility
requirements as may from time to time be established by
Employer.
4. TERMINATION.
a. This Agreement shall terminate automatically upon Key
Employee's death.
b. Employer may terminate Key Employee's employment under this
Agreement at any time, upon thirty (30) days written notice to
Key Employee, if Key Employee becomes permanently disabled.
Permanent disability shall be determined by Employer according
to the same
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<PAGE> 3
standards applicable to the employees of Employer generally
under the disability benefits referred to in paragraph 3(e).
c. Employer shall have the right to terminate Key Employee's
employment under this Agreement at any time (i) immediately
for "cause" (which shall mean for any action or inaction of
Key Employee which is adverse to Employer's interests,
including, without limitation, Key Employee's dishonesty,
grossly negligent misconduct, willful misconduct, disloyalty,
act of bad faith, neglect of duty or material breach of this
Agreement or of any Employer policy applicable to its
employees generally), or (ii) without cause upon thirty (30)
days written notice to Key Employee.
d. Key Employee may voluntarily terminate his employment under
this Agreement at any time, upon thirty (30) days written
notice to Employer.
5. EFFECTS OF TERMINATION.
a. In the event of automatic termination by reason of Key
Employee's death pursuant to paragraph 4(a), or by Employer by
reason of Key Employee's permanent disability pursuant to
paragraph 4(b), all of Employer's obligations under this
Agreement shall end except for Employer's obligations to pay
Key Employee's Base Salary and Bonus Compensation, if any
(which Bonus Compensation shall, for purposes of this
paragraph 5(a) and paragraph 5(c)(i), be prorated in light of
the circumstances), in each case earned but unpaid to the date
of death or permanent disability. Key Employee shall also have
the right to receive any payments under the death or
disability benefits, as the case may be, provided to Key
Employee pursuant to paragraph 3(e), if any.
b. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), or Key Employee
exercises his right of voluntary termination pursuant to
paragraph 4(d), all of Employer's obligations under this
Agreement shall end except for its obligations to pay Key
Employee's Base Salary, if any, earned but unpaid to the date
of termination (which, for purposes of this paragraph 5(b) and
paragraph 5(c), shall be thirty (30) days after the date on
which notification is provided by Employer to Key Employee
pursuant to paragraph 4(c)(ii) or by Key Employee to Employer
pursuant to paragraph 4(d), as the case may be) and, in the
case of termination pursuant to paragraph 4(c)(ii), Employer's
obligations under paragraph 5(c).
c. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), Employer shall
also be obligated to pay or provide to Key Employee:
i. Key Employee's Bonus Compensation, if any, earned but
unpaid to the date of termination;
ii. as severance pay, for the twelve (12) month period
following the date of such termination, annualized
compensation at a rate which shall be equal to Key
Employee's Base Salary at such termination date, payable
in equal bi-weekly installments or at such other interval
as the Board or Employer's corresponding payroll policies
shall direct; and
iii.continued benefits (or if unavailable under the general
terms and provisions of the applicable plan, their
equivalent) for Key Employee and his dependents, for a
period terminating on the earliest of (A) twelve (12)
months following the date of such termination, (B) the
commencement date of equivalent benefits from a new
employer, or
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<PAGE> 4
(C) Key Employee's normal retirement date (after which the
terms of the retirement plan which would have been
applicable to Key Employee had he retired as of such
termination date rather than having been terminated shall
govern), under all insured and self-insured employee
welfare benefit plans in which Key Employee was entitled
to participate immediately prior to such termination date,
provided that Key Employee shall not be required to pay
any amount greater than the regular contribution made by
Key Employee for such participation immediately prior to
such termination date.
d. In the event Employer exercises its right of termination
pursuant to paragraph 4(c)(i) for cause, or Key Employee
leaves the employ of Employer other than pursuant to notice
duly given under paragraph 4(d), all of Employer's obligations
under this Agreement shall end except for Employer's
obligations to pay Key Employee's Base Salary, if any, earned
but unpaid to the date of such termination or of the Key
Employee so leaving Employer's employ.
6. COVENANT NOT TO COMPETE.
a. Restricted Activities--Duration. Except as otherwise consented
to or approved by Employer's Board of Directors in writing,
Key Employee agrees that, in addition to being operative
during the Employment Period, the provisions of paragraphs
6(a)(i) through (iii), inclusive, shall be operative for a
period of twelve (12) months after the later of (1) the date
Key Employee's employment with Employer (pursuant to this
Agreement or otherwise) is terminated or otherwise ceases, or
(2) the end of all severance payments, if any, which Employer
is obligated to make to Key Employee under paragraph 5(c) or
any other subsequent written agreement between them,
regardless of the time, manner or reason for the termination
or other cessation of such employment. During such periods,
without Telxon's prior written consent, Key Employee will not,
directly or indirectly, acting alone or as a member of a
partnership or as an owner, director, officer, employee,
manager, representative or consultant of any corporation or
other business entity:
i. Engage in any business which manufactures, sells,
distributes, services or supports products or services of
a type manufactured, sold, marketed, serviced or
supported, or in any other business in competition with
or adverse to the business that is conducted by Employer,
or which Employer is in the process of developing and in
or of which Key Employee participated or has knowledge,
at the time of the cessation of Key Employee's employment
with the Employer, in the United States, Canada or any
European, Asian, Pacific Rim or other foreign country in
which Employer then or thereafter transacts business or
is making a bona fide attempt to do so;
ii. induce, request or attempt to influence any customer or
supplier of Employer to curtail or cancel their business
or prospective business with Employer or in any way
interfere with Employer's business relationships; or
iii. induce, solicit or assist or facilitate the inducement or
solicitation by any third person of any employee,
officer, agent or representative of Employer to terminate
his respective relationship with Employer or in any way
interfere with the Employer's employee, officer, agent or
representative relationships.
b. Tolling; Relief of Obligations. In the event that Key Employee
breaches any provision of this paragraph 6, such violation (i)
shall toll the running of the twelve (12) month period set
forth in paragraph 6(a) from the date of commencement of such
violation until such violation ceases, and (ii) shall relieve
Employer of any obligations to Key Employee under this
Agreement.
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<PAGE> 5
c. "Blue Penciling" or Modification. If either the length of
time, geographic area or scope of restricted business activity
set forth in paragraph 6(a) is deemed unreasonably restrictive
or unreasonable in any other respect in any proceeding before
a court of competent jurisdiction, Key Employee and Employer
agree and consent to such court's modifying or reducing such
restriction(s) with respect, but only with respect, to that
jurisdiction to the extent deemed reasonable under the
circumstances then presented.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
a. For purposes of this Agreement, "Confidential Information"
means all information or trade secrets of any type or
description belonging to Employer which are proprietary and
confidential to Employer and which are not publicly disclosed
or are only disclosed with restrictions. Without limiting the
generality of the foregoing, Confidential Information
includes: strategic and other plans for carrying on business;
cost data and other financial information; lists of customers,
employees, vendors and business partners and alliances;
manufacturing methods and processes; product research and
engineering data, drawings, designs and schematics; computer
programs, flow charts, routines, subroutines, translators,
compilers, operating systems and object and source codes;
specifications, inventions, know-how, calculations and
discoveries; any letters, papers, documents and instruments
disclosing or reflecting any of the foregoing; and all
information revealed to or acquired or created by Key Employee
during Key Employee's employment by Employer relating to any
of the foregoing or otherwise to Employer's past, current or
future business.
b. Key Employee acknowledges that the discharge of Key Employee's
duties under this Agreement will necessarily involve his
access to Confidential Information. Key Employee acknowledges
that the unauthorized use by him or disclosure by him of such
Confidential Information to third parties might cause
irreparable damage to Employer and Employer's business.
Accordingly, Key Employee agrees that at all times after the
date hereof he will not, without the prior written consent of
Employer's Board of Directors, copy, publish, disclose,
divulge to or discuss with any third party, nor use for his
own benefit or that of others any Confidential Information,
except in the normal conduct of his duties under this
Agreement, it being understood and acknowledged by Key
Employee that all Confidential Information created, compiled
or obtained by Key Employee or Employer, or furnished to Key
Employee by any person while Key Employee is associated with
Employer, is and shall be and remain Employer's exclusive
property.
c. Promptly upon termination of his employment, irrespective of
the time or manner thereof or reason therefor, Key Employee
agrees to return and surrender to Employer all Confidential
Information copies thereof in any form which is in any manner
in his control or possession, as well as all other Employer
property.
8. RIGHTS. Key Employee acknowledges and agrees that any procedure,
design feature, schematic, invention, improvement, development,
discovery, know-how, concept, idea or the like (whether or not
patentable, registrable under copyright or trademark laws, or
otherwise protectable under similar laws) that Key Employee
(whether individually or jointly with any other person or persons)
has since the inception of his employment with Employer conceived
of, suggested, made, invented, developed or implemented, or may
hereafter conceive of, suggest, make, invent, develop or
implement, during the course of his service to Employer which
relates in any way to the business of Employer or to the general
industry of which Employer is a part, all physical embodiments and
manifestations thereof, and all patent rights, copyrights and
trademarks (and applications therefor)
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<PAGE> 6
and similar protections thereof (all of the foregoing referred to
as "Work Product") are and shall be the sole, exclusive and
absolute property of Employer. All Work Product shall be deemed to
be works for hire for the benefit of Employer, and to the extent
that any Work Product may not constitute a work for hire, Key
Employee hereby assigns to Employer all right, title and interest
in, to and under such Work Product, including, without limitation,
the right to obtain such patents, copyright registrations,
trademark registrations or similar protections as Employer may
desire to obtain. Key Employee will immediately disclose all Work
Product to Employer and agrees, at anytime, upon Employer's
request and without additional compensation, to execute any
documents and otherwise to cooperate with Employer (including,
without limitation, all lawful testimony and sworn statements or
other certifications as may be appropriate) respecting the
perfection of its right, title and interest in, to and under such
Work Product and in any litigation or administrative or other
proceeding or controversy in connection therewith, all expenses
incident thereto be borne by Employer.
9. INDUCEMENT; REMEDIES INADEQUATE; AND SURVIVAL.
a. The covenants made by Key Employee in favor of Employer under
paragraphs 6, 7 and 8 and this paragraph 9 are being executed
and delivered by Key Employee in consideration of Key
Employee's employment with Employer and Employer's obligations
hereunder (including, without limitation, the Base Salary, the
Bonus Compensation and other benefits and payments provided
for herein). Key Employee further acknowledges that such
covenants were and have been conditions of his employment
since the inception of Key Employee's employment with
Employer.
b. Key Employee has carefully considered, and has had adequate
time and opportunity to consult with his own counsel or other
advisors regarding the nature and extent of the restrictions
upon him, and the rights and remedies conferred upon Employer,
under paragraphs 6, 7 and 8 and this paragraph 9, and hereby
acknowledges and agrees that such restrictions are reasonable
in time, territory and scope, are designed to eliminate
competition which otherwise would be unfair to Employer, do
not stifle the inherent skill and experience of Key Employee,
would not operate as a bar to Key Employee's sole means of
support, are fully required to protect the legitimate
interests of Employer and do not confer a benefit upon
Employer disproportionate to the detriment to Key Employee.
c. Key Employee acknowledges that the services to be rendered by
him to Employer as contemplated by this Agreement are special,
unique and of extraordinary character. Key Employee expressly
agrees and understand that the remedy at law for any breach by
him of paragraph 6, 7 or 8 will be inadequate and that the
damages flowing from such breach are not readily susceptible
to being measured in monetary terms. Accordingly, upon
adequate proof of Key Employee's violation of any legally
enforceable provision of paragraph 6, 7 or 8, Employer shall
be entitled to immediate injunctive relief, including, without
limitation, a temporary order restraining any threatened or
further breach. In the event any equitable proceedings are
brought to enforce any provision of paragraphs 6, 7 and 8, Key
Employee agrees that he will not raise in such proceedings any
defense that Employer has an adequate remedy at law, and Key
Employee hereby waives any such defense. Nothing in this
Agreement shall be deemed to limit Employer's remedies at law
or in equity for any breach by Key Employee of any of the
provisions of paragraphs 6, 7 and 8 which may be pursued or
availed of by Employer. Without limiting the generality of the
immediately preceding sentence, any covenant on Key Employee's
part contained in paragraph 6, 7 or 8 which may not be
specifically enforceable shall nevertheless, if breached, give
rise to a cause of action for monetary damages.
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<PAGE> 7
d. As used in paragraphs 6, 7 and 8 and in this paragraph 9, the
term "Employer" (other than with respect to the Board of
Directors) shall include, in addition to Employer, all
subsidiaries and other affiliates of Employer, whether so
related to Employer during Key Employee's employment with
Employer or at any time thereafter.
e. Subject only to such time limitations as may be expressly set
forth therein, the covenants and agreements made by Key
Employee in paragraphs 6, 7 and 8 and this paragraph 9 shall
survive full payment by Employer to Key Employee of the
amounts to which Key Employee is entitled under this Agreement
and the termination of this Agreement and Key Employee's
employment hereunder or otherwise. The provisions of
paragraphs 6, 7 and 8 and this paragraph 9, and to the extent
applicable thereto, paragraphs 13 through 20, shall continue
to apply to and be binding upon Key Employee in the event and
for so long as Key Employee shall remain in the employ of
Employer following any termination under this Agreement and
for such post-employment period as may there be specified but
measured from the end of such continued employment.
10. ASSIGNMENT OF KEY EMPLOYEE'S RIGHTS. In no event shall Employer be
obligated to make any payment under this Agreement to any assignee
or creditor of Key Employee. Prior to the time provided for the
making of any payment under this Agreement, neither Key Employee
nor his legal representative shall have any right by way of
anticipation or otherwise to assign or otherwise dispose of any
interest under this Agreement.
11. RIGHT OF SET-OFF. Any payments to be made to Key Employee under
this Agreement shall be subject to offset by Employer for any
claims for damages, liabilities or expenses which it may have
against Key Employee.
12. EMPLOYER'S OBLIGATIONS UNFUNDED. Except as to any benefits that
may be required to be funded under any benefit plan of Employer
pursuant to law or under any other written agreement, the
obligations of Employer under this Agreement are not funded, and
Employer shall be not required to deposit in escrow or otherwise
set aside any moneys in advance of the due date for payment
thereof to Key Employee.
13. NOTICES. Any notice to be given hereunder by Employer to Key
Employee shall be deemed to be given if delivered to Key Employee
in person, or if mailed to Key Employee, by certified mail,
postage prepaid, return receipt requested, at his address last
shown on the records of Employer, and any notice to be given by
Key Employee to Employer shall be deemed to be given if delivered
in person or by mail, postage prepaid, return receipt requested to
the Chief Executive Officer at Employer's principal executive
office, unless Key Employee or Employer shall have duly notified
the other parties in writing of a change of address. If mailed,
notice shall be deemed to have been given when deposited in the
mail as set forth above.
14. AMENDMENTS. This Agreement shall not be modified or discharged, in
whole or in part, except by an agreement in writing signed by the
parties hereto.
15. ENTIRE AGREEMENT. This Agreement, together with any and all other
written agreement(s) made contemporaneously herewith, constitute
the entire agreement between the parties with respect to Key
Employee's employment by Employer from and after the Effective
Date. The parties are not relying on any other representation or
understanding with respect thereto, express or implied, oral or
written. This Agreement, as supplemented by such contemporaneous
agreement(s), supersedes any prior employment agreement, written
or oral, between Key Employee and Employer.
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<PAGE> 8
16. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not affect the meaning of any
terms or provisions hereof.
17. GENDER AND NUMBER. Whenever the context may permit, any pronouns
used herein shall include the corresponding masculine, feminine
and neuter forms, and the singular form of any noun or pronoun,
including any terms defined herein, shall include the plural and
vice versa.
18. BINDING EFFECT. The rights and obligations of Employer hereunder
shall inure to the benefit of, and shall be binding upon, Employer
and its respective successors and assigns, and the rights and
obligations of Key Employee hereunder shall inure to the benefit
of, and shall be binding upon, Key Employee and his heirs,
personal representatives and estate.
19. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable in any jurisdiction, in
whole or in part, the remaining provisions and any partially
enforceable provision shall be binding and enforceable to the
extent enforceable in such jurisdiction.
20. GOVERNING LAW. This Agreement shall be interpreted, construed, and
enforced in all respects in accordance with the laws of the State
of Ohio.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Effective Date.
TELXON CORPORATION KEY EMPLOYEE
By: /s/ Frank E. Brick /s/ James G. Cleveland
----------------------------------- ----------------------
Frank E. Brick James G. Cleveland
President & Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.1.11
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of April 1, 1997
(the "Effective Date") at Akron, Ohio between TELXON CORPORATION ("Employer"), a
Delaware corporation with offices at 3330 West Market Street, Akron, Ohio 44333,
and KENNETH W. HAVER ("Key Employee") in amendment and restatement in full of
the Employment Agreement previously made by them as of the Effective Date.
WITNESSETH:
WHEREAS, Employer desires to employ Key Employee initially as Senior Vice
President, Chief Financial Officer of Employer, and thereafter, in such capacity
as Employer's chief executive officer (the "Chief Executive Officer"), or such
other officer of Employer as the Chief Executive Officer shall direct (the Chief
Executive Officer or such other officer being Key Employee's "Supervisor"),
shall direct, and Key Employee desires to be so employed, upon the terms and
conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing and in consideration of
the mutual promises and agreements contained herein, the parties hereto agree as
follows:
1. EMPLOYMENT PERIOD. Employer agrees to employ Key Employee, and Key
Employee agrees to be so employed, on the terms and conditions set
forth herein for the period beginning on the Effective Date and
ending March 31, 2000, which period shall thereafter be
automatically extended for successive additional twelve (12) month
periods, subject to the earlier termination of such employment, as
so extended, by Employer or Key Employee pursuant to paragraph 4
(the "Employment Period").
2. NATURE OF DUTIES.
a. Key Employee's duties and responsibilities shall be to serve
as Senior Vice President, Chief Financial Officer of Employer
or in such other capacity as the Supervisor may at any time
and from time to time in its discretion direct, in conformity
with management policies, guidelines and directions issued by
Employer. Key Employee shall report directly to the
Supervisor, and shall have general charge and supervision of
those functions and such other responsibilities as the
Supervisor shall from time to time determine in his
discretion.
b. Key Employee shall work exclusively for Employer on a
full-time basis in such capacity as he is to serve pursuant to
paragraph 2(a), devoting all of his time and attention during
normal business hours to Employer's business.
c. Key Employee shall perform his duties and responsibilities
hereunder diligently, faithfully and loyally in order to cause
the proper, efficient and successful operation of Employer's
business.
3. COMPENSATION AND BENEFITS.
a. Base Salary and Expenses. As compensation for Key Employee's
services, Employer shall pay to Key Employee during the
Employment Period a salary (the "Base Salary") at the annual
rate of $200,000 for FY '98. Any salary increases for future
fiscal years will be determined by the Board of Directors of
Employer or an appropriate committee thereof (the "Board") in
its discretion based upon the recommendation of the Chief
Executive Officer. Base salary will be
<PAGE> 2
payable in arrears, in equal bi-weekly installments or at such
other interval as the Board or applicable Employer policies
shall direct. Employer shall reimburse Key Employee for all
reasonable out-of-pocket expenses incurred by Key Employee on
Employer's behalf during the Employment Period and approved by
the Supervisor or such other officer as the Supervisor or
applicable Employer policies shall direct.
b. Bonus Compensation. In addition to the Base Salary, Key
Employee shall, at the discretion of the Board, be eligible to
receive bonus compensation ("Bonus Compensation") with respect
to the Employment Period on such basis as shall be approved by
the Board. For FY '98, Key Employee shall be eligible for a
potential bonus of up to $150,000 based upon achieving goals
and achievements agreed upon by Key Employee and the
Supervisor, subject to such approval thereof as may be
required by the Chief Executive Officer and/or the Board.
Bonus compensation for subsequent fiscal years will be
determined by the Board in its discretion based upon the
recommendation of the Chief Executive Officer.
c. Stock Options. During the Employment Period, Key Employee
shall be eligible to receive grants of stock option(s) and
other awards and benefits pursuant to such employee stock
option and other stock-based employee benefit plans as
Employer may maintain from time to time during the Employment
Period with respect to its key employees of like stature and
compensation, in such amounts as may be determined by the
Board in its discretion based upon the recommendation of the
Chief Executive Officer. In the event that, during the
Employment Period, Key Employee is re-assigned by Employer to
a position carrying duties and responsibilities of lesser
stature than his present position as recited in paragraph 2(a)
or such position in which Key Employee serves as of the time
that any such options or other rights or benefits were
previously (including any period prior to the Employment
Period during which Key Employee had duties and
responsibilities substantially similar in stature to those of
his present position) or are hereafter granted or awarded to
or otherwise received by Key Employee during the Employment
Period (other than a re-assignment occurring as the result of
or in connection with any change in control of Employer, in
which case the provisions of the governing benefit plan, or
any other written agreement between Telxon and Employee,
applicable in such a circumstance shall control), such
options, rights and benefits shall, to the extent unvested as
of the time of such re-assignment, be subject to such
reduction, cancellation and/or forfeiture as may then be
determined to be appropriate by the Board in its discretion.
d. Vacation. During the Employment Period, Key Employee shall be
entitled to vacation in accordance with Employer's policies.
e. Health, Disability, Retirement and Death Benefits. Employer
shall provide Key Employee with the same health, disability,
retirement and death and other fringe benefits as are
generally provided to the executive employees of Employer in
accordance with such terms, conditions and eligibility
requirements as may from time to time be established by
Employer.
4. TERMINATION.
a. This Agreement shall terminate automatically upon Key
Employee's death.
b. Employer may terminate Key Employee's employment under this
Agreement at any time, upon thirty (30) days written notice to
Key Employee, if Key Employee becomes permanently disabled.
Permanent disability shall be determined by Employer according
to the same standards applicable to the employees of Employer
generally under the disability benefits referred to in
paragraph 3(e).
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<PAGE> 3
c. Employer shall have the right to terminate Key Employee's
employment under this Agreement at any time (i) immediately
for "cause" (which shall mean for any action or inaction of
Key Employee which is adverse to Employer's interests,
including, without limitation, Key Employee's dishonesty,
grossly negligent misconduct, willful misconduct, disloyalty,
act of bad faith, neglect of duty or material breach of this
Agreement or of any Employer policy applicable to its
employees generally), or (ii) without cause upon thirty (30)
days written notice to Key Employee.
d. Key Employee may voluntarily terminate his employment under
this Agreement at any time, upon thirty (30) days written
notice to Employer.
5. EFFECTS OF TERMINATION.
a. In the event of automatic termination by reason of Key
Employee's death pursuant to paragraph 4(a), or by Employer by
reason of Key Employee's permanent disability pursuant to
paragraph 4(b), all of Employer's obligations under this
Agreement shall end except for Employer's obligations to pay
Key Employee's Base Salary and Bonus Compensation, if any
(which Bonus Compensation shall, for purposes of this
paragraph 5(a) and paragraph 5(c)(i), be prorated in light of
the circumstances), in each case earned but unpaid to the date
of death or permanent disability. Key Employee shall also have
the right to receive any payments under the death or
disability benefits, as the case may be, provided to Key
Employee pursuant to paragraph 3(e), if any.
b. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), or Key Employee
exercises his right of voluntary termination pursuant to
paragraph 4(d), all of Employer's obligations under this
Agreement shall end except for its obligations to pay Key
Employee's Base Salary, if any, earned but unpaid to the date
of termination (which, for purposes of this paragraph 5(b) and
paragraph 5(c), shall be thirty (30) days after the date on
which notification is provided by Employer to Key Employee
pursuant to paragraph 4(c)(ii) or by Key Employee to Employer
pursuant to paragraph 4(d), as the case may be) and, in the
case of termination pursuant to paragraph 4(c)(ii), Employer's
obligations under paragraph 5(c).
c. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), Employer shall
also be obligated to pay or provide to Key Employee:
i. Key Employee's Bonus Compensation, if any, earned but
unpaid to the date of termination;
ii. as severance pay, for the twelve (12) month period
following the date of such termination, annualized
compensation at a rate which shall be equal to Key
Employee's Base Salary at such termination date, payable
in equal bi-weekly installments or at such other interval
as the Board or Employer's corresponding payroll policies
shall direct; and
iii. continued benefits (or if unavailable under the general
terms and provisions of the applicable plan, their
equivalent) for Key Employee and his dependents, for a
period terminating on the earliest of (A) twelve (12)
months following the date of such termination, (B) the
commencement date of equivalent benefits from a new
employer, or (C) Key Employee's normal retirement date
(after which the terms of the retirement plan which would
have been applicable to Key Employee had he retired as of
such termination
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<PAGE> 4
date rather than having been terminated shall govern),
under all insured and self-insured employee welfare
benefit plans in which Key Employee was entitled to
participate immediately prior to such termination date,
provided that Key Employee shall not be required to pay
any amount greater than the regular contribution made by
Key Employee for such participation immediately prior to
such termination date.
d. In the event Employer exercises its right of termination
pursuant to paragraph 4(c)(i) for cause, or Key Employee
leaves the employ of Employer other than pursuant to notice
duly given under paragraph 4(d), all of Employer's obligations
under this Agreement shall end except for Employer's
obligations to pay Key Employee's Base Salary, if any, earned
but unpaid to the date of such termination or of the Key
Employee so leaving Employer's employ.
6. COVENANT NOT TO COMPETE.
a. Restricted Activities--Duration. Except as otherwise consented
to or approved by Employer's Board of Directors in writing,
Key Employee agrees that, in addition to being operative
during the Employment Period, the provisions of paragraphs
6(a)(i) through (iii), inclusive, shall be operative for a
period of twelve (12) months after the later of (1) the date
Key Employee's employment with Employer (pursuant to this
Agreement or otherwise) is terminated or otherwise ceases, or
(2) the end of all severance payments, if any, which Employer
is obligated to make to Key Employee under paragraph 5(c) or
any other subsequent written agreement between them,
regardless of the time, manner or reason for the termination
or other cessation of such employment. During such periods,
without Telxon's prior written consent, Key Employee will not,
directly or indirectly, acting alone or as a member of a
partnership or as an owner, director, officer, employee,
manager, representative or consultant of any corporation or
other business entity:
i. Engage in any business which manufactures, sells,
distributes, services or supports products or services of
a type manufactured, sold, marketed, serviced or
supported, or in any other business in competition with
or adverse to the business that is conducted by Employer,
or which Employer is in the process of developing and in
or of which Key Employee participated or has knowledge,
at the time of the cessation of Key Employee's employment
with the Employer, in the United States, Canada or any
European, Asian, Pacific Rim or other foreign country in
which Employer then or thereafter transacts business or
is making a bona fide attempt to do so;
ii. induce, request or attempt to influence any customer or
supplier of Employer to curtail or cancel their business
or prospective business with Employer or in any way
interfere with Employer's business relationships; or
iii. induce, solicit or assist or facilitate the inducement or
solicitation by any third person of any employee,
officer, agent or representative of Employer to terminate
his respective relationship with Employer or in any way
interfere with the Employer's employee, officer, agent or
representative relationships.
b. Tolling; Relief of Obligations. In the event that Key Employee
breaches any provision of this paragraph 6, such violation (i)
shall toll the running of the twelve (12) month period set
forth in paragraph 6(a) from the date of commencement of such
violation until such violation ceases, and (ii) shall relieve
Employer of any obligations to Key Employee under this
Agreement.
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<PAGE> 5
c. "Blue Penciling" or Modification. If either the length of
time, geographic area or scope of restricted business activity
set forth in paragraph 6(a) is deemed unreasonably restrictive
or unreasonable in any other respect in any proceeding before
a court of competent jurisdiction, Key Employee and Employer
agree and consent to such court's modifying or reducing such
restriction(s) with respect, but only with respect, to that
jurisdiction to the extent deemed reasonable under the
circumstances then presented.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
a. For purposes of this Agreement, "Confidential Information"
means all information or trade secrets of any type or
description belonging to Employer which are proprietary and
confidential to Employer and which are not publicly disclosed
or are only disclosed with restrictions. Without limiting the
generality of the foregoing, Confidential Information
includes: strategic and other plans for carrying on business;
cost data and other financial information; lists of customers,
employees, vendors and business partners and alliances;
manufacturing methods and processes; product research and
engineering data, drawings, designs and schematics; computer
programs, flow charts, routines, subroutines, translators,
compilers, operating systems and object and source codes;
specifications, inventions, know-how, calculations and
discoveries; any letters, papers, documents and instruments
disclosing or reflecting any of the foregoing; and all
information revealed to or acquired or created by Key Employee
during Key Employee's employment by Employer relating to any
of the foregoing or otherwise to Employer's past, current or
future business.
b. Key Employee acknowledges that the discharge of Key Employee's
duties under this Agreement will necessarily involve his
access to Confidential Information. Key Employee acknowledges
that the unauthorized use by him or disclosure by him of such
Confidential Information to third parties might cause
irreparable damage to Employer and Employer's business.
Accordingly, Key Employee agrees that at all times after the
date hereof he will not, without the prior written consent of
Employer's Board of Directors, copy, publish, disclose,
divulge to or discuss with any third party, nor use for his
own benefit or that of others any Confidential Information,
except in the normal conduct of his duties under this
Agreement, it being understood and acknowledged by Key
Employee that all Confidential Information created, compiled
or obtained by Key Employee or Employer, or furnished to Key
Employee by any person while Key Employee is associated with
Employer, is and shall be and remain Employer's exclusive
property.
c. Promptly upon termination of his employment, irrespective of
the time or manner thereof or reason therefor, Key Employee
agrees to return and surrender to Employer all Confidential
Information copies thereof in any form which is in any manner
in his control or possession, as well as all other Employer
property.
8. RIGHTS. Key Employee acknowledges and agrees that any procedure,
design feature, schematic, invention, improvement, development,
discovery, know-how, concept, idea or the like (whether or not
patentable, registrable under copyright or trademark laws, or
otherwise protectable under similar laws) that Key Employee
(whether individually or jointly with any other person or persons)
has since the inception of his employment with Employer conceived
of, suggested, made, invented, developed or implemented, or may
hereafter conceive of, suggest, make, invent, develop or
implement, during the course of his service to Employer which
relates in any way to the business of Employer or to the general
industry of which Employer is a part, all physical embodiments and
manifestations thereof, and all patent rights, copyrights and
trademarks (and applications therefor) and similar protections
thereof (all of the foregoing referred to as "Work Product") are
and shall be
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<PAGE> 6
the sole, exclusive and absolute property of Employer. All Work
Product shall be deemed to be works for hire for the benefit of
Employer, and to the extent that any Work Product may not
constitute a work for hire, Key Employee hereby assigns to
Employer all right, title and interest in, to and under such Work
Product, including, without limitation, the right to obtain such
patents, copyright registrations, trademark registrations or
similar protections as Employer may desire to obtain. Key Employee
will immediately disclose all Work Product to Employer and agrees,
at anytime, upon Employer's request and without additional
compensation, to execute any documents and otherwise to cooperate
with Employer (including, without limitation, all lawful testimony
and sworn statements or other certifications as may be
appropriate) respecting the perfection of its right, title and
interest in, to and under such Work Product and in any litigation
or administrative or other proceeding or controversy in connection
therewith, all expenses incident thereto be borne by Employer.
9. INDUCEMENT; REMEDIES INADEQUATE; AND SURVIVAL.
a. The covenants made by Key Employee in favor of Employer under
paragraphs 6, 7 and 8 and this paragraph 9 are being executed
and delivered by Key Employee in consideration of Key
Employee's employment with Employer and Employer's obligations
hereunder (including, without limitation, the Base Salary, the
Bonus Compensation and other benefits and payments provided
for herein). Key Employee further acknowledges that such
covenants were and have been conditions of his employment
since the inception of Key Employee's employment with
Employer.
b. Key Employee has carefully considered, and has had adequate
time and opportunity to consult with his own counsel or other
advisors regarding the nature and extent of the restrictions
upon him, and the rights and remedies conferred upon Employer,
under paragraphs 6, 7 and 8 and this paragraph 9, and hereby
acknowledges and agrees that such restrictions are reasonable
in time, territory and scope, are designed to eliminate
competition which otherwise would be unfair to Employer, do
not stifle the inherent skill and experience of Key Employee,
would not operate as a bar to Key Employee's sole means of
support, are fully required to protect the legitimate
interests of Employer and do not confer a benefit upon
Employer disproportionate to the detriment to Key Employee.
c. Key Employee acknowledges that the services to be rendered by
him to Employer as contemplated by this Agreement are special,
unique and of extraordinary character. Key Employee expressly
agrees and understand that the remedy at law for any breach by
him of paragraph 6, 7 or 8 will be inadequate and that the
damages flowing from such breach are not readily susceptible
to being measured in monetary terms. Accordingly, upon
adequate proof of Key Employee's violation of any legally
enforceable provision of paragraph 6, 7 or 8, Employer shall
be entitled to immediate injunctive relief, including, without
limitation, a temporary order restraining any threatened or
further breach. In the event any equitable proceedings are
brought to enforce any provision of paragraphs 6, 7 and 8, Key
Employee agrees that he will not raise in such proceedings any
defense that Employer has an adequate remedy at law, and Key
Employee hereby waives any such defense. Nothing in this
Agreement shall be deemed to limit Employer's remedies at law
or in equity for any breach by Key Employee of any of the
provisions of paragraphs 6, 7 and 8 which may be pursued or
availed of by Employer. Without limiting the generality of the
immediately preceding sentence, any covenant on Key Employee's
part contained in paragraph 6, 7 or 8 which may not be
specifically enforceable shall nevertheless, if breached, give
rise to a cause of action for monetary damages.
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<PAGE> 7
d. As used in paragraphs 6, 7 and 8 and in this paragraph 9, the
term "Employer" (other than with respect to the Board of
Directors) shall include, in addition to Employer, all
subsidiaries and other affiliates of Employer, whether so
related to Employer during Key Employee's employment with
Employer or at any time thereafter.
e. Subject only to such time limitations as may be expressly set
forth therein, the covenants and agreements made by Key
Employee in paragraphs 6, 7 and 8 and this paragraph 9 shall
survive full payment by Employer to Key Employee of the
amounts to which Key Employee is entitled under this Agreement
and the termination of this Agreement and Key Employee's
employment hereunder or otherwise. The provisions of
paragraphs 6, 7 and 8 and this paragraph 9, and to the extent
applicable thereto, paragraphs 13 through 20, shall continue
to apply to and be binding upon Key Employee in the event and
for so long as Key Employee shall remain in the employ of
Employer following any termination under this Agreement and
for such post-employment period as may there be specified but
measured from the end of such continued employment.
10. ASSIGNMENT OF KEY EMPLOYEE'S RIGHTS. In no event shall Employer be
obligated to make any payment under this Agreement to any assignee
or creditor of Key Employee. Prior to the time provided for the
making of any payment under this Agreement, neither Key Employee
nor his legal representative shall have any right by way of
anticipation or otherwise to assign or otherwise dispose of any
interest under this Agreement.
11. RIGHT OF SET-OFF. Any payments to be made to Key Employee under
this Agreement shall be subject to offset by Employer for any
claims for damages, liabilities or expenses which it may have
against Key Employee.
12. EMPLOYER'S OBLIGATIONS UNFUNDED. Except as to any benefits that
may be required to be funded under any benefit plan of Employer
pursuant to law or under any other written agreement, the
obligations of Employer under this Agreement are not funded, and
Employer shall be not required to deposit in escrow or otherwise
set aside any moneys in advance of the due date for payment
thereof to Key Employee.
13. NOTICES. Any notice to be given hereunder by Employer to Key
Employee shall be deemed to be given if delivered to Key Employee
in person, or if mailed to Key Employee, by certified mail,
postage prepaid, return receipt requested, at his address last
shown on the records of Employer, and any notice to be given by
Key Employee to Employer shall be deemed to be given if delivered
in person or by mail, postage prepaid, return receipt requested to
the Chief Executive Officer at Employer's principal executive
office, unless Key Employee or Employer shall have duly notified
the other parties in writing of a change of address. If mailed,
notice shall be deemed to have been given when deposited in the
mail as set forth above.
14. AMENDMENTS. This Agreement shall not be modified or discharged, in
whole or in part, except by an agreement in writing signed by the
parties hereto.
15. ENTIRE AGREEMENT. This Agreement, together with any and all other
written agreement(s) made contemporaneously herewith, constitute
the entire agreement between the parties with respect to Key
Employee's employment by Employer from and after the Effective
Date. The parties are not relying on any other representation or
understanding with respect thereto, express or implied, oral or
written. This Agreement, as supplemented by such contemporaneous
agreement(s), supersedes any prior employment agreement, written
or oral, between Key Employee and Employer.
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<PAGE> 8
16. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not affect the meaning of any
terms or provisions hereof.
17. GENDER AND NUMBER. Whenever the context may permit, any pronouns
used herein shall include the corresponding masculine, feminine
and neuter forms, and the singular form of any noun or pronoun,
including any terms defined herein, shall include the plural and
vice versa.
18. BINDING EFFECT. The rights and obligations of Employer hereunder
shall inure to the benefit of, and shall be binding upon, Employer
and its respective successors and assigns, and the rights and
obligations of Key Employee hereunder shall inure to the benefit
of, and shall be binding upon, Key Employee and his heirs,
personal representatives and estate.
19. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable in any jurisdiction, in
whole or in part, the remaining provisions and any partially
enforceable provision shall be binding and enforceable to the
extent enforceable in such jurisdiction.
20. GOVERNING LAW. This Agreement shall be interpreted, construed, and
enforced in all respects in accordance with the laws of the State
of Ohio.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Effective Date.
TELXON CORPORATION KEY EMPLOYEE
By: /s/ Frank E. Brick /s/ Kenneth W. Haver
----------------------------------- ---------------------
Frank E. Brick Kenneth W. Haver
President & Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.1.12
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of April 1, 1997
(the "Effective Date") at Akron, Ohio between TELXON CORPORATION ("Employer"), a
Delaware corporation with offices at 3330 West Market Street, Akron, Ohio 44333,
and DAVID D. LOADMAN ("Key Employee") in amendment and restatement in full of
the Employment Agreement previously made by them as of the Effective Date.
WITNESSETH:
WHEREAS, Employer desires to employ Key Employee initially as Chief
Technical Officer of Employer, and thereafter, in such capacity as Employer's
chief executive officer (the "Chief Executive Officer"), or such other officer
of Employer as the Chief Executive Officer shall direct (the Chief Executive
Officer or such other officer being Key Employee's "Supervisor"), shall direct,
and Key Employee desires to be so employed, upon the terms and conditions herein
contained.
NOW, THEREFORE, in consideration of the foregoing and in consideration of
the mutual promises and agreements contained herein, the parties hereto agree as
follows:
1. EMPLOYMENT PERIOD. Employer agrees to employ Key Employee, and Key
Employee agrees to be so employed, on the terms and conditions set
forth herein for the period beginning on the Effective Date and
ending March 31, 2000, which period shall thereafter be
automatically extended for successive additional twelve (12) month
periods, subject to the earlier termination of such employment, as
so extended, by Employer or Key Employee pursuant to paragraph 4
(the "Employment Period").
2. NATURE OF DUTIES.
a. Key Employee's duties and responsibilities shall be to serve
as Chief Technical Officer of Employer or in such other
capacity as the Supervisor may at any time and from time to
time in its discretion direct, in conformity with management
policies, guidelines and directions issued by Employer. Key
Employee shall report directly to the Supervisor, and shall
have general charge and supervision of those functions and
such other responsibilities as the Supervisor shall from time
to time determine in his discretion.
b. Key Employee shall work exclusively for Employer on a
full-time basis in such capacity as he is to serve pursuant to
paragraph 2(a), devoting all of his time and attention during
normal business hours to Employer's business.
c. Key Employee shall perform his duties and responsibilities
hereunder diligently, faithfully and loyally in order to cause
the proper, efficient and successful operation of Employer's
business.
3. COMPENSATION AND BENEFITS.
a. Base Salary and Expenses. As compensation for Key Employee's
services, Employer shall pay to Key Employee during the
Employment Period a salary (the "Base Salary") at the annual
rate of $225,000 for FY '98. Any salary increases for future
fiscal years will be determined by the Board of Directors of
Employer or an appropriate committee thereof (the "Board") in
its discretion based upon the recommendation of the Chief
Executive Officer. Base salary will be
<PAGE> 2
payable in arrears, in equal bi-weekly installments or at such
other interval as the Board or applicable Employer policies
shall direct. Employer shall reimburse Key Employee for all
reasonable out-of-pocket expenses incurred by Key Employee on
Employer's behalf during the Employment Period and approved by
the Supervisor or such other officer as the Supervisor or
applicable Employer policies shall direct.
b. Bonus Compensation. In addition to the Base Salary, Key
Employee shall, at the discretion of the Board, be eligible to
receive bonus compensation ("Bonus Compensation") with respect
to the Employment Period on such basis as shall be approved by
the Board. For FY '98, Key Employee shall be eligible for a
potential bonus of up to $125,000 based upon achieving goals
and achievements agreed upon by Key Employee and the
Supervisor, subject to such approval thereof as may be
required by the Chief Executive Officer and/or the Board.
Bonus compensation for subsequent fiscal years will be
determined by the Board in its discretion based upon the
recommendation of the Chief Executive Officer.
c. Stock Options. During the Employment Period, Key Employee
shall be eligible to receive grants of stock option(s) and
other awards and benefits pursuant to such employee stock
option and other stock-based employee benefit plans as
Employer may maintain from time to time during the Employment
Period with respect to its key employees of like stature and
compensation, in such amounts as may be determined by the
Board in its discretion based upon the recommendation of the
Chief Executive Officer. In the event that, during the
Employment Period, Key Employee is re-assigned by Employer to
a position carrying duties and responsibilities of lesser
stature than his present position as recited in paragraph 2(a)
or such position in which Key Employee serves as of the time
that any such options or other rights or benefits were
previously (including any period prior to the Employment
Period during which Key Employee had duties and
responsibilities substantially similar in stature to those of
his present position) or are hereafter granted or awarded to
or otherwise received by Key Employee during the Employment
Period (other than a re-assignment occurring as the result of
or in connection with any change in control of Employer, in
which case the provisions of the governing benefit plan, or
any other written agreement between Telxon and Employee,
applicable in such a circumstance shall control), such
options, rights and benefits shall, to the extent unvested as
of the time of such re-assignment, be subject to such
reduction, cancellation and/or forfeiture as may then be
determined to be appropriate by the Board in its discretion.
d. Vacation. During the Employment Period, Key Employee shall be
entitled to vacation in accordance with Employer's policies.
e. Health, Disability, Retirement and Death Benefits. Employer
shall provide Key Employee with the same health, disability,
retirement and death and other fringe benefits as are
generally provided to the executive employees of Employer in
accordance with such terms, conditions and eligibility
requirements as may from time to time be established by
Employer.
4. TERMINATION.
a. This Agreement shall terminate automatically upon Key
Employee's death.
b. Employer may terminate Key Employee's employment under this
Agreement at any time, upon thirty (30) days written notice to
Key Employee, if Key Employee becomes permanently disabled.
Permanent disability shall be determined by Employer according
to the same standards applicable to the employees of Employer
generally under the disability benefits referred to in
paragraph 3(e).
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<PAGE> 3
c. Employer shall have the right to terminate Key Employee's
employment under this Agreement at any time (i) immediately
for "cause" (which shall mean for any action or inaction of
Key Employee which is adverse to Employer's interests,
including, without limitation, Key Employee's dishonesty,
grossly negligent misconduct, willful misconduct, disloyalty,
act of bad faith, neglect of duty or material breach of this
Agreement or of any Employer policy applicable to its
employees generally), or (ii) without cause upon thirty (30)
days written notice to Key Employee.
d. Key Employee may voluntarily terminate his employment under
this Agreement at any time, upon thirty (30) days written
notice to Employer.
5. EFFECTS OF TERMINATION.
a. In the event of automatic termination by reason of Key
Employee's death pursuant to paragraph 4(a), or by Employer by
reason of Key Employee's permanent disability pursuant to
paragraph 4(b), all of Employer's obligations under this
Agreement shall end except for Employer's obligations to pay
Key Employee's Base Salary and Bonus Compensation, if any
(which Bonus Compensation shall, for purposes of this
paragraph 5(a) and paragraph 5(c)(i), be prorated in light of
the circumstances), in each case earned but unpaid to the date
of death or permanent disability. Key Employee shall also have
the right to receive any payments under the death or
disability benefits, as the case may be, provided to Key
Employee pursuant to paragraph 3(e), if any.
b. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), or Key Employee
exercises his right of voluntary termination pursuant to
paragraph 4(d), all of Employer's obligations under this
Agreement shall end except for its obligations to pay Key
Employee's Base Salary, if any, earned but unpaid to the date
of termination (which, for purposes of this paragraph 5(b) and
paragraph 5(c), shall be thirty (30) days after the date on
which notification is provided by Employer to Key Employee
pursuant to paragraph 4(c)(ii) or by Key Employee to Employer
pursuant to paragraph 4(d), as the case may be) and, in the
case of termination pursuant to paragraph 4(c)(ii), Employer's
obligations under paragraph 5(c).
c. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), Employer shall
also be obligated to pay or provide to Key Employee:
i. Key Employee's Bonus Compensation, if any, earned but
unpaid to the date of termination;
ii. as severance pay, for the twelve (12) month period
following the date of such termination, annualized
compensation at a rate which shall be equal to Key
Employee's Base Salary at such termination date, payable
in equal bi-weekly installments or at such other interval
as the Board or Employer's corresponding payroll policies
shall direct; and
iii. continued benefits (or if unavailable under the general
terms and provisions of the applicable plan, their
equivalent) for Key Employee and his dependents, for a
period terminating on the earliest of (A) twelve (12)
months following the date of such termination, (B) the
commencement date of equivalent benefits from a new
employer, or (C) Key Employee's normal retirement date
(after which the terms of the retirement plan which would
have been applicable to Key Employee had he retired as of
such termination date rather than having been terminated
shall govern), under all insured and self-insured
employee welfare benefit plans in which Key Employee was
entitled to participate immediately prior to such
termination
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<PAGE> 4
date, provided that Key Employee shall not be required to
pay any amount greater than the regular contribution made
by Key Employee for such participation immediately prior
to such termination date.
d. In the event Employer exercises its right of termination
pursuant to paragraph 4(c)(i) for cause, or Key Employee
leaves the employ of Employer other than pursuant to notice
duly given under paragraph 4(d), all of Employer's obligations
under this Agreement shall end except for Employer's
obligations to pay Key Employee's Base Salary, if any, earned
but unpaid to the date of such termination or of the Key
Employee so leaving Employer's employ.
6. COVENANT NOT TO COMPETE.
a. Restricted Activities--Duration. Except as otherwise consented
to or approved by Employer's Board of Directors in writing,
Key Employee agrees that, in addition to being operative
during the Employment Period, the provisions of paragraphs
6(a)(i) through (iii), inclusive, shall be operative for a
period of twelve (12) months after the later of (1) the date
Key Employee's employment with Employer (pursuant to this
Agreement or otherwise) is terminated or otherwise ceases, or
(2) the end of all severance payments, if any, which Employer
is obligated to make to Key Employee under paragraph 5(c) or
any other subsequent written agreement between them,
regardless of the time, manner or reason for the termination
or other cessation of such employment. During such periods,
without Telxon's prior written consent, Key Employee will not,
directly or indirectly, acting alone or as a member of a
partnership or as an owner, director, officer, employee,
manager, representative or consultant of any corporation or
other business entity:
i. Engage in any business which manufactures, sells,
distributes, services or supports products or services of
a type manufactured, sold, marketed, serviced or
supported, or in any other business in competition with
or adverse to the business that is conducted by Employer,
or which Employer is in the process of developing and in
or of which Key Employee participated or has knowledge,
at the time of the cessation of Key Employee's employment
with the Employer, in the United States, Canada or any
European, Asian, Pacific Rim or other foreign country in
which Employer then or thereafter transacts business or
is making a bona fide attempt to do so;
ii. induce, request or attempt to influence any customer or
supplier of Employer to curtail or cancel their business
or prospective business with Employer or in any way
interfere with Employer's business relationships; or
iii. induce, solicit or assist or facilitate the inducement or
solicitation by any third person of any employee,
officer, agent or representative of Employer to terminate
his respective relationship with Employer or in any way
interfere with the Employer's employee, officer, agent or
representative relationships.
b. Tolling; Relief of Obligations. In the event that Key Employee
breaches any provision of this paragraph 6, such violation (i)
shall toll the running of the twelve (12) month period set
forth in paragraph 6(a) from the date of commencement of such
violation until such violation ceases, and (ii) shall relieve
Employer of any obligations to Key Employee under this
Agreement.
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<PAGE> 5
c. "Blue Penciling" or Modification. If either the length of
time, geographic area or scope of restricted business activity
set forth in paragraph 6(a) is deemed unreasonably restrictive
or unreasonable in any other respect in any proceeding before
a court of competent jurisdiction, Key Employee and Employer
agree and consent to such court's modifying or reducing such
restriction(s) with respect, but only with respect, to that
jurisdiction to the extent deemed reasonable under the
circumstances then presented.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
a. For purposes of this Agreement, "Confidential Information"
means all information or trade secrets of any type or
description belonging to Employer which are proprietary and
confidential to Employer and which are not publicly disclosed
or are only disclosed with restrictions. Without limiting the
generality of the foregoing, Confidential Information
includes: strategic and other plans for carrying on business;
cost data and other financial information; lists of customers,
employees, vendors and business partners and alliances;
manufacturing methods and processes; product research and
engineering data, drawings, designs and schematics; computer
programs, flow charts, routines, subroutines, translators,
compilers, operating systems and object and source codes;
specifications, inventions, know-how, calculations and
discoveries; any letters, papers, documents and instruments
disclosing or reflecting any of the foregoing; and all
information revealed to or acquired or created by Key Employee
during Key Employee's employment by Employer relating to any
of the foregoing or otherwise to Employer's past, current or
future business.
b. Key Employee acknowledges that the discharge of Key Employee's
duties under this Agreement will necessarily involve his
access to Confidential Information. Key Employee acknowledges
that the unauthorized use by him or disclosure by him of such
Confidential Information to third parties might cause
irreparable damage to Employer and Employer's business.
Accordingly, Key Employee agrees that at all times after the
date hereof he will not, without the prior written consent of
Employer's Board of Directors, copy, publish, disclose,
divulge to or discuss with any third party, nor use for his
own benefit or that of others any Confidential Information,
except in the normal conduct of his duties under this
Agreement, it being understood and acknowledged by Key
Employee that all Confidential Information created, compiled
or obtained by Key Employee or Employer, or furnished to Key
Employee by any person while Key Employee is associated with
Employer, is and shall be and remain Employer's exclusive
property.
c. Promptly upon termination of his employment, irrespective of
the time or manner thereof or reason therefor, Key Employee
agrees to return and surrender to Employer all Confidential
Information copies thereof in any form which is in any manner
in his control or possession, as well as all other Employer
property.
8. RIGHTS. Key Employee acknowledges and agrees that any procedure,
design feature, schematic, invention, improvement, development,
discovery, know-how, concept, idea or the like (whether or not
patentable, registrable under copyright or trademark laws, or
otherwise protectable under similar laws) that Key Employee
(whether individually or jointly with any other person or persons)
has since the inception of his employment with Employer conceived
of, suggested, made, invented, developed or implemented, or may
hereafter conceive of, suggest, make, invent, develop or
implement, during the course of his service to Employer which
relates in any way to the business of Employer or to the general
industry of which Employer is a part, all physical embodiments and
manifestations thereof, and all patent rights, copyrights and
trademarks (and applications therefor) and similar protections
thereof (all of the foregoing referred to as "Work Product") are
and shall be
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<PAGE> 6
the sole, exclusive and absolute property of Employer. All Work
Product shall be deemed to be works for hire for the benefit of
Employer, and to the extent that any Work Product may not
constitute a work for hire, Key Employee hereby assigns to
Employer all right, title and interest in, to and under such Work
Product, including, without limitation, the right to obtain such
patents, copyright registrations, trademark registrations or
similar protections as Employer may desire to obtain. Key Employee
will immediately disclose all Work Product to Employer and agrees,
at anytime, upon Employer's request and without additional
compensation, to execute any documents and otherwise to cooperate
with Employer (including, without limitation, all lawful testimony
and sworn statements or other certifications as may be
appropriate) respecting the perfection of its right, title and
interest in, to and under such Work Product and in any litigation
or administrative or other proceeding or controversy in connection
therewith, all expenses incident thereto be borne by Employer.
9. INDUCEMENT; REMEDIES INADEQUATE; AND SURVIVAL.
a. The covenants made by Key Employee in favor of Employer under
paragraphs 6, 7 and 8 and this paragraph 9 are being executed
and delivered by Key Employee in consideration of Key
Employee's employment with Employer and Employer's obligations
hereunder (including, without limitation, the Base Salary, the
Bonus Compensation and other benefits and payments provided
for herein). Key Employee further acknowledges that such
covenants were and have been conditions of his employment
since the inception of Key Employee's employment with
Employer.
b. Key Employee has carefully considered, and has had adequate
time and opportunity to consult with his own counsel or other
advisors regarding the nature and extent of the restrictions
upon him, and the rights and remedies conferred upon Employer,
under paragraphs 6, 7 and 8 and this paragraph 9, and hereby
acknowledges and agrees that such restrictions are reasonable
in time, territory and scope, are designed to eliminate
competition which otherwise would be unfair to Employer, do
not stifle the inherent skill and experience of Key Employee,
would not operate as a bar to Key Employee's sole means of
support, are fully required to protect the legitimate
interests of Employer and do not confer a benefit upon
Employer disproportionate to the detriment to Key Employee.
c. Key Employee acknowledges that the services to be rendered by
him to Employer as contemplated by this Agreement are special,
unique and of extraordinary character. Key Employee expressly
agrees and understand that the remedy at law for any breach by
him of paragraph 6, 7 or 8 will be inadequate and that the
damages flowing from such breach are not readily susceptible
to being measured in monetary terms. Accordingly, upon
adequate proof of Key Employee's violation of any legally
enforceable provision of paragraph 6, 7 or 8, Employer shall
be entitled to immediate injunctive relief, including, without
limitation, a temporary order restraining any threatened or
further breach. In the event any equitable proceedings are
brought to enforce any provision of paragraphs 6, 7 and 8, Key
Employee agrees that he will not raise in such proceedings any
defense that Employer has an adequate remedy at law, and Key
Employee hereby waives any such defense. Nothing in this
Agreement shall be deemed to limit Employer's remedies at law
or in equity for any breach by Key Employee of any of the
provisions of paragraphs 6, 7 and 8 which may be pursued or
availed of by Employer. Without limiting the generality of the
immediately preceding sentence, any covenant on Key Employee's
part contained in paragraph 6, 7 or 8 which may not be
specifically enforceable shall nevertheless, if breached, give
rise to a cause of action for monetary damages.
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<PAGE> 7
d. As used in paragraphs 6, 7 and 8 and in this paragraph 9, the
term "Employer" (other than with respect to the Board of
Directors) shall include, in addition to Employer, all
subsidiaries and other affiliates of Employer, whether so
related to Employer during Key Employee's employment with
Employer or at any time thereafter.
e. Subject only to such time limitations as may be expressly set
forth therein, the covenants and agreements made by Key
Employee in paragraphs 6, 7 and 8 and this paragraph 9 shall
survive full payment by Employer to Key Employee of the
amounts to which Key Employee is entitled under this Agreement
and the termination of this Agreement and Key Employee's
employment hereunder or otherwise. The provisions of
paragraphs 6, 7 and 8 and this paragraph 9, and to the extent
applicable thereto, paragraphs 13 through 20, shall continue
to apply to and be binding upon Key Employee in the event and
for so long as Key Employee shall remain in the employ of
Employer following any termination under this Agreement and
for such post-employment period as may there be specified but
measured from the end of such continued employment.
10. ASSIGNMENT OF KEY EMPLOYEE'S RIGHTS. In no event shall Employer be
obligated to make any payment under this Agreement to any assignee
or creditor of Key Employee. Prior to the time provided for the
making of any payment under this Agreement, neither Key Employee
nor his legal representative shall have any right by way of
anticipation or otherwise to assign or otherwise dispose of any
interest under this Agreement.
11. RIGHT OF SET-OFF. Any payments to be made to Key Employee under
this Agreement shall be subject to offset by Employer for any
claims for damages, liabilities or expenses which it may have
against Key Employee.
12. EMPLOYER'S OBLIGATIONS UNFUNDED. Except as to any benefits that
may be required to be funded under any benefit plan of Employer
pursuant to law or under any other written agreement, the
obligations of Employer under this Agreement are not funded, and
Employer shall be not required to deposit in escrow or otherwise
set aside any moneys in advance of the due date for payment
thereof to Key Employee.
13. NOTICES. Any notice to be given hereunder by Employer to Key
Employee shall be deemed to be given if delivered to Key Employee
in person, or if mailed to Key Employee, by certified mail,
postage prepaid, return receipt requested, at his address last
shown on the records of Employer, and any notice to be given by
Key Employee to Employer shall be deemed to be given if delivered
in person or by mail, postage prepaid, return receipt requested to
the Chief Executive Officer at Employer's principal executive
office, unless Key Employee or Employer shall have duly notified
the other parties in writing of a change of address. If mailed,
notice shall be deemed to have been given when deposited in the
mail as set forth above.
14. AMENDMENTS. This Agreement shall not be modified or discharged, in
whole or in part, except by an agreement in writing signed by the
parties hereto.
15. ENTIRE AGREEMENT. This Agreement, together with any and all other
written agreement(s) made contemporaneously herewith, constitute
the entire agreement between the parties with respect to Key
Employee's employment by Employer from and after the Effective
Date. The parties are not relying on any other representation or
understanding with respect thereto, express or implied, oral or
written. This Agreement, as supplemented by such contemporaneous
agreement(s), supersedes any prior employment agreement, written
or oral, between Key Employee and Employer.
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<PAGE> 8
16. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not affect the meaning of any
terms or provisions hereof.
17. GENDER AND NUMBER. Whenever the context may permit, any pronouns
used herein shall include the corresponding masculine, feminine
and neuter forms, and the singular form of any noun or pronoun,
including any terms defined herein, shall include the plural and
vice versa.
18. BINDING EFFECT. The rights and obligations of Employer hereunder
shall inure to the benefit of, and shall be binding upon, Employer
and its respective successors and assigns, and the rights and
obligations of Key Employee hereunder shall inure to the benefit
of, and shall be binding upon, Key Employee and his heirs,
personal representatives and estate.
19. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable in any jurisdiction, in
whole or in part, the remaining provisions and any partially
enforceable provision shall be binding and enforceable to the
extent enforceable in such jurisdiction.
20. GOVERNING LAW. This Agreement shall be interpreted, construed, and
enforced in all respects in accordance with the laws of the State
of Ohio.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Effective Date.
TELXON CORPORATION KEY EMPLOYEE
By: /s/ Frank E. Brick /s/ David D. Loadman
----------------------------------- ---------------------
Frank E. Brick David D. Loadman
President & Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.1.13
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of April 1, 1997
(the "Effective Date") at Akron, Ohio between TELXON CORPORATION ("Employer"), a
Delaware corporation with offices at 3330 West Market Street, Akron, Ohio 44333,
and DAVID W. PORTER ("Key Employee") in amendment and restatement in full of the
Employment Agreement previously made by them as of the Effective Date.
WITNESSETH:
WHEREAS, Employer desires to employ Key Employee initially as Senior Vice
President, Global Operations of Employer, and thereafter, in such capacity as
Employer's chief executive officer (the "Chief Executive Officer"), or such
other officer of Employer as the Chief Executive Officer shall direct (the Chief
Executive Officer or such other officer being Key Employee's "Supervisor"),
shall direct, and Key Employee desires to be so employed, upon the terms and
conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing and in consideration of
the mutual promises and agreements contained herein, the parties hereto agree as
follows:
1. EMPLOYMENT PERIOD. Employer agrees to employ Key Employee, and Key
Employee agrees to be so employed, on the terms and conditions set
forth herein for the period beginning on the Effective Date and
ending March 31, 2000, which period shall thereafter be
automatically extended for successive additional twelve (12) month
periods, subject to the earlier termination of such employment, as
so extended, by Employer or Key Employee pursuant to paragraph 4
(the "Employment Period").
2. NATURE OF DUTIES.
a. Key Employee's duties and responsibilities shall be to serve
as Senior Vice President, Global Operations of Employer or in
such other capacity as the Supervisor may at any time and from
time to time in its discretion direct, in conformity with
management policies, guidelines and directions issued by
Employer. Key Employee shall report directly to the
Supervisor, and shall have general charge and supervision of
those functions and such other responsibilities as the
Supervisor shall from time to time determine in his
discretion.
b. Key Employee shall work exclusively for Employer on a
full-time basis in such capacity as he is to serve pursuant to
paragraph 2(a), devoting all of his time and attention during
normal business hours to Employer's business.
c. Key Employee shall perform his duties and responsibilities
hereunder diligently, faithfully and loyally in order to cause
the proper, efficient and successful operation of Employer's
business.
3. COMPENSATION AND BENEFITS.
a. Base Salary and Expenses. As compensation for Key Employee's
services, Employer shall pay to Key Employee during the
Employment Period a salary (the "Base Salary") at the annual
rate of $200,000 for FY '98. Any salary increases for future
fiscal years will be determined by the Board of Directors of
Employer or an appropriate committee thereof (the "Board") in
its discretion based upon the recommendation of the Chief
Executive Officer. Base salary will be
<PAGE> 2
payable in arrears, in equal bi-weekly installments or at such
other interval as the Board or applicable Employer policies
shall direct. Employer shall reimburse Key Employee for all
reasonable out-of-pocket expenses incurred by Key Employee on
Employer's behalf during the Employment Period and approved by
the Supervisor or such other officer as the Supervisor or
applicable Employer policies shall direct.
b. Bonus Compensation. In addition to the Base Salary, Key
Employee shall, at the discretion of the Board, be eligible to
receive bonus compensation ("Bonus Compensation") with respect
to the Employment Period on such basis as shall be approved by
the Board. For FY '98, Key Employee shall be eligible for a
potential bonus of up to $85,000 based upon achieving goals
and achievements agreed upon by Key Employee and the
Supervisor, subject to such approval thereof as may be
required by the Chief Executive Officer and/or the Board.
Bonus compensation for subsequent fiscal years will be
determined by the Board in its discretion based upon the
recommendation of the Chief Executive Officer.
c. Stock Options. During the Employment Period, Key Employee
shall be eligible to receive grants of stock option(s) and
other awards and benefits pursuant to such employee stock
option and other stock-based employee benefit plans as
Employer may maintain from time to time during the Employment
Period with respect to its key employees of like stature and
compensation, in such amounts as may be determined by the
Board in its discretion based upon the recommendation of the
Chief Executive Officer. In the event that, during the
Employment Period, Key Employee is re-assigned by Employer to
a position carrying duties and responsibilities of lesser
stature than his present position as recited in paragraph 2(a)
or such position in which Key Employee serves as of the time
that any such options or other rights or benefits were
previously (including any period prior to the Employment
Period during which Key Employee had duties and
responsibilities substantially similar in stature to those of
his present position) or are hereafter granted or awarded to
or otherwise received by Key Employee during the Employment
Period (other than a re-assignment occurring as the result of
or in connection with any change in control of Employer, in
which case the provisions of the governing benefit plan, or
any other written agreement between Telxon and Employee,
applicable in such a circumstance shall control), such
options, rights and benefits shall, to the extent unvested as
of the time of such re-assignment, be subject to such
reduction, cancellation and/or forfeiture as may then be
determined to be appropriate by the Board in its discretion.
d. Vacation. During the Employment Period, Key Employee shall be
entitled to vacation in accordance with Employer's policies.
e. Health, Disability, Retirement and Death Benefits. Employer
shall provide Key Employee with the same health, disability,
retirement and death and other fringe benefits as are
generally provided to the executive employees of Employer in
accordance with such terms, conditions and eligibility
requirements as may from time to time be established by
Employer.
4. TERMINATION.
a. This Agreement shall terminate automatically upon Key
Employee's death.
b. Employer may terminate Key Employee's employment under this
Agreement at any time, upon thirty (30) days written notice to
Key Employee, if Key Employee becomes permanently disabled.
Permanent disability shall be determined by Employer according
to the same standards applicable to the employees of Employer
generally under the disability benefits referred to in
paragraph 3(e).
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<PAGE> 3
c. Employer shall have the right to terminate Key Employee's
employment under this Agreement at any time (i) immediately
for "cause" (which shall mean for any action or inaction of
Key Employee which is adverse to Employer's interests,
including, without limitation, Key Employee's dishonesty,
grossly negligent misconduct, willful misconduct, disloyalty,
act of bad faith, neglect of duty or material breach of this
Agreement or of any Employer policy applicable to its
employees generally), or (ii) without cause upon thirty (30)
days written notice to Key Employee.
d. Key Employee may voluntarily terminate his employment under
this Agreement at any time, upon thirty (30) days written
notice to Employer.
5. EFFECTS OF TERMINATION.
a. In the event of automatic termination by reason of Key
Employee's death pursuant to paragraph 4(a), or by Employer by
reason of Key Employee's permanent disability pursuant to
paragraph 4(b), all of Employer's obligations under this
Agreement shall end except for Employer's obligations to pay
Key Employee's Base Salary and Bonus Compensation, if any
(which Bonus Compensation shall, for purposes of this
paragraph 5(a) and paragraph 5(c)(i), be prorated in light of
the circumstances), in each case earned but unpaid to the date
of death or permanent disability. Key Employee shall also have
the right to receive any payments under the death or
disability benefits, as the case may be, provided to Key
Employee pursuant to paragraph 3(e), if any.
b. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), or Key Employee
exercises his right of voluntary termination pursuant to
paragraph 4(d), all of Employer's obligations under this
Agreement shall end except for its obligations to pay Key
Employee's Base Salary, if any, earned but unpaid to the date
of termination (which, for purposes of this paragraph 5(b) and
paragraph 5(c), shall be thirty (30) days after the date on
which notification is provided by Employer to Key Employee
pursuant to paragraph 4(c)(ii) or by Key Employee to Employer
pursuant to paragraph 4(d), as the case may be) and, in the
case of termination pursuant to paragraph 4(c)(ii), Employer's
obligations under paragraph 5(c).
c. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), Employer shall
also be obligated to pay or provide to Key Employee:
i. Key Employee's Bonus Compensation, if any, earned but
unpaid to the date of termination;
ii. as severance pay, for the twelve (12) month period
following the date of such termination, annualized
compensation at a rate which shall be equal to Key
Employee's Base Salary at such termination date, payable
in equal bi-weekly installments or at such other interval
as the Board or Employer's corresponding payroll policies
shall direct; and
iii. continued benefits (or if unavailable under the general
terms and provisions of the applicable plan, their
equivalent) for Key Employee and his dependents, for a
period terminating on the earliest of (A) twelve (12)
months following the date of such termination, (B) the
commencement date of equivalent benefits from a new
employer, or (C) Key Employee's normal retirement date
(after which the terms of the retirement plan which would
have been applicable to Key Employee had he retired as of
such termination
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<PAGE> 4
date rather than having been terminated shall govern),
under all insured and self-insured employee welfare
benefit plans in which Key Employee was entitled to
participate immediately prior to such termination date,
provided that Key Employee shall not be required to pay
any amount greater than the regular contribution made by
Key Employee for such participation immediately prior to
such termination date.
d. In the event Employer exercises its right of termination
pursuant to paragraph 4(c)(i) for cause, or Key Employee
leaves the employ of Employer other than pursuant to notice
duly given under paragraph 4(d), all of Employer's obligations
under this Agreement shall end except for Employer's
obligations to pay Key Employee's Base Salary, if any, earned
but unpaid to the date of such termination or of the Key
Employee so leaving Employer's employ.
6. COVENANT NOT TO COMPETE.
a. Restricted Activities--Duration. Except as otherwise consented
to or approved by Employer's Board of Directors in writing,
Key Employee agrees that, in addition to being operative
during the Employment Period, the provisions of paragraphs
6(a)(i) through (iii), inclusive, shall be operative for a
period of twelve (12) months after the later of (1) the date
Key Employee's employment with Employer (pursuant to this
Agreement or otherwise) is terminated or otherwise ceases, or
(2) the end of all severance payments, if any, which Employer
is obligated to make to Key Employee under paragraph 5(c) or
any other subsequent written agreement between them,
regardless of the time, manner or reason for the termination
or other cessation of such employment. During such periods,
without Telxon's prior written consent, Key Employee will not,
directly or indirectly, acting alone or as a member of a
partnership or as an owner, director, officer, employee,
manager, representative or consultant of any corporation or
other business entity:
i. Engage in any business which manufactures, sells,
distributes, services or supports products or services of
a type manufactured, sold, marketed, serviced or
supported, or in any other business in competition with
or adverse to the business that is conducted by Employer,
or which Employer is in the process of developing and in
or of which Key Employee participated or has knowledge,
at the time of the cessation of Key Employee's employment
with the Employer, in the United States, Canada or any
European, Asian, Pacific Rim or other foreign country in
which Employer then or thereafter transacts business or
is making a bona fide attempt to do so;
ii. induce, request or attempt to influence any customer or
supplier of Employer to curtail or cancel their business
or prospective business with Employer or in any way
interfere with Employer's business relationships; or
iii. induce, solicit or assist or facilitate the inducement or
solicitation by any third person of any employee,
officer, agent or representative of Employer to terminate
his respective relationship with Employer or in any way
interfere with the Employer's employee, officer, agent or
representative relationships.
b. Tolling; Relief of Obligations. In the event that Key Employee
breaches any provision of this paragraph 6, such violation (i)
shall toll the running of the twelve (12) month period set
forth in paragraph 6(a) from the date of commencement of such
violation until such violation ceases, and (ii) shall relieve
Employer of any obligations to Key Employee under this
Agreement.
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<PAGE> 5
c. "Blue Penciling" or Modification. If either the length of
time, geographic area or scope of restricted business activity
set forth in paragraph 6(a) is deemed unreasonably restrictive
or unreasonable in any other respect in any proceeding before
a court of competent jurisdiction, Key Employee and Employer
agree and consent to such court's modifying or reducing such
restriction(s) with respect, but only with respect, to that
jurisdiction to the extent deemed reasonable under the
circumstances then presented.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
a. For purposes of this Agreement, "Confidential Information"
means all information or trade secrets of any type or
description belonging to Employer which are proprietary and
confidential to Employer and which are not publicly disclosed
or are only disclosed with restrictions. Without limiting the
generality of the foregoing, Confidential Information
includes: strategic and other plans for carrying on business;
cost data and other financial information; lists of customers,
employees, vendors and business partners and alliances;
manufacturing methods and processes; product research and
engineering data, drawings, designs and schematics; computer
programs, flow charts, routines, subroutines, translators,
compilers, operating systems and object and source codes;
specifications, inventions, know-how, calculations and
discoveries; any letters, papers, documents and instruments
disclosing or reflecting any of the foregoing; and all
information revealed to or acquired or created by Key Employee
during Key Employee's employment by Employer relating to any
of the foregoing or otherwise to Employer's past, current or
future business.
b. Key Employee acknowledges that the discharge of Key Employee's
duties under this Agreement will necessarily involve his
access to Confidential Information. Key Employee acknowledges
that the unauthorized use by him or disclosure by him of such
Confidential Information to third parties might cause
irreparable damage to Employer and Employer's business.
Accordingly, Key Employee agrees that at all times after the
date hereof he will not, without the prior written consent of
Employer's Board of Directors, copy, publish, disclose,
divulge to or discuss with any third party, nor use for his
own benefit or that of others any Confidential Information,
except in the normal conduct of his duties under this
Agreement, it being understood and acknowledged by Key
Employee that all Confidential Information created, compiled
or obtained by Key Employee or Employer, or furnished to Key
Employee by any person while Key Employee is associated with
Employer, is and shall be and remain Employer's exclusive
property.
c. Promptly upon termination of his employment, irrespective of
the time or manner thereof or reason therefor, Key Employee
agrees to return and surrender to Employer all Confidential
Information copies thereof in any form which is in any manner
in his control or possession, as well as all other Employer
property.
8. RIGHTS. Key Employee acknowledges and agrees that any procedure,
design feature, schematic, invention, improvement, development,
discovery, know-how, concept, idea or the like (whether or not
patentable, registrable under copyright or trademark laws, or
otherwise protectable under similar laws) that Key Employee
(whether individually or jointly with any other person or persons)
has since the inception of his employment with Employer conceived
of, suggested, made, invented, developed or implemented, or may
hereafter conceive of, suggest, make, invent, develop or
implement, during the course of his service to Employer which
relates in any way to the business of Employer or to the general
industry of which Employer is a part, all physical embodiments and
manifestations thereof, and all patent rights, copyrights and
trademarks (and applications therefor) and similar protections
thereof (all of the foregoing referred to as "Work Product") are
and shall be
-5-
<PAGE> 6
the sole, exclusive and absolute property of Employer. All Work
Product shall be deemed to be works for hire for the benefit of
Employer, and to the extent that any Work Product may not
constitute a work for hire, Key Employee hereby assigns to
Employer all right, title and interest in, to and under such Work
Product, including, without limitation, the right to obtain such
patents, copyright registrations, trademark registrations or
similar protections as Employer may desire to obtain. Key Employee
will immediately disclose all Work Product to Employer and agrees,
at anytime, upon Employer's request and without additional
compensation, to execute any documents and otherwise to cooperate
with Employer (including, without limitation, all lawful testimony
and sworn statements or other certifications as may be
appropriate) respecting the perfection of its right, title and
interest in, to and under such Work Product and in any litigation
or administrative or other proceeding or controversy in connection
therewith, all expenses incident thereto be borne by Employer.
9. INDUCEMENT; REMEDIES INADEQUATE; AND SURVIVAL.
a. The covenants made by Key Employee in favor of Employer under
paragraphs 6, 7 and 8 and this paragraph 9 are being executed
and delivered by Key Employee in consideration of Key
Employee's employment with Employer and Employer's obligations
hereunder (including, without limitation, the Base Salary, the
Bonus Compensation and other benefits and payments provided
for herein). Key Employee further acknowledges that such
covenants were and have been conditions of his employment
since the inception of Key Employee's employment with
Employer.
b. Key Employee has carefully considered, and has had adequate
time and opportunity to consult with his own counsel or other
advisors regarding the nature and extent of the restrictions
upon him, and the rights and remedies conferred upon Employer,
under paragraphs 6, 7 and 8 and this paragraph 9, and hereby
acknowledges and agrees that such restrictions are reasonable
in time, territory and scope, are designed to eliminate
competition which otherwise would be unfair to Employer, do
not stifle the inherent skill and experience of Key Employee,
would not operate as a bar to Key Employee's sole means of
support, are fully required to protect the legitimate
interests of Employer and do not confer a benefit upon
Employer disproportionate to the detriment to Key Employee.
c. Key Employee acknowledges that the services to be rendered by
him to Employer as contemplated by this Agreement are special,
unique and of extraordinary character. Key Employee expressly
agrees and understand that the remedy at law for any breach by
him of paragraph 6, 7 or 8 will be inadequate and that the
damages flowing from such breach are not readily susceptible
to being measured in monetary terms. Accordingly, upon
adequate proof of Key Employee's violation of any legally
enforceable provision of paragraph 6, 7 or 8, Employer shall
be entitled to immediate injunctive relief, including, without
limitation, a temporary order restraining any threatened or
further breach. In the event any equitable proceedings are
brought to enforce any provision of paragraphs 6, 7 and 8, Key
Employee agrees that he will not raise in such proceedings any
defense that Employer has an adequate remedy at law, and Key
Employee hereby waives any such defense. Nothing in this
Agreement shall be deemed to limit Employer's remedies at law
or in equity for any breach by Key Employee of any of the
provisions of paragraphs 6, 7 and 8 which may be pursued or
availed of by Employer. Without limiting the generality of the
immediately preceding sentence, any covenant on Key Employee's
part contained in paragraph 6, 7 or 8 which may not be
specifically enforceable shall nevertheless, if breached, give
rise to a cause of action for monetary damages.
-6-
<PAGE> 7
d. As used in paragraphs 6, 7 and 8 and in this paragraph 9, the
term "Employer" (other than with respect to the Board of
Directors) shall include, in addition to Employer, all
subsidiaries and other affiliates of Employer, whether so
related to Employer during Key Employee's employment with
Employer or at any time thereafter.
e. Subject only to such time limitations as may be expressly set
forth therein, the covenants and agreements made by Key
Employee in paragraphs 6, 7 and 8 and this paragraph 9 shall
survive full payment by Employer to Key Employee of the
amounts to which Key Employee is entitled under this Agreement
and the termination of this Agreement and Key Employee's
employment hereunder or otherwise. The provisions of
paragraphs 6, 7 and 8 and this paragraph 9, and to the extent
applicable thereto, paragraphs 13 through 20, shall continue
to apply to and be binding upon Key Employee in the event and
for so long as Key Employee shall remain in the employ of
Employer following any termination under this Agreement and
for such post-employment period as may there be specified but
measured from the end of such continued employment.
10. ASSIGNMENT OF KEY EMPLOYEE'S RIGHTS. In no event shall Employer be
obligated to make any payment under this Agreement to any assignee
or creditor of Key Employee. Prior to the time provided for the
making of any payment under this Agreement, neither Key Employee
nor his legal representative shall have any right by way of
anticipation or otherwise to assign or otherwise dispose of any
interest under this Agreement.
11. RIGHT OF SET-OFF. Any payments to be made to Key Employee under
this Agreement shall be subject to offset by Employer for any
claims for damages, liabilities or expenses which it may have
against Key Employee.
12. EMPLOYER'S OBLIGATIONS UNFUNDED. Except as to any benefits that
may be required to be funded under any benefit plan of Employer
pursuant to law or under any other written agreement, the
obligations of Employer under this Agreement are not funded, and
Employer shall be not required to deposit in escrow or otherwise
set aside any moneys in advance of the due date for payment
thereof to Key Employee.
13. NOTICES. Any notice to be given hereunder by Employer to Key
Employee shall be deemed to be given if delivered to Key Employee
in person, or if mailed to Key Employee, by certified mail,
postage prepaid, return receipt requested, at his address last
shown on the records of Employer, and any notice to be given by
Key Employee to Employer shall be deemed to be given if delivered
in person or by mail, postage prepaid, return receipt requested to
the Chief Executive Officer at Employer's principal executive
office, unless Key Employee or Employer shall have duly notified
the other parties in writing of a change of address. If mailed,
notice shall be deemed to have been given when deposited in the
mail as set forth above.
14. AMENDMENTS. This Agreement shall not be modified or discharged, in
whole or in part, except by an agreement in writing signed by the
parties hereto.
15. ENTIRE AGREEMENT. This Agreement, together with any and all other
written agreement(s) made contemporaneously herewith, constitute
the entire agreement between the parties with respect to Key
Employee's employment by Employer from and after the Effective
Date. The parties are not relying on any other representation or
understanding with respect thereto, express or implied, oral or
written. This Agreement, as supplemented by such contemporaneous
agreement(s), supersedes any prior employment agreement, written
or oral, between Key Employee and Employer.
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<PAGE> 8
16. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not affect the meaning of any
terms or provisions hereof.
17. GENDER AND NUMBER. Whenever the context may permit, any pronouns
used herein shall include the corresponding masculine, feminine
and neuter forms, and the singular form of any noun or pronoun,
including any terms defined herein, shall include the plural and
vice versa.
18. BINDING EFFECT. The rights and obligations of Employer hereunder
shall inure to the benefit of, and shall be binding upon, Employer
and its respective successors and assigns, and the rights and
obligations of Key Employee hereunder shall inure to the benefit
of, and shall be binding upon, Key Employee and his heirs,
personal representatives and estate.
19. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable in any jurisdiction, in
whole or in part, the remaining provisions and any partially
enforceable provision shall be binding and enforceable to the
extent enforceable in such jurisdiction.
20. GOVERNING LAW. This Agreement shall be interpreted, construed, and
enforced in all respects in accordance with the laws of the State
of Ohio.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Effective Date.
TELXON CORPORATION KEY EMPLOYEE
By: /s/ Frank E. Brick /s/ David W. Porter
----------------------------------- -------------------
Frank E. Brick David W. Porter
President & Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.1.14
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of April 1, 1997
(the "Effective Date") at Akron, Ohio between TELXON CORPORATION ("Employer"), a
Delaware corporation with offices at 3330 West Market Street, Akron, Ohio 44333,
and DANNY R. WIPFF ("Key Employee") in amendment and restatement in full of the
Employment Agreement previously made by them as of the Effective Date.
WITNESSETH:
WHEREAS, Employer desires to employ Key Employee initially as President &
CEO, TPI of Employer, and thereafter, in such capacity as Employer's chief
executive officer (the "Chief Executive Officer"), or such other officer of
Employer as the Chief Executive Officer shall direct (the Chief Executive
Officer or such other officer being Key Employee's "Supervisor"), shall direct,
and Key Employee desires to be so employed, upon the terms and conditions herein
contained.
NOW, THEREFORE, in consideration of the foregoing and in consideration of
the mutual promises and agreements contained herein, the parties hereto agree as
follows:
1. EMPLOYMENT PERIOD. Employer agrees to employ Key Employee, and Key
Employee agrees to be so employed, on the terms and conditions set
forth herein for the period beginning on the Effective Date and
ending March 31, 2000, which period shall thereafter be
automatically extended for successive additional twelve (12) month
periods, subject to the earlier termination of such employment, as
so extended, by Employer or Key Employee pursuant to paragraph 4
(the "Employment Period").
2. NATURE OF DUTIES.
a. Key Employee's duties and responsibilities shall be to serve
as President & CEO, TPI of Employer or in such other capacity
as the Supervisor may at any time and from time to time in its
discretion direct, in conformity with management policies,
guidelines and directions issued by Employer. Key Employee
shall report directly to the Supervisor, and shall have
general charge and supervision of those functions and such
other responsibilities as the Supervisor shall from time to
time determine in his discretion.
b. Key Employee shall work exclusively for Employer on a
full-time basis in such capacity as he is to serve pursuant to
paragraph 2(a), devoting all of his time and attention during
normal business hours to Employer's business.
c. Key Employee shall perform his duties and responsibilities
hereunder diligently, faithfully and loyally in order to cause
the proper, efficient and successful operation of Employer's
business.
3. COMPENSATION AND BENEFITS.
a. Base Salary and Expenses. As compensation for Key Employee's
services, Employer shall pay to Key Employee during the
Employment Period a salary (the "Base Salary") at the annual
rate of $275,000 for FY '98. Any salary increases for future
fiscal years will be determined by the Board of Directors of
Employer or an appropriate committee thereof (the "Board") in
its discretion based upon the recommendation of the Chief
Executive Officer. Base salary will be
<PAGE> 2
payable in arrears, in equal bi-weekly installments or at such
other interval as the Board or applicable Employer policies
shall direct. Employer shall reimburse Key Employee for all
reasonable out-of-pocket expenses incurred by Key Employee on
Employer's behalf during the Employment Period and approved by
the Supervisor or such other officer as the Supervisor or
applicable Employer policies shall direct.
b. Bonus Compensation. In addition to the Base Salary, Key
Employee shall, at the discretion of the Board, be eligible to
receive bonus compensation ("Bonus Compensation") with respect
to the Employment Period on such basis as shall be approved by
the Board. For FY '98, Key Employee shall be eligible for a
potential bonus of up to $100,000 based upon achieving goals
and achievements agreed upon by Key Employee and the
Supervisor, subject to such approval thereof as may be
required by the Chief Executive Officer and/or the Board.
Bonus compensation for subsequent fiscal years will be
determined by the Board in its discretion based upon the
recommendation of the Chief Executive Officer.
c. Stock Options. During the Employment Period, Key Employee
shall be eligible to receive grants of stock option(s) and
other awards and benefits pursuant to such employee stock
option and other stock-based employee benefit plans as
Employer may maintain from time to time during the Employment
Period with respect to its key employees of like stature and
compensation, in such amounts as may be determined by the
Board in its discretion based upon the recommendation of the
Chief Executive Officer. In the event that, during the
Employment Period, Key Employee is re-assigned by Employer to
a position carrying duties and responsibilities of lesser
stature than his present position as recited in paragraph 2(a)
or such position in which Key Employee serves as of the time
that any such options or other rights or benefits were
previously (including any period prior to the Employment
Period during which Key Employee had duties and
responsibilities substantially similar in stature to those of
his present position) or are hereafter granted or awarded to
or otherwise received by Key Employee during the Employment
Period (other than a re-assignment occurring as the result of
or in connection with any change in control of Employer, in
which case the provisions of the governing benefit plan, or
any other written agreement between Telxon and Employee,
applicable in such a circumstance shall control), such
options, rights and benefits shall, to the extent unvested as
of the time of such re-assignment, be subject to such
reduction, cancellation and/or forfeiture as may then be
determined to be appropriate by the Board in its discretion.
d. Vacation. During the Employment Period, Key Employee shall be
entitled to vacation in accordance with Employer's policies.
e. Health, Disability, Retirement and Death Benefits. Employer
shall provide Key Employee with the same health, disability,
retirement and death and other fringe benefits as are
generally provided to the executive employees of Employer in
accordance with such terms, conditions and eligibility
requirements as may from time to time be established by
Employer.
4. TERMINATION.
a. This Agreement shall terminate automatically upon Key
Employee's death.
b. Employer may terminate Key Employee's employment under this
Agreement at any time, upon thirty (30) days written notice to
Key Employee, if Key Employee becomes permanently disabled.
Permanent disability shall be determined by Employer according
to the same standards applicable to the employees of Employer
generally under the disability benefits referred to in
paragraph 3(e).
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<PAGE> 3
c. Employer shall have the right to terminate Key Employee's
employment under this Agreement at any time (i) immediately
for "cause" (which shall mean for any action or inaction of
Key Employee which is adverse to Employer's interests,
including, without limitation, Key Employee's dishonesty,
grossly negligent misconduct, willful misconduct, disloyalty,
act of bad faith, neglect of duty or material breach of this
Agreement or of any Employer policy applicable to its
employees generally), or (ii) without cause upon thirty (30)
days written notice to Key Employee.
d. Key Employee may voluntarily terminate his employment under
this Agreement at any time, upon thirty (30) days written
notice to Employer.
5. EFFECTS OF TERMINATION.
a. In the event of automatic termination by reason of Key
Employee's death pursuant to paragraph 4(a), or by Employer by
reason of Key Employee's permanent disability pursuant to
paragraph 4(b), all of Employer's obligations under this
Agreement shall end except for Employer's obligations to pay
Key Employee's Base Salary and Bonus Compensation, if any
(which Bonus Compensation shall, for purposes of this
paragraph 5(a) and paragraph 5(c)(i), be prorated in light of
the circumstances), in each case earned but unpaid to the date
of death or permanent disability. Key Employee shall also have
the right to receive any payments under the death or
disability benefits, as the case may be, provided to Key
Employee pursuant to paragraph 3(e), if any.
b. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), or Key Employee
exercises his right of voluntary termination pursuant to
paragraph 4(d), all of Employer's obligations under this
Agreement shall end except for its obligations to pay Key
Employee's Base Salary, if any, earned but unpaid to the date
of termination (which, for purposes of this paragraph 5(b) and
paragraph 5(c), shall be thirty (30) days after the date on
which notification is provided by Employer to Key Employee
pursuant to paragraph 4(c)(ii) or by Key Employee to Employer
pursuant to paragraph 4(d), as the case may be) and, in the
case of termination pursuant to paragraph 4(c)(ii), Employer's
obligations under paragraph 5(c).
c. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), Employer shall
also be obligated to pay or provide to Key Employee:
i. Key Employee's Bonus Compensation, if any, earned but
unpaid to the date of termination;
ii. as severance pay, for the twelve (12) month period
following the date of such termination, annualized
compensation at a rate which shall be equal to Key
Employee's Base Salary at such termination date, payable
in equal bi-weekly installments or at such other interval
as the Board or Employer's corresponding payroll policies
shall direct; and
iii. continued benefits (or if unavailable under the general
terms and provisions of the applicable plan, their
equivalent) for Key Employee and his dependents, for a
period terminating on the earliest of (A) twelve (12)
months following the date of such termination, (B) the
commencement date of equivalent benefits from a new
employer, or (C) Key Employee's normal retirement date
(after which the terms of the retirement plan which would
have been applicable to Key Employee had he retired as of
such termination
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<PAGE> 4
date rather than having been terminated shall govern),
under all insured and self-insured employee welfare
benefit plans in which Key Employee was entitled to
participate immediately prior to such termination date,
provided that Key Employee shall not be required to pay
any amount greater than the regular contribution made by
Key Employee for such participation immediately prior to
such termination date.
d. In the event Employer exercises its right of termination
pursuant to paragraph 4(c)(i) for cause, or Key Employee
leaves the employ of Employer other than pursuant to notice
duly given under paragraph 4(d), all of Employer's obligations
under this Agreement shall end except for Employer's
obligations to pay Key Employee's Base Salary, if any, earned
but unpaid to the date of such termination or of the Key
Employee so leaving Employer's employ.
6. COVENANT NOT TO COMPETE.
a. Restricted Activities--Duration. Except as otherwise consented
to or approved by Employer's Board of Directors in writing,
Key Employee agrees that, in addition to being operative
during the Employment Period, the provisions of paragraphs
6(a)(i) through (iii), inclusive, shall be operative for a
period of twelve (12) months after the later of (1) the date
Key Employee's employment with Employer (pursuant to this
Agreement or otherwise) is terminated or otherwise ceases, or
(2) the end of all severance payments, if any, which Employer
is obligated to make to Key Employee under paragraph 5(c) or
any other subsequent written agreement between them,
regardless of the time, manner or reason for the termination
or other cessation of such employment. During such periods,
without Telxon's prior written consent, Key Employee will not,
directly or indirectly, acting alone or as a member of a
partnership or as an owner, director, officer, employee,
manager, representative or consultant of any corporation or
other business entity:
i. Engage in any business which manufactures, sells,
distributes, services or supports products or services of
a type manufactured, sold, marketed, serviced or
supported, or in any other business in competition with
or adverse to the business that is conducted by Employer,
or which Employer is in the process of developing and in
or of which Key Employee participated or has knowledge,
at the time of the cessation of Key Employee's employment
with the Employer, in the United States, Canada or any
European, Asian, Pacific Rim or other foreign country in
which Employer then or thereafter transacts business or
is making a bona fide attempt to do so;
ii. induce, request or attempt to influence any customer or
supplier of Employer to curtail or cancel their business
or prospective business with Employer or in any way
interfere with Employer's business relationships; or
iii. induce, solicit or assist or facilitate the inducement or
solicitation by any third person of any employee,
officer, agent or representative of Employer to terminate
his respective relationship with Employer or in any way
interfere with the Employer's employee, officer, agent or
representative relationships.
b. Tolling; Relief of Obligations. In the event that Key Employee
breaches any provision of this paragraph 6, such violation (i)
shall toll the running of the twelve (12) month period set
forth in paragraph 6(a) from the date of commencement of such
violation until such violation ceases, and (ii) shall relieve
Employer of any obligations to Key Employee under this
Agreement.
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<PAGE> 5
c. "Blue Penciling" or Modification. If either the length of
time, geographic area or scope of restricted business activity
set forth in paragraph 6(a) is deemed unreasonably restrictive
or unreasonable in any other respect in any proceeding before
a court of competent jurisdiction, Key Employee and Employer
agree and consent to such court's modifying or reducing such
restriction(s) with respect, but only with respect, to that
jurisdiction to the extent deemed reasonable under the
circumstances then presented.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
a. For purposes of this Agreement, "Confidential Information"
means all information or trade secrets of any type or
description belonging to Employer which are proprietary and
confidential to Employer and which are not publicly disclosed
or are only disclosed with restrictions. Without limiting the
generality of the foregoing, Confidential Information
includes: strategic and other plans for carrying on business;
cost data and other financial information; lists of customers,
employees, vendors and business partners and alliances;
manufacturing methods and processes; product research and
engineering data, drawings, designs and schematics; computer
programs, flow charts, routines, subroutines, translators,
compilers, operating systems and object and source codes;
specifications, inventions, know-how, calculations and
discoveries; any letters, papers, documents and instruments
disclosing or reflecting any of the foregoing; and all
information revealed to or acquired or created by Key Employee
during Key Employee's employment by Employer relating to any
of the foregoing or otherwise to Employer's past, current or
future business.
b. Key Employee acknowledges that the discharge of Key Employee's
duties under this Agreement will necessarily involve his
access to Confidential Information. Key Employee acknowledges
that the unauthorized use by him or disclosure by him of such
Confidential Information to third parties might cause
irreparable damage to Employer and Employer's business.
Accordingly, Key Employee agrees that at all times after the
date hereof he will not, without the prior written consent of
Employer's Board of Directors, copy, publish, disclose,
divulge to or discuss with any third party, nor use for his
own benefit or that of others any Confidential Information,
except in the normal conduct of his duties under this
Agreement, it being understood and acknowledged by Key
Employee that all Confidential Information created, compiled
or obtained by Key Employee or Employer, or furnished to Key
Employee by any person while Key Employee is associated with
Employer, is and shall be and remain Employer's exclusive
property.
c. Promptly upon termination of his employment, irrespective of
the time or manner thereof or reason therefor, Key Employee
agrees to return and surrender to Employer all Confidential
Information copies thereof in any form which is in any manner
in his control or possession, as well as all other Employer
property.
8. RIGHTS. Key Employee acknowledges and agrees that any procedure,
design feature, schematic, invention, improvement, development,
discovery, know-how, concept, idea or the like (whether or not
patentable, registrable under copyright or trademark laws, or
otherwise protectable under similar laws) that Key Employee
(whether individually or jointly with any other person or persons)
has since the inception of his employment with Employer conceived
of, suggested, made, invented, developed or implemented, or may
hereafter conceive of, suggest, make, invent, develop or
implement, during the course of his service to Employer which
relates in any way to the business of Employer or to the general
industry of which Employer is a part, all physical embodiments and
manifestations thereof, and all patent rights, copyrights and
trademarks (and applications therefor) and similar protections
thereof (all of the foregoing referred to as "Work Product") are
and shall be
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<PAGE> 6
the sole, exclusive and absolute property of Employer. All Work
Product shall be deemed to be works for hire for the benefit of
Employer, and to the extent that any Work Product may not
constitute a work for hire, Key Employee hereby assigns to
Employer all right, title and interest in, to and under such Work
Product, including, without limitation, the right to obtain such
patents, copyright registrations, trademark registrations or
similar protections as Employer may desire to obtain. Key Employee
will immediately disclose all Work Product to Employer and agrees,
at anytime, upon Employer's request and without additional
compensation, to execute any documents and otherwise to cooperate
with Employer (including, without limitation, all lawful testimony
and sworn statements or other certifications as may be
appropriate) respecting the perfection of its right, title and
interest in, to and under such Work Product and in any litigation
or administrative or other proceeding or controversy in connection
therewith, all expenses incident thereto be borne by Employer.
9. INDUCEMENT; REMEDIES INADEQUATE; AND SURVIVAL.
a. The covenants made by Key Employee in favor of Employer under
paragraphs 6, 7 and 8 and this paragraph 9 are being executed
and delivered by Key Employee in consideration of Key
Employee's employment with Employer and Employer's obligations
hereunder (including, without limitation, the Base Salary, the
Bonus Compensation and other benefits and payments provided
for herein). Key Employee further acknowledges that such
covenants were and have been conditions of his employment
since the inception of Key Employee's employment with
Employer.
b. Key Employee has carefully considered, and has had adequate
time and opportunity to consult with his own counsel or other
advisors regarding the nature and extent of the restrictions
upon him, and the rights and remedies conferred upon Employer,
under paragraphs 6, 7 and 8 and this paragraph 9, and hereby
acknowledges and agrees that such restrictions are reasonable
in time, territory and scope, are designed to eliminate
competition which otherwise would be unfair to Employer, do
not stifle the inherent skill and experience of Key Employee,
would not operate as a bar to Key Employee's sole means of
support, are fully required to protect the legitimate
interests of Employer and do not confer a benefit upon
Employer disproportionate to the detriment to Key Employee.
c. Key Employee acknowledges that the services to be rendered by
him to Employer as contemplated by this Agreement are special,
unique and of extraordinary character. Key Employee expressly
agrees and understand that the remedy at law for any breach by
him of paragraph 6, 7 or 8 will be inadequate and that the
damages flowing from such breach are not readily susceptible
to being measured in monetary terms. Accordingly, upon
adequate proof of Key Employee's violation of any legally
enforceable provision of paragraph 6, 7 or 8, Employer shall
be entitled to immediate injunctive relief, including, without
limitation, a temporary order restraining any threatened or
further breach. In the event any equitable proceedings are
brought to enforce any provision of paragraphs 6, 7 and 8, Key
Employee agrees that he will not raise in such proceedings any
defense that Employer has an adequate remedy at law, and Key
Employee hereby waives any such defense. Nothing in this
Agreement shall be deemed to limit Employer's remedies at law
or in equity for any breach by Key Employee of any of the
provisions of paragraphs 6, 7 and 8 which may be pursued or
availed of by Employer. Without limiting the generality of the
immediately preceding sentence, any covenant on Key Employee's
part contained in paragraph 6, 7 or 8 which may not be
specifically enforceable shall nevertheless, if breached, give
rise to a cause of action for monetary damages.
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<PAGE> 7
d. As used in paragraphs 6, 7 and 8 and in this paragraph 9, the
term "Employer" (other than with respect to the Board of
Directors) shall include, in addition to Employer, all
subsidiaries and other affiliates of Employer, whether so
related to Employer during Key Employee's employment with
Employer or at any time thereafter.
e. Subject only to such time limitations as may be expressly set
forth therein, the covenants and agreements made by Key
Employee in paragraphs 6, 7 and 8 and this paragraph 9 shall
survive full payment by Employer to Key Employee of the
amounts to which Key Employee is entitled under this Agreement
and the termination of this Agreement and Key Employee's
employment hereunder or otherwise. The provisions of
paragraphs 6, 7 and 8 and this paragraph 9, and to the extent
applicable thereto, paragraphs 13 through 20, shall continue
to apply to and be binding upon Key Employee in the event and
for so long as Key Employee shall remain in the employ of
Employer following any termination under this Agreement and
for such post-employment period as may there be specified but
measured from the end of such continued employment.
10. ASSIGNMENT OF KEY EMPLOYEE'S RIGHTS. In no event shall Employer be
obligated to make any payment under this Agreement to any assignee
or creditor of Key Employee. Prior to the time provided for the
making of any payment under this Agreement, neither Key Employee
nor his legal representative shall have any right by way of
anticipation or otherwise to assign or otherwise dispose of any
interest under this Agreement.
11. RIGHT OF SET-OFF. Any payments to be made to Key Employee under
this Agreement shall be subject to offset by Employer for any
claims for damages, liabilities or expenses which it may have
against Key Employee.
12. EMPLOYER'S OBLIGATIONS UNFUNDED. Except as to any benefits that
may be required to be funded under any benefit plan of Employer
pursuant to law or under any other written agreement, the
obligations of Employer under this Agreement are not funded, and
Employer shall be not required to deposit in escrow or otherwise
set aside any moneys in advance of the due date for payment
thereof to Key Employee.
13. NOTICES. Any notice to be given hereunder by Employer to Key
Employee shall be deemed to be given if delivered to Key Employee
in person, or if mailed to Key Employee, by certified mail,
postage prepaid, return receipt requested, at his address last
shown on the records of Employer, and any notice to be given by
Key Employee to Employer shall be deemed to be given if delivered
in person or by mail, postage prepaid, return receipt requested to
the Chief Executive Officer at Employer's principal executive
office, unless Key Employee or Employer shall have duly notified
the other parties in writing of a change of address. If mailed,
notice shall be deemed to have been given when deposited in the
mail as set forth above.
14. AMENDMENTS. This Agreement shall not be modified or discharged, in
whole or in part, except by an agreement in writing signed by the
parties hereto.
15. ENTIRE AGREEMENT. This Agreement, together with any and all other
written agreement(s) made contemporaneously herewith, constitute
the entire agreement between the parties with respect to Key
Employee's employment by Employer from and after the Effective
Date. The parties are not relying on any other representation or
understanding with respect thereto, express or implied, oral or
written. This Agreement, as supplemented by such contemporaneous
agreement(s), supersedes any prior employment agreement, written
or oral, between Key Employee and Employer.
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<PAGE> 8
16. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not affect the meaning of any
terms or provisions hereof.
17. GENDER AND NUMBER. Whenever the context may permit, any pronouns
used herein shall include the corresponding masculine, feminine
and neuter forms, and the singular form of any noun or pronoun,
including any terms defined herein, shall include the plural and
vice versa.
18. BINDING EFFECT. The rights and obligations of Employer hereunder
shall inure to the benefit of, and shall be binding upon, Employer
and its respective successors and assigns, and the rights and
obligations of Key Employee hereunder shall inure to the benefit
of, and shall be binding upon, Key Employee and his heirs,
personal representatives and estate.
19. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable in any jurisdiction, in
whole or in part, the remaining provisions and any partially
enforceable provision shall be binding and enforceable to the
extent enforceable in such jurisdiction.
20. GOVERNING LAW. This Agreement shall be interpreted, construed, and
enforced in all respects in accordance with the laws of the State
of Ohio.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Effective Date.
TELXON CORPORATION KEY EMPLOYEE
By: /s/ Frank E. Brick /s/ Danny R. Wipff
----------------------------------- ------------------
Frank E. Brick Danny R. Wipff
President & Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.1.15
DESCRIPTION OF KEY EMPLOYEE RETENTION PROGRAM
Because of the possibility of a change in control inherently faced by a
public company, the Board of Directors of Telxon Corporation has determined it
to be in the best interest of the Company and its stockholders that, in order to
promote the retention and continued attention and dedication of key employees,
and to minimize the detrimental effects on the Company and its stockholders from
the departure or distraction of management, during the pendency of any proposed
or attempted change in control, key employees be provided with the severance
benefits described in the specimen agreement included as Exhibit 10.1.15.a to
this Annual Report on Form 10-K. Accordingly, the Board of Directors has
authorized the Company's Chief Executive Officer to select those key employees
to whom such severance benefits should be extended so as to secure for the
Company and its stockholders the benefits of their continued services under such
circumstances, including their assessment and advice to the Board of Directors
as to whether any proposed change in control would be in the best interests of
the Company and its stockholders. Agreements in the form of Exhibit 10.1.15.a
have been entered into with all of the Company's executive officers (other than
the Company's President and Chief Executive Officer, Frank E. Brick, whose
severance benefits in the event of a change of control are already established
by his Employment Agreement included as Exhibit 10.1.9 to this Annual report on
Form 10-K) and certain additional key employees of the Company.
<PAGE> 1
EXHIBIT 10.1.15.a
_________________, 1998
Mr./Ms.______________
Telxon Corporation
_____________________
_____________________
_____________________
Dear______________:
Telxon Corporation (the "Company") considers the maintenance of a sound
and vital management to be essential to protecting and enhancing the best
interests of the Company and its stockholders. As a publicly held corporation,
the Company recognizes the possibility that a change in its control may arise
and that the uncertainty and questions which it may raise among management may
result in the departure or distraction of management to the detriment of the
Company and its stockholders. Accordingly, in order to induce you to remain in
the employ of the Company and to secure for the Company and its stockholders the
benefits of your continued attention and dedication during the pendency of any
proposed or attempted "Change in Control" (as defined below), including your
assessment and advice to the Company's Board of Directors (the "Board") as to
whether any such proposal would be in the best interests of the Company and its
stockholders, the Board has determined to extend to you the severance benefits
set forth in this letter agreement (this "Agreement"), which supplements any
employment agreement now existing or hereafter entered into between you and the
Company (your "Employment Agreement", if any) and any rights or benefits to
which you may be entitled under any Plans (as defined below), in the event your
employment with the Company is terminated subsequent to a Change in Control.
1. TERMINATION FOLLOWING A CHANGE IN CONTROL.
If, within twenty-four (24) months after any Change in Control shall
have occurred, your employment by the Company shall be terminated (1) by the
Company other than for "Cause" or "Disability" or at normal retirement age or
(2) by you for "Good Reason" (as each of the foregoing capitalized terms is
defined below), then, by no later than the fifth (5th) day following the date of
termination (except as otherwise provided in this Agreement), you shall be
entitled, notwithstanding any contrary provisions of your Employment Agreement
or any Plan, to receive the following benefits:
(a) Salary paid through the date of termination at the rate in effect
immediately prior thereto, plus any benefits or awards (whether to be
provided in cash, stock or other right or property) which have been
earned or become payable, but which have not yet been paid to you,
pursuant to the terms of any compensation plan, such as a bonus,
incentive, stock option, restricted stock or stock appreciation right
plan, any benefit plan, such as a thrift, pension, retirement, 401(k),
profit-sharing, health, disability, accident or life insurance plan,
any vacation or relocation plan or policy or any other plan, program or
policy of the Company intended to benefit all, or any designated group
of, Company employees (each of the foregoing constituting a "Plan");
and
<PAGE> 2
(b) A lump sum severance payment equal to two (2) times your annual
salary as in effect immediately prior to the Change in Control, which
severance pay shall be in lieu of any severance pay which may be
payable to you under your Employment Agreement unless a greater amount
of severance pay would be payable to you thereunder, in which event you
shall be entitled to receive a lump sum cash payment of such greater
amount in lieu of the severance pay provided for in this Subparagraph
(b).
(c) Continued benefits (or if unavailable under the general terms and
provisions of the applicable Plan, their equivalent) for you and your
dependents, for a period terminating on the earliest of (a) two (2)
years after your employment termination, (b) the commencement date of
equivalent benefits from a new employer, or (c) your normal retirement
date (after which the terms of any retirement Plan shall govern), under
all insured and self-insured employee welfare benefit Plans in which
you were entitled to participate immediately prior to such termination
date, provided that you shall not be required to pay any amount greater
than the regular contribution made by you for such participation
immediately prior to such termination date.
Except as specifically provided in Subparagraph (c) immediately above, the
amount of any payment or benefits provided for in this Agreement shall not be
reduced, offset or subject to recovery by the Company by reason of by any
compensation earned by you as the result of your employment by another employer,
by retirement benefits, by any amount claimed to be owing by you to the Company
or otherwise.
2. "CHANGE IN CONTROL" DEFINED.
For purposes of this Agreement:
(a) A "Change in Control" is deemed to have occurred upon (i) any
Person is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934 (as amended, the "Exchange
Act")), directly or indirectly, of fifteen percent (15%) or more of the
combined voting power of the Company's Voting Securities, or (ii) the
holders of the Company's securities entitled to vote thereon approve,
or there otherwise occurs or is commenced, a sale, lease, exchange or
other disposition of all or substantially all the assets, or the
dissolution or liquidation, of the Company, or any merger,
consolidation or reorganization to which the Company is a party and as
the result of which the Company's stockholders prior to the transaction
do not own at least fifty percent (50%) of the voting power of the
surviving entity in the election of directors, or (iii) "Continuing
Directors" (as defined below) cease for any reason to constitute at
least a majority of the Board, or (iv) any other event occurs which is
of such a nature that would be required to be reported as a change in
control in response to Item 1(a) of the Current Report on Form 8-K, as
in effect on the date hereof pursuant to Section 13 or 15(d) of the
Exchange Act, or similar successor public filing; provided, however,
that any such event shall not be deemed to be a Change in Control if it
results in you, or a group of Persons which includes you, acquiring,
directly or indirectly, fifteen percent (15%) of more of the combined
voting power of the Company's Voting Securities;
(b) "Continuing Directors" means and includes the persons constituting
the Board as of the date of this Agreement as well as each person who
becomes a director of the Company subsequent to the date of this
Agreement whose election, or nomination for election by the Company's
stockholders, was approved by an affirmative vote of at least a
majority of the then Continuing Directors (either by a specific vote or
by approval of the proxy statement of the Company in which such person
is named as a nominee for director or of the inclusion of such person
in such
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<PAGE> 3
proxy statement as such a nominee, in any such case without objection
by any member of such approving majority of the then Continuing
Directors to the nomination of such person or the naming of such person
as a director nominee), for so long as each such director shall remain
in office;
(c) "Person" means and includes any individual, corporation,
partnership, group, association or other "person", as such term is used
in Section 14(d) of the Exchange Act, but excluding the Company or any
employee benefit plan sponsored by the Company; and
(d) "Voting Securities" means the Company's Common Stock, par value
$0.01 per share, and any and all other then outstanding Company
securities ordinarily having the right to vote generally in the
election of the Company's directors.
3. GROUNDS FOR TERMINATION OF EMPLOYMENT.
(a) Termination of your employment based on "Disability" means
termination because of your absence from your duties with the Company on a full
time basis for one hundred eighty (180) consecutive days as a result of your
incapacity due to physical or mental illness, unless you return to the full-time
performance of your duties within thirty (30) days after the Company gives
written notice to you of its intent to terminate your employment due to such
absence, you shall have returned to the full-time performance of your duties.
(b) Termination of your employment for "Cause" means termination for
any action or inaction on your part which is adverse to the Company's interests,
including, without limitation, your dishonesty, grossly negligent misconduct,
willful misconduct, disloyalty, act of bad faith, neglect of duty or material
breach of your Employment Agreement or of any Company policy applicable to its
employees generally.
(c) Any of the following shall constitute "Good Reason" for the
termination of your employment:
(i) any change, without your prior written consent, in your status
(other than the fact that the Company may no longer be publicly
traded), positions or job responsibilities which you consider to be a
reduction in, or the assignment to you of any duties or
responsibilities which you consider to be inconsistent with, your
status, positions or responsibilities as in effect immediately prior to
the Change in Control (other than as the result of your death or the
termination of your employment by the Company for Cause, Disability or
at normal retirement age or by you other than for Good Reason);
(ii) a reduction by the Company, without your prior written consent, in
your base salary, or in the level of benefits provided to you and your
dependents under any Plan, as in effect immediately prior to the Change
in Control;
(iii) the Company's requiring you, without your express written
consent, to be based anywhere other than, or to relocate from, the
metropolitan area where your office is located immediately prior to the
Change in Control;
Your right to terminate your employment pursuant to this Subparagraph (c) shall
not be affected by your incapacity due to physical or mental illness. A
termination of employment by you shall be for Good Reason if one of the
occurrences specified in this Subparagraph (c) shall have occurred,
notwithstanding
-3-
<PAGE> 4
that you may have an offer of employment from another employer or any other
reason(s) for terminating your employment with the Company.
4. TAXES.
(a) All payments to be made to you under this Agreement will be subject
to required withholding of federal, state and local income and employment taxes.
(b) Notwithstanding anything in this Agreement to the contrary, if any
portion of any of the payments and benefits provided for in this Agreement,
together with any other payments and benefits which you have the right to
receive from the Company, its successors or any Person whose actions result in a
Change in Control, would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended, or any successor statutory
provision ("Parachute Payments"), the Company shall pay to you, within five (5)
days of your receipt of such payments and benefits, such additional amounts as
are necessary so that, after taking into account any tax imposed by said Section
4999 or any successor statutory provision on any such Parachute Payments and on
any payments made pursuant to this Subparagraph (b), you are in the same
after-tax position in which you would have been if said Section 4999 or any
successor statutory provision did not apply and no payments were made pursuant
to this Subparagraph (b).
5. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company and its successors and assigns. The Company will require any
"Successor" (as defined below), by agreement in form and substance satisfactory
to you, to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform under this
Agreement if no such succession had taken place. Failure of the Company to
obtain such assumption and agreement within one (1) business day after any
Person becomes a Successor shall constitute Good Reason for termination by you
of your employment. For purposes of this Agreement: (i) "Successor" shall mean
any Person that, through one or a series of transaction(s), succeeds to, or has
or obtains the practical ability to control (either immediately or with the
passage of time), all or substantially all of the Company's business directly,
by merger, consolidation, purchase or lease of assets or otherwise, or
indirectly, by purchase of the Company's Voting Securities or otherwise; and
(ii) the "Company" shall mean the Company as hereinbefore defined and any
Successor which executes and delivers the agreement provided for in the first
sentence of this Subparagraph (a) or which by operation of law or otherwise
becomes bound by the terms of this Agreement.
(b) This Agreement shall be binding upon you and shall inure to the
benefit of and be enforceable by you and your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
(c) The Company expressly acknowledges and agrees that this Agreement
creates in you a contractual right to the payments and benefits provided
hereunder and expressly waives any right it may have to deny or otherwise seek
to avoid liability for any breach of its contractual obligations hereunder on
grounds of lack of consideration, accord and satisfaction or any other defense.
The Company shall pay all legal fees and related expenses you incur in
protecting, obtaining or enforcing any right or benefit provided by this
Agreement.
-4-
<PAGE> 5
(d) Prior to the occurrence of any Change in Control, this Agreement
(i) shall terminate immediately upon any termination of your employment and (ii)
provided that no offer or other proposal of a transaction or event which, if
consummated, would constitute a Change in Control has been publicly announced
and such offer or proposal has not then been terminated, rescinded or otherwise
abandoned, may be terminated by Board in the event you are re-assigned by the
Company to a position carrying duties and responsibilities of lesser stature
than the position in which you are serving as of the date hereof.
(e) This Agreement shall be interpreted, construed and enforced in all
respects in accordance with the laws of the State of Delaware.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter.
Sincerely,
TELXON CORPORATION
By:
-------------------------------------
Frank E. Brick
President and Chief Executive Officer
Agreed to as of the date first above written.
---------------------------------------
[Key Employee]
Address of Employee:
------------------------
------------------------
-5-
<PAGE> 1
EXHIBIT 10.1.17
[TELXON LOGO]
December 29, 1997
Robert A. Goodman, Esq.
GOODMAN WEISS MILLER LLP
100 Erieview Plaza, 27th Floor
Cleveland, OH 44114-1824
Re: Consulting Agreement
Dear Mr. Goodman:
Telxon Corporation (the "Company") considers it essential to the best
interests of the Company that the Company continue to have your advice available
to it on an advisory basis. In order to induce you to act as a consultant to the
Company, the Company has offered, and you have accepted, the compensation set
forth in this letter agreement (the "Agreement").
1. Services to be Provided. You agree to perform such consulting
services as the Company may reasonably require from time to time during the
Term, which consulting services shall consist of advising management of the
Company with respect to legal matters relating to the Company's business. The
Company acknowledges and accepts that you may provide consulting and other
services to other companies in addition to the consulting services provided
hereunder and, accordingly, the Company agrees that you shall not be restricted
in any manner whatsoever by this Agreement from providing services to any other
person or entity and that the agreements set forth herein are entered into upon
a non-exclusive basis.
2. Compensation. You shall be paid consulting fees at the rate of
$150,000 per annum, payable in arrears on the last day of each month (the total
amount of such payments over the course of the Term being hereinafter referred
to as the "Consulting Payments"). The Company shall promptly reimburse you for
all reasonable expenses incurred by you in performing services pursuant to the
terms hereof during the Term, provided that you properly account therefor in
accordance with Company policies as in effect from time to time and of which you
are made aware.
3. Term. The term of this Agreement (the "Term") shall commence on the
earliest of (a) the date on which you withdraw from your current law firm,
Goodman Weiss Miller (the "Firm") (other than by reason of death or Disability
(as determined below)), (b) the date on which
Telxon Corporation
3330 West Market Street/P.O. Box 5582/Akron, Ohio 44334-0582
(330) 664-1000/800-800-8001/Fax (330) 664-2220
Telxon's World Wide Web site address is: http://www.telxon.com
<PAGE> 2
Robert A. Goodman, Esq. [TELXON LOGO]
GOODMAN WEISS MILLER LLP
December 29, 1997
Page -2-
you become of counsel to the Firm or (c) the date on which the Firm ceases to be
the Company's primary outside counsel (such earliest date being hereinafter
referred to as the "Effective Date"), and shall expire on the tenth anniversary
of the Effective Date, unless sooner terminated pursuant to the provisions of
this Agreement. Should you withdraw from the Firm by reason of death or
Disability or should a Change in Control (as hereinafter defined) occur prior to
the commencement of the Term, this Agreement shall be null and void and of no
force and effect. For purposes of this Section 3, whether or not you have
withdrawn from the Firm by reason of Disability shall be determined in
accordance with the applicable plans, policies and agreements maintained by the
Firm.
4. Termination. (a) Good Reason. You may terminate this Agreement for
"Good Reason," which shall mean a material breach of this Agreement by the
Company which is not cured within ten (10) business days of receipt by the
Company of written notice from you of such breach. If this Agreement is
terminated for Good Reason, you shall be entitled to receive, within ten (10)
days following such termination, a lump sum cash payment equal to that portion
of the Consulting Payments which otherwise would be payable over the remainder
of the original ten-year term.
(b) Cause. The Company may terminate this Agreement for
"Cause," which shall mean a material breach of this Agreement by you which is
not cured within ten (10) business days of receipt by you of written notice
from the Company of such breach. If this Agreement terminates for Cause, you
shall not be entitled to any further compensation under this Agreement.
(c) Death, Disability. This Agreement shall terminate upon
your death or Disability during the Term. For purposes of this Section 4,
Disability shall mean that as a result of your incapacity due to physical or
mental illness, which incapacity is likely to be permanent in nature, you shall
be unable to perform services for the Company as contemplated hereunder. If this
Agreement terminates by reason of your death or Disability, you (or your legal
representative, as applicable) shall be entitled to receive, within ten (10)
days following such termination, a lump sum cash payment equal to that portion
of the Consulting Payments which otherwise would be payable over the remainder
of the original ten-year term.
(d) Change in Control. This Agreement shall terminate upon the
occurrence during the Term of a Change in Control. If this Agreement terminates
by reason of the occurrence of a Change in Control, you shall be entitled to
receive, within ten (10) days following such termination, a lump sum cash
payment equal to that portion of the Consulting Payments which otherwise would
be payable over the remainder of the original ten-year term.
<PAGE> 3
Robert A. Goodman, Esq. [TELXON LOGO]
GOODMAN WEISS MILLER LLP
December 29, 1997
Page -3-
For purposes of this Agreement, a "Change in Control" shall be deemed
to have occurred if the event set forth in any one of the following paragraphs
shall have occurred:
(i) the acquisition, directly or indirectly, of at
least 30% of the outstanding common stock of, or voting power in, the
Company calculated on a fully diluted basis;
(ii) a merger or consolidation of the Company with
any company other than one in which the Company then owns at least a
majority of the outstanding common stock or voting power;
(iii) a sale (whether in one or a series of
transactions) of all or substantially all of the assets of the
Company;
(iv) any recapitalization, restructuring or
liquidation of the Company; or
(v) events, during any period of two consecutive
years, as a result of which individuals who at the beginning of any
such period constitute the Directors of the Company cease for any
reason to constitute at least a majority thereof, provided, however,
that for purposes of this clause (v) each director who is first
appointed or elected by the Board or whose nomination for election by
the Company's stockholders was approved or recommended by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors on the date hereof or whose appointment, election or
nomination was previously so approved or recommended will be deemed to
have been a Director of the Company at the beginning of such period.
5. Confidential Information. During the Term and at all times
thereafter, you shall not, without the prior written consent of the Company
(except as may be required in connection with any judicial or administrative
proceeding or inquiry) disclose to any person, other than an officer or director
of the Company or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance of your duties hereunder, any
material confidential information obtained by you while consulting with the
Company or otherwise with respect to its business, assets or operations,
including, but not limited to, material confidential information relating to the
properties, accounts, books, records, supplies, trade secrets and contracts of
the Company.
<PAGE> 4
Robert A. Goodman, Esq. [TELXON LOGO]
GOODMAN WEISS MILLER LLP
December 29, 1997
Page -4-
6. Return of Documents. Upon termination of your consultancy for any
reason, you agree to return all documents and other property provided to you or
prepared by you during your consultancy with the Company.
7. Consultant's Independence and Discretion.
(a) Nothing herein contained shall be construed to constitute
the parties hereto as partners or as joint venturers, or either as agent of the
other, or as employer and employee. By virtue of the relationship described
herein, your relationship to the Company during the Term of this Agreement shall
only be that of an independent contractor and you shall perform all services
pursuant to this Agreement as an independent contractor. You shall not provide
any services under the Company's business name and shall not present yourself as
an employee of the Company.
(b) Subject only to such specific limitations as are contained
in this Agreement, the manner, means, details or methods by which you perform
your obligations under this Agreement shall be solely within your discretion.
The Company shall not have the authority to, nor shall it, supervise, direct or
control the manner, means, details or methods utilized by you to perform your
obligations under this Agreement and nothing in this Agreement shall be
construed to grant the Company any such authority.
(c) The Company shall have no responsibility to you to
withhold, and does not intend to withhold, any amounts from payments advanced to
you on account of withholding taxes or other employment taxes.
8. Disputes; Legal Expenses. Any controversy or claim arising out of or
relating to this Agreement, or any breach hereof, shall be settled by submitting
the mater to binding arbitration in Cleveland, Ohio by and pursuant to the
rules of the American Arbitration Association then in effect. The determination
of the arbitrator shall be conclusive and binding on the Company and you, and
judgment may be entered on the arbitrator's award in any court of competent
jurisdiction. The Company shall pay to you all legal fees and expenses incurred
by you in disputing in good faith any issue hereunder relating to the
termination of your service or any benefit or right provided by this Agreement.
Such payments shall be made within five (5) business days after delivery of your
written request for payment accompanied by such evidence of fees and expenses
incurred as the Company reasonably may require.
9. Notice. For the purpose of this Agreement, notice and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given
<PAGE> 5
Robert A. Goodman, Esq. [TELXON LOGO]
GOODMAN WEISS MILLER LLP
December 29, 1997
Page -5-
when delivered or mailed by United States registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth on
the first page of this Agreement, provided that all notices to the Company shall
be directed to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
10. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge shall be
agreed to in writing and signed by you and by a duly authorized officer of the
Company. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. All descriptive
headings in this Agreement are inserted for convenience only and shall be
disregarded in construing or applying any provision of this Agreement. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Delaware. The obligations under Sections
2, 4, 5 and 6 shall survive the expiration of this Agreement or the termination
of the consulting relationship.
11. Successors; Binding Agreement. (a) The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company or its affiliates would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same terms as you
would be entitled to pursuant to the terms hereof if you were to terminate your
consultancy for Good Reason. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
<PAGE> 6
Robert A. Goodman, Esq. [TELXON LOGO]
GOODMAN WEISS MILLER LLP
December 29, 1997
Page -6-
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
If you agree that this letter sets forth our agreement on the subject
matter hereof, please sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
TELXON CORPORATION
By: /s/ Frank E. Brick
_________________________
Name: Frank E. Brick
_________________
Title: President & CEO
_________________
Agreed to this _____ day of ________________, 1997.
/s/ Robert A. Goodman
________________________
Robert A. Goodman
<PAGE> 1
EXHIBIT 10.2.2
LEASE AGREEMENT
VENTURE TECHNOLOGY CENTER VII BUILDING
8302 NEW TRAILS DRIVE, SUITE 100
THE WOODLANDS, MONTGOMERY COUNTY, TEXAS
THIS LEASE AGREEMENT (the "Lease") is made and entered into on this
the________ day of_______________ , 1997, between THE WOODLANDS COMMERCIAL
PROPERTIES COMPANY, L.P., a Texas limited partnership, ("Lessor"), and TELXON
CORPORATION, a Delaware corporation, ("Lessee").
l. Premises. Lessor hereby leases to Lessee and Lessee hereby takes
from Lessor, 69,671 net rentable square feet of floor space ("Premises"),
together with all appurtenances thereto, in a building known and referred to as
Venture Technology Center VII Building ("Building"), located at 8302 New Trails
Drive, The Woodlands, Montgomery County, Texas. The Building is located on
Restricted Reserve "A", being that certain 7.754 acre tract of land, out of The
Woodlands Medical Research Park Section 7, according to the map or plat thereof
recorded in Cabinet J, Sheet 69 of the Real Property Records of Montgomery
County, Texas, as more particularly described in Exhibit "A" attached hereto
("Land"). The Building will contain 69,671 net rentable square feet of floor
space. The Premises are shown on the floor plan attached hereto as Exhibit
"A-1". Lessor reserves the right to change the name of the Building whenever it
desires without any liability or consent of Lessee.
2. Loading Dock and Parking. In addition to the Premises, Lessee and
its invitees are hereby granted the exclusive right to use the loading dock for
the Building. Lessee shall also have the right to park 243 automobiles in the
parking areas provided by Lessor on the Land, and the nonexclusive right to park
25 automobiles in the parking area located on both the Land and lands southeast
of the Land ("Shared Parking Area") shown on the site plan attached as Exhibit
"G" attached hereto. Lessor shall keep in good condition throughout the Term
described below the parking areas for and vehicular access ways to the Premises.
There will be no parking fees charged to Lessee during the Term or any renewal
thereof pursuant to the terms of this Lease. The use of such loading dock and
parking and access areas shall at all times be subject to such reasonable rules
and regulations as Lessor may promulgate.
3. Term. The term of this Lease ("Term") shall commence on that date
("Commencement Date") which is the earlier of (i) June 1, 1998, or (ii) 30 days
after the date of substantial completion of the Premises, including leasehold
improvements within the space as described in the Tenant Improvement Addendum
("Tenant Improvement Addendum") attached hereto as Exhibit "B", so long as
during the 30 day period, the Premises are used only for the purposes of moving
in office furniture and equipment and telephone and cable installation, or (ii)
occupancy of the Premises for the purpose of conducting the business described
in Section 4, and shall expire on the last day of the one hundred and
twenty-first (121st) full calendar month following the Commencement Date,
subject to earlier termination as hereinafter provided. Lessor shall not be
liable or responsible for any claims, damages or liabilities of any nature
whatsoever in connection with or by reason of any delayed occupancy, except that
if the Premises are not substantially complete by October 1, 1998,
<PAGE> 2
Lessee may terminate the Lease by written notice to Lessor at any time prior to
substantial completion. Within 15 days following Lessee's receipt from Lessor of
a memorandum of this Lease specifying the Commencement Date, the date of
expiration of the Term, and the Base Rent (as described in Section 7 hereof)
Lessee agrees to execute the memorandum.
4. Use. Lessee shall use the entire Premises solely for general office
and engineering design, product development, and incidental uses related
thereto, and for no other use.
5. Acceptance of the Premises. Upon taking possession of all or any
portion of the Premises, Lessee shall be deemed to have accepted the Premises,
to have acknowledged that the same are in the condition called for hereunder and
to have agreed that the obligations of the Lessor imposed by the Tenant
Improvement Addendum have been fully performed. Lessee hereby waives any implied
warranty, except as may be provided for in the Tenant Improvement Addendum, of
Lessor that the Premises are suitable for their intended commercial purpose and
acknowledges and agrees that all of Lessee's obligations hereunder (including
without limitation, the obligation to pay rent) are independent of any such
implied warranty and agrees to perform all such obligations and pay rent
notwithstanding any breach or allegation of breach by Lessor of any such implied
warranty (which implied warranty as aforesaid is hereby waived by Lessee).
6. Security Deposit. INTENTIONALLY DELETED.
7. Base Rent. The Base Rent, which Lessee hereby agrees to pay to
Lessor monthly, in advance, at Lessor's address stated above, shall be the
monthly sum calculated as described in Article 8 of the Tenant Improvement
Addendum, due and payable on the first day of each calendar month during the
Term hereof, without offset or deduction, with a pro rata portion being due and
payable in advance for any partial month occurring at the beginning of the Term.
8. Additional Rent. Lessee agrees to pay all Operating Expenses (as
defined in Section 10 below) for the Premises. Prior to the Commencement Date,
Lessor will provide Lessee a statement showing Lessor's reasonable estimate of
the Operating Expenses for the then current Fiscal Year and the Additional Rent
due. Within 90 days following the completion of each Fiscal Year thereafter,
Lessor will provide to Lessee a statement showing in reasonable detail the
Operating Expenses for the preceding Fiscal Year, the Additional Rent due, and
Lessor's reasonable estimate of Operating Expenses for the then current Fiscal
Year. A listing of the current categories of Operating Expenses ("Operating
Expense Categories") used by Lessor are set out in Exhibit "E" attached hereto.
The Operating Expense Categories may change from time to time in Lessor's
reasonable discretion. Lessee shall, on or before 30 days following receipt of
said statement, pay to Lessor the amount of Additional Rent due as provided
herein, less the amount of Additional Rent paid in advance (if any) during the
preceding Fiscal Year. Any overpayment will be paid to Lessee within 30 days of
the determination of such overpayment. Lessee agrees to pay Additional Rent each
month thereafter, in addition to Base Rent, in an amount necessary to amortize
the estimated Operating Expenses for the then current Fiscal Year over a period
equal to the lesser of (i) the number of months remaining in the Term on a pro
rata basis or (ii) the number of months remaining in the current Fiscal Year.
Notwithstanding that the Term has expired or been terminated, Lessee shall
remain liable for and agrees to pay to Lessor within 30 days following receipt
of an invoice therefor, its pro rata share of Operating Expenses for the Fiscal
Year during which the Term expired or was
2
<PAGE> 3
terminated, but only for those months prior to expiration of the Term. The term
"Fiscal Year", as used herein, shall mean Lessor's fiscal year for accounting
purposes which currently is the 12-month period beginning January 1 and ending
December 31. Lessor shall have the right to change the Fiscal Year, from time to
time, and, in such event, Lessor shall notify Lessee in writing of such change.
Lessee shall have the right, at its sole expense and at a reasonable time within
2 years after the date the statement is provided to Lessee, to audit Lessor's
books relevant to the Additional Rent due under this Section. If any audit,
which is not being paid for on a "contingency" basis, determines a discrepancy
of 5% or more in the total (aggregate) Operating Expenses, Lessor shall
reimburse Lessee for the reasonable costs of the audit, not to exceed $2,500.00.
9. Payment of Rentals. Lessee covenants to promptly pay all rentals
when due and payable. Lessor shall have the right to charge a late charge of 10%
of any payment of Base Rent or Additional Rent which is more than 10 days past
due in order to compensate Lessor for the extra administrative expenses
incurred. Lessor shall bill Lessee for any applicable late charge.
Notwithstanding anything contained herein to the contrary, the late charge will
be waived the first 2 times during each Fiscal Year the rental is more than 10
days past due provided Lessee pays the late rental within 5 business days after
written notice from Lessor. If Lessor shall pay any monies or incur any expenses
in correction of violations of the covenants herein set forth applicable to
Lessee, the amounts so paid or incurred shall, on notice to Lessee, be
considered additional rent payable by Lessee with the first installment of Base
Rent thereafter to become due and payable, and may be collected or enforced as
by law provided in respect of rentals.
10. Operating Expenses. The term "Operating Expenses" means all of
Lessor's costs, expenses and disbursements (but not acquisition of capital
investment items, except as hereinafter expressly provided or specific costs
billed to specific lessees) to operate and maintain the Land, the Building, and
all improvements on the Land from time to time (to the extent and only to the
extent same are Lessor's obligation to pay or furnish under the other provisions
of this Lease), including, but not limited to, Lessor's costs of providing
utilities, including, but not limited to lighting; porter services and supplies;
refuse removal; landscaping, including irrigation; and general maintenance and
repairs, including, but not limited to, repairs to roof surface and preventive
maintenance, parking area restriping, exterior painting and other activities.
Operating Expenses shall also include a reasonable amortization charge on
account of any capital expenditure incurred to effect a reduction of Operating
Expenses and a reasonable charge for amortization of all capital items Lessor
installs (a) to reduce Operating Expenses; however, Lessor shall perform a cost
justification showing that the anticipated reduction in Operating Expenses is
greater than the amortization amount (inclusive of finance charges) related to
such installation, or (b) to promote safety, or (c) which Lessor is required to
install on or for the benefit of the Building by any governmental law, code or
regulation passed or enacted on or after the Commencement Date, or (d) which is
a replacement (as opposed to additions or new improvements) of items located in
the common areas adjacent to the Building, the parking area and other facilities
used in connection with the Building, or involving the exterior of the Building,
including, but not limited to, the roof and structural elements. With respect to
(b), (c) and (d), the amortization shall be based on the useful life of such
capital expenditure, together with interest thereon, at the Prime Rate, adjusted
daily on the unamortized balance thereof. "Prime Rate" as used herein shall mean
the varying per annum rate of interest then most recently established and
announced by BankBoston, N.A., at its head office in Boston, Massachusetts, as
its "Base Rate" of interest with each such change in such per annum rate to
become effective on the effective date of each such
3
<PAGE> 4
change. Additionally, Operating Expenses shall include all ad valorem taxes or
assessments, and Annual Assessments of The Woodlands Community Association, Inc.
and The Woodlands Commercial Owners Association, whichever is applicable, which
accrue against the Building or the Land during the Term, together with all
insurance premiums which Lessor is required to pay or deems necessary to pay
with respect to the Building or the Land, including, but not limited to,
casualty insurance and liability insurance, and a management fee ("Management
Fee") of 4% of Lessee's annual Base Rent (no Additional Rent shall be included).
Further, Operating Expenses shall include 50% of Lessor's costs to operate and
maintain the Shared Parking Area. Estimated Operating Expenses for Fiscal Year
1998 for the different Operating Expense Categories are set forth on Exhibit "F"
attached hereto. The figures are estimated only and are subject to change based
on the actual Operating Expenses.
Notwithstanding anything contained herein to the contrary, Operating
Expenses shall not include those items set forth on Exhibit "D".
11. Utilities. Lessor shall make available to the Building gas,
electricity, water and sewer facilities. Lessee agrees to assume all costs and
expenses for water and sewer, gas, electricity, telephone, and any other service
needed for its use at the Premises, including any license or deposit required to
establish or maintain such services, and the costs of installation, hook-up and
metering (which will be part of Project Costs described in the Tenant
Improvement Addendum). Lessee shall promptly pay for all utility services
furnished to the Premises during the term of this Lease. Lessor shall under no
circumstances be liable to Lessee in damage or otherwise for any interruption in
service of water, electricity, heating, air conditioning or other utilities or
services caused by governmental regulation, emergencies, Acts of God, by the
making of any necessary repairs or improvements, or by any cause beyond Lessor's
reasonable control. Lessor shall endeavor in good faith to give at least 24
hours notice to Lessee when any necessary interruption in service will be made
by Lessor and will use reasonable efforts to minimize such interruption in
service.
12. Peaceful Enjoyment. Lessee shall and may peacefully have, hold and
enjoy the Premises for the Term, subject to the terms and conditions of this
Lease, provided that Lessee pays the rentals and other sums herein recited and
performs all of its covenants and agreements herein contained. It is understood
and agreed that this covenant and any and all other covenants of Lessor
contained in this Lease shall be binding upon Lessor and its successors and
assigns, but only with respect to breaches occurring during its and their
respective ownership of Lessor's interest hereunder.
13. Alterations, Additions and Improvements. Lessee shall not make or
allow to be made any alterations or physical additions in or to the Premises
without first obtaining the written consent of Lessor. Lessor will approve or
disapprove Lessee's request for the right to make alterations or physical
additions to the Premises within 5 days after Lessee's written request. Lessor
shall not be liable as a result of any such consent for completeness, design
sufficiency, or compliance with any law, ordinance, order, rule, or regulation
and Lessee shall indemnify, defend and hold Lessor harmless from all claims,
demands, damages, causes of action or litigation, arising out of or resulting
from such consent. Any and all alterations, additions or improvements shall be
made at Lessee's sole expense, except as may be otherwise provided in the Tenant
Improvement Addendum. All such alterations, additions or improvements shall,
upon completion, become the property of Lessor, and shall be surrendered to
Lessor upon the termination of this Lease by lapse of time or otherwise, unless
at the
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time Lessor approves Lessee's request to Lessor to make an alteration and/or
physical addition to the Building or Premises, Lessor advises Lessee that such
alteration or physical addition must be removed at the end of the Term, such
removal, if approved, being subject to repair by Lessee of all damage to the
Premises incurred in removing the alteration or physical addition. The preceding
sentence shall not apply to removable equipment or furniture owned by Lessee and
which can be removed without damage to the Building or the Premises, provided
there is no default by Lessee in any of the terms and conditions of the Lease.
14. Exterior Repairs. Lessor will keep in good order and repair the
exterior of the Building, including any doors, windows, roof, all entrances and
driveways, landscaping, sidewalks, ponds/lakes, parking lot, or glass, in
repair, provided Lessee shall give Lessor written notice of the necessity for
such repairs ("Exterior Repairs"). All Exterior Repairs are included in
Operating Expenses. Lessor shall be under no liability for costs of repair,
maintenance, alteration or any other action with reference to any plumbing,
electrical or other mechanical installation within or serving the Premises or
any part thereof, except for the service lines leading to the Premises. Lessor
shall maintain the Building and the Land consistent with similar properties in
the greater Houston area. Lessor agrees that Lessee will receive the benefit of
all applicable warranties received by Lessor on the improvements and mechanical
systems and will assist in enforcement of the warranties for the benefit of
Lessee.
15. Operation by Lessee. Lessee agrees to (a) keep the inside of all
glass in the doors and windows of the Premises clean; (b) replace promptly, at
its expense, any cracked or broken window glass inside the Premises with glass
of like kind and quality; (c) maintain the Premises in a clean, orderly and
sanitary condition and free of insects, rodents, vermin and other pests; (d)
keep any garbage, trash, rubbish or refuse in rat-proof containers within the
interior of the Premises until removed from the area; (e) keep all mechanical
apparatus free of vibration, noise or pollution which may be transmitted beyond
the Premises; (f) comply with all laws, ordinances, rules and regulations of the
Fire Underwriters Rating Bureau now or hereafter in affect within the Premises;
and (g) conduct its business in all respects in a dignified manner in accordance
with industry standards of business operation.
In addition, Lessee shall not (a) place or maintain any merchandise or
other articles on the exterior of the Premises or Building without the written
consent of Lessor; (b) permit undue accumulation of garbage, trash, rubbish or
other refuse within or without the Premises; (c) cause or permit objectionable
odors to emanate or be dispelled from the Premises; (d) cause or permit the
parking of vehicles so as to interfere with the use of any driveway, walk,
parking area, dock or other common facility in the area; (e) occupy, use or
permit the use or occupancy of any portion of the Premises for any business or
purpose which is immoral, disreputable or in violation of any legal direction of
any public officer; or (f) occupy, use or permit the use or occupancy of any
portion of the Premises for any business or purpose which, in the opinion of
Lessor, reasonably formed, constitutes a public or private nuisance.
Lessee agrees to discharge all waste materials from the Premises in
compliance with the rules and regulations as set forth in The Woodlands Metro
Center Municipal Utility District Policy Manual - Industrial Waste Discharges -
Permits and Charges - No. R&S-50, issued July 12, 1979, with an effective date
of July 12, 1979, a copy of which is attached hereto as Exhibit "H", as it may
be
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amended from time to time. Lessee shall haul away for disposal at its own
expense, any waste material not meeting the standards for discharge set forth in
the above-referenced manual.
As of the Commencement Date, Lessee shall comply, at Lessee's cost and
expense, with all private restrictions, as may be imposed as set forth in
Section 38, encumbering the Land and all present and future laws, ordinances,
orders, rules, regulations and requirements of all federal, state, and municipal
governments, including all municipal and road utility districts and municipal
utility districts, and all departments, commissions, boards and officers
thereof, and any other body exercising similar functions, which now or hereafter
may be applicable to Lessee's occupancy of the Premises, the improvements in the
Premises, or to the use or manner of use of the Premises or the improvements,
including but not limited to, all environmental laws and the Americans With
Disabilities Act, except as set forth below. In the event of a violation of any
environmental law by Lessee and cleanup of contamination is required, in
addition to all other remedies of Lessor under this Lease or at law or in
equity, Lessee shall conduct only a Risk Reduction Standard 1 cleanup as
described in the 30 Texas Administrative Code Section 335.554 so that there is a
total and complete removal of all contaminates from the Premises, except for any
condition that may have occurred prior to Lessee taking occupancy, and no deed
recordation notice is recorded in the Real Property Records of Montgomery
County, Texas, against the Land. Lessee agrees that no such cleanup shall be
subject to any other type of risk reduction standard. By execution of the Lease,
Lessee acknowledges receipt of a copy of the Environmental Report dated March 5,
1997, prepared by Ground Water Services, Inc.
Lessee also agrees to comply with the Rules and Regulations of the
Building, a copy of which is attached as Exhibit "C". Lessor may amend said
Rules and Regulations, from time to time, if reasonably necessary for the
safety, care, or cleanliness of the Building, provided that no amendment shall
alter any covenant or provision contained in this Lease. Lessee agrees to comply
with any amendment which is made to said rules and Regulations in compliance
with the terms of this subsection.
16. Interior Repairs and Maintenance. Lessee will, at Lessee's cost and
expense, keep the interior of the Premises, together with all electrical,
plumbing and other mechanical installations therein, all heating and air
conditioning equipment ("AC Equipment"), and all interior windows or doors
serving the Premises, in good order and repair, and will make all replacements
thereto as its expense. Lessee will surrender the Premises at the expiration or
earlier termination of this Lease, in as good condition as of the Commencement
Date, excepting depreciation caused by ordinary wear and tear or fire or
casualty, in which case, Section 23 shall apply. Notwithstanding anything
contained herein to the contrary, if Lessee has replaced the AC Equipment and/or
any building standard capital equipment ("Replaced Equipment") during the Term,
provided there is no monetary default by Lessee and Lessee has maintained the
Replaced Equipment as provided herein, Lessor shall reimburse Lessee for
Lessor's pro rata share of the cost of the Replaced Equipment calculated as
follows: Reasonable cost of the Replaced Equipment ("Cost") Minus an amount
equal to Cost divided by the useful life (in months) of the Replaced Equipment
Times the number of months from installation of the Replaced Equipment until
termination of the Lease. Lessee will not overload the electrical wiring serving
the Premises or within the Premises, and will install at its expense, but only
after obtaining Lessor's written approval, any additional electrical service
which may be required in connection with Lessee's use or occupancy.
Notwithstanding anything herein to the contrary, Lessor,
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and not Lessee, shall be liable for any and all interior repairs which may
result from any structural failure of the Building, unless caused by the
negligence or willful act or omission of Lessee, its agents, employees or
invitees. Lessee will repair promptly, at its expense, any damage to the
Premises caused by bringing into the Premises any property for Lessee's use, or
by the installation or removal of such property, regardless of fault or by whom
such damage was caused, unless caused by Lessor, its agents, employees or
contracts. Upon execution of this Lease, Lessee, at its own cost and expense,
shall enter into a regularly scheduled preventative maintenance/service contract
with Lessor, or a maintenance contractor approved by Lessor, which approval
shall not be unreasonably withheld or delayed, for servicing all hot water,
heating, and air-conditioning systems and equipment within the Premises. If
Lessee fails to make such repairs and/or to perform the maintenance and repairs
to the Premises which are Lessee's obligation under this Lease, within 10 days
after written notice from Lessor, Lessor may make same, and Lessee agrees to
pay, as additional rent, the cost thereof, plus 10% overhead, to Lessor promptly
upon Lessor's demand therefor. Lessor warrants and represents that as of the
Commencement Date all mechanical, plumbing, and electrical systems will be in
good order and repair.
17. Roof and Walls. Lessor or its designee shall have the exclusive
right to install, maintain, use, repair and replace within the Premises, pipes,
ducts, conduits, wires and all other mechanical equipment serving other parts of
the Building, the same to be in locations within the Premises as will not
materially interfere with Lessee's use thereof. Lessee shall have no right to
penetrate or erect improvements on the roof without the prior written consent of
Lessor. Lessee shall be liable in damages to Lessor for any breach of this
provision, including damages for loss of any and all warranties. Lessor agrees
that so long as Lessee is occupying the entire Premises and is not in monetary
default in any of the terms and conditions of the Lease, Lessor will not provide
a license to use the roof to any other person or entity.
18. Signs and Advertising. Lessee will not place or suffer to be placed
or maintained on or displaced to the exterior of the Premises, any sign,
advertising matter or other thing of any kind, and will not place or maintain
any decoration, lettering or advertising matter on the glass of any window or
door of the Premises without first obtaining the written approval of Lessor.
Lessee will maintain any approved sign, decoration, lettering, advertising
matter or other thing in good condition and repair at all times. Lessee may
install a sign panel on the monument sign for the Building, which monument sign
will also include the street address of the Building. Lessee shall pay for all
costs related to its sign panel and the installation of the panel. So long as
Lessee is the only lessee in the Building, no other name shall appear on the
sign panel.
19. Entry by Lessor. Lessee shall permit Lessor or Lessor's agents,
representatives, or employees to enter upon the Premises at reasonable times,
and upon having given Lessee reasonable advance notice, (a) to inspect the
Premises, to determine whether Lessee is in compliance with the terms of this
Lease; (b) to show the Premises to prospective purchasers, lessees, mortgagees,
beneficiaries under trust deeds, or insurers (but as to prospective lessees only
within the last 9 months of the Term), and (c) to make repairs, improvements,
additions and alterations thereto, as Lessor is permitted to make according to
the terms of the Lease. Entry by Lessor shall be subject to Lessee's reasonable
security procedures. Any inspections of the Premises pursuant to this subsection
shall be at Lessor's cost and expense; provided, however, in the event it is
determined by Lessor as a result of such inspection, that an environmental study
should be conducted on the Premises and said
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environmental study determines that Lessee has not complied with all then
existing environmental laws, Lessee shall reimburse Lessor for the cost of the
study within 15 days after receipt of an invoice setting forth the cost, and
Lessee shall promptly take all action necessary, at Lessee's sole expense, to
remedy any noncompliance by Lessee discovered by such study in accordance with
Section 15 above.
20. Liens. In the event that any mechanic's, materialmen's, or other
lien shall at any time be filed against the Premises, the Building or the Land
purporting to be for work, labor, services or materials performed for or
furnished to Lessee or anyone holding the Premises through or under Lessee, or
arising out of any alleged act or omission of Lessee, Lessee shall forthwith
cause the same to be properly bonded or released. If Lessee shall fail to cause
such lien to be bonded or released within 30 days after being notified of the
filing thereof, then, in addition to any other right or remedy of Lessor, Lessor
may, but shall not be obligated to, discharge the same by posting a bond or
paying the amount claimed to be due, and the amount so paid by Lessor, and all
costs and expenses incurred by Lessor in procuring the discharge of such lien,
including reasonable attorney's fees, shall be due and payable by Lessee to
Lessor as additional rent on the first day of the next succeeding month.
Lessor shall not be liable for any labor or materials furnished to Lessee upon
credit, and that no mechanics', materialmen's or other liens for any such labor
or materials shall attach to or affect the estate or interest of Lessor in and
to the Land or Building.
21. Subordination. Lessee agrees that this Lease is and shall be
subordinate to any mortgage or deed of trust which may now or hereafter encumber
the Building or the Land, and to all renewals, modifications, consolidations,
replacements and extensions thereof, provided, however, that the holder of any
such mortgage or deed of trust shall agree that Lessee shall not be disturbed in
its possession of the Premises or its rights hereunder terminated or amended by
the mortgagee, any purchaser at or in lieu of foreclosure or other party so long
as Lessee is not in default under this Lease. In confirmation of such
subordination, Lessee shall at Lessor's request execute promptly any appropriate
certificate or instrument that Lessor may reasonably request. Lessor agrees to
deliver to Lessee a commercially reasonable nondisturbance and attornment
agreement within 45 days after a mortgage or deed of trust is placed on the
Building or the Land. In the event of the enforcement by the trustee or the
beneficiary under a mortgage or deed of trust of the remedies provided for by
law or by such mortgage or deed of trust, Lessee will, upon request of any
person or party succeeding to the interest of Lessor as a result of such
enforcement, automatically become the lessee of such successor in interest
without change in the terms or other provisions of this Lease; provided,
however, that such successor in interest shall not be bound by (i) any payment
of Base Rent or Additional Rent for more than one month in advance except
prepayments in the nature of security for the performance by Lessee of its
obligations under this Lease; (ii) any amendment or modifications under this
Lease made without the written consent of such trustee, beneficiary, or
successor in interest; (iii) any default by the prior owner or landlord in the
observance or performance of any of its covenants or obligations hereunder any
right of offset which Lessee may have had against the prior owner or landlord.
Lessor will require the trustee or beneficiary under a mortgage or deed of trust
to give Lessee written notice of Lessor's default in the mortgage or deed of
trust. Upon request by any successor in interest, Lessee shall execute and
deliver an instrument or instruments confirming the attornment herein provided
for.
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As of the date of the Lease, the Land is not encumbered by a mortgage
or deed of trust and the Premises if not subject to a ground or underlying
lease.
Within 20 days after Lessor's written request, Lessee agrees to execute
an estoppel certificate or other agreement certifying to Lessor and/or any
mortgagee of the Building such facts and agreeing to such reasonable notice
provisions as such mortgagee may request in connection with Lessor's financing,
subject, however, to the non-disturbance rights of Lessee above-described. If
Lessee fails or refuses to give a certificate hereunder within the time period
herein specified, then the information contained in such certificate as
submitted by Lessor shall be deemed correct for all purposes, and all notice
provisions and other matters in the certificate shall be deemed agreed to, but
Lessor shall have the right to treat such failure or refusal as a default by
Lessee.
This Lease and all rights of Lessee hereunder are further subject and
subordinate to the extent that the same relate to the Premises to all ground or
underlying leases covering the Land/or any part thereof which may now or
hereinafter affect the Land or the Building, and any renewals or modifications
thereof; provided, however that the holder of any ground lease or underlying
leases covering the Land or the Building shall agree that Lessee shall not be
disturbed in its possession of the Premises or its rights hereunder terminated
or amended by such holder as long as Lessee is not in default under this Lease.
22. Condemnation. If the whole or any part of the Premises shall be
taken under the power of eminent domain, this Lease shall terminate as to the
part so taken on the date Lessee is required to yield possession thereof to the
condemning authority. Lessor shall, with reasonable diligence, make such repairs
and alterations as may be necessary in order to restore the part not taken to a
useful condition, and the Base Rent shall be reduced proportionately to the
portion of the Premises so taken. If the amount of the Premises so taken
substantially impairs the usefulness of the Premises for the purposes set forth
in Section 4, either party may terminate this Lease within 30 days after Lessor
gives Lessee notice that it will be dispossessed, effective as of the date when
Lessee is required to yield possession, at which time all Lessor's and Lessee's
rights and obligations under the Lease, including Lessee's obligation to pay
rent shall terminate. All compensation awarded for any taking shall belong to
and be the property of Lessor.
23. Fire and Casualty. In the event of a fire or other casualty in the
Premises, Lessee shall immediately give notice thereof to Lessor. If the
Premises, through no fault or neglect of Lessee, its agents, employees,
invitees, licensees or visitors, shall be destroyed by fire or other casualty so
as to render the Premises untenantable, the rental herein shall be reduced
proportionally as of the date of such casualty to the portion of the Premises
rendered untenantable until such time as the Premises are made tenantable by
Lessor. If from such cause the same shall be so damaged that Lessor shall decide
not to rebuild, then all rent and other sums owed hereunder up to the time of
such destruction or casualty shall be paid by Lessee, and thenceforth this Lease
shall cease and come to an end. If (i) the repairs or restoration will take more
than 275 days after Lessee has given Lessor notice of the loss or damage, in
Lessor's opinion reasonably formed or (ii) if Lessor has not given Lessee notice
of its decision to repair and restore the Premises within 75 days of the date
Lessee has given Lessor notice of the loss or damage, then Lessee may terminate
the Lease.
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24. Casualty Insurance. Lessor shall, at all times during the Term,
maintain a policy or policies of insurance with the premiums thereon fully paid
in advance, issued by and binding upon some solvent insurance company, licensed
to do business in the State of Texas, insuring Lessor's interest in the Building
against loss or damage by fire and other hazards within the coverage of a Texas
standard form of fire and extended coverage policy, for the full replacement
value thereof, with payments for losses thereunder payable solely to Lessor or
its designee. A Certificate showing the insurance will be delivered to Lessee
within 45 days after the Commencement Date.
25. Liability Insurance. Lessee shall maintain, at its expense, at all
times during the Term, a policy or policies of commercial general liability
insurance, with the premiums thereon fully paid in advance, issued by (i) an
insurance company or companies rated "A-" or higher under the most current
edition of A.M. Best's Key Rating Guide, (ii) a Lloyds of London underwriter, or
(iii) an insurance company agreed to by Lessor. All insurers must be licensed to
do business in the State of Texas. The insurance shall afford protection of not
less than $1,000,000 combined single limit bodily injury and property damage per
occurrence. The policy or policies shall name Lessor as an additional insured.
As to any injury or damage occurring in or on the Premises, Lessee's insurance
shall be primary. Lessee's policy shall contain an agreement by the insurer that
such policy, or policies may not be canceled or materially modified without 30
days' prior notice to Lessor. Lessee shall provide Lessor a copy of the required
policy or policies, or a certificate evidencing the required coverage, before
beginning any work in the Premises or taking occupancy of same. Additionally,
Lessee shall provide Lessor evidence of the renewal of each policy prior to
expiration of the policy.
26. RELEASE OF CLAIMS; WAIVER OF SUBROGATION. ANYTHING IN THIS LEASE TO
THE CONTRARY NOTWITHSTANDING, LESSOR AND LESSEE EACH WAIVE ANY AND ALL RIGHT OF
RECOVERY, CLAIM, ACTION OR CAUSE OF ACTION AGAINST THE OTHER AND ITS PARTNERS
(IF ANY), AND THE AGENTS, OFFICERS, AND EMPLOYEES OF THE OTHER PARTY OR ITS
PARTNERS, FOR ANY LOSS OR DAMAGE:
(i) TO THE PREMISES, THE BUILDING, OR ANY IMPROVEMENTS
THERETO, OR ANY PERSONAL PROPERTY OF SUCH PARTY
THEREIN, BY REASON OF FIRE, THE ELEMENTS OR ANY
OTHER CAUSE WHICH COULD HAVE BEEN INSURED AGAINST
UNDER A TEXAS STANDARD FORM OF FIRE AND EXTENDED
COVERAGE INSURANCE POLICY, OR
(ii) ARISING OUT OF ANY BUSINESS INTERRUPTION,
INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS, BY
REASON OF FIRE, THE ELEMENTS OR ANY OTHER CAUSE,
REGARDLESS OF CAUSE OR ORIGIN, INCLUDING THE SOLE OR CONCURRENT NEGLIGENCE OF
THE OTHER PARTY OR ITS PARTNERS, OR THE AGENTS, OFFICERS, OR EMPLOYEES OF THE
OTHER PARTY OR ITS PARTNERS. LESSOR AND LESSEE COVENANT THAT NO INSURER SHALL
HOLD ANY RIGHT OF SUBROGATION AGAINST THE OTHER PARTY FOR LOSSES WHICH MUST BE
INSURED AGAINST BY THE TERMS OF THIS LEASE. THIS SECTION SHALL SURVIVE THE
TERMINATION OF THIS LEASE.
27. RELEASE AND INDEMNIFICATION BY LESSEE. SUBJECT TO SECTION 26 ABOVE,
LESSEE RELEASES AND AGREES TO DEFEND, INDEMNIFY AND HOLD LESSOR AND ITS
PARTNERS, AND THE AGENTS, OFFICERS AND EMPLOYEES OF LESSOR OR ITS PARTNERS,
HARMLESS FROM AND AGAINST ALL CLAIMS OR CAUSES OF ACTION FOR DAMAGE OR INJURY OR
DEATH TO PERSONS OR PROPERTY OCCURRING ON OR IN THE PREMISES, INCLUDING, BUT NOT
LIMITED TO, ANY CLAIMS OR CAUSES OF ACTION CAUSED BY OR RESULTING FROM (i) THE
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SOLE OR CONCURRENT NEGLIGENCE, BUT NOT THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF LESSOR OR ITS PARTNERS, OR THE AGENTS, OFFICERS, OR EMPLOYEES OF
LESSOR OR ITS PARTNERS, OR (ii) STRICT LIABILITY OR PRODUCT LIABILITY. LIKEWISE,
SUBJECT TO SECTION 26 ABOVE, LESSOR RELEASES AND AGREES TO DEFEND, INDEMNIFY AND
HOLD LESSEE AND ITS PARTNERS, AND THE AGENTS, OFFICERS AND EMPLOYEES OF LESSEE
OR ITS PARTNERS, HARMLESS FROM AND AGAINST ALL CLAIMS OR CAUSES OF ACTION FOR
DAMAGE OR INJURY OR DEATH TO PERSONS OR PROPERTY OCCURRING ON OR IN THE LAND,
OTHER THAN THE PREMISES, INCLUDING, BUT NOT LIMITED TO, ANY CLAIMS OR CAUSES OF
ACTION CAUSED BY OR RESULTING FROM (i) THE SOLE OR CONCURRENT NEGLIGENCE, BUT
NOT THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSEE OR ITS PARTNERS, OR THE
AGENTS, OFFICERS, OR EMPLOYEES OF LESSEE OR ITS PARTNERS, OR (ii) STRICT
LIABILITY OR PRODUCT LIABILITY. THIS SECTION SHALL SURVIVE THE TERMINATION OF
THIS LEASE.
28. Holding Over. In the event of holding over by Lessee after the
expiration or termination of the Term or any extension thereof as mutually
agreed or as provided under Section 3, and without the written consent of
Lessor, Lessee shall be a Tenant at will and shall pay rent equal to one hundred
thirty-five percent (135%) on a per diem basis the amount of all Base Rent, and
Additional Rent payable during the last month of the Term. Further, in the event
Lessee holds over for more than 90 days without Lessor approval, Lessee shall
indemnify Lessor against all claims for damages by any other lessee to whom
Lessor may have leased all or any part of the Premises. Lessor may terminate the
tenancy by giving written notice to Lessee. No holding over by Lessee, either
with or without the consent and acquiescence of Lessor, shall operate to extend
the Lease for a longer period than 1 day, except as otherwise set forth herein.
Any holding over with the consent of Lessor in writing shall there after
constitute this Lease a lease from day to day.
29. Default by Lessee. If (a) Lessee fails to timely pay any sum to be
paid by Lessee under this Lease after 5 days written notice from Lessor; (b)
Lessee fails to perform any of its other duties or obligations under this Lease
and such default continues for 20 business days after Lessor delivers written
notice to Lessee or deposits written notice in the U. S. Mail addressed to
Lessee's address above; (c) any of the following actions occur and Lessee fails
to vigorously contest and cause same to be removed, dismissed, or vacated within
30 days from the date of entry or filing: (i) Lessee's interest under this Lease
is levied on under execution or other legal process, or (ii) any petition is
filed by or against Lessee to declare Lessee a bankrupt or to delay, reduce or
modify Lessee's debts or obligations, or (iii) any petition under the Bankruptcy
Code is filed or other action taken to reorganize or modify Lessee's capital
structure, or (iv) Lessee is declared insolvent according to law, or (v) any
general assignment of Lessee's property is made for the benefit of creditors, or
(vi) a receiver or trustee is appointed for Lessee or its property; (d) if
Lessee is a corporation, Lessee ceases to exist as a corporation in good
standing in the State of Texas; or (e) if Lessee is a partnership or other
entity, Lessee is dissolved or otherwise liquidated, then Lessor may treat the
occurrence of any one or more of the foregoing events as a breach of this Lease.
Upon the occurrence of any of the foregoing events, at Lessor's option, Lessor
shall have any one or more of the following described remedies, in addition to
all other rights and remedies provided at law or in equity:
A. Lessor may terminate this Lease and forthwith repossess the
Premises and recover damages in a sum of money equal to the total of (i) the
cost of recovering the Premises, including the cost of the removal and storage
of any of Lessee's possessions left within the Premises, (ii) the unpaid Base
Rent and Additional Rent earned at the time of termination, plus interest
thereon at the lesser of (A) thirteen percent (13%) per annum, or (B) the then
maximum interest rate permitted to be
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charged by applicable law ("Interest") from the due date until paid, (iii) the
balance of the Base Rent and Additional Rent for the remainder of the Term,
discounted to its present value at the rate of 8% per annum, less the fair
market rental value (allowing a reasonable period for reletting) of the Premises
for said period (provided said sum shall not be less than zero), and (iv) any
other sum of money and damages owed by Lessee to Lessor in accordance with the
terms of the Lease.
B. Without terminating this Lease, Lessor may terminate
Lessee's right of possession and repossess the Premises by forcible detainer
suit or otherwise, in accordance with Texas law. If Lessor pursues this remedy,
Lessor may relet the Premises for Lessee's account, for such rent and upon such
terms and conditions as Lessor deems satisfactory. For the purpose of such
reletting, Lessor is authorized to make any reasonable repairs in or to the
Premises as it deems necessary to prepare the Premises to relet at Lessee's
expense. If Lessor fails to relet the Premises, then Lessee shall pay to Lessor
as damages a sum equal to the amount of the Base Rent and Additional Rent
provided for in this Lease for such period or periods. If Lessor relets the
Premises and fails to realize a sufficient sum from such reletting after
deducting (a) the due and unpaid Base Rent and Additional Rent, (b) the accrued
Interest thereon, (c) the cost of recovering possession, (d) the costs and
expenses of all reasonable repairs, and (e) the expense of such reletting and
the collection of the rent accruing therefrom, then Lessee shall pay to Lessor
any such deficiency upon demand from time to time. Lessor may file one or more
suits to recover any sums falling due under this Section from time to time. Any
reletting shall not be an election by Lessor to terminate this Lease unless
Lessor gives a written notice of such intention to Lessee. Notwithstanding any
such reletting without termination, Lessor may at any time thereafter elect to
terminate this Lease for such previous default.
C. Lessor may change the locks on the Premises. The Lessor
will not have to give the Lessee a new key unless the Lessee cures the
default(s); the new key will be provided only during Lessor's regular business
hours.
30. Waiver. Failure of Lessor to declare any default immediately upon
occurrence thereof, or delay in taking any action in connection therewith, shall
not waive such default, but Lessor shall have the right to declare any such
default at any time and take such action as might be lawful or authorized
hereunder, either in law or at equity.
31. Lien for Rent. INTENTIONALLY DELETED.
32. Assignment by Lessor. Lessor shall have the right to sell, transfer
or assign, in whole or in part, all of its rights and obligations hereunder and
in the Building and the Land. In such event and upon the assumption by such
transferee of Lessor's obligations hereunder, no further liability or obligation
shall thereafter accrue against Lessor hereunder.
33. Assignment by Lessee. Lessee shall not assign this Lease or any
interest therein, nor sublet the Premises or any part thereof or any right or
privilege appurtenant thereto, nor permit any other person, firm or entity to
occupy or use the Premises or any portion thereof without first obtaining the
written consent of Lessor. Lessor agrees to give Lessee the approval or
disapproval within 15 days after Lessee's written request. Lessor shall have the
right, at its option, to terminate this Lease as to any portion of the Premises
covered by a proposed assignment or sublease, or to approve any such assignment
or sublease only upon the condition that (a) 50% of all rentals paid by
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the assignee or sublessee (if other than an Affiliate as described below) in
excess of the rentals due from Lessee hereunder, shall be paid directly to
Lessor after deducting all reasonable out-of-pocket expenses incurred by Lessee
as a result of the assignment or sublease, and (b) the proposed assignee or
sublessee agrees to use the Premises only for the uses permitted by Lessee under
this Lease, and to comply with all of the other terms and conditions of this
Lease. Otherwise, Lessor's consent to any proposed sublease or assignment shall
not be unreasonably withheld. Consent by Lessor to one assignment, subletting,
occupation or use by another person shall not be deemed to be a consent to any
subsequent assignment, subletting, occupation or use by the same or another
person. Consent to an assignment or sublease shall not release Lessee from
liability for the continued performance of the terms and provisions to be kept
and performed by Lessee hereunder, unless Lessor specifically and in writing
releases Lessee from said liability. In addition, an amendment or modification
of the Lease after the assignment or sublease during the Term shall not release
Lessee from liability for the continued performance of the terms and provisions
to be performed by Lessee hereunder. Any assignment or subletting by operation
of law or otherwise, (including without limitation, a transfer of controlling
interest in Lessee to any other person, firm or entity, except to an Affiliate
as described below) without the prior written consent of Lessor, shall be void
and shall, at the option of Lessor, terminate this Lease. Notwithstanding
anything contained herein to the contrary, provided Lessee is not in default
hereunder and all Base Rent and Additional Rent due and owing as of the date of
such assignment have been paid in full, Lessee shall have the right at any time
and from time to time, as many times as may be convenient, a) to sublease the
Premises to a licensed franchisee of Lessee, b) to sublet or assign all or part
of the Premises to (i) a partially or wholly owned corporation subsidiary of
Lessee, to its parent company, or an Affiliate of Lessee, as described below,
(ii) any corporation which acquires all or substantially all of the assets or
operations of Lessee, or (iii) any corporation into which or with which Lessee
has merged or consolidated, other than an Affiliate, so long as the surviving
entity has a net worth not less than Lessee's prior to the merger, consolidation
or acquisition; provided, (a) Lessee gives prior written notice of the
assignment or transfer to Lessor and presents evidence to Lessor of the
assignees ability to perform Lessee's financial obligations hereunder, (b) the
assignee assumes in writing the duties and obligations of Lessee hereunder, and
(c) Lessee remains directly and primarily liable for the performance of all the
covenants, duties and obligations of Lessee hereunder (including, without
limitation, the obligation to pay all rent and other sums herein provided to be
paid), and Lessor shall be permitted to enforce the provisions of this
instrument against the undersigned Lessee and/or any assignee without demand
upon or proceeding in any way against any other person. As used in this Lease,
the term "Affiliate" shall mean and refer to any person or entity controlling,
controlled by, or under common control with another such person or entity.
"Control" as used herein shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
controlled person or entity; ownership, directly or indirectly, of more than
fifty percent (50%) of the voting securities of, or possession of the right to
vote, in the ordinary direction of its affairs, more than fifty percent (50%) of
the voting interest in, any person or entity shall be presumed to constitute
such control.
Notwithstanding anything contained herein to the contrary, if Lessor
approves an assignment of the Lease or sublease of all or any portion of the
Premises, the approval shall be conditional upon Lessee paying to Lessor a fee
in the amount of $300.00 to cover Lessor's administrative, legal, and other
costs and expenses incurred in processing each of Lessee's approved requests.
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<PAGE> 14
34. Transfer of Control. If Lessee is a corporation, and if at any time
during the term of this Lease, corporate shares of Lessee shall be transferred
by sale, assignment, bequest, inheritance, operation of law or other disposition
so as to result in a change in the present control of said corporation by the
person or persons now owning a majority of said corporate shares, Lessee shall
be in default of this Lease and Lessor may reasonably exercise its rights in
respect of default hereunder. Notwithstanding anything contained herein to the
contrary, this provision shall not apply to a transfer to an Affiliate as
described in Section 33 above.
35. Notices. Any notice required or permitted to be given pursuant to
the terms of this Lease shall be sent by certified or registered U.S. mail to
Lessor at 2201 Timberloch Place, The Woodlands, Texas 77380, Attn: Property
Management, with a copy to Crescent Real Estate Equities Limited Partnership,
777 Main Street, Suite 2100, Fort Worth, Texas 76102, Attn: Legal Department,
and to Lessee at Telxon Corporation, Attn: Dennis Oleksuk, 3330 West Market
Street, Akron, Ohio 44334-0582. The place to which such notices shall be sent
may be changed by either party giving notice of such change to the other party
in the manner hereinabove provided. A notice shall be deemed given and received
on the 3rd business day following deposit in the U.S. Mail as provided above.
36. Severability. If any of the provisions of this Lease shall
contravene or be invalid under the laws of the particular state, county, or
jurisdiction where applied, such contravention or invalidity shall not
invalidate the Lease or any other portions thereof and the remainder of this
Lease or the application thereof to other persons or circumstances shall not be
affected thereby.
37. Corporate Authority. If Lessee signs as a corporation, each of the
persons executing this Lease on behalf of Lessee represents and warrants that
Lessee is a duly organized and existing corporation, that Lessee has and is
qualified to do business in Texas, that the corporation has full right and
authority to enter into this Lease, and that all persons signing on behalf of
the corporation were authorized to do so by appropriate corporate actions.
38. Title. This Lease is subject to all matters of record in the Real
Property Records of Montgomery County, Texas. By execution of this Lease, Lessee
consents to all plats and replats of the Land, if any, in compliance with all
applicable laws and the recording in the Real Property Records of Montgomery
County, Texas, of an instrument annexing the Land into the Declaration of
Covenants and Restrictions of The Woodlands Commercial Owners' Association
("Restrictions").
Lessee consents to the annexation of the Land into the Restrictions and agrees
that is leasehold interest shall be subject and subordinate to the Restrictions.
39. Not an Offer. The submission of this Lease to Lessee shall not be
construed as an offer, nor shall Lessee have any rights with respect thereto
unless Lessor executes a copy of this Lease and delivers the same to Lessee.
40. Exhibits, Riders and Addenda. This Lease also includes and
incorporates herein for all purposes all attached Exhibits, Riders, and Addenda,
if any.
41. Joint and Several Tenancy. If more than one entity executes this
Lease as Lessee, their obligations hereunder are joint and several, and any act
or notice of or to, or refund to, or the
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<PAGE> 15
signature of, any one or more of them, in relation to the renewal or termination
of this Lease, or under or with respect to any of the terms hereof shall be
fully binding on each and all of the entities executing this Lease as a Lessee.
42. Binding Effect. This Lease shall be binding upon and inure to the
benefit of the heirs, successors or assigns of Lessor and Lessee, subject to the
limitation on subleasing and assignment herein contained.
43. Entire Agreement. This Lease shall constitute the sole and only
agreement of Lessor and Lessee with regard to the Lease of the Premises, and
shall supercede any prior or contemporaneous oral or written agreements. This
Lease may not be altered, changed or amended, except by an instrument in
writing, signed by both parties hereto.
44. Pronouns. Pronouns which refer to either Lessor or Lessee shall be
construed to mean the appropriate number and gender intended.
45. Force Majeure. If either party shall be delayed or prevented from
the performance of any act required hereunder by reason of acts of God, strikes,
lockouts, labor troubles, inability to procure materials, restrictive
governmental laws or regulations or other cause without fault and beyond the
control of the party obligated (Lessee's financial inability, such as inability
to obtain financing or lack of capital, excepted), performance of such act shall
be excused for the period of the delay, and the period for the performance of
any such act shall be extended by a period equal to the period of such delay;
provided, however, nothing in this Section shall excuse Lessee from the prompt
payment of any rental or other charge required of Lessee hereunder, except as
may be expressly provided elsewhere in this Lease.
46. General. Time is of the essence of this Lease. All rights and
remedies of Lessor and Lessee under this Lease shall be cumulative and none
shall exclude any other rights or remedies allowed by law. This Lease shall be
declared to be a Texas lease, and all of the terms hereof shall be construed
according to the laws of the State of Texas. Said Lease shall be performable
only in Montgomery County, Texas, and venue for any action hereunder shall lie
exclusively in Montgomery County, Texas or in the Southern District of Texas,
Houston Division, as appropriate.
47. Reasonableness. Wherever in the Lease Lessor's or Lessee's consent
or approval is required to any action, such consent or approval shall not be
unreasonably withheld, delayed or conditioned.
48. Conflict. In the event of a conflict between the Lease and the
Rules and Regulations attached as Exhibit "C", or the Exclusions from Operating
Expenses attached hereto as Exhibit "D", the Lease and all other Exhibits and
Riders thereto will control. In the event of a conflict between the Lease and
any other Exhibit or Rider, the Exhibit, or Rider, as applicable, will control.
15
<PAGE> 16
IN TESTIMONY WHEREOF, the parties hereto have executed this Lease in
multiple counterparts, each of which shall constitute an original but
collectively shall constitute only one document, such execution to be effective
on the date first above written.
LESSOR
Date: January 16, 1998 THE WOODLANDS COMMERCIAL PROPERTIES COMPANY,
L.P., A Texas Limited Partnership
By: The Woodlands Operating Company, L.P.,
A Texas Limited Partnership, Its
Authorized Agent
By: /s/ Michael H. Richmond
Name: Michael H. Richmond
Title: President & COO
Federal Employer Tax Identification
No. 76-0543671
------------------------
Originator dpp
------------------------
Legal
------------------------
Financial
------------------------
LESSEE
Date: December 8, 1997 TELXON CORPORATION
By: /s/ Gerald J. Gabriel
Name: Gerald J. Gabriel
Title: V-P Financial Planning
Federal Employer Tax Identification
No. 74-1666060
16
<PAGE> 17
RIDER NO. 1
to Lease Agreement dated , 1997,
by and between
THE WOODLANDS COMMERCIAL PROPERTIES COMPANY, INC., as Lessor, and
TELXON CORPORATION, as Lessee,
covering Venture Technology Center VII Building,
The Woodlands, Montgomery County, Texas
1. RENEWAL OPTION
As long as Lessee is not in default in the performance of its covenants under
this Lease, Lessee is hereby granted the option to renew the Term of this Lease
as to the Premises or a portion thereof (provided no portion shall be less than
50,000 rentable square feet of floor space as of the date of exercise of the
renewal option) for periods of additional years each as described below (each of
which is a "Renewal Term"), to commence at the expiration of the initial term of
this Lease, or applicable Renewal Term. Lessee shall exercise each option to
renew by delivering written notice of such election to Lessor at least nine (9)
months prior to the expiration of the Term of this Lease. The renewal of this
Lease shall be upon the same terms and conditions of this Lease, except (a) the
Base Rent during the Renewal Term shall be the prevailing market Base Rent rate
(as defined below) at the time each Renewal Term commences, (b) Lessee shall
have no option to renew this Lease beyond the Renewal Terms set out herein, (c)
Lessee shall not have the right to assign its renewal rights to any sublessee of
the Premises or assignee of the Lease, except to an Affiliate as described in
Section 33 of the Lease and, at Lessor's discretion, and (d) the "Term" as
defined in the Lease, shall include any Renewal Term that has been duly
exercised by Lessee. The number of Renewal Terms and period of additional years
each shall be determined by the number of rentable square feet of floor space
covered by the renewal. If the floor space covered by the requested renewal is
between 50,000 and 69,670 rentable square feet, Lessee shall have the option to
renew the Term of the Lease for two (2) periods of five (5) additional years
each. If the floor space covered by the requested renewal is equal to or more
than 69,670 rentable square feet of floor space, Lessee shall have the option to
renew the Term of the Lease for two (2) periods of five (5) additional years
each or one (1) period of ten (10) years.
It is understood and agreed that the term "prevailing market Base Rent rate", as
used herein, shall mean, as of any date, the then prevailing annual rental rate
being charged for space in comparable buildings (including the Building) in the
area in The Woodlands development designated as The Woodlands Research Forest
comparable to the space in the Building for which such determination is being
made after taking into consideration the following (to the extent that same are
applicable under the circumstances in question): (a) the location, quality and
age of the building; (b) use, location and size; (c) extent of leasehold
improvements in the Premises (other than those in Tenant's then-existing
Premises) or to be provided, and/or any allowance for same; (d) abatements
(including, with respect to base rental, operating expenses and real estate
taxes, and parking charges); (e) lease takeover/assumptions; (f)
relocation/relocation allowance; (g) refurbishment allowance; (h) club
memberships; (i) distinction between "gross" and "net" lease; (j) base year or
dollar amount for escalation purposes (operating expenses, real estate taxes and
management fee); (k) any other adjustments (including by way of indexes) to base
rental; (l) credit standing of the Tenant; (m) term or length of lease; (n) the
time the particular rental rate under consideration was agreed upon and became
or is to become effective; (o) programming/spaces, planning/interior
architecture and engineering allowances; and (p) any other
<PAGE> 18
concession or inducement and/or relevant term or condition in making such fair
market value rental rate determination.
By not later than nine (9) months prior to the expiration of the Lease Term
Lessee shall give written notice to Lessor of its desire to exercise this option
and request the rental rate. Within fifteen (15) days thereafter Lessor shall
notify Lessee of the rental rate (in no event higher than the prevailing market
Base Rental Rate specified above). If Lessee elects to exercise its option but
concludes that the rental rate proposed by Lessor is higher than the prevailing
market Base Rental Rate, and Lessor and Lessee are not able to agree upon a
mutually acceptable rate within the following thirty (30) days, Lessee shall
have the option, but not the obligation (i) of revoking the exercise of its
option, or (ii) of accepting Lessor's determination of the prevailing market
Base Rental Rate, or (iii) of electing to submit the issue to binding appraisal,
in which event Lessee and Lessor will agree upon a Market Professional who shall
estimate the prevailing market Base Rental Rate. The arbitration process must be
initiated no later than six (6) months prior to expiration of the Term or
Lessee's renewal rights shall terminate and be of no further force or effect.
The cost of the Market Professional shall be shared equally by the parties and
his or her decision shall be binding upon the parties. The term "Market
Professional", as used herein, shall mean an individual with a minimum of five
(5) years experience in commercial and office leasing and/or valuation in the
Greater Houston Area who is either a designated Member of the Appraisal
Institute ("MAI") or a Texas licensed real estate broker.
2. SATELLITE DISH
Notwithstanding anything contained herein to the contrary, subject to Community
Review Committee of The Woodlands' approval of plans and specifications for the
satellite dish and antennae and the location and screening thereof, Lessor shall
allow Lessee to install and maintain a satellite dish and other equipment
("Equipment") on a portion of the roof of the Building ("Roof Space") on the
terms hereof:
(a) Lessee may run cables ("Cables") between the Roof Space and
the Premises provided that all cabling shall be installed so
as to comply with all local building codes and Lessor's
reasonable instructions.
(b) The Equipment shall remain the property of Lessee or its
contractor. Lessee shall at its cost remove such Equipment and
if requested by Lessor, the Cables, at the expiration of the
Term of the Lease and restore the Roof Space to its original
condition as of the Commencement Date of the Lease, ordinary
wear and tear excepted.
(c) Lessee and/or its contractor shall bear all expenses in
connection with the installation, use and maintenance of such
Equipment and Cables and removal of the Cables and the
Equipment. LESSEE SHALL INDEMNIFY AND HOLD LESSOR HARMLESS
FROM AND AGAINST ANY AND ALL LIABILITY, DAMAGES, COSTS AND
EXPENSES, INCLUDING REASONABLE ATTORNEYS' FEES INCURRED BY
LESSOR, OF ANY AND EVERY KIND OR CHARACTER, INCLUDING WITHOUT
LIMITATION, BODILY INJURY TO OR DEATH OF ANY PERSON OR
PROPERTY DAMAGE, FIXED OR CONTINGENT, ARISING OUT OF LESSEE'S
INSTALLATION, USE, MISUSE, MAINTENANCE OR
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<PAGE> 19
OPERATION OF THE ROOF SPACE, THE EQUIPMENT AND CABLES AND
REMOVAL OF SAME.
(d) Lessee and/or its contractor shall maintain in force at all
times during the term of the Lease comprehensive liability
insurance in an amount satisfactory to Lessor, with an insurer
satisfactory to Lessor, protecting Lessor against any
liability, damages, cost or expenses, in connection with the
installation, use, maintenance and operation of the Equipment
and Cables and shall supply certificates of such insurance
upon request.
(e) Lessee and its contractors shall comply with all applicable
laws, regulations and building codes in connection with the
installation, use, misuse, maintenance and operation of the
Equipment and Cables.
(f) Lessor agrees to permit Lessee reasonable access to the Roof
Space so as to facilitate the installation, use, maintenance
and operation of the Equipment and Cables, and for the removal
of the Cables and Equipment.
(g) Notwithstanding anything contained herein to the contrary, it
is understood and agreed by Lessee that this license is
granted to Lessee by Lessor on the condition that Lessee
agrees, at Lessee's expense, to remove the Equipment on a
temporary basis within 5 business days after written notice
("Lessor Notice") from Lessor that Lessor needs access to the
area on the roof where the Equipment has been installed in
order to make roof repairs. Lessor agrees to provide a
location on the Land or in the vicinity of the Land where the
Equipment may be stored and will advise Lessee of this
location in its notice. Lessor will make the repairs as soon
as practicable and will notify Lessee when the Equipment may
be relocated back to the roof. If Lessor does not remove the
Equipment within the 5 business days after Lessor's Notice,
Lessor shall have the right to remove the Equipment and Lessee
shall pay to Lessor all of Lessor's actual costs and expenses
to remove, and reinstall, after the roof repairs are
completed, the Equipment, plus 10% overhead. Said sums shall
constitute Additional Rent under the Lease due with the next
payment of Base Rent under the Lease. If Lessor exercises its
rights hereunder, Lessor shall not be deemed to be guilty of
any manner of conversion or trespass with respect to the
Equipment and Lessor shall not be liable for any business
interruption or inconvenience caused to Lessee because of its
inability to use the Equipment while the roof repairs are
being made. Nothing herein contained shall be deemed to affect
or limit the right of Lessor to enforce this provision by
appropriate judicial proceedings.
(h) This agreement to install Equipment is personal to the Lessee.
It is nonassignable and any attempt to assign this license
will terminate the privileges herein granted.
3. OPTION AND FIRST RIGHT TO PURCHASE - OPTION I
(1) During the period ("Option I Period") commencing on the date
of substantial completion of the
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<PAGE> 20
Premises as certified by the Project Architect and ending two (2) years
thereafter, Lessee shall have the option ("Option I") to purchase that
approximately 6.6 acre parcel of land ("Option Tract I") shown on Annex "1" to
be used for general office and engineering design and incidental uses related
thereto purposes only . If Lessee shall fail to enter into an earnest money
contract on Lessor's then standard form (to close within ninety (90) days
thereafter) covering the Option Tract I within the Option I Period, subject to
subparagraph (2) below, Lessor shall be at liberty to make such sale to a third
party. It is understood and agreed that during the Option I Period, the purchase
price shall be the Estimated Fair Market Value (determined as described in
Paragraph 5 below) of the Option Tract I at the time of exercise of the Option
I. Lessee shall have the right to extend the Option I for one (1) additional
year by delivery to Lessor of written notice of its election to extend the
Option I, accompanied by an extension fee of $144,000.00 at least ninety (90)
days prior to expiration of the Option I. Any extension fee paid by Lessee shall
be applied to the purchase price of the Option Tract I if the sale and purchase
on the terms hereof closes; otherwise the extension fee shall be retained by
Lessor.
(2) If the Option I is not extended, during the period commencing on
the first day following the expiration of the Option I Period, provided the
Option I is not extended, and ending one (1) year thereafter, Lessee shall have
a first right to purchase the Option Tract I on the following terms and
conditions. If Lessor shall receive a letter of intent to purchase the Option
Tract I which terms Lessor is willing to accept, Lessor shall give Lessee
written notice that it has received an offer it is willing to accept. Lessee
shall have the right for fifteen (15) working days after receipt of notice of
such third party letter of intent, which is acceptable to Lessor, to execute
Lessor's then standard form earnest money contract to be provided by Lessor,
covering such Option Tract I. Lessee's first right to purchase shall be
paramount to any rights of the third party in question. If Lessee shall fail to
execute the earnest money contract for the Option Tract I within the time herein
specified, Lessor shall be at liberty to make such sale to the third party. It
is understood that in the event Lessee exercises its first right to purchase,
the purchase price of Option Tract I shall be the Estimated Fair Market Value
(determined as described in paragraph (5) below).
Further, notwithstanding anything contained herein to the contrary, it
is understood and agreed that the rights set forth (1) and (2) above are
conditioned upon Lessee being in full compliance with all the terms and
conditions of the Lease at the time Lessee gives notice to Lessor of its
election to exercise its rights in (1) and (2) above. Any monetary default
beyond any applicable cure period shall, at Lessor's option, terminate Lessee's
rights hereunder. The right set forth above are not assignable by lessee to any
sublessee of the Premises or assignee of the Lease, except to an Affiliate as
described in Section 33 of the Lease.
4. OPTION AND FIRST RIGHT TO PURCHASE - OPTION II
(1) During the period ("Option II Period") commencing on the date of
substantial completion of the Premises and ending two (2) years thereafter,
Lessee shall have the option ("Option II") to purchase that approximately 17.7
acre parcel of land ("Option Tract II") shown on Annex "2" to be used for office
and light manufacturing/assembly purposes only. If Lessee shall fail to enter
into an earnest money contract on Lessor's then standard form (to close within
ninety (90) days thereafter) covering the Option Tract II within the Option II
Period, subject to subparagraph (2) below, Lessor shall be at liberty to make
such sale to a third party. It is understood and agreed that during the Option
II Period, the purchase price of the Option Tract II shall be
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<PAGE> 21
the Estimated Fair Market Value (determined as described in paragraph (5) below)
of the Option Tract II at the time of exercise of the Option II. Lessee shall
have the right to extend the Option II for one (1) additional year by delivery
to Lessor of written notice of election to extend the Option II, accompanied by
an extension fee of $260,000.00 at least ninety (90) days prior to expiration of
Option II. Any extension fee paid by Lessee shall be applied to the purchase
price of the Option Tract II of the sale and purchase, on the terms hereof,
closes; otherwise the extension fee shall be retained by Lessor.
(2) During the period commencing on the first day following the
expiration of the Option II Period and ending either (i) three (3) years
thereafter, if the Option II is not extended, or (ii) two (2) years thereafter
if Lessee extends the Option II, Lessee shall have a first right to purchase the
Option Tract II on the following terms and conditions. If Lessor shall receive a
letter of intent to purchase the Option Tract II ,which terms Lessor is willing
to accept, Lessor shall give Lessee written notice that it has received an offer
it is willing to accept. Lessee shall have the right for fifteen(15) business
days after receipt of notice of such third party letter of intent, which is
acceptable to Lessor, to execute Lessor's then standard form earnest money
contract to be provided by Lessor, covering such Option Tract II. Lessee's first
right to purchase shall be paramount to any rights of the third party in
question. If Lessee shall fail to execute a earnest money contract for the
Option Tract II within the time herein specified, Lessor shall be at liberty to
make such sale to the third party. It is understood that in the event Lessee
exercises its first right to purchase, the purchase price of Option Tract II
shall be the Estimated Fair Market Value (determined as described in paragraph
(5) below).
Further, notwithstanding anything contained herein to the contrary, it
is understood and agreed that the rights set forth (1) and (2) above are
conditioned upon Lessee being in full compliance with all the terms and
conditions of the Lease at the time Lessee gives notice to Lessor of its
election to exercise its rights in (1) and (2) above. Any monetary default
beyond any applicable cure period shall, at Lessor's option, terminate Lessee's
rights hereunder. The right set forth above are not assignable by lessee to any
sublessee of the Premises or assignee of the Lease, except to an Affiliate as
defined in Section 33 of the Lease.
5. ESTIMATED FAIR MARKET VALUE
"Estimated Fair Market Value" as used in paragraph 3. and 4. above
shall mean the value of the land to a person or entity with a real property
interest adjoining the land the subject of the option and determined as follows.
Lessor and Lessee may, by written agreement, agree upon the estimated fair
market value of the land provided that if Lessor and Lessee are unwilling or
unable to make such an estimate within thirty (30) days after Lessee exercises
an option provided for in 3. and/or 4. above, then Lessor and Lessee, within
fifteen (15) days after the expiration of such thirty (30) day period, shall
each select an appraiser. If either Lessor or Lessee fails to select an
appraiser within said period, the appraiser selected (by the party that did not
fail to select an appraiser) shall select a second appraiser and the Estimated
Fair Market Value shall be the average of the two (2) appraisals. If both Lessor
and Lessee do each select an appraiser, the two (2) appraisers shall within
thirty (30) days thereafter submit their written appraisals to Lessor and Lessee
and if the two (2) appraisers agree on a value of the land within five percent
(5%), such average of the two (2) values shall be the Estimated Fair Market
Value. If the two (2) appraisers cannot agree, then they will choose a third
appraiser by mutual agreement. When three (3) appraisers are utilized, the
Estimated Fair Market Value of the land shall be determined by: first, if the
highest appraisal exceeds the middle appraisal by more than five percent (5%)
and/or if the lowest appraisal is less than the middle appraisal by more than
five
5
<PAGE> 22
percent (5%), then the appraisal that exceeds or is less than the middle
appraisal by the greater percentage shall be disregarded; then disregarding the
appropriate appraisal, if any, in the manner set forth above, the remaining
appraisals will be averaged.
Each appraiser shall be an MAI appraiser with a least ten (10) years
experience appraising commercial properties in the Harris and Montgomery
Counties, Texas.
The cost of the appraiser chosen by Lessor and Lessee shall each be
paid by Lessor and Lessee. In the event a third appraiser is selected, the cost
for such third appraiser shall be divided equally between Lessor and Lessee.
6. TAXES
Lessor shall use reasonable efforts to notify Lessee annually in
writing of a proposed or contemplated increase (of more than 15%, which
percentage shall not include the increase due to expiration of any applicable
tax abatement programs) in total taxes and assessments payable on the Land and
the Building. Lessor agrees to meet with Lessee, upon Lessee's request, to
discuss and consider the need to contest any such increase in such taxes and
assessments. Lessor and Lessee shall both make a good faith effort to cooperate
with each other in evaluating whether the taxes and assessments should be
contested.
7. EARLY ENTRY
Notwithstanding anything contained herein to the contrary, Lessee may
enter into the Premises prior to the Commencement Date, at its sole risk, for
the purpose of moving in office furniture and equipment and installing telephone
cabling. Lessee's activities must not unreasonably interfere with the work being
performed by Lessor's contractors and subcontractors. Prior to entering onto the
Premises Lessee shall provide evidence of the insurance required by the terms of
the Lease. Lessee acknowledges that Lessor shall have no responsibility for the
security of the furniture and equipment located to the Premises prior to the
Commencement Date and Lessee agrees to indemnify and save Lessor harmless
against claims, demands and liabilities for personal injuries or property damage
that may be caused by or arise out of, or are attributed to, directly or
indirectly, Lessee's entry onto the Premises prior to the Commencement Date.
8. BASE RENT ABATEMENT
So long as Lessee is not in default in the performance of its covenants under
this Lease, the payment of Base Rent (in the amount and as defined in Section 7
of the Lease) shall be abated up to an amount equal to $95,312.50 ("Incentive").
No Base Rent shall be payable for the first month of the Term. The balance of
the Incentive (difference between $95,312.50 and the monthly Base Rent amount
payable during the first 5 years of the Lease Term) may be applied by Lessee,
with 30 days prior written notice to Lessor, to the Base Rent of any month
within 24 months from the Lease Commencement Date. The Incentive is provided to
Lessee
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<PAGE> 23
as an incentive for entering into the Lease. Nothing contained herein shall
abate, amend, or delay the obligation of Lessee to pay Additional Rent at the
times and in the amounts provided for in the Lease.
7
<PAGE> 1
EXHIBIT 10.2.4
[ENGLISH TRANSLATION OF DEFINITIVE AGREEMENT
EXECUTED IN SPANISH]
LEASE CONTRACT entered into by and between INMOBILIARIA DUMUR, S.A. DE C.V., a
Corporation having its principal offices in Ciudad Juarez, State of Chihuahua,
Mexico, represented herein by Mr. Ignacio Duarte Tarin, hereinafter referred to
as the "LESSOR", and Productos y Servicios de Telxon, S.A. de C.V., a
Corporation doing business in Ciudad Juarez, State of Chihuahua, Mexico,
represented by Mr. Jack F. Platt in his capacity as General Attorney-in-Fact
of said Corporation, hereinafter referred to as the "LESSEE" in accordance with
the following recitals and clauses:
RECITALS:
I. Mr. Ignacio Duarte Tarin on behalf of the LESSOR, states:
a. That his principal is a corporation duly incorporated pursuant
to the General Law Mercantile Corporations:
b. That his principal is the owner of a tract of land which has
an area of 9,290.304 square meters, equivalent to 100,002.69
square feet, hereinafter referred to as the "Land", and the
industrial type building partially constructed thereon, which
will have an area of 50,000 (fifty thousand square feet),
hereinafter referred to as the "Building", located in the
Calle Carlos Dickens 2814, Colonia Infonavit Casas Grandes, at
the DEPORTIVO DEVELOPMENT in Ciudad Juarez, Chihuahua,
Mexico. The Land and Building will hereinafter be jointly
referred to as the "Leased Property". The location of the
Leased Property is described in detail in the plot plans that
are attached hereto and made a part hereof as Exhibit "A"
The Lessee shall have all the rights to review and approve any
and all plans, blueprints, specifications, layouts, and any
related construction materials that would be selected for the
Building.
c. That his principal is willing to lease the Leased Property, to
the LESSEE, subject to the terms and conditions hereof.
d. That his principal and he have all the authorities required to
enter into this contract, which authorities have not been
limited nor revoked.
II. Mr. Jack F. Platt on behalf of the LESSEE, states:
a. That his principal is a corporation duly incorporated pursuant
to the General Law of Mercantile Corporations.
b. That his principal wishes to lease the use and temporary
possession of the Leased Property, subject to the terms and
conditions contained herein.
<PAGE> 2
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c. That his principal and he have all the authorities required to
enter into this contract, which authority has not been
limited nor revoked.
III. Both parties, through their legal representatives, state:
That in the execution of this contract there has been no error, bad faith nor
duress amongst them.
In consideration of the precedent recitals, the parties agree to the
following:
CLAUSES:
FIRST.- THE LEASED PROPERTY:
Under the covenants made under this agreement, the LESSOR hereby delivers in
lease to the LESSEE, and the LESSEE receives in lease, the use and temporary
possession of the Leased Property that is built to this date. The LESSOR
covenants and agrees to deliver the use and possession of the remaining
portion of the Leased Property to the LESSEE, and the LESSEE covenants and
agrees to receive same, as the construction thereof is finalized.
SECOND.- OWNERSHIP OF THE LEASED PROPERTY:
LESSOR states that it has the clear and complete ownership of the Leased
Property, and the LESSEE, according to the terms herein shall have the quiet
enjoyment of same. Similarly, LESSOR and LESSEE agree that as provided under
Article 2308 of the Civil Code for the State of Chihuahua, this lease shall
survive even in the event of foreclosure of the Leased Property as a result of
any lien or mortgage, same which will not affect this Lease or any extension
hereof, and that any amendments to such mortgages or any new mortgages on the
Leased Property shall contain a provision acknowledging the existence and
duration of this Lease and the right of extension hereof, if such right of
extension is agreed upon between the parties at or prior to the time that any
such mortgage is entered into by LESSOR. The parties acknowledge the fact that
a set of restrictive covenants have been established as mandatory and legally
binding on LESSOR and all tenants in the Industrial Park where the Leased
Property is located. Such restrictive covenants are attached to this Lease as
Exhibit "B" and LESSOR and LESSEE declare to know them and accept to have them
be binding upon both parties. LESSOR states that the Leased Property is not now
in violation of said restrictive covenants or any Federal, State or Municipal,
including but not limited to environmental laws, and that LESSOR will not, and
will not permit any Building contractor or other person or entity acting on its
behalf, to violate any such covenants or laws with respect to the Leased
Property.
THIRD.- DELIVERY OF THE LEASED PROPERTY:
The LESSEE shall have possession of the Leased Property starting on April 14,
1997, and its right of possessing the Leased Property will terminate on April
13, 2004. Upon delivery of the Leased Property to the Lessee, same will be
complete and ready for occupancy on the initial date stipulated above.
<PAGE> 3
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FOURTH. - USE OF THE LEASED PROPERTY:
The LESSEE shall use the Leased Property only for maintenance and repair of
computer equipment and\or other light and clean industrial operations and
offices; under no conditions whatsoever will the LESSEE be permitted to use the
Leased Property for chemical and heavy industrial operations, nor activities
which are in violation of the restrictive covenants herein above mentioned. In
all cases the LESSEE shall conduct its activities on the Leased Property in
strict compliance with all applicable Federal, State and Municipal Laws,
including, but not limited to the provisions dictated by the Ministry of Social
Development of the Mexican Government.
In any case, LESSEE binds itself to keep the Leased Property and/or the LESSOR
free from any liabilities, obligations, losses, property damages, penalties,
claims, actions, suits, costs, charges and expenses which may be imposed upon
the Leased Property and/or the LESSOR due to acts or omissions of LESSEE that
may constitute any violation of the above mentioned provisions.
FIFTH.- PURCHASE OPTION:
The LESSOR hereby grants the LESSEE the option to purchase the Leased Property.
Such option to purchase may only be exercised at the end of the initial term
hereof or at the end of any of its extensions. In the event the LESSEE wishes to
exercise its option to purchase the Leased Property, it shall provide a written
notice to the LESSOR at the latest, 60 calendar days before the expiration of
the initial term hereof or of the then current extension, as the case may be.
The parties hereto covenant and agree that upon the LESSEE exercising its
option to purchase the Leased Property in the terms mentioned above, they will:
1. Each appoint an appraiser, who shall prepare and finish his appraisal of
the value of the Leased Property within the 20 calendar days
following the respective appointment.
2. Present to each other, immediately after their receipt, the results of
their respective appraisals, for purposes of determining the
corresponding price in which the LESSEE will purchase the Leased Property
from the LESSOR.
3. Average out the appraisals obtained, and the average of such appraisals
shall be the price for which the LESSOR will sell to the LESSEE the
Leased Property, unless that there is more than a 10% discrepancy in the
appraisals obtained by the parties.
4. If there is more than a 10% discrepancy in the values yielded by the
corresponding appraisals, then the appraisers will appoint, within the
following 5 calendar days, a third appraiser, whose value determination
shall be provided within
<PAGE> 4
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the 20 calendar days following his appointment and which shall
be binding upon the parties hereto.
5. The parties covenant and agree that the LESSEE will not be obligated to
purchase the Leased Property after exercising its option to purchase, if
the LESSOR cannot or will not demonstrate, to the sole and exclusive
satisfaction of the LESSEE, that it has a fee simple marketable title to
the Leased Property.
SIXTH.- LEASE PRICE:
The LESSEE shall pay as rent for the Leased Property the amount of US $5.75
(five dollars seventy five cents) currency of the United States of America per
square foot of Building per year; that is the total amount of US $287,500.00
(two hundred eighty seven thousand five hundred dollars) currency of the United
States of America per year. One twelfth of the above mentioned rent, that is
the amount of US $23,958.33 (twenty three thousand nine hundred fifty eight
dollars and thirty three cents) currency of the United States of America shall
be paid advance during the first five days of each and every calendar month
during the term of the contract as of April 14, 1997, at LESSOR domicile or to
whoever and whatever place the LESSOR notified in writing to the LESSEE at
least with 30 (thirty) days in advance. Starting on the anniversary of the
first year of the term of this Agreement, and on every anniversary
thereafter,the annual rent will increase yearly in the same proportion of
increase suffered during the prior 12 months by the All Items Consumer Price
Index for the City of Houston, published by the Department of Labor of the
United States of America. Said increased rent will be in effect for the
subsequent 12 month period.
Should punctual payment of the rent, as provided for in this Contract be
defaulted, the LESSEE shall pay LESSOR interest over the defaulted rental
payments calculated on a daily basis for each day in which the full rental
payment is past due and remains unpaid, at an annual rate of 5% (five percent),
if payment is made during the first 10 (ten) days of each month, and at the
annual rate of 18% (eighteen percent) if payment is made at anytime after the
first 10 (ten) days of each month, and such payments shall be made according to
the stipulations of this clause.
SEVENTH.- TAXES, UTILITIES AND ENVIRONMENTAL:
Starting on the date of validity of this lease, LESSEE shall be liable only for
all property taxes caused by the Leased Property, and for the value added tax
generated by the payment of the rentals hereunder.
LESSEE or LESSOR may bring appropriate proceedings in the name of the LESSOR,
the LESSEE or both for contesting the validity of any assessment on the Leased
Property or amount of taxes imposed
<PAGE> 5
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thereon, or recover payment thereof. Each party shall cooperate with the other
with respect to the proceedings so far as it is reasonably necessary.
The net amount of any taxes recovered, after payment of all expenses in
connection therewith, shall revert to the party who made them.
The LESSOR states that the public services of sewage, water, telephone, natural
gas and electricity, shall be available up to the limit of the Leased Property
and shall serve the Building exclusively and will be separately metered. It is
agreed that the LESSEE will be responsible for the hookup of all such utilities
of which it shall be the user.
As of the commencement date of the Lease Term the LESSEE shall observe all laws
and regulations regarding ecological equilibrium and environmental protection.
The LESSEE shall keep and deliver the Leased Property to the LESSOR free from
contamination, releasing the latter from any penalties, sanctions and expenses
which may be imposed or which shall be incurred as consequence of any
contamination caused by the LESSEE.
The LESSOR shall be liable towards the LESSEE and all corresponding authority
and will hold LESSEE harmless for any contamination that may affect the Leased
Property for any reason, before the delivery of the Leased Property to the
LESSEE, or for such contamination which is determined to have occurred before
such delivery to the LESSEE, and against all sanctions, penalties,
indemnification or expenses that may be imposed or incurred as consequence of
any contamination that existed before and until the LESSEE takes over the
physical possession of the Leased Property. In the event any contamination is
found on the Leased Property before its delivery to the LESSEE hereunder, the
LESSOR covenants and agrees to clean, remove and properly dispose of same at its
cost, in an efficient and expeditious manner. The LESSEE will have the right to
terminate this Agreement if such clean up or remediation takes more than thirty
(30) calendar days to complete. LESSEE shall be liable towards LESSOR and shall
hold LESSOR harmless with respect to any and all authorities and third parties
for any contamination and or violation to any applicable environmental
regulations that takes place while LESSEE is in possession of the Leased
Property, but only if directly caused by actions of LESSEE, its contractors,
agents and/or employees. LESSEE will be liable for any environmental
contamination and/or violations to any applicable environmental regulations
disclosed after delivery of the Leased Property back to LESSOR, in the event
that said contamination and/or violation takes place while LESSEE is in
possession of the Leased Property, but only if directly caused by actions of
LESSEE, its contractors, agents and/or employees.
<PAGE> 6
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EIGHTH. - MAINTENANCE:
The responsibility for maintenance, repair and replacement shall be governed by
the following stipulations:
1. LESSOR shall, at all times during the lease term, maintain and repair,
at its own cost and expense, the Building foundations, structure of the floors,
structure of exterior walls, structure of the roof including all roofing and
flashing and its supporting members. The LESSOR covenants and agrees to make any
and all guarantees issued to it by contractors, subcontractors and suppliers due
to the construction of the Building, extensive to the LESSEE.
2. LESSEE during the term of the lease, shall maintain and repair, at its
own cost and expense, the interior of the Building including interior and
exterior paint, the air conditioning and heating systems.
NINTH. - ALTERATIONS:
The LESSEE may not change the basic structure, the external appearance or basic
utility services (water, sewage, electricity and gas) of the Leased Property,
nor make any major work alterations without the expressed written authorization
of the LESSOR, which authorization shall not be unreasonably withheld or
delayed. The LESSEE is hereby authorized to make minor alterations or
modifications of the Leased Property, at its own risk and expense, so long as
they do not alter or substantially impair the structure of the Building. In any
case LESSEE shall be obliged to notify the LESSOR of any minor modification or
alteration it effects.
All fixtures and/or equipment of whatsoever nature that shall have been
installed in the Leased Property by the LESSEE, whether permanently affixed
thereto or otherwise, shall continue to be the property of the LESSEE, and shall
be removed by the LESSEE at the expiration or termination of this lease or any
renewal or extension thereof, unless the LESSEE receives the written
confirmation of LESSOR, in advance, in each specific case, that the
improvements made on the Leased Property may remain on said property upon
expiration of the lease, provided, however, the LESSEE shall at its own cost and
expense repair any damage to the Leased Property resulting from the removal of
said equipment and/or accessories and shall deliver the Leased Property to the
LESSOR in adequate conditions of order, presentation and cleanliness, with
ordinary wear and tear excepted.
TENTH.- LIABILITIES OF THE PARTIES:
In conformance with applicable law, the LESSOR guarantees to the LESSEE the use
and peaceful enjoyment of the Leased Property during the full term of the lease,
including any and all extensions
<PAGE> 7
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thereof, and the LESSEE covenants and agrees to use the Leased Property only for
the purposes herein stipulated.
The liabilities of the LESSOR and of the LESSEE, in each case, shall be ruled by
the following stipulations:
1. The LESSOR or the LESSEE, respectively, shall be liable for damages to
the Leased Property caused by their own fault or negligence, or that of their
agents, employees suppliers or visitors, except for losses commonly insurable by
fire insurance with extended coverage endorsement.
2. In the event the LESSEE is prevented, by any cause attributable to the
LESSOR, whether partially or completely from the use of the Building which is
part of the Leased Property, the rent shall be reduced proportionally to the
part which use is prevented. But if the LESSEE was prevented from using the
Building which is part of the Leased Property in its entirety, to such and
extent that the LESSEE may not use it for the purposes hereby stated, then no
rent shall be paid during the time that the building is not usable, and the
LESSEE shall have the right to terminate this contract in the event said non-use
continues for 60 (sixty) calendar days or more.
If the Building is damaged or destroyed by any cause not attributable to LESSEE,
LESSOR agree to restore it and put it in proper condition for the LESSEE to use
it for the purposes agreed on in this contract. However, if such destruction
exceeds 75% (seventy-five percent) of the full insurable value of the Building
and it is caused by fortuitous cause or force majeure, LESSOR shall have the
right to elect not to rebuild and in such case this lease shall terminate
without any further responsibility between the parties, unless said damage be
covered by insurance, and the insurance company makes payment of the amounts
corresponding to the damage, for the reconstruction of the Building. If the
LESSEE decides to terminate this lease under the circumstances above described,
the lease shall terminate and the LESSEE and the LESSOR shall be released from
any further obligation thereunder, unless said damage be covered by insurance,
in which case the insurance company shall pay the insured damage to the parties
hereto, according to their interest in the Leased Property.
If the LESSEE continues the lease hereunder, the rent payable under this lease
shall be reduced proportionally to the part which use is prevented until the
full use of the Building has been restored to the LESSEE.
The percentage of the insurable value hereinabove referred to, shall be
determined by the insurance claim adjuster of the insurance company with which
the insurance provided for in Clause ELEVENTH, is contracted.
<PAGE> 8
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3. If the impediment were imputable to the LESSEE, or its agents,
employees or visitors, the LESSEE shall continue to pay the rent as if it were
using the Building, unless this loss is covered by rental insurance or other
insurance.
4. In the event of partial impediment of use in accordance with paragraph
second of this clause, the parties shall agree on the proportion that the rent
shall be abated, and if they cannot reach an agreement, they shall each
designate an expert. If both experts cannot agree, the experts will designate a
third expert. The resolution of the majority of the experts shall be final and
binding on the parties, or if the parties agree on designating only one expert,
his decision shall be final and binding on the parties.
5. The responsibilities of the parties referred to in the paragraphs of
this clause, shall be subject to the provisions of Clause ELEVENTH of this
Contract.
ELEVENTH. - INSURANCE :
The parties herein shall obtain insurance, in the type and amounts adequate to
protect their respective interest in this lease against any and all losses
and/or risks. Specifically, it is agreed that:
1. The LESSEE shall pay, during the term of the lease, the premiums on
insurance policies as required to cover the Building.
Such insurance shall be contracted by the LESSEE at its own cost and expense.
The required insurance during the term of the lease shall be against any loss or
damage by fire and/or lightning and against any loss or damage by explosion,
hurricane and hail, strong winds, snow, strikes, popular riots and vandalism,
airplanes, vehicles and smoke, and earthquake and/or volcanic eruption, and any
other risks now or hereafter embraced by the so called "Extended Coverage" in
amount sufficient to prevent LESSOR or LESSEE from becoming co-insurers under
the terms of the applicable policies, but in any event in an amount not less
than 100% (one hundred percent) of the then "full insurable value" (replacement
value), which for the purpose of this Clause shall be deemed to be the cost of
replacing the Building less the cost of excavations, foundations and footings
and without any deductions for depreciation of the Building. Such "full
insurable value" shall be determined from time to time, but not more frequently
than once in any twelve calendar months, in accordance with the terms of the
respective policy, and in the event the respective policy does not provide for
said determination, by means of an appraisal to be performed
<PAGE> 9
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by a certified appraiser who will be designated by LESSEE and approved in
writing by LESSOR (such approval not to be unreasonably withheld or delayed),
which appraisal shall be paid for equally by both parties hereto.
LESSEE shall not at any time be obliged to pay for insurance in an amount
greater than the most recent full insurable value so determined.
2. As per the provisions of the preceding paragraph, the LESSEE shall
also pay the following insurance coverage contracted by LESSOR:
(a) General Civil Liability Insurance, covering claims for injury,
death, or property damage occurring on or about the Leased Property
for an amount not less than $500,000.00 Dollars Currency of the
United States of America as sole and combined limit to cover
property damage and personal injury or death. Furthermore, the Civil
Contractual and Independent Contractors Liabilities shall be
included, the LESSEE being obligated to give written notice to the
Insurance Company, by sending a copy of any contract the LESSEE
executes on its own behalf for the execution of improvements,
adaptations, or modifications to the Leased Property.
(b) Insurance against loss or damage by boiler (or Compressor)
malfunction or by internal explosion by boiler (compressor), for any
high pressure boiler (compressor) installed, in any, in the Building
and which is part of the Leased Property, in such amounts as LESSOR,
from time to time, reasonably require; and
(c) Insurance against accidental glass breakage.
3. All insurance provided for in this clause shall be issued under valid
and enforceable policies issued by insurers authorized to do business in Mexico.
4. All policies of insurance herein provided for shall name LESSOR and/or
their assignees and LESSEE as the insured, as their respective interest may
appear and shall contain standard clauses in favor of the holders of mortgages
on the Leased Property and the assignees of the rights of LESSOR related to
this lease.
5. Each such policy or certification hereof issued by the insurer shall
contain an agreement by the insurer that such policy shall not be cancelled
without at least ten days prior notice to LESSOR and/or their assignees and to
LESSEE, payable, thereunder will be in fact paid,
<PAGE> 10
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notwithstanding any act or forfeiture of all or part of such insurance.
6. In case of casualty to the Leased Property resulting in damage or
destruction to the Building, LESSEE shall promptly give written notice thereof
of LESSOR and/or their assignees. Adjustment proceedings shall be started
immediately by LESSEE.
7. All insurance money paid on account of such damage or destruction less
the actual cost, fees and expenses, if any, incurred in connection with
adjustments of the loss, shall be made to the LESSOR and/or their assignees or
the LESSEE, as their respective interest appear under this lease, for the
purpose of restoring, replacing, rebuilding or altering the Building as nearly
as possible to its value, condition and character immediately prior to such
damage or destruction.
8. The parties shall look first to the insurance proceeds, but if the
amounts actually paid by the insurance company should not cover the full costs
or restoration or repair of the Building which will be part of the Leased
Property, each of the parties, as the case may be, under the terms of Clause
Tenth, shall be responsible for the payment of the difference.
TWELFTH.- TERM:
The term of this lease shall be for a period of 7 (seven) years, which will
begin on April 14, 1997, and will terminate on April 13, 2004. Said term
will be mandatory for both parties, notwithstanding the following provisions:
The LESSEE will have the right to terminate this contract prior 90 (ninety) days
written notice to LESSOR, without any further liability, except for full payment
which must be made to LESSOR, on the effective date of early termination, as
indemnification, at the option of LESSEE, of all amounts required to complete
the lease price of the remaining term agreed on this clause or of its
extensions, if any, computed by using the then current rentals at the time of
providing said notice to the LESSOR, or by making payment to the LESSOR of the
unrecovered portions of the LESSOR's amortized constructions costs of the
Building.
The LESSEE will have two options to extend the original term of this Agreement.
Each option will entitle the LESSEE to extend the initial term hereof, or the
then current extension, for an additional period of 5 (five) years. In the event
the LESSEE wishes to exercise any of its options to extend the term hereof, it
must provide a written notice to the LESSOR at the latest 60 calendar days prior
to the expiration of the initial term or prior to the expiration date of the
first extension period, as the case may be.
<PAGE> 11
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THIRTEENTH. - SURRENDER:
LESSEE shall, on the last day of the term of this lease or its extensions, or
upon early termination, surrender and deliver the Leased Property into the
possession and use of the LESSOR without delay, in good order, condition and
repair, except for normal wear and tear due to normal use and the passage of
time, and except for damage by fire or other casualty. All signs, inscriptions,
canopies and installations of like nature made by LESSEE shall be removed at or
prior to the expiration of the term of this lease. All furniture, trade fixtures
and business equipment installed by LESSEE shall remain the property of the
LESSEE and shall be removed by LESSEE at any time during or at the end of the
term and the LESSEE shall, at its own expense, repair all damages resulting
from the installation or removal thereof.
Any property which shall remain in the Leased Property after termination of the
lease may, at the option of LESSOR, be deemed to have been abandoned and the
LESSOR may dispose of same, without liability, in such manner as LESSOR may see
fit.
Any and all permanent alterations and improvements placed upon the Leased
Property by LESSEE and/or LESSOR subsequent to the date hereof shall become the
property of LESSOR and remain on the Leased Property at the expiration of or
upon earlier termination of this Lease without LESSOR being required to
compensate LESSEE for such alternations or improvements, subject to LESSEE's
right to use same during the term hereof.
FOURTEENTH. HOLDOVER:
In the event this lease is not duly extended prior to the termination date, the
LESSEE shall at the termination of the lease by lapse of time or otherwise,
yield up immediate possession to LESSOR, and failing to do so the term of this
Lease shall be automatically extended on a month to month basis, and LESSEE
will pay to LESSOR as lease price for the whole time such possession is
withheld, an amount equal to the rent due at the date of termination increased
by 25% (TWENTY FIVE PERCENT), however then provisions of this clause shall not
be held as a waiver by LESSOR of any right of reentry as herein set forth; nor
shall the receipt of said payment or any part thereof, or any act in apparent
affirmation of tenancy, operate as waiver of the right of LESSOR to recover the
Leased Property.
FIFTEENTH. - PARTIES RIGHT TO PERFORM OTHER PARTY COVENANTS:
If LESSEE shall at any time fail to perform any one or more of its obligations
pursuant to this contract, LESSOR, after ten days following receipt by LESSEE,
of written notice of said failure to LESSEE (or without notice in the case of an
emergency) and without waiving or releasing LESSEE from any obligation of LESSEE
contained in this lease, may but shall be under no obligation to perform any act
on LESSEE's part to be performed as provided in this lease, and may
<PAGE> 12
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enter upon the Leased Property for that purpose and take all such actions
thereon as may be necessary thereof. All sums reasonably paid by LESSOR and all
costs and expenses reasonably incurred by LESSOR in connection with the
performance of any such lawful obligation of LESSEE, shall be payable to LESSEE
to LESSOR on demand.
If LESSOR shall at any time fail to perform any one or more of their obligations
pursuant to this contract, LESSEE, after ten days following receipt by LESSOR,
of written notice of said failure to LESSOR (or without notice in case of
emergency) and without waiving or releasing LESSOR from any obligation or LESSOR
contained in this lease, may but shall under no obligation to perform any act on
LESSOR part to be performed as provided in this lease, and take such actions
thereon as may be necessary thereof. All sums paid by LESSEE and all costs and
expenses incurred by LESSEE in connection with the performance of any such
obligation of LESSOR, shall be payable by LESSOR to LESSEE on demand.
SIXTEENTH.- ENTRY ON LEASED PROPERTY BY LESSOR:
LESSEE shall permit LESSOR and their authorized representatives to enter the
Leased property at all reasonable times and with a 24 (twenty-four) hour prior
notice to LESSEE, for the purpose of inspecting the same and performing any work
therein that may be required of it or that may be necessary by reason of
LESSEE's failure to make repairs or perform such work or to commence the same.
In case of emergency, the LESSEE shall allow the LESSOR and authorized
representatives the immediate access. Nothing in this Clause Sixteenth shall
imply any duty upon the part of LESSOR to do any such work; and performance
thereof by LESSOR shall not constitute a waiver of LESSEE's default in failing
to perform the same.
LESSEE shall permit LESSOR and their authorized representatives to enter the
Leased Property at all reasonable times during usual business hours with a 24
7(twenty-four) hour prior notice to LESSEE for the purpose of showing the same
to prospective purchasers of the Leased Property and at any time within three
months prior to the expiration of this lease, provided that LESSEE shall have
at all times during the term of this contract and any extension thereof the
right to refuse entry to competing companies.
The LESSOR shall exercise its rights under this provision in such a way that
does not interfere with the business operations of LESSEE.
SEVENTEENTH. - GUARANTY:
LESSEE, being a subsidiary corporation of Telxon Corporation, a corporation
incorporated in the State of Delaware, United States of America, shall obtain
and deliver to LESSOR, on the date of execution hereof, a document in
substantially the same form of the document attached hereto as exhibit "C",
duly signed by a legal
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representative of Telxon Corporation, and certified by a Notary Public, whereby
Telxon Corporation shall be the solitary guarantor of the LESSEE for the exact
compliance with all and each of the obligations agreed to by the LESSEE under
this lease.
EIGHTEENTH. - SUBORDINATION:
LESSEE agrees, at the request of LESSOR, to subordinate this lease (including
any extensions) to any mortgage placed upon the Leased property, provided that
the holder agrees to recognize the LESSEE's rights under this lease and not to
disturb the possession and other rights of LESSEE under this lease so long as
LESSEE continues to perform its obligations hereunder; and in the event of
acquisition of title by said holders through foreclosure proceedings or
otherwise, to accept LESSEE as tenant of the lease and to perform the LESSOR
obligations hereunder (but only while owner of the Leased Property); and LESSEE
agrees to recognize such holder or any other person acquiring title to the
Leased Property. LESSEE and LESSOR agree to execute and deliver any appropriate
instruments necessary to carry out the agreements contained herein.
NINETEENTH.- MODIFICATIONS TO CONTRACTUAL DOCUMENT:
No modification, release or discharge of this lease or waiver of any of the
provisions thereof shall be of any force to effect except by an agreement in
writing executed by LESSOR and LESSEE.
TWENTIETH.- APPLICABLE LAW AND JURISDICTION:
This lease shall be bound by and subject to the provisions of the Civil Code of
the State of Chihuahua and both parties hereto expressly submit to the
jurisdiction of the competent Courts of the City of Juarez, State of Chihuahua,
Mexico, expressly waiving any other forum to which they may have a right to by
reason of their present or future domiciles or due to any other reason
whatsoever.
TWENTY-FIRST. - NOTICES:
All notices, demands and requests required under this lease shall be in writing.
All such notices, demands and requests shall be deemed to have been properly
given if served personally (including delivery by courier) or if sent by
registered or certified mail, return receipt requested, addressed to LESSOR or
LESSEE as the case may be, or by telephonic facsimile with automatic
confirmation, at their respective addresses last designated by notice to the
other party for that purpose. Until LESSOR and LESSEE designate other addresses,
their addresses shall be as follows:
<PAGE> 14
-14-
The Lessee: PRODUCTOS Y SERVICIOS DE
TELXON, S. DE R.L. DE C.V.
Carlos Dickens 2814
Colonia Infonavit Casas Grandes
Ciudad Juarez, Chihuahua
Attn: Mr. Jack Platt
The Lessor: INMOBILIARIA DUMUR, S.A. DE C.V.
Ave. 16 de Septiembre y Costa Rica
Ciudad Juarez, Chihuahua 32030
Attn: Sr. Ignacio Duarte
TWENTY-SECOND. - ASSIGNMENT AND SUBLEASE:
The LESSEE may not sublease the LEASED PROPERTY or assign this Contract,
unless it obtains the prior written authorization of the LESSOR, same which will
not be unreasonably withheld or delayed. However, the LESSEE will be entitled to
assign its rights or sublease the Leased Property to any company belonging to
the same economic group of interest as Telxon Corporation, by providing written
notice to the LESSOR for such purposes.
Having read the foregoing Contract, the parties execute same in Ciudad
Juarez Chihuahua, Mexico on April 10th, 1997.
"LESSOR" "LESSEE"
INMOBILIARIA DUMUR PRODUCTOS Y SERVICIOS DE
S.A. DE C.V. TELXON, S. DE R.L. DE C.V.
By: /s/ Ignacio Duarte Tarin By: /s/ Jack F. Platt
------------------------- --------------------------
Ignacio Duarte Tarin Jack F. Platt
General Attorney-in-fact General Attorney-in-fact
<PAGE> 1
Exhibit 10.3.1.d
AMENDMENT NO. 3
---------------
AMENDMENT NO. 3 (this "AMENDMENT"), dated as of December 12, 1997, to
the Credit Agreement, dated as of March 8, 1996, by and among Telxon
Corporation (the "BORROWER"), the Lenders party thereto,and The Bank of New
York, as Issuer, Swing Line Lender and Agent (as amended, the "AGREEMENT").
RECITALS
--------
I. Capitalized terms used herein which are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Agreement.
II. The Borrower has requested that the Agent, the Issuer and the Swing
Line Lender agree to amend the Agreement upon the terms and conditions
contained herein, and the Agent, the Issuer and the Swing Line Lender are
willing so to agree.
III. The Borrower and AIRONET Wireless Communications, Inc. ("AIRONET")
have proposed to enter into one or more transactions whereby 1. AIRONET would
borrow up to $20,000,000 from the Borrower, such Indebtedness to be repaid on
the earlier to occur of (a) the consummation of the AIRONET Borrowing (as
defined below) and (b) December 31, 1998 (the "TRANSITIONAL BORROWING"); and 2.
AIRONET would borrow from a lender up to $20,000,000 on a secured or unsecured
basis, the proceeds of which would be used to repay the Transitional Borrowing
(the "AIRONET BORROWING").
IV. The Borrower has requested that the Agent grant consent under the
Agreement with respect to the Transitional Borrowing, and the Agent is willing
to grant such consent upon the terms and conditions contained herein.
Accordingly, in consideration of the Recitals and the covenants and
conditions hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Borrower, the Agent, the Issuer and the Swing Line Lender hereby agree as
follows:
1. Section 7.14(a)(ii) is hereby amended by deleting the date "March
31, 1997" appearing therein, and inserting in its place and stead the date
"December 31, 1998".
2. Section 8.6(c) of the Agreement is amended and restated in its
entirety as follows:
(c) Restricted Payments by the Borrower on or prior to December
31, 1998 (but in no event during the period commencing on July 1, 1997
and ending December 11, 1997), in the form of the purchase or
repurchase by the Borrower of outstanding registered shares thereof
and/or convertible subordinated debt thereof, provided that (i)
immediately before and after giving effect thereto no Default or Event
of Default shall or would exist, and (ii) immediately after giving
effect to each such Restricted Payment, (1) the aggregate cost of all
such Restricted
<PAGE> 2
Payments under Section 8.6(b) and this Section 8.6(c) shall not exceed
$33,000,000, and (2) the aggregate cost of all such Restricted
Payments made under Section 8.6(b) and this Section 8.6(c) during the
period commencing on December 12, 1997 and ending on December 31,
1998, shall not exceed $10,000,000.
3. The Agent consents to a departure from the requirements of Section
8.1 of the Agreement to permit the incurrence of Indebtedness by AIRONET in
connection with the Transitional Borrowing and the AIRONET Borrowing.
4. The Agent consents to a departure from the requirements of Section
8.2 of the Agreement to permit the creation and existence of Liens to secure up
to $20,000,000 of Indebtedness in connection with the AIRONET Borrowing.
5. The Agent consents to a departure from the requirements of Section
8.5 of the Agreement to permit the Investment by the Borrower in Indebtedness
of AIRONET in connection with the Transitional Borrowing, which Investment made
pursuant to this Paragraph 4 shall be deemed an Investment made pursuant to
clause (j) of Section 8.5.
6. Paragraphs 1-5 of this Amendment shall not be effective until such
date (the "AMENDMENT EFFECTIVE DATE") as each of the following conditions shall
have been satisfied.
(1) The Agent shall have received counterparts of this
Amendment executed by the Issuer, the Swing Line lender, Required
Lenders and the Guarantors (excluding AIRONET).
(2) All legal matters incident to the execution and delivery of
the Amendment Documents shall be reasonably satisfactory to Special
Counsel.
(3) The Borrower shall have paid the reasonable fees and
disbursements of Special Counsel which shall have accrued up to the
Amendment Effective Date.
(4) On and as of the Amendment Effective Date, there shall
exist no Default or Event of Default, and all of the representations and
warranties of the Loan Parties contained in the Loan Documents shall be true
and correct with the same effect as though such representations and warranties
had been on the Amendment Effective Date.
7. On each of the date hereof and the Amendment Effective Date, the
Borrower hereby (a) reaffirms and admits the validity and enforceability of the
Loan Documents and all of its obligations thereunder, (b) agrees and admits
that it has no defenses to or offsets against any such obligation, and (c)
represents and warrants that no Default or Event of Default has occurred and is
continuing, and that each of the representations and warranties made by it in
the Agreement is true and correct with the same effect as though such
representation and warranty had been made on such date.
8. In all other respects, the Loan Documents shall remain in full force
and effect, and no amendment in respect of any term or condition of any Loan
Document contained herein shall be deemed to be an amendment in respect of any
other term or condition contained in any Loan Document.
2
<PAGE> 3
9. This Amendment may be executed in any number of counterparts all of
which, taken together, shall constitute on Amendment. In making proof of this
Amendment, it shall only be necessary to produce the counterpart executed and
delivered by the party to be charged.
10. THIS AMENDMENT IS BEING EXECUTED AND DELIVERED IN, AND IS INTENDED
TO BE PERFORMED IN, THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND
ENFORCEABLE IN ACCORDANCE WITH, AND BE GOVERNED BY, THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
3
<PAGE> 4
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained each such party has caused this Amendment to be
executed on its behalf.
TELXON CORPORATION
By: /s/ Kenneth W. Haver
----------------------------------
Name: Kenneth W. Haver
---------------------------------
Title: Senior Vice President and
--------------------------------
Chief Financial Officer
THE BANK OF NEW YORK, in its
capacity as a Lender, as the
Issuer, as the Swing Line Lender
and as the Agent
By: /s/ Robert J. Joyce
----------------------------------
Name: Robert J. Joyce
---------------------------------
Title: Vice President
--------------------------------
Each of the following Lenders consents to the execution and delivery of this
Amendment by the Agent and agrees to all of the terms and conditions hereof:
BANK ONE, AKRON, N.A.
By: /s/ Susan D. Steiger
----------------------------------
Name: Susan D. Steiger
---------------------------------
Title: Vice President
--------------------------------
COMERCIA BANK
By: /s/ Jeffrey J. Judge
----------------------------------
Name: Jeffrey J. Judge
---------------------------------
Title: Vice President
--------------------------------
<PAGE> 5
THE HUNTINGTON NATIONAL BANK
By: /s/ Timothy M. Ward
-------------------------------
Name: Timothy M. Ward
-----------------------------
Title: A.V.P.
----------------------------
PNC BANK, N.A.
By: /s/ Bryon A. Pike
-------------------------------
Name: Bryon A. Pike
-----------------------------
Title: Vice President
----------------------------
SOCIETE GENERALE
By: /s/ Joseph A. Philbin
-----------------------
Name: Joseph A. Philbin
-----------------------------
Title: Vice President
----------------------------
UNITED STATES NATIONAL BANK OF OREGON
By: /s/ Mark Olman
-------------------------------
Name: Mark Olman
-----------------------------
Title: Vice President
----------------------------
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: /s/ Walter R. Wolff
-------------------------------
Name: Walter R. Wolff
-----------------------------
Title: SVP & Deputy General Manager
----------------------------
Each of the Guarantors acknowledges the execution and delivery of this
Amendment by the Agent and by signing below, indicates its reaffirmation of the
Guarantor Obligations (as such term is defined in the Subsidiary Guaranty):
-2-
<PAGE> 6
ITRONIX CORPORATION NKA TLXITX CORPORATION
By: /s/ Kenneth W. Haver
-------------------------------
Name: Kenneth W. Haver
-----------------------------
Title: Senior Vice President
----------------------------
Chief Financial Officer
PTC AIRCO, INC.
By: /s/ Kenneth W. Haver
-------------------------------
Name: Kenneth W. Haver
-----------------------------
Title: Senior Vice President
----------------------------
Chief Financial Officer
META HOLDING CORPORATION
By: /s/ Kenneth W. Haver
-----------------------
Name: Kenneth W. Haver
-----------------------------
Title: Senior Vice President
----------------------------
Chief Financial Officer
TELETRANSACTION, INC.
By: /s/ Kenneth W. Haver
-------------------------------
Name: Kenneth W. Haver
-----------------------------
Title: Senior Vice President
----------------------------
Chief Financial Officer
-3-
<PAGE> 1
Exhibit 10.4
AMENDED AND RESTATED
--------------------
AGREEMENT
---------
This Amended and Restated Agreement (the "Agreement") is made effective
as of the 30th day of September, 1992 by and between SYMBOL TECHNOLOGIES, INC.,
a Delaware corporation having its principal place of business at 116 Wilbur
Place, Bohemia, New York 11716, MSI DATA CORPORATION, a Delaware corporation
wholly-owned by Symbol Technologies, Inc. also having its principal place of
business at 116 Wilbur Place, Bohemia, New York 11716, and TELXON CORPORATION, a
Delaware corporation having its principal place of business at 3330 West Market
Street, Akron, Ohio 44333.
R E C I T A L S:
---------------
WHEREAS, Symbol is, and has been, engaged in the design, development,
manufacture and sale of electronic equipment, including devices for scanning bar
code symbols and, more particularly, has designed, developed, manufactured and
is selling hand-held laser scanner devices of various types;
WHEREAS, Telxon is, and has been, engaged in the design, manufacture,
integration, marketing and servicing of portable teletransaction computers and
peripheral equipment, including printers, modems, battery chargers, wands, radio
devices, receivers and similar equipment, some of which utilize hand-held laser
scanner devices as an constituent part thereof;
WHEREAS, Symbol and Telxon are parties to an OEM Agreement, dated
January 1984 (the "OEM Agreement"), a Service Agreement, dated April 8, 1988
(the
<PAGE> 2
"Service Agreement"), and a Settlement Agreement, dated as of October 16, 1988
(the "Settlement Agreement");
WHEREAS, in order to implement certain terms of the Settlement
Agreement, Symbol, MSI and Telxon entered into an Agreement, dated November 4,
1988 (the "Supply and License Agreement", and the date thereof being referred to
as the "Original Effective Date"), including a license to Telxon under certain
patents owned by Symbol and MSI and providing for the purchase by Telxon from
Symbol and MSI of certain products incorporating such technology;
WHEREAS, the Supply and License Agreement terminated and superseded the
OEM Agreement and the Service Agreement;
WHEREAS, in order to proceed with both present and future product
development and marketing plans for integrated laser scanning terminal products,
Telxon is now desirous of having access to and taking an express field of use
license under certain additional U.S. and corresponding foreign patents and
patent applications of Symbol relating to integrated bar code scanning
terminals;
WHEREAS, Symbol is willing to terminate and supersede the license of
Symbol's U.S. Patent No. 4,758,717 in the Supply and License Agreement and to
grant a new license under U.S. Patent No. 4,758,717 and an express field of use
license under the additional Symbol patents desired by Telxon, solely in
consideration of royalty payments to be made to Symbol as set forth hereunder,
and MSI is willing to continue the licenses to Telxon of the other patents
covered by the Supply and License Agreement; and
2
<PAGE> 3
WHEREAS, upon the terms and conditions hereinafter set forth, Symbol,
MSI and Telxon are willing to amend and restate the Supply and License Agreement
in its entirety;
NOW, THEREFORE, in consideration of the premises, Symbol, MSI and Telxon
hereby agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 "Amendment Effective Date" shall mean the date of this Agreement
first indicated above.
1.2 "Asian Territory" shall mean the countries set forth in Exhibit A
attached hereto and made a part hereof.
1.3 "Datawand Patents" shall mean U.S. Patent No. 4,471,218 and any and
all counterpart foreign patent applications and patents heretofore or hereafter
filed corresponding to said patent, including, without limitation, those foreign
patent applications and patents listed on Exhibit B attached hereto and made a
part hereof.
1.4 "Field" shall mean the exercise of the Symbol Patents to make, have
made, use, sell, lease, integrate, repair, maintain, service, support,
reconstruct, reconfigure, upgrade and enhance Integrated Terminals for reading
bar code symbols and performing data processing operations on data represented
3
<PAGE> 4
by symbols which have been read, wherein the laser scanning bar code reader
portion of such Integrated Terminal cannot be detached or removed from the
Integrated Terminal except for factory maintenance, reconfigurability or
attachment to another Licensee Integrated Terminal; provided that the making (or
having made) of a Laser Scanning Engine (as defined herein) is not licensed
hereunder and shall not be deemed to be within the Field to the extent that such
Laser Scanning Engine, parts, components or subassemblies thereof, or the method
of manufacture thereof are covered by a claim or claims in any issued patent of
Symbol, whether now or hereafter existing, including claims contained in any of
the Licensed Patent Rights. Moreover, except as otherwise authorized in writing
by Symbol, the laser scanning bar code reader portion of an Integrated Terminal
is not licensed hereunder to be separately sold, leased or provided by Licensee
except for warranty, maintenance or repair purposes or as otherwise expressly
permitted by this Agreement. Furthermore, Licensee is not licensed pursuant to
this Agreement, and it shall not be deemed to be within the scope of the license
hereunder, to detach the laser scanning bar code reader portion from the
Integrated Terminal for use as a separately functioning laser scanner bar code
reader or portion of a separately functioning bar code reading system, except as
otherwise authorized in writing by Symbol.
1.5 "Hester Patents" shall mean U.S. Patent No. 3,925,639 and any and
all counterpart foreign patent applications and patents heretofore or hereafter
filed corresponding to said patent, including, without limitation, those foreign
patent applications and patents listed on Exhibit C attached hereto and made a
part hereof.
4
<PAGE> 5
1.6 "Hester Products" shall mean, individually or collectively as
appropriate, hand-held portable computer products of Licensee or its successor
with a non-laser based barcode instrument, excluding MSI Datawand products.
1.7 "Integrated Terminal" shall mean a one-piece integrated unit
incorporating (as integrated components in the same case) a laser scanning bar
code reader, a computing device including memory for receiving and processing
data scanned by the bar code reader, a keyboard with full numeric and/or
alphanumeric keys or their functional equivalents operable with said computing
device, a display consisting of at least two lines of multiple character display
operable with said computing device and an integrated power source permitting
portable or movable operation, the unit being designed and sold to users for
combined use both as a bar code reader and as a computing terminal, and
optionally including (as integrated components in the same case or
interchangeable and detachable attachments affixed or connected thereto)
printers, batteries, or other non-laser scanning devices, provided that the
total cost of manufacturing such integrated unit (including parts, labor, and
overhead), less the cost of the Laser Scanning Engine incorporated therein, is
at least equal to 45% of the total cost of manufacturing such integrated unit as
determined on the basis of Licensee's standard cost system, applied consistently
with prior periods. An integrated unit that incorporates a CCD bar code reader,
or a non-laser light source (such as an LED) for reading bar code symbols, is
expressly excluded from "Integrated Terminals" as defined herein.
1.8 "Laser Products" shall mean any product of Licensee or its successor
which is licensed under the Symbol Patents pursuant to this Agreement and is
5
<PAGE> 6
covered by a valid and subsisting claim or claims of the Symbol Patents as
manufactured or sold, or when installed, or which, when installed (as a new
installation or for conversion of an existing installation), is used or to be
used in practicing any claim or claims of the Symbol Patents. Products of
Licensee or its successor that do not include a laser light source are expressly
excluded from "Laser Products" and are not licensed hereunder.
1.9 "Laser Scanning Engine" shall mean (a) any device or product or
category of device or product which is capable of reading bar codes, including a
laser light source and optical elements for producing a scanning beam for
scanning a bar code symbol and a detector for receiving reflected light from the
symbol and for producing electrical signals corresponding to data represented by
such symbol, such device or product including (without limiting the generality
of the foregoing) any and all subject matter disclosed in the specification and
drawing of the patent applications and patents included in the Symbol Patents,
and (b) parts, components, subassemblies, circuit elements or materials
primarily designed for use in any of the devices and products of (a) above.
1.10 "Licensee" or "Telxon" shall mean Telxon Corporation and its
Subsidiaries.
1.11 "Licensed Patent Rights" shall mean, individually or collectively
as appropriate, the Symbol Patents, the Hester Patents and the Datawand Patents.
1.12 "MSI" shall mean MSI Data Corporation and its Subsidiaries.
6
<PAGE> 7
1.13 "Net Sales Value" shall mean, in the case of a sale or lease to a
third party at arm's length for monetary consideration, Licensee's gross invoice
price to the customer for each Royalty Bearing Product, less allowances for
returns of products sold or leased (provided that no allowance may be subtracted
for a product returned upon the expiration or termination by Licensee of a lease
thereof) and less (to the extent separately stated on the invoices):
(1) cash and other trade discounts,
(2) shipping, customs and insurance charges,
(3) sales, use, value added, withholding and similar
taxes, and
(4) the cost to Licensee of each Laser Scanning Engine
incorporated into the Royalty Bearing Product which was
purchased from Symbol, and only from Symbol.
Net Sales Value shall be calculated based upon the aggregate gross
invoice price of all integrated components in the Royalty Bearing Product
ordered by the customer, and integrated components, if any, such as embedded
integrated circuits and printed circuit cards necessary to the operation of such
Royalty Bearing Product ordered by said customer (excluding customers who are
resellers or distributors of Royalty Bearing Products) within ninety (90) days
of the order for such Royalty Bearing Product, but not including any external
7
<PAGE> 8
peripheral devices, such as battery chargers, that are not necessary to the
operation of the Royalty Bearing Product.
In the case of a sale or lease of a Royalty Bearing Product which is
integrated in an array or package, or integrated as part of a system or
subsystem made up of a plurality of parts, wherein the Royalty Bearing Product
is not separately priced, or a transfer of a Royalty Bearing Product to a
purchaser which does not deal at arm's length with Licensee, or a transfer by
Licensee for other than monetary consideration, or the use of a Royalty Bearing
Product by Licensee, Net Sales Value shall be calculated based upon the price
at which Licensee sells or leases comparable quantities of the Royalty Bearing
Product at substantially the same time to purchasers dealing at arm's length.
1.14 "Party" shall mean any of Symbol, MSI or Licensee. "Parties"
shall mean Symbol, MSI and Licensee, collectively.
1.15 "Royalty Bearing Product" shall mean, individually and
collectively as appropriate, Laser Products, Hester Products and Wand Products.
1.16 "Royalty Expiration Date" shall mean for purposes of determining
the running royalties due under Section 6.2(a) with respect to the Symbol
Patents and under Section 6.3 with respect to the Datawand Patents for Royalty
Bearing Products made, had made, used, sold or leased by Licensee in a
jurisdiction covered by an issued patent included among the Symbol Patents or
the Datawand Patents, as applicable, the date of the last to expire of the
patents included
8
<PAGE> 9
among the Symbol Patents or Datawand Patents, respectively, issued in that
jurisdiction.
1.17 "Subsidiary" shall mean a corporation, company, or other entity
more than fifty percent (50%) of whose outstanding shares or securities
(representing the right, other than as affected by events of default, to vote
for the election of directors or other managing authority) are, now or
hereafter, owned or controlled, directly or indirectly, by a Party hereto, but
such corporation, company or other entity shall be deemed to be a Subsidiary
only at such time and for so long as such ownership or control exists.
1.18 "Symbol" shall mean Symbol Technologies, Inc. and its Subsidiaries
(including, but not limited to, MSI).
1.19 "Symbol Patents" shall mean U.S. Patent Nos. 4,758,717; 4,387,297;
4,593,186; 5,130,520; and 4,460,120 and any and all counterpart foreign patent
applications and patents heretofore or hereafter filed corresponding to any of
said patents, including, without limitation, those foreign patent applications
and patents listed on Exhibit D attached hereto and made a part hereof. No
continuations or divisions of any such patents are included within the scope of
the license of the Symbol Patents pursuant to this Agreement.
1.20 "Wand Products" shall mean any product of Licensee or its successor
which is licensed under the Datawand Patents pursuant to this Agreement and is
covered by a valid and subsisting claim or claims of the Datawand Patents as
manufactured or sold, or when installed, or which, when installed (as a new
9
<PAGE> 10
installation or for conversion of an existing installation), is used or to be
used in practicing any claim or claims of the Datawand Patents.
ARTICLE 2 - TERMINATION OF PRIOR AGREEMENTS
The OEM Agreement and the Service Agreement were terminated by mutual
consent and superseded by the Supply and License Agreement, which Supply and
License Agreement is in turn being superseded by this Agreement.
ARTICLE 3 - LICENSE GRANT: HESTER PATENTS
3.1 MSI granted to Telxon on the Original Effective Date, and Licensee
shall continue from and after the Amendment Effective Date to enjoy, subject to
the terms of this Agreement, a personal, non-transferable (except as provided in
Article 11), non-exclusive, worldwide license during the respective lives of the
Hester Patents (including any extensions or renewals thereof), to make, have
made, use, sell, lease, integrate, repair, maintain, service, support,
reconstruct, reconfigure, upgrade and enhance products covered by the claims of
the Hester Patents. MSI shall advise Licensee promptly in writing of each
foreign patent application filed or foreign patent issued corresponding to U.S.
Patent No. 3,925,639 in addition to those listed on Exhibit C attached hereto.
3.2 No right or license is granted by this Agreement, either expressly
or by implication, to sublicense the Hester Patents, except that Licensee's VARs
and their and Licensee's customers and subsequent transferees shall have an
implied perpetual license to use products purchased or leased from Licensee or
10
<PAGE> 11
any such VAR and to practice the methods claimed under the Hester Patents with
such products.
ARTICLE 4 - LICENSE GRANT: SYMBOL PATENTS
4.1 Subject to the terms of this Agreement, Symbol hereby grants to
Licensee a personal, non-transferable (except as provided in Article 11), non-
exclusive, worldwide license during the respective lives of the Symbol Patents
to make (but not to have made, except as provided in Section 4.2), use, sell,
lease, repair, integrate, maintain, service, support, reconstruct, reconfigure,
upgrade and enhance products covered by any claim of the Symbol Patents only in
the Field. Symbol shall advise Licensee promptly in writing of each foreign
patent application filed or foreign patent issued corresponding to any of U.S.
Patent Nos. 4,758,717; 4,387,297; 4,593,186; 5,130,520; and 4,460,120 in
addition to those listed on Exhibit D attached hereto.
4.2 Symbol hereby grants to Licensee a personal, non-transferable
(except as provided in Article 11), non-exclusive, worldwide license during the
respective lives of the Symbol Patents, subject to the terms of this Agreement,
to have (i) Eltech Manufacturing Incorporated, of Singapore; (ii) any company
whose manufacturing facilities are located in Europe or North America; and (iii)
any other company approved in writing by Symbol, make products covered by the
claims of the Symbol Patents only in the Field, provided such products are
manufactured exclusively by such manufacturers for Licensee for resale or
leasing by Licensee or any of its VARs to third parties other than such
manufacturers or a subsidiary or affiliate thereof under trademarks or trade
11
<PAGE> 12
names, or under a private label for customers, of Licensee or one of Licensee's
VARs, and provided further that such products are made solely to Licensee's own
design and specifications.
4.3 No right or license is granted by this Agreement, either expressly
or by implication, to sublicense the Symbol Patents, except that Licensee's VARs
and their and Licensee's customers and subsequent transferees shall have an
implied perpetual license to use, sell and lease products purchased or leased
from Licensee or any such VAR in the Field and to practice the methods claimed
under the Symbol Patents in the Field with such products.
4.4 No right or license is granted by this Agreement, either expressly
or by implication, (i) to use the Symbol Patents for the development,
manufacture, use, sale or lease of products covered by the claims of the Symbol
Patents for applications outside of the Field, or (ii) to the extent the
activities described in this clause (ii) constitute "reconstruction" (as
distinguished from "repair") which under judicial precedents would constitute an
infringement in the absence of a license under the applicable patent, to
reconstruct, reconfigure, upgrade and/or enhance products covered by the claims
of the Symbol Patents for applications outside of the Field, or (iii) to
practice methods claimed by any claim of any of the Symbol Patents for
applications outside of the Field. Notwithstanding any other term of this
Agreement, no right or license is granted by this Agreement, either expressly or
by implication, estoppel, or otherwise under any other Symbol patent, patent
application, or patent right, whether in the same field or in a related field,
including any right or license under any Symbol patents, whether now or
12
<PAGE> 13
hereafter existing, pertaining to and claiming a Laser Scanning Engine,
components or subassemblies thereof, or its method of manufacture, whether or
not such patents pertain to or claim the subject matter disclosed in the Symbol
Patents.
4.5 Notwithstanding any other term of this Agreement, Symbol shall
retain the right to use the Symbol Patents for any purpose, including the
development, manufacture, use and sale of products in the Field.
4.6 Licensee agrees to mark all Royalty Bearing Products manufactured
after the Amendment Effective Date pursuant to the license of the Symbol Patents
granted herein with the word "patent" or the abbreviation "pat" together with
the number or numbers of the applicable licensed patents in the manner
prescribed in 35 U.S.C. 287, provided that Licensee and Licensee's VARs shall
not be precluded by the foregoing marking requirement from manufacturing, using,
selling or leasing, after the Amendment Effective Date, Royalty Bearing Products
which they have made or ordered, or which utilize cases, parts, components or
subassemblies which they made or ordered, prior to the Amendment Effective Date
which are not so marked. For example, for products manufactured or distributed
in the United States, the products shall be marked "U.S. Pat. 4,758,717."
ARTICLE 5 - LICENSE GRANT: DATAWAND PATENTS
5.1 MSI granted to Telxon on the Original Effective Date, and Licensee
shall continue from and after the Amendment Effective Date to enjoy, subject to
the terms of this Agreement, a personal, non-transferable (except as provided
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in Article 11), non-exclusive, worldwide license during the respective lives of
the Datawand Patents, to make, have made, use, sell, lease, integrate, repair,
maintain, service, support, reconstruct, reconfigure, upgrade and enhance
products covered by the claims of the Datawand Patents. MSI shall advise
Licensee promptly in writing of each foreign patent application filed or foreign
patent issued corresponding to U.S. Patent No. 4,471,218 in addition to those
listed on Exhibit B attached hereto.
5.2 No right or license is granted by this Agreement, either expressly
or by implication, to sublicense the Datawand Patents, except that Licensee's
VARs and their and Licensee's customers and subsequent transferees shall have an
implied perpetual license to use products purchased or leased from Licensee or
any such VAR and to practice the methods claimed under the Datawand Patents with
such products.
ARTICLE 6 - ROYALTIES
6.1 In addition to the $7 million which Telxon paid to MSI under the
Settlement Agreement as a partially prepaid royalty for the license of the
Hester Patents, Telxon has since the Original Effective Date been, and Licensee
shall continue from and after the Amendment Effective Date to be, obligated also
to pay to MSI, as an additional royalty with respect to the license of the
Hester Patents, an amount equal to 1% of the Net Sales Value of all Hester
Products manufactured, used, sold or leased by Telxon in the United States after
the Original Effective Date until December 9, 1992 for all cumulative net sales
of Hester Products in excess of $500 million. The Parties acknowledge and agree
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that Hester Products are being used as the royalty base under this Section 6.1,
rather than products covered by the claims of the Hester Patents, for the mutual
convenience of the Parties in computing royalties. In the event each and every
claim of the Hester Patents which covers a product manufactured, used, sold or
leased by Licensee is held invalid by a court of competent jurisdiction from
which there is no further appeal, Licensee's obligation to pay the 1% royalty
provided above shall be terminated as of the date of entry of judgment by such
court with respect to the manufacture, use, sale or lease of Hester Products in
the territories subject to the jurisdiction of such court, but in no event shall
the invalidity of the Hester Patents entitle Telxon to any refund, setoff or
credit (other than in respect any royalties paid under this Section 6.1
subsequent to any such judgment of invalidity with respect to Hester Products
manufactured, used, sold or leased in the territories subject to the
jurisdiction of the court entering such judgment) with respect to the $7 million
payment made under the Settlement Agreement, or any other payment made under the
Sale and License Agreement or this Agreement.
6.2 For the license of the Symbol Patents, Licensee shall make payments
as follows:
(a) a running royalty payment to Symbol of seven and one-half percent (7
1/2%) of the Net Sales Value of all Laser Products made, had made, used, sold,
or leased by Licensee after the Amendment Effective Date in any jurisdiction
then covered by any patent included among the Symbol Patents issued in that
jurisdiction until the applicable Royalty Expiration Date (which running royalty
Telxon has been obligated under the Supply and License Agreement to pay
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to Symbol since the Original Effective Date with respect to products covered by
the Symbol Patent (as defined in the Supply and License Agreement) manufactured,
used, sold, or leased by Telxon in the United States), and
(b) in addition to the foregoing running royalty payment, a one-
time, start-up, non-refundable fixed license fee for the license of the Symbol
Patents pursuant to this Agreement in the amount of $2,800,000, payable upon
execution of this Agreement,
at the office of Symbol specified below; provided, however, that in the event
each and every claim of the applicable Symbol Patents which covers a Laser
Product- manufactured, used, sold or leased by Licensee pursuant to this
Agreement is held invalid by a court of competent jurisdiction from which there
is no further appeal, Licensee's obligation to pay the 7 1/2% running royalty
provided above shall be terminated as of the date of entry of judgment by such
court with respect to the manufacture, use, sale and lease of Laser Products in
the territories subject to the jurisdiction of such court. In the event a Telxon
product is both a Hester Product and a Laser Product, royalties shall be payable
pursuant to both Sections 6.1 and this Section 6.2.
6.3 For the license of the Datawand Patents, Telxon has since the
Original Effective Date been obligated to pay to MSI a royalty based upon the
Net Sales Value of all Wand Products manufactured and used, sold, or leased by
Telxon in the United States and effective from and after the Amendment Effective
Date shall be obligated to pay to MSI a royalty based upon the Net Sales Value
of all Wand Products manufactured and used, sold, or leased by Licensee in any
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jurisdiction then covered by any patent included among the Datawand Patents
issued in that jurisdiction until the applicable Royalty Expiration Date. In
the event each and every claim of the Datawand Patents which covers a product
manufactured, used, sold or leased by Telxon is held invalid by a court of
competent jurisdiction from which there is no further appeal, Telxon's
obligation to pay the royalty provided below shall be terminated as of the date
of entry of judgment by such court with respect to the manufacture, use, sale
or lease of Wand Products in the territories subject to the jurisdiction of such
court. The royalty payable with respect to the Datawand Patents shall be
computed as follows:
Cumulative Net Sales Royalty Rate
-------------------- ------------
$0 to $25 million 10%
$25 million to $100 million 7 1/2%
over $100 million 5%
6.4 Royalties based on Net Sales Value shall accrue at the date of the
invoice or the date of other disposition of a Royalty Bearing Product by
Licensee. Such royalties shall also accrue, with respect to any Royalty Bearing
Product previously sold, leased or otherwise disposed of by Licensee which is
later reconstructed, reconfigured, upgraded or enhanced by Licensee in a manner
which would constitute "reconstruction" (as distinguished from "repair") which
under judicial precedents would constitute an infringement in the absence of a
license under the applicable patent, at the date of the invoice for such
reconstruction, reconfiguration, upgrade or enhancement based on the incremental
Net Sales Value of the reconstruction, reconfiguration, upgrading or enhancement
constituting such "reconstruction."
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6.5 Royalties based on the Net Sales Value of Royalty Bearing Products
shall be paid quarterly within sixty (60) days after the end of the calendar
quarter in which they accrue and shall be accompanied by a report setting forth
the computation of the royalty payment for such quarter, listing for each
category of Royalty Bearing Products the number of units sold or leased in 500
unit ranges disclosing the low end and the high end of such range. Royalty
payments shall be computed in U.S. Dollars and paid in such currency at the
office of Symbol specified in Article 12 below. Such royalty payments shall be
reduced by any itemized credit listed in a royalty report for any royalties
previously paid with respect to any Royalty Bearing Products sold or leased by
Licensee and subsequently returned (provided that no credit may be subtracted
for a product returned upon the expiration or termination by Licensee of a lease
thereof).
6.6 In connection with such royalty payments, the sales and accounting
records of Licensee shall be available, during usual business hours and upon
reasonable notice, for inspection by a nationally recognized firm of independent
public accountants selected by Licensee's and Symbol's independent auditors for
the purpose of verifying such reports; provided, however, that such independent
public accountants shall not in connection with such inspection transmit to
Symbol or MSI any competitive information, including, without limitation,
customer and pricing information and cost of goods sold.
6.7 Licensee is hereby apprised that Symbol is conducting business in
Asia through an affiliate, Olympus Symbol, Inc., and that pursuant to agreements
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pertaining to such affiliate, sales of all Integrated Terminals under this
Agreement sold into the Asian Territory must be reported to Symbol for internal
account reconciliation with such affiliate. Accordingly, Licensee is requested
to make its best efforts to report to Symbol in writing with each royalty report
the portion of the royalty paid in that quarter resulting from transaction
involving Integrated Terminals shipped to the Asian Territory. Licensee's
compliance or non-compliance with this Section 6.7, or the accuracy of such
reports, shall not be grounds for early termination of this Agreement by Symbol
or otherwise affect any of the rights and licenses granted by Symbol and MSI
under this Agreement.
6.8 Upon notice by Licensee to Symbol of an infringement by a third
party of U.S. Patent No. 4,758,717, Symbol shall promptly bring legal action to
enforce its rights against such third-party infringer but only to the extent
that such infringer has at least a ten percent share of the market for the
infringed product (such market consisting of all units covered by the infringed
patent which are manufactured, used, sold or leased by the patentee, all
licensees and sublicensees and any and all other persons and entities, including
but not limited to the third-party infringer), and that no more than one such
action shall be brought at a time. In the event Symbol should fail or refuse
to promptly enforce such rights, Licensee shall have the right to suspend its
payment of royalties in respect of the rights infringed and to pay such
royalties into an escrow account until such infringed rights are enforced by
Symbol.
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6.9 Symbol hereby covenants not to sue Licensee or any of its VARs or
its or their customers for any claim of infringement of any patent owned by
Symbol, whether now or hereafter existing, by Telxon's Model 960 Integrated
Terminals (with and without radio). Nothing in this Section 6.9 shall limit or
restrict Symbol's right to seek any and all remedies it may have under this
Agreement or otherwise with respect to any future breach of this Agreement.
ARTICLE 7 - TELXON PURCHASES OF PRODUCTS
7.1 By letter dated September 28, 1992 (the "Order Letter"), a copy of
which is attached hereto as Exhibit E, Telxon placed an order with Symbol for
Symbol's LS-20 scan board (LS-20-1024A) in the aggregate amount of Two Million
Dollars ($2,000,000), at the price of $160 per scan board. By executing this
Agreement, Telxon and Symbol acknowledge and agree that, effective upon such
mutual execution, the Order Letter is firm and irrevocable and that the terms
and conditions of the order evidenced thereby (other than quantity and price,
which shall be as set forth in the Order Letter and recited above in this
Section 7.1) shall be on the same terms and conditions as those applicable to
the most recent purchase of products made by Telxon from Symbol prior to the
Order Letter (the "Pre-existing T&Cs").
7.2 Until April 2, 1993, Telxon shall be permitted to return to Symbol
for credit up to 2,161 new and unused units of Symbol model LS 7000 and LS 8100
bar code scanners purchased from Symbol by Telxon and presently held by Telxon
in inventory. The credit shall amount to $60 per unit returned by Telxon and
shall be available only as a credit against the purchase by Telxon of Symbol
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model LS 2000 and LS 8500 bar code scanners from Symbol as specified hereunder
under purchase orders released after July 1, 1992 for delivery on or before
April 30, 1993.
7.3 Symbol shall sell and deliver to Telxon up to an aggregate of 2,161
model LS 2000 and LS 8500 bar code scanners as Telxon may desire to purchase
from time to time on or before April 30, 1993. Telxon shall purchase and accept
delivery of such products on or before April 30, 1993 in accordance with
purchase order releases issued by Telxon. Symbol shall promptly acknowledge the
purchase order quantity and shipping dates after receipt of each purchase order
from Telxon.
7.4 The Pre-existing T&Cs shall apply to all Symbol products purchased
pursuant to purchase orders issued under Section 7.3. Symbol hereby confirms
that the warranty period for such products shall be one (1) year from the date
of receipt thereof by Telxon.
7.5 All agreements between Telxon and Symbol for the sale of products by
Symbol to Telxon pursuant to purchase orders issued pursuant to this Agreement
shall be governed exclusively by the terms and conditions of the purchase orders
for such products, provided that in the event of any conflict between this
Agreement and any releases, purchase orders, acceptances, correspondence,
memoranda or other documents for or relating to such sales of products exchanged
by Telxon and Symbol during the term of this Agreement which are not executed by
duly authorized representatives of both of the parties to a particular sale,
this Agreement shall govern and prevail.
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7.6 Symbol shall not alter or deviate from the specifications or design
of the Symbol products available to Telxon under Section 7.3, or major
components thereof, in any manner which affects the form, fit or functional
interchangeability or operation of such products without at least 90 days prior
written notice to Telxon.
7.7 The prices for the Symbol products available to Telxon under Section
7.3 are set forth in Exhibit F attached hereto and made a part hereof. Symbol
hereby warrants that the prices granted by Symbol to Telxon under this Article 7
are the best prices available to comparable customers for comparable quantities
of such products under the same or similar terms and conditions.
7.8 Telxon agrees and warrants that the Symbol laser scanning products
it has purchased pursuant to the Supply and License Agreement and those it
purchases pursuant to this Article 7 shall be used by Telxon solely as an
integral system, the capabilities of which include, but need not be limited to,
reading bar code symbols and performing data processing operations on data
represented by such symbols, or as a constituent part of such a system, for its
own use or for resale or lease by Telxon or any of its VARs to others or in
performing maintenance and repairs (E.G., a Symbol L52000 laser scanner must be
resold by Telxon with a Telxon portable computer).
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ARTICLE 8 - SERVICE AGREEMENT; CONFIDENTIALITY
8.1 Telxon shall be authorized to service Symbol and MSI products sold
by Telxon pursuant to the Service Agreement previously separately executed by
the parties in the form which was attached as Exhibit "B" to the Supply and
License Agreement. Symbol and MSI agree to supply service parts to Telxon at
their best prices available to OEMs as from time to time in effect.
8.2 Each of Symbol and MSI represents, warrants, covenants and agrees in
favor of Licensee, and Licensee represents, warrants, covenants and agrees in
favor of Symbol and MSI, that it has since the Original Effective Date kept in
confidence and prevented the disclosure to any unauthorized person or persons
of, and will at all times after the Amendment Effective Date keep in confidence
and prevent the disclosure to any unauthorized person or persons of, all
proprietary or confidential information provided to such Party by any other
Party in connection with the Supply and License Agreement or this Agreement
(hereinafter "Proprietary Information"); provided, however, that no Party shall
be liable for disclosure or use of any such information provided to it by
another Party if the same:
(i) was in the public domain at the time it was disclosed; or
(ii) was known to such Party at the time of the disclosure; or
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(iii) is disclosed with the prior written approval of the
other Party which provided the subject information to
such Party; or
(iv) was independently developed by such Party; or
(v) becomes known to such Party from a source other than
another Party without breach of a confidentiality
agreement.
Disclosure of any Proprietary Information by a Party shall not be
precluded hereunder if such disclosure is:
(1) in response to a valid order of a court of competent jurisdiction or
government body of the United States or any political subdivision
thereof; provided, however, that such Party shall:
(a) provide immediate notification of such order to the other
Party which provided the subject information to such Party; and
(b) first make a good faith effort to obtain a protective order
requiring that the Proprietary Information so disclosed be used
only for the purpose for which such order was issued; or
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(2) otherwise required by law.
A Party shall establish such procedures and perform such acts as the
Party providing Propriety Information to it may reasonably request in order to
preserve and protect the Proprietary Information from improper or inadvertent
disclosure; provided, however, that the standard of care imposed upon the
receiving Party hereunder shall be no greater than that standard that the Party
providing such information applies in protecting its Proprietary Information.
ARTICLE 9 - REPRESENTATIONS AND WARRANTIES
9.1 Symbol and MSI each represent and warrant to Telxon, and Telxon
represents and warrants to Symbol and MSI, that it has full corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby, and that this Agreement has been duly and validly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms. Symbol,
MSI and Telxon each further represent that the execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
will not:
(i) conflict with its Certificate of Incorporation or bylaws; or
(ii) result in a breach or violation of any material provision
of or constitute a default, or an event which, with notice or passage of
time or both would constitute a default under any material indenture,
mortgage,
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deed of trust, pledge agreement, lease, license, evidence of
indebtedness or other agreement or instrument, or any law,
statute rule or order, decree or restriction to which it is a
party or by which it or its property is bound.
9.2 Symbol warrants that it has title to the patents licensed by it
as licensor hereunder, and Symbol and MSI further warrant that MSI has title to
the patents licensed by it as licensor hereunder or has duly assigned ownership
thereof to, and ownership thereof now resides in, Symbol (to the extent any such
assignments have been or are hereafter made, Symbol agrees to be bound by all of
MSI's obligations under this Agreement as licensor of such assigned patents).
ARTICLE 10 - TERM AND TERMINATION
10.1 This Agreement shall commence on the Amendment Effective Date
and shall continue in full force until the last to expire of any issued patents
included within the Licensed Patent Rights unless earlier terminated as provided
below, provided that the right and license granted to Licensee hereunder to use,
sell, lease, integrate, repair, maintain, service, support, reconstruct,
reconfigure, upgrade and enhance products licensed hereunder and covered by any
claim of the Licensed Patent Rights (the "Surviving Rights") shall, with respect
to products transferred by Licensee to third parties by sale or lease prior to
any such early termination or within 90 days after such early termination
(Licensee having the continuing right during such 90 day period to make or have
made (subject, in the case of Laser Products, to the terms of Section 4.2 and to
the payment of royalties under Section 6.2 with respect thereto) products to
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fill sales and leases during such period), survive any such early termination
and continue in full force and effect thereafter until the expiration of the
applicable patent(s) included within the Licensed Patent Rights.
10.2 In case of any material breach of this Agreement by Licensee and
provided that neither Symbol nor MSI is then in material default in the
performance of any of their respective obligations under this Agreement:
(i) Symbol shall have the right to terminate this Agreement
and/or to institute legal proceedings or take other action to enforce
such breach; provided, however, that Symbol shall be obligated first to
provide Licensee at least sixty (60) days written notice of its
intention to terminate or to institute such proceedings or other
enforcement action specifying the breach constituting cause for such
termination or enforcement action, and if Licensee shall remedy such
failure during such sixty (60) day period, then
(a) this Agreement shall not be terminated on the date
specified in such notice,
(b) Symbol shall not take any enforcement action with
respect to such remedied breach, and
(c) the remedied breach shall not limit or restrict
Licensee in its exercise of any rights or remedies it may have
against Symbol or MSI under this Article 10.
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(ii) In the case of a breach of the Field provisions of the
licenses granted under this Agreement which is cured by Licensee (by
ceasing the breaching conduct, or modifying the product in question so
as to make it no longer violative of the Field provisions, or otherwise)
within the sixty (60) day period after notice of breach provided by
Symbol as required by clause (i) of this Section 10.2, Licensee shall,
notwithstanding such timely cure, pay to Symbol, as fixed and agreed
upon liquidated damages for such breach, in lieu of all other damages or
rights to which Symbol or MSI may be entitled, cash in the amount of
fifteen percent (15%) of the Net Sales Value of any products which
violate the Field provisions. Such liquidated damages shall be payable
as provided in Sections 6.4 and 6.5.
(iii) In addition to any other rights Symbol or MSI may have in
connection with any termination of this Agreement pursuant to clause (i)
of this Section 10.2, Symbol shall have the right in such event to
terminate the licenses granted Licensee in this Agreement and to
injunctive relief and specific performance in accordance with U.S.
patent laws to enjoin Licensee, either directly or by inducement of
others, from making, having made, using or selling any product covered
by any claim of the Licensed Patent Rights.
10.3 Licensee, after any termination of this Agreement, including the
expiration of the last of the Licensed Patent Rights, shall render a final
report, prepared in accordance with the requirements of Section 6.5, for all
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Royalty Bearing Products made, had made, used, sold or leased by Licensee
pursuant to the licenses granted to Licensee hereunder from the date of the
report last provided pursuant to said Section 6.5 up to the termination date.
Such final report shall be made within sixty (60) days after the termination
date.
10.4 Provided that neither Symbol nor MSI is in material default in the
performance of any of their respective obligations under this Agreement at the
time of any termination of this Agreement, such termination shall not excuse
Licensee's obligation to make payments of sums due and payable at the time of
any termination thereof, or sums due and payable at a time after the termination
date based upon Licensee's use of the rights licensed under this Agreement prior
to termination. Nor shall any termination of this Agreement excuse any Symbol or
MSI obligation which is not automatically extinguished by such termination.
10.5 In case of any material breach of this Agreement by Symbol or MSI
and provided that Licensee is not then in material default in the performance of
any of its obligations under this Agreement, Licensee shall be entitled, in
addition to any other rights it may have, to immediate injunctive relief
(including, without limitation, a temporary order restraining any threatened or
further breach) against such breaching Party to enforce the rights licensed to
Licensee hereunder and to specific performance of any breached obligation
hereunder; provided, however, that Licensee shall be obligated, before
instituting legal proceedings or taking other action to enforce such breach, to
provide the breaching party with written notice of its intention to institute
such proceedings or other enforcement action specifying the breach constituting
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cause for such enforcement action, and if the breaching party shall remedy such
failure within sixty (60) days of such notice, then (a) Licensee shall not take
any enforcement action with respect to such remedied breach, and (b) the
remedied breach shall not limit or restrict Symbol in its exercise of any rights
or remedies it may have against Licensee under this Article 10.
10.6 Upon the assuming of operational control of Telxon, or the
assignment of this Agreement to a purchaser of all or substantially all of
Telxon's Integrated Terminal business, by a company which manufactures or
designs laser technology products for reading bar code symbols, the license
granted to Licensee under the Symbol Patents pursuant to this Agreement may be
terminated at Symbol's option; provided (i) that such termination shall only be
upon notice by Symbol of at least 90 days, (ii) that Symbol shall continue to
fulfill all of its obligations under this Agreement during the notice period,
and (iii) that Symbol shall continue to furnish and supply parts and service for
a period of six months following such termination. Any such termination shall
not affect the obligations of either party under any other terms of the
Agreement.
10.7 Upon any termination of this Agreement by Symbol in the exercise of
a legal right to terminate, the licenses granted to Licensee under this
Agreement shall be automatically cancelled in their entirety, including those
licenses for which a partially paid-up license has been granted.
10.8 Provided that Licensee shall have paid in full the amounts due
Symbol pursuant to Sections 6.2(b) and 7.1, the provisions of Sections 6.9, 7.2
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and 7.3 shall survive the expiration or earlier termination of this Agreement
for any reason whatsoever and notwithstanding any breach of any other provision
of this Agreement.
ARTICLE 11 - NO ASSIGNMENT
11.1 Except as otherwise permitted by Section 11.2 (each a "Permitted
Assignment"), this Agreement and the rights and licenses granted to Licensee
hereunder may not be assigned by Licensee. Any purported assignment of this
Agreement, in whole or in part, or of any license, interest, or other right
granted or created hereby other than in accordance with this Article 11 shall
be null and void and of no force and effect and shall in no way affect the
obligations of Licensee hereunder.
11.2 This Agreement and the rights and licenses granted to Licensee
hereunder may be assigned by Licensee only (a) to a purchaser of all or
substantially all of the assets used by Licensee in its Integrated Terminal
business (provided that any such assignment shall be subject to the provisions
of Section 10.6); (b) to a Subsidiary of Licensee, provided that any such
assignment shall not relieve Licensee of any of its obligations hereunder and
Licensee shall cause such Subsidiary to comply with all of the terms of this
Agreement; (c) with the prior written consent of Symbol; or (d) in accordance
with and subject to such other conditions as may be agreed to in writing by the
parties. Any assignment of this Agreement or any rights or licenses granted
hereunder to a Subsidiary of Licensee pursuant to clause (b) above shall not, as
between Symbol, MSI and Licensee, limit or terminate the rights and licenses
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granted to Licensee hereunder. Any such assignment to a Subsidiary of Licensee
shall be effective only so long as the assignee continues to be a Subsidiary of
Licensee and except for the Surviving Rights, which shall continue in full force
and effect without time limitation, shall be of no force and effect immediately
upon such assignee ceasing to be a Subsidiary of Licensee.
11.3 Except as otherwise provided herein, this Agreement is solely
for the benefit of, and is binding upon, the Parties hereto, and nothing in this
Agreement is intended to convey to any other person or entity any right, remedy,
obligation or liability under or by reason of this Agreement. This Agreement
shall inure to the benefit of and be binding upon Licensee and its successors
and, subject to the provisions of Sections 11.2 and 13.7, permitted assigns.
ARTICLE 12 - NOTICES
Except as otherwise set forth herein, all notices given in connection
with this Agreement shall be in writing and shall be delivered by personal
delivery, by telegram, telex, telecopy or similar facsimile means, by certified
or registered mail, return receipt requested, or by express courier or by
delivery service, addressed to the Parties hereto at the following addresses:
To Symbol or MSI: To Licensee:
Symbol Technologies, Inc. Telxon Corporation
116 Wilbur Place 3330 West Market Street
Bohemia, New York 11716 Akron, Ohio 44333
Attn: President Attn: President
with a copy to the Telxon Legal
Department
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or at such other address and number as a Party shall have previously designated
by written notice given to another Party in the manner hereinabove set forth.
Notices shall be deemed given when received, if sent by telegram, telex,
telecopy or similar facsimile means (confirmation of such receipt by confirmed
facsimile transmission being deemed receipt of communications sent by telex,
telecopy or other facsimile means); and when delivered and receipted for (or
upon the date of attempted delivery where delivery is refused), if hand-
delivered, sent by express courier or delivery service, or sent by certified or
registered mail, return receipt requested.
ARTICLE 13 - MISCELLANEOUS
13.1 This Agreement constitutes the entire agreement and
understanding between the Parties as to the subject matter hereof, and
supersedes and replaces all prior or contemporaneous agreements, written or
oral, as to the subject matter, including, without limitation, the Supply and
License Agreement. Without limiting the generality of the foregoing but subject
to the payment in full of the amounts due Symbol under Section 7.1, the
provisions of the Supply and License Agreement entitling Symbol to the payment
of Liquidated Damages (as defined therein) shall be void AB INITIO, and Symbol
hereby forever waives, releases and terminates any and all right or claim it may
have or may at any time have had or could have to such Liquidated Damages. This
Agreement constitutes an amendment to the Supply and License Agreement within
the meaning of Section 16.1 thereof.
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13.2 Any term or provision of this Agreement which is invalid or
unenforceable or in conflict with the law of any jurisdiction, shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without affecting the validity of the remaining terms and
provisions of this Agreement or affecting the validity or enforceability of any
of the terms and provisions of this Agreement in any other jurisdiction.
13.3 Neither this Agreement nor any provision hereof may be released,
discharged, waived, abandoned, amended or modified in any manner, except by an
instrument in writing signed on behalf of each of the Parties hereto by their
duly authorized officers or representatives, provided that any release,
discharge, waiver, abandonment, amendment or modification affecting the license
of any patent rights hereunder, the royalty payable with respect thereto, any
sale of products hereunder, or any information provided or to be provided
pursuant hereto need only be signed by Licensee and whichever of Symbol and/or
MSI owns the affected patent, is entitled to receive the affected payment, is
obligated to or agrees to make the affected sale of products or provided or is
obligated to provide the subject information.
13.4 Any waiver of a default or condition hereof by any Party shall not
be deemed a continuing waiver of such default or condition. Any delay or
omission by any Party to exercise any right or remedy under this Agreement shall
not be construed to be a waiver of any such right or remedy or any right
hereunder. All of a Party's rights under this Agreement shall be cumulative and
may be exercised separately or concurrently.
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13.5 This Agreement does not constitute a partnership, joint venture or
agency between Licensee, on the one hand, or Symbol or MSI, on the other, nor
shall Licensee, on the one hand, or Symbol or MSI, on the other, hold itself out
as a partner, joint venturer or agent of Symbol and/or MSI or of Licensee,
respectively, contrary to the terms hereof by advertising or otherwise, nor
shall Licensee, on the one hand, or Symbol or MSI, on the other, become bound or
become liable because of any representation, action or omission of Symbol and/or
MSI or of Licensee, respectively.
13.6 It is expressly understood and agreed that this Agreement is not
conditioned upon, and does not require or contemplate, Licensee to purchase or
license-from Symbol or MSI any products, including LS 20 scan modules or LS 2000
hand-held laser scanners, or other hardware or software products, or for
Licensee to enter into any other agreement with Symbol or MSI, such as for
software maintenance or service. Licensee is free to manufacture, or contract
with other manufacturers and suppliers, for the procurement of scan modules,
hand-held laser scanners, or other hardware or software products, or for
maintenance or services, subject to any applicable intellectual property rights
of Symbol, MSI or third parties pertaining thereto.
13.7 Except as otherwise expressly permitted by this Agreement, no Party
may subcontract, assign or delegate any of its duties under this Agreement
without, in the case of any subcontracting, assignment or delegation by Symbol
or MSI, the prior written consent of Licensee, and in the case of any
subcontracting, assignment or delegation by Licensee, the prior written consent
of Symbol, and any purported assignment made without first obtaining such
35
<PAGE> 36
consent shall be null and void. In the event of any authorized assignment, the
assigning Party shall remain liable for the performance of all of its
obligations hereunder. MSI shall be entitled to assign and delegate to Symbol
all of its rights and obligations under this Agreement without the necessity of
first obtaining the consent of Licensee thereto, and Symbol hereby agrees to
cause MSI to perform, or to itself perform, all of MSI's obligations under this
Agreement.
13.8 Except as required by law or necessary in connection with the
prosecution or defense of any judicial, administrative or arbitration proceeding
relating to this Agreement, no Party shall make any press release or other
public disclosure or announcement regarding this Agreement or any transaction
contemplated herein unless the same shall have been mutually approved in advance
by Licensee and Symbol, which approvals shall not be unreasonably withheld or
delayed.
13.9 This Agreement shall be governed by, performed under and construed
in accordance with the laws of the State of Delaware without giving effect to
the conflicts of law principles thereof.
13.10 Each Party hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement or for recognition and enforcement of any
judgment in respect thereof, to the general jurisdiction of the courts of the
State of New York, the courts of the United States of America for the Southern
36
<PAGE> 37
District of New York, the courts of the State of Ohio, the courts of the United
States of America for the Northern District of Ohio, and appellate courts from
any thereof;
(b) consents that any such action or proceeding may be brought in
such courts, and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding and agrees not to plead or to claim the
same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to such Party at its
address set forth in Article 12; and
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law.
37
<PAGE> 38
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
SYMBOL TECHNOLOGIES, INC.
By: /s/ Leonard Goldner
------------------------------------
Senior Vice President
MSI DATA CORPORATION
By: /s/ Leonard Goldner
------------------------------------
Vice President
TELXON CORPORATION
By: /s/ Dan R. Wipff
------------------------------------
Senior Executive President
38
<PAGE> 1
Exhibit 10.5
LICENSE, RIGHTS, AND SUPPLY AGREEMENT
This License, Rights, and Supply Agreement ("Agreement") between Aironet
Wireless Communications, Inc., a Delaware corporation, with headquarters at 367
Ghent Road, Suite 300, Fairlawn, Ohio ("Aironet"), and Telxon Corporation, a
Delaware corporation, with headquarters at 3330 West Market Street, Akron, Ohio
("Telxon") is entered into as of March 31, 1998.
WHEREAS, Telxon acknowledges that Aironet is the owner of certain technology
relating to wireless communications products;
WHEREAS, Telxon is in the business of selling, installing, and servicing
wireless network solutions for its customers, including Aironet products;
WHEREAS, Aironet and Telxon have had a close working relationship since
Aironet's inception as a Telxon affiliate; and
WHEREAS, both parties desire to enter into a license agreement whereby Telxon
may continue to have access to Aironet products and technology in order to
satisfy the needs of its customers.
NOW, THEREFORE, based on the mutual rights, obligations, representations, and
warranties set forth below, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1 DEFINITIONS. The following terms shall have the meanings set forth in
this Article 1 throughout this Agreement.
1.1 "Access Point" shall mean a wireless network access point device that
utilizes Aironet Technology.
1.2 "Aironet Products" shall mean all products, subassemblies, and services
that are now or hereafter become available for purchase from Aironet,
but shall exclude products or subassemblies that are custom made for
individual Aironet customers.
1.3 "Aironet Technology" shall mean all Aironet patents, patent
applications, trade secrets, know-how, software, firmware,
documentation, copyrights, and other proprietary rights existing prior
to and as of the date hereof (and as to patents, that may issue after
the date hereof based on patents existing or patent applications
initially filed as of the date hereof, including, but not limited to,
continuations, continuations in part, divisions, reissues, additions,
or extensions) and necessary to exercise rights granted under the
License.
1.4 "Bridge Products" shall mean Aironet's wireless point-to-point and
multipoint bridge products.
<PAGE> 2
1.5 "Fully-Burdened Manufacturing Cost" shall mean all costs of
manufacturing a product, including labor, materials, and overhead, as
accounted for in the regular course of its business by the party
manufacturing that product, as timely adjusted for purchase price
variance.
1.6 "License" shall mean the licenses under the Aironet Technology (and all
intellectual property rights embodied therein) granted by Aironet to
Telxon in Articles 2 and 3, and under Aironet intellectual property
granted by Aironet to Telxon in Section 8.11.3.
1.7 "Legacy Products" shall mean the products listed in EXHIBIT A.
1.8 "Legacy Software" shall mean all current and prior source and object
code for the Legacy Products, including, but not limited to, the
software identified in EXHIBIT B under "Legacy Software."
1.9 "MAC" shall mean a media access control unit that utilizes Aironet
Technology.
1.10 "New Software" shall mean the object code only of Aironet's (i)
revised, upgraded and otherwise modified versions of the Legacy
Software and of the 802.11 Supported Access Point Software which
incorporate significant enhancements or significant added functionality
to such software and which together with such software constitutes a
single package of new software, (ii) ports of the Legacy Software and
the 802.11 Supported Access Point Software to microprocessors not
currently supported, (iii) access point software (which, without
limitation, supports 802.11) developed on a commercially available real
time operating system and (iv) wholly new software.
1.11 "PC Card" shall mean a wireless transceiver in the pc card format that
includes both a Radio and a MAC.
1.12 "Profit Margin" shall mean the increment above Aironet's Fully-Burdened
Manufacturing Cost in the price of Aironet Products supplied to Telxon
under Article 8.
1.13 "Radio" shall mean a wireless transceiver that does not include a MAC
and utilizes Aironet Technology.
1.14 "Telxon Derived Products" shall mean Telxon's improvements,
refinements, enhancements, modifications, adaptations, revisions, and
derivatives of Legacy Products, as a whole or any part.
1.15 "Telxon Derived Software" shall mean Telxon's improvements,
refinements, enhancements, modifications, adaptations, revisions, and
derivatives of Legacy Software and 802.11 Supported Access Point
Software.
2
<PAGE> 3
1.16 "Universal Client" shall mean a stand-alone (external) client, suitable
for connection to a networked device, that utilizes Aironet Technology.
1.17 "802.11" shall mean the IEEE wireless LAN MAC/PHY specification as
ratified in July 1997.
1.18 "802.11 Supported Access Point Software" shall mean Aironet's current
Access Point software that supports 802.11 identified in EXHIBIT B
under 802.11 Supported Access point Software.
2 LEGACY PRODUCTS AND DERIVATIVES.
-------------------------------
2.1 LICENSE OF LEGACY PRODUCTS AND DERIVATIVES. Subject to the covenants
set forth in Section 2.7, and the other provisions of this Agreement,
Aironet hereby grants a perpetual, worldwide, non-exclusive License to
Telxon under the Aironet Technology, including all intellectual
property rights embodied therein, to:
2.1.1 LEGACY PRODUCTS. make, support, service, maintain, repair,
reconstruct, reconfigure, upgrade, prepare improvements,
refinements, enhancements, modifications, adaptations,
revisions and derivatives works, integrate, install, combine,
network, use, market, sell, offer for sale, lease, and
transfer Legacy Products;
2.1.2 LEGACY SOFTWARE. use, port, copy, compile, decompile,
assemble, disassemble, merge, integrate, combine, support,
service, maintain, repair, upgrade, and prepare improvements,
refinements, enhancements, modifications, adaptations,
revisions and derivatives works of the Legacy Software
(current and prior versions only of the Legacy Software), both
in source and object code forms and to network, install, link,
load, market, sell, offer for sale, lease, and transfer
copies, in object code form only, of the Legacy Software;
2.1.3 TELXON DERIVED PRODUCTS. make, support, service, maintain,
repair, reconstruct, reconfigure, upgrade, prepare
improvements, refinements, enhancements, modifications,
adaptations, revisions and derivatives works, integrate,
install, combine, network, use, market, sell, offer for sale,
lease, and transfer Telxon Derived Products; and
2.1.4 TELXON DERIVED SOFTWARE. use, port, copy, compile, decompile,
assemble, disassemble, merge, integrate, combine, support,
service, maintain, repair, upgrade, and prepare improvements,
refinements, enhancements, modifications, adaptations,
revisions and derivatives works of the Telxon Derived Software
(both in source and object code forms) and to network,
install, link, load, market, sell, offer for sale, lease, and
transfer copies, in object code form only, of the Telxon
Derived Software.
3
<PAGE> 4
2.2 ROYALTIES FOR LEGACY PRODUCTS AND DERIVATIVES. In consideration for the
rights granted and obligations undertaken pursuant to this Agreement,
Telxon hereby agrees to pay Aironet royalties for the Legacy Products,
Legacy Software, Telxon Derived Products and Telxon Derived Software
sold, or otherwise transferred or invoiced, by Telxon (or, as
applicable, its subsidiaries), at the rates set forth in SCHEDULE 5,
and subject to the provisions of Article 5 "Royalty Rates and
Accounting" and Article 9 "Most Favored Customer Protections." No
royalties for the use of the Aironet Technology, in accordance with the
License grants in this Article 2, shall be due other than as set forth
in Article 5 and SCHEDULE 5.
2.3 IMPLIED CUSTOMER LICENSE. Subject to the covenants set forth in Section
2.7, the restrictions imposed by Telxon and the other provisions of
this Agreement, Telxon's customers shall have an implied license under
the Aironet Technology limited to all customary uses (including, but
not limited to, resales) of the Legacy Products and Telxon Derived
Products, and any Legacy Software or Telxon Derived Software which is
loaded on or provided for hardware products offered by Telxon from time
to time, as originally transferred by Telxon.
2.4 CONTRACTORS. Telxon may have the Licensed activities performed by third
parties (subject to the terms of this Agreement) that are not direct
competitors of Aironet, but other than the implied rights of customers
set forth in Section 2.3, 3.5, 8.8 and 8.11.3.3, and the right to
establish source code escrows set forth in Section 2.5.3 and 3.73,
Telxon shall not otherwise have the right to sublicense the Aironet
Technology.
2.5 SOFTWARE LICENSE TERMS.
2.5.1 VERSIONS PROVIDED. Telxon's License rights under the Aironet
Technology is limited to the current and prior versions of the
Aironet Technology.
2.5.2 REVISIONS, UPDATES AND BUG FIXES. Notwithstanding Section
2.5.1, Aironet shall provide to Telxon, bug fixes, revisions,
updates, and other modifications in object code form only, as
well as corresponding changes to documentation (and in the
case of each bug fix, such additional technical documentation
as is necessary to enable Telxon to implement the bug fix and
to write its own source code therefor), for Legacy Software
and Legacy Product firmware, as and when they become
available, provided that all bug fixes, revisions, updates and
other modifications constituting or to New Software shall be
provided by Aironet to Telxon under Section 4.2. Bug fixes,
revisions, updates and other modifications provided under this
Section 2.5.2 shall constitute part of the software/firmware
to which they relate for all purposes of this Agreement and
shall not bear a separate royalty from that payable by Telxon
upon the original distribution of such underlying
software/firmware, and Telxon shall owe no other amounts with
respect thereto.
2.5.3 SOURCE CODE ESCROW. Notwithstanding that the License grants in
Section 2.1 restrict the transfer of software to copies of the
object code and the transfer restrictions of
4
<PAGE> 5
Sections 2.7.5 and 2.7.6, upon reasonable notice to Aironet,
and upon customary terms, Telxon shall be permitted to place
into escrow (with a reliable agent) source code with respect
to which it has rights under the License, if so requested by a
customer.
2.6 SUPPLIERS AND FOUNDRIES. Aironet shall authorize its suppliers and
foundries of custom integrated circuits to sell such components to
Telxon for incorporation into Legacy Products and Telxon Derived
Products. Should any such suppliers discontinue manufacture of any
custom integrated circuit necessary for Telxon to exercise its rights
under this Agreement, Aironet shall cooperate with Telxon in securing a
second source for such components.
2.7 EXERCISE OF TELXON RIGHTS. In addition to the restrictions set forth
elsewhere in this Agreement, Telxon shall not:
2.7.1 in its exercise of the License grants in Section 2.1 prepare
improvements, refinements, enhancements, modifications,
adaptations, revisions, and derivatives which (i) with respect
to Radios, change other than the form factor, (ii) with
respect to Access Points, change other than the backbone
interface daughter card(s) or (iii) are 802.11 client radio
adapters;
2.7.2 sell any subassemblies, which utilize Aironet Technology and
which are for Legacy Products or Telxon Derived Products,
unless they are integrated into such products or are sold as
repair or replacement parts for such products, either by
Telxon directly to an end user or indirectly through a Telxon
reseller, distributor, OEM, or other channel partner or
service or repair vendor;
2.7.3 sell Legacy Products or Telxon Derived Products through its
alternate distribution channels except to those partners which
are certified to sell complete Telxon integrated PTCs and
pen-based products;
2.7.4 sell Radios unless they are integrated into a Legacy Product,
Telxon Derived Product, other products offered by Telxon from
time to time, or Aironet Product (whether purchased from
Aironet or as licensed in Section 8.11.3), or are to replace
Radios in such products;
2.7.5 transfer copies of any Legacy Software or Telxon Derived
Software unless it is embedded in or transferred for loading
on a Legacy Product, Telxon Derived Product, other hardware
products offered by Telxon from time to time, or Aironet
Product (whether purchased from Aironet or as licensed in
Section 8.11.3); or
2.7.6 transfer copies of Aironet's client software included in the
Legacy Software unless it is embedded in or transferred for
loading on Legacy Products, Telxon Derived Products, Aironet
Products (whether purchased from Aironet or as licensed in
5
<PAGE> 6
Section 8.11.3), 900 MHz DSSS PC Card products or Aerocomm
2.4GHz radio adapters.
3 802.11 PRODUCTS.
-----------------
3.1 PURCHASE OF 802.11 PRODUCTS. Telxon may purchase products which support
or comply with 802.11, including, but not limited to, Access Points and
PC Cards, from Aironet under Article 8 "Supply of Aironet Products."
3.2 LICENSE OF 802.11 SUPPORTED ACCESS POINT SOFTWARE. Subject to the
covenants set forth in this Article 3 and the other provisions of this
Agreement, Aironet hereby grants a perpetual, worldwide, non-exclusive
License to Telxon under the Aironet Technology, including all
intellectual property rights embodied therein, to use, port, copy,
compile, decompile, assemble, disassemble, merge, integrate, combine,
support, service, maintain, repair, upgrade, and prepare improvements,
refinements, enhancements, modifications, adaptations, revisions and
derivatives works of the 802.11 Supported Access Point Software
(current and prior versions only of the 802.11 Supported Access Point
Software, both in source and object code forms) and to network,
install, link, load, market, sell, offer for sale, lease, and transfer
copies, in object code form only, of the 802.11 Supported Access Point
Software.
3.3 ACCESS POINT HARDWARE. The License grants in Sections 2.1.1 and 2.1.3,
and the related rights and obligations in Article 2, apply to Access
Points on or with which 802.11 Supported Access Point Software or
Telxon Derived Software based thereon is to be installed or used.
Telxon and Aironet each acknowledges and confirms that Aironet's 802.11
PC Cards are not Legacy Products and, therefore, are not included
within the rights granted to Telxon under Article 2 or this Section
3.3.
3.4 ROYALTIES FOR 802.11 SUPPORTED ACCESS POINT SOFTWARE. In consideration
for the rights granted and obligations undertaken pursuant to this
Agreement, Telxon hereby agrees to pay Aironet royalties for the 802.11
Supported Access Point Software and the Telxon Derived Software based
thereon sold, or otherwise transferred or invoiced, by Telxon (or, as
applicable, its subsidiaries), at the rates set forth in SCHEDULE 5,
and subject to the provisions of Article 5 "Royalty Rates and
Accounting" and Article 9 "Most Favored Customer Protections." No
royalties for the use of the Aironet Technology, in accordance with the
License grants in this Article 3, shall be due other than as set forth
in Article 5 and SCHEDULE 5.
3.5 IMPLIED CUSTOMER LICENSE. Subject to the covenants set forth in this
Article 3, any restrictions imposed by Telxon and the other provisions
of this Agreement, Telxon's customers shall have an implied license
under the Aironet Technology limited to all customary uses (including,
but not limited to, resales) of the 802.11 Supported Access Point
Software or Telxon Derived Software based thereon, which is loaded on
or provided for hardware products offered by Telxon from time to time,
as originally transferred by Telxon.
6
<PAGE> 7
3.6 CONTRACTORS. Telxon may have the Licensed activities performed by third
parties (subject to the terms of this Agreement) that are not direct
competitors of Aironet, but other than the implied rights of customers
set forth in Section 2.3, 3.5, 8.8 and 8.11.3.3, and the right to
establish source code escrows set forth in Section 2.5.3 and 3.73,
Telxon shall not otherwise have the right to sublicense the Aironet
Technology.
3.7 SOFTWARE LICENSE TERMS.
3.7.1 VERSIONS PROVIDED. Telxon's License rights under the Aironet
Technology is limited to the current and prior versions of the
Aironet Technology.
3.7.2 REVISIONS, UPDATES AND BUG FIXES. Notwithstanding Section
3.7.1, Aironet shall provide to Telxon, bug fixes, revisions,
updates, and other modifications in object code form only, as
well as corresponding changes to documentation (and in the
case of each bug fix, such additional technical documentation
as is necessary to enable Telxon to implement the bug fix and
to write its own source code therefor), for the 802.11
Supported Access Point Software, and source and object code
for the foregoing which enable the 802.11 Supported Access
Point Software to support Aironet's PC 3500 and PC 4500 802.11
compliant pc cards, as and when they become available,
provided that all bug fixes, revisions, updates and other
modifications constituting or to New Software shall be
provided by Aironet to Telxon under Section 4.2. Bug fixes,
revisions, updates and other modifications provided under this
Section 3.7.2 shall constitute part of the software/firmware
to which they relate for all purposes of this Agreement and
shall not bear a separate royalty from that payable by Telxon
upon the original distribution of such underlying
software/firmware, and Telxon shall owe no other amounts with
respect thereto.
3.7.3 SOURCE CODE ESCROW. Notwithstanding that the License grant in
Section 3.2 restricts the transfer of software to copies of
the object code and the transfer restrictions of Section 3.8,
upon reasonable notice to Aironet, and upon customary terms,
Telxon shall be permitted to place into escrow (with a
reliable agent) source code with respect to which it has
rights under the License, if so requested by a customer.
3.8 EXERCISE OF TELXON RIGHTS. In addition to the restrictions set forth
elsewhere in this Agreement, Telxon shall not transfer copies of 802.11
Supported Access Point Software or Telxon Derived Software based
thereon unless it is embedded in or transferred for loading on a Legacy
Product, Telxon Derived Product, other hardware products offered by
Telxon from time to time, or Aironet Product (whether purchased from
Aironet or as licensed in Section 8.11.3).
4 NEW PRODUCTS.
-------------
7
<PAGE> 8
4.1 NEW HARDWARE. Telxon may purchase new Aironet Products from Aironet
under Article 8 "Supply of Aironet Products."
4.2 NEW SOFTWARE. New Software in object code form only shall be provided
by Aironet to Telxon at reasonable negotiated prices and terms, not to
exceed the prices charged, and on terms no less favorable than those
extended, to its most favored customers for similar works or
deliverables. Aironet will use its reasonable best efforts to (i) make
available under this Section 4.2 no later than March 31, 1999, fully
functional access point software in object code form only, which,
without limitation, supports 802.11, developed on a commercially
available real time operating system and (ii) assist Telxon in its
porting to the real time operating system referred to in clause (i) of
any improvements, additions, or modifications made by or for Telxon to
the 802.11 Supported Access Point Software, and Telxon shall pay
Aironet for such assistance at Aironet's cost plus fifty percent (50%).
5 ROYALTY RATES AND ACCOUNTING. The royalties payable by Telxon to
Aironet for the Legacy Products, Legacy Software, Telxon Derived
Products, Telxon Derived Software and 802.11 Supported Access Point
Software sold, or otherwise transferred or invoiced, by Telxon (or, as
applicable, its subsidiaries) are set forth in SCHEDULE 5. Telxon's
obligation to pay such royalties is subject to the provisions of this
Article 5 and Article 9. Only a single royalty shall be due with
respect to any individual unit of any product or individual copy of any
software, and neither the separate references to this Article 5 and
SCHEDULE 5 in Sections 2.2 and 3.4, nor any other provision of this
Agreement, shall be construed to give rise to any duplicative
royalties. No royalties for the use of the Aironet Technology, in
accordance with the License, shall be due other than as set forth in
this Article 5 and SCHEDULE 5.
5.1 Royalties shall be earned by Aironet upon the initial shipment or other
transfer to or invoicing of customers by Telxon (or, as applicable, its
subsidiaries) for any individual unit of any product or individual copy
of any software upon which a royalty is payable under this Article 5
and SCHEDULE 5.
5.2 Royalties shall not be payable with respect to products or software
transferred for promotional, "test and demo," maintenance or warranty
purposes or by Telxon to its subsidiaries until sold by such
subsidiaries, or for products sold to Aironet.
5.3 The royalties for each month shall be reported by Telxon to Aironet in
accordance with Section 13.1.
5.4 The royalties for each month shall be paid by Telxon to Aironet within
ten (10) business days after the last day of the month. Allowances for
returns shall be dealt with equitably by mutual agreement of the
parties.
8
<PAGE> 9
6 DELIVERY. To the extent not already in Telxon's possession, Aironet
shall promptly arrange for the delivery or transmission to Telxon of
all tangible forms of the Aironet Technology that may be necessary or
useful for Telxon to exercise its rights under the License, including,
for example, source and object code, documentation, procedures,
engineering drawings, manufacturing specifications, know how,
schematics, diagnostic programs, test procedures and specifications,
vendor and parts lists, technical bulletins, and the like, related to
Legacy Products, Legacy Software and 802.11 Supported Access Point
Software, and to utilize such items in exercising its License rights
under Articles 2 and 3 and Section 8.11.3.
7 PROPRIETARY RIGHTS.
7.1 RELATIVE OWNERSHIP RIGHTS. Neither Telxon nor Aironet shall acquire any
ownership interest in the other's intellectual property rights as a
result of this Agreement. Telxon acknowledges that the Aironet
Technology is Aironet's sole property, and that Telxon has no right,
title, or interest in or thereto except as granted in the License.
Aironet's and Telxon's intellectual property rights shall remain
separate property notwithstanding that they may both be embodied in the
same devices or software, and no such devices or software shall be, or
be deemed to be, a joint work, compilation, or any other type of work
of multiple authorship by reason of this Agreement.
7.2 TRADEMARKS. Telxon and Aironet each agree that their products shall not
carry any of trademarks of the other; provided, however, that Telxon's
current use of Aironet's trademarks may continue until the sooner of
(i) July 31, 1998 or (ii) at such time as Telxon's manufacturing
facility has retooled to discontinue its use thereof; provided,
however, that in the event that Telxon has used reasonable commercial
efforts and is nonetheless unable to discontinue its use of Aironet's
trademarks by July 31, 1998, Aironet will not unreasonably withhold its
consent to extend such deadline by an additional one hundred twenty
(120) days. To the extent either party distributes the products of the
other, that party may identify itself as an authorized distributor of
the other's products, and may utilize the other's trademarks in
connection with advertising such products, subject to the owner's
review and approval, if requested.
7.3 PROPRIETARY NOTICES. As Aironet may reasonably request, Telxon shall
mark all Licensed products with any proprietary rights notices required
either (a) by or in accordance with law or (b) to prevent prejudice to
the intellectual property rights embodied therein.
8 SUPPLY OF AIRONET PRODUCTS. At prices determined in accordance with the
formulas and terms set forth in SCHEDULE 8, Aironet shall sell Aironet
Products to Telxon on the terms and conditions set forth in this
Article 8 subject to the provisions of Article 9 "Most Favored Customer
Protection."
8.1 ORDERS.
9
<PAGE> 10
8.1.1 Each order by Telxon for Aironet Products must be in writing
and received by Aironet from Telxon's manufacturing division,
and not from Telxon's subsidiaries or customers.
8.1.2 In the event that demand for Aironet Products exceeds supply,
Aironet will allocate available supply to fulfill orders for
Telxon vis a vis its other customers on a first order in,
first order out basis.
8.1.3 This Agreement is a master agreement. As such, the terms of
this Agreement shall automatically be deemed incorporated into
any purchase order, order acknowledgment, invoice or similar
document (each an "Order Document") issued or given by either
party in connection with its purchase or sale of Aironet
Products or services. No term or condition of any Order
Document shall be of any force or effect whatsoever except to
provide or establish in accordance with this Agreement the:
(a) Product model number (including any options or
accessories) and quantity; (b) shipping date, ship-to address,
actual or estimated Shipping and Government Charges (as
defined below) and other delivery instructions; and (c) any
other special information required with respect to the order.
8.2 FORECASTS. Beginning on May 1, 1998, and on the first day of each month
thereafter, Telxon shall provide to Aironet a written forecast of
Telxon's estimated requirements of the Aironet Products to be purchased
during the twelve (12) month period next following (the "Forecast(s)").
Each Forecast made three (3) months prior to the date on which a Telxon
order is received by Aironet is referred to as a "Lead Time Forecast."
The Forecasts are for planning purposes only, and shall not constitute
a commitment by Telxon to purchase any of the Aironet Products;
provided, however, Telxon shall use its best efforts not to over or
under estimate its Lead Time Forecasts by more than fifteen percent
(15%).
8.3 LEAD TIME; POSTPONEMENTS AND CANCELLATIONS.
8.3.1 Aironet's minimum lead time for delivery to Telxon of any
order shall be ninety (90) days. If Telxon requires any
delivery on an expedited basis, Aironet shall use reasonable
commercial efforts to accommodate such requirement.
8.3.2 Telxon: (a) may not postpone delivery of its orders within the
thirty (30) day period prior to the originally scheduled
shipping date; (b) may postpone delivery for up to sixty (60)
days once within the period between thirty one (31) and ninety
(90) days prior to the scheduled shipping date; and (c) may
postpone delivery indefinitely at any time at least ninety one
(91) days prior to the scheduled shipping date.
8.3.3 Telxon may cancel its orders at any time at least ninety one
(91) days prior to the originally scheduled shipping date.
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<PAGE> 11
8.4 PRICES. The prices that Aironet will charge Telxon for Aironet Products
shall be determined according to the formulas set forth in SCHEDULE 8,
subject to the provisions of this Article 8 and Article 9. In addition
to the prices due under this Article 8, Telxon shall pay the following
(collectively, "Shipping and Government Charges") with respect to all
Aironet Products purchased by it from Aironet: (i) all freight,
shipping and insurance and handling charges for the shipment of Aironet
Products from Aironet's shipping point within the United States (the
"Shipping Point") to Telxon's ship-to point; and (ii) any and all
applicable sales, use, excise, import, export, value-added or other
taxes or duties, customs, permit or license fees and similar charges of
any government or governmental authority incurred in connection with
shipment from the Shipping Point to Telxon's ship-to point.
8.4.1 Aironet shall provide not less than ninety (90) days prior
written notice to Telxon of any increase in the prices payable
under this Article 8. No increase in prices shall apply to
orders placed by Telxon within the notice period.
8.5 PAYMENT. Telxon's payment for orders hereunder and of the Shipping and
Government Charges with respect thereto (to the extent the actual
amounts thereof are not known prior to shipment, Aironet's reasonable
estimate of such charges) shall be made by Telxon to Aironet net thirty
(30) days from invoice date (which shall not be prior to the date of
shipment from the Shipping Point (the "Shipping Date")). Aironet may
assess late charges of up to one and one half percent (1.5%) per month
for past due payments. Telxon, at its election, shall receive a credit
or refund from Aironet for all overpayments by Telxon of Shipping and
Government Charges.
8.6 SHIPMENT.
8.6.1 The method of shipment of orders hereunder and carrier will be
chosen by Aironet unless Telxon provides Aironet with written
instructions otherwise.
8.6.2 Aironet will ship all orders to Telxon's manufacturing
facilities. Aironet will not unreasonably refuse to drop ship
orders to other addresses on an order by order basis.
8.6.3 Risk of loss and title to all Aironet Products sold to Telxon
shall pass to Telxon when the Aironet Products are tendered to
the carrier at Aironet*s Shipping Point.
8.7 PRODUCT WARRANTY.
8.7.1 Aironet warrants to Telxon that, effective as of July 1, 1997,
each Aironet Product purchased from Aironet will meet all
specifications and will be free from defects in materials and
workmanship under normal use and service for a period of one
(1) year from the Shipping Date. Telxon acknowledges that for
Aironet Products manufactured prior to July 1, 1997, the
warranty period was ninety (90) days.
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8.7.2 Aironet will deal and is liable only with and to Telxon, and
not with or to any customer of Telxon or other subsequent
transferee of any Aironet Product. Telxon shall return any
defective Aironet Product, freight and insurance collect, to
such service address as Aironet shall designate, in accordance
with reasonable material authorization procedures established
by Aironet.
8.7.3 From the time it is first notified, Aironet shall use its best
efforts to determine the cause of any Aironet Product failure
or defect on a continuous and expedited basis. If such failure
or defect is the result of a design defect, Aironet will
provide Telxon with replacement Aironet Products that
incorporate design corrections on a best-efforts basis after
such discovery. If a failure or defect of an Aironet Product
is the result of defects in material or workmanship, at
Aironet's option and expense, Aironet will repair or replace
the Aironet Product within fifteen (15) days of Aironet's
receipt of the defective unit. In the event that Aironet is
unable to correct a design defect or to repair the Aironet
Product or is unable to replace the defective Aironet Product
with a non-defective Aironet Product, then Aironet shall
refund Telxon's purchase price, reduced by an appropriate
amount for prior use. Replaced parts and products become the
property of Aironet.
8.7.4 Repaired or replaced units will be returned to Telxon freight
and insurance prepaid.
8.7.5 The warranty set forth in this Section 8.7 does not apply to
any Aironet Product to the extent the product's defect is
caused by: (a) use or operating or environmental conditions
not in compliance with Aironet specifications; (b) abuse,
misuse, damage, accident, alteration or neglect of
maintenance; (c) unauthorized repair; or (d) improper
installation.
8.7.6 Except as expressly set forth in this Section 8.7 and subject
to the provisions of Section 8.9, AIRONET MAKES NO WARRANTY OF
ANY KIND WITH RESPECT TO ANY AIRONET PRODUCTS SOLD TO TELXON,
WHETHER EXPRESS OR IMPLIED OR ARISING UNDER ANY STATUTE OR
FROM ANY COURSE OF DEALING, USAGE OF TRADE OR OTHERWISE,
INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR ANY
OTHER PROMISE OR REPRESENTATION WITH RESPECT TO THE AIRONET
PRODUCTS, INCLUDING, WITHOUT LIMITATION, THEIR CONDITION,
FREEDOM FROM ANY LATENT OR PATENT DEFECT OR CONFORMITY TO ANY
DESCRIPTION THEREOF.
8.7.7 This Section 8.7 and Section 8.9 are the sole basis for
liability on the part of Aironet respecting the condition,
quality, use, performance, repair and replacement of Aironet
Products.
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8.8 TELXON AND CUSTOMER RIGHTS. Telxon, as the purchaser of Aironet
Products under this Article 8 and the licensee of New Software, and,
subject to any restrictions imposed by Telxon, each person or entity to
whom Telxon transfers an Aironet Product or New Software which is
loaded on or provided for hardware products offered by Telxon from time
to time, as originally transferred by Telxon, shall have an implied,
non-exclusive, worldwide, perpetual, royalty-free license under the
Aironet Technology or other intellectual property embodied in such
products or software to use, support, service, maintain, repair,
integrate into other products, install, combine, network, market, sell,
offer for sale, lease, and transfer such products, but not such
software separate from the hardware products with which it is
transferred. Telxon agrees to utilize commercially reasonable licensing
terms with respect to copies of software integrated in Aironet Products
that Telxon transfers to its customers, but no less restrictive than
the terms utilized by Telxon in the sale of its own products to its
customers or, if more restrictive, those required under Section 8.12
with respect to third party software.
8.9. PATENT AND COPYRIGHT INDEMNIFICATION.
8.9.1 Aironet agrees to defend (with counsel of Aironet's choosing
which is reasonably acceptable to Telxon) or settle any claim
against Telxon that any Aironet Product infringes any United
States copyrights or patents of any third party and to pay all
costs and damages finally awarded by a court of competent
jurisdiction with respect to such claim, provided that: (a)
Telxon promptly notifies Aironet in writing of the assertion
of such claim; and (b) Telxon and any affected customer(s)
cooperate fully with Aironet in the defense of such claim and
any related settlement negotiations.
8.9.2 Aironet shall keep Telxon fully informed of the progress of
any litigation and settlement negotiations involving any
infringement claims. At Telxon's own cost, Telxon shall have
the right to enter its own defense.
8.9.3 In the event that any Aironet Product is likely in Aironet's
opinion to, or does, become the subject of an infringement
claim, Aironet shall have the right, at its option and
expense, to procure for the user the right to continue to use
the subject Aironet Product or to modify or replace such
Aironet Product to make it non-infringing; provided, however,
that if none of the foregoing options is available on
commercially reasonable terms, Aironet may require the return
of the Aironet Product in exchange for a refund of the amount
paid by Telxon for the Aironet Product, reduced by an
appropriate amount for prior use.
8.9.4 Aironet shall have no obligation under this Section 8.9 where
an otherwise non-infringing Aironet Product is made infringing
because the Aironet Product has been: (a) modified by anyone
other than Aironet; (b) interconnected or otherwise combined
or used in conjunction with any hardware, software or other
equipment or device
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which was neither made, furnished nor approved by Aironet; or
(c) used in a manner for which it was not designed or
otherwise contrary to its intended purpose.
8.9.5 This Section 8.9 states Aironet's entire liability with
respect to any infringements of copyrights and patents by any
Aironet Product.
8.10 NEW PRODUCTS; PRODUCT CHANGES.
8.10.1 Aironet shall provide Telxon with written notice of the
introduction of any new Aironet Product. Such notice shall be
provided promptly, when and as available.
8.10.2 Aironet shall give Telxon written notice at least ninety (90)
days prior to implementing any material changes to the form,
fit or function or any modification, enhancement, upgrade,
engineering change or the like of any Aironet Products except
for Radios, with respect to which Aironet shall give Telxon
written notice at least one hundred eighty (180) days prior to
implementing any material changes to the form, fit or
function.
8.10.3 Aironet shall fulfill Telxon's purchase orders placed during
the ninety (90) or one hundred eighty (180) day period
provided for in Section 8.10.2, as applicable, under the old
specifications, unless otherwise specified by Telxon.
8.11 DISCONTINUED PRODUCTS.
8.11.1 NOTICE. Aironet shall give Telxon written notice at least one
hundred eighty (180) days prior to discontinuing production of
any Aironet Product.
8.11.2 ORDERS. Aironet shall fulfill Telxon's purchase orders for the
discontinued product placed during the one hundred eighty
(180) day period provided for in Section 8.11.1.
8.11.3 MANUFACTURING RIGHTS. Subject to the covenants in Section
8.11.3.6 and the other provisions of this Agreement, Aironet
hereby grants a perpetual, worldwide, non-exclusive License to
Telxon under all Aironet intellectual property rights
necessary to make, copy, assemble, merge, link, load, support,
service, maintain, repair, integrate, install, combine,
network, use, market, sell, offer for sale, lease, and
transfer Aironet Products that (i) shall have been sold by
Telxon to any customer(s), (ii) are hereafter discontinued by
Aironet and (iii) are required for Telxon's continued support
of such customer(s). Such License is limited to the
discontinued Aironet Product in the form and having the
specifications that exist at the time of discontinuance,
without modification or enhancement.
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8.11.3.1 NO AIRONET CUSTOMER SUPPORT. Aironet assumes no
responsibility (such as warranty and end-user
support) for any discontinued Aironet Products made
by or for Telxon pursuant to this Section 8.11.3.
8.11.3.2 ROYALTIES. In consideration for the rights granted
and obligations undertaken pursuant to this
Agreement, Telxon hereby agrees to pay Aironet
royalties for each unit of discontinued Aironet
Product sold, or otherwise transferred or invoiced,
by Telxon (or, as applicable, its subsidiaries), at
the rates set forth in SCHEDULE 8, and in accordance
with the principles in Article 5, and subject to the
provisions of Article 9 "Most Favored Customer
Protection." Royalties shall not be payable with
respect to discontinued Aironet Products transferred
for promotional, "test and demo," maintenance or
warranty purposes or by Telxon to its subsidiaries
until sold by such subsidiaries, or for products sold
to Aironet. Allowances for returns shall be dealt
with equitably by mutual agreement of the parties. No
royalties for discontinued Aironet Products
manufactured in accordance with the License grant in
Section 8.11.3 shall be due other than as set forth
in this Section 8.11.3.2 and SCHEDULE 8, and no other
provision of this Agreement shall be construed to
give rise to any duplicative royalties.
8.11.3.3 IMPLIED CUSTOMER LICENSE. Subject to any restrictions
imposed by Telxon, the covenants set forth in Section
8.11.3.6 and the other provisions of this Agreement,
Telxon's customers shall have an implied license to
all customary uses (including, but not limited to,
resales) of the discontinued Aironet Products as
originally transferred by Telxon.
8.11.3.4 CONTRACTORS. Telxon may have the Licensed activities
performed by third parties (subject to the terms of
this Agreement) that are not direct competitors of
Aironet, but other than the implied rights of
customers set forth in Section 2.3, 3.5, 8.8 and
8.11.3.3, and the right to establish source code
escrows set forth in Section 2.5.3 and 3.73, Telxon
shall not otherwise have the right to sublicense
Aironet's intellectual property.
8.11.3.5 SUPPLIERS AND FOUNDRIES. Aironet shall authorize its
suppliers and foundries of custom integrated circuits
to sell such components to Telxon for incorporation
into discontinued Aironet Products Licensed under
this Section 8.11.3. Should any such suppliers
discontinue manufacture of any custom integrated
circuit necessary for Telxon to exercise its rights
under this Agreement, Aironet shall cooperate with
Telxon in securing a second source for such
components.
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8.11.3.6 EXERCISE OF TELXON RIGHTS. In addition to the restrictions
set forth elsewhere in this Agreement, Telxon shall not:
8.11.3.6.1 in its exercise of the License grant in Section
8.11.3 prepare improvements, refinements,
enhancements, modifications, adaptations, revisions,
or derivatives of the discontinued Aironet Products;
8.11.3.6.2 sell any subassemblies, which utilize Aironet
intellectual property and which are for discontinued
Aironet Products, unless they are integrated into
such products or are sold as repair or replacement
parts for such products, either by Telxon directly to
an end user or indirectly through a Telxon reseller,
distributor, OEM, or other channel partner or service
or repair vendor;
8.11.3.6.3 sell discontinued Aironet Products through its
alternate distribution channels except to those
partners which are certified to sell complete Telxon
integrated PTCs and pen-based products;
8.11.3.6.4 sell discontinued Aironet Products which are
radios unless they are integrated into a product
offered by Telxon from time to time, or are to
replace radios in such products; or
8.11.3.6.5 transfer copies of any software included in any
such discontinued Aironet Product unless it is
embedded in or transferred for loading on such
product.
8.12 THIRD PARTY SOFTWARE.
8.12.1 Aironet Products purchased by Telxon from Aironet may contain,
as embedded therein or otherwise pre-installed thereon, or be
accompanied by, third party software and firmware
(collectively, "Third Party Software"). The price for each
Aironet Product includes a non-exclusive, royalty-free license
to: (a) distribute the Third Party Software as embedded, but
only as embedded, with the Aironet Products; and (b) to use
the Third Party Software as embedded, but only as embedded,
with the Aironet Products. The Third Party Software may be
distributed only embedded in the Aironet Products, in the same
form such Third Party Software and Aironet Products were
provided to Telxon by Aironet.
8.12.2 Telxon's written or shrink wrap licenses shall contain
provisions similar to the following in order to protect the
Third Party Software: (a) an acknowledgment that
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a third party owns all title to the Third Party Software and
all patent, copyright and other intellectual property rights
relating thereto and that the Third Party Software is being
licensed (not sold) to such customer solely for and in
connection with its use of products in which it is imbedded or
with which it is accompanied; (b) an agreement not to adapt,
modify, prepare derivative works of, copy, reverse engineer,
disassemble, decompile, or "unlock" the code of the Third
Party Software; and (c) an agreement to bind any transferee of
the Third Party Software to an agreement at least as
restrictive as such agreements.
8.12.3 To the extent available to Aironet, Aironet shall provide
Telxon with updates and upgrades to the Third Party Software
on the same terms and conditions as such updates and upgrades
are available to Aironet.
8.13 IMPORTS AND EXPORTS. For Aironet Products sourced outside of the United
States customs territory with respect to the importation of which
Telxon requests that it be the importer of record, Aironet shall
provide Telxon with all documentation necessary to facilitate the
importation. Where Telxon is not the importer of record, then Aironet
shall provide Telxon with all import documentation and certificates
necessary for Telxon's duty drawback claims.
9 MOST FAVORED CUSTOMER PROTECTIONS. The royalty rates payable by Telxon
under Article 5 (and referred to in Sections 2.2 and 3.4) and Section
8.11.3, and the prices payable by Telxon under Article 8, shall be
subject to reduction as set forth in this Article 9.
9.1 The royalties payable by Telxon under Article 5 (and referred to in
Sections 2.2 and 3.4) and Section 8.11.3.2 shall not exceed the best
royalty rates charged, and the best non-pricing terms provided, by
Aironet to any of its licensees, excluding licensees from whom Aironet
earns materially greater annual aggregate royalties than those earned
from Telxon.
9.2 The prices payable by Telxon under Section 8.4, or any other amounts
payable by Telxon to Aironet for goods or services, shall not exceed
the best prices charged, and the best non-pricing terms provided, by
Aironet to any of its customers, excluding customers from whom Aironet
earns materially greater annual aggregate gross profit than that from
the Profit Margin and other business (which does not include the
royalties payable by Telxon under Article 5 [and referred to in
Sections 2.2 and 3.4] or Section 8.11.3.2) earned from Telxon, or any
promotional sales by Aironet.
9.3 Aironet shall report to Telxon on a timely basis any new, more
favorable royalty rates, prices or other charges or terms that apply to
Telxon under this Article 9.
10 IMAP FEES. Telxon shall be entitled to receive customer referral "IMAP
Fees" as set forth in this Article 10 at the rates and on the amounts
set forth in SCHEDULE 10.
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10.1 Subject to later adjustments and rebillings for returns and
allowances, IMAP Fees shall be earned upon Aironet's shipment
of the Aironet Products upon which the IMAP Fees are payable,
and shall be paid no later than the last day of the month
immediately following the month of such shipment.
11 INSTALLATION, SERVICE AND SUPPORT. Aironet shall provide a
dedicated sales representative to Telxon to service Telxon's
purchase of Aironet Products hereunder, and to make joint
sales calls with Telxon to Telxon's customers; provided,
however, that Aironet shall not be responsible to Telxon's
customers for installation, service, support, or warranty
obligations with respect to Legacy Products, Telxon Derived
Products, or Aironet Products.
11.1 Aironet will provide Telxon with formal training on all Legacy
Software and 802.11 Supported Access Point Software and repair
training on all Legacy Products (and subassemblies thereof) at
reasonable rates and for reimbursement of reasonable expenses.
A minimum of two (2) copies of all course material will be
provided to Telxon at the time of training. Telxon will have
the right to duplicate such material without restriction for
internal use only.
11.2 Aironet shall maintain a sufficient number of personnel
dedicated to Telxon to fulfill Aironet's obligations under
this Article 11. Aironet will also designate a key contact for
Telxon within its software development and/or support
organization for resolution of software (with respect to
software for which only object code has been provided),
hardware, interoperability, product assembly, subassembly and
component-level support issues with respect to Telxon's
implementation of the Aironet Technology in Legacy Products,
Legacy Software, 802.11 Supported Access Point Software,
Telxon Derived Products, and Telxon Derived Software as well
as for sales of Aironet Products. The key contact will respond
to problems in the following time frames:
11.2.1 system down/end-user operations severely affected -
within 8 hours;
11.2.2 unit down/end-user operational/part of operations
down - within 24 hours;
11.2.3 intermittent problem/end-user operational but
inconvenienced - within 24 hours; and
11.2.4 routine technical assistance calls/no operational
impact - within 5 days.
The Aironet key contact will be responsible for all
Telxon-reported support problems and will act as the Telxon
advocate for all technical issues referred to Aironet.
11.3 Aironet shall provide a dedicated support representative to
Telxon to assist Telxon in its development of Telxon Derived
Products and Telxon Derived Software (in general and based on
802.11 Supported Access Point Software).
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12 ENGINEERING SERVICES. Aironet shall provide reasonable engineering
services in support of requests by Telxon for assistance in its
manufacture of Legacy Products. All Aironet engineering services
provided pursuant to this Article 12 shall be paid by Telxon at
Aironet's cost plus fifty percent (50%).
13 REPORTS, BOOKS, AND RECORDS.
13.1 Within five (5) business days after the last day of each month, each
party shall report to the other, in writing, the sales, costs,
earnings, or other financial data relevant under any section of this
Agreement during such month. Each party shall accompany any payments to
the other with a written report setting forth all amounts owed for the
period covered by the payment, with supporting computations and
descriptions of transactions giving rise to the payment obligation.
Such reports shall be held by the recipient as Confidential Information
(defined in Section 18.3) and shall be used solely in connection with
this Agreement.
13.2 Each party shall prepare and maintain on a current basis complete and
accurate books and records, in accordance with generally accepted
accounting principles, sufficient to document compliance with this
Agreement. All such books and records shall be retained for at least
three (3) years from the date they are created.
13.3 At the request of Aironet and during the normal business hours of
Telxon, no more than once in any twelve (12) month period, Telxon shall
permit a "Big Six" firm of accountants, selected by Aironet, to have
access to such books, records and inventories as may be necessary to
determine the correctness of any report or payment made under this
Agreement. Such audits shall be conducted at the cost of Aironet,
except that if any such audit should reveal an underpayment of
royalties due hereunder of greater than fifteen percent (15%) for any
period audited, Telxon shall bear the cost of such audit, and promptly
pay such underpaid amount.
13.4 At the request of Telxon and during the normal business hours of
Aironet, no more than once in any twelve (12) month period, Aironet
shall permit a "Big Six" firm of accountants, selected by Telxon, to
have access to such books, records and inventories as may be necessary
to determine the correctness of any report or cost upon which Telxon
pays royalties, Profit Margins or IMAP Fees under this Agreement. Such
audits shall be conducted at the cost of Telxon, except that if any
such audit should reveal an overstatement of costs previously reported
to Telxon of greater than fifteen percent (15%) for any period audited,
Aironet shall bear the cost of such audit, and promptly repay any
amount overpaid by Telxon as a consequence of such overstatement.
13.5 Prior to allowing any audit permitted by Sections 13.3 and 13.4, a
party may require that the auditor agree in writing to only reveal to
its client such information as is required to verify compliance with
this Agreement, and not to reveal to its client any other details of
its audit
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or any other information learned during its audit, and in no instance
will the auditors disclose any competitive information, including any
customer, pricing, or cost information.
14 PROTECTION FROM INFRINGEMENTS. Each Party shall promptly notify the
other Party if it becomes aware of any infringement or potential
infringement of intellectual property rights in the Aironet Technology.
Aironet shall have the right, at its discretion, to take such action as
it deems advisable for the protection of Aironet's rights in the
Aironet Technology, but except as set forth in Sections 8.9 and 18.4,
and subject to Section 18.5, it shall not have the obligation to do so.
At Aironet's request, Telxon agrees to cooperate reasonably in any such
action at Aironet's expense.
15 REPRESENTATIONS AND WARRANTIES.
15.1 Telxon hereby represents, warrants and agrees that it shall:
15.1.1 not reverse engineer, disassemble, or make derivative versions
of (a) any custom integrated circuits included in the Legacy
Products, (b) any software provided by Aironet to Telxon in
only object code form, or (c) any Aironet Products, to the
extent any such action would infringe any of Aironet's
proprietary rights not licensed hereunder;
15.1.2 at all times act to protect Aironet's intellectual property
rights in the Aironet Technology with the same level of
diligence and care that it takes to protect its own
intellectual property rights, but in no case less than a
reasonable degree of care;
15.1.3 maintain high standards of quality in Telxon Derived Products
that incorporate an Aironet Product, and in the installation,
service, and support of such Telxon Derived Products and of
Aironet Products;
15.1.4 comply in all material respects with all applicable laws,
rules, and regulations in its performance hereunder, and all
products licensed hereunder made by or for it shall be in
material compliance with all applicable laws, rules, and
regulations; and
15.1.5 not permit its customers to re-label or private label any
Aironet Products, except that this prohibition shall not apply
to sales of any Aironet Products by Telxon to IBM, re-labeled
with IBM's private label.
15.2 Aironet hereby represents, warrants and agrees that:
15.2.1 it has all rights necessary to grant the License;
15.2.2 all software provided pursuant to this Agreement shall
function in conformance with specifications for a period of
ninety (90) days after delivery;
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15.2.3 Telxon's exercise, in accordance with the terms of this
Agreement, of the rights granted to it under the License shall
not infringe the United States intellectual property rights of
third parties;
15.2.4 it will perform all of its warranty, service, and support
obligations to Telxon in a professional manner, consistent
with current industry standards;
15.2.5 at the relevant time, it shall have obtained all regulatory
approvals that may be required for the sale or use of Legacy
Products, Legacy Software, 802.11 Supported Access Point
Software, New Software and Aironet Products;
15.2.6 its performance hereunder, the Aironet Products, Legacy
Software, 802.11 Supported Access Point Software, New Software
and Legacy Products (to the extent manufactured by or for
Telxon pursuant to the specifications provided hereunder),
shall be in material compliance with all applicable laws,
rules, and regulations; and
15.2.7 the design and functionality (hardware, firmware, and
software) of Legacy Products, Legacy Software, 802.11
Supported Access Point Software, New Software and Aironet
Products are and shall be "Year 2000" compliant.
16 DISCLAIMER. THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLES 8
AND 15 ARE EXCLUSIVE. BOTH PARTIES HEREBY DISCLAIM ANY AND ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
17 TERMINATION. Neither party shall have the right to terminate this
Agreement for any reason. Both parties acknowledge that money damages
and/or injunctive relief are a sufficient remedy for any breach hereof.
All licenses granted by Aironet to Telxon herein are perpetual, which
for purposes of this Agreement shall mean the period of at least ninety
nine (99) years. Other than for equitable relief to enjoin or restrain
a breach hereof, which may be sought immediately, a non-breaching party
shall give the breaching party at least thirty (30) days written notice
of its intention to bring suit, prior to bringing suit, specifying the
claimed breach with sufficient specificity to allow the breaching party
to cure the alleged breach.
18 GENERAL PROVISIONS.
18.1 BANKRUPTCY. This Agreement is a license of Intellectual Property within
the meaning of Section 365(n) of the United States Bankruptcy Code.
Aironet is the licensor and Telxon is the licensee hereunder. If
Section 365(n) of the United States Bankruptcy Code (or any successor
provision) is applicable, and the trustee or debtor-in-possession has
rejected this Agreement and Telxon has elected to retain its rights
hereunder, then upon written request of Telxon, to the extent Telxon is
otherwise entitled hereunder, the trustee or debtor-in-
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possession shall provide to Telxon any intellectual property (including
embodiments thereof) held by the trustee or debtor-in-possession.
Unless and until the trustee or debtor-in-possession rejects this
Agreement, on the written request of Telxon, to the extent Telxon is
otherwise entitled hereunder, the trustee or debtor-in-possession shall
provide to Telxon such intellectual property (including any embodiment
of such intellectual property to the extent protected by applicable
non-bankruptcy law) held by the trustee or debtor-in-possession.
18.2 ASSIGNMENT. Except as expressly permitted herein, this Agreement (and
the rights and obligations accruing hereunder) may not be assigned by
either party without the express written consent of the other party in
its sole discretion.
18.3 CONFIDENTIALITY.
18.3.1 Each party has developed a substantial amount of valuable
Confidential Information. For purposes of this Agreement,
"Confidential Information" shall mean this Agreement, as well
as any other agreement between Aironet and Telxon, the
documentation and any information and data marked as
confidential or which the receiving party knows, or has reason
to know given the circumstances in which it was disclosed, is
confidential, including but not limited to proprietary,
technical, developmental, specifications (including those set
forth on SCHEDULE 18.3.1), future product plans, financial,
pricing, marketing, sales, operating, performance, cost,
know-how, business and process information, computer
programming techniques, source and object codes, algorithms,
applications, operating system, data base, communication and
other computer software, and all record-bearing media
containing or disclosing such information and techniques which
are disclosed pursuant to this Agreement.
18.3.2 All Confidential Information of the other party in the
possession of a party, or delivered to it pursuant to this
Agreement: (a) shall not be distributed, disclosed, or
disseminated in any way or form by the recipient to anyone
except its own employees who have a reasonable need to know,
to its contractors in furtherance of its rights hereunder, and
pursuant to governmental or court order; (b) shall be treated
by the recipient with the same degree of care to avoid
disclosure to any third party as is used with respect to
recipient's own information of like importance which is to be
kept secret, but not less than reasonable care; and (c) shall
not be used by the recipient for its own purposes, except in
furtherance of the recipient's rights hereunder, without the
express prior written permission of the disclosing party.
18.3.3 For purposes of this Section 18.3, the following information
shall not be deemed Confidential Information: (a) information
of the other party which, at the time of disclosure is,
through no fault of the recipient, part of the public domain
(provided that any particular Confidential Information which
has not itself directly become a
22
<PAGE> 23
part of the public domain shall not be deemed to have
become public because it may be summarized, or
otherwise referenced without specific disclosure
thereof, in a generalized description made available
to the public and that the public disclosure of any
feature(s) or component(s) of any Confidential
Information shall not be deemed to constitute any
other feature or component thereof not so disclosed);
and (b) information which, subsequent to disclosure,
is obtained by recipient without restriction as to
confidential treatment from a third party who is
lawfully in possession of such information and not in
violation of any contractual, legal or fiduciary
obligation with respect to such information.
18.4 INDEMNITIES. Each party shall indemnify, defend, and hold
harmless the other party and its affiliates, officers,
directors, employees, and agents from and against any and all
losses, liabilities, claims, and expenses (including, without
limitation, reasonable attorneys' fees) which result from or
arise in connection with any breach by the indemnifying party
of any of its representations, warranties, or covenants made
in this Agreement. The indemnified party shall promptly notify
the indemnifying party of any such indemnity obligation and
the latter shall have control of the payment, defense, and/or
settlement of any such loss, liability, claim, or expense,
subject to the reasonable consent of the indemnified party as
to choice of counsel and settlement.
18.5 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE
OTHER FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR PUNITIVE
DAMAGES OR LOST PROFITS ARISING OUT OF THIS AGREEMENT OR ANY
TERMINATION OF THIS AGREEMENT WHETHER LIABILITY IS ASSERTED IN
CONTRACT OR TORT, AND IRRESPECTIVE OF WHETHER IT HAS ADVISED
OR HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH DAMAGES.
18.6 NON-SOLICITATION. Neither party shall solicit for employment
the employees of the other party. Further, neither party may
employ any former employee of the other party until at least
one year has elapsed from the date of the former employee's
separation from employment service with the party, absent
agreement by the parties to the contrary.
18.7 NO PARTNERSHIP, JOINT VENTURE, OR AGENCY. This Agreement shall
not be construed to create a partnership, joint venture,
agency relationship, or any similar arrangement between the
parties for any purpose whatsoever.
18.8 FORCE MAJEURE. Neither party shall be liable for any loss or
damage, or be deemed to be in breach of this Agreement, to the
extent that performance of such party's obligations is delayed
or prevented as a result of any event or circumstance beyond
its reasonable control.
18.9 SEVERABILITY; COUNTERPARTS. This Agreement is severable. Any
determination by a court of competent jurisdiction that a
provision of this Agreement is not enforceable shall not
prevent enforcement of the remaining provisions. This
Agreement may be executed in two or more
23
<PAGE> 24
counterparts, each of which shall be deemed and enforceable as
an original, and all of which together shall constitute one
and the same instrument.
18.10 GOVERNING LAW AND CHOICE OF FORUM. This Agreement shall be
governed by and construed under the laws of the State of Ohio,
without regard to the conflict of laws principles thereof.
Subject the right of either party to submit any dispute under
this Agreement to arbitration as provided in this Section
18.10, the Parties hereby consent to the exclusive
jurisdiction of the federal and state courts located in Akron,
Ohio with respect to the resolution of any disputes arising
under this Agreement and for the enforcement of any
arbitration findings issued in connection with the arbitration
of any disputes among the parties. The parties hereby waive
any defenses based on venue, forum non conveniens, lack of
personal jurisdiction, or similar grounds for any action or
suit brought in these courts. As an alternative to commencing
litigation in court, a party may elect to commence arbitration
at the American Arbitration Association ("AAA") office
servicing Summit County, Ohio. Such arbitration shall be
conducted pursuant to the AAA commercial arbitration rules,
and shall be binding on the parties thereto. The arbitration
shall be held before three (3) arbitrators. Telxon shall have
the right to appoint one arbitrator, Aironet shall have the
right to appoint the second arbitrator; and the two (2)
aforesaid arbitrators shall jointly select the third
arbitrator, who will preside over the arbitration proceeding.
The costs of the arbitration shall be divided equally between
Telxon and Aironet; provided, however, that each party shall
bear its own costs of counsel and of otherwise participating
in any and all phases of any arbitration. Notwithstanding that
the commercial arbitration rules of the AAA shall apply to any
arbitration commenced under this Section 18.10, the parties
agree that the Federal Rules of Evidence shall govern all
evidentiary matters in such arbitration.
18.11 NOTICES. Any notices required or permitted to be given
pursuant to this Agreement shall be given in writing and
delivered by confirmed fax receipt, confirmed courier
delivery, or confirmed postal delivery and shall be deemed
made upon confirmation of receipt. Such notices shall be made
to:
<TABLE>
<S> <C>
Attn: Chief Executive Officer Attn: Chief Executive Officer
Aironet Wireless Communications, Inc. Telxon Corporation
367 Ghent Road, Suite 300 3330 West Market Street
Fairlawn, Ohio 44333 Akron, Ohio 44333
</TABLE>
18.12 MERGER. This Agreement, together with the Exhibits and
Schedules attached hereto, constitutes the entire agreement
and understanding of the parties with respect to the subject
matter hereof, and supersedes all prior and contemporaneous
agreements, both oral and written. This Agreement shall be
construed as a whole according to its fair meaning and not
strictly for or against either party. This Agreement may not
be amended except pursuant to a written instrument executed by
both parties hereto, nor may any provision hereof be waived
except pursuant to a written instrument executed by the party
granting such waiver.
24
<PAGE> 25
IN WITNESS WHEREOF, the authorized representatives of the parties hereby execute
this Agreement as of the date set forth in the first paragraph hereof.
AIRONET WIRELESS TELXON CORPORATION
COMMUNICATIONS, INC.
By: /s/ Roger J. Murphy By: /s/ Kenneth W. Haver
------------------------------------- --------------------------------
Roger J. Murphy, President Kenneth W. Haver, Senior Vice
and Chief Executive Officer President and Chief Financial
Officer
25
<PAGE> 26
EXHIBIT A
LEGACY PRODUCTS
<TABLE>
<CAPTION>
- -------------------------------- ------------------------------ -------------------------------
1000 SERIES 2000 SERIES
=========== ===========
- -------------------------------- ------------------------------ -------------------------------
<S> <C> <C>
900 MHz 2.4 GHz
DSSS DSSS
Proprietary Proprietary
- -------------------------------- ------------------------------ -------------------------------
RADIOS: R100 (095) R200 (025)
093
091
- -------------------------------- ------------------------------ -------------------------------
PC CARDS: PC1000 (690-900) PC2000 (690-2400)
- -------------------------------- ------------------------------ -------------------------------
ACCESS POINTS: AP1000E (630-900) AP2000E (630-2400)
AP1000T (631-900) AP2000T (631-2400)
AP1000L (632-900) AP2000L (632-2400)
- -------------------------------- ------------------------------ -------------------------------
UNIVERSAL CLIENTS: UC1000E UC2000E
UC1000S UC2000S
- -------------------------------- ------------------------------ -------------------------------
OTHERS: IC1000 (655-900) IC2000 (655-2400)
MC1000 (670-900) MC2000 (670-2400)
671-900 671-2400
672-900 672-2400
POSLAN 210-900 DS2415-2400
DS2410-900
DS2445
- -------------------------------- ------------------------------ -------------------------------
</TABLE>
<PAGE> 27
SCHEDULE 5
ROYALTY RATES
1. ACCESS POINT SOFTWARE. Telxon shall pay the following royalties for
each copy of Access Point software licensed under this Agreement which
is sold, or otherwise transferred or invoiced, by Telxon:
a. from April 1, 1998 through March 31, 1999, $80.
b. from April 1, 1999 through March 31, 2000, $70.
c. from April 1, 2000 through March 31, 2001, $60.
d. from April 1, 2001 through March 31, 2002, if the Access Point
on which the software is utilized is sold, transferred or
invoiced with an Aironet Product radio or pc card, $30;
otherwise, $50.
e. from April 1, 2002 through March 31, 2003, if the Access Point
on which the software is utilized is sold, transferred or
invoiced with an Aironet Product radio or pc card, $30;
otherwise, $40.
f. After March 31, 2003, $30.
The royalty under this Section 1 is in addition to the royalty due
under Section 3 or Section 4 of this SCHEDULE 5, if any.
2. CLIENT SOFTWARE AND RELATED CHIP SET. For the License of client
software included in the Legacy Software, Telxon shall pay
Aironet a royalty of $15 per unit up to 20,000 units per year (in
aggregate), and $10 per unit for each unit beyond 20,000
annually, for any Telxon Derived Products sold, or otherwise
transferred or invoiced, by Telxon that are either (1) a 900 MHz
DSSS PC Card product or (2) an Aerocomm 2.4GHz radio adapter, in
either case that utilize the client software included in the
Legacy Software licensed under this Agreement. In the case of
Telxon Derived Products that are 900 MHz DSSS PC Card products
which utilize Aironet's proprietary chip set, Telxon shall, in
addition to the software royalty provided for above in this
Section 2 pay a royalty of $10 per unit. Other than the royalties
due under this Section 2, Telxon shall owe Aironet no royalty in
respect of any 900 MHz DSSS PC Card product or an Aerocomm 2.4GHz
radio adapter.
3. RADIOS. Telxon shall pay Aironet a royalty equal to 15% of
Telxon's Fully-Burdened Manufacturing Cost for each Radio sold,
or otherwise transferred or invoiced, by Telxon in or for use in
any access point, or 25% for each Radio sold, or otherwise
transferred or invoiced, by Telxon in or for use in any handheld
client or other non-access point device. If a royalty is due
under Section 2 or 4 of this SCHEDULE 5, no royalty is due under
this Section 3.
<PAGE> 28
4. PC CARDS. Telxon shall pay Aironet a royalty equal to 15% of
Telxon's Fully-Burdened Manufacturing Cost (which cost shall
include the cost of the Radio incorporated into such PC Card but
shall not include the cost of the radio incorporated therein if
purchased from Aironet) for each PC Card sold, or otherwise
transferred or invoiced, by Telxon in or for use in any access
point, or 25% for each PC Card sold by, or otherwise transferred
or invoiced by Telxon in or for use in any handheld client or
other non-access device. If a royalty is due under Section 3 of
this SCHEDULE 5, no royalty is due under this Section 4.
5. UNIVERSAL CLIENTS. Telxon shall pay Aironet a royalty equal to
25% of Telxon's Fully-burdened Manufacturing Cost (not including
the cost of the radio or pc card incorporated into such Universal
Client; the royalty under this Section 5 is in addition to the
royalty due under Sections 2, 3, or 4 of this SCHEDULE 5, if any)
for each Legacy Product Universal Client (listed on EXHIBIT A) or
Telxon Derived Product Universal Client sold, or otherwise
transferred or invoiced, by Telxon.
a. In the case of any new version of a Universal Client (i.e.,
not ethernet or serial), if Aironet does not develop the
interface daughter card, the cost of such card shall not be
included in calculating the corresponding royalty.
6. OTHER LEGACY AND TELXON DERIVED PRODUCTS. Telxon shall pay
Aironet a royalty equal to 25% of Telxon's Fully-Burdened
Manufacturing Cost for each unit of Telxon Derived Product or
Legacy Product sold, or transferred or otherwise invoiced, by
Telxon, that is not an Access Point, Universal Client, Radio, or
PC Card.
7. TERMINATION OF ROYALTIES. Subject to the other provisions of this
SCHEDULE 5, in the event of a Change in Control of Aironet (defined in
Section 7.1 of this SCHEDULE 5), other than as a result of (i) a bona
fide, firm commitment, underwritten, public offering of Aironet stock,
or (ii) a spin-off, a dividend or any other distribution of Aironet
stock by Telxon to its stockholders:
i. royalties shall be payable with respect to Aironet
Technology Access Point software, Aironet Technology client
software and any related chip set (i) until the date that is
four (4) years after such event, (ii) until the date upon
which total royalties of Four Million Dollars ($4,000,000)
shall have been paid by Telxon following such event, or
(iii) immediately if such Change in Control is in a
transaction with a competitor of Telxon which derives twenty
percent (20%) or more of its annual operating revenue from
business(es) representing twenty percent (20%) or more of
Telxon's annual operating revenues, whichever of clauses
(i), (ii) or (iii) comes first, at which time all rights and
licenses granted by Aironet to Telxon in this Agreement with
respect to such software, and all royalties with respect to
such software, shall be deemed to be fully paid up and no
longer required to be paid; and
ii. all rights and licenses granted by Aironet to Telxon in this
Agreement with respect
<PAGE> 29
to all Aironet Technology other than the software and chip
set described in Section 7.0.1 of this SCHEDULE 5, and all
royalties with respect to all Aironet Technology other than
the software and chip set described in Section 7.0.1 of this
SCHEDULE 5 shall be deemed to be fully paid up and no longer
required to be paid.
a. A "Change in Control" is deemed to have occurred if:
i. after the date hereof and prior to a bona fide, firm
commitment, underwritten, initial public offering of Aironet
stock, if any ("IPO"), (i) any Person other than the
Investors (defined herein) becomes the "beneficial owner"
(as defined in Rule 13d-3, as in effect on the date hereof,
under the Securities Exchange Act of 1934 (as amended, the
"Exchange Act")), directly or indirectly, of more than fifty
percent (50%) of the combined voting power of Aironet's
Voting Securities, or (ii) any Person other than the
Investors becomes entitled to elect or designate a majority
of the directors of Aironet's Board of Directors;
ii. after an IPO, if (i) any Person becomes the beneficial
owner, directly or indirectly, of twenty percent (20%) or
more of the combined voting power of Aironet's Voting
Securities, provided, that if such event occurs as a result
of a sale or other transfer by Telxon (other than as a
"Participant" pursuant to section 3(d) of the Stockholders
Agreement of even date herewith, by and among Aironet and
its stockholders (the "Stockholders Agreement")) or a Telxon
Group (defined herein) of Voting Securities or an issuance
by Aironet of Voting Securities, then only if such
securities are acquired for no less than Ten Dollars and
50/100 Dollars ($10.50) per share and if Axiom Venture
Partners II Limited Partnership, Telantis Venture Partners
V, Inc., W, A & H Investments LLC, Clarion Capital
Corporation and Frank B. Carr, in the aggregate, do not
continue, upon the consummation of such transaction, to own
ten percent (10%) or more of the voting power of Aironet's
Voting Securities, or (ii) the Continuing Directors cease
for any reason to constitute at least a majority of the
Aironet Board of Directors, other than as a result of Telxon
or a Telxon Group (A) voting its Voting Securities to elect
directors other than, or failing to vote its Voting
Securities in favor of, those standing for election as part
of the same vote by Aironet's stockholders who were
nominated by an affirmative vote of at least a majority of
the then Continuing Directors (either by a specific vote or
by approval of the proxy statement of Aironet in which such
person is named as a nominee for director or of the
inclusion of such person in such proxy statement as such a
nominee, in any such case without objection by any member of
such approving majority of the then Continuing Directors to
the nomination of such person or the naming of such person
as a director nominee), (B) voting its Voting Securities to
remove then Continuing Directors or otherwise causing the
then Continuing Directors to resign from Aironet's Board of
Directors or (C) voting its Voting Securities to decrease
the number of directors constituting the Aironet Board of
Directors or to fill any vacancies on the Aironet Board of
Directors resulting from an increase in the number of
directors with persons other than those standing for
election to such vacancies as part of the same vote by
Aironet's stockholders who were nominated by an
<PAGE> 30
affirmative vote of at least a majority of the then
Continuing Directors (as evidenced by vote, approval or
inclusion in the manner provided in subclause (A) of this
clause (ii)); and
iii. at any time, there otherwise occurs a sale, lease, exchange
or other disposition to a Person of all or substantially all
the assets, or the dissolution or liquidation, of Aironet,
or any acquisition of stock by a Person, or any merger,
consolidation or reorganization to which Aironet and a
Person are parties, and as the result of which Aironet's
stockholders prior to the transaction do not after the
transaction own at least fifty percent (50%) of the voting
power of Aironet or the surviving entity, as applicable, in
the election of directors,.
b. "Continuing Directors" means and includes the persons constituting
Aironet's Board of Directors as of the date of the IPO as well as each
person who becomes a director of Aironet subsequent to the date of the
IPO whose election, or nomination for election by Aironet's
stockholders, was approved by an affirmative vote of at least a
majority of the then Continuing Directors (either by a specific vote
or by approval of the proxy statement of Aironet in which such person
is named as a nominee for director or of the inclusion of such person
in such proxy statement as such a nominee, in any such case without
objection by any member of such approving majority of the then
Continuing Directors to the nomination of such person or the naming of
such person as a director nominee), for so long as each such director
shall remain in office.
c. "Person" means and includes any individual, corporation, partnership,
group, association or other "person", as such term is used in Section
14(d) of the Exchange Act, but excluding Telxon, any Telxon Group, any
affiliate (as defined in Rule 12b-2, as in effect on the date hereof,
under the Exchange Act) of Telxon, any member of a Telxon Group, or
Aironet, or any employee benefit plan sponsored by any of the
foregoing. For purposes of this Section 7, references to "Telxon"
shall include a Person which succeeds to Telxon's business or assets
as a whole, whether by purchase of the stock or assets of Telxon,
merger or otherwise. "Telxon Group" means one or more Persons that act
or refrain from acting at Telxon's direct or indirect request, alone
or in concert with each other, or with Telxon.
d. "Voting Securities" means the Aironet Common Stock, par value $0.01
per share, and any and all other then outstanding Aironet securities
ordinarily having the right to vote generally in the election of
Aironet directors.
e. All rights and licenses granted by Aironet to Telxon in this Agreement
with respect to all Aironet Technology other than the software or chip
set described in Section 7.0.1 of this SCHEDULE 5, and all royalties
with respect to all Aironet Technology other than the software or chip
set described in Section 7.0.1 of this SCHEDULE 5, shall be deemed to
be fully paid up and no longer required to be paid as of April 1,
2001, unless Section 7.0.2. of this SCHEDULE 5 earlier applies.
f. In no event shall the aggregate royalties payable by Telxon to Aironet
pursuant to Article 5
<PAGE> 31
of this Agreement and this SCHEDULE 5 and Section 8.11.3.2 of this
Agreement and Section 4 of SCHEDULE 8 in respect of the following
periods exceed the respective maximum amounts indicated in the
following table, reduced as provided below:
<TABLE>
<CAPTION>
Royalty Period Maximum Aggregate Royalties
<S> <C> <C>
April 1, 1998 - March 31, 1999 $7,000,000
April 1, 1999 - March 31, 2000 $6,500,000
April 1, 2000 - March 31, 2001 $5,000,000
Each April 1 - March 31 thereafter $4,000,000
</TABLE>
The provisions of this Section 7.6 shall not apply to royalties for
New Software.
8. Upon the termination of software and related chip set royalties under
Section 7.0.1 of this SCHEDULE 5, Telxon shall commence to pay Aironet
for the software related services rendered by it to Telxon under
Article 11 of the Agreement, and upon the termination of royalties for
other than software or the related chip set under Sections 7.0.2
and/or 7.5 of this SCHEDULE 5, Telxon shall commence to pay Aironet
for the services rendered by it to Telxon under Article 11 of the
Agreement related to items other than software and the related chip
set, and in either case at Aironet's cost of rendering such services
plus fifty percent (50%).
<PAGE> 32
SCHEDULE 8
AIRONET PRODUCT PRICING
1. BRIDGE PRODUCTS. Telxon shall pay Aironet a price equal to 154% of
Aironet's Fully-Burdened Manufacturing Cost for each unit of any
Bridge Products purchased by Telxon.
2. ALL OTHER AIRONET PRODUCTS. Telxon shall pay Aironet a price equal to
133 1/3 % of Aironet's Fully-Burdened Manufacturing Costs for each
unit of any other Aironet Products purchased by Telxon.
3. RENEGOTIATION OF SUPPLY OBLIGATIONS. The Aironet Product supply
obligations provided for in Article 8 of the Agreement and the pricing
provided for in this SCHEDULE 8 are intended to be effective until the
date four (4) years after the first to occur of (i) Aironet becoming a
publicly traded company through an underwritten firm commitment
initial public offering in which the proceeds to Aironet are at least
Eight Million Dollars ($8,000,000), or (ii) a change in control of
Aironet which results from a merger, consolidation, sale of all of
Aironet's issued and outstanding stock to a single purchaser, or the
sale or other disposition of substantially all of Aironet's assets to
a single purchaser, in a single transaction or a series of
transactions. Prior to the expiration of such expiration date, the
parties shall in good faith renegotiate the original pricing and other
terms of the supply obligations, which shall cease to be effective at
such date. This Section 3 shall not affect the license granted in
Section 8.11.3 of the Agreement, which shall not expire or be subject
to renegotiation under this Section 3.
4. DISCONTINUED AIRONET PRODUCTS. Royalties shall be due from Telxon to
Aironet on discontinued Aironet Products in accordance with the
principles of Article 8 and this SCHEDULE 8, at a rate of thirty three
and one third percent (33 1/3%) of Telxon's Fully-Burdened
Manufacturing Cost, provided that all rights and licenses granted by
Aironet to Telxon in Section 8.11.3 of the Agreement with respect to a
particular discontinued Aironet Product, and all royalties with
respect thereto, shall be deemed to be fully paid up and not required
to be paid from and after the date five (5) years after the date (the
"Commencement Date") that Telxon first exercises rights under Section
8.11.3 with respect to that product.
<PAGE> 1
EXHIBIT 10.7
EXECUTION COPY
--------------
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of
March 31, 1998, by and among FED Corporation, a Delaware corporation ("FED"),
and Telxon Corporation, a Delaware corporation ("TELXON").
RECITALS
WHEREAS, Telxon owns all of the outstanding shares of capital stock
(the "SHARES") of Virtual Vision, Inc., a Delaware corporation ("VIRTUAL");
WHEREAS, FED desires to purchase from Telxon for an aggregate of (i)
Five Hundred Thousand Dollars ($500,000) (the "CASH PURCHASE PRICE") plus (ii)
an aggregate of Four Million Five Hundred Thousand Dollars ($4,500,000) of FED's
Series F Preferred Stock (the "STOCK PURCHASE PRICE" and, together with the Cash
Purchase Price, the "PURCHASE PRICE"), and Telxon desires to sell to FED, an
aggregate of One Million (1,000,000) shares of Virtual's common stock, $0.01 par
value per share (the "COMMON STOCK"), which Shares constitute all of the
outstanding capital stock of the Company, all upon the terms and conditions
hereinafter set forth;
WHEREAS, the respective Boards of Directors of FED and Telxon have each
approved the transactions contemplated by this Agreement; and
WHEREAS, the parties intend for the transactions contemplated by this
Agreement to be treated as effective as of March 31, 1998.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
-------------------------------
1.1 PURCHASE AND SALE OF THE SHARES.
(a) ESCROW. Contemporaneously with the execution of this
Agreement, FED, Telxon and First Union National Bank (the "ESCROW AGENT") shall
enter into an Escrow Agreement substantially in the form as attached hereto as
EXHIBIT A (the "ESCROW AGREEMENT"). Pursuant to the terms and conditions of the
Escrow Agreement, upon the execution of this Agreement, (i) FED shall deliver
the Purchase Price to the Escrow Agent for deposit in the Escrow Account (as
defined in the Escrow Agreement) and (ii) Telxon shall deliver the Shares (free
from any charge, lien, encumbrance or adverse claim of any kind whatsoever) to
the Escrow Agent for deposit in the Escrow Account for the purpose of securing
various obligations of the parties set forth in this Agreement and the Escrow
Agreement. The Purchase Price and the Shares shall be held by the Escrow Agent
under the Escrow Agreement pursuant to the terms thereof. The Purchase Price and
the Shares shall be held as a trust fund and shall not be
<PAGE> 2
EXECUTION COPY
--------------
subject to any lien, attachment, trustee process or any other judicial process
of any creditor of any party, and shall be held and disbursed solely for the
purposes and in accordance with the terms of the Escrow Agreement.
(b) INITIAL ESCROW RELEASE DATE. Pursuant to the terms and
conditions of the Escrow Agreement, and subject to the satisfaction of the
conditions set forth in Article V hereof, on or prior to April 15, 1998 (the
"INITIAL ESCROW RELEASE DATE") the Cash Purchase Price and a portion of the
Stock Purchase Price will be released from escrow to Telxon and the Shares will
be released from escrow to FED.
1.2 SERIES F STOCK PURCHASE AGREEMENT. Contemporaneously with the
execution of this Agreement, FED and Telxon shall enter into a Series F
Preferred Stock Purchase Agreement substantially in the form attached hereto as
EXHIBIT B (the "SERIES F AGREEMENT"). Pursuant to the terms and conditions of
the Series F Preferred Stock Purchase Agreement, FED shall agree to sell, and
Telxon shall agree to purchase, the number of shares of FED's Series F Preferred
Stock constituting the Stock Purchase Price.
1.3 EFFECTIVE DATE. The execution of this Agreement, the delivery of
those items set forth in Article V, the delivery of the Purchase Price by FED to
the Escrow Agent, and the delivery of the Shares by Telxon to the Escrow Agent
shall take place at the offices of Brobeck, Phleger & Harrison LLP, 1633
Broadway, 47th Floor, New York, New York, at 5:00 p.m. (New York City time) on
March 31, 1998 (which time and place are designated as the "EFFECTIVE TIME" and
which date is designated as the "EFFECTIVE DATE").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TELXON
----------------------------------------
Except as disclosed in a document referring specifically to the
representations and warranties in this Agreement which is delivered by Telxon to
FED prior to the execution of this Agreement (the "TELXON DISCLOSURE SCHEDULE"),
Telxon agrees with, and represents and warrants to FED as set forth below:
2.1 CORPORATE EXISTENCE AND GOOD STANDING. Virtual is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, has the requisite corporate power and corporate authority to
carry on its business as now being conducted, is entitled to own, lease and
operate the property and assets now owned, leased or operated by it, and has no
operations and conducts no business outside of the states or countries listed on
the Telxon Disclosure Schedule. Virtual is duly qualified to do business, is in
good standing and has all required and appropriate licenses in each jurisdiction
in which its failure to obtain or maintain such qualification, good standing or
licensing (i) would, individually or in the aggregate, have or reasonably could
be expected to have a material adverse effect on the business, properties,
results of operations, or condition (financial or otherwise) (each a "MATERIAL
ADVERSE EFFECT") of Virtual, or (ii) would result in a material breach of any of
the other representations, warranties, covenants or agreements of Telxon set
forth in this Agreement.
2.2 CORPORATE AUTHORITY. Telxon has all requisite corporate power and
authority to execute and deliver this Agreement and all other documents
contemplated hereby (collectively, the "DOCUMENTS"), to consummate the
transactions contemplated hereby and thereby, and to perform its obligations
under the terms of the Documents. The execution and delivery of the Documents
and the performance of the
2
<PAGE> 3
EXECUTION COPY
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transactions contemplated hereby and thereby have been authorized by all
necessary corporate action of Telxon. The Documents have been duly executed and
delivered by Telxon and constitute legal, valid and binding obligations of
Telxon, enforceable against Telxon in accordance with their terms, except as
such enforceability may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and by general equitable principles.
2.3 CAPITALIZATION. The authorized capital stock of Virtual consists of
Eight Million (8,000,000) shares of Common Stock, of which an aggregate One
Million (1,000,000) shares of Common Stock are presently issued and outstanding
and are held by Telxon. All of the outstanding shares of Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable and are
free from any charge, lien, encumbrance or adverse claim of any kind whatsoever.
Except as set forth on the Telxon Disclosure Schedule, there are no
subscriptions, options, warrants, calls, conversion rights, rights of exchange,
or other rights, plans, agreements or commitments of any nature whatsoever
(including without limitation, conversion or preemptive rights) providing for
the purchase, insurance, registration or sale of any shares of Virtual's capital
stock or any securities convertible into or exchangeable for any shares of
Virtual's capital stock (collectively, the "VIRTUAL DERIVATIVE SECURITIES").
None of the Virtual Derivative Securities are entitled to be accelerated as a
result of the transactions contemplated hereby. All of the outstanding shares of
Virtual capital stock and the Virtual Derivative Securities have been issued
pursuant to valid exemptions from registration under all Federal and state
securities laws and there are no outstanding obligations of Virtual to
repurchase, redeem or otherwise acquire any shares of Virtual capital stock or
any of the Virtual Derivative Securities.
2.4 STOCK OWNERSHIP. Telxon owns all of the outstanding shares of
Common Stock free from any charge, lien, encumbrance or adverse claim of any
kind whatsoever and has full power and legal right to sell, assign, transfer and
deliver the same.
2.5 SUBSIDIARIES. Virtual has no subsidiaries and does not otherwise
own or control, directly or indirectly, any interest in any other corporation,
association, joint venture or other business entity.
2.6 FINANCIAL STATEMENTS. Telxon has delivered to FED the unaudited
balance sheet of Virtual as at February 28, 1998 without the inclusion of the
related notes thereto (the "UNAUDITED BALANCE SHEET") and a pro-forma balance
sheet of Virtual as at March 31, 1998 without the inclusion of the related notes
thereto (the "PROJECTED BALANCE SHEET"). The internal books and records of
Virtual from which the Unaudited Balance Sheet and the Projected Balance Sheet
were derived do not contain any information which is false or misleading in any
material respect. The Unaudited Balance Sheet and the Projected Balance Sheet
(i) were prepared in accordance with such books and records; (ii) were prepared
in accordance with Virtual's accounting policies and principles, and are in
accordance with generally accepted accounting principles, applied on a
consistent basis throughout the periods from Virtual's inception to the date of
such balance sheets ("GAAP"); and (iii) present fairly in all material respects
Virtual's assets, liabilities and financial position at the dates reflected
therein.
2.7 ACCOUNTS AND NOTES RECEIVABLE. The Telxon Disclosure Schedule sets
forth a complete and accurate list of the accounts and notes receivable,
including the aging thereof as of the date hereof. The Telxon Disclosure
Schedule further sets forth a complete and accurate schedule those accounts and
notes receivables (i) to be assigned by Virtual to Telxon on or prior to the
Effective Date and (ii) to be remitted to Telxon upon receipt by Virtual. All
accounts and notes receivable of Virtual reflected on the
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Unaudited Balance Sheet and the Projected Balance Sheet are valid receivables of
Virtual subject to no setoffs or counterclaims and are current and collectible
within 45 days after the invoice date. The values at which accounts and notes
receivables are carried on the books and records of Virtual reflects the
receivables valuation policy of Virtual which is consistent with its past
practice and in accordance with GAAP.
2.8 INVENTORIES. The Telxon Disclosure Schedule sets forth a complete
and accurate schedule of the items in inventory as of the date hereof. All of
the inventory recorded on the Projected Balance Sheet consists of, and all
inventory as of the Initial Escrow Release Date will consist of, items of a
quality usable or saleable in the ordinary course of business consistent with
the past practice of Virtual and will be in quantities sufficient for the normal
operation of the business of Virtual in accordance with past practice.
2.9 LIABILITIES.
(a) Except as set forth on the Telxon Disclosure Schedule,
Virtual has no liability (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated and whether due or to become
due), except for (i) liabilities shown on the Unaudited Balance Sheet and (ii)
absolute liabilities that have arisen since the date of the Unaudited Balance
Sheet that are reflected on the Projected Balance Sheet. The Telxon Disclosure
Schedule further sets forth a complete and accurate schedule of those
liabilities (i) to be assumed by Telxon from Virtual on or prior to the date
hereof and (ii) to be paid by Virtual subject to reimbursement from Telxon.
Telxon has furnished FED with true and correct copies of each such document,
agreement and instrument evidencing the absolute liabilities or contingent
liabilities set forth on the Unaudited Balance Sheet and the Projected Balance
Sheet, including all amendments with respect thereto through the date hereof.
(b) Telxon will be responsible for the payment of any and all
legal fees of Virtual incurred on or prior to the date hereof. Further, Telxon
will be responsible for the payment of any and all costs incurred on or prior to
the date hereof in connection with filing, prosecuting and maintaining the
Virtual Intellectual Property Rights (as hereinafter defined). After the date
hereof, FED will be responsible for the payment of any and all legal fees of
Virtual incurred after the date hereof relating to the business of Virtual
conducted after the date hereof. Further, FED will be responsible for the
payment of any and all costs incurred after the date hereof in connection with
filing, prosecuting and maintaining the Virtual Intellectual Property Rights (as
hereinafter defined).
2.10 ABSENCE OF CERTAIN CHANGES. Since the date of the Unaudited
Balance Sheet, (i) there has not been any event or development that,
individually or in the aggregate, would have or reasonably could be expected to
have a Material Adverse Effect on Virtual and (ii) Virtual has not taken, and
Telxon has not allowed, caused or permitted Virtual to do, cause or permit, any
of the following actions:
(a) MATERIAL CONTRACTS. Except for contracts or commitments
entered into in the ordinary course of business consistent with past practice in
an amount less than Ten Thousand Dollars ($10,000) individually or in the
aggregate, entered into any contract or commitment, or violated, amended or
otherwise modified or waived any of the terms of any of its existing contracts
or commitments;
(b) ISSUANCE OF SECURITIES. Issued, delivered or sold or
authorized or proposed the issuance, delivery or sale of, or purchased or
proposed the purchase of, any shares of its capital stock
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or securities convertible into, or granted any subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities;
(c) INTELLECTUAL PROPERTY. Transferred to any person or entity
any rights to the Virtual Intellectual Property Rights;
(d) EXCLUSIVE RIGHTS. Entered into or amended any agreements
pursuant to which any other party has been granted exclusive marketing or
distribution rights with respect to any of its products or technology;
(e) DISPOSITIONS. Sold, leased, licensed or otherwise disposed
of or encumbered any of its properties or assets which are material,
individually or in the aggregate, to Virtual's business;
(f) INDEBTEDNESS. Incurred any indebtedness for borrowed money
or guaranteed any such indebtedness or issued or sold any debt securities or
guarantee any debt securities of others, except for such indebtedness incurred
as a result of advances made by Telxon, which amounts shall have been written
off by Telxon on or prior to the date hereof and shall not appear on the
Projected Balance Sheet;
(g) LEASES. Entered into any operating or capital lease;
(h) PAYMENT OF OBLIGATIONS. Paid, discharged or satisfied in
an amount in excess of Ten Thousand Dollars ($10,000) individually or in the
aggregate, any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of liabilities reflected or reserved against in the Unaudited
Balance Sheet;
(i) CAPITAL EXPENDITURES. Except for capital expenditures,
capital additions or capital improvements made in the ordinary course of
business consistent with past practice in an amount less than One Thousand
Dollars ($1,000) individually or in the aggregate, made any capital
expenditures, capital additions or capital improvements;
(j) INSURANCE. Reduced the amount of any insurance coverage
provided by existing insurance policies;
(k) EMPLOYEE BENEFIT PLANS; NEW HIRES; PAY INCREASES. Adopted
or amended any existing Benefit Arrangement, or hired any new employee, paid any
special bonus or special remuneration to any employee or director, or increased
the salaries or wage rates of its employees;
(l) SEVERANCE ARRANGEMENTS. Granted any severance or
termination pay to any director or officer or other employee;
(m) LAWSUITS. Commenced a lawsuit other than (i) for the
routine collection of bills; or (ii) in such cases where it in good faith
determined that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it has consulted with FED
with FED concerning the matters set forth in such a suit;
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(n) ACQUISITIONS. Acquired or agreed to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquired or
agreed to acquire any assets which are material, individually or in the
aggregate, to Virtual's business, or acquired or agreed to acquire any equity
securities of any corporation, partnership, association or business
organization;
(o) TAXES. Made or changed any material election in respect of
taxes, adopted or changed any accounting method in respect of taxes, entered
into any closing agreement, settled any claim or assessment in respect of taxes,
or consented to any extension or waiver of the limitation period applicable to
any claim or assessment in respect of taxes;
(p) NOTICES. Failed to have given notices and other
information required to be given to the employees of Virtual, any collective
bargaining unit representing any group of employees of Virtual, and any
applicable government authority under the any applicable law in connection with
the transactions contemplated by this Agreement;
(q) REVALUATION. Revalued any of its assets, including,
without limitation, writing down the value of inventory or writing off notes or
accounts receivable; or
(r) OTHER. Taken or agreed in writing or otherwise to take,
any of the actions described in Sections 2.10(a) through (q) above, or any
action which would make any of Telxon's representations warranties, covenants or
agreements contained in this Agreement untrue or incorrect or prevent it from
performing or cause it not to perform its covenants hereunder.
2.11 PROPERTIES. Virtual neither owns nor holds title to any real
property. Except as set forth on the Telxon Disclosure Schedule, with respect to
the property and assets it leases, Virtual is in compliance in all material
respects with such leases and holds a valid leasehold interest free of any
charges, liens, encumbrances or adverse claims of any kind whatsoever. The
Telxon Disclosure Schedule sets forth (i) a list of all leases or rental
contracts under which Virtual is presently a lessee, lessor, sublessee or
sublessor or has been a lessee, lessor, sublessee or sublessor in the past
twenty-four (24) months and (ii) a list of all equipment used by Virtual in the
operation of its business which is owned or leased by Virtual and which had an
original cost of Ten Thousand Dollars ($10,000) or more. Virtual has beneficial
ownership of and good and marketable title to all properties and assets used in
its operations or necessary for the conduct of its business, and such properties
and assets are subject to no charges, liens, encumbrances or adverse claims of
any kind whatsoever. All real and tangible personal property, including
machinery, equipment and fixtures currently used by Virtual in the operation of
its business is, and at the time of the Initial Escrow Release Date will be, in
good operating condition and repair, ordinary wear and tear excepted, and are
adequate and suitable for the purposes for which they are presently being used.
To the best knowledge of Telxon, all improvements on leased property used by
Virtual in the operation of its businesses and the present use thereof are in
accordance with all applicable laws. The value of any fixed asset used by
Virtual in the operation of its business has not been written up or down, other
than pursuant to depreciation or amortization expenses in accordance with past
practice.
2.12 LITIGATION. There is no litigation, arbitration, proceeding or
workers' compensation claims, either at law or in equity, pending by or against
Virtual, its properties or assets, the capital stock of Virtual or its officers,
directors or stockholders before any agency, court, tribunal, foreign or
domestic,
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or any governmental agency, and, to the best knowledge of Telxon,
there is no threat of any such litigation, arbitration or proceeding, and, to
the best knowledge of Telxon, no facts exist which might form the basis
for any such litigation, arbitration or proceeding. To the best knowledge of
Telxon, Virtual is not the subject of any investigation for violation of any
laws, regulations or administrative orders applicable to its business by any
governmental authority or any other person. There is no judgment, writ, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator, including without limitation, actions by
the United States Bankruptcy Court for the Western District of Washington at
Seattle (the "VIRTUAL BANKRUPTCY COURT"), outstanding against Virtual, its
properties or assets or the capital stock of Virtual or which in any manner
would prevent, enjoin, alter or materially delay any of the transactions
contemplated hereby. Telxon has furnished FED with true and correct copies of
all pleadings relating to any bankruptcy proceedings involving Virtual or its
predecessors and to any ongoing litigation regarding Virtual disclosed on the
Telxon Disclosure Schedule.
2.13 TAXES. Telxon has (i) duly and timely filed or caused to be filed
all Federal, state and local tax returns, statements, reports and forms required
to be filed by Telxon and Virtual (and each affiliate with which Telxon or any
subsidiary thereof files consolidated, combined or unitary returns) and will
duly and timely file or cause to be filed all such applicable tax returns,
statements, reports and forms required to be filed prior to the Effective Date
which relate to Virtual or with respect to which Telxon or Virtual is liable or
otherwise in any way subject, including, without limitation, any income,
property, sales, use, franchise, added value, withholding, and social security
taxes, and all such tax returns (including all amendments thereto) (A) are
complete, accurate and in accordance in all material respects with all legal
requirements applicable thereto and (B) as of the time of filing, correctly
reflected the facts regarding the income, business assets, operations,
activities, status or other matters of Virtual required to be shown thereon,
(ii) paid, when due, all taxes shown to be due and payable on such returns, or
pursuant to any assessment or otherwise, and (iii) properly accrued, charged or
established adequate reserves for all taxes arising in respect of any fiscal
year of Virtual. No tax liabilities, disallowances or assessments relating to
the business, assets or employees or independent contractors of Virtual have
been assessed as of the date hereof, and, to the best knowledge of Telxon, there
is no basis for any such liabilities, disallowances or assessments. Virtual is
not delinquent in the payment of any taxes which would result in the imposition
of any charge, lien, encumbrance or adverse claim of any kind whatsoever on
Virtual, its properties or assets or the capital stock of Virtual.
2.14 NO BREACH OF AGREEMENTS. Virtual is not (i) in violation of any
term of its Certificate of Incorporation, Bylaws or the Official Unsecured
Creditors' Committee's First Amended Plan of Reorganization, dated as of July
28, 1995 (the "VIRTUAL BANKRUPTCY PLAN"), or (ii) in conflict, breach, violation
or default in any respect of any contract, lease, license, promissory note,
conditional sales contract, commitment, indenture, mortgage, deed of trust, or
other agreement, instrument or arrangement to which Virtual is a party or by
which Virtual or its assets are bound, except where such conflict, breach,
violation or default would not, individually or in the aggregate, have or
reasonably could be expected to have a Material Adverse Effect on Virtual, or
(iii) in conflict, breach, violation or default in any respect of any law, rule
or regulation of any governmental authority, or any judgment, order, injunction
or decree applicable to Virtual, including without limitation, any plan approved
by the Virtual Bankruptcy Court, Virtual's assets or its capital stock, except
where such conflict, breach, violation or default would not, individually or in
the aggregate, have or reasonably could be expected to have a Material Adverse
Effect on Virtual. Neither the execution and delivery of the Documents nor the
consummation of the transactions contemplated hereby or thereby will result in
or constitute any of the following: (i) (A) a violation of any term in the
Certificate of Incorporation or Bylaws of Telxon or Virtual or the Virtual
Bankruptcy Plan, or
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(B) a conflict, breach, violation or default with or an event that, with notice
or lapse of time or both, would be a conflict, breach, violation or default of
any contract, lease, license, promissory note, conditional sales contract,
commitment, indenture, mortgage, deed of trust, or other agreement, instrument
or arrangement to which Telxon or Virtual is a party or by which Telxon or
Virtual or their respective assets are bound, except where such conflict,
breach, violation or default would not, individually or in the aggregate, have
or reasonably could be expected to have a Material Adverse Effect on Virtual, or
(C) a conflict, breach, violation or default with or an event that, with notice
or lapse of time or both, would be a conflict, breach, violation or default of
any law, rule or regulation of any governmental authority, or any judgment,
order, injunction or decree applicable to Telxon or Virtual, their respective
assets or their respective shares of capital stock, except where such conflict,
breach, violation or default would not, individually or in the aggregate, have
or reasonably could be expected to have a Material Adverse Effect on Virtual;
(ii) an event that would permit any party to terminate any agreement or to
accelerate the maturity of or permit the subordination of any indebtedness or
other obligation of Telxon or Virtual or their respective shares of capital
stock, including without limitation, any plan approved by the Virtual Bankruptcy
Court; or (iii) the creation or imposition of any charge, lien, encumbrance or
adverse claim of any kind whatsoever on any of the assets of Telxon or Virtual
or their respective shares of capital stock.
2.15 EMPLOYEES AND SERVICE PROVIDERS. Virtual is not involved in any
labor discussion with any unit or group seeking to become the bargaining unit
for any of Virtual's employees, nor has any such unit or group notified Virtual
of an intention to commence any organizational activities among the employees of
Virtual. The Telxon Disclosure Schedule sets forth a listing of (i) each
collective bargaining agreement and other labor agreement to which Virtual is a
party or by which it is bound; (ii) each employment, consulting, severance,
deferred compensation, incentive compensation, bonus, profit sharing, stock
option, stock purchase, stock appreciation, employee stock ownership and any
other employee benefit plan, contract, agreement, or other arrangement (whether
or not in writing) providing for compensation or other benefits to employees
(including officers), or independent contractors, individually or as a group, to
which Virtual is a party or by which it is bound whether such plan, agreement,
arrangement or the like is controlled by Telxon or by Virtual (collectively, the
"BENEFIT ARRANGEMENTS"); (iii) each "employee pension benefit plan" as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and not exempted under Section 4(b) or Section 201 of ERISA
maintained by Virtual or to which Virtual is required to contribute including
any "multi-employer plan" (as defined in Section 3(37) of ERISA); (iv) each
"employee welfare benefit plan" as defined in Section 3(1) of ERISA maintained
by Virtual or to which Virtual contributes or is required to contribute,
including any multi-employer welfare plan, and each other plan under which
"fringe benefits" (including, without limitation, vacation plans or programs,
severance benefits, sick leave plans or programs, dental or medical plans or
programs, and related or similar benefits) are afforded to employees of, or
otherwise required to be provided by, Virtual; and (v) each loan to officers and
directors and each loan to a non-officer employee. All employee benefits plans,
as defined in Section 3(3) of ERISA, of Virtual in effect at any time since
inception of Virtual are now, and have always been, established, maintained and
operated in accordance, in all material respects, with all applicable laws
(including, without limitation, ERISA and the Internal Revenue Code of 1986, as
amended (the "CODE")) and all regulations and interpretations thereunder and in
accordance with their plan documents. There is no unfunded liability for vested
or non-vested benefits under any funded employee benefit plan, and all
contributions required to be made to or with respect to each employee benefit
plan and all costs of administering each employee benefit plan have been
completely and timely paid. With respect to each benefit plan that is subject to
Title IV of ERISA, no liability or obligation has been incurred or is expected
except for insurance premiums under Section 4007 of ERISA, and all insurance
premiums incurred or accrued up to and including the Effective Date have been or
will
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be timely paid by Telxon or Virtual; and no amount is, and as of the Effective
Date no amount will be, due or owing from Telxon or Virtual to any
multi-employer plan on account of any withdrawal therefrom. There has been no
prohibited transaction as described in Section 406 of ERISA or Section 4975 of
the Code or breach of fiduciary duty by Virtual with respect to any employee
benefit plan. No employee benefit plan provides medical benefits to any former
employees (including retirees) of Virtual, other than benefits required to be
provided under Section 490B of the Code. Telxon has furnished to FED a copy of
each of the plans set forth on the Telxon Disclosure Schedule and related plan
documents (including trust documents, insurance policies or contracts, employee
booklets, summary plan descriptions and other authorizing documents, and, to the
extent still in its possession, any material employee communications relating
thereto).
2.16 CERTAIN AGREEMENTS AFFECTED BY THIS TRANSACTION. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby shall (i) result in any obligation of either
Virtual or FED for any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due or
paid to any director or employee of Virtual; (ii) materially increase any
benefits otherwise payable by Virtual; (iii) result in the acceleration of the
time of payment or vesting of any such benefits; or (iv) result in the
acceleration of any rights under the Benefit Arrangements. All stock options or
other rights to acquire capital stock granted by Telxon or Virtual on or prior
to the date hereof will terminate or be paid off by Telxon prior to the date
hereof. In addition, Telxon shall have paid all compensation, benefits and other
Benefit Arrangements, including without limitation, any severance obligations
and accrued vacation pay accrued on or prior to the date hereof, to Virtual's
employees. Further, on or prior to the date hereof, Telxon shall have paid or
shall have properly accrued the amounts due and payable to the Virtual employees
and consultants all wages, salaries, bonuses and benefits (including accrued
vacation and similar amounts) payable on or prior to the date hereof, which
accrued amounts will be paid by Telxon to such Virtual employees and consultants
in full on or prior to April 3, 1998.
2.17 DIRECTORS, OFFICERS AND EMPLOYEES. The Telxon Disclosure Schedule
sets forth a true and complete list of the names and current salaries of all
employees and consultants of Virtual and of all agreements with such employees
and consultants (collectively, the "EMPLOYMENT AND CONSULTANT AGREEMENTS").
Except for the Employment and Consultant Agreements, complete and accurate
copies of which have been delivered to FED, Virtual is not a party to any
effective employment or consulting agreements with individual employees or
consultants (including officers and directors). To the best knowledge of Telxon,
Virtual is in compliance with all currently applicable laws and regulations
respecting employment, discrimination in employment, WARN obligations,
verification of immigration status, terms and conditions of employment and
occupational safety and health and equal employment opportunity practices, and
is not engaged in any unfair labor practice. Virtual has received no notice from
any governmental entity, and there has not been asserted before any governmental
entity, any claim, action or proceeding to which Virtual is a party or involving
Virtual and there is neither pending nor, to the best knowledge of Telxon,
threatened any investigation or hearing concerning Virtual arising out of or
based upon any such laws, regulations or practices.
2.18 INSURANCE. The Telxon Disclosure Schedule sets forth a complete
and accurate list and summary of all policies of insurance of any nature
whatsoever maintained by Telxon or Virtual pertaining to the business of
Virtual, showing, among other things, the amount of coverage, the company
issuing the policy and expiration date of each policy. Such policies are in full
force and effect and, except as otherwise set forth in the Telxon Disclosure
Schedule, such policies, or other policies covering the same
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risks, have been in full force and effect, without gaps, continuously for the
past five (5) years. Copies of all current insurance policies pertaining to the
business of Virtual have been made available to FED for inspection. Neither
Telxon nor Virtual is in default under any of such policies, and neither Telxon
or Virtual has failed to give any notice or to present any claim under any such
policy in a due and timely fashion. The Telxon Disclosure Schedule sets forth by
policy all accrued insurance obligations relating to the business of Virtual as
of the date of this Agreement.
2.19 CONTRACTS AND LICENSES. The Telxon Disclosure Schedule sets forth
a complete and accurate list of:
(a) Each contract, whether written or oral, between Virtual
and any party to whom Virtual provides products or services, which involved
payments to Virtual of more than Ten Thousand Dollars ($10,000) during the year
ended December 31, 1997 or can reasonably be expected to involve payments to
Virtual of more than Ten Thousand Dollars ($10,000) during the year ending
December 31, 1998;
(b) Each contract (except for real property leases, equipment
rental contracts, evidence of indebtedness and insurance contracts), whether
written or oral, between Virtual and any party to whom Virtual is obligated or
can reasonably be expected to pay more than Ten Thousand Dollars ($10,000) for
any twelve (12) month period;
(c) Each agreement for the license of any copyright, trade
secret or other Virtual Intellectual Property Rights, or requiring
indemnification by Virtual with respect to infringements of Intellectual
Property Rights (as hereinafter defined);
(d) Each material permit, license, franchise, certificate of
need and each other material certificate or authorization issued to Virtual by
any governmental authority having jurisdiction in any area where Virtual
provides products or services (a "LICENSE" or "LICENSES");
(e) Each agreement, contract or commitment containing any
covenant limiting the freedom of Virtual to engage in any line of business or
compete with any person;
(f) Each joint marketing or development agreement to which
Virtual is a party, either directly or indirectly through an Affiliate (as
hereinafter defined);
(g) Each agreement, contract or commitment to which Virtual is
a party relating to capital expenditures involving future obligations in excess
of Ten Thousand Dollars ($10,000) and not cancelable without penalty;
(h) Each agreement of indemnification or guaranty not entered
into in the ordinary course of business to which Virtual is a party (either as
the party taking such action or the party for whose benefit such action was
taken) other than indemnification agreements between Virtual and any of its
officers or directors;
(i) Each agreement, contract or commitment to which Virtual is
a party relating to the disposition or acquisition of assets not in the ordinary
course of business or any ownership interest in any corporation, partnership,
joint venture or other business enterprise;
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(j) Each mortgage, indenture, loan or credit agreement,
security agreement or other agreement or instrument to which Virtual is a party
relating to the borrowing of money or extension of credit; and
(k) Each other agreement of Virtual which would otherwise be
required to be filed as an exhibit pursuant to Item 601(b)(10) of Regulation S-K
of the Securities Act of 1933, as amended (the "SECURITIES ACT"), if Virtual was
filing a Registration Statement on Form S-1 on the date hereof.
The contracts and agreements which are required to be identified in the Telxon
Disclosure Schedule are hereinafter referred to as the "CONTRACTS." True and
complete copies of each written Contract and true and complete written summaries
of each oral Contract have been delivered to FED by Telxon. Except as set forth
on the Telxon Disclosure Schedule:
(i) Each of the Contracts is a legal, valid, binding and
enforceable agreement of Virtual and the other parties thereto and will continue
to be legal, valid, binding and enforceable after the Initial Escrow Release
Date, except as such enforceability may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and by general equitable principles.;
(ii) Assuming the availability of adequate financing, as of
the date hereof, Telxon has no reason to believe that Virtual will not be able
to fulfill all of its obligations under the Contracts which remain to be
performed after the date hereof;
(iii) There has not occurred any material default (or event
which upon the provision of notice or lapse of time or both would become such a
default) under any of the Contracts on the part of Virtual;
(iv) The Contracts are all of the agreements, contracts and
instruments that are material to Virtual and necessary for the operation of its
business as currently conducted;
(v) To the best knowledge of Telxon, the Licenses are the only
governmental permits, licenses, franchises, certificates of need and other
certificates and authorizations that are required for and are material to the
operation of Virtual's business as such business is now, and since Virtual's
inception has been, conducted;
(vi) The Licenses are, and as of the Initial Escrow Release
Date will be, in full force and effect and the continuing validity and
effectiveness of such Licenses will not be affected by the transactions
contemplated hereby; and
(vii) Virtual is and has been in compliance in all material
respects with all conditions or requirements of the Licenses, and Virtual has
not been notified by any governmental or licensing authority that such parties
intend to cancel, terminate or modify any of such Licenses, and, to the best
knowledge of Telxon, there are no valid grounds for any such cancellation,
termination or modification.
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2.20 INTELLECTUAL PROPERTY RIGHTS.
(a) Virtual owns or possesses adequate and legally enforceable
licenses to use all Intellectual Property Rights (as hereinafter defined) set
forth on the Telxon Disclosure Schedule (collectively, the "VIRTUAL INTELLECTUAL
PROPERTY RIGHTS"). The Virtual Intellectual Property Rights that are owned by
Virtual are owned free of any charges, liens, encumbrances or adverse claims of
any kind whatsoever. The Virtual Intellectual Property Rights are set forth on
the Telxon Disclosure Schedule and are separated to identify the Virtual
Intellectual Property Rights that are owned by Virtual and the Virtual
Intellectual Property Rights that are licensed to Virtual. For purposes of this
Agreement, the term "INTELLECTUAL PROPERTY RIGHTS" shall mean any patents,
trademarks, service marks, trade names, trade dress, logos, designs, copyrights,
and any applications for any of the foregoing, trade secrets, know-how,
inventions, discoveries, technologies, techniques and computer software.
(b) To the best knowledge of Telxon, other than the Virtual
Intellectual Property Rights, no Intellectual Property Rights (including without
limitation, any Intellectual Property Rights owned by or licensed to Telxon and
not assigned to FED hereunder), are necessary for the operation of Virtual's
business as currently conducted.
(c) To the best knowledge of Telxon, none of the current
products or product designs or components or services of, or other activities or
business conducted by, Virtual infringes, violates or constitutes a
misappropriation of (or in the past infringed, violated or constituted a
misappropriation of) any Intellectual Property Rights of any other person or
business entity. Neither Telxon nor Virtual has received any complaint, claim or
notice alleging any such infringement, violation or misappropriation, and to the
best knowledge of Telxon, there is no basis for any such complaint, claim or
notice.
(d) Except as set forth on the Telxon Disclosure Schedule, to
the best knowledge of Telxon no person or business entity is infringing,
violating or misappropriating (or in the past infringed, violated or
misappropriated) any of the Virtual Intellectual Property Rights.
(e) No other person or business entity has challenged the
validity of any Virtual Intellectual Property Rights, nor challenged Virtual's
ownership of, or Virtual's license rights to, any Virtual Intellectual Property
Rights.
(f) Telxon has taken all reasonable measures to protect the
Virtual Intellectual Property Rights and to maintain in confidence all trade
secrets and confidential information that Virtual owns or uses. The foregoing
measures include, without limitation, (i) perfection and recordation of
Virtual's title to any and all Virtual Intellectual Property Rights owned by
Virtual, and (ii) execution and delivery to Virtual by all current and former
employees, officers and consultants of Virtual who have access to any of
Virtual's proprietary information (including any Virtual Intellectual Property
Rights) of written agreements for the protection of all such proprietary
information and the assignment of all Intellectual Property Rights arising from
the services performed by such persons for Virtual.
(g) All payments under all licenses granted to Virtual are
fully paid up through March 31, 1998, and adequate reserves exist for any
interim period accruals (including, without limitation, the accrual relating to
(i) the Fifty Thousand Dollars ($50,000) minimum annual royalty license due
under that certain Agreement for Payment, dated July 28, 1995, between Vision
Newco, Inc., a Delaware corporation, and Virtual Vision Inc., a Washington
corporation, and (ii) the Seventy Five Thousand Dollars
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($75,000) minimum annual royalty payment due under that certain Patent Transfer
Agreement, dated as of March 28, 1994, by and between Insight, Inc. and Virtual
Vision, Inc.), and that, except as set forth on the Telxon Disclosure Schedule,
Virtual is under no further obligation to make payments to any person or
business entity in respect of any Virtual Intellectual Property Rights.
(h) Virtual has not entered into any written or oral agreement
with any person or business entity that restricts in any way Virtual's right to
sell, license or otherwise distribute any of Virtual's products, product designs
or components, or services, in any applications, fields of use, territories,
periods of time or markets, except for (i) those certain restrictions set forth
in that certain Patent Transfer Agreement dated as of March 28, 1994 by and
between Insight, Inc. and Virtual Vision, Inc. and (ii) the restrictions imposed
pursuant to Section 4.13 of this Agreement.
(i) Each former and current employee, officer or consultant of
Virtual has executed a proprietary information and inventions agreement
assigning to Virtual any rights, title and interest in any work performed for or
on behalf of Virtual. To the best knowledge of Telxon, no former or current
employee, officer or consultant of Virtual has claimed, and Telxon is unaware of
any grounds that would form a reasonable basis to claim, any ownership interest
in any Virtual Intellectual Property Right as a result of developing such
property while employed by or consulting for Virtual, or otherwise. All of
Virtual's current products, product designs and components and services have
been developed by employees of Virtual within the scope of their employment with
Virtual.
(j) The Telxon Disclosure Schedule sets forth all licenses,
sublicenses and other agreements as to which Virtual is a party, as a licensee,
licensor or otherwise, and pursuant to which Virtual or any other person is
authorized to sell, license or otherwise distribute any of the Virtual
Intellectual Property Rights.
(k) To the best knowledge of Telxon, there are no defects in
any of Virtual's current products, product designs or components, or services,
which defects would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Virtual.
2.21 COMPLIANCE WITH LAW; CONSENTS. The business and operations of
Virtual have been and are being conducted in compliance in all material respects
with all laws, rules, regulations and licensing requirements applicable thereto.
Telxon is not aware of any facts which might form the basis for a claim that any
violation of such laws by Virtual exists. There are no unresolved notices of
deficiency or charges of violation brought or, to the best knowledge of Telxon,
threatened against Virtual, under any Federal, state or local laws or
regulations. No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any Federal, state or
local governmental authority or any non-governmental third party on the part of
Telxon is required in connection with the execution, delivery and performance by
Telxon of the Documents, including without limitation, the Virtual Bankruptcy
Court, the consummation of the transactions contemplated hereby or thereby or
the operation of the business of Virtual as it is currently being conducted
following the Initial Escrow Release Date.
2.22 BANKRUPTCY PROCEEDINGS. Each of the Virtual Bankruptcy Plan and
the Agreement for Payments, dated as of July 28, 1995, by and between Vision
Newco, Inc., a Delaware corporation, and Virtual Vision, Inc., a Washington
corporation, has been approved by the Virtual Bankruptcy Court, is a legal,
valid and binding agreement with respect to all parties named therein, and
constitute the entire agreement between the parties named therein. There have
been no proceedings initiated, or to the best
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knowledge of Telxon threatened, to amend or otherwise modify the Virtual
Bankruptcy Plan or any action of the Virtual Bankruptcy Court.
2.23 ENVIRONMENTAL MATTERS.
(a) For the purposes of this Agreement, the term
"ENVIRONMENTAL LAWS" shall mean all Federal, state and local environmental
protection, occupational, health and safety or similar laws, ordinances,
restrictions, licenses, rules, regulations and permit conditions, including,
without limitation, the Federal Water Pollution Control Act, Resource
Conservation & Recovery Act, Clean Air Act, Compensation and Liability Act,
Emergency Planning and Community Right to Know, Occupational Safety and Health
Act and other Federal, state or local laws of similar effect, each as amended,
and the term "HAZARDOUS MATERIALS" shall mean any hazardous or toxic substances,
wastes or materials, defined as such or governed by any applicable Environmental
Law.
(b) (i) Virtual has not received any notices, directives,
violation reports, actions or claims from or by (1) any Federal, state or local
governmental agency concerning Virtual and any applicable Environmental Law, or
(2) any person alleging that, in connection with Hazardous Materials, conditions
at any real properties leased by Virtual have resulted in or caused or
threatened to result in or cause injury or death to any person or damages to any
property, including, without limitation, damage to natural resources, and to the
best knowledge of Telxon, no such notices, directives, violation reports,
actions, claims, assessments or allegations exist; (ii) Virtual does not
currently lease, operate or own any real properties that are listed or are
threatened to be listed on a "Superfund" List or with respect to which there is
any pending proceeding or investigation under any applicable Environmental Law,
and, to the best knowledge of Telxon, no such proceeding or investigation is
threatened; (iii) throughout the period of operation of any real properties by
Virtual has operated and continues to operate such real properties in compliance
with all applicable Environmental Law; (iv) no underground storage tanks either
are or, to the best knowledge of Telxon, have been located at any of such real
properties; (v) there has been no spill, discharge, release, contamination or
cleanup of or by any Hazardous Materials used, generated, treated, stored,
disposed of or handled by Virtual at such real properties and to the best
knowledge of Telxon, no spill, discharge or release or contamination or cleanup
of or by Hazardous Materials has occurred on or to such real properties by any
third party; (vi) Virtual has not used, generated, treated, stored, disposed of,
handled, transported or released any Hazardous Material in a manner which would
give rise to any liability under any applicable Environmental Law; (vii) Telxon
is not aware of any facts, events, or conditions (including, without limitation,
the generation, treatment, transport, storage, emission, disposal, release or
other placement, deposit or location of any substance) which materially
interfere with or prevent continued compliance by Virtual with, or give rise to
any present or potential liability (including with respect to past activities)
under any applicable Environmental Law; and (viii) to the best knowledge of
Telxon, Virtual has not released any other person from any claim under any
applicable Environmental Law nor waived any rights or defenses concerning any
environmental conditions.
2.24 PRODUCTS. Each of the products produced or sold by Virtual (i) is,
and at all times has been, in compliance in all material respects with all
applicable Federal, state, local and foreign laws and regulations and (ii) is,
and at all relevant times has been, fit for the ordinary purposes for which it
is intended to be used and conforms in all material respects to any promises or
affirmations of fact made in connection with its sale. There is no known design
defect with respect to any of such products and each of such products contains
adequate warnings, presented in a reasonably prominent manner, in accordance
with applicable laws and current industry practice with respect to its use.
Except as set forth on the Telxon
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Disclosure Schedule, Virtual has no products placed with its customers under an
understanding permitting its return to Virtual other than pursuant a breach of
warranty.
2.25 CERTAIN BUSINESS RELATIONSHIPS OF VIRTUAL. Except as set forth in
the Telxon Disclosure Schedule, there are no Affiliates (as hereinafter defined)
of Virtual, and no Affiliate of Virtual (i) owns any property or right, tangible
or intangible, which is used in the business of Virtual, (ii) has any claim or
cause of action against Virtual, or (iii) is a party to any contract or other
arrangement, written or verbal, with Virtual. For purposes of this Agreement,
the term "AFFILIATE" shall mean (i) in the case of an individual, the members of
the immediate family (including parents, siblings and children) of (A) the
individual and (B) his or her spouse and (C) any business entity that directly
or indirectly, through one or more intermediaries controls, or is controlled by,
or is under common control with any of the foregoing individuals, or (ii) in the
case of a business entity, another business entity or a person that directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with the business entity.
2.26 EXISTING RELATIONSHIPS. The Telxon Disclosure Schedule sets forth
a list of all of Virtual's customers and suppliers which are material to the
conduct of its business. No customer of Virtual has exercised any right of
return or similar remedy with respect to any products or services provided by
Virtual, and to the best knowledge of Telxon, there are no intentions, claims or
plans by any customers to return any products in the future. None of the
entities, governmental or otherwise, with which Virtual has a material business
relationship or any other present material customer of Virtual has given notice
of any intention to cancel or otherwise terminate a material business
relationship with Virtual.
2.27 PREPAYMENTS, PREBILLED INVOICES AND DEPOSITS.
(a) The Telxon Disclosure Schedule sets forth (i) all
prepayments, prebilled invoices and deposits in excess of One Thousand Dollars
($1,000) that have been received by Virtual as of the date hereof from customers
for products to be shipped, or services to be performed, after the date hereof,
and (ii) with respect to each such prepayment, prebilled invoice or deposit, (A)
the party and contract credited, (B) the date received or invoiced, (C) the
products and/or services to be delivered, and (D) the conditions for the return
of such prepayment, prebilled invoice or deposit. All such prepayments,
prebilled invoices and deposits are properly accrued for on the Unaudited
Balance Sheet in accordance with GAAP applied on a consistent basis with the
past practice of Virtual.
(b) The Telxon Disclosure Schedule sets forth (i) all
prepayments, prebilled invoices and deposits in excess of One Thousand Dollars
($1,000) that have been made or paid by Virtual as of the date hereof for
products to be purchased, services to be performed or other benefits to be
received after the date hereof, and (ii) with respect to each such prepayment,
prebilled invoice or deposit, (A) the party to whom such prepayment, prebilled
invoice or deposit was made or paid, (B) the date made or paid, (C) the products
and/or services to be delivered, and (D) a summary of the conditions for the
return of such prepayment, prebilled invoice or deposit. All such prepayments,
prebilled invoices and deposits are properly accrued for on the Unaudited
Balance Sheet in accordance with GAAP applied on a consistent basis with the
past practices of Virtual.
2.28 CHARTER DOCUMENTS; MINUTE BOOKS; BANKRUPTCY DOCUMENTS. Telxon has
provided to FED for its examination (i) complete and accurate copies of the
Certificate of Incorporation and Bylaws of Virtual, as amended to the Effective
Date; (ii) the minute books of Virtual containing all proceedings,
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consents, actions and meetings of the stockholders and Board of Directors of
Virtual; (iii) the stock transfer books of Virtual setting forth all transfers
of capital stock of Virtual since its inception; and (iv) the Virtual Bankruptcy
Plan.
2.29 POWERS OF ATTORNEY; BANK ACCOUNTS. The Telxon Disclosure Schedule
sets forth (i) the names and addresses of all persons holding a power of
attorney on behalf of Virtual; and (ii) the names and addresses of all banks or
other financial institutions in which Virtual has an account, deposit, or
safe-deposit box, with the number and a description of the account and the names
of all persons authorized to draw on such accounts or deposits or to have access
to such boxes.
2.30 INVESTMENT REPRESENTATION. The Series F Preferred Stock to be
received by Telxon and the shares of FED common stock, $0.01 par value per share
(the "FED COMMON STOCK") issuable upon conversion thereof, are being acquired
for investment for Telxon's own account, not as a nominee or agent, and not with
a view to the resale or distribution of any part thereof, and that Telxon has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Telxon further represents
that it does not have any contract, undertaking, agreement or arrangement with
any person or entity to sell, transfer or grant participations to such person or
entity or to any third person or entity, with respect to any of the Series F
Preferred Stock or the shares of FED Common Stock issuable upon conversion
thereof.
2.31 REPRESENTATIONS COMPLETE. The representations and warranties made
by Telxon herein, when considered together with the statements made in the
Telxon Disclosure Schedule or any other Exhibit, Schedule or certificate
furnished pursuant to this Agreement, does not contain any untrue statement of a
material fact, or omit to state any material fact required to be stated herein
or therein, or necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FED
-------------------------------------
Except as disclosed in a document referring specifically to the
representations and warranties in this Agreement which is delivered by FED to
Telxon prior to the execution of this Agreement (the "FED DISCLOSURE SCHEDULE"),
FED agrees with, and represents and warrants to Telxon as set forth below:
3.1 CORPORATE EXISTENCE AND GOOD STANDING. FED is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has the requisite corporate power and corporate authority to carry on
its business as now being conducted, is entitled to own, lease and operate the
property and assets now owned, leased or operated by it, and has no operations
and conducts no business outside of the states or countries listed on the FED
Disclosure Schedule. FED is duly qualified to do business, is in good standing
and has all required and appropriate licenses in each jurisdiction in which its
failure to obtain or maintain such qualification, good standing or licensing (i)
would, individually or in the aggregate, have or reasonably could be expected to
have a Material Adverse Effect on FED, or (ii) would result in a material breach
of any of the other representations, warranties, covenants or agreements of FED
set forth in this Agreement.
3.2 CORPORATE AUTHORITY. FED has all requisite corporate power and
authority to execute and deliver the Documents, to consummate the transactions
contemplated hereby and thereby, and to perform
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its obligations under the terms of the Documents. The execution and delivery of
the Documents and the performance of the transactions contemplated hereby and
thereby have been authorized by all necessary corporate action of FED. The
Documents have been duly executed and delivered by FED and constitute legal,
valid and binding obligations of FED, enforceable against FED in accordance with
their terms, except as such enforceability may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and by general equitable
principles.
3.3 NO BREACH OF AGREEMENTS. Neither the execution and delivery of the
Documents nor the consummation of the transactions contemplated hereby or
thereby will result in or constitute any of the following: (i) (A) a violation
of any term in the Certificate of Incorporation or Bylaws of FED, or (B) a
conflict, breach, violation or default with or an event that, with notice or
lapse of time or both, would be a conflict, breach, violation or default of any
contract, lease, license, promissory note, conditional sales contract,
commitment, indenture, mortgage, deed of trust, or other agreement, instrument
or arrangement to which FED is a party or by which FED or its assets are bound,
except where such conflict, breach, violation or default would not, individually
or in the aggregate, have or reasonably could be expected to have a Material
Adverse Effect on FED, or (C) a conflict, breach, violation or default with or
an event that, with notice or lapse of time or both, would be a conflict,
breach, violation or default of any law, rule or regulation of any governmental
authority, or any judgment, order, injunction or decree applicable to FED, its
assets or its shares of capital stock, except where such conflict, breach,
violation or default would not, individually or in the aggregate, have or
reasonably could be expected to have a Material Adverse Effect on FED; (ii) an
event that would permit any party to terminate any agreement or to accelerate
the maturity of or permit the subordination of any indebtedness or other
obligation of FED or its shares of capital stock; or (iii) the creation or
imposition of any charge, lien, encumbrance or adverse claim of any kind
whatsoever on any of the assets of FED or its shares of capital stock.
3.4 CONSENTS. Except for Federal and state securities laws filings, no
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Federal, state or local
governmental authority or any non-governmental third party on the part of FED is
required in connection with the execution, delivery and performance by FED of
the Documents or the consummation of the transactions contemplated hereby or
thereby.
3.5 BROKERS OR FINDERS. FED has not incurred, and will not incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with the Documents or any
transaction contemplated hereby or thereby.
3.6 INVESTMENT REPRESENTATION. The Shares to be received by FED are
being acquired for investment for FED's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that
FED has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, FED further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person or entity to sell, transfer or grant participations
to such person or entity or to any third person or entity, with respect to any
of the Shares.
3.7 INCORPORATION BY REFERENCE. Section 3 of the Series F Agreement is
incorporated herein in its entirety as if duly written herein; PROVIDED,
HOWEVER, that any and all of the representations and warranties of FED set forth
in Section 3 of the Series F Agreement are subject to the information to be set
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forth on that certain Schedule of Exceptions (as defined in the Series F
Agreement) which will be delivered by FED to Telxon on or prior to the Initial
Escrow Release Date.
3.8 REPRESENTATIONS COMPLETE. The representations and warranties made
by FED herein, including the representations and warranties included
specifically herein by reference, when considered together with the statements
made in the FED Disclosure Schedule or any other Exhibit, Schedule or
certificate furnished pursuant to this Agreement, does not contain any untrue
statement of a material fact, or omit to state any material fact required to be
stated herein or therein, or necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading.
ARTICLE IV
COVENANTS
---------
From and after the date of this Agreement and until (i) the Initial
Escrow Release Date or (ii) the date specified in the respective Section (as to
Sections 4.10, 4.11, 4.12 and 4.13):
4.1 BREACH OF REPRESENTATIONS AND WARRANTIES. Each of FED and Telxon
shall use commercially reasonable efforts and take all actions necessary to
assure that their respective representations and warranties remain true and
correct in all material respects. Prior to the Initial Escrow Release Date, each
party will promptly deliver or cause to be delivered to the other party
supplemental information concerning events subsequent to the date hereof that
would render any statement, representation or warranty in this Agreement or any
information contained in any Schedule attached hereto pertaining to such party
inaccurate or incomplete at any time after the date hereof until the Initial
Escrow Release Date; provided, that such supplemental information shall not
constitute an amendment of any statement, representation or warranty in this
Agreement or any Schedule, Exhibit or document furnished pursuant hereto. The
forgoing obligation to inform includes, without limitation, prompt notice from
Telxon to FED of: (i) any notice of default received by Telxon or Virtual under
any instrument or agreement to which Virtual is a party or by which its assets
or properties are bound; (ii) any suit, action, proceeding or investigation
instituted or threatened against or affecting Virtual; or (iii) any notice,
initiation or threat of any proceeding in the Virtual Bankruptcy Court or with
respect to the Virtual Bankruptcy Plan.
4.2 OTHER NEGOTIATIONS. Between the date hereof and the Initial Escrow
Release Date, or such earlier date as the parties hereto agree to terminate this
Agreement, Telxon will not, directly or indirectly, through any officer,
director, employee, affiliate or agent of Telxon or otherwise, take any action
to solicit, initiate, seek, entertain, encourage or support any inquiry,
proposal or offer from, furnish any information to, or participate in any
negotiations with, any party other than FED regarding any acquisition of
Virtual, any merger or consolidation with or involving Virtual, or any
acquisition of any material portion of the capital stock or assets of Virtual.
Telxon agrees that any such negotiations (other than negotiations with FED) in
progress as of the date hereof have been suspended. If Telxon or any of its
officers, directors, employees, affiliates or agents receives any proposal for
any third party acquisition transaction involving Virtual, or any request for
nonpublic information in connection with any such proposal or inquiry, Telxon
will at all times abide by its obligations to not entertain, encourage or
participate in such discussions, and in all respects to comply with the
provisions of this Section 4.2, and will immediately notify FED of any such
inquiry, proposal or offer, describing in detail the identity of the person
making such inquiry, proposal or offer and the terms and conditions of such
inquiry, proposal or offer.
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4.3 FULL ACCESS. Each of the parties hereto (each a "DISCLOSING PARTY")
shall give the other parties and their respective accountants, legal counsel and
other representatives (collectively, the "REQUESTING PARTIES") full access,
during normal business hours throughout the period prior to the Initial Escrow
Release Date, to all of the properties, books, contracts, commitments and
records relating to the business, assets and liabilities of the Disclosing
Party, and shall furnish the Requesting Parties, their respective accountants,
legal counsel and other representatives during such period all such information
concerning its affairs as the Requesting Parties may reasonably request;
provided, that any furnishing of such information pursuant hereto or any
investigation by a Requesting Party shall not affect such Requesting Party's
right to rely on the representations, warranties, covenants and agreements made
by the Disclosing Party in this Agreement. Pending the Initial Escrow Release
Date, each Requesting Party shall hold in confidence all information so obtained
and will use such information only for purposes related to the transactions
contemplated hereby. Each Requesting Party further agrees that, pending the
Initial Escrow Release Date, it will not disclose any such information to any
third party except upon the prior written consent of the Disclosing Party, or
except as required by law or except to its accountants, legal counsel or other
representatives who have agreed to maintain the confidentiality of such
information. If the transactions contemplated hereby are not consummated, the
Requesting Party shall return all data to the Disclosing Party and continue to
honor the foregoing confidentiality and non-disclosure covenants for a period of
three (3) years. Such obligation of confidentiality shall not extend to any
information (i) which is shown to be or to have been generally known to others
engaged in the same trade or business as the Disclosing Party; (ii) previously
known to the Requesting Party prior to the start of discussions leading to the
execution of this Agreement; (iii) obtained by the Requesting Party in good
faith from third parties who are not obligated to maintain the information
confidential; (iv) that is or shall be public knowledge through no act or
omission by the Requesting Party or any of its directors, officers, employees,
or representatives; or (v) that is required to be disclosed pursuant to any law,
rule or regulation or pursuant to any order or decree of any appropriate court
or governmental agency or pursuant to any disclosure obligations set forth in
the Federal securities laws.
4.4 NECESSARY CONSENTS. Each of FED and Telxon shall promptly apply for
or otherwise seek, and use its commercially reasonable efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of the
transactions contemplated by this Agreement, and Telxon shall use its best
efforts to obtain all necessary consents, waivers and approvals under any of
Virtual's Contracts in connection with the transactions contemplated hereby,
except such consents and approvals as FED agrees Telxon shall not seek to
obtain, as contemplated by the Telxon Disclosure Schedule.
4.5 DISCLOSURE OF TRANSACTION. The parties hereto agree that either
party may issue a mutually acceptable press release, either jointly or
individually, upon the execution of this Agreement and upon the Initial Escrow
Release Date. Each party will review and agree to the text of any other public
announcement related to this Agreement, the Initial Escrow Release Date or the
transactions contemplated hereby prior to the release thereof.
4.6 KEY EMPLOYEES.
(a) Each of Telxon and FED shall use its commercially
reasonable efforts to obtain, on or prior to the Initial Escrow Release Date
from each of the twelve (12) key employees having the titles set forth on the
Telxon Disclosure Schedule (collectively, the "KEY EMPLOYEES"), an executed form
of FED's standard forms of confidentiality, non-compete, drug free workplace and
other employment related
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agreements effective as of March 31, 1998, together with any and all other
documents reasonably requested by FED in connection with the retention of such
employees by FED or Virtual.
(b) FED intends to make offers of employment to all of the Key
Employees; PROVIDED, HOWEVER, that FED, as part of its due diligence, will have
the right to interview and conduct background investigations of each of the Key
Employees before making offers of employment, and shall not be obligated to make
an employment offer to any Key Employee if FED determines in good faith that the
results of such investigations are not acceptable to FED. To the extent that FED
does not extend an offer of such employment to any Key Employee for his or her
position and salary as of the Effective Date, Telxon's obligations hereunder and
under the terms of the Escrow Agreement with respect to Key Employees shall be
reduced by such number of Key Employees that FED does not extend an offer of
such employment.
4.7 TAX ELECTION. FED, in its sole discretion, may elect to treat the
transactions contemplated hereby as a "sale of assets" pursuant to the terms of
Section 338(h)(10) of the Code; provided, however, that FED agrees to indemnify
and hold Telxon harmless for any incremental tax liability that results from
such election, if such election is made, and against any reasonable accounting
expenses incurred by Seller in connection therewith.
4.8 REAL ESTATE LEASE GUARANTY. Telxon shall remain the guarantor on
that certain real estate lease of Virtual pursuant to the terms and conditions
of that certain lease dated December 15, 1995 by and between Virtual and Redson
Building Partnership (the "LEASE"); provided, however, that FED shall indemnify
Telxon to the extent that Telxon, after the date hereof, in its capacity as
guarantor of Virtual's obligations under the Lease, is required to make lease
payments to the lessor under the terms of the Lease.
4.9 DELIVERY OF TAX INFORMATION. FED agrees to provide such information
as is reasonably required by Telxon in order to allow Telxon the ability to
properly and accurately file any Federal, state or local tax returns required to
be filed by Telxon with respect to which Telxon is reporting the earnings of
Virtual on a consolidated basis with Telxon or to respond to any audit.
4.10 DELIVERY OF AUDITED BALANCE SHEET. As promptly as possible
following the Effective Date, but in no event later than May 31, 1998, Telxon
shall deliver to FED the audited balance sheet of Virtual as at March 31, 1998
(the "AUDITED BALANCE SHEET"), including a report by a "big 5" independent
accounting firm to the effect that such balance sheet was audited in accordance
with GAAP on a basis consistent with the past practice of Virtual and that the
Audited Balance Sheet fairly present in all material respects the assets,
liabilities and financial condition of Virtual as of the date thereof.
4.11 NONCOMPETITION.
(a) For a period of four (4) years from the date hereof,
Telxon hereby covenants and agrees that it will not manufacture (either
directly, through any Affiliate, or through any person, firm, corporation or
business): (i) head wearable displays or (ii) optic modules or systems for sale
as individual modules (except where such modules or systems are incorporated
into or used as replacement parts for Telxon's products); provided, however,
that Telxon may sell image capture modules which may incorporate optics for data
and image capture applications, and in no event shall Telxon be prohibited from
continuing to conduct its current business; provided, further, that nothing
herein shall prevent Telxon from purchasing from third parties the items set
forth in clauses (i) and (ii) of this sentence. Telxon further
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agrees not to solicit, divert or take away, or attempt to solicit, divert or
take away, the business or patronage of, interfere with, disrupt or attempt to
disrupt the relationship, contractual or otherwise, of any current customers of
FED or Virtual.
(b) The parties agree that the duration and geographic scope
of the noncompetition provision set forth in this Section 4.11 are reasonable.
In the event that any court of competent jurisdiction determines that the
duration or the geographic scope, or both, are unreasonable and that such
provision is to that extent unenforceable, the parties agree that the provision
shall remain in full force and effect for the greatest time period and in the
greatest area that would not render it unenforceable. The parties intend that
this noncompetition provision shall be deemed to be a series of separate
covenants, one for each and every county of each and every state of the United
States of America and each and every political subdivision of each and every
country outside the United States of America where this provision is intended to
be effective.
(c) Telxon agrees that monetary damages are an inadequate
remedy for any breach of this Section 4.11 or 4.12 below and that FED shall,
whether or not it is pursuing any potential remedies at law, be entitled to
equitable relief in the form of preliminary and permanent injunctions without
bond or other security upon any actual or threatened breach of this Section 4.11
or 4.12 below.
4.12 SOLICITATION AND HIRING. For a period of two (2) years after the
date hereof, without the prior written consent of the other party, neither party
shall, and neither party shall cause its Affiliates to, either directly or
indirectly as a stockholder, investor, partner, director, officer, employee or
otherwise, (i) solicit or attempt to induce any person employed by the other
party as of the date hereof or any time hereafter to terminate his or her
employment with such party or (ii) hire or attempt to hire any person employed
by the other party as of the date hereof or any time hereafter.
4.13 RIGHT OF FIRST REFUSAL. Until March 31, 1999, FED grants Telxon a
right of first refusal to license on mutually agreeable terms on a non-exclusive
basis intellectual property rights developed by Virtual between March 31, 1998
and March 31, 1999 for the field of laser bar code systems, pen-based and other
mobile computer data entry and transaction processing systems, wireless
communication data systems and networks used in conjunction with Telxon data
collection and transaction processing products for Telxon's vertical markets,
voice-activated data systems used in conjunction with Telxon data collection and
transaction processing products for Telxon's vertical markets, image capture
systems, and electronic labeling systems worldwide ("TELXON'S MARKET") each time
a license to such intellectual property rights is offered or extended by Virtual
in the Telxon's Market on a non-exclusive and non-customized basis to any other
party; provided, however, that FED shall not, from March 31, 1998 until March
31, 1999, offer any such license within the Telxon's Market on an exclusive
basis to those competitors of Telxon set forth on the Telxon Disclosure
Schedule.
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ARTICLE V
CONDITIONS
----------
5.1 CONDITIONS TO OBLIGATIONS OF FED AND TELXON PRIOR TO THE EFFECTIVE
DATE. The obligations of FED and Telxon to enter into this Agreement and to
consummate the transactions contemplated hereby are subject to the satisfaction,
at or before the Effective Date, of all of the following conditions, unless
expressly waived in writing by the other party:
(a) CERTIFICATES. Each party shall have received from the
other party a certificate from the Chief Executive Officer, Chief Financial
Officer or Executive Vice President of such party, dated the Effective Date,
certifying, that all representations and warranties by such party in this
Agreement, the respective disclosure schedules, or the other Schedules and
Exhibits hereto, or in any written statement or certificate that shall be
delivered by either party under this Agreement shall be true in all material
respects on and as of the Effective Date.
(b) REQUIRED CONSENTS. All consents, approvals and waivers
required on or prior to the Effective Date from third parties and governmental
authorities necessary to the transactions as contemplated hereby.
(c) SCHEDULES. Each party shall have completed and attached
hereto their respective disclosure schedules required by this Agreement, such
disclosure schedules shall have been updated immediately prior to the Initial
Escrow Release Date, and such disclosure schedules shall have been acceptable to
the other party and their counsel, in their sole discretion.
(d) ESCROW AGREEMENT. FED and Telxon shall have entered into
the Escrow Agreement.
(e) MANAGEMENT SERVICES AGREEMENT. FED, Telxon and Virtual
shall have entered into the Management Services Agreement substantially in the
form as attached hereto as EXHIBIT C.
(f) SUPPLY AGREEMENT. FED, Telxon and Virtual shall have
entered into the Supply Agreement substantially in the form as attached hereto
as EXHIBIT D.
(g) PATENT LICENSE. FED, Telxon and Virtual shall have entered
into the Patent License substantially in the form as attached hereto as EXHIBIT
E.
(h) LICENSE AGREEMENT (TELXON PATENT APPLICATIONS). FED and
Telxon shall have entered into the License Agreement (Telxon Patent
Applications) substantially in the form as attached hereto as EXHIBIT F.
(i) SERIES F AGREEMENT. FED and Telxon shall have entered into
the Series F Agreement.
(j) FIRST AMENDED AND RESTATED CO-SALE AGREEMENT. Mr. Gary
Jones, Ms. Susan Jones, FED and Telxon shall have entered into the First Amended
and Restated Co-Sale Agreement substantially in the form as attached hereto as
EXHIBIT G.
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(k) FIRST AMENDED AND RESTATED STOCKHOLDER RIGHTS AGREEMENT.
Mr. Gary Jones, FED and Telxon shall have entered into the First Amended and
Restated Stockholder Rights Agreement substantially in the form as attached
hereto as EXHIBIT H.
(l) LICENSE AGREEMENT. FED and Telxon shall have entered into
the License Agreement substantially in the form as attached hereto as EXHIBIT I.
(m) ACCOUNTS RECEIVABLE ASSIGNMENTS AND ACCOUNTS PAYABLE
ASSUMPTION. All accounts receivable to be assigned by Virtual to Telxon, as set
forth on the Telxon Disclosure Schedule, and all accounts payable to be assumed
by Telxon from Virtual, as set forth on the Telxon Disclosure Schedule, shall
have been properly assigned and assumed, respectively, or both parties shall
have agreed to such assignments and assumptions as of the Initial Escrow Release
Date.
5.2 CONDITIONS TO OBLIGATIONS OF FED PRIOR TO THE EFFECTIVE DATE. The
obligations of FED to enter into this Agreement and to consummate the
transactions contemplated hereby are subject to the satisfaction, at or before
the Effective Date, of all of the following conditions, unless expressly waived
in writing by FED:
(a) GOOD STANDING CERTIFICATES. Telxon shall have delivered to
FED (i) a certificate of the Secretary of State of the State of Delaware as of
the Effective Date as to the legal existence and good standing of Virtual in
Delaware as of the Effective Date and (ii) a certificate of the secretary of
state in each other jurisdiction set forth on the Telxon Disclosure Schedule.
(b) OPINION OF COUNSEL FOR VIRTUAL. FED shall have received an
opinion from Goodman Weiss Miller LLP, counsel for Virtual, dated the Effective
Date, in the form attached hereto as EXHIBIT J addressed to it and dated as of
the Effective Date (the "VIRTUAL OPINION");
5.3 CONDITIONS TO OBLIGATIONS OF FED AND TELXON PRIOR TO THE INITIAL
ESCROW RELEASE DATE. The obligations of FED and Telxon to deliver the notice
required by the Escrow Agreement on or prior to the Initial Escrow Release Date
are subject to the satisfaction, at or before the Initial Escrow Release Date,
of all of the following conditions, unless expressly waived in writing by the
other party:
(a) REPRESENTATIONS AND WARRANTIES TRUE. All representations
and warranties by each party in this Agreement, the respective disclosure
schedules, or the other Schedules and Exhibits hereto, or in any written
statement or certificate that shall be delivered by either party under this
Agreement shall be true in all material respects on and as of the Initial Escrow
Release Date as though such representations and warranties were made on and as
of that date.
(b) COVENANTS PERFORMED. Each party shall have performed,
satisfied, and complied with all covenants, agreements, and conditions required
by this Agreement to be performed or complied with by such party on or before
the Initial Escrow Release.
(c) NO VIOLATIONS; NO ACTIONS. Consummation of the
transactions contemplated by this Agreement shall not violate any order, decree
or judgment of any court or governmental body having competent jurisdiction,
including without limitation, the Virtual Bankruptcy Court, and no action or
proceeding shall have been instituted or threatened by any person, entity or
governmental agency which would result in (i) the obtaining of material damages
from Virtual; (ii) an order,
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judgment or decree restraining, prohibiting or rendering unlawful the
consummation of the transactions contemplated by this Agreement; or (iii) other
relief in connection therewith.
(d) REQUIRED CONSENTS. All consents, approvals and waivers
required prior to the Initial Escrow Release Date from third parties and
governmental authorities necessary to the transactions as contemplated hereby.
(e) ILLEGALITY OR LEGAL CONSTRAINT. No statute, rule,
regulation, executive order, decree, injunction or restraining order shall have
been enacted, promulgated or enforced (and not repealed, superseded or otherwise
made inapplicable) by any court or governmental authority which prohibits the
execution of this Agreement or the consummation of the transactions contemplated
hereby (each party agreeing promptly to use its reasonable commercial efforts to
have any such order, decree or injunction lifted).
5.4 CONDITIONS TO OBLIGATIONS OF FED PRIOR TO THE INITIAL ESCROW
RELEASE DATE. The obligations of FED to deliver the notice required by the
Escrow Agreement on or prior to the Initial Escrow Release Date is subject to
the satisfaction, at or before the Initial Escrow Release Date, of all of the
following conditions, unless expressly waived in writing by FED:
(a) NO MATERIAL ADVERSE EFFECT. During the period from March
31, 1998 to the Initial Escrow Release Date, there shall not have been any
material adverse change in the business, properties, results of operations, or
condition (financial or otherwise) of Virtual.
(b) MINIMUM EMPLOYMENT OFFERS ACCEPTANCE LEVEL. Unless reduced
pursuant to Section 4.6(b) hereof, FED's employment offers to the Virtual
employees must have been accepted by at least ten of the twelve Key Employees on
or before the Initial Escrow Release Date and such employees shall have entered
into FED's standard forms of confidentiality, non-compete, drug free workplace
and other employment related agreements effective as of March 31, 1998.
(c) BUYER DUE DILIGENCE. FED, its attorneys, and its other
representatives and agents shall have satisfactorily conducted and completed
their due diligence investigation of Virtual.
5.5 CONDITIONS TO OBLIGATIONS OF TELXON PRIOR TO THE INITIAL ESCROW
RELEASE DATE. The obligations of Telxon to deliver the notice required by the
Escrow Agreement on or prior to the Initial Escrow Release Date is subject to
the satisfaction, at or before the Initial Escrow Release Date, of all of the
following conditions, unless expressly waived in writing by Telxon:
(a) SERIES F FINANCING. At least one tranche of the Series F
Preferred Stock financing shall have closed with aggregate minimum cash proceeds
of Five Million Dollars ($5,000,000) at a price per share of Series F Preferred
Stock equal to at least Six Dollars ($6.00).
(b) NO MATERIAL ADVERSE EFFECT. During the period from March
31, 1998 to the Initial Escrow Release Date, there shall not have been any
material adverse change in the business, properties, results of operations, or
condition (financial or otherwise) of FED.
(c) ANCILLARY DOCUMENTS. The ancillary documents to be
delivered in connection with the transactions contemplated by the Series F
Agreement shall not contain information which, in
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the aggregate, materially differs from the information provided to Telxon on or
prior to the date thereof and which difference would have a Material Adverse
Effect on FED.
ARTICLE VI
DELIVERIES
----------
6.1 DELIVERIES BY TELXON AT THE EFFECTIVE TIME. At the Effective Time,
Telxon shall execute and deliver or cause to be executed and delivered to FED:
(a) CORPORATE DOCUMENTS. The Certificate of Incorporation of
Virtual, certified by the Secretary of State of Delaware as of a recent date,
and the Bylaws of Virtual, certified by the Secretary of Virtual as in effect as
of the Effective Date;
(b) CERTIFICATE OF GOOD STANDING AND TAX STATUS. (i)
Certificates from the Secretary of State or other appropriate official of
Delaware to the effect that Virtual is in good standing or subsisting in such
jurisdiction and listing all charter documents of Virtual on file; (ii) a
certificate from the Secretary of State or other appropriate official in each
state listed in the Telxon Disclosure Schedule in which Virtual is qualified to
do business to the effect that Virtual is duly qualified to do business as a
foreign corporation and is in good standing in such state; and (iii)
certificates as to the tax status of Virtual in its jurisdiction of
incorporation and each state in which Virtual is qualified to do business.
(c) RESOLUTIONS. A copy of the resolutions of the Board of
Directors of Telxon, certified by the Secretary of Telxon, as having been duly
and validly adopted and being in full force and effect, authorizing the
execution and delivery of the Documents and the performance of the transactions
contemplated hereby and thereby by Telxon;
(d) OFFICERS' CERTIFICATE. The officers' certificate
deliverable pursuant to Section 5.1(a) hereof;
(e) SECRETARY'S CERTIFICATE. A certificate of the Secretary of
Telxon, in form and substance satisfactory to FED and its counsel, certifying
(i) that attached thereto are true and certified copies of the Certificate of
Incorporation and Bylaws of Virtual, as amended to the Effective Date; (ii) that
attached thereto are true and complete copies of the resolutions of the Board of
Directors of Telxon authorizing the execution, delivery and performance of this
Agreement and any other documents, instruments and certificates required to be
executed by it in connection herewith and approving the consummation of the
transactions contemplated hereby and thereby; (iii) the names and true
signatures of the officers of Telxon signing this Agreement and all other
documents to be delivered in connection with this Agreement and the consummation
of the transactions contemplated hereby and thereby; and (iv) the Virtual
Bankruptcy Plan, as amended to the Effective Date;
(f) BOOKS AND RECORDS. All of the minute books, stock ledgers
and similar corporate records of Virtual;
(g) OPINION OF COUNSEL. The Virtual Opinion;
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(h) RESIGNATION OF VIRTUAL BOARD OF DIRECTORS. A Unanimous
Written Consent of the Board of Directors of Virtual resigning their positions
as directors and officers of Virtual effective at the Effective Time; and
(i) OTHER DOCUMENTS. Such other documents and instruments as
FED or its counsel shall deem reasonably necessary to consummate the
transactions contemplated hereby.
All documents delivered to FED shall be in form and substance
reasonably satisfactory to FED and its counsel.
6.2 DELIVERIES OF FED AND TELXON ON THE INITIAL ESCROW RELEASE DATE. On
the Initial Escrow Release Date, FED and Telxon shall execute and deliver or
cause to be executed and delivered to other party:
(a) ESCROW AGENT INSTRUCTIONS. An instruction letter to the
Escrow Agent instructing the Escrow Agent to (i) release the Cash Purchase Price
and Three Million Four Hundred Thousand Dollars ($3,400,000) of the Stock
Purchase Price to Telxon, (ii) release the Shares to FED, and (iii) hold the
remaining number of shares constituting the Stock Purchase Price pursuant to the
terms and conditions of this Agreement and the Escrow Agreement; and
(b) OTHER DOCUMENTS. Such other documents and instruments as
either party or their respective counsel shall deem reasonably necessary to
consummate the transactions contemplated hereby.
ARTICLE VII
INDEMNIFICATION
---------------
7.1 INDEMNIFICATION BY TELXON. Telxon shall indemnify FED and its
directors, officers, employees, agents or advisors, or any of their respective
successors and assigns, in respect of, and hold each of them harmless against,
any and all demands, claims, debts, actions, assessments, judgements,
settlements, sanctions, obligations and other liabilities (whether absolute,
accrued, contingent, fixed or otherwise, known or unknown, due or to become due
or otherwise), monetary damages, fines, fees, penalties, interest obligations,
deficiencies, losses and expenses (including, without limitation, amounts paid
in settlement, interest, court costs, costs of investigators, reasonable fees
and expenses of attorneys, accountants, financial advisors and other experts,
and other expenses of litigation) ("DAMAGES"), net of any insurance payments
actually received in connection therewith (less collection costs), incurred or
suffered by them or any of their Affiliates:
(a) resulting from, relating to or constituting any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of Telxon contained, or referred to, in this Agreement, the Escrow
Agreement or in the certificate delivered pursuant to Section 6.1(d) herein; or
(b) arising out of the conduct of Virtual's business prior to
the Effective Date or resulting from or relating to any goods sold or services
rendered by Virtual through the Effective Date, including without limitation,
customer claims and customer warranty claims in respect of such pre-Effective
Date goods and services ("CUSTOMER CLAIMS"), regardless of when asserted.
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7.2 INDEMNIFICATION BY FED. FED shall indemnify Telxon and its
directors, officers, employees, agents or advisors, or any of their respective
successors and assigns, in respect of, and hold each of them harmless against,
any and all Damages, net of any insurance payments actually received in
connection therewith (less costs of collection), incurred or suffered by them or
any of their Affiliates:
(a) resulting from, relating to or constituting any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of FED contained, or referred to, in this Agreement, the Escrow
Agreement or in the certificate delivered pursuant to Section 5.1(a) herein; or
(b) arising out of the conduct of Virtual's business after the
Effective Date or resulting from or relating to any goods sold or services
rendered by Virtual after the Effective Date, including without limitation,
Customer Claims in respect of such post-Effective Date goods and services,
regardless of when asserted.
7.3 METHOD OF ASSERTING CLAIMS.
(a) All claims for indemnification by an Indemnified Person
(as hereinafter defined) pursuant to this Article VII shall be made in
accordance with the provisions of this Section 7.3 and the Escrow Agreement.
(b) A party entitled to indemnification under this Article VII
(the "INDEMNIFIED PERSON") shall give prompt written notification to the party
obligated to provide such indemnification (the "INDEMNIFYING PERSON") of the
commencement of any action, suit or proceeding relating to a third party claim
for which indemnification pursuant to this Article VII may be sought; PROVIDED,
HOWEVER, that no delay on the part of the Indemnified Person in notifying the
Indemnifying Person shall relieve the Indemnifying Person from any liability or
obligation under this Article VII except to the extent of any damage or
liability caused solely by or arising out of such delay. Within 30 days after
delivery of such notification, the Indemnifying Person may, upon written notice
thereof to the Indemnified Person, assume control of the defense of such action,
suit or proceeding with counsel reasonably satisfactory to the Indemnified
Person, provided (i) the Indemnifying Person acknowledges in writing to the
Indemnified Person that the Indemnifying Person shall indemnify the Indemnified
Person with respect to all elements of such action, suit or proceeding and any
damages, fines, costs or other liabilities that may be assessed against the
Indemnified Person in connection with such action, suit or proceeding, and (ii)
the third party seeks monetary damages only, and provided further that in such
case, the Indemnifying Party shall have no obligation to pay any further costs
or expenses of legal counsel of the Indemnified Party thereafter incurred in
connection with such defense other than the reasonable costs of investigation.
If the Indemnifying Person does not so assume control of such defense, the
Indemnified Person shall control such defense. The party not controlling such
defense may participate therein at its own expense; provided, that if the
Indemnifying Person assumes control of such defense and the Indemnified Person
is advised by counsel in writing that the Indemnifying Person and the
Indemnified Person may have conflicting interests or different defenses
available with respect to such action, suit or proceeding, the reasonable fees
and expenses of counsel to the Indemnified Person shall be considered "Damages"
for purposes of this Agreement. The party controlling such defense shall keep
the other party advised of the status of such action, suit or proceeding and the
defense thereof and shall consider in good faith recommendations made by the
other party with respect thereto. An Indemnified Person shall not agree to any
settlement of such action, suit or proceeding without the prior written consent
of
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the Indemnifying Person, which shall not be unreasonably withheld or delayed.
The Indemnifying Person shall not agree to any settlement or the entry of a
judgment in any action, suit or proceeding without the prior written consent of
the Indemnified Person, which shall not be unreasonably withheld (it being
understood that it is reasonable to withhold such consent if, among other
things, the settlement or the entry of a judgment (A) lacks a complete release
of the Indemnified Person for all liability with respect thereto or (B) imposes
any liability or obligation on the Indemnified Person).
7.4 SURVIVAL AND LIMITATIONS.
(a) Unless otherwise specified in this Section 7.4 or
elsewhere in this Agreement, all provisions of this Agreement shall survive the
Effective Date and the consummation of the transactions contemplated hereby and
shall continue forever in full force and effect in accordance with their terms.
(b) Except for the representations and warranties of Telxon
set forth in Section 2.13 and Section 2.22, the representations and warranties
of Telxon set forth in Article II above and the indemnification obligations set
forth in this Article VII with respect to such representations and warranties of
Telxon (except for Section 2.13 and Section 2.22) (i) shall survive the
Effective Date and the consummation of the transactions contemplated hereby and
continue for a period of twelve (12) months after March 31, 1998 and (ii) shall
not be affected by any examination made for or on behalf of FED or the knowledge
of any of FED's officers, directors, stockholders, employees or agents.
(c) The representations and warranties of Telxon set forth in
Section 2.13 and Section 2.22 shall survive the Effective Date and the
consummation of the transactions contemplated hereby and shall continue for
seven (7) years in full force and effect in accordance with their terms.
(d) The representations and warranties of FED set forth in
Article III above and the indemnification obligations set forth in this Article
VII with respect to such representations and warranties of FED (i) shall survive
the Effective Date and the consummation of the transactions contemplated hereby
and continue for a period of twelve (12) months after March 31, 1998 and (ii)
shall not be affected by any examination made for or on behalf of Telxon or the
knowledge of any of Telxon's officers, directors, stockholders, employees or
agents.
(e) The date on which any particular representation, warranty
or indemnification obligation of Telxon or FED terminates shall be referred to
herein and in the Escrow Agreement as the "TERMINATION DATE". If a notice of a
claim is given in accordance with the notice provisions of this Agreement or the
Escrow Agreement before the Termination Date, then (notwithstanding the
occurrence of the Termination Date) the representation, warranty or
indemnification obligation applicable to such claim shall survive until, but
only for purposes of, the resolution of such claim.
(f) If at any time Escrow Shares (as defined in the Escrow
Agreement) are to be released to FED in consideration for any Key Employee of
Virtual who leaves the employ of Virtual on or prior to the Termination Date,
Telxon's indemnification obligations under this Article VII shall increase by
such equivalent number of shares of Series F Preferred Stock (or cash
representing such number of shares of Series F Preferred Stock) then held by
Telxon.
(g) Notwithstanding anything to the contrary herein, neither
party shall be liable under this Article VII unless and until the aggregate
Damages (without giving effect to any materiality
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or material adverse effect qualifications or materiality exceptions contained in
any provision of this Agreement) exceed Twenty Thousand Dollars ($20,000) (at
which point such party shall become liable for the aggregate Damages, and not
just amounts in excess of Twenty Thousand Dollars ($20,000)). Except with
respect to (i) claims based on gross negligence, willful misconduct or fraud,
(ii) claims made under Section 7.1(b) or 7.2(b) hereof, and (iii) the
obligations of Telxon set forth in Section 7.4(c) and Section 7.4(f) hereof, (A)
the indemnification obligations of Telxon in favor of FED under this Article VII
with respect to all representations and warranties of Telxon other than pursuant
to Section 2.13 and Section 2.22 shall be limited solely to the amounts held
pursuant to the terms of the Escrow Agreement, (B) the indemnification
obligations of FED in favor of Telxon under this Article VII with respect to all
representations and warranties of FED shall be limited to One Hundred Thousand
Dollars ($100,000); provided that nothing herein shall limit Telxon's
indemnification rights under the Series F Agreement, (C) any indemnification
obligations of Telxon in favor of FED under this Article VII with respect to
Section 2.13, Section 2.22 or any other matter shall be payable by Telxon in
shares of FED capital stock or cash (at the sole option of Telxon), and (D) the
rights of the parties under this Article VII and under the Escrow Agreement
shall be the exclusive remedy of the parties with respect to matters covered by
this Article VII. Except with respect to Telxon's obligations under Section
7.4(c), in furtherance of the foregoing, each of the parties hereto hereby
waives, to the fullest extent permitted under applicable law, any and all other
rights, claims and causes of action it may have, from and after the Termination
Date, against the other party or their respective officers, directors,
employees, agents, representatives and Affiliates, relating to the breach of
representations and warranties contained in this Agreement.
(h) The Indemnified Party shall take all commercially
reasonable steps to mitigate damages in respect of any claim for which it is
seeking indemnification, including, without limitation, using commercially
reasonable efforts to effect recovery of available insurance claims in
connection with such claim, and shall use commercially reasonable efforts to
avoid any costs or expenses associated with such claim and, if such costs and
expenses cannot be avoided, to minimize the amount thereof.
ARTICLE VIII
TERMINATION
-----------
8.1 TERMINATION.
(a) This Agreement may not be terminated at any time after the
Effective Date and prior to the Initial Escrow Release Date except:
(i) by FED (provided FED is not otherwise in breach),
if there has been a breach by Telxon of any representation, warranty,
covenant or agreement set forth in this Agreement on the part of Telxon
which is material and which Telxon fails to cure within five (5)
business days after notice thereof is given by FED (except that no cure
period shall be provided for a breach by Telxon which by its nature
cannot be cured);
(ii) by Telxon (provided Telxon is not otherwise in
breach), if there has been a breach by FED of any representation,
warranty, covenant or agreement set forth in this Agreement on the part
of FED which is material and which FED fails to cure within five (5)
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business days after notice thereof is given by Telxon (except that no
cure period shall be provided for a breach by FED which by its nature
cannot be cured);
(iii) by FED or Telxon, if the Initial Escrow Release
Date shall not be on or prior to April 15, 1998;
(iv) by FED if there is any litigation either pending
or threatened (including injunctive relief) which attempts to prevent
this Agreement or the transactions contemplated hereby from becoming
effective; or
(v) by Telxon if (a) there is any litigation pending
or threatened (including injunctive relief) which attempts to prevent
this Agreement or the transactions contemplated hereby from becoming
effective and (b) the directors of Telxon are named individually in any
such litigation and FED does not agree to indemnify such directors for
any liability they may incur as a result of such litigation or such
directors may not otherwise be entitled to indemnification by Telxon.
(b) Where action is taken to terminate this Agreement pursuant
to this Section 8.1, it shall be sufficient for such action to be authorized by
the Board of Directors of the party taking such action.
(c) In the event of termination of this Agreement as provided
in this Section, this Agreement shall forthwith become void. Termination of this
Agreement shall not limit the liability of any party hereto except as provided
in this Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
------------------------
9.1 FURTHER ASSURANCES. At the request of any of the parties hereto,
and without further consideration, each party agrees to execute such documents
and instruments and to do such further acts as may be necessary or desirable to
effectuate the transactions contemplated hereby.
9.2 EACH PARTY TO BEAR OWN COSTS. Each of the parties hereto shall pay
all costs and expenses incurred or to be incurred by it in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
9.3 HEADINGS. The subject headings of the Articles and Sections of this
Agreement are included for purposes of convenience only, and shall not affect
the construction or interpretation of any of its provisions.
9.4 ENTIRE AGREEMENT; WAIVERS. The Documents, the disclosure schedules,
and the Exhibits and Schedules hereto constitute the entire agreement between
the parties pertaining to the contemporaneous agreements, representations, and
understandings of the parties with respect to the subject matter and supersede
all prior assignments and understandings, both written and oral, among the
parties with respect to the subject matter hereof and are not intended to confer
upon any other person any rights or remedies hereunder except as otherwise
provided herein. No supplement,
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modification, or amendment of this Agreement shall be binding unless executed in
writing by all parties. No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of any other provision, whether
or not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.
9.5 THIRD PARTIES. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and permitted assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third person to any
party to this Agreement, nor shall any provision give any third persons any
right of subrogation or action over against any party to this Agreement.
9.6 PARTIES IN INTEREST. This Agreement and the rights and obligations
set forth herein may not be transferred, assigned, pledged or hypothecated by
any party hereto, other than by operation of law, without the consent of each
party hereto. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
9.7 NOTICES. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, on the date of transmittal of services via telecopy to the party to
whom notice is to be given, or on the third day after mailing if mailed to the
party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and properly addressed as follows (or at such other
address for a party as shall be specified by like notice):
To FED at: FED Corporation
1580 Route 52
Hopewell Junction, New York 12533
Attention: Mr. Gary Jones
Telecopy No.: (914) 892-1935
With a copy to: Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, New York 10019
Attention: Alexander D. Lynch, Esq.
Telecopy No.: (212) 586-7878
To Telxon at: Telxon Corporation
3330 W. Market Street
Akron, Ohio 44333
Attention: Mr. Robert Eberle
Telecopy No.: (330) 664-2251
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With a copy to: Goodman Weiss Miller LLP
100 Erieview Plaza, 27th Floor
Cleveland, Ohio 44114-1824
Attention: Robert A. Goodman, Esq.
Telecopy No.: (216) 363-5835
Any party may change its address for purposes of this Section by giving notice
of the new address to each of the other parties in the manner set forth above.
9.8 ATTORNEYS' FEES. If any party to this Agreement shall bring any
action, suit, counterclaim or appeal for any relief against the other,
declaratory or otherwise, to enforce the terms hereof or to declare rights
hereunder (collectively, an "ACTION"), the Prevailing Party (as hereinafter
defined) shall be entitled to recover as part of any such Action its reasonable
attorneys' fees and costs, including any fees and costs incurred in bringing and
prosecuting such Action and/or enforcing any order, judgment, ruling or award
granted as part of such Action. "PREVAILING PARTY" within the meaning of this
Section 9.8 includes, without limitation, a party who agrees to dismiss an
Action upon the other party's payment of all or a portion of the sums allegedly
due or performance of the covenants allegedly breached, or who obtains
substantially the relief sought by it.
9.9 GOVERNING LAW. The terms of this Agreement shall be governed by the
laws of the State of Delaware, without regard to principles of choice or
conflicts of laws.
9.10 CONSENT TO JURISDICTION AND FORUM SELECTION. The parties agree
that all actions or proceedings arising in connection with this Agreement shall
be tried and litigated exclusively in the state and Federal courts located in
the county of Dutchess, New York or Summit, Ohio. The aforementioned choice of
venue is intended by the parties to be mandatory and not permissive in nature,
thereby precluding the possibility of litigation between the parties with
respect to or arising out of this Agreement in any jurisdiction other than that
specified in this Section 9.10. Each party hereby waives any right it may have
to assert the doctrine of forum non conveniens or similar doctrine or to object
to venue with respect to any proceeding brought in accordance with this Section,
and stipulates that the state and Federal courts located in the county of
Dutchess, New York or Summit, Ohio shall have in personam jurisdiction and venue
over each of them for the purposes of litigating any dispute, controversy or
proceeding arising out of or related to this Agreement. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section 9.10 by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in this Agreement. Any final judgment
rendered against a party in any action or proceeding shall be conclusive as to
the subject of such final judgment and may be enforced in other jurisdictions in
any manner provided by law.
9.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other party.
9.12 SEVERABILITY. All provisions contained herein are severable and in
the event that any of them shall be held to be to any extent invalid or
otherwise unenforceable by any court of competent jurisdiction, such provision
shall be construed as if it were written so as to effectuate to the greatest
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possible extent the parties' expressed intent; and in every case the remainder
of this Agreement shall not be affected thereby and shall remain valid and
enforceable, as if such affected provision were not contained herein.
9.13 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. The words "include,"
"includes," and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." For purposes of this Agreement, and
except as provided in the following sentence, the term "best knowledge," when
used in reference to a corporation means the actual knowledge of the executive
officers of such corporation after such officers shall have made inquiry that is
customary and appropriate under the circumstances to which reference is made,
and when used in reference to an individual means the actual knowledge of such
individual after the individual shall have made inquiry that is customary and
appropriate under the circumstances to which reference is made.
9.14 PUBLICITY. The parties shall cooperate with each other in the
development and distribution of all news releases and other public disclosures
relating to the transactions contemplated hereby. None of the parties shall
issue or make, or cause to have issued or made, any press release or
announcement concerning the transactions contemplated hereby without the advance
approval in writing of the form and substance thereof by the other parties,
unless otherwise required by applicable law.
9.15 MUTUAL DRAFTING. This Agreement is the joint product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of such parties, and shall not be
construed for or against any party hereto.
9.16 BROKERS OR FINDERS. Telxon shall be responsible for any liability
for brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Documents or any transaction contemplated hereby or thereby.
9.17 SPECIFIC PERFORMANCE AND OTHER REMEDIES. The parties hereto each
acknowledge that the rights of each party to consummate the transactions
contemplated hereby are special, unique and of extraordinary character, and
that, in the event that any party violates or fails or refuses to perform any
covenant or agreement made by it herein, the non-breaching party may be without
an adequate remedy at law. The parties each agree, therefore, that in the event
that either party violates or fails or refuses to perform any covenant or
agreement made by such party herein, the non-breaching party or parties may,
subject to the terms of this Agreement and in addition to any remedies at law
for damages or other relief, institute and prosecute an action in any court of
competent jurisdiction to enforce specific performance of such covenant or
agreement or seek any other equitable relief.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase and Exchange Agreement as of the date first above written.
FED CORPORATION
BY: /s/ Gary Jones
-------------------------------------
ITS: President & CEO
-------------------------------------
TELXON CORPORATION
BY: /s/ Robert A. Eberle
-------------------------------------
ITS: Executive Vice President
-------------------------------------
<PAGE> 1
Exhibit 10.7.1
EXECUTION COPY
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ESCROW AGREEMENT
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THIS ESCROW AGREEMENT (this "AGREEMENT") is entered into as of
March 31, 1998, by and between FED Corporation, a Delaware corporation ("FED"),
Telxon Corporation, a Delaware corporation ("TELXON"), and First Union National
Bank (the "ESCROW AGENT"). FED and Telxon are sometimes referred to herein as
the "INTERESTED PARTIES".
WHEREAS, FED and Telxon have entered into a Stock Purchase
Agreement dated March 31, 1998 (the "STOCK PURCHASE AGREEMENT");
WHEREAS, the Stock Purchase Agreement provides that an escrow
account will be established to secure each parties' consideration prior to the
Initial Escrow Release Date (as defined in the Stock Purchase Agreement) and to
secure certain obligations of Telxon to FED (and the Indemnified Persons (as
defined in the Stock Purchase Agreement)) on the terms and conditions set forth
in the Stock Purchase Agreement and set forth herein; and
WHEREAS, the parties hereto desire to establish the terms and
conditions pursuant to which such escrow account will be established and
maintained.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used in this Agreement and
not otherwise defined shall have the meanings given them in the Stock Purchase
Agreement.
2. APPOINTMENT FOR TELXON. Telxon hereby appoints Robert A.
Eberle, Executive Vice President, and Kenneth W. Haver, Senior Vice President
and Chief Financial Officer, to act, either jointly or individually, on behalf
of Telxon for all purposes hereunder (each a "TELXON REPRESENTATIVE").
3. CONSENT OF TELXON. Pursuant to the Stock Purchase
Agreement, Telxon has consented to the establishment of this escrow to secure
certain obligations of Telxon under Article VII of the Stock Purchase Agreement
and certain post-Effective Date adjustment obligations in the manner set forth
herein.
4. ESCROW AND INDEMNIFICATION.
(a) ESCROW OF CASH. On the Effective Date, FED shall
deposit, on behalf of Telxon, with the Escrow Agent cash in the amount of Five
Hundred Thousand Dollars ($500,000) as specified in Section I of the Stock
Purchase Agreement (the "ESCROW FUNDS"). The Escrow Agent agrees to accept
delivery of the Escrow Funds and to hold the Escrow Funds in an escrow account
(the "ESCROW ACCOUNT"), subject to the terms and conditions of this Agreement.
The Escrow Account shall not be an interest bearing account and the cash, if
any, held in the Escrow Account shall be invested.
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(b) ESCROW OF ESCROW SHARES. On the Effective Date,
FED shall deposit, on behalf of Telxon, with the Escrow Agent one or more
certificates representing Four Million Five Hundred Thousand Dollars
($4,500,000) of FED's Series F Preferred Stock (the "ESCROW SHARES") as
specified in Section I of the Stock Purchase Agreement, issued in the name of
Telxon, the Escrow Agent or the Escrow Agent's nominee (in the respective
amounts set forth on SCHEDULE A hereto), together with an executed stock power
regarding the portion of the Escrow Shares issued in the name of Telxon. The
Escrow Agent agrees to accept delivery of the Escrow Shares and to hold the
Escrow Shares in the Escrow Account, subject to the terms and conditions of this
Agreement.
(c) ESCROW OF VIRTUAL SHARES. On the Effective Date,
Telxon shall deposit, on behalf of FED, with the Escrow Agent a certificate
representing One Million (1,000,000) shares (the "VIRTUAL SHARES") of the common
stock, $0.01 par value per share, of Virtual Vision, Inc., a Delaware
corporation ("VIRTUAL"), as specified in Section I of the Stock Purchase
Agreement, together with a stock power executed in blank. The Escrow Agent
agrees to accept delivery of the Virtual Shares and to hold the Virtual Shares
in the Escrow Account, subject to the terms and conditions of this Agreement.
(d) DISTRIBUTIONS AND DIVIDENDS. All cash dividends
and other distributions on Escrow Shares, when and if received by the Escrow
Agent, shall be remitted and paid by the Escrow Agent directly to Telxon and
shall not be subject to this Agreement or any indemnification claims of FED
under this Agreement. Notwithstanding the foregoing, additional shares of
capital stock issued on or with respect to the Escrow Shares as a result of
stock splits, stock dividends or other similar capital adjustments to, or
recapitalizations on, the Escrow Shares shall be delivered by FED to the Escrow
Agent and retained in the Escrow Account subject to the terms hereof and shall
constitute Escrow Shares. Additional shares of capital stock issued on or with
respect to the Virtual Shares as a result of stock splits, stock dividends or
other similar capital adjustments to, or recapitalizations on, the Virtual
Shares shall be retained in the Escrow Account subject to the terms hereof and
shall constitute Virtual Shares.
(e) VOTING OF SHARES. All voting rights with respect
to Escrow Shares may be exercised by Telxon in accordance with their
proportionate interests therein, and the Escrow Agent shall from time to time
execute and deliver to Telxon such proxies, consents, or other documents as may
be necessary to enable Telxon to exercise such rights. In the absence of any
exercise of such voting rights with respect to Escrow Shares by Telxon, the
Escrow Agent shall not vote any of the Escrow Shares. All voting rights with
respect to the Virtual Shares may be exercised by FED in accordance with their
proportionate interests therein, and the Escrow Agent shall from time to time
execute and deliver to FED such proxies, consents, or other documents as may be
necessary to enable FED to exercise such rights. Notwithstanding the foregoing,
FED covenants for the benefit of Telxon that it shall not declare any dividends
with respect to the Virtual Shares which are payable on or prior to the Initial
Escrow Release Date. In the absence of any exercise of such voting rights with
respect to Virtual Shares by FED, the Escrow Agent shall not vote any of the
Virtual Shares.
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(f) TRANSFERABILITY. The interest of (i) Telxon in
the Escrow Funds and the Escrow Shares, and (ii) FED in the Virtual Shares and
any other property comprising the Escrow Account (collectively, the "ESCROW
PROPERTY") shall not be assignable or transferable so long as such Escrow
Property is held by the Escrow Agent hereunder.
5. RELEASE OF ESCROW PROPERTY.
(a) On or prior to the Initial Escrow Release Date a
notice executed jointly by both the Telxon Representative and FED shall be
provided to the Escrow Agent and, promptly upon receipt of such notice, the
Escrow Agent shall simultaneously deliver and/or submit for transfer, delivery
and assignment: (i) to Telxon the Escrow Funds and shares representing Three
Million Four Hundred Thousand Dollars ($3,400,000) of the Escrow Shares; and
(ii) to FED the Virtual Shares. If the Escrow Agent does not receive the
aforementioned notice on or prior to the Initial Escrow Release Date (or a
notice extending the Initial Escrow Release Date) then this Agreement shall
immediately terminate (provided that the provisions of Sections 9 and 10 below
shall survive such termination) and the Escrow Agent shall promptly deliver
and/or submit for transfer, delivery and assignment: (i) the Escrow Funds and
the Escrow Shares to FED; and (ii) the Virtual Shares to Telxon.
(b) Promptly after May 31, 1998 (the "POST-EFFECTIVE
DATE ADJUSTMENT DATE"), a notice executed jointly by both the Telxon
Representative and FED shall be provided to the Escrow Agent and, promptly upon
receipt of such notice, the Escrow Agent shall deliver and/or submit for
transfer, delivery and assignment to each of FED and Telxon such portion of the
Escrow Shares as specified by such notice, which amount in the aggregate shall
not exceed shares representing One Hundred Thousand Dollars ($100,000) of the
Escrow Shares (the "POST-EFFECTIVE DATE ESCROW SHARES"). The number of Escrow
Shares to be released to FED on the Post-Closing Adjustment Date shall be the
LESSER of (i) the Post-Effective Date Adjustment (as hereinafter defined)
DIVIDED BY $6.50 or (ii) 15,385 Escrow Shares. The "POST-EFFECTIVE DATE
ADJUSTMENT" shall be defined as (a) the total assets set forth on the Projected
Balance Sheet provided to FED on the date hereof less the total liabilities set
forth on the Projected Balance Sheet, LESS (b) the total assets set forth on the
Audited Balance Sheet to be provided to FED on or prior to the Post-Effective
Date Adjustment Date less the total liabilities set forth on the Audited Balance
Sheet. Any Post-Effective Date Escrow Shares remaining in the Escrow Account
following the Post-Closing Adjustment shall be delivered by Escrow Agent to
Telxon.
(c) At any time prior to March 31, 1999 (the
"TERMINATION DATE"), upon any notice executed jointly by both the Telxon
Representative and FED and provided to the Escrow Agent, the Escrow Agent shall,
promptly upon receipt of such notice(s), deliver and/or submit for transfer,
delivery and assignment to FED such portion of the Escrow Shares as required by
this Section 5(c). The number of Escrow Shares to be released to FED under this
Section 5(c) shall be as payment for any Key Employee of Virtual who leaves the
employ of Virtual without cause on or prior to the Termination Date. For each
Key Employee who leaves the employ of either Telxon, Virtual or FED without
cause on or prior to September 30, 1998, the number of Escrow Shares to be
released to FED shall equal Sixty Thousand Dollars ($60,000) divided by the Fair
Market Value of the Escrow Shares. For each Key Employee who leaves the employ
of either Virtual or FED without cause after September
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30, 1998 and before March 31, 1999, the number of Escrow Shares to be released
to FED shall equal Thirty Thousand Dollars ($30,000) divided by the Fair Market
Value of the Escrow Shares; provided, however, that in no circumstances shall
the amounts released to FED pursuant to this Section 5(c) exceed an aggregate of
Five Hundred Thousand Dollars ($500,000) of the Escrow Shares.
(d) For purposes of this Agreement, a Key Employee
shall be deemed to have left the employ of Virtual "for cause" by reason of: (i)
FED's failure to extend an offer of employment to such employee for his or her
current position and salary as of the Effective Date, (ii) the involuntary
termination of such Key Employee by Virtual or FED; (iii) a requirement by
Virtual or FED that such Key Employee relocate his or her principal place of
employment more than 25 miles from Virtual's current location at 7659 178th
Place, N.E., Redmond, Washington; (iv) a significant or material change in such
Key Employee's responsibilities or working environment which materially
interferes with such Key Employee's responsibilities; (v) disability for medical
reason; (vi) a change of control of FED or Virtual ("change of control" to mean
any change in the beneficial ownership of 50% of the voting securities of either
FED or Virtual); (vii) any violation by FED or Virtual of any Federal, state or
local law, ordinance, regulation or rule relating to employment, equal
employment opportunity, nondiscrimination, immigration, family leave, wages,
hours, benefits, collective bargaining, the payment of social security and
similar taxes, occupational safety and health, and plant closing, except for
such violations which would not have a material adverse effect on the standing
of such employee; or (viii) if such Key Employee leaves the employ of Virtual
and within 30 days and thereafter becomes an employee or contractor for FED or
any of its affiliates.
(e) Promptly after March 31, 1999 (the "TERMINATION
DATE"), a notice executed jointly by both the Telxon Representative and FED
shall be provided notice to the Escrow Agent and, promptly upon receipt of such
notice (subject to the matters provided for in Section 5(f) below), the Escrow
Agent shall deliver and/or submit for transfer, delivery and assignment to each
of FED and Telxon such portion of the Escrow Shares as specified by such notice.
(f) Notwithstanding the foregoing, if on the
Termination Date an Indemnified Person has previously given any Claim Notices
that have not then been resolved in accordance with Section 6 below, the Escrow
Agent shall retain in the Escrow Account an amount of the Escrow Shares (if any)
having a Fair Market Value equal to the aggregate Claimed Amount covered by all
such Claim Notices that have not then been resolved. Any Escrow Property
retained in escrow pursuant to this Section 5(f) shall be disbursed in
accordance with the terms of the resolution of the claims relating to any of the
Escrow Property retained hereunder.
6. ADMINISTRATION OF ESCROW ACCOUNT FOR INDEMNIFICATION
CLAIMS. The Escrow Agent shall administer the Escrow Account as follows:
(a) If an Indemnified Person has incurred or suffered
Damages for which it is entitled to indemnification under Section VII of the
Stock Purchase Agreement, the Indemnified Person shall, prior to the Termination
Date with respect to a particular claim, give written notice of such claim (a
"CLAIM NOTICE") to the Telxon Representative, FED and the Escrow Agent. Each
Claim
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Notice shall state the amount of Claimed Damages (the "CLAIMED AMOUNT") and the
basis for such claim.
(b) Claims for indemnification involving a claim or
legal proceeding by a third party shall be made in accordance with the
procedures set forth in Article VII of the Stock Purchase Agreement and the
provisions of this Section 6. For indemnification claims not involving any claim
or legal proceeding by a third party, the procedures herein shall apply. Within
thirty business days of receipt by the Telxon Representative of a Claim Notice,
the Telxon Representative shall provide to the Indemnified Person, with a copy
to the Escrow Agent and FED, a written response (the "RESPONSE NOTICE") in which
the Telxon Representative shall: (i) agree that Escrow Property having a Fair
Market Value (as computed pursuant to Section 7 below) equal to the full Claimed
Amount may be released from the Escrow Account to the Indemnified Person on the
Termination Date, (ii) agree that Escrow Property having a Fair Market Value
equal to part, but not all, of the Claimed Amount may be released from the
Escrow Account to the Indemnified Person on the Termination Date, or (iii)
contest that any of the Escrow Property may be released from the Escrow Account
to the Indemnified Person on the Termination Date. The Telxon Representative may
contest the release of Escrow Property having a Fair Market Value equal to all
or a portion of the Claimed Amount only, if Telxon asserts in good faith that it
requires more information to evaluate the merits of the claim, based upon a good
faith belief that all or such portion of the Claimed Amount does not constitute
Damages for which the Indemnified Person is entitled to indemnification under
Article VII of the Stock Purchase Agreement. If no Response Notice is delivered
by, and received by the Escrow Agent and FED from, the Telxon Representative
prior to thirty business days of receipt of the Claim Notice, the Telxon
Representative shall be deemed to have agreed that Escrow Property having a Fair
Market Value equal to all of the Claimed Amount may be released to the
Indemnified Person from the Escrow Account on the Termination Date.
Notwithstanding any terms of this Agreement to the contrary, no Claim Notice or
Response Notice shall be deemed to have been delivered to the Escrow Agent until
it is actually received by the Escrow Agent and FED at the address set forth in
Section 12 hereof.
(c) If the Telxon Representative in the Response
Notice agrees (or is deemed to have agreed) that Escrow Property having a Fair
Market Value equal to all of the Claimed Amount may be released from the Escrow
Account to the Indemnified Person, the Escrow Agent shall, upon the Termination
Date transfer, deliver and assign to the Indemnified Person the Escrow Property
having a Fair Market Value equal to the Claimed Amount (or such lesser amount of
Escrow Property as is then held in the Escrow Account).
(d) If the Telxon Representative in the Response
Notice agrees that Escrow Property having a Fair Market Value equal to part, but
not all, of the Claimed Amount may be released from the Escrow Account to the
Indemnified Person, the Escrow Agent shall upon the Termination Date transfer,
deliver and assign to the Indemnified Person Escrow Property having a Fair
Market Value equal to the sum of all Partial Agreed Amounts (or such lesser
amount of Escrow Property as is then held in the Escrow Account).
(e) If the Telxon Representative in the Response
Notice contests the release of Escrow Property having a Fair Market Value equal
to all or part of the Claimed Amount (the
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"CONTESTED AMOUNT"), the Telxon Representative and the Indemnified Person shall
attempt promptly and in good faith to agree upon the rights of the parties with
respect to the Contested Amount. If the Telxon Representative and the
Indemnified Person should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties and delivered to the Escrow Agent
and FED and, if such agreement provides that all or a portion of the Contested
Amount is to be paid to the Indemnified Person, the Escrow Agent shall upon the
Termination Date transfer, assign and deliver to the Indemnified Person from the
Escrow Account an amount of Escrow Property having a Fair Market Value equal to
the amount so agreed. If no such agreement can be reached after good faith
negotiation over a period of 45 days (or such longer period as the Indemnified
Person and the Telxon Representative may mutually agree), the matter shall be
settled by binding arbitration in New York. All claims shall be settled by a
single arbitrator mutually agreeable to the Indemnified Person and the Telxon
Representative, or if they cannot agree on a single arbitrator in 45 days, by
three arbitrators, in accordance with the Commercial Arbitration Rules then in
effect of the American Arbitration Association (the "AAA RULES"), as follows: If
a single arbitrator has not been mutually agreed upon, the Telxon Representative
and the Indemnified Person shall each designate one arbitrator within 45 days of
the delivery of the Telxon Representative's Response Notice contesting the
Claimed Amount. The Telxon Representative and the Indemnified Person shall cause
such designated arbitrators mutually to agree upon and designate a third
arbitrator; provided, however, that (i) failing such agreement within 75 days of
delivery of the Telxon Representative's Response Notice, the third arbitrator
shall be appointed in accordance with the AAA Rules, and (ii) if either the
Telxon Representative or the Indemnified Person fail to timely designate an
arbitrator, the dispute shall be resolved by the one arbitrator timely
designated. The Telxon Representative on the one hand, and the Indemnified
Person, on the other hand, shall pay the fees and expenses of their respectively
designated arbitrators and shall bear equally the fees and expenses of the third
arbitrator (or of the sole arbitrator, in the event a single arbitrator decides
the matter). The Telxon Representative and the Indemnified Person shall cause
the arbitrators to decide the matter to be arbitrated pursuant hereto within 60
days after the appointment of the last arbitrator. The arbitrators' decision
shall relate solely to whether the Indemnified Person is entitled to receive the
Contested Amount (or a portion thereof) pursuant to the applicable terms of the
Stock Purchase Agreement and this Agreement. The final decision of the
arbitrator, or a majority of the arbitrators in the case of three arbitrators,
shall be furnished to the Telxon Representative and the Indemnified Person in
writing and shall constitute a conclusive determination of the issue in
question, binding upon Telxon and the Indemnified Person, and shall not be
contested by any of them. Such decision may be used in a court of law only for
the purpose of seeking enforcement of the arbitrators' award. The Telxon
Representative and the Indemnified Person shall deliver a memorandum to the
Escrow Agent and FED setting forth such arbitrators decision in accordance with
the second sentence of this paragraph.
(f) After delivery of a Response Notice that the
Claimed Amount is contested by the Telxon Representative, the Escrow Agent shall
continue to hold in the Escrow Account an amount of Escrow Property having a
Fair Market Value sufficient to cover the Contested Amount (up to the amount of
Escrow Property then available in the Escrow Account), notwithstanding the
occurrence of the Termination Date, until (i) delivery of a copy of a settlement
agreement executed by the Indemnified Person and the Telxon Representative
setting forth instructions to the Escrow Agent as to the release of Escrow
Property, if any, that shall be made with respect to the Contested Amount
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or (ii) delivery of a copy of the final award of the arbitrator, or a majority
of the arbitrators in the case of three arbitrators, and the memo referenced in
the last sentence of the preceding paragraph setting forth instructions to the
Escrow Agent as to the release of Escrow Property, if any, that shall be made
with respect to the Contested Amount. The Escrow Agent shall thereupon release
Escrow Property from the Escrow Account (up the amount of Escrow Property then
available in the Escrow Account) in accordance with such agreement or
instructions.
7. VALUATION OF ESCROW PROPERTY. For purposes of this
Agreement, the Fair Market Value of the Escrow Shares shall be $6.50 per share
or such other amount as the shares of Series F Preferred shall be initially
issued to purchasers at, with appropriate adjustment to take into account any
stock split, reverse stock split, stock dividend, recapitalization or other
similar capital adjustments with respect to Escrow Shares. The Escrow Funds
shall be valued at their face value.
8. FEES AND EXPENSES OF THE ESCROW AGENT. Telxon and FED
hereby agree, jointly and severally, to pay to the Escrow Agent its reasonable
fees and expenses, including attorneys fees, travel expenses, postal and
delivery charges, and all other out-of-pocket expenses, in accepting and
performing its appointment as escrow agent hereunder (collectively, the "ESCROW
AGENT EXPENSES"). Each of FED, on the one hand, and Telxon, on the other hand,
shall pay one-half of the Escrow Agent Expenses.
9. GENERAL TERMS AND STANDARDS REGARDING THE ESCROW AGENT.
Notwithstanding any terms of this Agreement to the contrary, each term of this
Agreement, including without limitation each of the stated duties and
responsibilities of the Escrow Agent set forth herein, shall be subject to the
following terms and conditions:
(a) The duties, responsibilities and obligations of
the Escrow Agent shall be limited to those expressly set forth in this Agreement
(and the duty to exercise reasonable care in the physical safekeeping of any
property held in escrow hereunder), and no implied duties, responsibilities or
obligations shall be read into this Agreement against the Escrow Agent. Without
limiting the generality of the foregoing, the Escrow Agent shall have no duty to
take action to preserve or exercise rights in any property held by it hereunder
(including, without limitation, against prior parties or otherwise).
(b) The Escrow Agent shall not be subject to, bound
by, charged with notice of or be required to comply with or interpret any
agreement or document (including without limitation the Stock Purchase
Agreement) between or among the Interested Parties (whether or not reference to
any such other agreement or documents expressed herein) other than this
Agreement.
(c) The Escrow Agent shall in no instance be under
any duty to give any property held by it hereunder any greater degree of care
than it gives its own similar property. The Escrow Agent shall not be required
to invest any funds held hereunder, and shall not be obligated to pay interest
on uninvested funds. All amounts received by the Escrow Agent (and any credits
to the Escrow Account) shall be conditional upon collection (and actual receipt
by the Escrow Agent of final payment). In no event shall the Escrow Agent have
any obligation to advance funds.
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(d) The Escrow Agent may rely upon, and shall be
protected in acting or refraining from acting upon, any written notice,
instruction, statement, request, waiver, order, judgment, certification,
consent, receipt or other paper or document furnished to it (not only as to
genuineness, but also as to its due execution and validity, the genuineness of
signatures appearing thereon and as to the truth and accuracy of any information
therein contained), which it in good faith believes to be genuine and signed or
presented by the proper person.
(e) Neither the Escrow Agent nor any of its
directors, officers or employees shall be liable to anyone for any error of
judgment, or for any act done or step taken or omitted to be taken by it or any
of its directors, officers or employees, or for any mistake of fact or law, or
for anything which it, or any of its directors, officers or employees, may do or
refrain from doing in connection with or in the administration of this
Agreement, unless and except to the extent the same constitutes gross
negligence, bad faith or wilful misconduct on the part of the Escrow Agent. In
no event shall the Escrow Agent be liable for any indirect, punitive, special or
consequential damages, or any amount in excess of the value of the Escrow
Property (as of the date of the action or omission giving rise to liability).
(f) The Escrow Agent may consult with, and obtain
advice from, legal counsel (including, without limitation, in-house counsel)
with respect to any question as to any of the provisions hereof or its duties
hereunder, or any matter relating hereto, and the opinion of such counsel shall
be full and complete authorization and protection in respect of any action
reasonably taken, suffered or omitted by the Escrow Agent in good faith in
accordance with the opinion and directions of such counsel.
(g) The Escrow Agent shall not be deemed to have
notice of any fact, claim or demand with respect hereto unless actually known by
an officer charged with responsibility for administering this Agreement or
unless in writing received by the Escrow Agent and making specific reference to
this Agreement.
(h) No provision of this Agreement shall require the
Escrow Agent to expend or risk its own funds, or to take any legal or other
action hereunder which might in its judgment involve it in, or require it to
incur in connection with the performance of its duties hereunder, any expense or
any financial liability unless it shall be furnished with indemnification
acceptable to it.
(i) Any permissive right of the Escrow Agent to take
any action hereunder shall not be construed as duty.
(j) All indemnifications contained in this Agreement
shall survive the resignation or removal of the Escrow Agent, and shall survive
the termination of this Agreement.
(k) The Escrow Agent is not responsible for the
recitals appearing in this Agreement. The recitals shall be deemed to be
statements of the Interested Parties to this Agreement.
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(l) The Escrow Agent has no responsibility for the
sufficiency of this Agreement for any purpose. Without limiting the foregoing,
if any security interest is referred to herein, the Escrow Agent shall have no
responsibility for, and makes no representation or warranty as to, the creation,
attachment or perfection of any such security interest or the sufficiency of
this Agreement therefor.
(m) Nothing in this Agreement shall obligate the
Escrow Agent to qualify to do business or act in any jurisdiction in which it is
not presently qualified to do business, or be deemed to impose upon the Escrow
Agent the duties of a trustee. The duties of the Escrow Agent under this
Agreement are strictly ministerial in nature.
(n) In no event shall the Escrow Agent have any
liability for any failure or inability of any of the Interested Parties to
perform or observe his or its duties under the Agreement, or by reason of a
breach of this Agreement by either of the Interested Parties. In no event shall
the Escrow Agent be obligated to take any action against any of the Interested
Parties to compel performance hereunder.
(o) The Escrow Agent shall in no instance be
obligated to commence, prosecute or defend any legal proceedings in connection
herewith. The Escrow Agent shall be authorized and entitled, however, in any
instance to commence, prosecute or defend any legal proceedings in connection
herewith, including without limitation any proceeding it may deem necessary to
resolve any matter or dispute, to obtain a necessary declaration of rights, or
to appoint a successor upon resignation (and after failure by the Interested
Parties to appoint a successor, as provided in Section 13).
(p) Whenever the terms hereof call for any notice,
payment or other action on a day which is not a business day, such payment or
action may be taken, or such notice given, as the case may be, on the next
succeeding business day. As used herein, "business day" shall mean any day other
than a Saturday or Sunday, or any other day on which the Escrow Agent is closed
for business.
(q) In the event of any ambiguity or uncertainty
under this Agreement, or in any notice, instruction, or other communication
received by the Escrow Agent hereunder, the Escrow Agent may, in its reasonable
discretion, refrain from taking action, and may retain the Escrow Property,
until and unless it receives written instruction signed by all Interested
Parties, or a decision by a court of competent jurisdiction which eliminates
such uncertainty or ambiguity.
(r) If at any time Escrow Agent is served with any
judicial or administrative order, judgement, decree, writ or other form of
judicial administrative process which in any way relates to or affects the
Escrow Property (including but not limited to orders of attachment or
garnishment or other forms of levies or injunctions or stays relating to the
Escrow Property), Escrow Agent is authorized to comply therewith in any manner
as it or its legal counsel reasonably deems appropriate; and if the Escrow Agent
complies with any such judicial or administrative order, judgement, decree, writ
or other form of judicial or administrative process, Escrow Agent shall not be
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liable to any of the parties hereto or to any other person or entity
notwithstanding that though such order, judgment, decree, writ or process may be
subsequently modified, annulled, set aside, vacated, found to have been without
proper jurisdiction, or otherwise determined to have been without legal force or
effect.
(s) The Escrow Agent shall have no liability for the
actions or omissions of any transfer agent, book-entry depository, nominee,
correspondent, subagent or subcustodian, except to the extent that such action
or omission of any transfer agent, book-entry depository, nominee,
correspondent, subagent or subcustodian was caused by the Escrow Agent's own
gross negligence, bad faith or willful misconduct.
10. INDEMNIFICATION.
(a) GENERAL. Each of FED and Telxon, jointly and
severally, hereby covenants and agrees to indemnify the Escrow Agent for, and to
defend and hold harmless the Escrow Agent from and against, any and every loss,
liability, damage, claim, cost and expense of any nature incurred or suffered by
the Escrow Agent and arising out of or in connection with this Agreement or the
administration of this Agreement or the performance or observance by the Escrow
Agent of its responsibilities or services under this Agreement (including but
not limited to reasonable attorneys fees and other costs and expenses of
defending or preparing to defend against any claim or liability), unless and
except to the extent such loss, liability, damage, cost or expense shall be
caused by the Escrow Agent's own willful misconduct, bad faith or gross
negligence.
(b) TAX-RELATED MATTERS. Each of FED and Telxon,
jointly and severally, agree to assume any and all obligations imposed now or
hereafter by any applicable tax law with respect to the payment of Escrow
Property under this Agreement, and, without limiting the generality of Section
10(a) above, hereby agree to indemnify and hold the Escrow Agent harmless from
and against any taxes, additions for late payment, interest, penalties and other
expenses, that may be assessed against the Escrow Agent on any such payment or
other activities under this Agreement. FED and Telxon undertake to instruct the
Escrow Agent in writing with respect to the Escrow Agent's responsibility for
withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting in connection with its acting as
Escrow Agent under this Agreement. Each of FED and Telxon, jointly and
severally, agrees to indemnify and hold the Escrow Agent harmless from any
liability on account of taxes, assessments or other governmental charges,
including without limitation the withholding or deduction or the failure to
withhold or deduct same, and any liability for failure to obtain proper
certifications or to properly report to governmental authorities, to which the
Escrow Agent may be or become subject in connection with or which arises out of
this Agreement, including costs and expenses (including reasonable legal fees),
interest and penalties. The Interested Parties shall each promptly provide to
Escrow Agent with appropriate IRS Forms W-9 for taxpayer identification number
certifications, or Forms W-8 for nonresident alien certifications in connection
with any payments to be made to them.
11. TERMINATION. If this Agreement is not terminated pursuant
to Section 5(a) above, this Agreement shall terminate upon the later of the
Termination Date or the distribution by the
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Escrow Agent of all of the Escrow Account in accordance with this Agreement,
provided that the provisions of Sections 9 and 10 above shall survive such
termination.
12. NOTICES. All notices, requests, demands, and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if served personally on the party to
whom notice is to be given, on the date of transmittal of services via telecopy
to the party to whom notice is to be given, or on the third day after mailing if
mailed to the party to whom notice is to be given, by first class mail,
registered or certified, postage prepaid, and properly addressed as follows (or
at such other address for a party as shall be specified by like notice):
To FED at: FED Corporation
1580 Route 52
Hopewell Junction, New York 12533
Attention: Mr. Gary Jones
Telecopy No.: (914) 892-1935
With a copy to: Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, New York 10019
Attention: Alexander D. Lynch, Esq.
Telecopy No.: (212) 586-7878
To Telxon at: Telxon Corporation
3330 W. Market Street
Akron, Ohio 44333
Attention: Mr. Robert Eberle
Duplicate: Mr. Kenneth W. Haver
Telecopy No.: (330) 664-2251
With a copy to: Goodman Weiss Miller LLP
100 Erieview Plaza, 27th Floor
Cleveland, Ohio 44114-1824
Attention: Robert A. Goodman, Esq.
Telecopy No.: (216) 363-5835
To Escrow Agent at: First Union National Bank
765 Broad Street
Newark, New Jersey
Attention: Corporate Trust Administrator
Notwithstanding anything herein to the contrary, any party may
give any notice, request, demand, claim or other Communication hereunder by
personal delivery or telecopy, but no such notice, request, demand, claim or
other communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any party may change
the
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address to which notices, requests, demands, claims and other communications
hereunder are to be delivered by giving the other parties notice in the manner
herein set forth. Copies of any notice, request, demand, claim or other
communication hereunder by personal delivery or telecopy given to the Escrow
Agent by either party, shall be delivered to the other party as soon thereafter
as practicable.
13. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent
becomes unavailable or unwilling to continue in its capacity herewith, the
Escrow Agent may resign and be discharged from its duties or obligations
hereunder by delivering a resignation to the parties to this Agreement, not less
than 60 days prior to the date when such resignation shall take effect. FED may
appoint a successor Escrow Agent with the consent of Telxon, which shall not be
unreasonably withheld. If, within such notice period, FED provides to the Escrow
Agent written instructions with respect to the appointment of a successor Escrow
Agent and directions for the transfer of any Escrow Property then held by the
Escrow Agent to such successor, the Escrow Agent shall act in accordance with
such instructions and promptly transfer such Escrow Property to such designated
successor. If no successor is so appointed, the Escrow Agent may apply to a
court of competent jurisdiction for such appointment.
14. GENERAL.
(a) GOVERNING LAW, ASSIGNS. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of Delaware
without regard to conflict-of-law and choice of law principles and shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns.
(b) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) ENTIRE AGREEMENT. Except for the provisions of the Stock
Purchase Agreement referenced herein, this Agreement constitutes the entire
understanding and agreement of the parties with respect to the subject matter of
this Agreement and supersedes all prior agreements or understandings, written or
oral, between the parties with respect to the subject matter hereof.
(d) WAIVERS. No waiver by any party hereto of any condition or
of any breach of any provision of this Escrow Agreement shall be effective
unless in writing. No waiver by any party of any such condition or breach, in
any one instance, shall be deemed to be a further or continuing waiver of any
such condition or breach or a waiver of any other condition or breach of any
other provision contained herein.
(e) AMENDMENT. This Agreement may be amended only with the
written consent of FED, the Escrow Agent and the Telxon Representative.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have duly executed this Escrow
Agreement as of the day and year first above written.
FED CORPORATION
By: /s/ Gary Jones
-------------------------------------
Mr. Gary Jones, President
TELXON CORPORATION
By: /s/ Robert A. Eberle
-------------------------------------
Mr. Robert Eberle, Executive Vice President
FIRST UNION NATIONAL BANK,
AS ESCROW AGENT:
By: /s/ Linda J. Schneider
-------------------------------------
Name: LINDA J. SCHNEIDER
-----------------------------------
Title: CORPORATE TRUST OFFICER
----------------------------------
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Exhibit 10.14
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "Agreement") is made as of March 31,
1998, by and among Aironet Wireless Communications, Inc., a Delaware corporation
with its principal place of business at 367 Ghent Road, Fairlawn, Ohio 44333
(the "Company"), and the parties identified in EXHIBIT A (each an "Investor" and
collectively the "Investors") whose states of organization and principal places
of business are identified opposite their names in EXHIBIT A.
BACKGROUND
----------
WHEREAS, on August 25, 1993, the Certificate of Incorporation of the
Company was filed by the Secretary of State for the State of Delaware (as
amended through the date of this Agreement, the "Certificate");
WHEREAS, under the Certificate, the authorized capital stock of the
Company consists solely of fifteen million (15,000,000) shares of Common Stock,
$.01 par value (the "Common"); and
WHEREAS, the Board of Directors of the Company has determined it to be
in the best interests of the Company and its stockholders for the Company to
sell, in a private placement, up to One Million Eight Hundred Forty One Thousand
Two Hundred Seventy (1,841,270) newly issued shares of the Common to the
Investors for an aggregate sale price of up to Six Million Four Hundred Forty
Four Thousand Four Hundred Forty Four Dollars ($6,444,444), with warrants to
purchase up to an aggregate of Five Hundred Fifty Two Thousand Three Hundred
Eighty One (552,381) shares of the Common, and the Investors desire to purchase
the shares and warrants on the terms and conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing premises, the
agreements made herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company, on the
one hand, and each of the Investors, severally and not jointly, on the other
hand, agree as follows:
I. PURCHASE AND SALE OF SHARES.
1.1. PURCHASE AND SALE. Subject to the terms and conditions, and in
reliance on the representations, warranties and covenants, set forth herein, at
the Closing (defined herein) the Company shall issue and sell to each of the
Investors, and each Investor shall purchase from the Company, the number of
shares of the Common set forth opposite the Investor's name in EXHIBIT A (each a
"Purchased Share" and collectively the "Purchased Shares") for the purchase
price of Three and 50/100 Dollars ($3.50) per Purchased Share.
1.2. WARRANTS. At Closing, in addition to the Purchased Shares, the
Company shall deliver to each Investor warrants to purchase shares of the Common
in the amount set forth
<PAGE> 2
opposite the Investors name in EXHIBIT A, on the terms and conditions set forth
in the form of warrant certificate attached as EXHIBIT B (each a "Warrant" and
collectively the "Warrants") (all subsequent references in this Agreement to the
Purchased Shares shall include the associated Warrants ).
1.3. CLOSING. The sale, delivery and the purchase of the Purchased
Shares (the "Closing") shall take place at the offices of Telxon Corporation,
Akron, Ohio on March 31, 1998 at 10:00 A.M.(the "Closing Date"), subject to the
satisfaction or waiver of all of the conditions to Closing set forth herein. At
the Closing the purchase price for its Purchased Shares shall be paid by each
Investor, in the amount set forth opposite the Investor's name in EXHIBIT A, to
the Company by wire transfer in immediately available funds pursuant to the wire
instructions set forth in EXHIBIT C, and against such payment the Company shall
deliver to each Investor a certificate evidencing the Purchased Shares being
acquired by it.
II. REPRESENTATION AND WARRANTIES OF THE COMPANY.
2.1. REPRESENTATIONS AND WARRANTIES; QUALIFICATIONS. The Company makes
to the Investors the representations and warranties set forth in this Article
II. Each such representation and warranty is subject to and qualified by the
exceptions set forth (with reference to a specific Section of this Article II)
in the Company's disclosure schedule attached hereto (the "Company Disclosure
Schedule").
2.2. ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware and is
duly qualified or registered to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified or registered would have a
Material Adverse Effect. As used in this Agreement, the term "Material Adverse
Effect" means any change or effect that is or could reasonably be expected to be
materially adverse to the properties, assets, business, prospects, financial or
other condition or results of operations of the Company and its subsidiaries
taken as a whole or that could reasonably be expected to impair the Company's
ability to perform its obligations hereunder.
2.3. CORPORATE POWER. The Company has all required corporate power and
authority to carry on its business as presently conducted, to enter into and
perform this Agreement and the agreements contemplated hereby to which it is a
party and to carry out the transactions contemplated hereby and thereby,
including the issuance of the Purchased Shares and the shares of the Common
issuable upon exercise of the Warrants (the "Warrant Shares"). The Company is
not in violation of any term of: (i) the Certificate; (ii) its bylaws (as
amended through the date of this Agreement, "Bylaws") or (iii) any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to the Company or to which the Company is a party or by which it is
bound, which, in the case of this clause (iii), could reasonably be expected to
have a Material Adverse Effect.
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2.4. CORPORATE RECORDS. The corporate record books of the Company, as
made available for inspection by the Investors, accurately record all corporate
actions taken by its stockholders, board of directors and committees of its
board of directors. The Company has provided to the Investors true and correct
copies of the Certificate and Bylaws.
2.5. INTER-COMPANY AGREEMENTS. The Company and its parent corporation,
Telxon Corporation ("Telxon"), are parties to a: License, Rights, and Supply
Agreement; Tax Benefit and Indemnification Agreement; and Services Agreement
("Inter-Company Agreements"), true and complete copies of which have been made
available for inspection by the Investors. Each of the Inter-Company Agreements
has been duly authorized by the Company and Telxon, has been duly executed by
each of them, and is the legal, valid, and binding obligation of each of them,
enforceable in accordance with its terms, and of which no defaults exist as of
the date hereof.
2.6. ENFORCEABLE AGREEMENT. This Agreement and all other documents
executed by the Company pursuant hereto are valid and binding obligations of the
Company, enforceable in accordance with their terms, except as limited by the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules and laws governing specific performance, injunctive relief and
other equitable remedies.
2.7. AUTHORIZATION. The execution, delivery and performance of this
Agreement, all agreements, documents and instruments contemplated hereby and the
issuance of the Purchased Shares and the Warrant Shares have been duly
authorized by all necessary action of the Company.
2.8. NON-CONTRAVENTION. The execution of this Agreement, the issuance
and delivery of the Purchased Shares and Warrant Shares and the performance of
the transactions contemplated hereby will not: (i) violate, conflict with or
result in a default under any material contract or obligation to which the
Company is a party or by which it or its assets are bound, or any provision of
the Certificate or its Bylaws, or cause the creation of any encumbrance upon any
of the material assets of the Company; (ii) violate or result in a violation of,
or constitute a material default (whether after the giving of notice, lapse of
time or both) under, any provision of any law, regulation or rule, or any order
of, or any restriction imposed by any court or other governmental agency
applicable to the Company; (iii) require from the Company any notice to,
declaration or filing with, or consent or approval of any governmental
authority; (iv) require from the Company any notice to, declaration or filing
with any third party, other than any governmental authority, if the failure to
provide such item could reasonably be expected to have a Material Adverse
Effect; or (v) accelerate any material obligation under, or give rise to a right
of termination of, any material agreement, permit, license or authorization to
which the Company is a party or by which the Company or its assets are bound.
2.9. CAPITALIZATION. The Company's authorized, issued and outstanding
securities consist solely of the amounts set forth in SECTION 2.9 OF THE COMPANY
DISCLOSURE SCHEDULE. SECTION 2.9 OF THE COMPANY DISCLOSURE SCHEDULE identifies
each of the Company's stockholders, option holders and warrant holders, as well
as the holders of any other outstanding securities of the
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<PAGE> 4
Company, and sets forth the type and amount of the securities owned by each
holder, after giving effect to the transactions contemplated herein. All
outstanding securities of the Company have been issued in compliance with
applicable securities laws and are fully paid, validly issued, and
non-assessable.
2.10. OTHER SECURITIES. The Company has not issued or agreed to issue
any warrants, options or other rights to purchase or acquire any shares of its
capital stock, and there are no outstanding securities convertible into shares
of its capital stock, there are no preemptive rights, rights of first refusal,
or to the Company's knowledge, any put or call rights or obligations,
subscriptions, arrangements or anti-dilution rights with respect to the
issuance, sale or redemption of shares of its capital stock, other than the
amounts set forth in SECTION 2.9 OF THE COMPANY DISCLOSURE SCHEDULE, and the
agreement between the Company and Telantis Venture Partners IV, Inc. ("TVP")
(fka Telantis Capital, Inc.) pursuant to which TVP has the right to purchase
shares of the Common sufficient to maintain a ten percent (10%) ownership in the
Company prior to an initial public offering of the stock of the Company, and the
rights set forth herein or in the Stockholders Agreement (defined herein).
2.11. DUE ISSUANCE. At Closing and when paid for, the Purchased Shares
will be duly and validly issued, fully paid and nonassessable and will have been
offered, issued, sold and delivered in compliance with applicable federal and
state securities laws, and the Purchased Shares shall be transferred to the
Investors free and clear of any and all claims, liens or other encumbrances.
2.12. REGISTRATION RIGHTS. The Company has granted no rights to have
shares of its capital stock registered for sale to the public under the laws of
any jurisdiction, other than the rights set forth in the Registration Rights
Agreement (defined herein).
2.13. VOTING AGREEMENTS AND RESTRICTIONS ON TRANSFER. To the Company's
knowledge there are no agreements relating to the voting of the Company's voting
securities or restrictions on the transfer of the Company's capital stock, other
than this Agreement and the Stockholders Agreement.
2.14. SUBSIDIARIES; INVESTMENTS. The Company does not own or have any
direct or indirect interest in or control over any corporation, partnership,
joint venture or other entity of any kind. The term "control" shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of an entity, whether through the
ownership of voting securities or by contract.
2.15. MERGERS. The Company is not party to any agreement regarding its
acquisition in whole or in part, whether by merger, consolidation, asset sale,
or otherwise, other than this Agreement.
2.16. FINANCIAL STATEMENTS. The Company has provided to the Investors
the Company's: (i) audited balance sheets as at March 31, 1996 and March 31,
1997, and the related statements
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<PAGE> 5
of operations, changes in stockholders' equity, and cash flows for the fiscal
years ended March 31, 1995, March 31, 1996 and March 31, 1997, certified by the
independent certified public accountants of the Company (the "Base Financial
Statements") (the audited balance sheet is referred to as the "Base Balance
Sheet"); (ii) unaudited balance sheet (the "Most Recent Balance Sheet") and
related statements of operations, changes in stockholders' equity, and cash
flows for the period ended February 28, 1998, certified by the Company's Chief
Financial Officer (the "Most Recent Financial Statements"); and (c) a complete
and correct copy of the Report of Independent Accountant addressed to the
Company dated March 30, 1998. The Base Financial Statements and the Most Recent
Financial Statements were prepared in accordance with generally accepted
accounting principles (except that the Most Recent Financial Statements do not
include all of the information and notes required for complete financial
statements) consistently applied during the periods covered thereby and fairly
present in all material respects the financial condition of the Company on the
dates of such statements and the results of its operations and its cash flows
for the periods covered thereby. Nothing has come to the attention of the
Company's management since such respective dates which would indicate that such
financial statements were not true and correct in all material respects as of
the date thereof.
2.17. PROJECTIONS. Projections for the Company's fiscal years ended
1999 and 2000 (the "Projections") have been made available for inspection by the
Investors. The Projections represent management's good faith estimates of the
future performance of the Company based upon assumptions which are set forth
therein and which, in the reasonable judgment of management, were reasonable
when made and continue to be reasonable as of the date hereof; PROVIDED,
HOWEVER, THAT THERE IS NO ASSURANCE THAT THE PROJECTED RESULTS WILL ACTUALLY BE
ACHIEVED. IN THAT REGARD, PROJECTIONS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT
FROM ANY FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY
SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS: GENERAL
ECONOMIC AND BUSINESS CONDITIONS; INDUSTRY CAPACITY; DEMOGRAPHIC CHANGES;
COMPETITION; RAW MATERIAL COSTS AND AVAILABILITY; IMPORT PROTECTION AND
REGULATION; THE LOSS OF ANY SIGNIFICANT CUSTOMERS; CHANGES IN BUSINESS STRATEGY
OR DEVELOPMENT PLANS; QUALITY OF MANAGEMENT; AVAILABILITY, TERMS AND DEPLOYMENT
OF CAPITAL; BUSINESS ABILITIES AND JUDGMENT OF PERSONNEL; AVAILABILITY OF
QUALIFIED PERSONNEL; AND CHANGES IN OR THE FAILURE TO COMPLY WITH GOVERNMENT
REGULATIONS.
2.18. ABSENCE OF UNDISCLOSED LIABILITIES. As of the date of the Most
Recent Balance Sheet: (i) the Company did not have any material liabilities; and
(ii) the Company had no indebtedness, in either case, whether accrued, absolute
or contingent, asserted or unasserted, including without limitation, liabilities
as guarantor or otherwise with respect to obligations of others, or liabilities
for taxes due or then accrued or to become due, or contingent or potential
liabilities relating to activities of the Company or the conduct of its business
prior to the date of the Most Recent Balance Sheet, which were required to be
disclosed in the Most Recent Balance Sheet in accordance with generally accepted
accounting principles, except liabilities stated or adequately reserved against
or disclosed on the Most Recent Balance Sheet or the notes thereto.
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<PAGE> 6
2.19. ABSENCE OF CHANGES. Since the date of the Most Recent Balance
Sheet, except for entering into the Inter-Company Agreements, the Company has
conducted its business only in the ordinary course consistent with past
practice, and to the Company's knowledge there has not been:
(a) any material change in the financial or other condition,
properties, assets, liabilities, business, prospects or operations of
the Company, which change by itself or in conjunction with all other
such changes, whether or not arising in the ordinary course of
business, has had or could reasonably be expected to have a Material
Adverse Effect;
(b) any material contingent liability incurred by the Company
as guarantor or otherwise with respect to the obligations of others or
any cancellation of any debt or claim owing to, or waiver of any
material right of, the Company;
(c) any material mortgage, encumbrance or lien placed on any
of the properties of the Company which remains in existence on the date
hereof or will remain on the Closing Date;
(d) any obligation or liability of any nature, whether
accrued, absolute or contingent, incurred by the Company other than
obligations and liabilities incurred in the ordinary course of business
or incurred as a result of or arising out of the transactions
contemplated by this Agreement;
(e) any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of
any properties or assets of the Company other than in the ordinary
course of business;
(f) any damage, destruction or loss, whether or not covered by
insurance, which has had or could reasonably expected to have a
Material Adverse Effect;
(g) any declaration, setting aside or payment of any dividend
by the Company, or the making of any other distribution in respect of
the capital stock of the Company, or any direct or indirect redemption,
purchase or other acquisition by the Company of its own capital stock;
(h) any labor trouble or claim of unfair labor practices
involving the Company; any material change in the compensation payable
or to become payable by the Company to any of its officers, employees,
agents or independent contractors; or any bonus payment or arrangement
made to or with any of such officers, employees, agents or independent
contractors, other than normal merit increases in accordance with its
usual practices;
(i) any material change in the officers or management of the
Company;
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(j) any payment or discharge of any lien or liability of the
Company which was not shown on the Base Balance Sheet or incurred in
the ordinary course of business thereafter;
(k) any obligation or liability incurred by the Company to any
of its officers, directors, stockholders or employees, or any loans or
advances made by the Company to any of its officers, directors,
stockholders or employees, except normal compensation and expense
allowances payable to officers or employees;
(l) any material change in accounting methods or practices,
credit practices or collection policies of the Company;
(m) any other material transaction entered into by the Company
other than transactions in the ordinary course of business;
(n) any event or condition of any nature, which, either
individually or in the aggregate, has had or could reasonably be
expected to have a Material Adverse Effect; or
(o) any agreement or understanding whether in writing or
otherwise, for the Company to take any of the actions specified in
paragraphs (a) through (m) of this Section 2.19.
2.20. ACCOUNTS RECEIVABLE. Except to the extent reserved against in the
Most Recent Balance Sheet, all of the accounts receivable of the Company are
valid and enforceable claims, the Company has received no notice that such
claims are subject to set-off or counterclaim, and such claims, to the knowledge
of the Company, are collectable in the normal course of business, after
deducting the allowance for doubtful accounts stated in the Most Recent Balance
Sheet and adjusted since the date thereof in accordance with generally accepted
accounting principles consistently applied.
2.21. TAX MATTERS. The Company has filed all federal, state, local and
foreign tax returns required to be filed by it through the date hereof, and has
paid or caused to be paid all federal, state, local, foreign and other taxes,
including without limitation income taxes, estimated taxes, excise taxes, sales
taxes, use taxes, gross receipts taxes, franchise taxes, employment and
payroll-related taxes, withholding taxes, stamp taxes, transfer taxes and
property taxes, whether or not measured in whole or in part by net income
(collectively, "Taxes"), required to be paid by the Company through the date
hereof, except Taxes which have been disputed or have not yet accrued or
otherwise become due and payable, for which adequate provision has been made in
the pertinent financial statements.
2.22. TITLE TO PROPERTIES. The Company has good and marketable title to
all of its properties and assets, free of all mortgages, pledges, liens,
security interests, encumbrances, and other charges. There is no material
tangible or intangible property, including, without limitation,
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trademarks, service marks, styles, trade names, copyrights, licenses, patents,
and trade secrets (including applications, certificates and registrations for or
of any of the foregoing), used by the Company in its business as presently
conducted by it which is not owned, leased or licensed by the Company. The
Company's property is sufficient for the conduct of the Company's business as
presently conducted. All material contracts, agreements, leases and instruments
to which the Company is a party or by which the Company is obligated are valid
and are in full force and effect and constitute legal, valid and binding
obligations of the Company, and, are enforceable in accordance with their
respective terms, and copies of all such agreements have been provided to
Shipman & Goodwin LLP, special counsel for the Investors. The Company has no
knowledge of any threat to terminate or modify any such agreements. Neither the
Company nor, to the knowledge of the Company, any other party to any material
contract, agreement or instrument of the Company is in default in complying with
any provisions thereof. There is no loan, lease, agreement or other continuing
transaction between the Company and any Related Party (as defined in the
Stockholders agreement, which is defined herein). To the Company's knowledge,
neither the Company's business nor products or services as presently conducted
or sold infringe any Intellectual Property (defined herein) of any third
parties, and there are no claims to that effect pending or threatened against
the Company.
2.23. LITIGATION. There is no litigation or governmental or
administrative proceeding or investigation pending or, to the Company's
knowledge, threatened against the Company.
2.24. INVESTMENT BANKING; BROKERAGE FEES. The Company has not incurred
or become liable for any broker's or finder's fee, banking fees or similar
compensation, relating to or in connection with the transactions contemplated
hereby.
2.25 FRANCHISES, LICENSES, TRADEMARKS, PATENTS AND OTHER RIGHTS.
(a) The Company owns or has the right to use all (i)
franchises, permits, licenses and other similar authority, (ii)
patents, patent applications, patent rights, service marks, trademarks,
trademark applications, trademark rights, trade names, trade name
rights and copyrights (whether registered or not), and (iii) know-how,
technology and trade secrets which have been used in the conduct of the
Company's business, or are necessary for the conduct of the Company's
business as now conducted or as presently planned to be conducted (the
"Intellectual Property"). The Intellectual Property is sufficient for
the conduct of the Company's business as presently conducted.
(b) The Company has all franchises, permits, licenses and
other similar authority, necessary for the conduct of its business as
now being conducted by it and has no reason to believe it will be
unable to obtain any similar authority necessary for the conduct of its
business as presently planned to be conducted, and it is not in
violation, nor will the transactions contemplated by this Agreement
cause a violation of the terms or provisions of any such franchise,
permit, license or other similar authority.
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2.26 ISSUANCE TAXES. All taxes imposed by any state or other
jurisdiction in connection with the issuance, sale and delivery of the Purchased
Shares shall have been fully paid, and all laws imposing such taxes shall have
been fully complied with, prior to each Closing Date.
2.27 OFFERING. Within the past six (6) months, the Company has not,
either directly or through any agent, offered any of the Purchased Shares or any
security or securities similar to the Purchased Shares for sale to, or solicited
any offers to buy the Purchased Shares or any part thereof or any such similar
security or securities from, or otherwise approached or negotiated in respect
thereof with, any party or parties other than the Purchasers or institutional or
other sophisticated investors, each of which was offered all or a portion of the
Shares at private sale for investment. Subject in part to the truth and accuracy
of the Purchasers' representations set forth in this Agreement, the offer, sale
and issuance of the Shares as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act, and all applicable state
securities laws, and neither the Company, Telxon nor anyone acting on behalf of
either of them will take any action hereafter that would cause the loss of such
exemption.
2.28 EMPLOYEES.
(a) No employee of the Company is, or is now expected to be,
in violation of any term of any employment contract, patent disclosure
agreement, non-competition agreement, or any other contract or
agreement with any prior employer or any other person, corporation, or
other entity or any restrictive covenant in such an agreement, or any
obligation imposed by common law or otherwise, relating to the right of
any such employee to be employed by the Company or companies similarly
situated because of the nature of the business conducted or to be
conducted by the Company, or companies similarly situated or relating
to the use of trade secrets or proprietary information of others, and
the continued employment of the Company's employees and/or does not
subject the Company or any Purchaser to any material liability for any
such violation.
(b) Each of the Company's present or former employees who has
had access to proprietary information of the Company has executed a
proprietary information and inventions agreement assigning inventions,
works for hire and work product to the Company. To the best of the
Company's knowledge and belief, no employee or former employee of the
Company is, or to the best of the Company's knowledge and belief is now
expected to be, in violation of the terms of the aforesaid agreement or
of any other obligation relating to the use of confidential or
proprietary information of the Company, except for such violations as
could not reasonably be expected to have a Material Adverse Effect.
Each of such Proprietary Information Agreements remains in full force
and effect.
(c) To the best knowledge of the Company, no officer or key
employee of the Company has any present intent of terminating such
officer's or key employee's employment with the Company.
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(d) The Company is in substantial compliance with all
applicable laws regarding employment, wages, hours, equal opportunity,
collective bargaining and payment of Social Security and other taxes.
The Company is in compliance with all applicable foreign, federal,
state and local laws and regulations regarding occupational safety and
health standards and has received no complaints from any foreign,
federal, state or local agency or regulatory body alleging violations
of any such laws and regulations, except where non-compliance, or such
violation, could not reasonably be expected to have a Material Adverse
Effect.
(e) The Company has not experienced, nor does it know or have
reasonable grounds to know of any basis for, any strike, labor troubles
or strife, work stoppages, slow downs, or other interference with or
impairment of its business. The Company has not experienced, nor does
it know or have reasonable grounds to know of, any union or collective
bargaining organization efforts or negotiations, or requests for
negotiations, for any representation or any labor contract relating to
any employees of the Company.
2.29 BUSINESS OF THE COMPANY. The Company has no knowledge or belief
that (i) there is pending or threatened any claim or litigation against or
affecting the Company contesting its right to manufacture, sell or use any
product or service presently manufactured, sold or used or presently planned to
be manufactured, sold or used by the Company, (ii) there exists, or there is
pending or planned, any statute, rule, law, regulation, standard or code which
could not reasonably be expected to have a Material Adverse Effect or could
reasonably be expected to have a Material Adverse Effect.
2.30 USE OF PROCEEDS. The Company will use the proceeds of the offering
of the Company Shares for working capital purposes in the manner set forth in
the Company Disclosure Schedule, and for the costs and expenses of the
transactions contemplated hereby. The Company presently expects that it will
obtain a commercial credit facility. If obtained, the credit facility will be
utilized to repay any then unpaid balance of the funding heretofore advanced by
Telxon to the Company (the "Inter-Company Debt"). In the event that the
Company's credit facility is not established by May 18, 1998, then Telxon may
set off up to twenty five percent (25%) of the amounts payable during any month
by Telxon to the Company under the Inter-Company Agreements against the
Inter-Company Debt, on mutually agreeable terms, including reasonable
forbearances, until such time as the Inter-Company Debt is repaid.
2.31 APPLICABILITY OF, AND COMPLIANCE WITH, OTHER LAWS.
(a) With respect to pension plans, defined benefit plans or
defined contribution plans which are subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), in which employees
of the Company participate, the Company is in compliance with the
applicable provisions of ERISA. The Company has not incurred any
unremedied accumulated funding deficiency within the meaning of ERISA
or any unsatisfied liability to the Pension Benefit Guaranty
Corporation established under ERISA
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in connection with any employee pension plan established or maintained
by the Company under the jurisdiction of ERISA. No Reportable Event or
Prohibited Transaction (as defined in Section 4043 of ERISA) has
occurred with respect to any plan administered by or on behalf of the
Company.
(b) The Company's employment practices and policies are in
full compliance with (i) all applicable laws of the United States and
each applicable jurisdiction relating to equal employment opportunity,
and any rules, regulations, administrative orders and Executive Orders
relating thereto; and (ii) the applicable terms, relating to equal
opportunity, of any contract, agreement or grant the Company has with,
from or relating (by way of subcontract or otherwise) to any other
contract, agreement or grant of, any federal or state governmental
unit, except where non-compliance could not reasonably be expected to
have a Material Adverse Effect. To the Company's knowledge, the Company
has not been the subject of any charge of unfair labor practices,
employment discrimination made against it by the National Labor
Relations Board, the United States Equal Employment Opportunity
Commission or any other governmental unit, or is presently subject to
any formal or informal proceedings before, or investigations by, such
Commission or governmental unit. To the Company's knowledge, neither
the Company nor any employees of the Company, are presently under
investigation by any commission or governmental agency for purposes of
security clearance or otherwise.
(c) Neither the Company nor any property owned or occupied by
the Company is in violation of any Federal or State Environmental Law
of any sort or in violation of any Federal or State "OSHA" law,
so-called, except where such violations could not reasonably be
expected to have a Material Adverse Effect.
2.32 CONDITION OF PROPERTIES. The facilities, machinery, equipment,
fixtures, vehicles and other properties which are used by the Company in its
business as presently conducted, are in good operating condition and repair, are
reasonably fit and usable for the purposes for which they are being used, are
adequate and sufficient for the Company's businesses and conform with all
applicable ordinances, regulations and laws, except where such failure to
conform could not reasonably be expected to have a Material Adverse Effect.
2.33 INSURANCE COVERAGE. The Company has heretofore been insured under
Telxon's insurance policies. The Company has no reason to believe that it will
be unable to obtain one or more policies of insurance issued by insurers of
recognized responsibility, to insure the Company, and its properties and
business against such losses and risks, and in such amounts, as are customary in
the case of corporations of established reputation engaged in the same or
similar business and similarly situated.
2.34 EXCEPTIONS AND QUALIFICATIONS. The exceptions and qualifications
to the representations and warranties of the Company in this Article II which
are based upon such
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exceptions and qualifications not being "material" or being "in all material
respects," or not having a "Material Adverse Effect" will not, in the aggregate,
have a Material Adverse Effect.
III. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
3.1. MAKING OF REPRESENTATIONS AND WARRANTIES. Each Investor, as to
itself, makes to the Company the representations and warranties set forth in
this Article III. Each such representation and warranty is subject to and
qualified by the other provisions of this Agreement, and the exceptions set
forth in each Investor's disclosure schedule attached hereto (the "Investor
Disclosure Schedule").
3.2. ORGANIZATION. The Investor is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization, and in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the Investor. Investor has all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby.
3.3. POWER. The Investor has all required power and authority to enter
into and perform this Agreement and the agreements contemplated hereby to which
it is a party and to carry out the transactions contemplated hereby and thereby,
including the purchase of the Purchased Shares. To its knowledge, the Investor
is not in violation of any material term of: (i) its organizational instruments;
(ii) its Bylaws or similar governing regulations or (iii) any agreement,
instrument, judgment, decree, order, statute, rule or government regulation
applicable to the Investor or to which the Investor is a party, the violation of
which would have a material adverse effect on the Investors.
3.4. ENFORCEABLE AGREEMENT. This Agreement and all other documents
executed by the Investor pursuant hereto are valid and binding obligations of
the Investor, enforceable in accordance with their terms, except as limited by
the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and rules and laws governing specific performance, injunctive
relief and other equitable remedies.
3.5. AUTHORIZATION. The execution, delivery and performance of this
Agreement, all agreements, documents and instruments contemplated hereby and the
purchase of the Purchased Shares have been duly authorized by all necessary
action of the Investor.
3.6. INVESTMENT EXPERIENCE; SECURITIES LAWS. The Investor has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment in the Purchased Shares
contemplated by this Agreement and making an informed investment decision with
respect thereto. The Investor can bear the risk of its investment in the
Purchased Shares indefinitely and can bear a total loss of such investment
without materially impairing its financial condition. The Investor is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act of 1933, as amended (the "Securities Act"). The Investor
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understands, agrees and acknowledges that the Purchased Shares have not been
registered under the Securities Act or under the "blue sky" laws of any
jurisdiction and, subject to the Registration Rights Agreement, that the Company
has no intention of registering the Purchased Shares. The Company is issuing the
Purchased Shares in reliance upon exemptions from registration based on, among
other things, the representations of such Investor contained in this Article
III. Investor further understands, acknowledges and agrees that unless and until
the Purchased Shares are registered by the Company, their resale is restricted
by the Securities Act and blue sky laws, and by restrictions in the Stockholders
Agreement. Investor's address as set forth in EXHIBIT A is the address of
Investor's principal place of business.
3.7. OPPORTUNITY TO ASK QUESTIONS. The Investor has made a due
diligence investigation of the Company, including an analysis of the Company's
business, assets, financial data and other material information, and it has read
and understands the risk factors disclosed by the Company in EXHIBIT D. The
attachment of EXHIBIT D to this Agreement, and the Investor's acknowledgment
that it has read and understands the same, shall not in any way limit the
Company's representations and warranties made in Article II, and EXHIBIT D does
not qualify or limit such representations and warranties. To its satisfaction,
the Investor has had an opportunity to discuss the Company's business,
management and financial affairs, the transactions contemplated hereunder, with
directors, officers and management of the Company and has had the opportunity to
review the Company's operations, facilities and the Inter-Company Agreements.
3.8. INVESTMENT INTENT. The Investor is acquiring the Purchased Shares
for its own account, for investment, and not with a present view to, or for
resale in connection with, any "distribution" thereof within the meaning of the
Securities Act. The Investor was not formed or organized for the purpose of
acquiring the Securities.
3.9. SHARE CERTIFICATE LEGENDS. The Investor understands that transfer
of the Purchased Shares is restricted, and each certificate representing the
Purchased Shares will bear the following restrictive legends or ones
substantially similar thereto, to provide third parties with notice of these
restrictions:
OWNERSHIP, ENCUMBRANCE, PLEDGE, ASSIGNMENT, TRANSFER, OR OTHER
DISPOSITION OF THE SHARES EVIDENCED BY THIS CERTIFICATE, AND
ANY SHARES ISSUED IN LIEU THEREOF, ARE SUBJECT TO RESTRICTIONS
CONTAINED IN A STOCKHOLDERS AGREEMENT DATED AND EFFECTIVE AS
OF MARCH ___, 1998, BY AND AMONG THE CORPORATION AND ITS
STOCKHOLDERS A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE
SECRETARY OF THE CORPORATION. A COPY OF THE STOCKHOLDERS
AGREEMENT AND THE CORPORATION'S BY-LAWS WILL BE MAILED BY THE
CORPORATION TO ANY STOCKHOLDER WITHOUT
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CHARGE WITHIN FIVE (5) DAYS AFTER WRITTEN
REQUEST THEREFOR.
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") OR APPLICABLE STATE SECURITIES LAWS ("STATE LAWS") AND
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT REGISTERING THE SHARES UNDER
THE ACT AND STATE LAWS OR (ii) A TRANSACTION PERMITTED BY RULE
144 OR RULE 145 UNDER THE ACT OR EQUIVALENT STATE LAWS FOR
WHICH THE ISSUER HAS RECEIVED REASONABLY SATISFACTORY EVIDENCE
OF COMPLIANCE WITH THE PROVISIONS OF SUCH APPLICABLE RULE OR
(iii) AN OPINION OF COUNSEL SATISFACTORY TO ISSUER THAT SUCH
SHARES ARE EXEMPT FROM THE REGISTRATION PROVISIONS OF THE ACT
AND STATE LAWS OR (iv) A NO-ACTION LETTER FROM THE STAFF OF
THE SECURITIES AND EXCHANGE COMMISSION AND THE APPLICABLE
STATE DIVISIONS OF SECURITIES THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT OR STATE LAWS."
3.10. INVESTMENT BANKING; BROKERAGE FEES. No Investor has incurred or
become liable for any broker's or finder's fee, banking fees or similar
compensation relating to or in connection with the transactions contemplated
hereby.
IV. CONDITIONS.
4.1. CONDITIONS TO THE OBLIGATIONS OF THE INVESTORS. The obligation of
each Investor to consummate the transactions contemplated by this Agreement is
subject to the fulfillment, prior to or at the Closing, of the following
conditions precedent:
(a) REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the
representations and warranties of the Company made in Article II shall
be true and correct in all respects when made and shall be true and
correct in all respects at the Closing as if made on the Closing Date,
and the Company shall, on or before the Closing Date, have performed
and satisfied all of its covenants and agreements set forth herein
which by the terms hereof are to be performed and satisfied on or
before the Closing Date.
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(b) AUTHORIZATION. The Board of Directors and the stockholders
of the Company shall have duly adopted resolutions authorizing the
Company to consummate the transactions contemplated hereby in
accordance with the terms hereof.
(c) NO ACTIONS OR PROCEEDINGS. No action or proceeding by or
before any court, administrative body or governmental agency shall have
been instituted or threatened which seeks to enjoin, restrain or
prohibit, or might result in damages in respect of, this Agreement or
the consummation of the transactions contemplated by this Agreement,
and no law or regulation shall be in effect and no court order shall
have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the
consummation of the transactions contemplated by this Agreement.
(d) APPROVALS AND CONSENTS. The Company shall have made all
filings with and notifications of governmental authorities, regulatory
agencies and other entities then required to be made by them in
connection with the execution and delivery of this Agreement and the
performance by it of the transactions contemplated hereby.
(e) MATERIAL ADVERSE CHANGES. There shall not have been any
change or series of changes that have a Material Adverse Effect.
(f) INTER-COMPANY AGREEMENTS. The Inter-Company Agreements
shall be in full force and effect without amendment, and no default
shall exist or would result from consummation of the transactions
contemplated herein.
(g) STOCKHOLDERS AGREEMENT. The Company, the Investors and the
other stockholders of the Company shall have entered into a
Stockholders Agreement in substantially the form attached hereto as
EXHIBIT E (the "Stockholders Agreement").
(h) REGISTRATION RIGHTS AGREEMENT. The Company, the Investors
and the stockholders of the Company shall have entered into a
Registration Rights Agreement in substantially the form attached hereto
as EXHIBIT F (the "Registration Rights Agreement").
(i) BY-LAW AMENDMENTS. The By-Laws shall be amended to provide
for the rights and provisions set forth in the Stockholders Agreement.
(j) FULL EQUITY FUNDING. Each other Investor shall have paid
in full for the Purchased Shares set forth opposite to such Investor's
name on EXHIBIT A.
(k) DELIVERIES AND EXPENSES. The Company shall have made all
deliveries to the Investors required under Section 5.1, and the Company
shall have paid the reasonable attorneys fees of Axiom Venture Partners
II Limited Partnership, an Investor, incurred on behalf of all
Investors.
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4.2. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to consummate the transactions contemplated by this Agreement are
subject to the fulfillment, prior to or at the Closing, of the following
conditions precedent:
(a) REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the
representations and warranties of each Investor made in Article III
shall be true and correct in all material respects at the Closing as if
made on the Closing Date, and each Investor shall, on or before the
Closing Date, have performed and satisfied all of its covenants and
agreements set forth herein which by the terms hereof are to be
performed and satisfied on or before the Closing Date.
(b) NO ACTIONS OR PROCEEDINGS. No action or proceeding by or
before any court, administrative body or governmental agency shall have
been instituted or threatened which seeks to enjoin, restrain or
prohibit, or might result in damages in respect of, this Agreement or
the consummation of the transactions contemplated by this Agreement,
and no law or regulation shall be in effect and no court order shall
have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the
consummation of the transactions contemplated by this Agreement.
(c) STOCKHOLDERS AGREEMENT. The Company, the Investors and the
other stockholders of the Company shall have entered into the
Stockholders Agreement.
(d) REGISTRATION RIGHTS AGREEMENT. The Company, the Investors
and the stockholders of the Company shall have entered into the
Registration Rights Agreement.
(e) FULL EQUITY FUNDING. Each of the Investors shall have paid
in full for Purchased Shares set forth opposite such Investor's name on
EXHIBIT A.
V. CLOSING DELIVERIES.
5.1 COMPANY. At or before Closing, the Company shall have duly executed
and delivered, or caused the delivery, to each Investor all items required by
this Agreement, including, without limitation:
(a) Certificates evidencing the Purchased Shares and the
Warrants;
(b) Certified copies of resolutions of the Board of Directors
of the Company authorizing the execution and delivery and performance
of this Agreement, the Stockholders Agreement, the Registration Rights
Agreement, the issuance of the Purchased Shares and the other
agreements and instruments contemplated herein;
(c) Certificates of recent date issued by (i) the Secretary of
State of the State of Delaware certifying that the Company is in good
standing; and (ii) the Secretary of State
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of the State of Ohio certifying the Company has qualified to do
business as a foreign corporation and is in good standing in Ohio;
(d) A certificate of the Secretary or an Assistant Secretary
of the Company certifying the names of the officers of the Company
authorized to execute this Agreement, the certificates for the
Purchased Shares and the other documents, instruments or certificates
to be delivered pursuant to this Agreement by the Company.
(e) An opinion of counsel for the Company dated the Closing
Date, in the form attached hereto as EXHIBIT G.
(f) A certificate of an officer of the Company in the form
attached as EXHIBIT H, certifying that certain conditions to the
Investors' obligation to consummate the transactions contemplated
herein have been satisfied.
5.2 INVESTORS. At or before Closing, each Investor shall have paid the
purchase price set forth in EXHIBIT A opposite its name, to the Company in
immediately available funds, by wire transfer pursuant to the wire instructions
set forth in EXHIBIT C.
VI. SURVIVAL; INDEMNIFICATION.
6.1. SURVIVAL. All representations and warranties made herein and in
any certificate delivered pursuant hereto, are made as of the Closing Date, and
shall survive the Closing for a period of two (2) years after the Closing Date.
6.2. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify,
defend and hold harmless each of the Investors, their affiliates and their
respective officers, directors, partners, members, employees and agents and each
person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(including any successor provision, the "Exchange Act") (individually, an
"Investor Indemnified Party" and collectively the "Investor Indemnified
Parties") from and against and in respect of all losses, liabilities,
obligations, damages, deficiencies, actions, suits, proceedings, demands,
assessments, orders, judgments, fines, penalties, costs and expenses (the
Company shall be responsible for reasonable fees, disbursements and expenses of
an attorney, accountant or consultant: (i) acting for the Investor Indemnified
Parties as a group; and (ii) acting for an Indemnified Party that has a material
conflict of interest with other Indemnified Parties which prevents its inclusion
in such group representation), of any kind or nature whatsoever (whether or not
arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) sustained, suffered or
incurred by or made against any Investor Indemnified Party (an "Investor Loss"
or "Investor Losses") arising out of, based upon or in connection with any
breach by the Company of any of its representations, warranties or covenants
under this Agreement or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such
representations or warranties ("Investor
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Indemnifiable Claims"). Indemnification under this Section 6.2 shall be
cumulative with other rights and remedies an Investor may have, but no
Indemnified Party shall be entitled to more than a single recovery for the same
damage, regardless of the theory under which such recovery is made. Any action
for indemnification for Investor Losses arising from Investor Indemnifiable
Claims must be commenced within the two (2) year period commencing on the
Closing Date, and any statute of limitations applicable thereto is hereby
superseded.
6.3. NOTICE; DEFENSE OF CLAIMS. Promptly after receipt by an
indemnified party of notice of any claim, liability or expense to which the
indemnification obligations set forth in Section 6.2 would apply, the
indemnified party shall give notice thereof in writing to the indemnifying
party. Such notice shall state the information then available regarding the
amount and nature of such claim, liability or expense and shall specify the
provision or provisions of this Agreement under which the liability or
obligation is asserted. If within twenty (20) days after receiving such notice
the indemnifying party gives written notice to the indemnified party stating
that (a) it would be liable under the provisions hereof for indemnity in the
amount of such claim if such claim were successful and (b) that it disputes and
intends to defend against such claim, liability or expense at its own cost and
expense, then counsel for the defense shall be selected by the indemnifying
party (subject to the consent of the indemnified party, which consent shall not
be unreasonably withheld or delayed), and the indemnified party shall not be
required to make any payment with respect to such claim, liability or expense as
long as the indemnifying party is conducting a good faith and diligent defense
at its own expense. The indemnifying party shall have the right, with the
consent of the indemnified party, which consent shall not be unreasonably
withheld or delayed, to settle all indemnifiable matters related to claims by
third parties which are susceptible to being settled, provided its obligation to
indemnify the indemnifying party therefor will be fully satisfied. The
indemnifying party shall keep the indemnified party apprized of the status of
the claim, liability or expense and any resulting suit, proceeding or
enforcement action, shall furnish the indemnified party with all documents and
information that the indemnified party shall reasonably request and shall
consult with the indemnified party prior to acting on major matters, including
settlement discussions. The indemnified party, at the indemnifying party's
expense, shall make available all information and assistance that the
indemnifying party may reasonably request and shall, at the indemnifying party's
expense, cooperate with the indemnifying party in any defense undertaken
pursuant to this Section 6.3, with any out of pocket expense incurred by the
indemnified party being born by the indemnifying party. Notwithstanding anything
herein to the contrary, the indemnified party shall at all times have the right
to fully participate in such defense at its own expense directly or through
counsel; provided, that if the named parties to the action or proceeding include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate under applicable standards of
professional conduct, the expense of separate counsel for the indemnified party
shall be paid by the indemnifying party. If no such notice of intent to dispute
and defend is given by the indemnifying party, or if such diligent good faith
defense is not being or ceases to be conducted, the indemnified party may, at
the expense of the indemnifying party, undertake the defense of (with counsel
selected by the indemnified party), and shall have the right to compromise or
settle (exercising reasonable business judgment), such claim, liability or
expense.
18
<PAGE> 19
VII. MISCELLANEOUS.
7.1. GOVERNING LAW; JURISDICTION. This Agreement shall be construed
under and governed by the laws of the State of Ohio, without regard to conflict
or choice of laws, statutes, regulations, rules or principles. Any action
relating to the execution or performance of this Agreement shall be brought in
the courts, state or federal, sitting in Summit County, Ohio, and each party
hereto consents to the jurisdiction and venue of such courts, and agrees not to
contest venue on the grounds of forum non conveniens or otherwise.
7.2. NOTICES. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given upon receipt, or if delivered or sent by facsimile transmission, upon
confirmation of transmission, or if sent by overnight courier, the second day
after deposit, as follows:
TO THE INVESTORS: To the respective addresses on
EXHIBIT A attached hereto
TO THE COMPANY: Aironet Wireless Communications, Inc.
at the address set forth at the
beginning of this Agreement.
Attn: President
Fax Number: 330-664-7986
with a copy to: Goodman Weiss Miller LLP
100 Erieview Plaza, 27th Floor
Cleveland, Ohio 44114
Attn: Robert A. Goodman/Jay R. Faeges
Fax Number: 216-363-5835
or to such other address of which any party may notify the other parties
provided in accordance with this Section 7.2.
7.3. PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes all prior
and contemporaneous understandings and agreements, written or oral, between or
among the parties relating to the subject matter hereof.
7.4. ASSIGNABILITY. Neither this Agreement nor any right or obligation
hereunder may be assigned or delegated (i) by the Company, or (ii) by an
Investor to a direct competitor of the Company, or a direct competitor of Telxon
so long as Telxon owns twenty percent (20%) or more of the Company's issued and
outstanding capital stock (either being a "Competitor"), and any such assignment
or delegation shall be void and of no effect. The merger, consolidation, asset
sale, change of control, or any other reorganization of an Investor with or into
a Competitor, or of a Competitor with or into a party, shall be deemed an
assignment under this Section 7.4. Subject to the foregoing, this Agreement
shall be binding upon and enforceable by, and shall inure to the
19
<PAGE> 20
benefit of, the parties hereto and their respective successors and assigns.
Nothing in this Agreement is intended to give any person not named herein the
benefit of any legal or equitable right, remedy or claim under this Agreement,
except as expressly provided herein.
7.5. FEES AND EXPENSES. Except as expressly provided for in Section
4.1(k) of this Agreement, each party shall bear all of its fees and expenses
incurred in connection with or relating to or arising out of the negotiation and
preparation of this Agreement and the consummation of the transactions
contemplated hereby.
7.6. PUBLICITY AND DISCLOSURES. None of the parties hereto nor any of
their respective stockholders, subsidiaries, affiliates, officers, directors or
employees shall issue or cause the publication of any press release or other
announcement with respect to this Agreement or the other transactions
contemplated hereby without the prior written consent of the other parties
hereto, which consent shall not be unreasonably withheld or delayed, except to
the extent disclosure is required by any applicable law or regulation or by any
court or authorized administrative or governmental agency, and except that the
provisions of this Section 7.6 shall not prohibit any Investor from providing to
its partners or equity owners customary information with respect to the Company
and the Investor's investment in the Company.
7.7 CONFIDENTIALITY. All documents delivered by or for the Company
and/or Telxon to an Investor in connection with its investigation of the Company
and the transaction contemplated herein are privileged and confidential
information of the Company and/or Telxon ("Confidential Information"). Investors
shall not disseminate or disclose any Confidential Information, and shall use
the same degree of care to protect the Confidential Information in its
possession or control as it uses to protect its own confidential information,
but in no case less than reasonable care. Neither an Investor nor its officers,
directors, employees, attorneys, accountants, professional advisors or other
representatives may use or copy any Confidential Information for any purpose
other than for the purpose of evaluating the transactions contemplated herein.
Neither an Investor nor any of the above-described persons have any rights in
the Confidential Information, and shall not disclose, give, sell, license,
lease, or otherwise transfer or make available the Confidential Information to
any third person, organization or entity. In the event that the Closing does not
take place, all Confidential Information furnished to or for an Investor, and
any copies thereof made, and documents, analysis and other writings prepared
therefrom, by or for an Investor or any of the above-described persons shall be
returned to the Company, or destroyed at the Company's option, immediately after
receipt by the Investor of the Company's request and direction to do so.
7.8. CAPTIONS. The captions in this Agreement are for convenience only
and shall not affect the construction or interpretation of any term or provision
hereof.
7.9. NUMBER AND GENDER. The use in this Agreement of singular, plural,
masculine, feminine and neuter pronouns, shall include the others as the context
may require.
20
<PAGE> 21
7.10. EXECUTION IN COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same document. An executed
faxed counterpart of this Agreement shall be binding on the parties and for
evidentiary purposes, shall be deemed to be an original.
7.11. SEVERABILITY. In case any of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had been limited or modified
(consistent with its general intent) to the extent necessary to make it valid,
legal and enforceable, or if it shall not be possible to so limit or modify such
invalid, illegal or unenforceable provision or part of a provision, this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision or part of a provision had never been contained in this Agreement, so
long as to do so would not materially alter the rights or obligations of the
parties considered as a whole.
7.12. AMENDMENTS; WAIVERS. Any waiver by a party of any provision,
covenant or condition intended for its benefit must be in writing and executed
by that party; provided, however, that any waiver by the Investors holding fifty
percent (50%) or more of the Purchased Shares shall be deemed to be a waiver by
all Investors, provided that if a waiver treats any Investor differently from
other Investors, it must be consented to by such Investor. No delay on the part
of any party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any waiver on the part of any party of any such
right, power or privilege preclude any further exercise thereof or the exercise
of any other such right, power or privilege. This Agreement may not be amended
as to any Investor except in writing executed by the Company and by the Investor
affected by such amendment; provided, however, that any amendment which has been
agreed to by the Investors holding fifty percent (50%) or more of the Purchased
Shares shall be deemed to have been agreed to by all Investors, unless such
amendment treats any Investor differently from other Investors.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first set forth above.
COMPANY: AIRONET WIRELESS COMMUNICATIONS, INC.
By: /s/ Kenneth W. Haver
--------------------------------------
Kenneth W. Haver, Treasurer
INVESTORS, INDIVIDUALS: /s/ Frank B. Carr
------------------------------------------
FRANK B. CARR
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
INVESTORS, ENTITIES: AXIOM VENTURE PARTNERS II LIMITED
PARTNERSHIP
By: Axiom Venture Associates II Limited
Liability Company, its General Partner
By: /s/ Samuel F. McKay
--------------------------------------
Its:
--------------------------------------
HAMBRECHT & QUIST
By:
--------------------------------------
Its:
--------------------------------------
TELANTIS VENTURE PARTNERS V, INC.
By: /s/ Richard W. Dyer
--------------------------------------
Richard W. Dyer, Treasurer
W, A & H INVESTMENTS LLC
By: Wessels, Arnold & Henderson Group, L.L.C.,
its managing member
By: /s/ Ken J. Wessels
--------------------------------------
Ken J. Wessels, CEO/Managing Director
McDONALD & COMPANY SECURITIES, INC.
By:
--------------------------------------
Its:
--------------------------------------
CLARION CAPITAL CORPORATION
By: /s/ Mort Cohen
--------------------------------------
Its: Chairman
--------------------------------------
<PAGE> 1
Exhibit 10.14.1
OWNERSHIP, ENCUMBRANCE, PLEDGE, ASSIGNMENT, TRANSFER, OR OTHER DISPOSITION OF
THE WARRANTS EVIDENCED BY THIS CERTIFICATE, AND ANY SHARES ISSUED UPON THE
EXERCISE HEREOF, ARE SUBJECT TO RESTRICTIONS CONTAINED IN A STOCKHOLDERS
AGREEMENT DATED AND EFFECTIVE AS OF MARCH 31, 1998, BY AND AMONG THE CORPORATION
AND ITS STOCKHOLDERS (THE "STOCKHOLDERS AGREEMENT"), A COPY OF WHICH IS ON FILE
IN THE OFFICE OF THE SECRETARY OF THE CORPORATION.
NEITHER THE WARRANTS EVIDENCED BY THIS CERTIFICATE NOR ANY SHARES ISSUABLE UPON
ITS EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR APPLICABLE STATE SECURITIES LAWS ("STATE LAWS") AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
REGISTERING THE WARRANTS AND/OR SHARES UNDER THE ACT AND STATE LAWS OR (ii) A
TRANSACTION PERMITTED BY RULE 144 OR RULE 145 UNDER THE ACT OR EQUIVALENT STATE
LAWS FOR WHICH THE ISSUER HAS RECEIVED REASONABLY SATISFACTORY EVIDENCE OF
COMPLIANCE WITH THE PROVISIONS OF SUCH APPLICABLE RULE OR (iii) AN OPINION OF
COUNSEL SATISFACTORY TO ISSUER THAT SUCH WARRANTS AND/OR SHARES ARE EXEMPT FROM
THE REGISTRATION PROVISIONS OF THE ACT AND STATE LAWS OR (iv) A NO-ACTION LETTER
FROM THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION AND THE APPLICABLE
STATE DIVISIONS OF SECURITIES THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT OR
STATE LAWS.
Warrant Certificate No. __ Warrants to Purchase________ Shares of Common Stock
AIRONET WIRELESS COMMUNICATIONS, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
This certifies that for value received, __________________, or any
permitted transferee ("Holder"), is entitled to purchase from Aironet Wireless
Communications, Inc. ("Aironet") _______ shares (adjusted as provided in Exhibit
A, the "Warrant Shares") of Aironet's Common Stock, $.01 par value ("Common"),
at Three and 50/100 Dollars ($3.50) per share (adjusted as provided in Exhibit
A, the "Warrant Price"), which equals an aggregate purchase price of
___________________________ Dollars ($_________), at or after, and not before,
the consummation of the earlier of either (i) the first firm commitment
underwritten public offering of the Common (or units which include the Common as
an element) at a public offering price of not less than Eight Dollars ($8.00)
per share, pursuant to a Registration Statement, on Form S-1 or other
appropriate form, filed by Aironet under the Act, pursuant to which Aironet
receives proceeds, net of underwriting discounts, commissions and other expenses
of the offering, of not less than Eight Million Dollars ($8,000,000) ("IPO");
(ii) the sale of Aironet as an entirety, whether by merger, consolidation, stock
sale, asset sale, or otherwise, for the higher of a gross sale price of Seventy
Five Million Dollars ($75,000,000) or Eight Dollars ($8.00) per share ("Private
Sale"); (iii) a Change in Control (defined in Exhibit A); or (iv) a Spin-Off
(defined in Exhibit A) (the occurrence of an IPO, Private Sale, Change in
Control and/or Spin-Off is referred to herein as the "Exercise Event"). To the
extent remaining un-exercised, these Warrants shall terminate on March 31, 2001,
5:00 P.M., E.T., and thereafter shall entitle Holder to no rights. These
Warrants are subject to the terms and conditions set forth on the face of this
certificate and in Exhibit A attached hereto, which by this reference are
incorporated herein in their entirety.
Aironet Wireless Communications, Inc.
Date:_________________
------------------------------------
Roger J. Murphy, President
------------------------------------
Jay R. Faeges, Assistant Secretary
<PAGE> 2
EXHIBIT A
WARRANT TERMS AND CONDITIONS
AIRONET WIRELESS COMMUNICATIONS, INC.
1. TRANSFER. Transfer of the Warrants is restricted as set forth in
the restrictive legends set forth in the Warrant certificate to which this
Exhibit A is attached.
2. EXCHANGE OF WARRANT CERTIFICATE. Upon Holder's written request,
Aironet shall exchange the Warrant certificate for one or more certificates
entitling Holder to purchase a like aggregate number of Warrant Shares. At
Holder's request and upon delivery to Aironet of a Lost Warrant Affidavit and
surety bond reasonably acceptable to Aironet, Aironet will deliver to Holder
replacement Warrant certificates for mutilated, lost, stolen or destroyed
Warrant certificates.
3. EXERCISE OF AND PAYMENT FOR WARRANTS.
a. Exercise. The Warrants shall be deemed to have
been exercised automatically upon the consummation of a Private Sale
for which Aironet has provided the Holder at least fifteen (15) days
prior written notice, and upon Aironet's receipt of a Holder's written
notice of exercise provided to Aironet in the event of an IPO, Change
in Control or Spin-Off at any time prior to their termination as
provided on the face of the Warrant certificate to which this Exhibit A
is attached.
b. Payment of Warrant Price.
i. If the applicable Exercise Event is an IPO,
Change in Control or Spin-Off, then within ten (10) days of
Holder's receipt of written notice from Aironet of the event,
Holder shall pay the aggregate Warrant Price to Aironet by
wire transfer of immediately available funds, pursuant to wire
instructions provided to Holder by Aironet. Immediately upon
Holder's surrender of the Warrant certificate evidencing the
exercised Warrants and payment of the Warrant Price, Aironet
shall issue and deliver to Holder certificates for the Warrant
Shares then purchased. The Warrant Shares when paid for and
issued shall be fully paid and non-assessable, and shall be
deemed issued as of the date of surrender of the Warrant
certificate and payment of the aggregate Warrant Price.
ii. If the applicable Exercise Event is a Private
Sale, then Aironet shall provide Holder with at least fifteen
(15) days written notice prior to consummating such
transaction, and Holder shall receive, on a cashless exercise
basis, the kind and amount of consideration it would be
entitled to receive as if the Warrants had been duly exercised
in full prior to such event and as if Holder owned the number
of Warrant Shares that could be purchased with such
consideration, less the aggregate Warrant Price.
c. Payment of Taxes. Aironet will pay all documentary stamp
taxes, if any, attributable to the initial issuance and delivery of
the Warrant Shares, and Holder will pay all other taxes, if any.
d. Change in Control. A "Change in Control" is deemed to
have occurred upon (i) any Person is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (as
amended, the "Exchange Act")), directly or indirectly, of fifteen
percent (15%) or more of the combined voting power of Telxon's Voting
Securities, or (ii) the holders of Telxon's securities entitled to vote
thereon approve, or there otherwise occurs or is commenced, a sale,
lease, exchange or other disposition of all or substantially all the
assets, or the dissolution or liquidation, of Telxon, or any merger,
consolidation or reorganization to which Telxon is a party and as the
result of which Telxon's stockholders prior to the transaction do not
own at least fifty percent (50%) of the voting power of the surviving
entity in the election of directors, or (iii) the
A-1
<PAGE> 3
Continuing Directors cease for any reason to constitute at least a
majority of the Telxon Board of Directors, or (iv) any other event
occurs which is of such a nature that would be required to be reported
as a change in control in response to Item 1(a) of the Current Report
on Form 8-K, as in effect on the date hereof pursuant to Section 13 or
15(d) of the Exchange Act, or similar successor public filing.
"Continuing Directors" means and includes the persons constituting
Telxon's Board of Directors as of the date of this Agreement as well as
each person who becomes a director of Telxon subsequent to the date of
this Agreement whose election, or nomination for election by Telxon's
stockholders, was approved by an affirmative vote of at least a
majority of the then Continuing Directors (either by a specific vote or
by approval of the proxy statement of Telxon in which such person is
named as a nominee for director or of the inclusion of such person in
such proxy statement as such a nominee, in any such case without
objection by any member of such approving majority of the then
Continuing Directors to the nomination of such person or the naming of
such person as a director nominee), for so long as each such director
shall remain in office. "Person" means and includes any individual,
corporation, partnership, group, association or other "person", as such
term is used in Section 14(d) of the Exchange Act, but excluding Telxon
or any employee benefit plan sponsored by Telxon. "Voting Securities"
means the Telxon Common Stock, par value $0.01 per share, and any and
all other then outstanding Telxon securities ordinarily having the
right to vote generally in the election of the Telxon directors.
e. Spin-Off. "Spin-Off" shall mean any spin-off, dividend or
other distribution of Aironet Common by Telxon to its stockholders.
4. RESERVATION OF SHARES. Aironet represents and warrants that it has
reserved, and so long as the Warrants remain outstanding it will keep reserved,
the number of shares of Common which are subject to purchase under the Warrants
from time to time. Prior to its exercise or termination, Aironet will keep a
copy of this Warrant certificate on file with its transfer agent.
5. PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC.At the date of this Warrant certificate, each Warrant
entitles the Holder to purchase one (1) Warrant Share for the Warrant Price.
Hereafter, until their exercise or termination, the number of Warrant Shares
that may be purchased and the Warrant Price per Warrant Share may be adjusted
upward or downward as provided in this Section 5.
a. Adjustment in the Number of Warrant Shares. The number
of Warrant Shares that each Warrant entitles the Holder to purchase
shall be proportionately adjusted upward for any increase, or downward
for any decrease, in the number of issued and outstanding shares
of Common resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification effected without receipt of
consideration by Aironet, and in no other circumstance.
b. Adjustment in the Warrant Price. The Warrant Price per
Warrant Share shall be proportionately adjusted downward for any
increase, or upward for any decrease, in the number of issued and
outstanding shares of Common resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification effected
without receipt of consideration by Aironet, and in no other
circumstance.
c. Warrant Certificates. Upon any adjustments in the
number of Warrant Shares and Warrant Price, Aironet shall record such
adjustments on its stock transfer records, and the Holder may, but
need not, surrender this certificate to Aironet for replacement with
Warrant certificates that evidence the revised number of Warrant
Shares and Warrant Price.
6. FRACTIONAL INTERESTS. Aironet shall not be required to
issue fractional Warrant Shares on the exercise of the Warrants or upon any
adjustment pursuant to Section 5 in the number of Warrant Shares that each
Warrant entitles a Holder to purchase. Any fractional Warrant Shares that would
otherwise result from any such adjustments or exercise shall be eliminated
either by rounding up to the next higher whole number of Warrant Shares
A-2
<PAGE> 4
for fractions of one-half (1/2) or more, or by rounding down to the next lower
whole number of Warrant Shares for fractions of less than one-half (1/2).
7. NO RIGHTS AS STOCKHOLDER. The Warrants do not confer upon Holder
any rights as a stockholder of Aironet prior to Holder's exercise of the
Warrants. Without limiting the generality of the foregoing, the Warrants do not
entitle Holder to vote, receive dividends, consent or receive notices as a
stockholder in respect of any meeting for the election of directors or any other
matter; provided, however, that transferability of the Warrants is restricted
pursuant to the terms and conditions in the Stockholders Agreement among Aironet
and its Stockholders on the same basis as the Common and any other security
which is governed thereby.
8. MISCELLANEOUS.
a. These Warrants are issued in accordance with the laws
governing corporations organized under the laws of the State of
Delaware and securities issued in the State of Ohio, and shall be
construed under and governed by such laws without regards to conflict
or choice of laws, statutes, regulations, rules or principles. Any
action relating to theses Warrants or their issuance shall be brought
in the courts, state or federal, sitting in Summit County, Ohio, and
the Holder by taking delivery of this certificate consents to the
jurisdiction and venue of such courts, and agrees not to contest venue
on the grounds of forum non conveniens or otherwise.
b. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed
to have been given upon receipt, or if delivered or sent by facsimile
transmission, upon confirmation of transmission, or if sent by
overnight courier for next day delivery, the next business day after
deposit, to the Holder at its address as set forth in the stock records
of Aironet, and to Aironet at its principal place of business.
c. Subject to provisions herein regarding restrictions on
transferability, these Warrants shall inure to the benefit of Holder,
and its permitted successors and assigns.
d. The captions in this certificate are for convenience only
and shall not affect the construction or interpretation of any term or
provision hereof. The use in this certificate of the masculine,
feminine or neuter pronoun, shall include the others as the context may
require.
e. Any waiver or amendment of any provision, covenant or
condition of these Warrants must be in writing and executed by Aironet
and Holder. No delay in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any such right, power or privilege, preclude
any further exercise thereof or the exercise of any other such right,
power or privilege.
(End of Exhibit A)
A-3
<PAGE> 1
Exhibit 10.14.2
STOCKHOLDERS AGREEMENT
----------------------
THIS STOCKHOLDERS AGREEMENT (this "Agreement"), is made and effective
as of March 31, 1998, by and among Aironet Wireless Communications, Inc., a
Delaware corporation (the "Corporation"), and each of the undersigned (together
with any person, partnership, association, trust, corporation, limited liability
company, or other entity acquiring any Shares (defined herein) in accordance
with the terms and conditions of this Agreement or otherwise, the
"Stockholders").
BACKGROUND
WHEREAS, on August 25, 1993, the Certificate of Incorporation of the
Corporation was filed by the Secretary of State for the State of Delaware (as
amended to date of this Agreement, the "Certificate");
WHEREAS, under the Certificate the authorized capital stock of the
Corporation consists solely of fifteen million (15,000,000) shares of Common
Stock, $.01 par value (the "Shares");
WHEREAS, as of the date hereof, the issued and outstanding Shares are
owned of record by the persons and in the amounts set forth in EXHIBIT A to this
Agreement; and
WHEREAS, this Agreement is a condition to the transactions contemplated
under the Subscription Agreement dated March 31, 1998, by and among the
Corporation and certain of the Stockholders.
AGREEMENT
NOW, THEREFORE, in consideration of these premises and the agreements
made herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally and equitably bound, agree as follows:
1. BOARD OF DIRECTORS.
------------------
(a) GENERAL. The Corporation shall have a Board of Directors comprised
of five (5) directors. Subject to applicable law governing the responsibilities
and liabilities of directors, which shall in any event take precedence, the
Board's power and authority shall be restricted such that it may take no action
which conflicts with the terms hereof or which is reserved to the Stockholders
hereunder or under applicable law. Subject to Section 1(b), each Stockholder
agrees that the Directors of the Corporation shall be the following persons (and
each Stockholder agrees to vote its Shares to effectuate the election of such
Directors) until their successors are designated in accordance with this Section
1:
<PAGE> 2
Two Telxon Corporation ("Telxon") Inside
Designees, one of whom must be Telxon's Chief
Executive Officer, and
who on the date hereof are Frank E. Brick and Kenneth W. Haver
One Outside Director,
who shall be designated by Telxon,
who on the date hereof is James H. Furneaux
One Investor (defined herein) Designee,
who on the date hereof is Samuel F. McKay
and
The Chief Executive Officer of the Corporation,
who on the date hereof is Roger J. Murphy
In addition to the Investor (defined herein) designated Director, the Investors
as a group shall be entitled to designate a single observer (the "Investor
Observer") who shall not be a Director but shall receive all notices which
Directors are entitled to receive and shall be entitled to attend all, but not
to participate in, meetings of the Directors.
(b) DESIGNATION. For the purpose of the foregoing:
(i) the Telxon inside designees and the outside Director shall
be named by Telxon in its sole discretion so long as Telxon then owns
at least fifty percent (50%) of the then issued and outstanding Shares;
the Telxon inside designees, but not the outside Director, shall be
named by Telxon in its sole discretion so long as Telxon then owns at
least twenty percent (20%), but less than fifty percent (50%), of the
then issued and outstanding Shares; and a single Telxon inside designee
shall be named by Telxon in its sole discretion so long as Telxon then
owns at least five percent (5%), but less than twenty percent (20%) of
the then issued and outstanding Shares;
(ii) Following a Hostile Change in Control at any time, and
following any Change in Control occurring after April 30, 2001, the
directors which Telxon is then entitled to designate under Section
1(b)(i) shall thereafter be made by a majority in interest of Axiom
Venture Partners II Limited Partnership ("Axiom"), Hambrecht & Quist,
Telantis Venture Partners V, Inc. W, A & H Investments LLC, McDonald &
Company Securities, Inc., Frank B. Carr and Clarion Capital
Corporation, who acquired Shares pursuant to the Subscription Agreement
of even date and for so long as any such person or entity is then a
Stockholder (the "Investors"), provided that the Investors shall then,
and for so long as they thereafter continue to, own an aggregate of at
least five (5%) of the then issued and outstanding Shares.
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<PAGE> 3
(A) A "Change in Control" is deemed to have occurred
upon (i) any Person is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of
1934 (as amended, the "Exchange Act")), directly or
indirectly, of fifteen percent (15%) or more of the combined
voting power of Telxon's Voting Securities, or (ii) the
holders of Telxon's securities entitled to vote thereon
approve, or there otherwise occurs or is commenced, a sale,
lease, exchange or other disposition of all or substantially
all the assets, or the dissolution or liquidation, of Telxon,
or any merger, consolidation or reorganization to which Telxon
is a party and as the result of which Telxon's stockholders
prior to the transaction do not own at least fifty percent
(50%) of the voting power of the surviving entity in the
election of directors, or (iii) the Continuing Directors cease
for any reason to constitute at least a majority of the Telxon
Board of Directors, or (iv) any other event occurs which is of
such a nature that would be required to be reported as a
change in control in response to Item 1(a) of the Current
Report on Form 8-K, as in effect on the date hereof pursuant
to Section 13 or 15(d) of the Exchange Act, or similar
successor public filing; provided that any event described in
the foregoing clauses (i)-(iv) shall constitute a "Hostile
Change in Control" if the transaction causing such change in
control shall not have been approved by the affirmative vote
of at least a majority of Telxon's Board of Directors, which
approving majority includes a majority of the then Continuing
Directors.
(B) "Continuing Directors" means and includes the
persons constituting Telxon's Board of Directors as of the
date of this Agreement as well as each person who becomes a
director of Telxon subsequent to the date of this Agreement
whose election, or nomination for election by Telxon's
stockholders, was approved by an affirmative vote of at least
a majority of the then Continuing Directors (either by a
specific vote or by approval of the proxy statement of Telxon
in which such person is named as a nominee for director or of
the inclusion of such person in such proxy statement as such a
nominee, in any such case without objection by any member of
such approving majority of the then Continuing Directors to
the nomination of such person or the naming of such person as
a director nominee), for so long as each such director shall
remain in office.
(C) "Person" means and includes any individual,
corporation, partnership, group, association or other
"person", as such term is used in Section 14(d) of the
Exchange Act, but excluding Telxon or any employee benefit
plan sponsored by Telxon.
(D) "Voting Securities" means the Telxon Common
Stock, par value $0.01 per share, and any and all other then
outstanding Telxon securities ordinarily having the right to
vote generally in the election of the Telxon directors.
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(iii) the investor designee shall be named by Axiom so long as
it holds all of the Shares acquired by it pursuant to the Subscription
Agreement of even date, and otherwise by Investors holding no less than
seventy five percent (75%) of the Shares then held by the Investors (a
"Super Majority in Interest of the Investors"), so long as any such
Investor is then a Stockholder, and the observer shall be named by a
Super Majority in Interest of the Investors. The Investors shall have
the right to name the Investor Board designee so long as they then own
an aggregate of at least five (5%) of the then issued and outstanding
Shares, and the Investor Observer so long as they then own an aggregate
of at least ten percent (10%) of the then issued and outstanding
Shares. The person sitting from time to time as the Chief Executive
Officer of the Corporation shall automatically succeed as a Director to
his predecessor Chief Executive Officer (succeeding Chief Executive
Officers shall be deemed to be designees for the purposes herein).
(c) METHOD. A designee may be named at any time, and from time to time,
by delivering written notice duly executed by the designator to the Secretary or
an Assistant Secretary of the Corporation for inclusion in the Corporation's
minute book. Upon receipt of a designation, the Secretary or an Assistant
Secretary of the Corporation shall circulate to the Stockholders an action by
written consent to effectuate the designation (and each Stockholder agrees to
vote its Shares to effectuate the designation).
(d) COMMITTEES. The Telxon designees and the Investor designee have the
right to sit on all committees established by the Board.
(e) VACANCIES. No vacancy of a Board seat designated and effectuated in
accordance with this Section 1 shall be filled other than in accordance with
this Section 1. At such time as a designator's shareholdings fall below the
percentage required to entitle it to designate Board members, that designator's
Board seat shall be deemed vacated and shall not be re-filled except by the vote
of the Stockholders in accordance with the Corporation's By-laws.
(f) BOARD EXPENSES. The Corporation agrees to reimburse each of the
directors elected to the Corporation's Board of Directors (and any Investor
Observer) for their reasonable out-of-pocket travel and lodging expenses
incurred attending Board of Directors' meetings and performing their respective
obligations and responsibilities to the Corporation.
2. GOVERNANCE.
----------
(a) BY-LAWS. The Corporation's By-laws shall continue in full force and
effect from and after the effective date of this Agreement. To the extent that
the terms and conditions of this Agreement conflict with the Corporation's
By-laws, the terms and conditions of this Agreement shall control.
(b) BOARD MEETINGS. The Board of Directors shall conduct at least one
Board meeting during each fiscal quarter of the Corporation.
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(c) STOCKHOLDER VOTES. Except as otherwise provided in this Agreement
or as required by applicable law, any vote, approval, authorization or other
action to be taken by the Stockholders shall be determined by a majority vote
based on the number of Shares then owned by them.
(d) ACTION BY WRITTEN CONSENT. Unless otherwise required by law, any
vote, approval, authorization or other action to be taken by the Stockholders or
Directors of the Corporation may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the number of Stockholders required to
pass such matter at a meeting of the Stockholders where all Stockholders
entitled to vote were present, or by all of the Directors, as the case may be.
Consents may be executed in several counterparts all of which when taken
together shall constitute a single integrated consent. The original (or copies
if the originals are not available) of such consents shall be entered in the
Corporation's minute book.
(e) PUBLIC OFFERING AND SALE OF CORPORATION. During the period
commencing December 1, 1998, and ending September 30, 2000 (the "Stockholder
Approval Period"), or at any time after the occurrence of a Hostile Change in
Control, the Stockholders shall have sole authority to direct the Corporation to
take the following actions:
(i) to undertake any public offering of securities of the
Corporation; or
(ii) to sell the Corporation as an entirety, whether by
merger, consolidation, stock sale, asset sale, or otherwise.
During the Stockholder Approval Period, or at any time after the occurrence of a
Hostile Change in Control, in the event that the Investors then own ten percent
(10%) or more of the issued and outstanding Shares, and as a group they vote, by
majority vote of the Shares held by the Investors, in favor of either: (i) the
first firm commitment underwritten public offering of the Shares (or units which
include the Shares as an element) at a public offering price of not less than
Eight Dollars ($8.00) per Share, pursuant to a Registration Statement, on Form
S-1 or other appropriate form, filed by the Corporation under the Securities Act
of 1933, as amended, pursuant to which the Corporation receives proceeds, net of
underwriting discounts, commissions and other expenses of the offering, of not
less than Eight Million Dollars ($8,000,000) ("IPO"); or (ii) the sale of the
Corporation as an entirety, whether by merger, consolidation, stock sale, asset
sale, or otherwise ("Private Sale"), for the higher of a gross sale price of
Seventy Five Million Dollars ($75,000,000) or Eight Dollars ($8.00) per share,
then Telxon agrees to also vote its Shares in favor of, and to take all other
actions necessary to effectuate, such IPO or Private Sale, and agrees to cause
its Board designees to take all actions that are required by law to be taken by
a Delaware corporation's board of directors to effectuate any such transaction.
Without limiting the generality of Section 6(l), the parties hereby acknowledge
and confirm that the provisions of this Section 2(e) shall be binding upon
Telxon and any successor-in-interest thereto.
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(f) NEWLY ISSUED SHARES. The Stockholders shall have sole authority to
determine whether the Corporation is permitted to issue any equity securities,
except in an IPO, or securities convertible into or exchangeable for equity
securities. Authority for the Corporation to issue such securities shall require
an affirmative vote of at least ninety two and one half percent (92.5%) of all
of the then issued and outstanding Shares.
(g) MERGERS, ASSET SALES ETC. Other than Private Sales approved
pursuant to Section 2(e), any merger, consolidation, reorganization,
reclassification or recapitalization involving the Corporation, or any sale,
lease, exchange or other disposition of all or substantially all of the assets,
or the dissolution or liquidation, of the Corporation, shall require the
affirmative vote of at least ninety two and one half percent (92.5%) of all of
the then issued and outstanding Shares.
(h) AGREEMENTS WITH TELXON CORPORATION. The Board of Directors shall
have sole authority, by the affirmative vote of Directors representing one
hundred percent (100%) of the total number of seats then constituting the full
Board, to determine whether the Corporation may authorize or approve any
contract, agreement, arrangement or transaction (or amendment, modification,
assignment, termination or waiver thereof) between Telxon Corporation and the
Corporation, or to waive any failure of performance by Telxon Corporation
thereunder, other than any of the foregoing which are done in the ordinary
course of the Corporation's business.
3. TRANSFER OF SHARES.
------------------
(a) PROHIBITION ON TRANSFER. No Stockholder shall sell, exchange, give,
transfer, assign, pledge, encumber, hypothecate, or otherwise dispose of any
Shares, or any legal, beneficial or other interest in any Shares, whether now
owned or hereafter acquired, whether voluntarily, involuntarily, by operation of
law, or otherwise, including by way of intestacy, will, gift, bankruptcy,
execution, or seizure and sale by legal process (such events separately and
collectively are referred to as a "Transfer," and the transferee is referred to
as a "Transferee"), except as provided in this Agreement.
(b) CORPORATION RIGHT OF FIRST REFUSAL. In the event that a Stockholder
at any time desires to Transfer all or any portion of its Shares to any third
party (the "Offeror"), it must first offer to Transfer its Shares to the
Corporation. Such offer must be upon the same terms and conditions as it
proposes to Transfer such Shares to the Offeror, which terms and conditions
shall be set forth in a written notice of offer (the "Notice of Offer"). The
Notice of Offer shall state with particularity the terms upon which the Transfer
of the Shares is proposed to be made, including, without limitation, the
purchase price to be paid for the Shares, if any, the time and method of
payment, and if payment is to be made other than in cash, a description of the
non-cash consideration and the rate of interest, if any, to be paid on the
non-cash portion of said purchase price (collectively the "Offer Price and
Terms"). The Corporation shall have a period of fifteen (15) days after receipt
of the Notice of Offer within which to accept (as to all, but not less than all,
of the tendered Shares) or reject in writing the offer of Transfer. Should the
Corporation accept the offer, it shall, within ten (10) days of its acceptance,
acquire the tendered Shares at the Offer
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<PAGE> 7
Price and Terms. Failure of the Corporation to respond in writing to a Notice of
Offer within the fifteen (15) day period shall be deemed a rejection of said
offer.
(c) STOCKHOLDER RIGHT OF FIRST REFUSAL. Should the subject Shares not
be acquired by the Corporation at the expiration of the period specified in
Section 3(b), the tendering Stockholder shall next offer to Transfer such Shares
to the Stockholders (excluding the tendering Stockholder), if any, pro-rata to
their Share interests, at the Offer Price and Terms, by providing the
Stockholders with a copy of the Notice of Offer. The Corporation shall provide
the tendering Stockholder with the then current Stockholder address list to
enable it to provide all required notices under this Section 3(c) and under
Section 3(d). The Stockholders shall have a period of fifteen (15) days after
receipt of the Notice of Offer within which to accept or reject in writing the
offer of Transfer. Should any Stockholder accept the offer, it shall, within ten
(10) days of its acceptance, acquire the tendered Shares at the Offer Price and
Terms. Failure of any Stockholder to respond in writing to a Notice of Offer
within such fifteen (15) day period shall be deemed a rejection of said offer.
In the event that Stockholder acceptances of the offer are, in the aggregate,
for fewer than all of the tendered Shares, then the tendering Stockholder shall
so notify the Stockholders who have elected to acquire tendered Shares, which
electing Stockholders shall have an additional seven (7) day period following
receipt of such notice to acquire the remaining Shares, pro rata to their Share
interests (as between themselves); provided that if the offer is not accepted by
Stockholders as to all of the tendered Shares, then none of the Stockholders
shall have any right to acquire any of the tendered Shares pursuant to this
Section 3(c).
(d) CO-SALE.
(i) No later than ten (10) days after the expiration of the
time periods specified in Section 3(c), the tendering Stockholder shall
notify the other Stockholders in writing whether the Corporation and
the Stockholders have failed to acquire all of the tendered Shares
pursuant to Sections 3(b) and (c) (the "Co-Sale Notice"). If all of the
tendered Shares have not been acquired pursuant to either Section 3(b)
or 3(c), then each Stockholder other than the tendering Stockholder
shall have the right to participate in the tendering Stockholder's sale
of Shares by selling a portion of its Shares on the terms set forth in
the Notice of Offer, in an amount equal to the product obtained by
multiplying (x) the aggregate number of Shares to be sold by the
tendering Stockholder by (y) the Ownership Percentage (defined herein)
of Shares owned by each Stockholder other than the tendering
Stockholder who elects to participate in the tendering Stockholder's
sale (each a "Participant," and collectively the "Participants"). The
Ownership Percentage for any Participant shall be the percentage figure
which expresses the ratio between (x) the number of Shares owned by
such Participant and (y) the aggregate of (A) the number of Shares
owned by all Participants and (B) the number of Shares owned by the
tendering Stockholder (excluding any Shares acquired pursuant to
Section 3(b) or 3(c)). Within five (5) days after its receipt of the
Co-Sale Notice, any Stockholder electing to participate in the
tendering Stockholder's Transfer shall notify the tendering Stockholder
in writing of the number of Shares held by it to be included in the
sale.
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<PAGE> 8
(ii) Each Participant shall enter into such agreements and
take such actions consistent with the Notice of Offer, and as otherwise
reasonably directed by the tendering Stockholder in order to effect the
subject Transfer. The proceeds of any Transfer under this Section 3(d)
shall be remitted directly to each Participant by the Offeror.
(iii) The provisions of this Section 3(d) shall not apply to
any Transfer permitted under Section 3(g).
(e) TRANSFER. Subject to Section 6(c), if all of the tendered Shares
are not acquired by either the Corporation and/or the Stockholders within the
time periods provided for in Sections 3(b) and (c), respectively, and provided
that the notice required under Section 3(c), if any, was provided within five
(5) days after the end of the time period provided for in Section 3(b), then the
tendering Stockholder and each Participant may Transfer its Shares to the
Offeror at Offer Price and Terms; provided, however, that such Transfer must be
completed within forty five (45) days from the expiration of all response
periods provided in Sections 3(b), (c) or (d), as applicable.
(f) ALTERATION OF TERMS. Each time the Offer Price and Terms are
altered in any way, including, but not limited to, changes in the identity of
the proposed Offeror or the consideration to be paid for the Shares to be
Transferred, or in the event that a Transfer is not completed within the time
period provided for in Section 3(e), then the subject Shares shall be re-offered
to the Corporation and the Stockholders in accordance with Section 3(b) and (c),
respectively, and a new Co-Sale Notice shall be given in accordance with Section
3(d), as if a totally new transaction were proposed.
(g) PERMITTED TRANSFER.
(i) Subject to Section 6(c), a non-entity Stockholder is
permitted to Transfer his Shares during his life without first
offering his Shares to the Corporation or Stockholders in accordance
with Sections 3(b) and (c), respectively, if, but only if, the
Transfer is to Stockholder's spouse or lineal descendants, or any
trust created for his or their benefit, or to a corporation wholly
owned by the Stockholder and/or his spouse and lineal descendants. An
estate, executor, administrator or other personal representative of a
deceased non-entity Stockholder is permitted to hold and, subject to
Section 6(c), Transfer the deceased nonentity Stockholder's Shares to
the deceased Stockholder's devisees and heirs at law. Shares
Transferred in accordance with this Section 3(g) may not be further
Transferred except in accordance with the provisions of this Section
3.
(ii) Subject to Section 6(c), an entity Stockholder is
permitted to Transfer its Shares without first offering its Shares to
the Corporation or Stockholders in accordance with Section 3(b) and
(c), respectively, if, but only if: (i) the Transfer is to an entity
of which at least fifty-one percent (51%) is owned by the Stockholder
or its affiliates, or if at least fifty-one percent (51%) of the
Stockholder is owned by the Transferee or an affiliate of the
Stockholder, and each such Transferee may further Transfer such Shares
to
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<PAGE> 9
similarly controlled or controlling affiliate entities; or (ii) the
Transfer is a spin-off, dividend or other distribution to the owners
of the Stockholder, based on such ownership interests.
(iii) In the event of a permitted Transfer under this Section
3(g), the Transferor shall promptly furnish written notice thereof to
the Corporation. Concurrently therewith, the Transferee shall execute
a written agreement to be bound by the terms and provisions of this
Agreement, as provided in this Section 3(g).
(h) CERTAIN PURCHASE MONEY LIENS. Notwithstanding anything in Section
3 to the contrary, neither the grant of nor the foreclosure or other realization
by the Company or by Telxon, as the case may be, on the security interest in
200,000 Shares granted by Roger J. Murphy to the Corporation to secure the
payment of $372,000, nor the security interest in 808,500 Shares granted by
Telantis Venture Partners IV, Inc. to Telxon to secure the payment of
$1,503,810, or the security interest in up to 120,635 Shares, and warrants to
purchase 12,064 Shares, granted by Telantis Venture Partners V, Inc. to Telxon
to secure the payment of up to $422,000 shall be a prohibited Transfer under
Section 3(a).
(i) SPECIAL UNDERWRITER REQUIREMENTS. Each Stockholder agrees, if
requested by the Corporation and an underwriter of Common (or other securities)
of the Corporation, not to sell or otherwise transfer or dispose of any Common
(or other securities) of the Corporation held by such Stockholder during the one
hundred eighty (180) day period following the effective date of a registration
statement of the Corporation filed under the Securities Act, provided that such
agreement only applies to the first such registration statement of the
Corporation including securities to be sold on its behalf to the public in an
underwritten offering. Such agreement shall be in writing in a form satisfactory
to the Corporation and such underwriter. The Corporation may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of said one hundred eighty (180) day
period.
(j) ADDENDUM. Before the holdings of any Transferee shall be honored
by the Corporation or accepted upon its stock register and before any right,
title or interest whatsoever therein shall vest in such Transferee, and before
the Corporation shall issue or agree to issue any previously unissued (or
reissue or agree to reissue, from treasury or otherwise) Shares of the
Corporation, it shall require, as a condition to the issuance of a stock
certificate or other instrument evidencing such stock, that said Transferee or
the person or entity to whom any such previously unissued (or reissued) Shares
are to be issued, as the case may be, execute and deliver to the Secretary of
the Corporation an Addendum to this Agreement in substantially the following
form with appropriate insertions:
ADDENDUM
Pursuant to the STOCKHOLDERS AGREEMENT (the
"Agreement") dated ___, 1998 by and among Aironet Wireless
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Communications, Inc., a Delaware corporation (the
"Corporation"), and its Stockholders, the undersigned, now the
holder of __________ of the Corporation evidenced by
certificate(s) numbered __________, does hereby become a party
to the Agreement entitled to the rights, and subject to the
obligations, as set forth therein, to the extent the
undersigned is record holder of shares of the Corporation's
capital stock with the same force and effect as though it had
executed said Agreement as an initial signatory party thereto.
The undersigned acknowledges that he has read the Agreement
and is familiar with and understands its terms.
Dated this _____ day of __________, 199__.
-------------------------------
(signature)
Whether or not such Addendum is executed, each Transferee or new holder of
Shares shall in any event be bound by, and shall perform the obligations imposed
by, this Agreement with the same force and effect as if such Transferee or new
holder had signed this instrument.
(k) HOLDERS OF OTHER SECURITIES. On the date of this Agreement,
options and warrants to purchase Shares are held by the persons identified in
SCHEDULE 3(K). The Corporation shall use its best efforts to obtain from each
such person an Addendum similar to that provided for in Section 3(j) which in
substance provides that any Shares issued upon the exercise of such options and
warrants, and the holder thereof, shall be bound by the terms and conditions
hereof and shall then, but not before, be entitled to the rights afforded to the
Stockholders hereunder. Before the Corporation shall grant or issue, or agree to
grant or issue, any securities convertible into or exercisable or exchangeable
for, stock of the Corporation, the Corporation shall require, as a condition
thereto, that the grantee or recipient of such securities execute an Addendum of
the type described in this Section 3(k), except that no such Addendum shall be
required with respect to securities which may not be converted, exercised or
exchanged into or for stock of the Corporation prior to an IPO.
(l) PURCHASE OF INVESTOR SHARES UPON CERTAIN CHANGES IN CONTROL. On or
within ten (10) days after the date ninety (90) days after the consummation of a
Change in Control
(A) which is not a Hostile Change in Control,
(B) which occurs prior to May 1, 2001, and
(C) which occurs at a time when Telxon then owns at least
twenty percent (20%) of the issued and outstanding Shares,
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the Person surviving such Change in Control shall give written notice to each of
the Investors that the surviving Person will purchase all Shares which such
Investor then owns at a price of Ten and 50/100 Dollars ($10.50) per Share in
cash. Each Investor must accept or reject such offer in writing within twenty
(20) after its receipt of the surviving Person's notice. If not timely rejected,
the surviving Person and each Investor that does not timely reject the surviving
Person's offer shall consummate the purchase of each such Investor's Shares by
the surviving Person on or before the date ten (10) days after the earlier of
(i) the date that the surviving Person receives the Investor's acceptance or
(ii) the expiration of the Investor's twenty (20) day rejection period. The
transactions under this Section 3(l) shall not be subject to any of the other
provisions of this Section 3, but the surviving Person and such purchased Shares
shall remain subject to this Agreement. Without limiting the generality of
Section 6(l), Telxon shall take all necessary actions to ensure that such a
surviving Person is obligated to take the actions required of it under this
Section 3(l).
4. CONFLICTS OF INTEREST
---------------------
(a) As long as Telxon owns twenty percent (20%) or more of the issued
and outstanding Shares: (i) the Corporation's Chief Executive Officer shall not
be permitted to serve Telxon as an officer or director, and may not own five
percent (5%) or more of Telxon's issued and outstanding capital stock; and (ii)
no officer of Telxon may serve as an officer of Aironet (the prohibition in this
clause (ii) shall not commence until July 1, 1998).
(b) As Telxon remains a stockholder of the Corporation, and as the
Corporation and Telxon may engage in the same or similar activities or lines of
business and may have an interest in the same areas of corporate opportunity,
and in recognition of: (i) the benefits to be derived by the Corporation through
its continued contractual, corporate and business relations with Telxon
(including service of officers and Directors of Telxon as Directors of the
Corporation); and (ii) the difficulties and uncertainties attendant to any
Director, who desires and endeavors fully to satisfy such Director's fiduciary
duties, in determining the full scope of such duties in any particular
situation, the provisions of this Section 4 are set forth to regulate, define
and guide the conduct of certain affairs of the Corporation as they may involve
Telxon and its officers and Directors, and the powers, rights, duties,
obligations and liabilities of the Corporation and its officers, Directors and
stockholders in connection therewith.
(c) Except as Telxon may otherwise agree in writing:
(i) Except as may otherwise be set forth in any agreements
between the Corporation and Telxon, Telxon shall not have a duty to
refrain from engaging, directly or indirectly, in the same or similar
business activities or lines of business as the Corporation presently
engages in and in the future may engage in; and
(ii) neither Telxon nor any officer or Director thereof shall
be liable to the Corporation or its stockholders for breach of any
fiduciary duty by reason of any such activities of Telxon or of such
person's direct or indirect participation therein.
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In the event that Telxon acquires knowledge of a potential transaction or matter
that may be a corporate opportunity for both Telxon and the Corporation, Telxon
shall have no duty to communicate or offer such corporate opportunity to the
Corporation and shall not be liable to the Corporation or its stockholders for
breach of any fiduciary duty as a stockholder of the Corporation or controlling
person by reason of the fact that Telxon pursues or acquires such corporate
opportunity for itself, directs such corporate opportunity to another person or
entity, or does not communicate information regarding, or offer, such corporate
opportunity to the Corporation.
(d) In the event that a Director, officer or employee of the
Corporation who is also a Director, officer or employee of Telxon acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for the Corporation and Telxon (whether such potential transaction
or matter is proposed by a third-party or is conceived of by such Director,
officer or employee of the Corporation), such Director, officer or employee
shall be entitled to offer such corporate opportunity to the Corporation or
Telxon as such Director, officer or employee deems appropriate under the
circumstances in his sole and absolute discretion, and no such Director, officer
or employee shall be liable to the Corporation or its stockholders for breach of
any fiduciary duty or duty of loyalty or failure to act in the best interests of
the Corporation or the derivation of any improper personal benefit by reason of
the fact that: (i) such Director, officer or employee offered such corporate
opportunity to Telxon (rather than the Corporation) or did not communicate
information regarding such corporate opportunity to the Corporation; or (ii)
Telxon pursues or acquires such corporate opportunity for itself or directs such
corporate opportunity to another person or does not communicate information
regarding such corporate opportunity to the Corporation. All information learned
by any director of the Corporation in the course of his service as a director is
confidential information of the Corporation, and notwithstanding any provision
in this Agreement to the contrary, no director may utilize such confidential
information except for the benefit of the Corporation, and may not disclose such
confidential information to any person or entity other than for the benefit of
the Corporation in the course of the director's service on the Corporation's
Board, or as an officer or employee of the Corporation.
(e) Subject to Section 2(g), no contract, agreement, arrangement or
transaction (or any amendment, modification or termination thereof) between the
Corporation and Telxon or any Related Entity (defined herein) or between the
Corporation and one or more of the Directors or officers of the Corporation,
Telxon or any Related Entity, shall be void or voidable solely for the reason
that Telxon or any Related Entity or any one or more of the officers or
Directors of the Corporation, Telxon or any Related Entity are parties thereto,
or solely because any such Directors or officers are present at or participate
in the meeting of the Board of Directors or committee thereof which authorizes
the contract, agreement, arrangement, transaction, amendment, modification or
termination or solely because his or their votes are counted for such purpose,
but any such contract, agreement, arrangement or transaction (or any amendment,
modification or termination thereof) shall be governed by the provisions of this
Agreement, the Certificate, the Corporation's By-laws, Delaware Law and other
applicable law. For purposes of this Section 4, the term "Related Entities"
means any Director of the Corporation, or any corporations,
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partnerships, associations or other organizations in which one or more of its
Directors have a direct or indirect financial or non-financial interest.
(f) Subject to Section 2(g), Directors of the Corporation who are also
directors or officers of Telxon or any Related Entity may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee that authorizes or approves any such contract, agreement,
arrangement or transaction (or amendment, modification or termination thereof),
and may vote thereon. Outstanding Shares owned by Telxon and any Related
Entities may be counted in determining the presence of a quorum at a meeting of
stockholders that authorizes or approves any such contract, agreement,
arrangement or transaction (or amendment, modification or termination thereof),
and may vote thereon.
(g) Neither Telxon nor any officer or Director thereof or any Related
Entity shall be liable to the Corporation or its stockholders for breach of any
fiduciary duty or duty of loyalty or failure to act in the best interests of the
Corporation or the derivation of any improper personal benefit by reason of the
fact that Telxon or an officer or Director thereof or such Related Entity in
good faith takes any action or exercises any rights or gives or withholds any
consent in connection with any agreement or contract between Telxon or of such
Related Entity and the Corporation. No vote cast or other action taken by any
person who is an officer, Director or other representative of Telxon or such
Related Entity, which vote is cast or action is taken by such person in his
capacity as a Director of the Corporation, shall constitute an action of or the
exercise of a right by or a consent of Telxon or such Related Entity for the
purpose of any such agreement or contract.
(h) Any person or entity purchasing or otherwise acquiring any
interest in any shares of capital stock of the Corporation shall, by virtue of
the legend required by Section 5(a) to be borne on certificates evidencing
Shares, be deemed to have notice of, to understand the ramifications of, to have
consented to the provisions of, and, to the fullest extent permitted by Delaware
Law, to have waived his right to contest this Section 4.
(i) For purposes of this Section 4, any contract, agreement,
arrangement or transaction with any corporation, partnership, joint venture,
association or other entity in which the Corporation beneficially owns (directly
or indirectly) fifty percent (50%) or more of the outstanding voting stock,
voting power or similar voting interests, or with any officer or Director
thereof, shall be deemed to be a contract, agreement, arrangement or transaction
with the Corporation.
(j) For purposes of this Section 4 only: (i) the term "Corporation"
shall mean the Corporation and all corporations, partnerships, joint ventures,
associations and other entities in which the Corporation beneficially owns
(directly or indirectly) fifty percent (50%) or more of the outstanding voting
stock, voting power or similar voting interests; and (ii) the term "Telxon"
shall mean Telxon and all corporations, partnerships, joint ventures,
associations and other entities (other than the Corporation, defined in
accordance with clause (i)) in which Telxon beneficially
13
<PAGE> 14
owns (directly or indirectly) fifty percent (50%) or more of the outstanding
voting stock, voting power or similar voting interests.
(k) Notwithstanding anything in this Agreement to the contrary, the
foregoing provisions of this Section 4 shall expire on the date that Telxon
ceases to own beneficially Shares representing at least twenty percent (20%) of
the issued and outstanding Shares, and no person who is a Director or officer of
the Corporation is also a Director or officer of Telxon. The provisions of this
Section 4 shall automatically terminate upon the consummation of a Hostile
Change in Control, except for the provisions of Section 4(a), which shall
survive such event. The alteration, amendment, change or repeal of any provision
of this Section 4 or the adoption of any provision inconsistent with this
Section 4, shall require the express written consent of Telxon, and will not
eliminate or reduce the effect of this Section 4 in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Section 4,
would accrue or arise prior to such alteration, amendment, repeal or adoption.
5. COVENANTS
---------
(a) INSPECTIONS. Upon no less than five (5) days advance written
notice, the Corporation shall permit each Investor (or its designated
representative) to visit and inspect any of the properties of the Corporation,
including its books of account, and to discuss its affairs, finances and
accounts with the Corporation's officers and its independent public accountants.
All such inspections shall be conducted during the Corporation's business hours,
and shall not unreasonably interfere with the conduct of the Corporation's
business.
(b) FINANCIAL REPORTING. The Corporation will furnish the following
reports to the Investors:
(i) As soon as practicable after the end of each fiscal year
of the Corporation, and in any event within ninety (90) days
thereafter, a consolidated balance sheet of the Corporation and its
subsidiaries, if any, as at the end of such fiscal year, and
consolidated statements of operations, accumulated earnings and cash
flows of the Corporation and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable
detail, audited (without scope limitations imposed by the Corporation)
and certified by independent public accountants of recognized national
standing selected by the Corporation.
(ii) As soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the
Corporation, and in any event within forty-five (45) days thereafter,
a consolidated balance sheet of the Corporation and its subsidiaries,
if any, as of the end of each such quarterly period, and consolidated
statements of operations, accumulated earnings and cash flows of the
Corporation and its subsidiaries, if any, for such period and for the
current fiscal year to date, prepared in
14
<PAGE> 15
accordance with generally accepted accounting principles (provided
that such statements will not include all of the information and notes
required for complete financial statements) consistently applied and
setting forth in comparative form the figures for the corresponding
periods of the previous fiscal year, subject to changes resulting from
year-end audit adjustments.
(iii) As soon as practicable after the last day of each month,
and in any event by the twentieth day of each month, a consolidated
balance sheet of the Corporation and its subsidiaries, if any, as of
the end of each such month, and consolidated statements of operations,
accumulated earnings and cash flows of the Corporation and its
subsidiaries, if any, for such period, prepared in accordance with
generally accepted accounting principles (provided that such
statements will not include all of the information and notes required
for complete financial statements) consistently applied.
(c) PROMPT PAYMENT OF TAXES, ETC. The Corporation will promptly pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Corporation; provided, however,
that any such tax, assessment, charge or levy need not be paid if the validity
thereof shall at the time be contested in good faith by appropriate proceedings,
and provided, further, that unless otherwise approved by the Corporation's Board
of Directors, the Corporation will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor. Unless otherwise approved by the
Corporation's Board of Directors, the Corporation will promptly pay or cause to
be paid when due, or in conformance with customary trade terms, all other
obligations incident to its operations.
(d) MAINTENANCE OF PROPERTIES AND LEASES. The Corporation will keep
its properties in good repair, working order and condition, reasonable wear and
tear excepted, and from time to time make all needful and proper, or legally
required, repairs, renewals, replacements, additions and improvements thereto;
and the Corporation will at all times comply with each provision of all leases
to which it is a party or under which it occupies, or has possession of,
property if the breach of such provision might have a material adverse effect on
the condition, financial or otherwise, or operations of the Corporation.
(e) INSURANCE. The Corporation will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, extended coverage and explosion in amounts sufficient to
prevent the Corporation from becoming a co-insurer and not in any event less
than eighty percent (80%) of the insurable value of the property insured. The
Corporation will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner customary for companies in similar businesses
similarly situated. All such policies of insurance shall be occurrence policies
with "tail coverage" so-called respecting all prior "claims made" policies. The
Corporation shall give immediate written notice to the Investors and to insurers
of loss or damage to the property and shall promptly file proof of loss with
insurers. The Corporation shall maintain, either itself or
15
<PAGE> 16
under its Services Agreement with Telxon, directors and officers insurance in an
amount at least equal to that which it presently maintains.
(f) COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES. The
Corporation shall duly observe and conform to all valid requirements of
governmental authorities relating to the conduct of its businesses or to its
property or assets.
(g) MAINTENANCE OF CORPORATE EXISTENCE, ETC. The Corporation shall
maintain in full force and effect its corporate existence, rights, government
approvals and franchises, and all licenses and other rights to use patents,
processes, licenses, trademarks, trade names or copyrights owned or possessed by
it, which are deemed by the Corporation's Board of Directors to be necessary to
the conduct of its business.
(h) PROPRIETARY INFORMATION AGREEMENT AND KEY EMPLOYEE AGREEMENT.
(i) The Corporation and each person hereafter employed by it
with access to confidential information will enter into a proprietary
information agreement as approved by the Corporation's Board of
Directors.
(ii) The Corporation will require its employees to execute
non-competition agreements as approved by the Corporation's Board of
Directors.
(iii) The Corporation will cause all technological
developments, inventions, discoveries or improvements made by
employees of the Corporation to be fully documented in engineering
notebooks in accordance with the best prevailing industrial
professional standards and, where possible and appropriate, cause all
employees to file and prosecute United States and foreign patent
applications relating to and protecting such developments.
6. MISCELLANEOUS
-------------
(a) In order to effectuate the terms and restrictions of this
Agreement, each certificate of stock evidencing Shares owned by the Stockholders
or issued by the Corporation shall bear the following legend:
OWNERSHIP, ENCUMBRANCE, PLEDGE, ASSIGNMENT,
TRANSFER, OR OTHER DISPOSITION OF THE SHARES
EVIDENCED BY THIS CERTIFICATE, AND ANY SHARES
ISSUED IN LIEU THEREOF, ARE SUBJECT TO
RESTRICTIONS CONTAINED IN A STOCKHOLDERS
AGREEMENT DATED AND EFFECTIVE AS OF MARCH ___,
1998, BY AND AMONG THE CORPORATION AND ITS
STOCKHOLDERS A COPY OF WHICH IS ON FILE IN THE
OFFICE OF THE SECRETARY OF THE CORPORATION. A
16
<PAGE> 17
COPY OF THE STOCKHOLDERS AGREEMENT AND THE CORPORATION'S
BY-LAWS WILL BE MAILED BY THE CORPORATION TO ANY STOCKHOLDER
WITHOUT CHARGE WITHIN FIVE (5) DAYS AFTER WRITTEN REQUEST
THEREFOR.
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") OR APPLICABLE STATE SECURITIES LAWS ("STATE LAWS") AND
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT REGISTERING THE SHARES UNDER
THE ACT AND STATE LAWS OR (ii) A TRANSACTION PERMITTED BY RULE
144 OR RULE 145 UNDER THE ACT OR EQUIVALENT STATE LAWS FOR
WHICH THE ISSUER HAS RECEIVED REASONABLY SATISFACTORY EVIDENCE
OF COMPLIANCE WITH THE PROVISIONS OF SUCH APPLICABLE RULE OR
(iii) AN OPINION OF COUNSEL SATISFACTORY TO ISSUER THAT SUCH
SHARES ARE EXEMPT FROM THE REGISTRATION PROVISIONS OF THE ACT
AND STATE LAWS OR (iv) A NO-ACTION LETTER FROM THE STAFF OF
THE SECURITIES AND EXCHANGE COMMISSION AND THE APPLICABLE
STATE DIVISIONS OF SECURITIES THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT OR STATE LAWS."
(b) If a Stockholder or its Transferee shall be in default under any
of the terms and conditions of this Agreement, or if any Shares are held in any
manner contrary to the terms and conditions of this Agreement, the Corporation
may avail itself of all remedies afforded at law or in equity, and in addition,
no dividends shall be paid upon the Shares with respect to which such default
exists, and the holder of such Shares shall not be entitled to vote.
(c) Notwithstanding any other provision in this Agreement to the
contrary, in order to protect the Corporation's trade secrets, no Shares may be
transferred to any person or entity, other than to or by Telxon, which directly
competes with the Corporation or, so long as Telxon shall own at least twenty
percent (20%) of the issued and outstanding Shares, Telxon, as such competitors
are determined by the Corporation or Telxon, respectively, in its reasonable
discretion. Any merger, consolidation, change of control or any other
reorganization of any Stockholder (other than Telxon) with or involving any such
competitor shall be deemed to be a transfer of Shares prohibited by the
preceding sentence. Failure of the Corporation or any Stockholders to acquire
Shares as to which notice has been given hereunder or for which a right to
acquire has become
17
<PAGE> 18
exercisable, and the Transfer of any Shares to any Transferee or any subsequent
Transferee, shall not be deemed to release said Shares from any of the
restrictions herein contained. All restrictions imposed in this Agreement shall
apply to any future Transfers of Shares, whether acquired through voluntary acts
or by operation of law. Any purported Transfer of Shares in violation of this
Agreement will not affect the beneficial ownership of such Shares, nor shall
such Transfer be recognized in the books and records of the Corporation. The
Stockholder, or its successor, making the purported Transfer will retain the
right to vote, the right to receive dividends and liquidation proceeds upon, and
any other rights under, its Shares. Neither the Corporation, nor any Director or
officer of the Corporation, nor any transfer agent shall be liable for any
refusal to Transfer any Shares or issue any new certificates when it or he in
good faith believes that such Transfer or issuance would be in violation of this
Agreement. Nothing in this Agreement does or shall be interpreted as granting
any Stockholder any preemptive rights.
(d) No entity Stockholder shall suffer or permit the transfer of any
ownership interest in such Stockholder, or any other transaction, the effect of
which would be to circumvent the Corporation's or any Stockholder's rights under
Sections 3(b), (c) and (d) or the prohibitions contained in Section 6(c).
(e) This Agreement shall terminate and the Shares shall cease to be
subject to this Agreement upon the (i) merger of the Corporation with or into
any other corporation in an arms length transaction, (ii) consolidation of the
Corporation with any other corporation in an arms length transaction, (iii) sale
of all of the issued and outstanding Shares of the Corporation to a single
purchaser, (iv) sale or other disposition or all or substantially all of the
Corporation's assets or (v) registration of the Corporation's then issued and
outstanding Shares pursuant to Section 12 of the Exchange Act or the Corporation
is obligated to file periodic reports with the Securities and Exchange
Commission pursuant Section 15(d) of the Exchange Act; provided, however, that
any claim for breach of this Agreement arising prior to any such termination
shall survive such termination.
(f) Section headings are not to be considered part of this Agreement;
they are included solely for convenience and are not intended to be full or
accurate descriptions of the contents hereof.
(g) All of the terms and words used in this Agreement, regardless of
the number and gender in which they are used, shall be deemed and construed to
include any other number, singular or plural, and any other gender, masculine,
feminine or neuter, as the context of this Agreement or any section or clause
herein may require, the same as if such words had been fully and properly
written in the number and gender.
(h) This Agreement constitutes the entire agreement between the
parties with respect to the within subject matter and supersedes all prior and
contemporaneous agreements, written or oral, or understandings with respect
thereto. In addition to Telxon's written consent as specifically provided for
in, and required to amend, Section 4, (i) any waiver by a party of any
provision,
18
<PAGE> 19
covenant or condition hereof intended for its benefit must be in writing and
executed by that party; provided, however, that any waiver by the Stockholders
holding ninety five percent (95%) or more of the then issued and outstanding
Shares shall be deemed to be a waiver by all Stockholders, provided that such
waiver does not treat any Stockholder differently from other Stockholders, (ii)
no delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any such right, power or privilege preclude any further exercise
thereof or the exercise of any other such right, power or privilege, (iii) this
Agreement may not be amended unless the Corporation and the Stockholders holding
ninety five percent (95%) or more of the then issued and outstanding Shares have
consented to the amendment in writing, provided that any amendment that treats a
Stockholder differently than other Stockholders must be consented to by such
Stockholder.
(i) All clauses of this Agreement are distinct and severable. If any
clause shall be held to be unenforceable or overly broad, a court of competent
jurisdiction is hereby authorized to modify such clause so as to render the
terms, provisions and restrictions hereof enforceable to the maximum extent
permitted by law.
(j) This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original, but all of which, when taken together, shall
constitute one and the same instrument. Faxed signatures shall be deemed to be
originals for evidentiary purposes.
(k) Notices required hereunder shall be deemed to have been given when
mailed, by certified mail, addressed to the Stockholders as set forth in the
stock records of the Corporation, or as set forth in any notice of change of
address previously given in writing by the addressee to the addressor, and to
the Corporation at its principal offices, with a copy to Robert A Goodman, Esq.,
Goodman Weiss Miller LLP, 100 Erieview Plaza, 27th Floor, Cleveland, Ohio 44114,
or as set forth in any notice of change of address previously given in writing
by the addressee to the addressor.
(l) The terms, provisions and restrictions set forth in this Agreement
shall be binding upon the Stockholders of the Corporation and their respective
heirs, executors, administrators, personal representatives, successors and
assigns, and upon the Corporation and any successors-in-interest to the
Corporation.
(m) This Agreement shall be governed under, and in accordance with the
laws of the State of Delaware, without regards to conflict or choice of laws,
statutes, regulations, rules or principles. Any action relating to the execution
or performance of this Agreement may be brought in the courts, state or federal,
sitting in Cuyahoga or Summit County, Ohio, and each party hereto consents to
the jurisdiction and venue of such courts, and agrees not to contest venue on
the grounds of forum non conveniens or otherwise.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first set forth above.
COMPANY: AIRONET WIRELESS COMMUNICATIONS, INC.
- -------
By: /s/ Roger J. Murphy
--------------------------------------
Roger J. Murphy, President
INVESTORS, INDIVIDUALS: /s/ Frank B. Carr
- ---------------------- ------------------------------------------
FRANK B. CARR
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
COMPANY: AIRONET WIRELESS COMMUNICATIONS, INC.
- -------
By: /s/ Roger J. Murphy
--------------------------------------
Roger J. Murphy, President
TELXON: TELXON CORPORATION
- ------
By: /s/ Kenneth W. Haver
--------------------------------------
Kenneth W. Haver, Senior Vice President
and Chief Financial Officer
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first set forth above.
INVESTORS, ENTITIES: AXIOM VENTURE PARTNERS II LIMITED
- ------------------- PARTNERSHIP
By: Axiom Venture Associates II Limited
Liability Company, its General Partner
By: /s/ Samuel F. McKay
--------------------------------------
Its:
--------------------------------------
HAMBRECHT & QUIST
By:
--------------------------------------
Its:
--------------------------------------
TELANTIS VENTURE PARTNERS V, INC.
By: /s/ Richard W. Dyer
--------------------------------------
Richard W. Dyer, Treasurer
W, A & H INVESTMENTS LLC
By: Wessels, Arnold & Henderson Group, L.L.C.,
its managing member
By: /s/ Ken J. Wessels
--------------------------------------
Ken J. Wessels, CEO/Managing Director
McDONALD & COMPANY SECURITIES, INC.
By:
--------------------------------------
Its:
--------------------------------------
CLARION CAPITAL CORPORATION
By: Mort Cohen
--------------------------------------
Its: Chairman
--------------------------------------
<PAGE> 1
Exhibit 10.14.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
March 31, 1998 by and among Aironet Wireless Communications, Inc., a Delaware
corporation with its principal offices at 367 Ghent Road, Fairlawn, Ohio 44333
(the "Company"), and each of the undersigned (the "Security Holders").
WHEREAS, certain of the Security Holders (the "Investors") and the
Company have entered into a Subscription Agreement dated March 31, 1998 (the
"Subscription Agreement"), pursuant to which the Investors have acquired shares
of the Company's Common Stock, par value $.01 per share ("Common"), and warrants
to purchase shares of Common ("Warrants"); and
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the transactions contemplated by the Subscription Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements made herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. CERTAIN DEFINITIONS. In addition to terms defined elsewhere in this
Agreement, the following terms shall have the following respective meanings:
"COMMISSION" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act and the Exchange Act.
"CONTINUING DIRECTORS" shall mean and include the persons constituting
Telxon's Board of Directors as of the date of this Agreement as well as each
person who becomes a director of Telxon subsequent to the date of this Agreement
whose election, or nomination for election by Telxon's stockholders, was
approved by an affirmative vote of at least a majority of the then Continuing
Directors (either by a specific vote or by approval of the proxy statement of
Telxon in which such person is named as a nominee for director or of the
inclusion of such person in such proxy statement as such a nominee, in any such
case without objection by any member of such approving majority of the then
Continuing Directors to the nomination of such person or the naming of such
person as a director nominee), for so long as each such director shall remain in
office.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
"HOLDER" shall mean a record holder of Registrable Securities, and its
successors and assigns.
A "HOSTILE CHANGE IN CONTROL" is deemed to have occurred if the
transaction causing such Change in Control shall not have been approved by the
affirmative vote of at least a majority of Telxon's Board of Directors, which
approving majority includes a majority of the then Continuing
<PAGE> 2
Directors. A "Change in Control" is deemed to have occurred upon (i) any Person
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of fifteen percent (15%) or more of the
combined voting power of Voting Securities of Telxon Corporation ("Telxon"), or
(ii) the holders of Telxon's securities entitled to vote thereon approve, or
there otherwise occurs or is commenced, a sale, lease, exchange or other
disposition of all or substantially all the assets, or the dissolution or
liquidation, of Telxon, or any merger, consolidation or reorganization to which
Telxon is a party and as the result of which Telxon's stockholders prior to the
transaction do not own at least fifty percent (50%) of the voting power of the
surviving entity in the election of directors, or (iii) the Continuing Directors
cease for any reason to constitute at least a majority of the Telxon Board of
Directors, or (iv) any other event occurs which is of such a nature that would
be required to be reported as a change in control in response to Item 1(a) of
the Current Report on Form 8-K, as in effect on the date hereof pursuant to
Section 13 or 15(d) of the Exchange Act, or similar successor public filing.
"IPO" shall mean the first firm commitment underwritten public offering
of the Common (or units which include the Common as an element) at a public
offering price of not less than Eight Dollars ($8.00) per share, pursuant to a
Registration Statement, on Form S-1 or other appropriate form, filed by the
Company under the Securities Act, pursuant to which the Company receives
proceeds, net of underwriting discounts, commissions and other expenses of the
offering, of not less than Eight Million Dollars ($8,000,000).
"NASD" shall mean the National Association of Securities Dealers, Inc.
"OPTIONS" shall mean options which have been granted on or prior to the
date hereof under the Aironet Wireless Communications, Inc. 1996 Employee Stock
Option Plan.
"PERSON" shall mean and include any individual, corporation,
partnership, group, association or other "person", as such term is used in
Section 14(d) of the Exchange Act, but excluding Telxon or any employee benefit
plan sponsored by Telxon.
"REGISTER" shall mean to register securities for offer and sale under
the Securities Act.
"REGISTRABLE SECURITIES" shall mean: (i) shares of the Common owned of
record on the date of this Agreement, whether by the Investors or any other
Holder; (ii) shares of the Common issued upon the exercise of the Options, or
upon the exercise of the Warrants owned of record on the date of this Agreement,
whether by the Investors or any other Holder; and (iii) any other securities
issued with respect to any shares described in clauses (i) and (ii) by way of a
stock dividend, stock split, distribution, reclassification, combination,
exchange, recapitalization, or otherwise; provided, however, that Registrable
Securities shall not include any securities which have previously been
Registered or which have previously been sold under Rule 144, and with respect
to an IPO, Registrable Securities shall not include any securities which are not
of a class then being offered for sale by the Company in the IPO.
2
<PAGE> 3
"REGISTRATION" shall mean the registration of securities under the
Securities Act.
"REGISTRATION STATEMENT" shall mean a registration statement under the
Securities Act.
"RULE 144" means Rule 144 promulgated under the Securities Act and any
successor or complementary rules thereto.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SPIN-OFF" shall mean any spin-off, dividend or other distribution of
Registrable Securities by Telxon to its stockholders.
"VOTING SECURITIES" shall mean the Common Stock, par value $0.01 per
share, of Telxon and any and all other then outstanding Telxon securities
ordinarily having the right to vote generally in the election of the Telxon
directors.
2. DEMAND REGISTRATION.
2.1 After the earlier of (i) the first anniversary of the date of this
Agreement, (ii) the consummation of an IPO or (iii) a Spin-Off or Hostile Change
in Control at any time, Holders of at least fifty percent (50%) of all
Registrable Securities then held by parties to this Agreement (or in the case of
a Spin-Off the percentage of Registrable Securities equal to the proportion
which the majority of the number shares of Common acquired pursuant to the
Subscription Agreement bears to all Registrable Securities at the time of the
Spin-Off) may request the Company to Register any or all of their Registrable
Securities (a "Demand Notice"). Demand Notices shall be made in writing and
shall specify the Holders making the Demand Notice, the number and type of
Registrable Securities that each requests to be Registered, whether the
Registrable Securities will be sold through an underwriter, and if so, the
underwriters name, address, telephone number and contact person. The Company
will prepare and file a Registration Statement in accordance with Section 4 for
the Registrable Securities to be Registered pursuant to a valid Demand Notice;
provided that the Company shall not be required to prepare or file a
Registration Statement under this Section 2 more than once in any twelve (12)
month period, more than twice after an IPO or more than three (3) times in
total. Registrations pursuant to Demand Notices are subject to the further
limitations set forth in Section 2.3.
2.2 Within ten (10) days from its receipt of a valid Demand Notice, the
Company shall deliver written notice to all Holders that, pursuant to a Demand
Notice, the Company will prepare and file a Registration Statement. Any Holder
who was not a party to the Demand Notice may, within ten (10) days from receipt
of the Company's notice, request the Company to include the Holder's Registrable
Securities in the Registration Statement. If the Holders that initiated a Demand
Notice specify therein that they intend to distribute their Registrable
Securities through
3
<PAGE> 4
an underwriter, then each Holder that requests inclusion in the Registration
Statement must participate in such underwriting, and become party to any
required agreements, including, but not limited to, customary underwriting and
indemnification agreements. The Company shall have the right to approve any
underwriter, which approval shall not be unreasonably withheld. In the event
that the underwriter limits the number of Registrable Securities to be included
in the offering to fewer than the number that has been requested for
Registration, then each Holder's Registrable Securities shall be included in the
underwriting pro rata, based on the total number of Registrable Securities held
by the participating Holders.
2.3 Registrations under this Section 2 are subject to the following
limitations: (i) the Company need not prepare or file a Registration Statement
pursuant to a Demand Notice within one hundred eighty (180) days after the
effective date of any Registration Statement filed by the Company in which the
Holders party to the Demand Notice could have included their Registrable
Securities; (ii) the Company may delay the effectiveness of a Demand Notice for
a period of not more than six months after receipt of a Demand Notice in any
12-month period if the Company furnishes a certificate signed by its president
stating that in the good faith judgment of the Company's board of directors it
would be detrimental to the Company for the Registration Statement to be
effected at such time; and (iii) the Company need not prepare or file a
Registration Statement pursuant to a Demand Notice if it is then preparing a
Registration Statement in connection with an underwritten public offering of
Company securities, and the Company may delay the effectiveness of such Demand
Notice until one hundred eighty (180) days after the effective date of such
Registration Statement.
3. INCIDENTAL REGISTRATION. Each time the Company determines to proceed
to Register any of its securities (other than a Registration pursuant to a
Demand Notice or on Forms S-4, S-8 or other limited purpose form), it will give
written notice of its intention to do so to each Holder. Upon the written
request of any Holder given within twenty (20) days after receipt by the Holder
of the Company's notice, the Company will use reasonable efforts to cause all
the Registrable Securities of the requesting Holders to be included in the
Registration Statement. If the Registration is for an underwritten offering,
then each Holder that requests inclusion in the Registration Statement must
participate in the underwriting if required by the Company and may participate
in the underwriting if the Holder timely requests in writing, and shall in
either such event become a party to any required agreements, including, but not
limited to, customary indemnification agreements. In the event that the
underwriter limits the number of Registrable Securities of requesting Holders as
a group to fewer than the number that has been requested for Registration
pursuant to this Section 3, then each Holder's Registrable Securities included
in the underwriting shall be reduced pro rata, based on the total number of
Registrable Securities held by the participating Holders. Notwithstanding the
foregoing, nothing in this Agreement to the contrary shall prevent the Company
from, at any time, abandoning or delaying a Registration Statement under this
Section 3.
4. REGISTRATION ON FORM S-2 OR FORM S-3.
4
<PAGE> 5
4.1 The Company shall use its best efforts to qualify for the
use of Form S-2 and Form S-3 or any comparable or successor form or
forms of the Commission; and to that end the Company shall register
(whether or not required by law to do so) the Registrable Securities
under the Exchange Act, in accordance with the provisions of the
Exchange Act following the effective date of the first registration of
any securities of the Company on Form S-1. After the Company has
qualified for the use of either Form S-2 or Form S-3, or both, in
addition to the rights contained in the Sections 2 and 3, the Holders
shall have the right to request registrations on Form S-2 or Form S-3
(by written request stating the number of shares of Registrable
Securities to be disposed of and the intended method of disposition of
such shares by such Holder or Holders).
4.2 Registrations under this Section 4 are subject to the
following limitations: (i) the Company need not prepare or file a
Registration Statement within ninety (90) days after the effective date
of any Registration Statement filed by the Company in which the Holders
requesting Registration under this Section 4 could have included all of
their Registrable Securities; (ii) the Company may delay the
effectiveness of a request for Registration under this Section 4 for a
period of not more than ninety (90) days after receipt of a Holder's
request for Registration, in any twelve (12) month period if the
Company furnishes a certificate signed by its president stating that in
the good faith judgment of the Company's board of directors it would be
detrimental to the Company for the Registration Statement to be
effected at such time; and (iii) the Company need not prepare or file a
Registration Statement pursuant to this Section 4 if it is then
preparing a Registration Statement in connection with an underwritten
public offering of Company securities, and the Company may delay the
effectiveness of a request for Registration under this Section 4 until
one ninety (90) days after the effective date of such Registration
Statement, if so required by the underwriter for such offering.
4.3 Upon a request for Registration under this Section 4, the
Company shall give notice to each Holder of its receipt of such
request. Upon the written request of any Holder given within twenty
(20) days after receipt by the Holder of the Company's notice, the
Company will use reasonable efforts to cause all the Registrable
Securities of the requesting Holders to be included in the Registration
Statement. Subject to the foregoing, the Company will use its best
efforts to effect promptly the registration of all shares of
Registrable Securities on Form S-2 or Form S-3 to the extent requested
by the Holder or Holders thereof for purposes of disposition.
5. REGISTRATION PROCEDURES. If and whenever the Company is required by
this Agreement to Register any Registrable Securities, the Company will:
5.1 use reasonable efforts to prepare and file with the Commission a
Registration Statement with respect to such securities and to cause such
registration statement to become and remain effective until completion of the
proposed offering, but no longer than nine (9) months;
5
<PAGE> 6
5.2 prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus forming a part
thereof as may be necessary to keep the Registration Statement effective until
completion of the proposed offering, but no longer than nine (9) months;
5.3 furnish to each selling Holder and the underwriters, if any, a
reasonable number of copies of the Registration Statement, the preliminary
prospectus, prospectus and such other documents as may reasonably be required in
order to facilitate the public sale or other disposition of the securities owned
by such selling Holder;
5.4 use reasonable efforts to register or qualify the securities
covered by the Registration Statement under all state securities laws as each
selling Holder reasonably requests; provided, however, that the Company shall
not be required to qualify or register the securities, or take any other action,
if to do so would require the Company to qualify as a foreign corporation in any
in which it is not then qualified, or subject it to taxation or general service
of process in any state in which it is not then taxed or subject to service of
process;
5.5 within a reasonable time before each filing with the Commission of
a Registration Statement or prospectus, or amendments or supplements thereto,
furnish to counsel selected by the selling Holders copies of such documents,
which shall be subject to the reasonable approval of such counsel, which if not
promptly objected to shall be deemed approved;
5.6 notify each selling Holder, promptly after it shall receive notice
thereof, of the time when the Registration Statement has become effective or a
supplement to any prospectus forming a part of such registration statement has
been filed;
5.7 notify each selling Holder promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
prospectus or for additional information;
5.8 prepare and promptly file with the Commission, upon the request of
a selling Holder, any amendments or supplements to the Registration Statement or
prospectus which, in the opinion of counsel for the Company, is required under
the Securities Act to permit the distribution of the Registered securities by
the selling Holder(s);
5.9 prepare and promptly file with the Commission, and promptly notify
each selling Holder as to, such amendments and supplements to such Registration
Statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities is
required to be delivered under the Securities Act, any event shall have occurred
as a result of which the prospectus then in effect would include an untrue
statement of a material fact or fail to state any material fact necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading;
6
<PAGE> 7
5.10 advise each selling Holder, promptly after the Company receives
notice or obtains knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or the
initiation or threat by the Commission of any proceeding for that purpose, and
the Company shall promptly use reasonable efforts to prevent the issuance of any
stop order, if such stop order should be issued, to obtain its withdrawal;
5.11 not file any amendment or supplement to such registration
statement or prospectus to which a selling Holder shall have reasonably objected
in writing on grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act, provided that the
Company has been furnished with a copy of the objection reasonably in advance of
the intended filing, unless in the opinion of counsel for the Company the filing
of such amendment or supplement is reasonably necessary to protect the Company
from any liabilities under any applicable federal or state law; and
5.12 furnish to each selling Holder a legal opinion of counsel for the
Company, dated the effective date of the Registration Statement, and a "comfort"
letter from the independent public accountants who have certified the Company's
financial statements included in the Registration Statement, if reasonably
required by the selling Holder to sell the Registered securities.
6. LISTING. In connection with an IPO, the Company will use reasonable
efforts to cause the Registered securities to be listed on a securities exchange
or quoted on the Nasdaq Stock Market quotation system; and for all other
Registrable Securities which have been Registered under Section 2 or under
Section 3, if the Company's securities of the same type as the Registrable
Securities are listed on a securities exchange or quoted on the Nasdaq Stock
Market quotation system, then the Company will use reasonable efforts to cause
any Registrable Securities Registered under Section 2 or under Section 3 to also
be listed.
7. EXPENSES. The Company shall bear all fees, costs and expenses of any
Registration Statement prepared hereunder, including but not limited to all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, and all legal fees of the Company and
of one (1) attorney hired to represent the Holders as a group, and disbursements
and other expenses of the Company incurred in connection with its complying with
state securities or blue sky laws of any jurisdictions in which the securities
to be offered are to be registered or qualified, except that underwriting
discounts, commissions, transfer taxes and legal fees for the selling Holders
(other than a single attorney as set forth in this Section 7) shall be borne by
such Holder(s).
7
<PAGE> 8
8. INDEMNIFICATION.
8.1 The Company will defend, indemnify and hold harmless each selling
Holder, each of its officers, directors and partners, and each person, if any,
who controls such selling Holder, and each underwriter (if any) from and against
any and all loss, damage, liability, cost and expense to which a selling Holder
or any such controlling person may become subject under the Securities Act or
otherwise, to the extent arising out of or based on any untrue statement (or
alleged untrue statement) of any material fact contained in a Registration
Statement, any prospectus contained therein or any amendment or supplement
thereto, or arising out of or are based upon the omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, damage, liability, cost or
expense arises out of or is based upon an untrue statement or omission so made
in conformity with information furnished to the Company by such selling Holder,
such a controlling person, or such underwriter, and stated to be specifically
for use therein.
8.2 Each selling Holder will defend, indemnify and hold harmless the
Company and each other selling Holder and each person, if any, who controls the
Company or a selling Holder from and against any and all loss, damage,
liability, cost and expense to which the Company or such selling Holder or
controlling person may become subject under the Securities Act or otherwise, to
the extent arising out of or based on any untrue statement (or alleged untrue
statement) of any material fact contained in a Registration Statement, any
prospectus contained therein or any amendment or supplement thereto, or arise
out of or are based upon the omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
to the extent, but only to the extent, that any such loss, damage, liability,
cost or expense arises out of or is based upon an untrue statement or omission
made in reliance upon and in conformity with written information furnished to
the Company by the selling Holder. A Holder's indemnification obligation under
this Section 8.2 shall be limited to such Holders proceeds from the sale of its
Registrable Securities under the subject Registration Statement.
8.3. NOTICE; DEFENSE OF CLAIMS. Promptly after receipt by an
indemnified party of notice of any claim, liability or expense to which the
indemnification obligations set forth in Sections 8.1 or 8.2 would apply, the
indemnified party shall give notice thereof in writing to the indemnifying
party. Such notice shall state the information then available regarding the
amount and nature of such claim, liability or expense. If within twenty (20)
days after receiving such notice the indemnifying party gives written notice to
the indemnified party stating that (a) it would be liable under the provisions
hereof for indemnity in the amount of such claim if such claim were successful
and (b) that it disputes and intends to defend against such claim, liability or
expense at its own cost and expense, then counsel for the defense shall be
selected by the indemnifying party (subject to the consent of the indemnified
party, which consent shall not be unreasonably withheld or delayed), and the
indemnified party shall not be required to make any payment with respect to
8
<PAGE> 9
such claim, liability or expense as long as the indemnifying party is conducting
a good faith and diligent defense at its own expense. The indemnifying party
shall have the right, with the consent of the indemnified party, which consent
shall not be unreasonably withheld or delayed, to settle all indemnifiable
matters related to claims by third parties which are susceptible to being
settled, provided its obligation to indemnify the indemnifying party therefor
will be fully satisfied. The indemnifying party shall keep the indemnified party
appraised of the status of the claim, liability or expense and any resulting
suit, proceeding or enforcement action, shall furnish the indemnified party with
all documents and information that the indemnified party shall reasonably
request and shall consult with the indemnified party prior to acting on major
matters, including settlement discussions. The indemnified party shall make
available to the indemnifying party all information and assistance that the
indemnifying party may reasonably request and shall cooperate with the
indemnifying party in any defense undertaken by it pursuant to this Section 8.
Notwithstanding anything herein to the contrary, the indemnified party shall at
all times have the right to fully participate in such defense at its own expense
directly or through counsel; provided, however, if the named parties to the
action or proceeding include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct, the expense of
separate counsel for the indemnified party shall be paid by the indemnifying
party. If no such notice of intent to dispute and defend is given by the
indemnifying party, or if such diligent good faith defense is not being or
ceases to be conducted, the indemnified party may, at the expense of the
indemnifying party, undertake the defense of (with counsel selected by the
indemnified party), and shall have the right to compromise or settle (exercising
reasonable business judgment), such claim, liability or expense.
9. COMPLIANCE WITH RULE 144. From the first date that the Company is
required to file any reports under Section 13 or 15(d) of the Exchange Act, and
until the Holders as a group shall own less than an aggregate of ten percent
(10%) of any class or series of equity securities of the Company, the Company
shall comply with the public information requirements which are conditions to
the availability of Rule 144 for the sale of Registrable Securities. Company
shall cooperate with the Holders in supplying such information as may be
necessary for them to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of Rule 144 with respect to the Holders and such Registrable
Securities.
10. AMENDMENTS; WAIVER. The provisions of this Agreement may be amended
and waived pursuant to a written agreement executed by the Company and Holders
holding ninety five percent (95%) or more of the then issued and outstanding
Registrable Securities, provided that any amendment or waiver that treats a
Holder differently than other Holders must be consented to by such Holders.
11. TRANSFERABILITY OF REGISTRATION RIGHTS. A transferee acquiring
Registrable Securities may succeed to the rights and obligations under this
Agreement appurtenant to the Registrable Securities if, but only if, such
transferee acquires a minimum of fifty thousand (50,000) shares of
9
<PAGE> 10
Registrable Securities in a single transaction, is not a direct competitor of
the Company or of Telxon Corporation (if Telxon Corporation then owns twenty
percent (20%) or more of the issued and outstanding capital stock of the
Company) and the transferee becomes a signatory hereto. The original signatory
and any immediate or subsequent transferee which becomes a party hereto shall
retain the rights and obligations under this Agreement with respect to those
Registrable Securities which it remains record owner.
12. MISCELLANEOUS.
12.1 GOVERNING LAW; JURISDICTION. This Agreement shall be construed
under and governed by the laws of the State of Ohio, without regards to conflict
or choice of laws, statutes, regulations, rules or principles. Any action
relating to the execution or performance of this Agreement shall be brought in
the courts, state or federal, sitting in Cuyahoga or Summit County, Ohio, and
each party hereto consents to the jurisdiction and venue of such courts, and
agrees not to contest venue on the grounds of forum non conveniens or otherwise.
12.2 NOTICES. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given upon receipt, or if delivered or sent by facsimile transmission, upon
confirmation of transmission, or if sent by overnight courier, the second day
after deposit, as follows:
TO THE HOLDERS: To the respective addresses set forth
in the stock records of the Company
with a copy to: A legal counsel designated by
a majority of the Holders
TO THE COMPANY Aironet Wireless Communications, Inc.
at the address set forth at the
beginning of this Agreement.
Attn: President
Fax Number: 330-664-7986
with a copy to: Goodman Weiss Miller LLP
100 Erieview Plaza, 27th Floor
Cleveland, Ohio 44114
Attn: Robert A. Goodman/Jay R. Faeges
Fax Number: 216-363-5835
or to such other address of which any party may notify the other parties
provided in accordance with this Section 12.2.
12.3 PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes all prior
and
10
<PAGE> 11
contemporaneous understandings and agreements, written or oral, between or among
the parties relating to the subject matter hereof.
12.4 ASSIGNABILITY. Except as set forth in Section 11, this Agreement
may not be assigned, and no right or obligation herein may be assigned or
delegated, without the written consent of the Company, and absent such consent
any such assignment or delegation shall be void and of no effect. Subject to the
foregoing, this Agreement shall be binding upon and enforceable by, and shall
inure to the benefit of, the parties hereto and their respective permitted
successors and assigns. Nothing in this Agreement is intended to give any person
not named herein the benefit of any legal or equitable right, remedy or claim
under this Agreement, except as expressly provided herein.
12.5 CAPTIONS AND GENDER. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine, feminine
or neuter pronoun, shall include the others as the context may require.
12.6 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same document. An executed
faxed counterpart of this Agreement shall be binding on the parties, and for
evidentiary purposes shall be deemed to be an original.
12.7 SEVERABILITY. In case any of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had been limited or modified
(consistent with its general intent) to the extent necessary to make it valid,
legal and enforceable, or if it shall not be possible to so limit or modify such
invalid, illegal or unenforceable provision or part of a provision, this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision or part of a provision had never been contained in this Agreement, so
long as to do so would not materially alter the rights or obligations of the
parties taken as a whole.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first set forth above.
COMPANY: AIRONET WIRELESS COMMUNICATIONS, INC.
By: /s/ Roger J. Murphy
-----------------------------------
Roger J. Murphy, President
HOLDERS, INDIVIDUALS: /s/ Frank B. Carr
--------------------------------------
FRANK B. CARR
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
COMPANY: AIRONET WIRELESS COMMUNICATIONS, INC.
By: /s/ Roger J. Murphy
--------------------------------------
Roger J. Murphy, President
TELXON: TELXON CORPORATION
By: /s/ Kenneth W. Haver
--------------------------------------
Kenneth W. Haver, Senior Vice President
and Chief Financial Officer
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
INVESTORS, ENTITIES: AXIOM VENTURE PARTNERS II LIMITED
PARTNERSHIP
By: Axiom Venture Associates II Limited
Liability Company, its General Partner
By: /s/ Samuel F. McKay
---------------------------------------
Its:______________________________________
HAMBRECHT & QUIST
By:_______________________________________
Its:______________________________________
TELANTIS VENTURE PARTNERS V, INC.
By: /s/ Richard W. Dyer
---------------------------------------
Richard W. Dyer, Treasurer
W, A & H INVESTMENTS LLC
By: Wessels, Arnold & Henderson Group, L.L.C.,
its managing member
By: /s/ Ken J. Wessels
---------------------------------------
Ken J. Wessels, CEO/Managing Director
McDONALD & COMPANY SECURITIES, INC.
By:______________________________________
Its:______________________________________
CLARION CAPITAL CORPORATION
By: Mart Cohen
---------------------------------------
Its: Chairman
--------------------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
- ---- -----------------------------
<S> <C>
Aironet Canada Inc. Ontario, Canada
Aironet Canada Limited Ontario, Canada
Aironet S.A. Belgium
Aironet International Limited United Kingdom
Aironet Wireless Communications, Inc. Delaware
Meta Holding Corporation Delaware
Metanetics Corporation Delaware
N.V. Telxon Belgium S.A. Belgium
PenRight! Corporation Delaware
Productos y Sevicios de Telxon, S.A. de C.V. Mexico
PTC Airco, Inc. Delaware
Teletransaction, Inc. Delaware
Telxon Australia Pty., Ltd. Australia
Telxon Canada Corporation Ltd. Ontario, Canada
Telxon Corporation Systems Espana, S.A. Spain
Telxon Data Systems A.G. Switzerland
Telxon France S.A. France
Telxon Foreign Sales Corporation U.S. Virgin Islands
Telxon International Procurement Services, Inc. Delaware
Telxon Italia S.r.l. Italy
Telxon Japan Ltd. Japan
Telxon Limited United Kingdom
Telxon mde GMBH Germany
Telxon Products, Inc. Delaware
Telxon Trading Co., Inc. Delaware
The Retail Technology Group, Inc. Delaware
TLXITX Corporation Washington
</TABLE>
83
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus constituting part
of this Registration Statement of Telxon Corporation and Subsidiaries on Form
S-8 (File Nos.33-16939, 33-32600, 33-43314, 33-43318, 33-56205, 33-62957,
333-00449, 333-01189, 333-33177, 333-43121) of our report, dated June 26, 1998,
on our audits of the consolidated financial statements and financial statement
schedule of Telxon Corporation and Subsidiaries, as of March 31, 1998 and 1997,
and for each of the three years in the period ended March 31, 1998, appearing
on page 39 of the Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Akron, Ohio
June 26, 1998
84
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
TELXON CORPORATION
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors of
Telxon Corporation, a Delaware corporation (the "Company"), does hereby make,
constitute and appoint Frank E. Brick, Kenneth W. Haver, Gary L. Grand and Glenn
S. Hansen his true and lawful attorneys-in-fact and agents, each with full power
to act alone without any other and of substitution and resubstitution, to
prepare or cause to be prepared, to execute for and on his behalf and in his
name in his capacity as a Director of the Company, and to deliver and file or
cause to be delivered and filed with the Securities and Exchange Commission (the
"Commission") the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998, together with any amendments and any exhibits and other
documents in support thereof or supplemental thereto and any and all other
documents, reports and instruments which said attorneys-in-fact and agents, or
any of them, may deem necessary to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and the rules, regulations and
requirements of the Commission pursuant thereto, hereby granting to said
attorneys-in-fact and agents and each of them full power and authority to do and
perform each and every act and thing whatsoever as said attorneys-in-fact and
agents may deem necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in the capacity as
aforesaid, hereby ratifying and confirming all acts and things which said
attorneys-in-fact and agents may do or cause to be done by virtue of these
presents.
IN WITNESS WHEREOF, the undersigned have subscribed this instrument
effective as of June 15, 1998.
/s/ Richard J. Bogomolny /s/ Robert A. Goodman
Richard J. Bogomolny, Director Robert A. Goodman, Director
/s/ Frank E. Brick /s/ Raj Reddy
Frank E. Brick, Director Raj Reddy, Director
/s/ John H. Cribb /s/ Norton W. Rose
John H. Cribb, Director Norton W. Rose, Director
85
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<RECEIVABLES> 123,711
<ALLOWANCES> 1,731
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<CURRENT-ASSETS> 251,188
<PP&E> 132,812
<DEPRECIATION> 86,876
<TOTAL-ASSETS> 342,185
<CURRENT-LIABILITIES> 80,854
<BONDS> 108,030
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<COMMON> 162
<OTHER-SE> 147,213
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<CGS> 52,561
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