<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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)
<TABLE>
<S> <C>
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
</TABLE>
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 [ ]. No [X].*
* Other than its Quarterly Report on form 10-Q for the fiscal quarter
ended December 31, 1998 and its Annual Report on Form 10-K for the
fiscal year ended March 31, 1999, the registrant has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (during which the
registrant has been subject to such filing requirements).
At September 30, 1999, there were 16,277,087 outstanding shares of the
registrant's Common Stock.
<PAGE> 2
TELXON CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: Page No.
-------
<S> <C>
Item 1: Consolidated Financial Statements
Balance Sheet 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-21
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 22-40
Item 3: Quantitative and Qualitative Disclosure About Market Risk 41
PART II. OTHER INFORMATION:
Item 1: Legal Proceedings 42
Item 4: Submission of Matters to a Vote of Security Holders 42
Item 6: Exhibits and Reports on Form 8-K 42-53
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands except per share amounts)
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
----------------- ----------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash $ 12,176 $ 22,459
Account receivable, net of allowance for doubtful
accounts of $4,573 and $11,069 71,277 84,500
Notes and other accounts receivable 1,581 4,015
Receivable from affiliate 1,042 -
Inventories 95,422 129,049
Prepaid expenses and other 7,649 9,029
----------------- ----------------
Total current assets 189,147 249,052
Property and equipment, net 67,525 69,557
Intangibles and other assets, net 24,099 30,235
Investment in affiliate 21,307 -
----------------- ----------------
Total $ 302,078 $ 348,844
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 41,725 $ 68,567
Capital lease obligations due within one year 414 525
Accounts payable 41,398 64,966
Payable to affiliate 4,213 -
Income taxes payable 7,965 6,434
Accrued liabilities 63,970 74,285
----------------- ----------------
Total current liabilities 159,685 214,777
Capital lease obligations 1,224 1,435
Convertible subordinated notes and debentures 106,913 106,913
Long-term debt 13,067 -
Other long-term liabilities 4,397 5,446
----------------- ----------------
Total liabilities 285,286 328,571
Minority interest - 3,307
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, 16,277 and 16,234 shares issued 163 162
Additional paid-in capital 86,631 87,029
Retained deficit (63,720) (61,977)
Accumulated other comprehensive income for foreign currency translation (4,563) (5,464)
Unearned compensation relating to restricted stock awards (334) (82)
Treasury stock; 5 and 78 shares of common stock at cost (106) (1,423)
Notes related to purchase of subsidiary stock (1,279) (1,279)
----------------- ----------------
Total stockholders' equity 16,792 16,966
----------------- ----------------
Commitments and contingencies - -
----------------- ----------------
Total $ 302,078 $ 348,844
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
--------------- -------------- --------------- --------------
(As Restated) (As Restated)
<S> <C> <C> <C> <C>
Revenues:
Product, net $ 76,621 $ 82,405 $ 144,536 $ 172,598
Customer service, net 19,674 21,236 39,584 42,206
--------------- -------------- --------------- --------------
Total net revenues 96,295 103,641 184,120 214,804
Cost of revenues:
Product 57,428 52,750 108,297 107,224
Customer service 12,078 13,502 24,289 26,328
--------------- -------------- --------------- --------------
Total cost of revenues 69,506 66,252 132,586 133,552
--------------- -------------- --------------- --------------
Gross profit:
Product 19,193 29,655 36,239 65,374
Customer service 7,596 7,734 15,295 15,878
--------------- -------------- --------------- --------------
Total gross profit 26,789 37,389 51,534 81,252
Operating expenses:
Selling expenses 18,235 21,329 36,842 44,871
Product development and engineering expenses 5,992 9,427 13,142 18,438
General & administrative expenses 16,114 10,420 27,356 19,931
Unconsummated business combination costs - 1,830 - 3,579
--------------- -------------- --------------- --------------
Total operating expenses 40,341 43,006 77,340 86,819
--------------- -------------- --------------- --------------
Loss from operations (13,552) (5,617) (25,806) (5,567)
Interest income 159 164 415 343
Interest expense (3,559) (2,617) (6,801) (4,329)
--------------- -------------- --------------- --------------
Loss before other non-operating income (expense)
and income taxes (16,952) (8,070) (32,192) (9,553)
Other non-operating income (expense) 32,650 (97) 32,467 1,264
--------------- -------------- --------------- --------------
Income (loss) before income taxes 15,698 (8,167) 275 (8,289)
Provision (benefit) for income taxes 738 (1,853) 2,016 (1,875)
--------------- -------------- --------------- --------------
Net income (loss) $ 14,960 $ (6,314) $ (1,741) $ (6,414)
=============== ============== =============== ==============
Net income (loss) per common share:
Basic $ 0.92 $ (0.39) $ (0.11) $ (0.40)
Diluted $ 0.92 $ (0.39) $ (0.11) $ (0.40)
Average number of common shares outstanding:
Basic 16,232 16,075 16,194 16,100
=============== ============== =============== ==============
Diluted 16,233 16,075 16,194 16,100
=============== ============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
-------------------------------------
1999 1998
----------------- -----------------
Cash flows from operating activities: (As Restated)
<S> <C> <C>
Net loss $ (1,741) $ (6,414)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 12,231 13,094
Amortization of restricted stock awards, net 176 149
Provision for doubtful accounts 1,256 3,562
Provision for inventory obsolescence 3,616 4,027
Gain on sale of subsidiary stock (32,167) -
Gain on sale of non-marketable investments (761) (900)
Equity in earnings of affiliate (702) -
(Gain) loss on disposal of property and equipment (107) 238
Loss on carrying value of non-marketable investment 1,283 -
Impairment charge 381 -
Minority interest - 117
Changes in assets and liabilities:
Accounts and notes receivable 6,744 34,319
Amounts due to and from affiliate 3,171 -
Inventories 19,245 (12,338)
Prepaid expense and other 1,607 (6,027)
Intangibles and other assets (180) 531
Accounts payable and accrued liabilities (18,473) (10,006)
Other long-term liabilities (1,048) (674)
----------------- -----------------
Net cash (used in) provided by operating activities (5,469) 19,678
Cash flows from investing activities:
Additions to property and equipment (8,969) (18,848)
Software and other investments (2,027) (2,939)
Proceeds from the sale of subsidiary stock, net of cash given 17,211 -
Proceeds from the sale of property and equipment 261 -
Purchase of non-marketable investments - (1,950)
Proceeds from the sale of non-marketable investment 1,523 -
Additions to long-term notes receivable - (608)
----------------- -----------------
Net cash provided by (used in) investing activities 7,999 (24,345)
Cash flows from financing activities:
Extinguishment of former credit facility (48,888) -
(Repayments) borrowings on former credit facility, net (17,179) 14,580
Borrowings on long-term provisions of debt facility 17,000 -
Borrowings on debt facility, net 37,792 -
Principal payments on capital leases (322) (343)
Debt issue costs paid (1,215) -
Purchase of treasury shares - (488)
Exercise of stock options (includes tax benefit) - 1,222
----------------- -----------------
Net cash (used in) provided by financing activities (12,812) 14,971
Effect of exchange rate changes on cash (1) (218)
----------------- -----------------
Net (decrease) increase in cash and cash eqivalents (10,283) 10,086
Cash and cash equivalents at beginning of period 22,459 27,500
================= =================
Cash and cash equivalents at end of period $ 12,176 $ 37,586
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
(Unaudited and As Restated)
1. Management Representation
The consolidated financial statements of Telxon Corporation ("Telxon")
and its subsidiaries (collectively with Telxon, the "Company") have
been prepared without audit and in accordance with the instructions to
Form 10-Q. In the opinion of the Company, all adjustments, consisting
of normal recurring adjustments necessary for a fair statement of
results for the interim periods, have been made. The operating results
for the three and six months ended September 30, 1999, are not
necessarily indicative of the results that may be achieved for the year
ending March 31, 2000. The statements, including the March 31, 1999
balance sheet, do not include all of the information and notes required
by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the audited
consolidated financial statements as contained in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999.
Comparative September 30, 1998 consolidated financial statements are
unaudited and as restated, are discussed in Note 4 - Restatement.
2. Basis of Presentation
As discussed in Note 12, Subsidiary Stock Transactions and
Divestitures, during the three months ended September 30, 1999, the
Company and its former subsidiary, Aironet Wireless Communications,
Inc. ("Aironet") sold shares of Aironet's voting common stock on the
Nasdaq National Market in an Initial Public Offering ("IPO"). As a
result of the IPO, the Company's percentage interest in the voting
common stock of Aironet is approximately 35%. As such, the Company has
ceased to consolidate the results of Aironet as of April 1, 1999, the
beginning of the Company's fiscal year. From that date forward, the
Company has accounted for the results of Aironet under the equity
method of accounting in accordance with the provisions of Accounting
Principles Board Opinion No. 18 "The Equity Method of Accounting for
Investments in Common Stock".
3. Financial Results and Liquidity
The Company incurred a net loss in fiscal 1999 of $136,982 with a
decrease in consolidated revenues of $74,862 as compared to fiscal
1998. Cash flows used in operating activities were $27,616 and cash
flows used in investing activities were $40,921 for fiscal 1999. The
primary source of cash flows for fiscal 1999 was net borrowings under
its former credit facilities (including product financing arrangements)
that aggregated $65,567. The Company's stockholders' equity and working
capital at March 31, 1999 were $16,966 and $34,275, respectively.
During the quarter and six months ended September 30, 1999, the Company
earned net income of $14,960 and incurred a net loss of $1,741,
respectively. The net income for the quarter ended September 30, 1999
was primarily the result of the non-operating gain recorded related to
the sale of Aironet voting common stock of $32,167. The Company
incurred losses from operations of $13,552 and $25,806 for the quarter
and six months ended September 30, 1999, respectively. The Company's
stockholders' equity and working capital at September 30, 1999 were
$16,792 and $29,462, respectively. For the six months ended September
30, 1999, the Company used $5,469 of cash in operating activities.
The Company has pursued the generation of cash from sources such as
inventories and accounts receivable, the management of vendor payments
and related operating expenditures. However, there can be no assurance
that the cash flows generated
6
<PAGE> 7
from such sources will be sufficient to support the Company's efforts
to manage the payment of the amounts presently owing to, or
subsequently incurred with, its suppliers. If cash flows are not
sufficient there could be further disruption of the flows of necessary
materials, components, services or other cash requirements of the
Company. In addition, litigation, commitments and contingencies
referenced in Note 10 - Litigation and Contingencies could have a
material adverse effect on the Company's cash flows and, in turn, on
the Company's results of operations and financial condition.
4. Restatement
On February 23, 1999, the Company announced that, having completed the
review of certain judgmental accounting matters with the Company's then
outside auditors previously reported in the Company's January 27, 1999,
press release, it would restate its previously issued financial
statements for the fiscal years 1996, 1997 and 1998 and its unaudited
interim financial statements for the first, second and third quarters
of each fiscal year 1997 and 1998 and the first and second quarters of
fiscal 1999. The accompanying financial statements reflect the
announced restatement. The more significant restatement adjustments
affecting the periods covered by the accompanying financial statements
are described below.
During the three months ended June 30, 1998, the Company increased its
product sales returns reserve and related return inventory receivable
by $3,963 and $1,902, respectively, to better reflect the levels of
product returns in the Company's Value-add Distributor channel. The
Company also capitalized $1,950 previously expensed during the three
months ended June 30, 1998, related to the repurchase of common stock
of Metanetics from a business partner, resulting in an investment to be
amortized over a useful life of three years. Adjustments were also made
to increase the Company's provision for the past due accounts
receivable related to a certain foreign distributor as a result of
questions regarding the on-going financial viability of the
distributor. Such adjustments totaled $2,181 for the three months ended
June 30, 1998. For the three months ended June 30, 1998, the company
also reduced its inventory reserves by $697 to better approximate the
exposure related to on-hand inventories. Additionally, the Company made
an adjustment to record, during the three months ended June 30, 1998,
the $900 gain related to the sale of Virtual Vision, which was
previously recorded during the three months ended March 31, 1998, as
certain conditions of the sale, though perfunctory, were not satisfied
until after March 31, 1998.
Product revenue of $14,100 and related cost of product revenue of
$6,837 associated with a product financing arrangement recorded during
the three months ended September 30, 1998, have been reversed as the
criteria for revenue recognition had not been fully satisfied. Such
product revenue and related cost of product revenue was recognized upon
sell-through to the end customer. Product revenue of $6,984 and
corresponding cost of product revenue of $4,719 related to the sale of
the Company's product under which the Company guaranteed the customer's
lease payments to a third party lessor, were deferred subject to the
customer's satisfaction of the lease payments. Additionally, software
license revenues of $2,000 recognized during the three months ended
September 30, 1998 has also been deferred as certain contingencies
related to the customer's acceptance of such software had not been
satisfied. During the three months ended September 30, 1998, the
Company decreased its product sales returns reserves and related return
inventory receivable by $2,546 and $1,222, respectively, to better
reflect the level of general product returns experienced by the
Company. The statement of operations for the three months ended
September 30, 1998, also reflects a $1,012 increase in bad debt expense
due to the increased provision for the past due accounts receivable
related to a foreign distributor. The Company recorded an adjustment to
reduce its
7
<PAGE> 8
inventory reserves by $868 to better approximate the exposure related
to on-hand inventories. The Company's operating results for the three
months ended September 30, 1998, were reduced by $262 due to the net
reversal of certain accrued software license revenues and software
royalties related to a previously divested software operation, and to
defer recognition of such items until those transactions are settled in
cash.
A summary of the effects of the restatement on the Company's statements
of operations for the three months and six months ended September 30,
1998 is presented below:
8
<PAGE> 9
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
------------------------------------- -------------------------------------
Ended September 30, 1998 Ended September 30, 1998
------------------------------------- -------------------------------------
As As As As
Presented Restated Presented Restated
<S> <C> <C> <C> <C>
Revenues:
Product $103,133 $ 82,405 $197,210 $172,598
Customer service 21,236 21,236 42,206 42,206
------------------ ----------------- ----------------- ------------------
Total revenues 124,369 103,641 239,416 214,804
Cost of revenues:
Product 62,411 52,750 119,722 107,224
Customer service 13,502 13,502 26,327 26,328
------------------ ----------------- ----------------- ------------------
Total cost of revenues 75,913 66,252 146,049 133,552
Gross profit:
Product 40,722 29,655 77,488 65,374
Customer service 7,734 7,734 15,879 15,878
------------------ ----------------- ----------------- ------------------
Total gross profit 48,456 37,389 93,367 81,252
Operating expenses:
Selling expenses 20,317 21,329 41,678 44,871
Product development and engineering expenses 9,261 9,427 18,191 18,438
General and administrative expenses 10,425 10,420 19,862 19,931
Unconsummated business
combination costs and other charges 1,830 1,830 5,529 3,579
------------------ ----------------- ----------------- ------------------
Total operating expenses 41,833 43,006 85,260 86,819
------------------ ----------------- ----------------- ------------------
Loss from operations 6,623 (5,617) 8,107 (5,567)
Interest income 164 164 343 343
Interest expense (2,617) (2,617) (4,329) (4,329)
------------------ ----------------- ----------------- ------------------
Loss before other non-operating
income (expense) and
income taxes 4,170 (8,070) 4,121 (9,553)
Other non-operating (expense) income - (97) 460 1,264
------------------ ----------------- ----------------- ------------------
Income (loss) before income taxes 4,170 (8,167) 4,581 (8,289)
Provision (benefit) for income taxes 1,672 (1,853) 1,837 (1,875)
------------------ ----------------- ----------------- ------------------
Net income (loss) $ 2,498 $ (6,314) $ 2,744 $ (6,414)
================== ================= ================= ==================
Net income (loss) per share:
Basic $ 0.16 $ (0.39) $ 0.17 $ (0.40)
================== ================= ================= ==================
Diluted $ 0.15 $ (0.39) $ 0.16 $ (0.40)
================== ================= ================= ==================
Average number of common shares outstanding:
Basic 16,065 16,075 16,095 16,100
Diluted 16,559 16,075 16,764 16,100
</TABLE>
9
<PAGE> 10
5. Earnings Per Share
Computations of basic and diluted earnings per share of common stock
have been made in accordance with the Financial Accounting Standards
Board's (FASB) Statement of Financial Accounting Standards No. 128,
"Earnings Per Share". All securities having an anti-dilutive effect on
earnings per share have been excluded from such computations. Common
stock purchase rights outstanding under the Company's stockholder
rights plan, which potentially have a dilutive effect, have been
excluded from the weighted common shares computation as preconditions
to the exercisability of such rights were not satisfied.
Reconciliation of Numerators and Denominators
Of the Basic and Diluted EPS Computations
(In thousands except per share amounts)
In the following table, net loss represents the numerator, and the
shares represent the denominator, in the earnings per share
calculation.
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
September 30, 1999 September 30, 1998
------------------------------------------- ---------------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Loss Shares Amount
-------------- -------------- ------------ --------------- ------------------- ---------------
(As Restated)
<S> <C> <C> <C> <C> <C> <C>
Net income(loss) $ 14,960 $ (6,314)
============== ===============
BASIC INCOME (LOSS) PER SHARE
Income (loss) incurred by
common stockholders $ 14,960 16,232 $ 0.92 $ (6,314) 16,075 $ (0.39)
============== ============ =============== ===============
EFFECT OF DILUTIVE
SECURITIES
Options 1 -
-------------- -------------------
DILUTED INCOME (LOSS) PER SHARE
Income (loss) incurred by
holders of common
stock and common
stock equivalents $ 14,960 16,233 $ 0.92 $ (6,314) 16,075 $ (0.39)
============== ============== ============ =============== =================== ===============
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
For the Six Months Ended For the Six Months Ended
September 30, 1999 September 30, 1998
----------------------------------------------- --------------------------------------------
Net Per Share Net Per Share
Loss Shares Amount Loss Shares Amount
--------------- -------------- ---------------- --------------- -------------- -------------
(As Restated)
<S> <C> <C> <C> <C> <C> <C>
Net loss $ (1,741) $ (6,414)
=============== ===============
BASIC LOSS PER SHARE
Loss incurred by
common stockholders $ (1,741) 16,194 $ (0.11) $ (6,414) 16,100 $ (0.40)
=============== ================ =============== =============
EFFECT OF DILUTIVE
SECURITIES
Options - -
-------------- --------------
DILUTED LOSS PER SHARE
Loss incurred by
holders of common
stock and common
stock equivalents $ (1,741) 16,194 $ (0.11) $ (6,414) 16,100 $ (0.40)
=============== ============== ================ =============== ============== =============
</TABLE>
Options to purchase 3,571,698 shares of common stock at a weighted
average exercise price of $14.93 were outstanding at September 30,
1999, but were not included in the computation of diluted earnings per
share for the three months then ended because the exercise price of
such options was greater than the weighted average market price of
common shares for the period.
Options to purchase 3,845,698 shares of common stock at a weighted
exercise price of $14.43 per share were outstanding at September 30,
1999, but were not included in the computation of diluted earnings per
share for the six months then ended because the options would have an
anti-dilutive effect on the net loss for the period.
Options to purchase 3,246,077 shares of common stock at a weighted
average exercise price of $17.90 per share were outstanding at
September 30, 1998, but were not included in the computation of diluted
earnings per share for the three and six months then ended because the
options would have had an anti-dilutive effect on the net loss for the
periods then ended.
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 earnings per share calculations because their
inclusion at September 30, 1999 and 1998 would have had an
anti-dilutive effect on earnings for the three months then ended.
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<PAGE> 12
6. Comprehensive Income (Loss)
Total comprehensive income (loss) consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
1999 1998
--------------------- ----------------------
(As Restated)
<S> <C> <C>
Net income (loss) $ 14,960 $ (6,314)
Other comprehensive income:
Foreign currency translation adjustment 430 818
===================== ======================
Total comprehensive income (loss) $ 15,390 $ (5,496)
===================== ======================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
September 30, September 30,
1999 1998
--------------------- ----------------------
(As Restated)
<S> <C> <C>
Net loss $ (1,741) $ (6,414)
Other comprehensive income:
Foreign currency translation adjustment 175 635
--------------------- ----------------------
Total comprehensive loss $ (1,566) $ (5,779)
===================== ======================
</TABLE>
7. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
--------------------- ----------------------
<S> <C> <C>
Purchased components $ 53,103 $ 51,112
Work-in-process 19,254 32,360
Finished goods 23,065 45,577
--------------------- ----------------------
$ 95,422 $ 129,049
===================== ======================
</TABLE>
8. Accrued Liabilities
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
--------------------- ----------------------
<S> <C> <C>
Deferred customer service revenues $ 15,106 $ 15,351
Deferred product revenues 10,879 14,168
Accrued discontinued product costs 8,221 12,422
Accrued payroll and other
employee compensation 7,104 11,649
Other accrued liabilities 22,660 20,695
--------------------- ----------------------
$ 63,970 $ 74,285
===================== ======================
</TABLE>
12
<PAGE> 13
The Company's domestic accrual for severance costs decreased from a
balance of $3,429 at March 31, 1999 to a balance of $2,725 at September
30, 1999. This decrease was caused by severance charges of $1,102
during the first half of fiscal 2000 that were more than offset by
severance payments of $1,806 to terminated employees. A total of 33
employees were terminated during the first half of fiscal 2000. The
areas of the company affected were domestic sales operations, domestic
product development, manufacturing operations and corporate
administration. There have been no material changes to the amounts
accrued at either March 31, 1999 or September 30, 1999. In addition to
the domestic sales activity, 1 employee was terminated in the Company's
international sales operations, during the second quarter of fiscal
2000. The severance recorded related to this employee was approximately
$1,100, and such amount was paid prior to September 30, 1999.
9. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Six Months Ended
September 30, September 30,
1999 1998
--------------------- ---------------------
(As Restated)
<S> <C> <C>
Cash paid during the period for:
Interest $6,172 $4,676
Income taxes $1,965 $3,009
</TABLE>
Capital lease additions of $276 during the six months ended September
30, 1998 have been excluded from the accompanying consolidated
statement of cash flows as a non-cash transaction. There were no
capital lease additions during the six months ended September 30, 1999.
The non-cash portion of the gain related to the sale of Aironet common
stock of $14,956 has been excluded from the accompanying consolidated
statement of cash flows as a non-cash transaction.
10. Litigation 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,
attorney's 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 its 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
13
<PAGE> 14
series of transactions in which the Company acquired 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
Judgement on the Pleadings (as to himself), in response to which
Plaintiff filed its Answer and Brief in Opposition. The Motion was
argued before the Court on November 4, 1998, and was granted from the
bench, dismissing Meyo as a defendant in the case. The
post-intervention claims are the subject of ongoing discovery, which
should be completed by the end of 1999.
On November 15, 1999, the defendants will be filing a Motion For
Summary Judgment. The legal briefing on that Motion is scheduled for
completion by December 8, 1999. No trial date has been set.
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 its financial
statements.
On February 7, 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-judgement interest, attorneys'
fees and costs and other unspecified relief. In its Answer, Telxon
denied plaintiff's allegations. No hearing has been had on, or is
currently scheduled for, plaintiff's claim for temporary injunctive
relief. The trial previously scheduled for March 1999 has been reset to
commence on a day during the Court's two week docket beginning
December 6, 1999, with the specific trial date to be set by the Court
at that time, and the parties are currently engaged in the discovery.
A supplemental complaint was subsequently filed on or about October
27, 1999, which included more specific allegations concerning the
matters alleged in the original complaint. Telxon believes that these
claims lack merit and continues to vigorously defend this action.
Telxon also continues to pursue its claims for coverage from its
insurance carrier with respect to the costs, expenses and potential
damages arising out of this matter.
While the litigation with the landlord remains pending, Telxon and the
landlord filed on July 7, 1999 a joint application with the Texas
Natural Resource Conservation Commission for approval of a proposed
Response Action Work Plan for the property pursuant to the
Commission's Voluntary Cleanup Program. The plan, which was approved
by the Commission in August 1999, projects completion of remediation
and issuance of a closure certificate in 2002. The Company does not
believe that the cost of the remediation under the plan will have a
material adverse effect on its results of operations for any quarter
in which any associated charges would be taken. If closure of the
remediation is not certified when contemplated by the plan, and the
Company were ultimately to become responsible for the alleged
contamination, the associated loss could have a material adverse
effect on results of operations for one or more quarters in which the
associated charge(s) would be taken.
14
<PAGE> 15
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 Directors at the time, 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 attorney's 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, with no scheduling order
having been issued by the Court; discovery has not yet commenced. The
defendants believe that these claims lack merit and intend to
vigorously defend the consolidated action.
From December 1998 through March 1999, a total of 27 class actions 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 the
defendants and their affiliates, who purchased stock during the period,
from May 21, 1996 through February 23, 1999 or various portions
thereof. The named defendants are the Company, former President and
Chief Executive Officer Frank E. Brick and former Senior Vice President
and Chief Financial Officer Kenneth W. Haver. The actions have been
referred to a single judge, and on February 9, 1999, the plaintiffs
filed a Motion to Consolidate all of the actions. On April 26, 1999,
the Court heard motions on naming class representatives and lead class
counsel. The
complaints allege claims for "fraud on the market" arising from alleged
misrepresentations and omissions with respect to the Company's
financial performance and prospects and an alleged violation of
generally accepted accounting principles by improperly recognizing
revenues. The various complaints seek certification of their respective
purported classes, unspecified compensatory and punitive damages, pre-
and post-judgment interest, and attorneys' fees and costs.
On August 25, 1999, the Court appointed lead plaintiffs and their
counsel, ordered the filing of an Amended Complaint, and dismissed 26
of 27 class action suits without prejudice and consolidated those 26
cases into the first filed action. On September 30, 1999, lead
plaintiffs filed an Amended Class Action Complaint. The Amended
Complaint alleges that Defendants engaged in a scheme to defraud
investors through improper revenue recognition practices and
concealment of material adverse conditions in Telxon's business and
finances. The Amended Complaint seeks certification of the identified
class, unspecified compensatory and punitive damages, pre- and
post-judgment interest, and attorneys fees and costs. On November 8,
1999, the defendants jointly moved to dismiss the Amended Complaint.
The defendants believe that the class claims lack merit, and they
intend to vigorously defend these actions.
By letter dated December 18, 1998, the Staff of the Division of
Enforcement of the Securities and Exchange Commission advised the
Company that it was conducting a preliminary, informal inquiry into
trading of the securities of the Company at or about the time of the
Company's December 11, 1998 press release announcing that the Company
would be restating the revenues for its second fiscal quarter ended
September 30, 1998. On January 20, 1999, the Commission issued a
formal Order of Investigation with respect to certain securities
trading and accounting issues, pursuant to which subpoenas have been
served requiring the production of specified documents and testimony.
15
<PAGE> 16
The Company has received a number of letters from its customers
requesting Telxon to indemnify them with respect to their defense of
demands which have been made on them by the Lemelson Medical,
Education & Research Foundation Limited Partnership for the payment of
a license fee for the alleged infringement of the Foundation's
so-called "bar-code" patents by the customers' systems utilizing
automatic identification technology, portions of which have been
supplied by the Company. On October 27, 1999, the Foundation also sent
a letter directly to the Company similarly demanding that the Company
purchase a license with respect to "Telxon's use of machine vision and
bar coding technology." The Company believes that the patents so being
asserted against it and its customers are invalid, unenforceable and
not infringed. This position has also been taken by seven other
companies in the automatic identification industry, including the
Company's principal competitors, which in July 1999 jointly filed a
federal court action seeking a declaratory judgment to that effect
against the Foundation.
Except as otherwise specified, in the event that any of the foregoing
litigation ultimately results in a money judgment against the Company
or is otherwise determined adversely to the Company by a court of
competent jurisdiction, such determination could, depending on the
particular circumstances, adversely affect the Company's conduct of its
business and the results and condition thereof. 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 is also subject to various pending legal
actions and contingencies, which may include matters involving
suppliers, customers, lessors of Company products to customers and
lessors of equipment to the Company.
11. Income Taxes
The Company's consolidated tax provision of $738 and $2,016 for the
second quarter and first half of fiscal 2000, respectively, relate to
foreign taxes on the Company's international subsidiaries. No taxes
have been provided for the gain related to the sale of Aironet voting
common stock as the Company has sufficient current year operating loss
and net operating loss carryforwards to prevent a tax provision or
liability. The Company has not recognized any income tax benefits other
than those utilized through the realization of gains from the sale of
Aironet voting common stock based on the Company's assessment that it
is more likely than not that the deferred tax assets will not be
utilized through future taxable income or implementation of tax
planning strategies.
12. Subsidiary Stock Transactions and Divestitures
During the three months ended June 30, 1999, the Company repurchased
60,000 shares of the voting common stock of Metanetics from former key
employees, at a price of $2.00 per share. Giving effect to the share
repurchase, the Company's interest in the voting common stock of
Metanetics was 62% at June, 30, 1999. Prior to the repurchase of these
shares, the Company's interest in the voting common stock of Metanetics
was 60%.
During the three months ended June 30, 1998, the Company entered into a
series of transactions with a business partner relating to Metanetics,
a development stage subsidiary that develops image processing
technology. The Company repurchased 400,000 voting common shares of
Metanetics for $1,950 or $4.875 per share.
16
<PAGE> 17
Simultaneously, the business partner agreed to pay amounts due of
$1,850 for previously purchased manufacturing rights and software
licenses. Additionally, the companies mutually agreed to terminate such
agreements and released each other from any future liability related to
the original agreements. The Company had originally recorded the
additional $1,950 investment in Metanetics as an operating expense as
of June 30, 1998, because of the historical financial losses of the
subsidiary and future funding requirements for its operations. However,
after further assessment as part of the restatement discussed in Note 4
- Restatement above, and based in part on an independent valuation of
Metanetics, the Company has capitalized this additional investment as
goodwill to be amortized over a useful life of three years. Giving
effect to the share repurchase, the Company's interest in the voting
common stock of Metanetics was 60% at June 30, 1998. Prior to the
repurchase of these shares, the company's interest in the voting common
stock of Metanetics was 52%.
During the three months ended June 30, 1998, the Company's Aironet
subsidiary 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 resulting pre-tax net gain of $340 was
recorded as non-operating income in the accompanying consolidated
statement of operations. In addition to the sale of the shares of
stock, 66,667 warrants at $3.50 per share for the purchase of Aironet
voting common stock were issued. A gain of $47 relating to these
warrants has been deferred until the warrants are exercised or lapse.
The Company's remaining interest in the issued voting common stock of
Aironet at June 30, 1998, was 76%. Prior to the sale of these shares,
the Company's interest in the voting common stock of Aironet was 78%.
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
$6.00 per share or 750,000 shares. As all of the conditions of the sale
were not satisfied as of March 31, 1998, the related pre-tax gain of
$900 was deferred. During the three months ended June 30, 1998, all of
the conditions of the sale were satisfied and the Company recorded a
pre-tax gain of $900 as non-operating income in the accompanying
consolidated statement of operations.
During the second quarter of fiscal 2000, Aironet and the Company sold
6,919,434 shares of Aironet's voting common stock on the Nasdaq
National Market at an offering price of $11.00 per share. Of the total
number of shares offered, Aironet sold 4,637,196 shares and the Company
sold 2,282,238 shares. The aggregate proceeds, net of underwriting
discounts and commissions, were $47.4 million to Aironet and $23.3
million to Telxon. Subsequent to this transaction, the Company's
remaining interest in Aironet was approximately 35%. As a result of
this transaction, the Company recorded a non-operating gain of
approximately $32.2 million, net of additional transaction costs of
$1.5 million. Also as a result of this transaction, the Company ceased
consolidation of Aironet effective April 1, 1999. The Company will
account for its investment under the equity method of accounting.
Investment income of $363 and $702 was recorded for the Company's
interest in the earnings of Aironet for the second quarter and first
half of fiscal 2000.
13. Senior Secured Credit Facility
On August 30, 1999, the Company entered into a loan and security
agreement whereby Telxon obtained a $100.0 million senior secured
credit facility as a replacement for the Company's existing revolving
credit agreement and business purpose promissory note. The facility
consists of both term and revolving credit arrangements.
17
<PAGE> 18
Borrowings under the revolving loan provisions of such facility are to
be subject to availability on qualifying accounts receivable and
inventory, reduced by amounts borrowed and outstanding under the
facility's term loan features and letters of credit. The revolving
credit facility has a limit of $70.0 million less the outstanding
balance of the term loans and until such time that the bridge loan
described below is paid in full. At such time the maximum amount
available will be increased to $80.0 million less the outstanding term
loan balances. Availability under the agreement is estimated to be
$11.4 million as of September 30, 1999. The maturity date of the loan
and security agreement is September 30, 2002. At the maturity date the
agreement is automatically renewed for successive one-year periods
until such agreement is terminated.
The secured credit facility has three term loan features. The first
term loan of $6.0 million is limited by a portion of the liquidation
value of the Company's machinery and equipment. The repayment terms for
this term loan are straight-line over a 10-year period. The second term
loan of $10.0 million is limited, together with the $30.0 million term
loan discussed below, by the market value of Aironet capital stock
owned by the Company. The repayment of this term loan is straight-line
over a 3-year period. The third term loan of $30.0 million is limited
by a specific percentage of the market value of Aironet capital stock
owned by the Company. The repayment of this third term loan shall occur
over an 11-month period commencing on December 26, 1999 and concluding
on October 1, 2000, or upon any sale of additional capital stock of
Aironet by the Company. The first installment on the $30.0 million term
loan shall be made payable with the proceeds from the sale of Aironet
stock. The payment of the remaining balance shall be made in ten equal
installments.
The interest rate charged on the revolving loan, the $6.0 million term
loan, and the $30.0 million term loan is 2.75% above the Eurodollar
rate or 0.5% above the financial institution's prime lending rate. On
September 30, 1999, the prime lending rate and the Eurodollar rate were
8.25% and 6.09% respectively. Therefore, interest was charged at a rate
of 8.75% on these balances. In the event that the Aironet stock pledged
on the $30.0 million term loan is sold the rate on this term loan will
become fixed at 15.5%. The interest rate on the $10.0 million term loan
is fixed at 12.5%. Interest is payable monthly. The interest rate
charged is subject to change based upon the Company's financial
results. The facility also provides for the payment of an unused line
fee of 0.375% per annum on a monthly basis, and a 1.25% per annum fee
for undrawn letters of credit.
The $100.0 million credit facility is collateralized by essentially all
of the Company's assets including accounts receivable, machinery and
equipment, general intangibles, inventory, future proceeds and real
property.
The credit facility also requires the maintenance of various financial
and non-financial covenants. Significant financial covenants include
maintaining a minimum level of customer service revenue, ensuring that
the total outstanding balance of the credit facility does not exceed
collections from certain significant accounts, maintaining minimum
earnings before interest, taxes, depreciation and amortization
(EBITDA), and maintaining minimum tangible net worth requirements. As
of September 30, 1999, the Company is in violation of certain of these
covenants. As the company has obtained a waiver for such violation
beyond one year from September 30, 1999, $13,067 of this debt has been
classified as long term.
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<PAGE> 19
14. Business Segments
As of September 30, 1999 the Company's business consisted of three
operating segments: a)handhelds, workslates, and other mobile computing
devices through which the Company designs, develops, markets, and
services a broad line of handheld devices ranging from low-end batch
terminals to highly integrated mobile computers that incorporate laser
bar code readers and include a variety of pen-based and touch screen
workslate devices; b)sales and distributions of all its product lines
in Europe; and c)sales and distribution of all of its product lines in
international locations outside of Europe.
Prior to the second fiscal quarter 2000, the Company's business
consisted of four operating segments. Telxon's Aironet subsidiary,
which designs, develops, markets, and services high speed
standards-based wireless local area networking (LAN) solutions was also
presented as a separate business segment, and is presented as such
below for the quarter-ended September 30, 1998. As described in Note 2
- Basis of Presentation, the Company has ceased consolidating the
results of Aironet as of April 1, 1999. Aironet will no longer be
presented as a separate business segment prospectively, and is not
presented as such for the three and six-month period ended September
30, 1999. The gain recognized from the sale of Aironet of $32,167 has
been included within the U.S. operating segment for the three months
ending September 30, 1999.
Summarized financial information concerning the Company's reportable
segments is shown in the following table.
<TABLE>
<CAPTION>
(in thousands) United Other Adj./
States Europe International Elims. Consolidated
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Three months ended
September 30, 1999
Revenue from
unaffiliated customers $ 71,980 $ 18,784 $ 5,531 $ - $ 96,295
Revenue from
intercompany sales 11,089 174 1,253 (12,516) -
--------------------------------------------------------------------
Total revenue $ 83,069 $ 18,958 $ 6,784 $ (12,516) $ 96,295
Income (loss) before
income tax $ 15,347 $ 985 $ 861 $ (1,495) $ 15,698
====================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S.
Other than Other Adj./
Aironet Aironet Europe International Elims. Consolidated
----------------------------------------------------------------------------------
(As Restated)
<S> <C> <C> <C> <C> <C> <C>
Three months ended
September 30, 1998
Revenue from
unaffiliated customers $ 73,416 $ 5,275 $ 18,866 $ 6,085 $ - $ 103,641
Revenue from
intercompany sales 9,133 4,430 170 498 (14,231) -
----------------------------------------------------------------------------------
Total revenue $ 82,549 $ 9,705 $ 19,036 $ 6,583 $ (14,231) $ 103,641
(Loss) income before
income tax $(11,593) $ 502 $ 2,002 $ 667 $ 255 $ (8,167)
==================================================================================
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
United Other Adj./
States Europe International Elims. Consolidated
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Six months ended
September 30, 1999
Revenue from
unaffiliated customers $ 132,446 $ 39,658 $ 12,016 $ - $ 184,120
Revenue from
intercompany sales 22,142 328 1,986 (24,456) -
-------------------------------------------------------------------------------------------
Total revenue $ 154,588 $ 39,986 $ 14,002 $(24,456) $ 184,120
(Loss) income before
income tax $ (1,980) $ 3,305 $ 1,933 $ (2,983) $ 275
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S.
Other than Other Adj./
Aironet Aironet Europe International Elims. Consolidated
----------------------------------------------------------------------------------------------------------
(As Restated)
<S> <C> <C> <C> <C> <C> <C>
Six months ended
September 30, 1998
Revenue from
unaffiliated customers $ 153,697 $ 11,495 $ 36,427 $ 13,185 $ - $ 214,804
Revenue from
intercompany sales 19,959 7,686 316 1,112 (29,073) -
----------------------------------------------------------------------------------------------------------
Total revenue $ 173,656 $ 19,181 $ 36,743 $ 14,297 $ (29,073) $ 214,804
(Loss) income before
income tax $ (15,658) $ 779 $ 4,385 $ 1,928 $ 277 $ (8,289)
==========================================================================================================
</TABLE>
15. Subsequent Events
On November 8, 1999, the Company announced that it would move its
executive offices from Akron, Ohio to Cincinnati, Ohio and relocate
substantially all of its remaining Akron operations to The Woodlands,
Texas and Fort Mitchell, Kentucky. Approximately 170 employees will be
effected by these events and it is anticipated that the moves will be
substantially completed by March 31, 2000. The Company anticipates that
it will incur severance, moving, training, idle facility and other
costs of approximately $4 million over the next twelve months
associated with these events. The Company will account for such costs
in accordance with the requirements of EITF 94-3 "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)".
On November 9, 1999, Cisco Systems, Inc. ("Cisco") announced that it
will purchase the Company's affiliate, Aironet, for shares of Cisco
common stock. Based upon the value of Cisco common stock on November 9,
1999 this would result in total proceeds of $799 million. Based on that
value, the total purchase price translates into $48.00 per each share
of Aironet common stock. As the Company continues to own 4,994,262
shares of Aironet stock, the estimated fair value of the proceeds of
the transaction to the Company is estimated at $240 million. Based on
this estimated fair value, the transaction will result in a pre-tax
gain, prior to related transaction costs, of approximately $218 million
and the Company carrying its resulting investment in Cisco shares on
the fair value method of accounting in
20
<PAGE> 21
accordance with the requirements of SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities".
16. Reclassifications
Certain items in the fiscal 1999 consolidated financial statements and
notes thereto have been reclassified to conform to the fiscal 2000
presentation.
21
<PAGE> 22
TELXON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IN ADDITION TO DISCUSSING AND ANALYZING THE COMPANY'S RECENT HISTORICAL
FINANCIAL RESULTS AND CONDITION, THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDES STATEMENTS
REGARDING CERTAIN TRENDS OR OTHER FORWARD-LOOKING INFORMATION CONCERNING THE
COMPANY'S ANTICIPATED REVENUES, COSTS, FINANCIAL RESOURCES OR OTHERWISE
AFFECTING OR RELATING TO THE COMPANY WHICH ARE INTENDED TO QUALIFY FOR THE
PROTECTIONS AFFORDED "FORWARD-LOOKING STATEMENTS" UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, PUBLIC LAW 104-67. THE FORWARD-LOOKING STATEMENTS
MADE HEREIN AND ELSEWHERE IN THIS FORM 10-Q ARE INHERENTLY SUBJECT TO RISKS AND
UNCERTAINTIES, WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS OR OTHER FUTURE
EVENTS PERTAINING TO THE COMPANY TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS. THE SUMMARY OF CERTAIN OF THE RISKS AND OTHER IMPORTANT FACTORS
WHICH MAY AFFECT THE COMPANY'S BUSINESS, OPERATING RESULTS, FINANCIAL AND OTHER
CONDITION AND THE OCCURRENCE OF SUCH FUTURE EVENTS UNDER "FACTORS THAT MAY
AFFECT FUTURE RESULTS" BELOW SHOULD BE READ IN CONJUNCTION WITH THE MORE
COMPLETE DISCUSSION OF THOSE AND OTHER RISKS AND IMPORTANT FACTORS AFFECTING THE
BUSINESS, OPERATING RESULTS AND CONDITION OF THE COMPANY UNDER "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - FACTORS THAT MAY AFFECT FUTURE RESULTS", AND OTHER CAUTIONARY
STATEMENTS APPEARING UNDER "ITEM 1. BUSINESS" AND ELSEWHERE, IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K, FOR THE FISCAL YEAR ENDED MARCH 31, 1999.
On February 23, 1999, the Company announced that it would restate its previously
issued financial statements for the fiscal years 1996, 1997 and 1998, and its
unaudited interim financial statements for the first and second quarters of
fiscal 1999. This restatement was based upon the completion of a review of
certain judgmental accounting matters by the Audit Committee of the Board of
Directors, the Company's management and the Company's then outside auditors,
PricewaterhouseCoopers LLP. See Note 4 - Restatement to the accompanying
consolidated financial statements for further detail concerning the restatement
adjustments made. The financial information for all periods included in the
following discussion gives effect to the restatement and should be read in
conjunction with the restated information presented in Note 4 - Restatement to
the accompanying consolidated financial statements.
Overview
The Company recorded net income of $15.0 million or $.92 per share (diluted) and
a net loss of $1.7 million or $.11 per share (diluted) for the second quarter
and first half of fiscal 2000, respectively. Consolidated revenues decreased
$7.3 million or 7% and $30.7 million or 14% for the second quarter and first
half of fiscal 2000 as compared to those same periods in fiscal 1999. The
Company's consolidated gross margin percentages decreased to 28% for both the
second quarter and the first half of fiscal 2000 as compared to 36% and 38% for
those periods in fiscal 1999. Consolidated operating expenses decreased $2.7
million and $9.5 million for the second quarter and first half of fiscal 2000 as
compared to fiscal 1999 levels. A major contributor to these decreases was the
absence of unconsummated business combination costs incurred in response to
takeover and proxy contest proposals in the second quarter and first half of
fiscal 1999 of $1.8 million and $3.6 million, respectively. As a result of the
Company's operations, the Company recorded losses of $13.6 million and $25.8
million for the second quarter and first half of fiscal 2000 as compared to $5.6
million for the same periods in fiscal 1999. The results for the second quarter
of fiscal 2000 included non-operating gains of $32.7 million. The primary
component of this gain was related to the divestiture of the Company's former
subsidiary, Aironet Wireless Communications, Inc. ("Aironet") in July, 1999. The
results also include a tax provision of $.7 million and $2.0 million for the
second quarter and first half of fiscal 2000 due to foreign taxes. No tax
benefit has
22
<PAGE> 23
been recognized for the second quarter and first half of fiscal 2000 based on
the Company's current year operating losses and current assessment regarding the
utilization and realization of such tax assets. Additionally, no provision has
been recorded related to the gain discussed above due to the utilization of net
operating loss carry-forwards.
The Company's results for fiscal 2000 do not include the results of its Aironet
subsidiary, which became a publicly traded company in July, 1999. The Company's
percentage ownership decreased to approximately 35% at that time, and the
Company can no longer exercise control over that entity. Accordingly, the
results for the first quarter of fiscal 2000 have been restated to reflect the
removal of Aironet's financial position, results of operations and cash flows
effective at the beginning of the fiscal year and reflect the results of Aironet
under the equity method of accounting.
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 are any
forward-looking statements in this Form 10-Q necessarily indicative of the
Company's future results. See "Factors That May Affect Future Results" for a
discussion of risk factors which may affect the Company's future results of
operations.
Factors That May Affect Future Results
The Company's business, operating results and financial and other condition may
be affected by a number of risks and other important factors, including,
without limitation, the following, some of which are inherently difficult to
identify and predict and/or are beyond the Company's control: general and
industry-specific economic conditions; the ability of the Company's senior
management to successfully formulate and implement its recently announced plan
to relocate substantially all of its Akron, Ohio headquarters operations and to
identify and implement additional appropriate cost reduction, efficiency and
other operating improvement strategies and the amount of expenses actually
incurred and saved as a result; the continued adequacy of the Company's
internal and external sources of working capital; sales and manufacturing
cycles from quarter to quarter and within each quarter; serving markets
characterized by increasingly rapid technological change and associated changes
in market demand, product obsolescence and price erosion; intense competition;
the Company's ability to gain and maintain market acceptance of its products;
the levels of customer demand for the Company's products and customers'
commitments of resources to information technology investments; concentration
of revenues in the retail industry and possible decreases in their purchases
from the Company in response to any downturn in general economic prospects or
conditions to the extent that reduced levels of new store openings are not
offset by their investment in the Company's systems to improve the efficiency
of existing stores; ability to penetrate and expand revenues in new and
existing markets; risks associated with foreign sales and operations; timely
and efficient enhancement of appropriate product offerings through internal
development and acquisition of, or investment in, new businesses and
technologies; dependence on, and freedom from infringement of, technologies and
other proprietary rights of, or by, third parties; government regulation of
radio and other products, and product health and safety concerns; dependence on
sole source, or a limited number of, suppliers; and attracting and retaining
qualified employees. In addition to being subject to the foregoing factors and
other cautionary statements elsewhere in this Form 10-Q, the Company's conduct
of its business, and the results and condition thereof, is also subject to the
possible adverse effects of certain pending litigation and other contingencies
discussed in Note 9 - Litigation and Contingencies to the accompanying
consolidated financial statements included in Item 1
23
<PAGE> 24
above. The financial results of the Company historically have not been
materially adversely impacted as a result of inflation. However, there can be no
assurance that inflation will not have a material adverse impact in the future.
Readiness for the Year 2000
THE INFORMATION SET FORTH UNDER THIS CAPTION IS HEREBY DESIGNATED TO BE A "YEAR
2000 READINESS DISCLOSURE" UNDER THE YEAR 2000 INFORMATION READINESS DISCLOSURE
ACT (THE "YEAR 2000 ACT"), PUBLIC LAW 105-271, AND THE STATEMENTS BELOW AND THE
REGISTRANT, AS THE MAKER THEREOF, SHALL BE ENTITLED TO THE PROTECTIONS PROVIDED
BY THE YEAR 2000 ACT.
As the end of the twentieth century nears, there is worldwide concern regarding
the use by many existing computer programs of only the last two digits rather
than four to identify the year in a date field. 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.
Year 2000 issues affect both the Company's offerings of computer products and
related services to its customers as well as its own operations. The Year 2000
readiness of the Company's operations in turn involves not only its corporate
information systems but also computer-based systems used directly in the conduct
of its business ("Process Management Systems"), such as hardware and software
engineering design tools, manufacturing equipment and customer service and
maintenance tracking systems. In addition, the Company could also be affected by
the Year 2000 readiness of its customers and of its suppliers of raw materials,
components, peripherals, finished products and software and its providers of
facilities, equipment and services. The costs of the Company's Year 2000
readiness efforts are being funded from the Company's consolidated operating
cash flows and borrowings.
With respect to its products, the Company has identified those 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 are being designed to be Year 2000
ready.
The Company has completed the software/firmware upgrades for its products which
were identified to be made Year 2000 ready, subject to continued incidental
debugging activities. Subject to negotiated contractual commitments, the Company
has been making upgrades available free of charge for products purchased after
December 31, 1997 which were ordered with the latest software version as of the
order date; an upgrade fee is charged customers who requested an older
software version when they ordered the equipment. Customers are responsible
for installing the upgrades, or they may retain the Company to do so for a fee.
The costs to date of upgrading the Company's products to Year 2000 readiness
have not been, and the Company does not expect that the remaining cost of doing
so will be, material to the Company's financial position or results of
operations.
The Company maintains detailed information concerning the Year 2000 readiness
of its products on its Internet web site at www.telxon.com.
The Company has purchased and worked with outside contractors to develop and
install new business corporate-wide domestic information systems in the
company's U.S. operations. Though the new systems were identified as a
strategic business initiative independent of Year 2000 considerations, they are
also being designed to make the Company's Information Systems Year 2000 ready.
The Company's international subsidiaries have remediated their own Year 2000
readiness issues independent of the new domestic systems installation. The
overall implementation of the new corporate information systems was
substantially completed at the beginning of the Company's fiscal 2000 second
quarter, subject to normal ongoing post-implementation activities normally
associated with systems of this magnitude. Efforts toward the new product
repair and service management systems originally planned to have been
implemented have been suspended pending review of the business case for
proceding further with the estimated $1.5 million in contemplated replacement
systems, in the meantime, the legacy systems supporting these functions have
been remediated for Year 2000 issues and are in operation.
24
<PAGE> 25
The total capital expenditures for the new systems installation were
$33.8 million. In addition, the company will also accelerate the replacement of
approximately $6.7 million of computer hardware in connection with the new
systems installation. As of September 30, 1999, the Company had purchased
$.8 million of replacement computer hardware and leased an additional
$4.9 million of replacement computer hardware.
In addition to these capitalized expenditures, the Company had incurred $9.0
million of accumulated non-capitalizable expenses as of September 30, 1999,
related to the new systems installation. The non-capitalized expenses for the
three months ended September 30, 1999 were approximately $3.7 million versus
approximately $1.3 million for the three months ended June 30, 1999. The
increased expenses recorded reflect the requirement that systems support
expenditures no longer qualify for capitalization since the systems have now
"gone live". These non-capitalizable expenses exclude the one-time, after-tax
charge of $1.0 million recorded during fiscal 1998 as a change in accounting
principle in accordance with the Financial Accounting Standards Board's
Emerging Issues Task Force consensus ruling "Accounting for Costs Incurred in
Connection with a Consulting Contract or an Internal Project That Combines
Business Process Reengineering and Information Technology Transformation." The
Company may incur additional non-capitalizable expenses in its efforts to
complete the project within appropriate time constraints and to management
requirements. These expenses have not been quantified at this time.
The Company has been working with an outside consultant since November 1998 to
evaluate the Year 2000 readiness of its engineering, manufacturing and customer
maintenance and service Process Management Systems and information technology
infrastructure. The consultant's findings and recommendations were received by
the Company on February 8, 1999. The Year 2000 readiness inventory compiled by
the consultant has been under continuing, extensive review by teams, including
senior management from each of the affected functional areas. Giving effect to
the teams' remediation efforts to date, almost 99% of the inventoried items are
currently Year 2000 ready or have been determined by operations management
to be low priority items for which no Year 2000 remediation action is currently
required. The costs of the study and resulting remediation have been and will
be borne by the respective functional areas. The functional teams continue to
work toward completing the remaining remediation as soon as practicable and on
reviewing and revalidating their findings. Remediation options will include
re-writing the affected software or replacing the affected hardware or
software with hardware or software that is Year 2000 ready. The Company
believes that, in general, replacement Year 2000 ready hardware and software
for its Process Management Systems and information technology infrastructure
are readily available, making that the most likely means of addressing
remediation needs. The Company believes that the remediation remaining to be
done with respect to all mission critical items will be timely completed and
that the cost thereof will not be material.
25
<PAGE> 26
The Company's own Year 2000 readiness is also 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. The volume of Year 2000 inquiries which the
Company has received from its customers regarding the Year 2000 readiness of the
Company products they use suggests that the Company's customers are addressing
their Year 2000 issues. The Company has made Year 2000 readiness inquiries of
the current suppliers to its engineering, manufacturing and service functions
and is assessing the responses, which to date have been received from
approximately 90% of those suppliers. The responses received from the
suppliers have not identified any material Year 2000 issues but generally
indicate only that the respective suppliers are in the midst of their own Year
2000 readiness efforts. The Company continues to seek Year 2000 readiness
information from the remaining suppliers. The Company has also made readiness
inquires of its providers of facilities and related equipment and services
(elevators, HVAC, utilities, etc.). As the result of a limited number of
potential Year 2000 issues, which those inquiries have identified to date, the
Company has replaced or is in the process of updating the affected items at a
nominal cost. The Company continues to assess and follow up on the providers'
responses, most of which have indicated only that the respective providers are
in the midst of their own Year 2000 readiness efforts.
There are several possible scenarios, which, alone or in aggregate effect,
could, depending on the particular circumstances, materially adversely affect
the Company's business and/or its financial results or conditions. These
scenarios could affect the Year 2000 readiness of the Company's own product or
service offerings, disrupt its business operations or negatively impact its
operating results. The Company could be adversely affected by the failure of one
or more of its suppliers of raw materials, components, peripherals, finished
products or software or its providers of facilities, equipment and services to
achieve Year 2000 readiness in their own operations or with respect to the items
they supply or otherwise provide to the Company. If such an event were to, or
circumstances indicate that one is likely to, occur, the Company would seek
alternative sources of supply (the Company periodically reviews its sourcing
options as part of its general operating procedures independent of Year 2000
concerns) or seek to develop or obtain a software upgrade to make the affected
item Year 2000 ready. As with all businesses engaged in some facet of the
computer industry, there is a risk that the Company's customers may, in advance
of or after the change in the millennium, experience Year 2000 failures or other
difficulties in their use of computer systems comprised of or incorporating
products or services furnished by the Company and may commence legal action or
seek other compensation for their resulting losses; such legal actions, even if
not ultimately determined adverse to the Company, would likely involve
significant defense costs to the Company, particularly where the combination of
products and/or services of several different vendors in addition to the Company
in the subject customer system presents complex issues for isolating the cause
of the Year 2000 problem and determining the vendor responsible for that
problem. Disruptions in the economy generally, domestically and/or in foreign
countries, resulting from Year 2000 issues could also materially affect the
Company. At this time, the Company does not believe that the likelihood of any
of the above scenarios occurring can be reliably predicted, or that the nature
or extent of their possible adverse effects on the Company, can be reasonably
estimated. Though the Company currently does not have formal contingency plans
in place to address any particular possible Year 2000 scenario, the Company
would develop appropriate contingency plans if and when any significant
risks relating to its Year 2000 readiness are identified.
26
<PAGE> 27
RESULTS OF OPERATIONS
The results of operations and financial position of the Company discussed below
contains the results of its former Aironet subsidiary for fiscal 1999 only.
<TABLE>
<CAPTION>
Revenues
(in thousands)
Three Months Ended
September 30, Decrease
------------------------------------- ----------------------------------
1999 1998 Dollar Percentage
----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Product, net $ 76,621 $ 82,405 $ (5,784) -7.0%
Customer service, net 19,674 21,236 (1,562) -7.4%
================= ================= =================
Total net revenues $ 96,295 $ 103,641 $ (7,346) -7.1%
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
September 30, Decrease
------------------------------------- ----------------------------------
1999 1998 Dollar Percentage
----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Product, net $ 144,536 $ 172,598 $ (28,062) -16.3%
Customer service, net 39,584 42,206 (2,622) -6.2%
================= ================= =================
Total net revenues $ 184,120 $ 214,804 $ (30,684) -14.3%
================= ================= =================
</TABLE>
Net 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, network management software and software
licenses; and a variety of professional services, including systems integration
and project management.
Consolidated product revenues decreased as compared to prior year levels and
remained constant with those levels experienced in the first quarter of fiscal
2000. Demand for the Company's products are lower as compared with fiscal 1999,
particularly in the Company's North American operations where the Company's
legacy products continue to experience competitive pressures. Additionally,
start-up issues with the Company's business system implementation with respect
to manufacturing operations and liquidity issues caused delays in the flows of
purchased components to the Company's manufacturing process, negatively
impacting product shipments and revenues. Revenues from the Company's pen-based
products were a minor percentage of total revenues during the second quarters of
both fiscal 1999 and fiscal 2000, with the balance of the Company's revenues
coming from PTCs. Consolidated product revenues for the second quarter of fiscal
2000 included $13.0 million of revenue related to transactions previously
deferred pending customer acceptance of prior period deliveries. Product
revenues for the second quarter of fiscal 2000 and fiscal 1999 included revenues
of $14.5 million and $11.3 million, respectively, related to the rollout of
Company products to a large domestic retailer. Revenues related to this one
customer accounted for 19% and 14% of the Company's consolidated product
revenues for the second quarter of fiscal 2000 and fiscal 1999, respectively.
Also, the volume of revenues from the Company's Value-Add Distributor channel
decreased approximately $9.2 million and $26.4 million for the second quarter
and first half of fiscal 2000 as compared to the same periods in fiscal 1999.
This decrease was caused by the new management's emphasis on the Company's
direct sales channel. Revenues related to Value-Added Distributors now represent
less than 10% of product revenues.
The Company anticipates that the start-up issues related to its business systems
will be temporary and will not have a significant impact in future periods.
Additionally, delays in the manufacture and shipment of product caused by
restricted supplier deliveries of purchased components should be alleviated as
the Company increases its liquidity, both through the successful execution of
its cost reduction strategies and the proceeds ultimately realized from the
Aironet/Cisco transaction described below. Furthermore, the Company believes
that the introduction of new products, including the recently announced
pen-based PTC-2124, PTC-2134 and PTC-2234 and additional new products scheduled
for release over the next six to nine months, will update and compliment the
Company's existing product offerings and thereby positively impact the
Company's revenues. The Company does not anticipate realizing significant
revenues during the fiscal 2000 third quarter from the new products already
released, and the scheduled releases of the additional new products are subject
to the possible delays and other uncertainties inherent in the development
process. There can be no assurance that these products will find acceptance in
the marketplace or when they may generate significant revenues for the Company.
Consolidated customer service revenues decreased as the result of decreased
"time and material" billings due to start-up issues with the Company's new
information system.
27
<PAGE> 28
This decrease in customer service revenues reflects the impact of decreased
product revenues over the past three quarters. Offsetting these decreases was
the continued growth in the Company's installed base of product.
Revenues from the Company's international operations (including Canada)
decreased $5.4 million or 16% and $3.6 million or 6% during the second quarter
and first half of fiscal 2000 compared to the same periods in fiscal 1999,
respectively. The decrease in the Company's international revenues was primarily
the result of decreased revenues from shipments to the Company's international
distributors. The decrease in international distributor revenues of $4.3 million
and $5.0 million for the second quarter and first half of fiscal 2000 as
compared to those same periods in fiscal 1999. The results of the Company's
international operations were not materially impacted by changes in foreign
currency exchange rates.
The Company's reserve for sales returns and allowances decreased from a balance
at March 31, 1999 of $15.0 million to $9.4 million at September 30, 1999. This
decrease was caused by fewer outstanding accounts receivable for the Company's
Value-Add Distributors and improved rates of return and cash collections in the
Company's direct sales channel.
The Company's consolidated revenues for the second quarter and first half of
fiscal 1999 included revenues of Aironet to outside customers of $5.3 million
and $11.5 million, respectively.
<TABLE>
<CAPTION>
Cost of Revenues
(in thousands)
Three Months Ended Increase
September 30, (Decrease)
---------------------------------- -------------------------------------
Cost of Revenues: 1999 1998 Dollar Percentage
---------------- ---------------- -------------------- --------------
<S> <C> <C> <C> <C>
Product $ 57,428 $ 52,750 $ 4,678 8.9%
Customer service 12,078 13,502 (1,424) -10.5%
---------------- ---------------- --------------------
Total cost of revenues $ 69,506 $ 66,252 $ 3,254 4.9%
================ ================ ====================
Cost of product revenue as a
percentage of product revenue,
net 75.0% 64.0%
Cost of customer service revenue
as a percentage of customer
service revenue, net 61.4% 63.6%
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
Cost of Revenues
(in thousands)
Six Months Ended Increase
September 30, (Decrease)
------------------------------------ --------------------------------
Cost of Revenues: 1999 1998 Dollar Percentage
---------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
Product $ 108,297 $ 107,224 $ 1,073 1.0%
Customer service 24,289 26,328 (2,039) -7.7%
================ ================= ==============
Total cost of revenues $ 132,586 $ 133,552 $ (966) -0.7%
================ ================= ==============
Cost of product revenue as a
percentage of product revenue,
net 74.9% 62.1%
Cost of customer service revenue
as a percentage of customer
service revenue, net 61.4% 62.4%
</TABLE>
The increase in the consolidated cost of product revenues as a percentage of
consolidated product revenues was primarily the result of increased
underabsorbed manufacturing overhead costs during the second quarter and first
half of fiscal 2000, as compared to those levels experienced in fiscal 1999 of
$1.9 million and $4.8 million, respectively. This undersabsorption was caused by
lower than expected volumes and manufacturing inefficiencies. Also contributing
to the increased cost percentage was an increase in the provisions for
manufacturing excess and obsolete inventory for the second quarter and first
half of fiscal 2000 of $1.0 million and $2.0 million, respectively. The
increased provision for excess and obsolete manufacturing inventories was
primarily due to decreased revenue volumes and related inventory usage as
compared to on-hand inventory balances. An increase in negative purchase price
variances also contributed to the increase in the cost percentage for the second
quarter and first half of fiscal 2000, as compared to those levels experienced
in fiscal 1999 by $1.7 million and $2.5 million, respectively. For the second
quarter and first half of fiscal 2000, increased fixed royalty costs related to
a supply agreement with Aironet were $1.3 million. Further contributing to the
increase in the costs percentage was an increase in non-conformance repair and
expediting costs for the second quarter and first half of fiscal 2000 of $.9
million and $2.0 million, respectively. Due to the deconsolidation of the
results of Aironet for fiscal 2000, intercompany profit benefit related to
Aironet products used as components of the Company's product was reduced for the
second quarter and first half of fiscal 2000 by $2.4 million and $4.5 million.
Additional costs recorded for the first half of fiscal 2000 included the
write-down of $.6 million of equipment held subject to a lease, increased fees
paid to Value-Add Distributors of $.6 million and severance charges related to
manufacturing personnel of $.4 million.
The Company is subject to a high degree of technological change in market and
customer demands. The Company therefore continually monitors its inventories for
excess and obsolete items based upon a combination of historical usage and
forecasted usage of such inventories. Additionally, discrete provisions are made
when existing facts and circumstances indicate that the subject inventory will
not be utilized.
Management disposes of excess and obsolete inventory as necessary and as
manpower permits. During the first half of fiscal 1999, the Company disposed of
$2.8 million of excess and obsolete material. Of this amount $1.3 million
related to manufacturing purchased components, $1.2 million related to the
Company's customer service inventories and $.2 million related to the Company's
international operations. Subsequent to September 30, 1999, the Company
physically disposed of $16.5 million of excess and obsolete purchased
components. There were no material recoveries related to the disposal of this
material.
29
<PAGE> 30
Inventory allowance provisions for the first half of fiscal 2000 were composed
of manufacturing purchased components of $2.7 million, customer service spare
parts and used equipment of $.2 million and international finished goods
inventories of $.7 million. Inventory allowance accounts were further increased
by reclassification of accrued liabilities of $6.2 million related to purchase
commitments for obsolete purchased components. At September 30, 1999, inventory
allowance accounts aggregated $35.2 million and were composed of manufacturing
purchased components of $26.7 million, customer service spare parts and used
equipment of $6.1 million and international finished goods inventories of $2.4
million. In addition to the inventory allowance accounts, the Company has
recorded accrued liabilities totaling $8.2 million for the purchase commitments
to outside contract manufacturers for discontinued products.
At September 30, 1999, the Company has approximately $10.4 million of finished
goods inventory held at distributors and customers and approximately $3.5
million of manufacturing purchased components at contract manufacturers. At
March 31, 1999, the Company had approximately $25.7 million of finished goods
inventory held at distributors and customers and approximately $5.7 million of
manufacturing purchased components at contract manufacturers. The decrease in
the amount of finished goods held at distributors and customers was the result
of revenue recognized upon installation and customer acceptance of the products.
Additionally, the inventory value of finished goods due back from customers for
product returns decreased in proportion to the decrease in the reserve for sales
returns and allowances.
The Company accrues fees due its Value-Add Distributors for the distribution
services and technical support provided to end users as well as cooperative
advertising costs. These fees are generally based upon the sales value of the
goods to the end user. During the second quarter and first half of fiscal 2000,
the Company incurred $.2 million and $1.1 million of these fees, respectively.
The Company's consolidated cost of revenues for the second quarter and first
half of fiscal 1999 included costs of revenues related to Aironet's outside
customers of $3.6 million and $7.5 million, respectively.
The decrease in the customer service cost of revenues as a percentage of
customer service revenues during the second quarter and first half of fiscal
2000 despite decreased revenue levels primarily resulted from cost containment
efforts and lower costs benefits derived from the Company's service repair
operations in Juarez, Mexico.
30
<PAGE> 31
<TABLE>
<CAPTION>
Operating Expenses
(in thousands)
Three Months Ended (Decrease)
September 30, Increase
---------------------------------- --------------------------------
Operating expenses: 1999 1998 Dollar Percentage
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Selling expenses $ 18,235 $ 21,329 $ (3,094) -14.5%
Product development and
engineering expenses 5,992 9,427 (3,435) -36.4%
General and administrative
expenses 16,114 10,420 5,694 54.6%
Unconsummated business
combination costs - 1,830 (1,830) N.M.
--------------- --------------- ---------------
Total operating expenses $ 40,341 $ 43,006 $ (2,665) -6.2%
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Operating Expenses
(in thousands)
Six Months Ended (Decrease)
September 30, Increase
---------------------------------- --------------------------------
Operating expenses: 1999 1998 Dollar Percentage
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Selling expenses $ 36,842 $ 44,871 $ (8,029) -17.9%
Product development and
engineering expenses 13,142 18,438 (5,296) -28.7%
General and administrative
expenses 27,356 19,931 7,425 37.3%
Unconsummated business
combination costs - 3,579 (3,579) N.M.
--------------- --------------- ---------------
Total operating expenses $ 77,340 $ 86,819 $ (9,479) -10.9%
=============== =============== ===============
</TABLE>
Consolidated selling expenses, as a percentage of revenues remained constant for
the second quarter and first half of fiscal 2000 as compared to fiscal 1999 at
19% and 20%, respectively. Contributing to the overall dollar decrease in
selling expenses was a decrease in commissions of $.8 million and $2.0 million
for the second quarter and first half of fiscal 2000 due to the decreased
revenue base. The provision for bad debts also decreased for the second quarter
and first half of fiscal 2000 by $1.0 million and $2.3 million, respectively.
This decrease is primarily the result of provisions for doubtful accounts
related to a foreign distributor during the second quarter and first half of
fiscal 1999 of $1.0 million and $3.2 million, respectively. Also contributing to
the decrease in selling expenses were cost containment efforts in the Company's
North American sales operations, whose expenses decreased $1.0 million and $2.1
million for the second quarter and first half of fiscal 2000 as compared to the
same periods in fiscal 1999. Offsetting these decreases in both the second
quarter and first half of fiscal 2000 were severance charges related to the
Company's international sales operations of $1.1 million.
Selling expenses related to Aironet were $1.3 million and $2.8 million during
the second quarter and first half of fiscal 1999.
The Company's allowance for doubtful accounts decreased from a balance of $11.1
million at March 31, 1999 to a balance of $4.6 million at September 30, 1999.
The Company provided for $1.3 million of bad debts, and bad debt write-offs
totaled $7.4 million.
31
<PAGE> 32
These bad debt write-offs included $6.6 million of accounts receivable related
to the foreign distributor referenced above.
Consolidated product development and engineering as a percentage of revenues
decreased to 6% for the second quarter of fiscal 2000 and compared to 9% for the
second quarter of fiscal 1999. Consolidated product development and engineering
as a percentage of revenues in the first half of fiscal 2000 decreased to 7%
compared to 9% for the same period last year. The overall dollar decreases in
product development and engineering expenses was due to current management
efforts to perform more engineering tasks with Company personnel rather than
with more expensive contract engineering firms. These actions have reduced
expenses related to contract labor and outside engineering services.
Additionally, increased management focus on engineering processes and job
completion has resulted in reduced parts usage, rework and travel costs. Total
engineering expenses incurred in the U.S. for the second quarter and first half
of fiscal 2000 were reduced by $2.2 million and $2.8 million, respectively, as
compared to those same periods in fiscal 1999. The Company also incurred
severance charges of $.2 million during the first half of fiscal 2000 related to
personnel changes in its product development and engineering operations.
Product development and engineering expenses related to Aironet were $1.5
million and $3.2 million during the second quarter and first half of fiscal
1999.
During the first half of fiscal 2000, the Company capitalized software
development costs in accordance with the requirements of Statement of Financial
Accounting Standards No. 86 "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed" aggregating $2.0 million, offset by
amortization of $2.6 million on previously unamortized software.
Consolidated general and administrative expenses as a percentage of revenues
were 17% and 10% for the second quarter of fiscal 2000 as compared to the second
quarter of fiscal 1999. Consolidated general and administrative expenses as a
percentage of revenues were 15% and 9% for the first half and second quarter of
fiscal 2000 as compared to the first half of fiscal 1999. The increase in
general and administrative expenses is primarily due to the increase in expenses
related to the Company's corporate information systems project, including
amortization of costs related to installed modules as well as other costs which
may not be capitalized, such as training and debugging costs. The increase in
these expenses aggregated to $4.3 million and $5.8 million for the second
quarter and first half of fiscal 2000 as compared to the same periods in fiscal
1999. Additionally, the Company has incurred greater bank fees related to its
credit facilities than in fiscal 1999. The increase in bank fees expensed for
the second quarter and first half of fiscal 2000 as compared to the same periods
in fiscal 1999 were $1.0 million and $1.3 million, respectively.
General and administrative expenses related to Aironet were $.7 million and $1.6
million during the second quarter and first half of fiscal 1999.
The Company's domestic accrual for severance costs decreased from a balance of
$3.4 million at March 31, 1999 to a balance of $2.7 million at September 30,
1999. This decrease was caused by severance charges of $1.1 million during the
first half of fiscal 2000, which were more than offset by severance payments of
$1.8 million to terminated employees. A total of 33 employees were terminated
during the first half of fiscal 2000. The areas of the Company affected were
domestic sales operations, domestic product development, manufacturing
operations and corporate administration. There have been no material changes to
the amounts accrued at either March 31, 1999 or September 30, 1999. In addition
to the domestic severance activity, 1 employee was terminated in the Company's
international sales operations during the second quarter of fiscal 2000. The
severance recorded related to this employee was $1.1 million.
32
<PAGE> 33
Fiscal 2000 operating expenses were favorably impacted by the absence of costs
incurred in response to an unsolicited takeover proposal and to a proxy contest
for the second quarter and first half of fiscal 1999 of $1.8 million and $3.6
million, respectively.
Interest Expense and Other Non-operating Income (Expense), net
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Increase
September 30, (Decrease)
--------------------------------- ------------------------------------
1999 1998 Dollar Percentage
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Interest income $ 159 $ 164 $ (5) -3.0%
Interest expense (3,559) (2,617) (942) 36.0%
Gain on sale of subsidiary stock 32,167 - 32,167 N.M.
Other non-operating (expense) income 483 (97) 580 N.M.
=============== =============== ===============
Total interest expense and other
non-operating (expense) income, net $ 29,250 $ (2,550) $ 31,800 N.M.
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Increase
September 30, (Decrease)
--------------------------------- -----------------------------------
1999 1998 Dollar Percentage
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Interest income $ 415 $ 343 $ 72 21.0%
Interest expense (6,801) (4,329) (2,472) 57.1%
Gain on sale of subsidiary stock 32,167 - 32,167 N.M.
Other non-operating income 300 1,264 (964) -76.3%
=============== =============== ===============
Total interest expense and other
non-operating income, net $ 26,081 $ (2,722) $ 28,803 N.M.
=============== =============== ===============
</TABLE>
Interest expense increased for the second quarter and first half of fiscal 2000
as compared to the same periods in fiscal 1999 due the increased borrowings and
the interest rates charged under the Company's new credit facility.
During the first quarter of fiscal 2000, the Company recorded $1.3 million of
non-operating expense related to the reduction in carrying value of an
investment in non-marketable securities. The Company's estimate of the reduction
was based upon the market value of subsequent equity transactions of the
investee with third parties. The investment is composed of stock in the
development-stage technology company that purchased the Company's Virtual Vision
subsidiary.
During the first quarter of fiscal 2000, the Company sold an investment in
marketable securities of another development stage technology company for cash
proceeds of $1.5 million. As this investment was previously non-marketable, its
carrying value was based upon the cost basis and was $.7 million. The Company
therefore recorded a pre-tax gain of $.8 million.
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<PAGE> 34
During the second quarter of fiscal 2000, the Company entered into a set of
transactions whereby the Company repurchased its Corporate Jet which was
previously sold and leased-back, and resold the Corporate Jet to a third party.
As a result of these transactions, the Company retained net cash proceeds of $.3
million. This was recorded as non-operating gain.
During the second quarter of fiscal 2000, Aironet and the Company sold 6,846,800
shares of Aironet's voting common stock in an initial public offering on the
Nasdaq National Market at a price of $11.00 per share. Of the total number of
shares offered, Aironet sold 4,564,562 shares and the Company sold 2,282,238
shares. The aggregate proceeds, net of underwriting discounts and commissions,
were $47.4 million to Aironet and $23.3 million to Telxon. Subsequent to this
transaction, the Company's remaining interest in Aironet was approximately 35%.
As a result of this transaction, the Company recorded a non-operating gain of
approximately $32.2 million, net of additional transaction costs of $1.5
million. Also as a result of this transaction, the Company ceased consolidation
of Aironet effective April 1, 1999. The Company will account for its investment
under the equity method of accounting. Investment income of $.4 million and $.7
million was recorded for the Company's interest in the earnings of Aironet for
the second quarter and first half of fiscal 2000.
During the first quarter of fiscal 1999, the transaction to sell the stock of
Virtual Vision to a third party was consummated, resulting in the recording of a
$.9 million non-operating gain. Subsequent to the consummation of the
transaction, positive adjustments to such gain totaling $.2 million were
recorded. These adjustments related to the changes in purchase price based upon
key employee retention rates subsequent to the transaction.
During the first quarter of fiscal 1999, Aironet sold 222,222 shares of its
voting common stock to various third party investors at a price of $3.50 per
share. The resulting pre-tax gain of approximately $.3 million was recorded as
other non-operating income in the accompanying consolidated statement of
operations. In addition to the sale of shares of stock, 66,667 warrants at $3.50
per share for the purchase of Aironet voting common stock were issued. A gain of
approximately $.05 million 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 June 30, 1998 was 76%.
<TABLE>
<CAPTION>
Income Taxes
(in thousands)
Three Months Ended
September 30, Increase
------------------------------- ------------------------------------
1999 1998 Dollar Percentage
------------ --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Provision (benefit) for
income taxes $ 738 $ (1,853) $ 2,591 -139.8%
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
Income Taxes
(in thousands)
Six Months Ended
September 30, Increase
--------------------------------- -------------------------------
1999 1998 Dollar Percentage
------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Provision (benefit) for
income taxes $ 2,016 $ (1,875) $ 3,891 -207.5%
</TABLE>
The Company's consolidated tax provision of $.7 million and $2.0 million for the
second quarter and first half of fiscal 2000 relates to foreign taxes on the
Company's international subsidiaries. No taxes have been provided for the gain
related to the sale of Aironet voting common stock as the Company has sufficient
current year operating losses and net operating loss carryforwards to prevent a
tax provision or liability. The Company has not recognized any income tax
benefits other than those utilized through the realization of gains from the
sale of Aironet voting common stock based on the Company's assessment that it is
more likely than not that the deferred tax assets will not be utilized through
future taxable income or implementation of tax planning strategies.
<TABLE>
<CAPTION>
Liquidity
(in thousands, except ratios) Dollar
September 30, March 31, Increase
1999 1999 (Decrease)
---------------------- ----------------- -----------------
<S> <C> <C> <C>
Cash $ 12,176 $ 22,459 $ (10,283)
Accounts receivable 71,277 84,500 (13,223)
Notes and other receivables 1,581 4,015 (2,434)
Receivable from affiliate 1,042 - 1,042
Inventories 95,422 129,049 (33,627)
Other 7,649 9,029 (1,380)
====================== ================= =================
Total current assets $ 189,147 $ 249,052 $ (59,905)
====================== ================= =================
Notes payable $ 41,725 $ 68,567 $ (26,842)
Capital lease obligations 414 525 (111)
Accounts payable 41,398 64,966 (23,568)
Payable to affiliate 4,213 - 4,213
Income taxes payable 7,965 6,434 1,531
Accrued liabilities 63,970 74,285 (10,315)
====================== ================= =================
Total current liabilities $ 159,685 $ 214,777 $ (55,092)
====================== ================= =================
Working capital (current assets
less current liabilities) $ 29,462 $ 34,275 $ (4,813)
====================== ================= =================
Current ratio (current assets
divided by current liabilities) 1.2 1.2
</TABLE>
The decrease in the Company's working capital at September 30, 1999, from March
31, 1999 was primarily due to decreases in cash, accounts receivable and
inventories. The reductions in working capital were generally offset by
reductions in notes payable, accounts payable and accrued liabilities. The
decrease in accounts receivable reflects improved cash collections in the
Company's domestic operations. Accordingly, consolidated sales outstanding
decreased from 98 days at March 31, 1999 to 68 days at September 30, 1999.
Additionally, the decrease in accounts receivable reflects the
35
<PAGE> 36
absence of Aironet accounts receivable from outside customers of $4.2 million.
The decrease in the Company's inventories was the result of increased reserves
for manufacturing purchased components of $4.7 million and increased reserves
for customer service spare parts of $3.1 million. Additionally, the Company's
inventories related to the Company's finished goods held at customers and
distributors decreased due to the rollout of finished goods to customers of
$14.9 million. Inventories staged to rollout to customer sites also decreased
$4.4 million. Also causing the decrease in inventories is the absence of
Aironet's manufacturing inventories of $4.6 million. The decrease in the notes
payable balance was primarily caused by repayments of amounts borrowed with
proceeds from the sale of Aironet voting common stock and the recharacterization
of $13.1 million of such borrowings as long-term. Accounts payable decreased
primarily due to increased payments to vendors with internally generated funds
as well as proceeds from the sale of Aironet shares. Accrued liabilities
decreased primarily due to the $6.2 million reclassification of amounts accrued
related to purchase commitments for obsolete purchased components.
<TABLE>
<CAPTION>
Cash Flows from Operating Activities
(in thousands) Dollar
Six Months Ended Increase
September 30, (Decrease)
----------------------------------- in Cash Flow
1999 1998 Impact
--------------- --------------- --------------------
<S> <C> <C> <C>
Net loss $ (1,741) $ (6,414) $ 4,673
Depreciation and amortization 12,231 13,094 (863)
Provision for doubtful accounts 1,256 3,562 (2,306)
Provision for inventory obsolescence 3,616 4,027 (411)
Accounts and notes receivable 6,744 34,319 (27,575)
Gain on sale of subsidiary (32,167) - (32,167)
Inventories 19,245 (12,338) 31,583
Prepaid expenses and other 1,607 (6,027) 7,634
Accounts payable and accrued liabilities (18,473) (10,006) (8,467)
Other, net 2,213 (539) 2,752
Net cash (used in) provided by
=============== =============== ====================
operating activities $ (5,469) $ 19,678 $ (25,147)
=============== =============== ====================
</TABLE>
The decrease in cash flows from the Company's consolidated operating activities
for the second quarter of fiscal 2000 from comparable fiscal 1999 levels was
primarily due to negative cash flow impacts of the Company's operating loss for
the six months ended September 30, 1999, accounts and notes receivable, accounts
payable and accrued liabilities. These negative cash flow impacts were partially
offset by positive cash flow impacts for inventories, prepaid expenses and other
and the decrease in the net loss for the period. The cash flow impact of
accounts and notes receivable decreased due to the significant decline in the
accounts receivable balance during fiscal 1999. There was no such decrease
during the current fiscal year as the accounts receivable balance and days of
sales outstanding have remained constant during the first half of fiscal 2000.
Accounts payable and accrued liabilities utilized more cash during fiscal 2000
due to the relatively high amounts outstanding at March 31, 1999 and subsequent
pay-down of those amounts upon the Company obtaining new financing during the
second quarter of fiscal 2000. The cash flow impact of inventories was favorably
impacted by the significant decline of inventories related to finished goods
held for pending installation at customer sites or for customer acceptance of
such goods. In the prior
36
<PAGE> 37
year, there was a build-up of manufacturing inventories held at customer and
distributor locations.
<TABLE>
<CAPTION>
Cash Flows from Investing Activities
(in thousands) Dollar
Six Months Ended Increase
September 30, (Decrease)
------------------------------------ in Cash Flow
1999 1998 Impact
--------------- ----------------- -----------------
<S> <C> <C> <C>
Additions to property and equipment $(8,969) $ (18,848) $ 9,879
Software and other investments (2,027) (2,939) 912
Proceeds from the sale of subsidiary
stock, net of cash given 17,211 - 17,211
Purchase of non-marketable investments - (1,950) 1,950
Proceeds from sale of non-marketable
investments 1,523 - 1,523
Other 261 (608) 869
--------------- ----------------- -----------------
Net cash provided by (used in)
investing activities $ 7,999 $ (24,345) $ 32,344
=============== ================= =================
</TABLE>
The increase in cash flows from the Company's consolidated investing activities
was primarily the result of the sale of Aironet stock for net proceeds of $17.2
million. Additionally, there was a reduction in the amount of additions to
property and equipment of approximately $9.9 million. Costs related to the
Company's corporate information systems project are no longer capitalized due to
the completion of the installation of the principal modules of the systems. Cash
flows from investing activities were also positively impacted by the absence of
the purchase of non-marketable investments and additions to long-term notes.
Additionally, proceeds were realized form the sale of non-marketable
investments.
37
<PAGE> 38
<TABLE>
<CAPTION>
Cash Flows from Financing Activities
(in thousands)
Dollar
Six Months Ended Increase
September 30, (Decrease)
----------------------------------- in Cash Flow
1999 1998 Impact
-------------- -------------- ------------
<S> <C> <C> <C>
Extinguishment of former credit facility $ (48,888) $ - $ (48,888)
(Repayments) borrowings on former
credit facility, net (17,179) 14,580 (31,759)
Borrowings on long-term provisions
of debt facility 17,000 - 17,000
Borrowings on debt facility, net 37,792 - 37,792
Principal payments on capital leases (322) (343) 21
Debt issue costs paid subsidiary (1,215) - (1,215)
Purchase of treasury shares - (488) 488
Exercise of stock options - 1,222 (1,222)
============== ============== ============
Net cash (used in) provided by
financing activities $ (12,812) $ 14,971 $ (27,783)
============== ============== ============
</TABLE>
The decrease in cash flows from financing activities was primarily due to
repayments and extinguishment under the Company's former credit facility.
Amounts borrowed under the company's existing debt facility have been
approximately $11.3 million less those amounts borrowed under the Company's
former credit facility.
On August 30, 1999, the Company entered into a loan and security agreement
whereby Telxon obtained a $100.0 million senior secured credit facility as a
replacement for the Company's former revolving credit agreement and business
purpose promissory note. The facility consists of both term and revolving credit
arrangements.
Borrowings under the revolving loan provisions of such facility are subject to
availability on qualifying accounts receivable and inventory, reduced by amounts
borrowed and outstanding under the facility's term loan features and letters of
credit. The revolving credit facility has a limit of $70.0 million less the
outstanding balance of the term loans and until such time that the bridge loan
described below is paid in full. At that time the maximum amount available will
be increased to $80.0 million less the outstanding term loan balances.
Availability under the agreement is estimated to be $11.4 million as of
September 30, 1999. The maturity date of the loan and security agreement is
September 30, 2002. At the maturity date the agreement is automatically renewed
for successive one-year periods until such agreement is terminated.
The secured credit facility has three term loan features. The first term loan of
$6.0 million is limited by a portion of the liquidation value of the Company's
machinery and equipment. The repayment terms for this term loan are
straight-line over a 10-year period. The second term loan of $10.0 million is
limited, together with the $30.0 million term loan discussed below, by the
market value of Aironet capital stock owned by the Company. The repayment of
this term loan is straight-line over a 3-year period. The third term loan of
$30.0 million is limited by a specific percentage of the market value of Aironet
capital stock owned by the Company. The repayment of this third term loan shall
occur over an 11-month period commencing on December 26, 1999 and concluding on
October 1, 2000, or upon any sale of additional capital stock of Aironet by the
Company. The first installment on the $30.0 million term loan shall be made
payable with the
38
<PAGE> 39
proceeds from the sale of Aironet stock. The payment of the remaining balance
shall be made in ten equal installments.
The interest rate charged on the revolving loan, the $6.0 million term loan, and
the $30.0 million term loan is 2.75% above the Eurodollar rate or 0.5% above the
financial institution's prime lending rate. On September 30, 1999, the prime
lending rate and the Eurodollar rate were 8.25% and 6.09% respectively.
Therefore, interest was charged at a rate of 8.75% on these balances. In the
event that the Aironet stock pledged on the $30.0 million term loan is sold, the
rate on this term loan will become fixed at 15.5%. The interest rate on the
$10.0 million term loan is fixed at 12.5%. Interest is payable monthly. The
interest rate charged is subject to change based upon the Company's financial
results. The facility also provides for the payment of an unused line fee of
0.375% per annum on a monthly basis, and a 1.25% per annum fee for undrawn
letters of credit.
The $100.0 million credit facility is collateralized by essentially all of the
Company's assets including accounts receivable, machinery and equipment, general
intangibles, inventory, future proceeds and real property.
The credit facility also requires the maintenance of various financial and
non-financial covenants. Significant financial covenants include maintaining a
minimum level of customer service revenue, ensuring that the total outstanding
balance of the credit facility does not exceed collections from certain
significant accounts, maintaining minimum earnings before interest, taxes,
depreciation and amortization (EBITDA), and maintaining minimum tangible net
worth requirements. As of September 30, 1999, the Company is in violation of
certain of these covenants. As the company has obtained a waiver for such
violation beyond one year from September 30, 1999, $13,067 of this debt has been
classified as long term.
Subsequent Events
On November 8, 1999, the Company announced that it would move its executive
offices from Akron, Ohio to Cincinnati, Ohio and relocate substantially all of
its remaining Akron operations to The Woodlands, Texas and Fort Mitchell,
Kentucky. Approximately 170 employees will be effected by these events and it is
anticipated that the moves will be substantially completed by March 31, 2000.
The Company anticipates that it will incur severance, moving, training, idle
facility and other costs of approximately $4 million over the next twelve months
associated with these events. The Company will account for such costs in
accordance with the requirements of EITF 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)".
On November 9, 1999, Cisco Systems, Inc. ("Cisco") announced that it will
purchase the Company's affiliate, Aironet, for shares of Cisco common stock.
Based upon the value of Cisco common stock on November 9, 1999 this would result
in total proceeds of $799 million. Based on that value, the total purchase price
translates into $48.00 per each share of Aironet common stock. As the Company
continues to own 4,994,262 shares of Aironet stock, the estimated fair value of
the proceeds of the transaction to the Company is estimated at $240 million.
Based on this estimated fair value, the transaction will result in a pre-tax
gain, prior to related transaction costs, of approximately $218 million and the
Company carrying its resulting investment in Cisco shares on the fair value
method of accounting in accordance with the requirements of SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities".
New Accounting Standards
During fiscal 1999, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS
39
<PAGE> 40
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 2002 (as delayed by Statement
of Financial Accounting Standards No. 137 - Deferral of the Effective Date of
FASB Statement No. 133). 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.
40
<PAGE> 41
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the ordinary course of business, the Company is subject to foreign currency
and interest rate risks. The risks primarily relate to the sale of the Company's
products to foreign customers through its foreign subsidiaries and changes in
interest rates on the Company's short-term financing and capital lease
obligations.
Interest Rate Risk
The Company's debt facility, including revolving loans and term loans, carries
interest rate risk that is generally related to the financial institution's
prime lending rate or the Eurodollar rate. If these rates were to change while
the Company has borrowings under such facility, the related interest expense
would increase or decrease accordingly. As of September 30, 1999, the Company
had $37.8 million due currently and $17.0 million due long-term under revolving
loans and term loan provisions of the debt facility, respectively.
The Company's convertible subordinated debentures carry fixed rates of interest
and therefore do not pose interest rate risk to the Company. However, interest
rate changes would effect the fair market value of the debentures. At September
30, 1999, the Company had $106.9 million of convertible subordinated debentures
outstanding.
The Company monitors its interest rate risk, but does not engage in any hedging
activities using derivative financial instruments.
Foreign Currency Risk
The financial results of the Company's foreign subsidiaries are measured in
their local currencies. Assets and liabilities are translated into U.S. dollars
at the rates of exchange at the end of each period and revenues and expenses are
translated at average rates of exchange at the end of the period. Resulting
translation adjustments are reported as a component of comprehensive income.
Historically, the Company has not experienced any significant foreign currency
gains or losses involving U.S. Dollars and other currencies. This is primarily
due to natural hedges of revenues and expenses in the functional currencies of
the countries in which subsidiaries are located. Although the Company did not
have any forward currency exchange contracts in place at September 30, 1999, it
does monitor its foreign currency exposure and has utilized these derivative
financial instruments to mitigate foreign currency risk when it considers
appropriate.
41
<PAGE> 42
PART II. OTHER INFORMATION
ITEM 6. LEGAL PROCEEDINGS
See Note 10 to the consolidated financial statements included in Part I of this
Quarterly Report on form 10-Q for a discussion of the material pending legal
proceedings to which the Company is a party, which footnote discussion is
incorporated in this Part II by this reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Stockholders on
September 22, 1999 (the "Annual Meeting").
(b) The sole matter voted upon by the Company's stockholders at
the Annual Meeting was the election of two directors of the
class to hold office until the 2002 annual meeting of
stockholders. R. Dave Garwood and L. Michael Hone were
nominated by the Board of Directors for election to serve
as the directors of such class, and they were elected by the
Company's stockholders at the Annual Meeting. The other
directors of the Company, whose terms of office as directors
continued after the Annual Meeting, are Richard J. Bogomolny,
John H. Cribb, Robert A. Goodman, John W. Paxton, Sr. and
Dr. Raj Reddy.
(c) The following votes were cast for each director nominee:
For the election of R. Dave Garwood --
Votes for: 14,186,610
Votes withheld: 389,404; and
For the election of L. Michael Hone --
Votes for: 14,260,860
Votes withheld: 315,154
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
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,
incorporated herein by reference to Exhibit 3.2 to
Registrant's Form 10-K for the year ended March 31,
1999.
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.
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<PAGE> 43
4.3.2 Letter agreement among Registrant, KeyBank
National Association and Harris Trust and
Savings Bank, dated June 11, 1997, with
respect to the appointment of Harris Trust
and Savings Bank as successor Rights Agent
under the Rights Agreement included as
Exhibit 4.3 above, incorporated herein by
reference to Exhibit 4.3.2 to Registrant's
Form 10-K for the year ended March 31, 1997.
4.4 Indenture by and between Registrant and AmeriTrust
Company National Association, as Trustee, dated as of
June 1, 1987, regarding Registrant's 7-1/2%
Convertible Subordinated Debentures Due 2012,
incorporated herein by reference to Exhibit 4.2 to
Registrant's Registration Statement on Form S-3,
Registration No. 33-14348, filed May 18, 1987.
4.4.1 Form of Registrant's 7-1/2% Convertible
Subordinated Debentures Due 2012 (set
forth in the Indenture included as
Exhibit 4.4 above).
4.5 Indenture by and between Registrant and Bank One
Trust Company, N.A., as Trustee, dated as of December
1, 1995, regarding Registrant's 5-3/4% Convertible
Subordinated Notes due 2003, incorporated herein by
reference to Exhibit 4.1 to Registrant's Registration
Statement on Form S-3, Registration No. 333-1189,
filed February 23, 1996.
4.5.1 Form of Registrant's 5-3/4% Convertible
Subordinated Notes due 2003 issued
under the Indenture included as Exhibit
4.5 above, incorporated herein by
reference to Exhibit 4.2 to
Registrant's Registration Statement on
Form S-3, Registration No.
333-1189, filed February 23, 1996.
4.5.2 Registration Rights Agreement by and
among Registrant and Hambrecht & Quist
LLC and Prudential Securities
Incorporated, as the Initial Purchasers
of Registrant's 5-3/4% Convertible
Subordinated Notes due 2003, with
respect to the registration of said
Notes under applicable securities laws,
incorporated herein by reference to
Exhibit 4.3 to Registrant's
Registration Statement on Form S-3,
Registration No.
333-1189, filed February 23, 1996.
10.1 Compensation and Benefits Plans of Registrant.
10.1.1 Amended and Restated Retirement and
Uniform Matching Profit-Sharing Plan of
Registrant, as amended, incorporated
herein by reference to Exhibit 10.1.1
to Registrant's Form 10-K for the year
ended March 31, 1999.
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.
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<PAGE> 44
10.1.3 1990 Stock Option Plan for Non-Employee
Directors of Registrant, as amended,
filed herewith.
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 10.1.4
to Registrant's Form 10-Q for the year
ended March 31, 1999.
10.1.4.a Description of
amendments extending
the term of the
Agreement included as
Exhibit 10.1.4 above,
filed herewith.
10.1.5 1992 Restricted Stock Plan of
Registrant, as amended, incorporated
herein by reference to Exhibit 10.1.5
to Registrant's Form 10-Q for the
quarter ended December 31, 1998.
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.,
incorporated herein
by reference to
Exhibit 10.1.7.a to
Registrant's Form
10-K for the year
ended March 31, 1998.
10.1.7.b First Amendment to
Amended and Restated
1996 Stock Option
Plan for employees,
directors and
advisors of Aironet
Wireless
Communications, Inc.,
incorporated herein
by reference to
Exhibit 10.1.7.b to
Registrant's Form
10-K for the year
ended March 31, 1999.
10.1.8 1999 Stock Option Plan for Non-Employee
Directors of Aironet Wireless
Communications, Inc., filed herewith.
44
<PAGE> 45
10.1.9 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.
10.1.10 Employment Agreement between Registrant
and John W. Paxton, Sr., effective as
of March 22, 1999, incorporated herein
by reference to Exhibit 10.1.10 to
Registrant's Form 10-K for the year
ended March 31, 1999.
10.1.11 Employment Agreement between Registrant
and Kenneth A. Cassady, effective as of
June 7, 1999, incorporated herein by
reference to Exhibit 10.1.11 to
Registrant's Form 10-K for the year
ended March 31, 1999.
10.1.12 Employment Agreement between Registrant
and Woody M. McGee, effective as of
June 1, 1999, incorporated herein by
reference to Exhibit 10.1.12 to
Registrant's Form 10-K for the year
ended March 31, 1999.
10.1.13 Amended and Restated Employment
Agreement between Registrant and James
G. Cleveland, effective as of April 1,
1997, incorporated herein by reference
to Exhibit 10.1.10 to Registrant's Form
10-K for the year ended March 31, 1998.
10.1.14 Amended and Restated Employment
Agreement between Registrant and Danny
R. Wipff, effective as of April 1,
1997, incorporated herein by reference
to Exhibit 10.1.14 to Registrant's Form
10-K for the year ended March 31, 1998.
10.1.15 Description of Key Employee Retention
Program, incorporated herein by
reference to Exhibit 10.1.15 to
Registrant's Form 10-K for the year
ended March 31, 1998.
10.1.15.a Form of letter
agreement made with
key employees
selected under the
retention program
described in Exhibit
10.1.15 above,
incorporated herein
by reference to
Exhibit 10.1.15.a to
Registrant's Form
10-K for the year
ended March 31, 1998.
10.1.16 Employment Agreement, effective as of
April 1, 1997, between Registrant and
Frank E. Brick, a former executive
officer, incorporated herein by
reference to Exhibit 10.1.9 to
Registrant's Form 10-K for the year
ended March 31, 1998.
10.1.17 Amended and Restated Employment
Agreement, effective as of April 1,
1997, between Registrant and Kenneth W.
Haver, a former executive officer,
incorporated herein by
45
<PAGE> 46
reference to Exhibit 10.1.11 to
Registrant's Form 10-K for the year
ended March 31, 1998.
10.1.18 Amended and Restated Employment
Agreement, effective as of April 1,
1997, between Registrant and David W.
Porter, a former executive officer,
incorporated herein by reference to
Exhibit 10.1.13 to Registrant's Form
10-K for the year ended March 31, 1998.
10.1.19 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,
incorporated herein by reference to
Exhibit 10.1.17 to Registrant's Form
10-K for the year ended March 31, 1998.
10.1.20 Letter agreement of Registrant
with R. Dave Garwood, dated August 30,
1999, for MRP-II consulting services,
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 West
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, 1999.
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,
incorporated herein by reference to
Exhibit 10.2.2 to Registrant's Form
10-K for the year ended March 31, 1998.
10.2.3 Standard Office Lease (Modified Net
Lease) between Registrant and John D.
Dellagnese III, dated as of July 19,
1995, for premises at 3875 Embassy
Parkway, Bath, Ohio, including an
Addendum thereto, incorporated herein
by reference to Exhibit 10.2.4 to
Registrant's Form 10-K for the year
ended March 31, 1996.
10.2.3.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.
46
<PAGE> 47
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.
10.2.3.e Sixth Addendum, dated
as of March, 1998, to
the Lease included as
Exhibit 10.2.3 above,
incorporated herein
by reference to
Exhibit 10.2.3.e to
Registrant's Form
10-Q for the quarter
ended September 30,
1998.
10.2.3.f Seventh Addendum,
dated as of July 20,
1998, to the Lease
included as Exhibit
10.2.3 above,
incorporated herein
by reference to
Exhibit 10.2.3.f to
Registrant's Form
10-Q for the quarter
ended September 30,
1998.
10.2.3.g Eighth Addendum,
dated as of September
8, 1998, to the Lease
included as Exhibit
10.2.3 above,
incorporated herein
by reference to
Exhibit 10.2.3.g to
Registrant's Form
10-Q for the quarter
ended September 30,
1998.
10.2.3.h Sublease Agreement,
dated as of
September 1, 1998,
between Registrant
and Aironet Wireless
Communications, Inc.
for the premises
subject to the Lease
included as Exhibit
10.2.3 above, as
amended through the
Eighth Addendum
thereto included as
Exhibit 10.2.3.g
above, incorporated
herein by reference
to Exhibit 10.2.3.h
to Registrant's Form
10-K for the year
ended March 31,
1999.
10.2.3.i Renewal, dated June
16, 1999, with
respect to the
Sublease Agreement
included as Exhibit
10.2.3.h above,
incorporated herein
by reference to
Exhibit 10.2.3.i to
Registrant's Form
47
<PAGE> 48
10-K for the year
ended March 31, 1999.
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 premises in Ciudad
Juarez, Chihuahua, Mexico, made and
entered into as of April 10, 1997,
incorporated herein by reference to
Exhibit 10.2.4 to Registrant's Form
10-K for the year ended March 31, 1998.
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 (refinanced
and replaced by the Loan and Security
Agreement included as Exhibit 10.3.3
below), 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 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.c Amendment No. 3,
dated as of December
12, 1997, to the
Agreement included as
Exhibit 10.3.1 above,
included herein by
reference to Exhibit
10.3.1.d to
Registrant's Form 10-K
for the year ended
March 31, 1998.
10.3.1.d Waiver and Agreement,
dated as of December
29, 1998, with respect
to the Agreement
included as Exhibit
10.3.1 above,
incorporated herein by
reference to Exhibit
10.3.1.e to
Registrant's Form 10-Q
for the quarter ended
December 31, 1998.
10.3.1.e Waiver Extension and
Agreement, dated as of
February 12, 1999,
with respect to the
Agreement included as
Exhibit 10.3.1 above,
incorporated herein by
reference to Exhibit
10.3.1.f to
48
<PAGE> 49
Registrant's Form
10-Q for the quarter
ended December 31,
1998.
10.3.1.f Second Waiver
Extension Agreement
and Amendment No. 4,
dated as of March 26,
1999, with respect to
the Agreement
included as Exhibit
10.3.1 above,
incorporated herein
by reference to
Exhibit 10.3.1.a to
Registrant's Form 8-K
dated April 1, 1999.
10.3.1.g Amended and Restated
Security Agreement,
dated as of March 26,
1999, by and among
Registrant and The
Bank of New York, as
Agent for the Lenders
from time to time
party to the
Agreement included as
Exhibit 10.3.1 above,
(terminated in
connection with the
refinancing obtained
pursuant to the
Loan and Security
Agreement included
as Exhibit 10.3.3
below) incorporated
herein by reference
to Exhibit 10.3.1.b
to Registrant's
Form 8-K dated
April 1, 1999.
10.3.1.h Deed of Trust,
Assignment of Leases
and Rents, Security
Agreement, Fixture
Filing and Financing
Statement, dated as
of March 26, 1999,
by Registrant to
First American Title
Insurance Company as
Trustee for the
benefit of The Bank
of New York, as
Agent for the
Lenders from time to
time party to the
Agreement included as
Exhibit 10.3.1 above,
(terminated in
connection with the
refinancing obtained
pursuant to the
Loan and Security
Agreement included as
Exhibit 10.3.3 below)
incorporated herein
by reference to
Exhibit 10.3.1.h to
Registrant's Form
10-K for the year
ended March 31, 1999.
10.3.1.i Patent and Trademark
Security Agreement,
dated as of March 26,
1999, by Registrant
and certain of its
subsidiaries to The
Bank of New York, as
Agent for the benefit
of the Lenders from
time to time party to
the Agreement
included as Exhibit
10.3.1 above,
(terminated in
connection with the
refinancing obtained
pursuant to the
Loan and Security
Agreement included as
Exhibit 10.3.3 below)
incorporated herein
by reference to
Exhibit 10.3.1 to
Registrant's Form
10-K for the year
ended March 31, 1999.
10.3.1.j Pledge Agreement,
dated as of March 26,
1999, by Registrant
to The Bank of New
York, as Agent for
the benefit of the
Lenders from time to
time party to the
Agreement included as
Exhibit 10.3.1 above,
(terminated in
connection with the
refinancing obtained
pursuant to the
Loan and Security
Agreement included as
Exhibit 10.3.3 below)
incorporated herein
by reference to
Exhibit 10.3.1.j to
Registrant's Form
49
<PAGE> 50
10-K for the year
ended March 31, 1999.
10.3.1.k Third Waiver
Extension Agreement
and Amendment No. 5,
dated as of June 29,
1999, with respect to
the Agreement
included as Exhibit
10.3.1 above,
incorporated herein
by reference to
Exhibit 10.3.1.a to
Registrant's Form 8-K
dated July 1, 1999.
10.3.2 Business Purpose Revolving Promissory
Note (Swing Line) made by Registrant in
favor of Bank One, NA, dated August 4,
1998, (refinanced and replaced by the
Loan and Security Agreement included
as Exhibit 10.3.3 below), incorporated
herein by reference to Exhibit 10.3.4
to Registrant's Form 10-Q for the
quarter ended June 30, 1998.
10.3.2.a Consent, dated as of
December 29, 1998,
with respect to the
Note included as
Exhibit 10.3.2 above,
incorporated herein
by reference to
Exhibit 10.3.4.a to
Registrant's Form
10-Q for the quarter
ended December 31,
1998.
10.3.2.b Further Consent,
dated as of February
12, 1999, with
respect to the Note
included as Exhibit
10.3.2 above,
incorporated herein
by reference to
Exhibit 10.3.4.a to
Registrant's Form
10-Q for the quarter
ended December 31,
1998.
10.3.2.c Second Further
Consent and
Agreement, dated as
of March 26, 1999,
with respect to the
Note included as
Exhibit 10.3.2 above,
incorporated herein
by reference to
Exhibit 10.3.4.c b to
Registrant's Form 8-K
dated April 1, 1999.
10.3.2.d Amended and Restated
Security Agreement,
dated as of March 26,
1999, by and among
Registrant and Bank
One, NA with respect
to the Note included
as Exhibit 10.3.2
above (terminated in
connection with the
refinancing obtained
pursuant to the Loan
and Security
Agreement included
as Exhibit 10.3.3
below), incorporated
herein by reference
to Exhibit 10.3.2.d
to Registrant's Form
10-K for the year
ended March 31, 1999.
10.3.2.e Deed of Trust,
Assignment of Leases
and Rents, Security
Agreement, Fixture
Filing and Financing
Statement, dated as
of March 26, 1999,
by Registrant to
First American Title
Insurance Company as
Trustee for the
50
<PAGE> 51
benefit of Bank One,
NA with respect to
the Note included as
Exhibit 10.3.2 above
(terminated in
connection with the
refinancing obtained
pursuant to the Loan
and Security
Agreement included
as Exhibit 10.3.3,
below). incorporated
herein by reference
to Exhibit 10.3.2.e
to Registrant's Form
10-K for the year
ended March 31,
1999.
10.3.2.f Patent and Trademark
Security Agreement,
dated as of March 26,
1999, by Registrant
and certain of its
subsidiaries to Bank
One, NA with respect
to the Note included
as Exhibit 10.3.2
above (terminated in
connection with the
refinancing obtained
pursuant to the Loan
and Security
Agreement included
as Exhibit 10.3.3
below), incorporated
herein by reference
to Exhibit 10.3.2.f
to Registrant's Form
10-K for the year
ended March 31, 1999.
10.3.2.g Third Further Consent
and Note Modification
Agreement, dated as
of June 29, 1999,
with respect to the
Note included as
Exhibit 10.3.2 above,
incorporated herein
by reference to
Exhibit 10.3.2.g b to
Registrant's Form 8-K
dated July 1, 1999.
10.3.3 Loan and Security Agreement, dated as of August 26,
1999, by and between the Registrant, the Lenders
party thereto, and Foothill Capital Corporation, as
Agent, incorporated by reference to Exhibit 10.3.3
to Registrant's Form 8-K dated August 30, 1999.
10.3.3.a Pledge Agreement, dated as of August 26,
1999, between Registrant and Foothill
Capital Corporation, as Agent for the
Lenders from time to time party to the
Loan and Security Agreement included as
Exhibit 10.3.3 above, pledging, among
other assets, the stock owned by
Registrant in Aironet Wireless
Communications, Inc. and Registrant
subsidiaries to Agent as collateral to
secure Registrant's obligations under
the Loan and Security Agreement, filed
herewith.
10.3.3.b Real Property Deed of Trust (Harris
County, Texas), made as of August 26,
1999 by Registrant unto Joseph C.
Mathews as trustee for the benefit of
Foothill Capital Corporation, as Agent
for the Lenders from time to time party
to the Loan and Security Agreement
included as Exhibit 10.3.3 above, filed
herewith.
10.3.3.c Patent, Trademark, Copyright and License
Mortgage, made as of August 26, 1999 by
Registrant in favor of Foothill Capital
Corporation ,as Agent for the Lenders
from time to time party to the Loan and
Security Agreement included as Exhibit
10.3.3 above, filed herewith.
10.4 Amended and Restated Agreement between Registrant and
Symbol Technologies, Inc., dated as of September 30,
1992, incorporated herein by reference to Exhibit
10.4 to Registrant's Form 10-K for the year ended
March 31, 1998.
10.5 License, Rights, and Supply Agreement between Aironet
Wireless Communications, Inc. and Registrant, dated
as of March 31, 1998, incorporated herein by
reference to Exhibit 0.5 to Registrant's Form
10-K for the year ended March 31, 1998.
10.5.1 First Amendment, dated as of March 8,
1996, to the Agreement included as
Exhibit 10.5 above, filed herewith.
10.5.2 Agreement, dated as of November 8,
1999, by and among Registrant, Cisco
Systems, Inc. and Aironet Wireless
Communications, Inc., filed herewith.
10.6 Asset Purchase Agreement by and among Dynatech
Corporation, IAQ Corporation, Registrant and Itronix
Corporation, then a 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.
10.7 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.
10.8 Stock Purchase Agreement by and among Registrant and
FED Corporation, dated as of March 31, 1998, with
51
<PAGE> 52
respect to FED Corporation's purchase of all of the
stock of Virtual Vision, Inc. (fka Vision Newco,
Inc.), incorporated herein by reference to Exhibit
10.7 to Registrant's Form 10-K for the year ended
March 31, 1998.
10.8.1 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, incorporated herein by reference
to Exhibit 10.7.1 to Registrant's Form
10-K for the year ended March 31, 1998.
10.9 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.
10.10 Amended and Restated Shareholder Agreement by and
among Metanetics Corporation 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.
10.10.1 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, incorporated herein by reference to
Exhibit 10.14 to Registrant's Form 10-K for the year
ended March 31, 1998.
52
<PAGE> 53
10.14.1 Form of Warrant issued pursuant to the
Subscription Agreement included as
Exhibit 10.14 above, incorporated
herein by reference to Exhibit 10.14.1
to Registrant's Form 10-K for the year
ended March 31, 1998.
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,
incorporated herein by reference to
Exhibit 10.14.2 to Registrant's Form
10-K for the year ended March 31, 1998.
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, incorporated herein by
reference to Exhibit 10.14.3 to
Registrant's Form 10-K for the year
ended March 31, 1998.
10.15 Stockholder Apgreement, made as of November 8, 1999
between Cisco Systems, Inc., Osprey Acquisition
Corporation and Registrant, and related Irrevocable
Proxy, executed by Registrant as a stockholder of
Aironet Wireless Communications, Inc. as an
inducement toward the entry by Cisco Systems, Inc.
and Osprey Acquisition Corporation into an Agreement
and Plan of Merger and Reorganization dated of even
date providing for the acquisition of Aironet by
Cisco, filed herewith.
10.16 DFS Vendor Agreement between Registrant and Deutsche
Financial Services Corporation, dated as of September
30, 1998, incorporated herein by reference to Exhibit
10.15 to Registrant's Form 10-Q for the quarter ended
December 31, 1998.
27. Financial Data Schedule as of June 30, 1999, filed
herewith.
(b) Reports on Form 8-K
During the second quarter of fiscal 2000 to which this Annual
Report on Form 10-Q relates, the Registrant filed the following Current Reports
on Form 8-K: (1) Current Report bearing a cover date of July 1, 1999, attaching
Registrant's press release of that date, announcing the further extension of
waivers under Registrant's revolving Credit facility and separate business
purpose revolving promissory note, effective through August 30, 1999, and
certain related amendments to the underlying credit agreements as well as a
delay in the filing of the Form 10-K for Registrant's fiscal year ended March
31, 1999 pending completion of the closing of the Registrant's fourth fiscal
quarter and the annual audit of its fiscal 1999 financial statment; (ii)
Current Report bearing a cover date of July 14, 1999, which announced
Registrant's financial results for the fourth quarter of fiscal 1999, and the
fiscal year, ended March 31, 1999 (the press release, as incorporated in the
Form 8-K, includes unaudited condensed consolidated balance sheets for the
Registrant for March 31, 1999 and March 31, 1998 and unaudited condensed
consolidated statements of operations for Registrant for the quarterly and
twelve-month periods ended March 31, 1999 and March 31, 1998, which finanial
statement give effect to the restatements previously discussed in the
Registrant's February 23, 1999, March 1, 1999 and June 16, 1999 press releases,
each of which have been filed under cover of a Form 8-K bearing a cover date as
of the respective press release dates); (iii) Current Report bearing a cover
date of July 19, 1999, as updated by Amendment No. 1 thereto filed under cover
of a Form 8-K/A bearing the same cover date, reporting the Company's engagement
of Arthur Andersen LLP to audit the company's consolidated financial statements
for the fiscal year ending March 31, 2000 and the dismissal of
PricewaterhouseCoopers LLP as the principal accountant to audit the company's
consolidated financial statements effective upon the completion of the audit of
the Company's consolidated financial statements for the fiscal year ended March
31, 1999 and the issuance of their report thereon; and (iv) Current Report on
bearing a cover date of August 30, 1999, reporting the closing of its new $100
million senior secured credit facility with Foothill Capital Corporation with
which the Registrant refinanced its predecessor revolving credit facility and
separate business purpose revolving promissory note referenced in (i) above in
this Item 6(b).
53
<PAGE> 54
TELXON CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,the
registrant has duly caused this Form 10-Q to be signed and on its behalf by the
undersigned thereunto duly authorized.
Date: November 15, 1999
TELXON CORPORATION
(Registrant)
/s/ Woody M. McGee
-----------------------
Woody M. McGee,
Vice President and Chief
Financial Officer
<PAGE> 55
TELXON CORPORATION
EXHIBITS
TO
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
<PAGE> 56
INDEX TO EXHIBITS
Where
Filed
- -----
* 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
3.2 to Registrant's Form 10-K for the year ended
March 31, 1999.
* 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
<PAGE> 57
Savings Bank, dated June 11, 1997, with
respect to the appointment of Harris
Trust and Savings Bank as successor
Rights Agent under the Rights Agreement
included as Exhibit 4.3 above,
incorporated herein by reference to
Exhibit 4.3.2 to Registrant's Form 10-K
for the year ended March 31, 1997.
* 4.4 Indenture by and between Registrant and AmeriTrust
Company National Association, as Trustee, dated as of
June 1, 1987, regarding Registrant's 7-1/2%
Convertible Subordinated Debentures Due 2012,
incorporated herein by reference to Exhibit 4.2 to
Registrant's Registration Statement on Form S-3,
Registration No. 33-14348, filed May 18, 1987.
* 4.4.1 Form of Registrant's 7-1/2% Convertible
Subordinated Debentures Due 2012 (set
forth in the Indenture included as
Exhibit 4.4 above).
* 4.5 Indenture by and between Registrant and Bank One
Trust Company, N.A., as Trustee, dated as of December
1, 1995, regarding Registrant's 5-3/4% Convertible
Subordinated Notes due 2003, incorporated herein by
reference to Exhibit 4.1 to Registrant's Registration
Statement on Form S-3, Registration No. 333-1189,
filed February 23, 1996.
* 4.5.1 Form of Registrant's 5-3/4% Convertible
Subordinated Notes due 2003 issued
under the Indenture included as
Exhibit 4.5 above, incorporated herein
by reference to Exhibit 4.2 to
Registrant's Registration Statement on
Form S-3, Registration No. 333-1189,
filed February 23, 1996.
* 4.5.2 Registration Rights Agreement by and
among Registrant and Hambrecht & Quist
LLC and Prudential Securities
Incorporated, as the Initial
Purchasers of Registrant's 5-3/4%
Convertible Subordinated Notes due
2003, with respect to the registration
of said Notes under applicable
securities laws, incorporated herein by
reference to Exhibit 4.3 to
Registrant's Registration Statement on
Form S-3, Registration No. 333-1189,
filed February 23, 1996.
10.1 Compensation and Benefits Plans of Registrant.
* 10.1.1 Amended and Restated Retirement and
Uniform Matching Profit-Sharing Plan of
Registrant, as amended, incorporated
herein by reference to Exhibit 10.1.1
to Registrant's Form 10-K for the year
ended March 31, 1999.
* 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.
<PAGE> 58
** 10.1.3 1990 Stock Option Plan for Non-Employee
Directors of Registrant, as amended,
filed herewith.
* 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 10.1.4 to Registrant's Form
10-K for the year ended March 31,
1999.
** 10.1.4.a Description of
amendments extending
the term of the
Agreement included
as Exhibit 10.1.4
above, filed
herewith.
* 10.1.5 1992 Restricted Stock Plan of
Registrant, as amended, incorporated
herein by reference to Exhibit 10.1.5
to Registrant's Form 10-Q for the
quarter ended December 31, 1998.
* 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., incorporated
herein by reference
to Exhibit 10.1.7.a
to Registrant's Form
10-K for the year
ended March 31,
1998.
* 10.1.7.b First Amendment to
Amended and Restated
1996 Stock Option
Plan for employees,
directors and
advisors of Aironet
Wireless
Communications,
Inc., incorporated
herein by reference
to Exhibit 10.1.7.b
to Registrant's Form
10-K for the year
ended March 31,
1999.
** 10.1.8 1999 Stock Option Plan for Non-Employee
Directors of Aironet Wireless
Communications, Inc., filed herewith.
* 10.1.9 Non-Competition Agreement by and
between Registrant and Robert F.
Meyerson, effective
<PAGE> 59
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.
* 10.1.10 Employment Agreement between Registrant
and John W. Paxton, Sr., effective as
of March 22, 1999, incorporated herein
by reference to Exhibit 10.1.10 to
Registrant's Form 10-K for the year
ended March 31, 1999.
* 10.1.11 Employment Agreement between Registrant
and Kenneth A. Cassady, effective as
of June 7, 1999, incorporated herein
by reference to Exhibit 10.1.11 to
Registrant's Form 10-K for the year
ended March 31, 1999.
* 10.1.12 Employment Agreement between Registrant
and Woody M. McGee, effective as of
June 1, 1999, incorporated herein by
reference to Exhibit 10.1.12 to
Registrant's Form 10-K for the year
ended March 31, 1999.
* 10.1.13 Amended and Restated Employment
Agreement between Registrant and James
G. Cleveland, effective as of April 1,
1997, incorporated herein by reference
to Exhibit 10.1.10 to Registrant's Form
10-K for the year ended March 31, 1998.
* 10.1.14 Amended and Restated Employment
Agreement between Registrant and Danny
R. Wipff, effective as of April 1,
1997, incorporated herein by reference
to Exhibit 10.1.14 to Registrant's Form
10-K for the year ended March 31, 1998.
* 10.1.15 Description of Key Employee Retention
Program, incorporated herein by
reference to Exhibit 10.1.15 to
Registrant's Form 10-K for the year
ended March 31, 1998.
* 10.1.15.a Form of letter
agreement made with
key employees
selected under the
retention program
described in Exhibit
10.1.15 above,
incorporated herein
by reference to
Exhibit 10.1.15.a to
Registrant's Form
10-K for the year
ended March 31,
1998.
* 10.1.16 Employment Agreement, effective as of
April 1, 1997, between Registrant and
Frank E. Brick, a former executive
officer, incorporated herein by
reference to Exhibit 10.1.9 to
Registrant's Form 10-K for the year
ended March 31, 1998.
* 10.1.17 Amended and Restated Employment
Agreement, effective as of April 1,
1997, between Registrant and Kenneth W.
Haver, a former executive officer,
incorporated herein by reference to
Exhibit 10.1.11 to Registrant's Form
10-K for the year ended March 31, 1998.
<PAGE> 60
* 10.1.18 Amended and Restated Employment
Agreement, effective as of April 1,
1997, between Registrant and David W.
Porter, a former executive officer,
incorporated herein by reference to
Exhibit 10.1.13 to Registrant's Form
10-K for the year ended March 31, 1998.
* 10.1.19 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,
incorporated herein by reference to
Exhibit 10.1.17 to Registrant's Form
10-K for the year ended March 31,
1998.
** 10.1.20 Letter agreement of Registrant
with R. Dave Garwood, dated August 30,
1999, for MRP-II consulting services,
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 West 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,
1999.
* 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, incorporated herein by reference
to Exhibit 10.2.2 to Registrant's Form
10-K for the year ended March 31,
1998.
* 10.2.3 Standard Office Lease (Modified Net
Lease) between Registrant and John D.
Dellagnese III, dated as of July 19,
1995, for premises at 3875 Embassy
Parkway, Bath, Ohio, including an
Addendum thereto, incorporated herein
by reference to Exhibit 10.2.4 to
Registrant's Form 10-K for the year
ended March 31, 1996.
* 10.2.3.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
<PAGE> 61
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.
* 10.2.3.e Sixth Addendum,
dated as of March,
1998, to the Lease
included as Exhibit
10.2.3 above,
incorporated herein
by reference to
Exhibit 10.2.3.e to
Registrant's Form
10-Q for the quarter
ended September 30,
1998.
* 10.2.3.f Seventh Addendum,
dated as of July 20,
1998, to the Lease
included as Exhibit
10.2.3 above,
incorporated herein
by reference to
Exhibit 10.2.3.f to
Registrant's Form
10-Q for the quarter
ended September 30,
1998.
* 10.2.3.g Eighth Addendum,
dated as of
September 8, 1998,
to the Lease
included as Exhibit
10.2.3 above,
incorporated herein
by reference to
Exhibit 10.2.3.g to
Registrant's Form
10-Q for the quarter
ended September 30,
1998.
* 10.2.3.h Sublease Agreement,
dated as of
September 1, 1998,
between Registrant
and Aironet Wireless
Communications, Inc.
for the premises
subject to the Lease
included as Exhibit
10.2.3 above, as
amended through the
Eighth Addendum
thereto included as
Exhibit 10.2.3.g
above, incorporated
herein by reference
to Exhibit 10.2.3.h
to Registrant's Form
10-K for the year
ended March 31,
1999.
* 10.2.3.i Renewal, dated June
16, 1999, with
respect to the
Sublease Agreement
included as Exhibit
10.2.3.h above,
incorporated herein
by reference to
Exhibit 10.2.3.i to
Registrant's Form
10-K for the year
ended March 31,
1999.
<PAGE> 62
* 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 premises in Ciudad
Juarez, Chihuahua, Mexico, made and
entered into as of April 10, 1997,
incorporated herein by reference to
Exhibit 10.2.4 to Registrant's Form
10-K for the year ended March 31,
1998.
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,
(refinanced and replaced by the Loan
and Security Agreement included as
Exhibit 10.3.3 below) 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 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.c Amendment No. 3,
dated as of December
12, 1997, to the
Agreement included as
Exhibit 10.3.1 above,
included herein by
reference to Exhibit
10.3.1.d to
Registrant's Form
10-K for the year
ended March 31,
1998.
* 10.3.1.d Waiver and Agreement,
dated as of December
29, 1998, with
respect to the
Agreement included as
Exhibit 10.3.1 above,
incorporated herein
by reference to
Exhibit 10.3.1.e to
Registrant's Form
10-Q for the quarter
ended December 31,
1998.
* 10.3.1.e Waiver Extension and
Agreement, dated as
of February 12, 1999,
with respect to the
Agreement included as
Exhibit 10.3.1 above,
incorporated herein
by reference to
Exhibit 10.3.1.f to
Registrant's Form
10-Q for the quarter
ended December 31,
1998.
<PAGE> 63
* 10.3.1.f Second Waiver
Extension Agreement
and Amendment No. 4,
dated as of March 26,
1999, with respect to
the Agreement
included as Exhibit
10.3.1 above,
incorporated herein
by reference to
Exhibit 10.3.1.a to
Registrant's Form 8-K
dated April 1, 1999.
* 10.3.1.g Amended and Restated
Security Agreement,
dated as of March 26,
1999, by and among
Registrant and The
Bank of New York, as
Agent for the
Lenders from time to
time party to the
Agreement included
as Exhibit 10.3.1
(terminated in
connection with the
refinancing obtained
pursuant to the Loan
and Security
Agreement included
as Exhibit 10.3.3
below) above,
incorporated herein
by reference to
Exhibit 10.3.1.b to
Registrant's Form
8-K dated April 1,
1999.
* 10.3.1.h Deed of Trust,
Assignment of Leases
and Rents, Security
Agreement, Fixture
Filing and Financing
Statement, dated as
of March 26, 1999,
by Registrant to
First American Title
Insurance Company as
Trustee for the
benefit of The Bank
of New York, as
Agent for the Lenders
from time to time
party to the
Agreement included as
Exhibit 10.3.1 above,
(terminated in
connection with the
refinancing obtained
pursuant to the Loan
and Security
Agreement included
as Exhibit 10.3.3
below) incorporated
herein by reference
to Exhibit 10.3.1.h
to Registrant's Form
10-K for the year
ended March 31,
1999.
* 10.3.1.i Patent and Trademark
Security Agreement,
dated as of March
26, 1999, by
Registrant and
certain of its
subsidiaries to The
Bank of New York, as
Agent for the benefit
of the Lenders from
time to time party
to the Agreement
included as Exhibit
10.3.1 above,
(terminated in
connection with the
refinancing obtained
pursuant to the Loan
and Security
Agreement included
as Exhibit 10.3.3
below) incorporated
herein by reference
to Exhibit 10.3.1.i
to Registrant's Form
10-K for the year
ended March 31, 1999.
* 10.3.1.j Pledge Agreement,
dated as of March
26, 1999, by
Registrant to The
Bank of New York, as
Agent for the benefit
of the Lenders from
time to time party to
the Agreement
included as Exhibit
10.3.1 above,
(terminated in
connection with the
refinancing obtained
pursuant to the Loan
and Security
Agreement included
as Exhibit 10.3.3
below) incorporated
herein by reference
to Exhibit 10.3.1.j
to Registrant's Form
10-K for the year
ended March 31, 1999.
<PAGE> 64
* 10.3.1.k Third Waiver
Extension Agreement
and Amendment No. 5,
dated as of June 29,
1999, with respect
to the Agreement
included as Exhibit
10.3.1 above,
incorporated herein
by reference to
Exhibit 10.3.1.a to
Registrant's Form
8-K dated July 1,
1999.
* 10.3.2 Business Purpose Revolving Promissory
Note (Swing Line) made by Registrant
in favor of Bank One, NA, dated August
4, 1998, (refinanced and replaced by
the Loan and Security Agreement
included as Exhibit 10.3.3 below)
incorporated herein by reference to
Exhibit 10.3.4 to Registrant's Form
10-Q for the quarter ended June 30,
1998.
* 10.3.2.a Consent, dated as of
December 29, 1998,
with respect to the
Note included as
Exhibit 10.3.2
above, incorporated
herein by reference
to Exhibit 10.3.4.a
to Registrant's Form
10-Q for the quarter
ended December 31,
1998.
* 10.3.2.b Further Consent,
dated as of February
12, 1999, with
respect to the Note
included as Exhibit
10.3.2 above,
incorporated herein
by reference to
Exhibit 10.3.4.a to
Registrant's Form
10-Q for the quarter
ended December 31,
1998.
* 10.3.2.c Second Further
Consent and
Agreement, dated as
of March 26, 1999,
with respect to the
Note included as
Exhibit 10.3.2
above, incorporated
herein by reference
to Exhibit 10.3.4.c
b to Registrant's
Form 8-K dated April
1, 1999.
* 10.3.2.d Amended and Restated
Security Agreement,
dated as of March
26, 1999, by and
among Registrant and
Bank One, NA with
respect to the Note
included as Exhibit
10.3.2 above
(terminated in
connection with the
refinancing obtained
pursuant to the Loan
and Security
Agreement included
as Exhibit 10.3.3
below), incorporated
herein by reference
to Exhibit 10.3.2.d
to Registrant's Form
10-K for the year
ended March 31,
1999.
* 10.3.2.e Deed of Trust,
Assignment of Leases
and Rents, Security
Agreement, Fixture
Filing and Financing
Statement, dated as
of March 26, 1999,
by Registrant to
First American Title
Insurance Company as
Trustee for the
benefit of Bank One,
NA with respect to
the Note included as
Exhibit 10.3.2
above, (terminated
in connection with
the refinancing
obtained pursuant to
the Loan and
Security Agreement
included as Exhibit
10.3.3 below)
<PAGE> 65
incorporated herein
by reference to
Exhibit 10.3.2.e to
Registrant's Form
10-K for the year
ended March 31,
1999.
* 10.3.2.f Patent and Trademark
Security Agreement,
dated as of March
26, 1999, by
Registrant and
certain of its
subsidiaries to Bank
One, NA with respect
to the Note included
as Exhibit 10.3.2
above, (terminated
in connection with
the refinancing
obtained pursuant to
the Loan and
Security Agreement
included as Exhibit
10.3.3 below)
incorporated
herein by reference
to Exhibit 10.3.2.f
to Registrant's Form
10-K for the year
ended March 31,
1999.
* 10.3.2.g Third Further Consent
and Note Modification
Agreement, dated as
of June 29, 1999,
with respect to the
Note included as
Exhibit 10.3.2
above, incorporated
herein by reference
to Exhibit 10.3.2.g
b to Registrant's
Form 8-K dated July
1, 1999.
* 10.3.3 Loan and Security Agreement, dated as of
August 26, 1999, by and between the
Registrant, the Lenders party thereto,
and Foothill Capital Corporation, as
Agent, incorporated by reference to
Exhibit 10.3.3 to Registrant's Form 8-K
dated August 30, 1999.
** 10.3.3.a Pledge Agreement, dated
as of August 26, 1999,
between Registrant and
Foothill Capital
Corporation, as Agent
for the Lenders from
time to time party to
the Loan and Security
Agreement included as
Exhibit 10.3.3 above,
pledging, among other
assets, the stock owned
by Registrant in Aironet
Wireless Communications,
Inc. and Registrant
subsidiaries to Agent as
collateral to secure
Registrant's obligations
under the Loan and
Security Agreement,
filed herewith.
** 10.3.3.b Real Property Deed of
Trust (Harris County,
Texas), made as of August
26, 1999 by Registrant
unto Joseph C. Mathews
as trustee for the
benefit of Foothill
Capital Corporation, as
Agent for the Lenders
from time to time party
to the Loan and Security
Agreement included as
Exhibit 10.3.3 above,
filed herewith.
** 10.3.3.c Patent, Trademark,
Copyright and License
Mortgage, made as of
August 26, 1999 by
Registrant in favor
of Foothill Capital
Corporation, as Agent
for the Lenders from
time to time party to
the Loan and Security
Agreement included as
Exhibit 10.3.3 above,
filed herewith.
* 10.4 Amended and Restated Agreement between Registrant and
Symbol Technologies, Inc., dated as of September 30,
1992, incorporated herein by reference to Exhibit
10.4 to Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.5 License, Rights, and Supply Agreement between Aironet
Wireless Communications, Inc., and Registrant, dated
as of March 31, 1998, incorporated herein by
reference to Exhibit 10.5 to Registrant's Form 10-K
for the year ended March 31, 1998.
* 10.5.1 First Amendment, dated as of March 8,
1996, to the Agreement included as
Exhibit 10.5 above, incorporated
herein by reference to Exhibit 10.5.1
to Registrant's Form 10-K for the year
ended March 31, 1999.
** 10.5.2 Agreement, dated as of November 8,
1999, by and among Registrant, Cisco
Systems, Inc. and Aironet Wireless
Communications, Inc., filed herewith.
* 10.6 Asset Purchase Agreement by and among Dynatech
Corporation, IAQ Corporation, Registrant and Itronix
Corporation, then a 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.
* 10.7 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.
* 10.8 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
<PAGE> 66
stock of Virtual Vision, Inc. (fka Vision Newco,
Inc.), incorporated herein by reference to Exhibit
10.7 to Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.8.1 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, incorporated herein by
reference to Exhibit 10.7.1 to
Registrant's Form 10-K for the year
ended March 31, 1998.
* 10.9 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.
* 10.10 Amended and Restated Shareholder Agreement by and
among Metanetics Corporation 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.
* 10.10.1 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, incorporated herein by reference to
Exhibit 10.14 to Registrant's Form 10-K for the year
ended March 31, 1998.
<PAGE> 67
* 10.14.1 Form of Warrant issued pursuant to the
Subscription Agreement included as
Exhibit 10.14 above, incorporated
herein by reference to Exhibit 10.14.1
to Registrant's Form 10-K for the year
ended March 31, 1998.
* 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,
incorporated herein by reference to
Exhibit 10.14.2 to Registrant's Form
10-K for the year ended March 31,
1998.
* 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, incorporated herein by
reference to Exhibit 10.14.3 to
Registrant's Form 10-K for the year
ended March 31, 1998.
** 10.15 Stockholder Agreement, made as of November 8, 1999
between Cisco Systems, Inc., Osprey Acquisition
Corporation and Registrant, and related Irrevocable
Proxy, executed by Registrant as a stockholder of
Aironet Wireless Communications, Inc. as an
inducement toward the entry by Cisco Systems Inc. and
Osprey Acquisition Corporation into an Agreement and
Plan of Merger and Reorganization dated of even date
providing for the acquisition of Aironet by Cisco,
filed herewith.
* 10.16 DFS Vendor Agreement between Registrant and Deutsche
Financial Services Corporation, dated as of September
30, 1998, incorporated herein by reference to Exhibit
10.15 to Registrant's Form 10-Q for the quarter ended
December 31, 1998.
** 27. Financial Data Schedule as of June 30, 1999, filed
herewith.
- -----------------------------------
* Previously filed
** Filed herewith
<PAGE> 1
Exhibit 10.1.3
TELXON CORPORATION
1990 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(AS AMENDED THROUGH AND EFFECTIVE
AS OF SEPTEMBER 22, 1999)
1. PURPOSE OF THE PLAN. The purpose of this Plan is to promote the best
interests of the Company and its stockholders by enabling the Company to attract
and retain the services of experienced and knowledgeable independent directors
by providing such directors the opportunity, pursuant to Options granted under
the Plan, 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 such other capitalized terms as are
defined elsewhere in this Plan, the following terms shall when used in this Plan
have the respective meanings set forth below:
(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 4(a) as being authorized
for issuance and sale under Options granted pursuant to the Plan,
subject to adjustment thereof 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 the Committee appointed by the Board in
accordance with Section 5(a), if a Committee is appointed. The members
of such Committee shall be members of the Board. If no Committee has
been appointed, any reference to the "Committee" shall be deemed a
reference to the "Board."
<PAGE> 2
(g) "Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
(h) "Company" means Telxon Corporation, a Delaware
corporation.
(i) "Director" means any person elected or duly appointed in
accordance with the certificate of incorporation or by-laws of the
Company, or applicable law, to serve on the Board.
(j) "Employee" means any person, including officers and
Directors who are also officers, employed by the Company or any
Subsidiary. The payment of director's fees by the Company shall not be
sufficient to constitute a person as an "Employee" of the Company.
(k) "Family Member" means (i) the spouse or any sibling of an
Optionee or any lineal descendant (including, but not limited to,
adopted and step children) of any of the foregoing, (ii) a trust for
the exclusive benefit of the Optionee and/or person(s) described in
clause (i) of this Section 2(k), or the trustee of such a trust in his,
her or its capacity as such, (iii) a partnership, corporation, limited
liability company or similar entity the partners, stockholders or other
owners of which include only the Optionee and/or person(s) described in
clause (i) of this Section 2(k).
(l) "Non-Profit Organization" means any organization which is
exempt from United States income taxes under Section 501(c)(3), (4),
(5), (6), (7), (8) or (10) of the Code.
(m) "Option" means a right granted to a non-Employee Director
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) "Optioned Stock" means the Common Stock subject to an
Option.
(p) "Optionee" means a non-Employee Director who receives an
Option.
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<PAGE> 3
(p) "Plan" means this Telxon Corporation 1990 Stock Option
Plan for Non-Employee Directors.
(q) "Rule 16b-3" means Rule 16b-3 promulgated by the
Commission under the Act or any similar successor regulation exempting
certain transactions involving stock-based compensation arrangements
from the 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.
(r) "Securities Law Requirements" means the Securities Act of
1933, as amended from time to time, and the Act and the rules and
regulations promulgated by the Commission under such laws, as such
rules and regulations are adopted and amended from time to time,
including but not limited to Rule 16b-3, and as all such laws, rules
and regulations are 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.
(s) "Shares" means the Common Stock as adjusted in accordance
with Section 12.
(t) "Subsidiary" means a corporation of which not less than
fifty percent (50%) of the voting shares are owned by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(u) "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.
(v) "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.
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<PAGE> 4
3. QUALIFICATION OF PLAN. The Plan is intended to qualify for an
exemption from the operation of Section 16(b) of the Act, pursuant to Rule
16b-3. Further, with respect to Options granted hereunder prior to November 1,
1996, the Plan is structured to comply with the requirements of Rule
16b-3(c)(2)(ii) as then in effect regarding disinterested administration and
formula awards to ensure that Directors then receiving grants under the Plan
continue to be "disinterested persons," as that term is defined in Rule
16b-3(c)(2)(i) as in effect prior to November 1, 1996, for the purpose of
administering the Company's employee stock option plans under such Rule. Insofar
as transactions under this Plan are thus intended to comply with all applicable
conditions of Rule 16b-3, to the extent that any provision of the Plan or action
by the Board or the Committee fails to so comply, such provision or action shall
be deemed null and void to the extent permitted by law and deemed advisable by
the Board or, but only with respect to actions taken by it, the Committee.
4. STOCK SUBJECT TO THE PLAN.
(a) NUMBER OF SHARES ISSUABLE. Subject to adjustment in
accordance with the provisions of Section 12, the maximum aggregate
number of Authorized Shares which may be issued and sold under Options
granted pursuant to the Plan is 400,000 shares of Common Stock. 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
4
<PAGE> 5
any such reversal of a provisional deduction against the Authorized
Shares shall immediately become available for the granting of new
Options under the Plan with respect thereto.
5. 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,
which Committee, once appointed, shall continue to serve until
otherwise directed by the Board; provided that the granting of Options
under Section 6(c) and any action under the Plan affecting the number
of Shares covered thereby, the exercise price payable thereunder or the
times at which the same may be exercised (including, but not limited
to, the acceleration of the vesting thereof or any extension of the
period (subject to the maximum term fixed by Section 7(a)) during which
such an Option may be exercised) shall not be taken by the Committee
but shall lie solely within the authority of the full Board, subject to
the abstention of the Optionee from any decision regarding any Option
held by him or her. Subject to the provisions of the Plan, the
Committee has authority to manage and control the operation of the
Plan, interpret the provisions of the Plan, and prescribe, amend and
rescind rules and regulations relating to the Plan. From time to time
the Board may increase the size of the Committee and may appoint
additional members thereof, 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 provisions of this
Plan, the Committee shall have the authority, in its sole discretion:
(i) To determine, upon review of relevant information
in accordance with Section 8(b) of the Plan, the "Fair Market
Value" (as defined in said Section 8(b)) of the Shares;
(ii) To determine the terms and provisions of each
Option;
(iii) To amend any outstanding Option;
(iv) 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 thereunder or any
amendment to the Plan or any Option;
5
<PAGE> 6
(v) To interpret the Plan;
(vi) To prescribe, amend and rescind, if deemed
necessary or appropriate, rules and regulations relating to
the Plan, to the extent not inconsistent with the Plan;
(vii) To make all other determinations the Committee
may deem necessary or advisable in connection with the
administration of the Plan; and
(viii) To accelerate the time as of which any Option
shall vest and may be exercised by the Optionee; provided,
however, that the Optionee shall not participate in any
decision regarding acceleration of vesting of any Option held
by him or her.
(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
Directors and Optionees and the respective legal representatives,
heirs, 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 this 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.
6. ELIGIBILITY; FORMULA GRANTS.
(a) ELIGIBILITY. Each Director who is not an Employee shall be
eligible to receive grants of Options under the Plan.
6
<PAGE> 7
(b) FORMULA GRANTS.
(i) INITIAL GRANTS. Each non-Employee Director who is
newly elected or appointed to the Board after May 19, 1992
shall automatically be granted an Option (the "Initial Grant")
to purchase 25,000 Shares of Common Stock (subject to
adjustment as provided in Section 12) on the day he or she
joins the Board.
(ii) CONTINUING GRANTS. Each non-Employee Director
shall automatically be granted an Option (the "Continuing
Grant") to purchase 10,000 Shares of Common Stock (subject to
adjustment as provided in Section 12) on each anniversary of
his or her election or last re-election to the Board so long
as such Director is serving on the Board on the date of such
anniversary.
(c) DISCRETIONARY GRANTS. In its sole discretion, the Board
may at any time and from time to time while the Plan is in effect grant
to any one or more of the non-Employee Directors Options to purchase
Shares on such terms and subject to such provisions as the Board may,
and the Board is hereby authorized to, determine (which terms and
provisions need not be identical), including but not limited to, (i)
the number of Shares subject to the Option, (ii) the exercise price per
Share (subject to the provisions of Section 8), and (iii) whether the
Option shall become exercisable over a period of time and when it shall
be fully exercisable. Any Options granted under this Section 6(c) shall
be in addition to those automatically granted to eligible Directors
under Section 6(b) above, and there shall be no limit on the number of
Options which may be granted to any one eligible Director or on the
aggregate number of Shares subject to purchase thereunder.
7. TERM OF OPTIONS; VESTING.
(a) TERM OF OPTIONS. The term of each Option shall be seven
(7) years from the date of grant thereof provided that the Committee,
if it intends that a particular Option qualify as a Tax-Qualified
Option, shall observe such restrictions on the term of such Option as
may be imposed by applicable tax laws in order for such Option so to
qualify. In the exercise of its authority under Section 5(b)(iii) and
other applicable provisions of the Plan, the Committee may extend the
term of any Option outstanding under the Plan, provided that the term
of the Option, as so extended, shall expire no later than ten (10)
years after the date as of which the Option was originally granted.
Each Option shall continue in effect in accordance with its terms
7
<PAGE> 8
notwithstanding that the Plan may be terminated prior to the expiration
of the term of such Option.
8
<PAGE> 9
(b) VESTING.
(i) INITIAL GRANTS. Each Option constituting an
Initial Grant shall be exercisable as to one-third of the
Shares subject to the Option after the first anniversary of
the grant date, exercisable as to two-thirds of the Shares
subject to the Option after the second anniversary of the
grant date, and exercisable as to all or any part of the
Shares subject to the Option after the third anniversary of
the grant date.
(ii) CONTINUING GRANTS. Each Option constituting a
Continuing Grant shall be exercisable as to all or any part of
the Shares subject to the Option after the third anniversary
of the grant date.
(iii) DISCRETIONARY GRANTS. Each Option granted
pursuant to Section 6(c) shall be exercisable at such times
and as to all or any part of the Shares subject to the Option
as determined by the Board at the time of grant and reflected
in the Option Agreement evidencing the same.
8. EXERCISE PRICE.
(a) MINIMUM PRICE REQUIRED. The per Share exercise price for
the Shares subject to an Option shall be (i) with respect to Options
granted under Section 6(b), the Fair Market Value per Share as of the
day prior to the date of grant of such Option, and (ii) with respect to
Options granted under Section 6(c), such price per Share as the Board
may determine at the time of grant and reflected in the Option
Agreement evidencing the same, but in no event less than the Fair
Market Value per Share as of the day prior to the date of grant.
(b) DEFINITION OF "FAIR MARKET VALUE". For all purposes under
the Plan, "Fair Market Value" per Share shall be determined by the
Committee in its sole discretion; provided that if the Shares are
included in the NASDAQ National Market 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
9
<PAGE> 10
Committee in such manner as is required for such Tax Qualified Option
to qualify as such.
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: (i) cash, (ii) personal check, (iii) bank cashier's
check, (iv) already owned Shares (duly endorsed for transfer with
signature guaranteed), (v) Shares withheld from the Shares to be issued
upon such exercise, (vi) subject to compliance with applicable law, 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 the Option, or (vii) any combination of the foregoing.
The person or persons entitled to exercise the Option shall be entitled
to elect from the foregoing forms of consideration the form(s) to be
used in effecting payment with respect to a particular exercise;
provided that any election by an Optionee 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 an Optionee 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 Optionee with respect to such transaction.
(b) 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, such Shares shall
be valued at Fair Market Value as of the day immediately preceding the
date of exercise.
(c) DELIVERY OF ALREADY OWNED SHARES. The Company shall not be
obligated to accept from an Optionee Shares he or she already owns as
full or partial payment of the exercise price of an Option unless such
tender is accompanied by a written statement of the Optionee 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 (any such Shares
acquired through such an exercise occurring less than six (6)
10
<PAGE> 11
months prior to the date of exercise of the Option in respect of which
such already owned Shares are tendered are ineligible for use as
payment toward such Option exercise), of stock option(s) granted by the
Company. 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) 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 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 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 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.
(b) TERMINATION OF SERVICE. Except as may otherwise be
specified by the Committee in its sole discretion,
in the event that an Optionee shall cease to be a Director (whether
by reason of the Optionee's death or disability or otherwise), the
Optionee (or in the case of his death, his Successor) may exercise his
Option (to the extent that he was entitled to exercise it at the time
he ceased to be a Director) until the earlier of (i) the date three
(3) years after the date Optionee ceased to be a Director (or, if
the Committee intends that a particular Option qualify as a Tax
Qualified Option, such lesser period of time within which the
applicable tax laws may require that the Option be exercised in order
for such Option so to qualify) or (ii) the expiration date of such
Option, and the Option shall terminate on the earlier of such dates.
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<PAGE> 12
11. LIMITED TRANSFERABILITY OF OPTIONS.
(a) Options granted under the Plan and any rights and
privileges appertaining thereto (i) may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner by the Optionee
other than (1) by will or the laws of descent and distribution, (2)
pursuant to a "qualified domestic relations order" as defined in Code
Section 414(p)(1)(B) and satisfying the requirements of Code Section
414(p)(1)(A), or (3) without the payment of any cash or other economic
consideration by the transferee to the transferor, to (A) a Family
Member, (B) a Non-Profit Organization, or (C) a charitable trust, and
(ii) shall not be subject to execution, attachment or similar process.
A transfer of an Option pursuant to one of the foregoing clauses
(i)(1)-(3) may relate to all or any part of the Shares (but must be for
whole Shares) which then continue to be subject to such Option. Written
evidence of any such transfer, accompanied by the transferring
Optionee's original copy of the Grant Agreement evidencing the
transferred Option, shall be promptly provided to the Company, in the
case of clauses (i)(1)-(2), upon the entry of the court order
effecting, or other judicial authorization or direction of, such
transfer or, in the case of clause (i)(3), upon the transferor's making
of such transfer, which transfer must in all cases comply with the
requirements of Section 15 and otherwise be in form and substance
reasonably acceptable to the Company before the Company shall be
obligated to recognize such transfer. Upon its receipt of the
foregoing, the Company shall cancel the original Option Agreement and
re-issue a replacement Option Agreement to the transferee for the
Option or portion thereof so transferred and to the transferring
Optionee for any balance of the Option he or she retains without
transfer.
(b) Upon the transfer of an Option in accordance with Section
11(a), the transferee shall succeed to, and be entitled to exercise,
all of the rights and privileges of the transferring Optionee, provided
that the Option in the hands of the transferee shall continue to be
subject to all of the terms, conditions and restrictions under the Plan
and the Option Agreement with respect to such Option which would be
applicable to the Option were it still held by the Optionee to whom it
was originally granted, including, without limitation, any requirement
for the continued exercisability or other effectiveness of the Option
based upon the life, employment or other status of the original
Optionee.
(c) The restrictions on transferability set forth in Section
11(a) shall not be construed to limit the ability of an Optionee to
elect to pay all or any portion of the exercise price using the form of
consideration described in clause (vi) of Section 9(a).
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<PAGE> 13
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(e) 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 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 an Option under this 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 increase or
decrease in the aggregate number of issued and outstanding Shares
effected without receipt of consideration by the Company; provided,
however, that the issuance of Shares pursuant to the conversion or
exchange of any securities of the Company convertible into or
exchangeable for Shares shall not 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.
In the event of the proposed dissolution or liquidation of the
Company, all outstanding Options will terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by
the Board. The Board may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date
fixed by the Board and give each Optionee the right to exercise his
Option as to all or any part of the Optioned Stock, including Shares as
to which the Option would not otherwise then be exercisable.
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, 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
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<PAGE> 14
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
assets 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.
(f) 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
(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. 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.
(g) 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 (other than the Company, a
Subsidiary or a Company or Subsidiary employee benefit plan,
including any trustee of such a plan acting as trustee)
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; or
(i) The consummation of a transaction requiring
stockholder approval and involving the sale of all or
substantially all of the assets of the
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<PAGE> 15
Company or the merger or consolidation of the Company with or
into another corporation.
(h) DEFINITION OF "CHANGE IN CONTROL PRICE". For purposes of
this Section 12, "Change in Control Price" shall be, as determined by
the Board, (i) the highest closing sale price of a Share, as reported
by the NASDAQ National Market, 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 (60) day period
immediately preceding the date of the Change in Control (the "Sixty-Day
Period"), or (ii) the highest price paid or offered, as determined by
members of the Board other than the Optionees, in any bona fide
transaction or bona fide offer related to the Change in Control, at any
time within the Sixty-Day Period.
13. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be (i) with respect to Options granted under Section 6(b), the
dates for the automatic granting thereof as specified in said Section 6(b), and
(ii) with respect to Options granted under Section 6(c), the date on which the
Board makes the determination to grant such Options.
11. OPTION AGREEMENTS. As a condition to the effectiveness of each
grant of an Option under this 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 19(a), each such Option Agreement
shall contain such provisions as are required by the terms of this Plan and may
contain such additional provisions not inconsistent with the terms of this Plan
as the Committee in its sole discretion may from time to time authorize. Each
Option Agreement 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.
12. CONDITIONS UPON ISSUANCE OF SHARES AND TRANSFERS OF OPTIONS.
Notwithstanding anything express or implied to the contrary in the Plan or any
Option Agreement made hereunder:.
(a) No Shares shall be issued with respect to an Option unless
the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto, nor shall the transfer of an Option be
effective under Section 11 unless the same, 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
15
<PAGE> 16
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 exercise of an Option or the
issuance of Shares upon exercise of an Option, or to the transfer of an
Option under Section 11, the Company may require the person exercising
such Option to make such representations and warranties to the Company
as may be required, in the opinion of counsel for the Company, by any
of the aforementioned Securities Law Requirements and other laws, which
may include, without limitation, representations and warranties that
the Shares which are being or may be purchased thereunder are being or
will be acquired only for investment and without any present intention
to sell or distribute such Shares.
(b) The Company shall not have any liability to any Optionee
in respect of any delay in the sale or issuance of Shares, or the
transfer of an Option, 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, issuance or transfer of such Shares or Option, as the case
may be, or any failure to sell or issue such Shares, or to effect any
such Option transfer, as to which the Company is unable to obtain such
requisite authority.
(c) The Company may, but shall be under no obligation to,
effect or obtain any registration or other qualification or approval of
any Option granted or transferred hereunder, or of any Shares issuable
upon the exercise thereof, under any applicable Securities Law
Requirements or any 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 in the event any such
registration, qualification or approval is not effected or obtained,
such Option or Shares, as the case may be, shall be subject to such
transfer and/or other restrictions (including, if so provided by such
laws, rules and regulations, the prohibition of a particular
transaction) as may be imposed by such laws, rules and regulations
under such circumstances. By way of illustrating, but without limiting
the generality of, the foregoing provisions of this Section 14(c), as
of the time of the September 10, 1997 amendments to the Plan, the
Shares issuable upon the exercise of an Option by a Director were
covered by an effective registration statement which the Company had
prior to that date elected to file (consistent with the discretion
recognized in this Section 14(c)) with the Commission on Form S-8 and
would be freely tradable (subject to the filing of a Form 144 and the
other applicable requirement of Rule 144 as then promulgated by the
Commission) by the Director, but unless the Company were to file (but
in its discretion, the Company has not elected to file) with the
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<PAGE> 17
Commission a registration statement with respect thereto on Form S-3 or
other available Form, the Shares issuable to a non-Director transferee
of such Option under Section 11 would not upon his or her exercise
thereof be able to dispose of such Shares on the public securities
markets for a one year period as is further required by Rule 144 in the
absence of an applicable Form S-8 or other registration statement. In
the event that any such transfer and/or other restrictions shall apply,
the Option Agreement evidencing such Option or the Shares so issued, as
the case may be, shall bear such legends referencing such restrictions
as the Company may reasonably require.
13. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
14. EFFECTIVENESS OF PLAN. This Plan was adopted by the Board on, and
effective as of, October 18, 1990; subject to the approval hereof by the vote
of the Company's stockholders required therefor by the Delaware General
Corporation Law and applicable Securities Law Requirements within one (1) year
of such adoption by the Board, which approval was obtained at the Annual
Meeting of such stockholders held September 5, 1991. Amendments to this Plan
changing the frequency and amount of automatic grants and as to certain other
matters were adopted by the Board subject to the, and which received such,
required approval of the Company's stockholders at the Annual Meeting thereof
held August 19, 1992. The Board also approved an increase in the number of
Authorized Shares and certain other amendments to this Plan subject to and
which received such required approval of the Company's stockholders at the
Annual Meeting thereof held August 31, 1995. On September 10, 1997, September
14, 1998 and September 22, 1999, the Plan was further amended by the Board as
to matters not requiring any stockholder action with respect thereto. 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 as if this Plan had not been terminated.
17
<PAGE> 18
15. 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 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 5(b)(vii) 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 18,
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.
16. GENERAL PROVISIONS.
(a) GRANTS TO FOREIGN DIRECTORS. Notwithstanding any other
provision of this 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 Directors who
are foreign nationals and/or employed outside the United States of
America, an Option granted to any such Director may be on terms and
conditions different from those specified in this Plan in recognition
of the differences in the laws, tax policies and customs applicable to
such a Director, without the necessity of the Plan being amended to
provide for such different terms and conditions.
(b) DETERMINATION OF DEADLINES. If any day on or before which
action under this 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.
(c) GOVERNING LAW. To the extent that federal laws (such as
the Act or the Code) or the Delaware General Corporation Law do not
otherwise control, this Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of
Ohio and construed accordingly.
(d) GENDER AND NUMBER. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine,
feminine or
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<PAGE> 19
neuter forms, and the singular form of nouns and pronouns shall include
the plural and vice versa.
(e) CAPTIONS. The captions contained in this Plan are for
convenience of reference only and do not affect the meaning of any term
or provision hereof.
19
<PAGE> 1
Exhibit 10.1.4.a
The Company's Non-Qualified Stock Option Agreement with Dr. Raj Reddy,
originally scheduled to expire October 17, 1993, was previously extended for an
additional five year term ending October 17, 1998 at the same $14.625 exercise
price per share at which the option was originally granted. On September 15,
1998, the option agreement was further extended to an expiration date of October
17, 2003 while continuing the original exercise price. On September 22, 1999,
the option agreement was further amended to permit the exercise of the option
for a period of three years from the date Dr. Reddy ceases to be a director of
the Company, without any distinction as to whether that occurs by reason of
death, disability or otherwise.
<PAGE> 1
Exhibit 10.1.8
AIRONET WIRELESS COMMUNICATIONS, INC.
1999 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1 PURPOSE OF THE PLAN. The purpose of this Plan is to promote the
best interests of the Company and its stockholders by enabling the Company to
attract and retain the services of experienced and knowledgeable independent
directors by providing such directors the opportunity, pursuant to Options
granted under the Plan, to acquire a proprietary interest in the Company and
thereby enhance their understanding of the interests of the Company's
shareholders and encourage them to put forth their maximum efforts for the
continued success and growth of the Company.
2 DEFINITIONS. In addition to such other capitalized terms as are
defined elsewhere in this Plan, the following terms shall when used in this Plan
have the respective meanings set forth below:
"Act" means the Securities Exchange Act of 1934, as amended from time
to time.
"Authorized Shares" means the maximum aggregate number of shares of
Common Stock specified in Section 4.1 as being authorized for issuance and sale
under Options granted pursuant to the Plan, subject to adjustment thereof in
accordance with Section 12.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commission" means the United States Securities and Exchange
Commission.
"Committee" means the Committee appointed by the Board in accordance
with Section 5.1, if a Committee is appointed. The members of such Committee
shall be members of the Board. If no Committee has been appointed, any reference
to the "Committee" shall be deemed a reference to the Board. Any function of the
Committee may be exercised by the Board at any time.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Company" means Aironet Wireless Communications, Inc., a Delaware
corporation.
"Director" means any person elected or duly appointed in accordance
with the certificate of incorporation or by-laws of the Company, or applicable
law, to serve on the Board.
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<PAGE> 2
"Employee" means any person, including officers and Directors who are
also officers, employed by the Company or any Subsidiary. The payment of
director's fees by the Company shall not be sufficient to constitute a person as
an Employee.
"Family Member" means (i) the spouse or any sibling of an Optionee or
any lineal descendant (including, but not limited to, adopted and step children)
of any of the foregoing, (ii) a trust for the exclusive benefit of the Optionee
and/or person(s) described in clause (i) herein, or the trustee of such a trust
in his, her or its capacity as such, (iii) a partnership, corporation, limited
liability company or similar entity the partners, stockholders or other owners
of which include only the Optionee and/or person(s) described herein.
"Non-Employee Director" means any person who, as of any given date, has
been elected or duly appointed in accordance with the certificate of
incorporation or by-laws of the Company, or applicable law, to serve on the
Board and is not an officer or Employee of the Company or any of its
subsidiaries.
"Non-Profit Organization" means any organization which is exempt from
United States income taxes under Section 501(c)(3), (4), (5), (6), (7), (8) or
(10) of the Code.
"Option" means a right granted to a Non-Employee Director 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.
"Option Agreement" means the written agreement evidencing an Option by
and between the Company and the Optionee described in Section 14.
"Optioned Stock" means the Common Stock subject to an Option.
"Optionee" means a Non-Employee Director who receives an Option.
"Plan" means this Aironet Wireless Communications, Inc. 1999 Stock
Option Plan for Non-Employee Directors.
"Rule 16b-3" means Rule 16b-3 promulgated by the Commission under the
Act or any similar successor regulation exempting certain transactions involving
stock-based compensation arrangements from the 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.
"Securities Law Requirements" means the Securities Act of 1933, as
amended from time to time, and the Act and the rules and regulations promulgated
by the Commission
Page 2 of 15
<PAGE> 3
under such laws, as such rules and regulations are adopted and amended from time
to time, including but not limited to Rule 16b-3, and as all such laws, rules
and regulations are 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.
"Shares" means the Common Stock as adjusted in accordance with Section
12.
"Subsidiary" means a corporation of which not less than fifty percent
(50%) of the voting shares are owned by the Company or a Subsidiary, whether or
not such corporation now exists or is hereafter organized or acquired by the
Company or a Subsidiary.
"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.
"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.
3 QUALIFICATION OF PLAN. The Plan is intended to qualify for an
exemption from the operation of Section 16(b) of the Act, pursuant to Rule
16b-3. Insofar as transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3, to the extent that any provision of the
Plan or action by the Board or the Committee fails to so comply, such provision
or action shall be deemed null and void to the extent permitted by law and
deemed advisable by the Board or, but only with respect to actions taken by it,
the Committee.
4 STOCK SUBJECT TO THE PLAN.
4.1 Number of Shares Issuable. Subject to adjustment in accordance with
the provisions of Section 12, the maximum aggregate number of Authorized Shares
which may be issued and sold under Options granted pursuant to the Plan is
250,000 shares of Common Stock. The Shares issued and sold upon the exercise of
Options may be treasury Shares, Shares of original issue or a combination
thereof.
4.2 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
Page 3 of 15
<PAGE> 4
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 (i) the delivery to the Company by the person
exercising the option of Shares already owned by such person and/or (ii) 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 or portion thereof. 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 with respect thereto.
5 ADMINISTRATION OF THE PLAN.
5.1 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, which Committee, once
appointed, shall continue to serve until otherwise directed by the Board;
provided that the granting of Options under Section 6.3 and any action under the
Plan affecting the number of Shares covered thereby, the exercise price payable
thereunder or the times at which the same may be exercised (including, but not
limited to, the acceleration of the vesting thereof or any extension of the
period, subject to the maximum term fixed by Section 7.1, during which such an
Option may be exercised) shall not be taken by the Committee but shall lie
solely within the authority of the Board, subject to the abstention of the
Optionee from any decision regarding any Option held by such Optionee. Subject
to the provisions of the Plan, the Committee has authority to manage and control
the operation of the Plan, interpret the provisions of the Plan, and prescribe,
amend and rescind rules and regulations relating to the Plan. From time to time
the Board may increase or decrease the size of the Committee and may appoint
additional members thereof, remove members (with or without cause), fill
vacancies however caused and remove all members of the Committee and thereafter
directly administer the Plan.
5.2 Powers of the Committee. Subject to the provisions of this Plan,
the Committee shall have the authority, in its sole discretion:
5.2.1 To determine, upon review of relevant information in
accordance with Section 8.2 of the Plan, the "Fair Market Value" (as
defined in Section 8.2) of the Shares;
5.2.2 To determine the terms and provisions of each Option;
5.2.3 To amend any outstanding Option;
Page 4 of 15
<PAGE> 5
5.2.4 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
thereunder or any amendment to the Plan or any Option;
5.2.5 To interpret the Plan;
5.2.6 To prescribe, amend and rescind, if the Committee deems
it necessary or appropriate, any rules and regulations relating to the
Plan, to the extent not inconsistent with the Plan;
5.2.7 To make all other determinations the Committee may deem
necessary or advisable in connection with the administration of the
Plan; and
5.2.8 To accelerate the time when any Option shall vest and
may be exercised by the Optionee; provided, however, that no Optionee
shall participate in any decision regarding acceleration of vesting of
any Option held by such Optionee.
5.3 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 Directors and Optionees, their
respective legal representatives, heirs, successors and assigns, and all other
persons claiming under or through any of them.
5.4 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 this 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.
6 ELIGIBILITY; FORMULA GRANTS.
6.1 Eligibility. Each Director who is not an Employee shall be eligible
to receive grants of Options under the Plan.
6.2 Formula Grants.
6.2.1 Initial Grants. Each Non-Employee Director who is
sitting on the Board on the first day that the Company's Common Stock
commences trading on the Nasdaq Stock Market's National Market System
following the Company's initial
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<PAGE> 6
public offering (the "First Trading Day") and those who are newly
elected or appointed to the Board after the First Trading Day shall
automatically be granted an Option (the "Initial Grant") to purchase
25,000 Shares of Common Stock (subject to adjustment as provided in
Section 12) on the First Trading Day or the day he or she joins the
Board, as applicable.
6.2.2 Continuing Grants. Each Non-Employee Director shall
automatically be granted an Option (the "Continuing Grant") to purchase
5,000 Shares of Common Stock (subject to adjustment as provided in
Section 12) on each anniversary of his or her election or last
re-election to the Board so long as such Non-Employee Director is
continuing to serve on the Board on the date of such anniversary.
6.3 Discretionary Grants. In its sole discretion, the Board may at any
time and from time to time while the Plan is in effect grant to any one or more
of the Non-Employee Directors additional Options to purchase Shares on such
terms and subject to such provisions as the Board may determine (which terms and
provisions need not be identical to other Options granted under this Section 6),
including but not limited to, (i) the number of Shares subject to the Option,
(ii) the exercise price per Share (subject to the provisions of Section 8), and
(iii) whether the Option shall become exercisable over a period of time and when
it shall be fully exercisable. Any Options granted under this Section 6.3 shall
be in addition to those automatically granted under Section 6.2, and there shall
be no limit on the number of Options which may be granted to any eligible
Director or on the aggregate number of Shares subject to purchase thereunder,
subject to the limitation in Section 4.1.
7 TERM OF OPTIONS; VESTING.
7.1 Term of Options. Subject to the provisions of Section 6.3 as to
Options described therein, 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 Option, shall observe such
restrictions on the term of such Option as may be imposed by applicable tax laws
in order for such Option to so qualify. Each Option shall continue in effect in
accordance with its terms notwithstanding that the Plan may, thereafter be
terminated prior to the expiration of the term of such Option.
7.2 Vesting.
7.2.1 Initial Grants. Each Option constituting an Initial
Grant shall be exercisable (a) as to one-third of the Shares subject to
the Option, after the first anniversary of the grant date, (b) as to
two-thirds of the Shares subject to the Option, after the second
anniversary of the grant date, and (c) as to all or any part of the
Shares subject to the Option, after the third anniversary of the grant
date.
Page 6 of 15
<PAGE> 7
7.2.2 Continuing Grants. Each Option constituting a Continuing
Grant shall be exercisable as to all or any part of the Shares subject
to the Option after the third anniversary of the grant date.
7.3 Discretionary Grants. Each Option granted pursuant to Section 6.3
shall be exercisable at such times and as to all or any part of the Shares
subject to such Option as determined by the Board at the time of grant and
reflected in the Option Agreement evidencing the same.
8 EXERCISE PRICE.
8.1 Minimum Price Required. The per Share exercise price for the Shares
subject to an Option shall be (i) with respect to Options granted under Section
6.2, the Fair Market Value per Share as of the day prior to the date of grant of
such Option, and (ii) with respect to Options granted under Section 6.3, such
price per Share as the Board may determine at the time of grant and reflected in
the Option Agreement evidencing the same, but in no event less than the Fair
Market Value per Share as of the day prior to the date of grant.
8.2 Definition of "Fair Market Value". For all purposes under the Plan,
"Fair Market Value" per Share shall be determined by the Committee in its sole
discretion; provided that if the Shares are included in the Nasdaq Stock
Market's 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.
9 FORM OF PAYMENT.
9.1 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: (i) cash, (ii) personal check,
(iii) bank cashier's check, (iv) already owned Shares (duly endorsed for
transfer with signature guaranteed), (v) Shares withheld from the Shares to be
issued upon such exercise, (vi) subject to compliance with applicable law, 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
the Option, or (vii) any combination of the foregoing. The person entitled to
exercise the Option shall
Page 7 of 15
<PAGE> 8
be entitled to elect from the foregoing forms of consideration the form(s) to be
used in effecting payment with respect to a particular exercise; provided that
any election by an Optionee 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 an Optionee 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 Optionee with respect to such transaction.
9.2 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, such Shares shall be valued at Fair Market Value
as of the day immediately preceding the date of exercise.
9.3 Delivery of Already Owned Shares. The Company shall not be
obligated to accept from an Optionee Shares he or she already owns as full or
partial payment of the exercise price of an Option unless payment by such shares
is not in violation of Section 16(b) of the Act, and the Company can require
that the tender be accompanied by a written statement of the Optionee certifying
that either (i) the Shares tendered in payment were acquired other than through
the exercise of a stock option granted by the Company, (ii) the Shares tendered
in payment were acquired through the exercise, on such date(s) as shall be
recited in such statement (any such Shares acquired through such an exercise
occurring less than six (6) months prior to the date of exercise of the Option
in respect of which such already owned Shares are tendered are ineligible for
use as payment toward such Option exercise), of stock option(s) granted by the
Company or (iii) that the Shares were acquired and the use thereof is in
accordance the provisions of Rule 16b-3. 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.
10.1 Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as are determined by the Committee and as are 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 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 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
Page 8 of 15
<PAGE> 9
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to 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 to cover the exercise price.
10.2 Termination of Service. 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, in the event that an Optionee
shall cease to be a Director (other than by reason of the Optionee's death or
disability), such Optionee may exercise his Option (to the extent that he was
entitled to exercise it at the time he ceased to be a Director) until the
earlier of (i) the date twelve (12) months after the date Optionee ceased to be
a Director or (ii) the expiration date of such Option, and the Option shall
terminate on the earlier of such dates.
10.3 Death of Optionee. 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:
10.3.1 who is at the time of his or her death a Director of
the Company, the Option may be exercised (to the extent the Optionee
would have been entitled to do so had Optionee continued living and
terminated Optionee's directorship six (6) months after the date of
death) by Optionee's Successor until the earlier of (A) the date six
(6) months following the date of the Optionee's death (or, if the
Committee intends that a particular Option qualify as a Tax Qualified
Option, such lesser period of time within which the applicable tax laws
may require that the Option be exercised in order for such Option so to
qualify), or (B) the expiration date of such Option, and the Option
shall terminate on the earlier of such dates; or
10.3.2 within thirty (30) days after the termination of
Optionee's directorship (other than termination due to disability), the
Option may be exercised (to the extent the Optionee was entitled to do
so at the date of termination of his directorship) by his Successor
until the earlier of (A) the date six (6) months following the date of
the Optionee's death (or, if the Committee intends that a particular
Option qualify as a Tax Qualified Option, such lesser period of time
within which the applicable tax laws may require that the Option be
exercised in order for such Option so to qualify), or (B) the
expiration date of such Option, and the Option shall terminate on the
earlier of such dates.
10.4 Disability of Optionee. Except as may otherwise be specified by
the Committee in its sole discretion at the time of grant thereof and reflected
in the Option
Page 9 of 15
<PAGE> 10
Agreement evidencing such Option, if an Optionee's directorship terminates due
to Optionee becoming permanently and totally disabled within the meaning of
Section 23(e)(3) of the Code ("Disability"), the Option may be exercised (to the
extent the Optionee was entitled to do so as of the effective date of the
termination of Optionee's directorship by reason of such Disability) until the
earlier of (i) the date one (1) year after the effective date of such
termination or (ii) the expiration date of such Option, and the Option shall
terminate on the earlier of such dates.
11 LIMITED TRANSFERABILITY OF OPTIONS.
11.1 Options granted under the Plan and any rights and privileges
appertaining thereto (i) may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner by the Optionee other than (1) by will
or the laws of descent and distribution, (2) pursuant to a "qualified domestic
relations order" as defined in Code Section 414(p)(1)(B) and satisfying the
requirements of Code Section 414(p)(1)(A), or (3) without the payment of any
cash or other economic consideration by the transferee to the transferor, to (A)
a Family Member, (B) a Non-Profit Organization, or (C) a charitable trust, and
(ii) shall not be subject to execution, attachment or similar process. A
transfer of an Option pursuant to clause (i) may relate to all or any part of
the Shares (but must be for whole Shares) which then continue to be subject to
such Option. Written evidence of any such transfer, accompanied by the
transferring Optionee's original copy of the Grant Agreement evidencing the
transferred Option, shall be promptly provided to the Company, in the case of
clauses (i)(1) and/or (2) upon the entry of the court order , or other judicial
authorization or direction effecting such transfer or, in the case of clause
(i)(3), upon the transferor's making of such transfer, which transfer must in
all cases comply with the requirements of Section 15 and otherwise be in form
and substance reasonably acceptable to the Company before the Company shall be
obligated to recognize such transfer. Upon its receipt of the foregoing, the
Company shall cancel the original Option Agreement and issue a replacement
Option Agreement to the transferee for the Option or portion thereof so
transferred and to the transferring Optionee for any balance of the Option he or
she retains after such transfer.
11.2 Upon the transfer of an Option in accordance with Section 11.1,
the transferee shall succeed to, and be entitled to exercise, all of the rights
and privileges of the transferring Optionee, provided that the Option in the
hands of the transferee shall continue to be subject to all of the terms,
conditions and restrictions under the Plan and the Option Agreement with respect
to such Option which would be applicable to the Option were it still held by the
Optionee to whom it was originally granted, including, without limitation, any
requirement for the continued exercisability or other effectiveness of the
Option based upon the life, employment or other status of the original Optionee.
11.3 The restrictions on transferability in Section 11.1 shall not be
construed to limit the ability of an Optionee to elect to pay all or any portion
of the exercise price using the form of consideration described in Section
9.1(iv).
Page 10 of 15
<PAGE> 11
12 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
12.1 Adjustments, in general. Subject to both the provisions of Section
12.2 and any required action by the stockholders of the Company, both the number
of 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 an Option under this 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 increase or decrease in the aggregate number of issued and outstanding
Shares effected without receipt of consideration by the Company; provided,
however, that the issuance of Shares pursuant to the conversion or exchange of
any securities of the Company convertible into or exchangeable for Shares shall
not 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.
In the event of the proposed dissolution or liquidation of the Company,
all outstanding Options will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may, in
the exercise of its sole discretion in such instances, declare that any Option
shall terminate as of a date fixed by the Board and give each Optionee the right
to exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise then be exercisable.
Subject to the provisions of Section 12.2, in the event of a 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, 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 assets, 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.
Page 11 of 15
<PAGE> 12
12.2 Special Adjustments upon Change in Control. In the event of a
"Change in Control" of the Company (as defined in Section 12.3), 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:
12.2.1 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
12.2.2 The value of all outstanding Options, measured by the
excess of the "Change in Control Price" (as defined in Section 12.4)
over the exercise price, shall be cashed out. 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.
12.3 Definition of "Change in Control". For purposes of this Section
12, a "Change in Control" means the happening of any of the following:
12.3.1 When any "person," as such term is used in Sections
13(d) and 14(d) of the Act (other than the Company, a Subsidiary or a
Company or Subsidiary employee benefit plan, including any trustee of
such a plan acting as trustee) 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; or
12.3.2 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.
12.4 Definition of "Change in Control Price". For purposes of this
Section 12, "Change in Control Price" shall be, as determined by the Board,
either (i) the highest closing sale price of a Share, as reported by the NASDAQ
National Market, 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 (60) day period immediately preceding the date of the Change in
Control (the "Sixty-Day Period"), or (ii) the highest price paid or offered, as
determined by members of the Board other than the Optionees, in any bona fide
transaction or bona fide offer related to the Change in Control, at any time
within the Sixty-Day Period.
13 TIME OF GRANTING OPTIONS. The grant date of an Option shall, for
all purposes, be (i) with respect to Options granted under Section 6.2, the
dates for automatic granting as specified in said Section 6.2, and (ii) with
respect to Options granted under Section 6.3, the date on which the Board makes
the determination to grant such Options.
Page 12 of 15
<PAGE> 13
14 OPTION AGREEMENTS. As a condition to the effectiveness of each
grant of an Option under this 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 19.1, each such Option Agreement
shall contain such provisions as are required by the terms of this Plan and may
contain such additional provisions not inconsistent with the terms of this Plan
as the Committee in its sole discretion may from time to time require. Each
Option Agreement 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 AND TRANSFERS OF OPTIONS.
Notwithstanding anything express or implied to the contrary in either the Plan
or any Option Agreement made hereunder:
15.1 No transfer of an Option pursuant to Section 11 shall be
effective, and no Shares shall be issued with respect to an Option unless in
each such case, as applicable, the transfer or 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 such actions shall further be subject to
the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option or the issuance of Shares
upon exercise of an Option, or to the transfer of an Option under Section 11,
the Company may require the person exercising such Option, or the transferee
with respect to any Section 11 transfers, to make such representations and
warranties to the Company as may be required, in the opinion of counsel for the
Company, by any of the aforementioned Securities Law Requirements and other
laws, which may include, without limitation, representations and warranties that
the Shares which are being or may be purchased thereunder are being or will be
acquired only for investment and without any present intention to sell or
distribute such Shares.
15.2 The Company shall not have any liability to any Optionee in
respect of any delay in the sale or issuance of Shares, or the transfer of an
Option, hereunder until the Company is able to obtain authority from any
governmental authority (domestic or foreign) or self-regulatory organization
having jurisdiction there over, which authority is deemed by the Company's
counsel to be necessary to the lawful sale, issuance or transfer of such Shares
or Option, as the case may be, or any failure to sell or issue such Shares, or
to effect any such Option transfer, as to which the Company is unable to obtain
such requisite authority.
Page 13 of 15
<PAGE> 14
15.3 The Company may, but shall be under no obligation to, effect or
obtain any registration or other qualification or approval of any Option granted
or transferred hereunder, or of any Shares issuable upon the exercise thereof,
under any applicable Securities Law Requirements or any 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 in the event any such
registration, qualification or approval is not effected or obtained, such Option
or Shares, as the case may be, shall be subject to such transfer and/or other
restrictions (including, if so provided by such laws, rules and regulations, the
prohibition of a particular transaction) as may be imposed by such laws, rules
and regulations . By way of illustrating, but without limiting the generality
of, the foregoing provisions of this Section 15.3, Shares issuable upon the
exercise of an Option by a Director were covered by an effective registration
statement which the Company had prior to that date elected to file (consistent
with the discretion recognized in this Section 15.3) with the Commission on
Form S-8 and would be freely transferrable (subject to the filing of a Form 144
and the other applicable requirement of Rule 144 as then promulgated by the
Commission) by the Director, but unless the Company were to file (but in its
discretion, the Company has not elected to file) with the Commission a
registration statement with respect thereto on Form S-3 or other available Form,
Shares issuable to a transferee under Section 11 would not upon his or her
exercise thereof be freely transferable on the public securities markets for a
one year period as is further required by Rule 144 in the absence of an
applicable Form S-8 or other registration statement. In the event that any such
transfer and/or other restrictions shall apply, the Option Agreement evidencing
such Option or the Shares so issued, as the case may be, shall bear such legends
referencing such restrictions as the Company may reasonably require.
16 RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17 EFFECTIVENESS OF PLAN. This Plan was adopted by the Board on, and
effective as of April 12, 1999; subject to the approval hereof by the vote of
the Company's stockholders required therefor by the Delaware General Corporation
Law and applicable Securities Law Requirements within one (1) year of such
adoption by the Board, which approval was obtained by Written Consent of such
stockholders on , 1999. 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 as if this Plan
had not been terminated.
18 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.
Page 14 of 15
<PAGE> 15
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 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 5.2.3 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 18,
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.
19 GENERAL PROVISIONS.
19.1 Grants to Foreign Directors. Notwithstanding any other provision
of this 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 Non-Employee Directors who are foreign nationals and/or employed
outside the United States of America, an Option granted to any such Non-Employee
Director may be on terms and conditions different from those specified in this
Plan in recognition of the differences in the laws, tax policies and customs
applicable to such Non-Employee Director, without the necessity of the Plan
being amended to provide for such different terms and conditions.
19.2 Determination of Deadlines. If any day on or before which action
under this 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 or preceding day, as applicable) which is not a Saturday,
Sunday or Company-recognized holiday.
19.3 Governing Law. To the extent that federal laws (such as the Act or
the Code) or the Delaware General Corporation Law do not otherwise control, this
Plan and all determinations made and actions taken pursuant hereto shall be
governed by the laws of the State of Ohio and construed accordingly.
19.4 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.
19.5 Captions. The captions contained in this Plan are for convenience
of reference only and do not affect the meaning of any term or provision hereof.
Page 15 of 15
<PAGE> 1
EXHIBIT 10.1.20
[TELXON LOGO]
August 30, 1999
Mr. R. Dave Garwood
c/o R.D. Garwood, Inc.
111 Village Parkway, Building 2
Marietta, Georgia 30067
Re: Agreement for MRP - II Consulting Services
Dear Dave:
This letter (this "Agreement") sets forth the terms under which Telxon
Corporation ("Telxon" or the "Company") has retained you ("you" or "Consultant")
as an independent contractor to render consulting services to Telxon consisting
of guidance to management in planning for, the training of Telxon employees for,
and participation in and oversight of, the implementation of the MRP - II
business process at Telxon (the "Project"). We appreciate your willingness, in
recognition of the importance and timeliness of MRP - II to the organization, to
begin working with the Company on the Project commencing with the initial
planning meetings held on May 25-26, 1999 and have continued to do so with all
due diligence while we negotiated the nature and terms of the compensation you
are to receive for the Project. I am pleased to confirm by this letter agreement
(the "Agreement") that management's engagement of you for the Project was
ratified, and your compensation as agreed between you and management during our
teleconference of August 23, 1999 and set forth in this letter was authorized
and approved, by our Board of Directors at their meeting today. The terms and
conditions of this Agreement shall apply to and govern all the work you have
already performed on the Project and will provide through the completion of the
initial implementation of the Project, in which implementation we expect and you
agree to provide your services through June 1, 2000.
We understand that the MRP - II implementation process, while a dynamic
one, can be divided into two phases. Initially, your involvement in the
implementation will be planning and training intensive, and following your
conduct of an initial series of training classes for necessary key employees,
will culminate in a full SOP meeting, presently planned for mid-September 1999
("Phase I"). Following the initial full SOP meeting, we expect that, though
additional training classes may be required, your role for the balance of
TELXON CORPORATION/3330 West Market Street/P.O. Box 5582/Akron, Ohio 44334-0582
330.664.1000/800.800.8001/Fax 330.664.2220/www.telxon.com
<PAGE> 2
R. Dave Garwood
August 30, 1999
Page 2
the Project through June 1, 2000 will be primarily one of guidance,
troubleshooting and oversight ("Phase II"). Each of Phases I and II represent
approximately one-half of your services to be rendered under this Agreement.
In consideration of and as the fee for the consulting services you
provide to Telxon with respect to the Project, Consultant shall, as provided in
and subject to the terms of, this Agreement, receive 20,197 shares of Telxon
Common Stock (the "Shares"), representing the number of shares which we agreed
on August 23, 1999, subject to Telxon Board approval, would cover the agreed
$154,000 dollar value of your Project services based on the average closing
price per share of Common Stock on The Nasdaq National Market Tier of The Nasdaq
Stock Market for the ten trading days prior to that date. As part of your
consulting fee in connection with the issuance of the Shares to you, Telxon
agrees to pay on your behalf the $201.97 aggregate par value for the Shares to
fulfill applicable corporate law requirements. In addition to the foregoing
consulting fee, Telxon shall pay or reimburse Consultant for your reasonable
travel expenses incurred in connection with providing Project services at
Company locations and such other significant out-of-pocket expenses as it may
specifically approve in advance and in writing. Consultant shall otherwise be
responsible for all out-of-pocket expenses incidental to the performance of the
consulting services. While Consultant shall personally perform all material
Project services, you may, subject to the confidentiality and other requirements
of this Agreement, utilize the assistance of such other persons as you may
reasonably deem appropriate ("Assistants") and shall be solely responsible for
the conduct, performance, remuneration (including, but not limited to, any
related taxes or unemployment or workers compensation insurance or similar
amounts) and expenses (other than travel and other out-of-pocket expenses
incidental to the performance of Project services, which shall be reimbursed by
Telxon on the same terms as those of Consultant himself as provided above) of
any such persons.
The Shares will be issued to you subject to forfeiture in the event
that you do not perform the services required of you with respect to the Project
in accordance with the terms of this Agreement. Such risk of forfeiture shall
apply to the Shares from their issuance through, in the case of the first 10,098
of the Shares, the completion of Phase I, and in the case of the remaining
10,099 of the Shares, the completion of Phase II. The period during which the
respective portions of the Shares are subject to forfeiture shall constitute the
"Restricted Period" with respect to those Shares. During the applicable
Restricted Period, that portion of the Shares may not be sold, assigned,
exchanged, transferred, pledged, hypothecated or otherwise disposed of or
encumbered. Upon the completion of the applicable Phase of the Project, the
Restricted Period with respect to the subject portion of the Shares shall
terminate, and the Company's right of forfeiture shall lapse as to those Shares.
Pending the vesting of the Shares upon the lapse of the risk of forfeiture
applicable thereto and subject during such period to the transfer and other
restrictions and conditions imposed by the terms of this Agreement, Consultant
shall have full voting and all other rights of a stockholder with respect to the
Shares (including, without limitation, full rights to any stock split or in any
merger or other event affecting the rights of the holders of the Company's
Common Stock generally) except that Consultant shall not be entitled to receive
any dividends (other than dividends payable in stock or other property other
than cash, which non-cash dividends Consultant shall be entitled to receive but
shall be subject to the same restrictions as, and for the same period for which
such restrictions, are applicable to the Shares with respect to which the same
is distributed to Consultant with the same force and effect as if the non-cash
dividend so distributed were Shares)
TELXON CORPORATION/3330 West Market Street/P.O. Box 5582/Akron, Ohio 44334-0582
330.664.1000/800.800.8001/Fax 330.664.2220/www.telxon.com
<PAGE> 3
R. Dave Garwood
August 30, 1999
Page 3
declared upon Telxon Common Stock for payment to holders of record thereof as of
any date occurring within the applicable Restricted Period.
The Company will cause one or more stock certificates to be issued in
the name of Consultant as registered owner. Each such certificate shall be
legended as follows:
(i) All certificates representing the Shares shall also bear the
following legend:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS (A) THE SAME SHALL FIRST HAVE BEEN
REGISTERED OR RECEIVED SUCH OTHER REGULATORY APPROVAL OR BEEN
DESCRIBED IN ANY SUCH REGULATORY FILING AS MAY BE REQUIRED
UNDER APPLICABLE LAW OR (B) THE ISSUER SHALL HAVE RECEIVED AN
OPINION OF COUNSEL THAT AN EXEMPTION FROM SUCH REGISTRATION OR
OTHER REGULATORY REQUIREMENT IS AVAILABLE WITH RESPECT TO SUCH
TRANSACTION."
(ii) Until the expiration of the applicable Restricted Period, all
certificates representing the relevant portion of the Shares shall also
bear the following legend evidencing the risk of forfeiture and
transfer restrictions to which those Shares are subject during such
Restricted Period:
"TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF COMMON
STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS (INCLUDING FORFEITURE) OF A LETTER AGREEMENT, DATED
AUGUST 30, 1999, ENTERED INTO BETWEEN THE REGISTERED OWNER AND
TELXON CORPORATION. COPIES OF SUCH AGREEMENT ARE ON FILE AT
THE OFFICES OF TELXON CORPORATION, 3330 WEST MARKET STREET,
AKRON, OHIO 44333. THE RESTRICTED PERIOD DURING WHICH THESE
SHARES ARE SUBJECT TO CERTAIN VESTING CONDITIONS AND TRANSFER
RESTRICTIONS UNDER SUCH AGREEMENT EXPIRES UPON THE COMPLETION
OF PHASE __ OF THE PROJECT DESCRIBED IN SAID AGREEMENT."
Each certificate evidencing the Shares shall be deposited with the
Company, together with such stock powers in blank as may be requested of
Consultant by the Company at any time prior to the lapse of the applicable
Restricted Period (which Consultant agrees to execute and deliver upon such
request). In the event of any forfeiture of Shares prior to the expiration of
the applicable Restricted Period, and if required in order to effect any such
forfeiture, the stock powers so delivered by Consultant may be used in
processing the same. Upon the expiration of the applicable Restricted Period
without forfeiture of the affected Shares, the restrictions imposed by the
fourth paragraph of this Agreement shall lapse with respect to the affected
Shares, and upon Consultant's request, the legend set forth in subparagraph (ii)
of the immediately preceding paragraph shall, to the extent no longer
applicable, be removed from the certificate(s) representing such Shares, and
Telxon shall deliver to Consultant the replacement certificate(s) for such
Shares, together with any stock power relating to the replaced certificate(s)
(unless required to be used in processing the issuance of the replacement
certificate(s)).
TELXON CORPORATION/3330 West Market Street/P.O. Box 5582/Akron, Ohio 44334-0582
330.664.1000/800.800.8001/Fax 330.664.2220/www.telxon.com
<PAGE> 4
R. Dave Garwood
August 30, 1999
Page 4
Consultant makes the following representations, warranties,
acknowledgements and agreements to Telxon with respect to his agreement to
accept the Shares in payment of his consulting fee with respect to the Project:
(1) Consultant understands that the Shares have not been
registered, and that Telxon is under no obligation to register, and has
not made any assurances to Consultant regarding the registration of,
the Shares, under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws and that the Shares are
being offered and sold pursuant to exemptions from registration
contained in the Securities Act and applicable state securities laws
based in part upon your representations contained in this and the
following subparagraphs 2 through 5;
(2) Consultant has had the opportunity to his satisfaction to
ask question of and receive answers from Telxon management regarding
Telxon's business, assets, financial condition, prospects and affairs;
(3) Consultant is an "accredited investor" as such term is
defined in Rule 501 under the Securities Act, has such knowledge and
experience in financial and business matters that he is capable of
evaluating the merits and risks of his investment in the Shares and of
protecting his interests in connection with such investment;
(4) Consultant is not aware of the publication of any
advertisement in connection with the Shares to be issued as
contemplated by this Agreement;
(5) Consultant is acquiring the Shares for his own account for
investment only, and not with a view toward their distribution, can
bear a total loss of the investment without materially impairing his
financial condition, and can bear the economic risk of the investment
indefinitely unless and until, and cannot resell the Shares unless and
until, the Shares are registered under the Securities Act and/or
applicable state securities laws or an exemption from such registration
is available (Consultant understanding that the certificate(s)
evidencing the Shares will be legended regarding the absence of and
necessity for such registration and that there is no assurance that any
registration exemption will be available or that, if available, such
exemption will allow Consultant to transfer all or any portion of the
Shares he may subsequently desire to transfer).
In connection with Consultant providing services under this Agreement,
Consultant will have access to certain non-public, proprietary, confidential
information concerning the business, operations, financial condition, and
affairs of Telxon and its subsidiaries and affiliates (collectively, the
"Confidential Information"). Consultant acknowledges and agrees that (i) all
Confidential Information, and (ii) any and all written and oral analyses,
studies, strategies and advice, as well as any and all reports, surveys, letters
or other documents, provided or prepared by Consultant to or for Telxon (the
"Work Product"), are Telxon's property and constitute trade secrets and
proprietary information of Telxon, provided that Telxon hereby acknowledges and
agrees that to the extent the Work Product contains or reflects matters of
Consultant's general expertise, such matters shall be and remain information of
Consultant which Consultant may use
TELXON CORPORATION/3330 West Market Street/P.O. Box 5582/Akron, Ohio 44334-0582
330.664.1000/800.800.8001/Fax 330.664.2220/www.telxon.com
<PAGE> 5
R. Dave Garwood
August 30, 1999
Page 5
for his own benefit or to benefit others in the ordinary and customary rendering
of consulting services in accordance with generally observed professional
standards. In order to protect Telxon's proprietary interest in such
Confidential Information and Work Product, Consultant agrees that his access to
and receipt of Confidential Information and preparation, dissemination and use
of Work Product is subject to, and that he shall be bound by, the obligations of
a "Recipient" set forth in the non-disclosure agreement attached as Exhibit A to
this Agreement and incorporated by this reference as terms of this Agreement and
that, prior to affording any Assistant access to the same, he will require each
such person to sign a non-disclosure agreement substantially in the form of
Exhibit A.
In connection with the performance of Consultant's obligations
hereunder, Consultant shall, and shall ensure that any Assistants, act in
accordance with standards of ethical business conduct and regarding insider
trading no less stringent than those required by Telxon from time to time of its
management or other personnel generally with respect to such matters, copies of
the current form of Telxon's "Statement of Corporate Ethics" and "Insider
Trading Policy" being attached to this Agreement as Exhibits B and C,
respectively, and, as the same may be modified from time to time, incorporated
by this reference as terms of this Agreement. Consultant shall require each
Assistant who may be utilized in connection with the Project to agree in writing
to be bound by and observe Telxon's "Statement of Corporate Ethics" and "Insider
Trading Policy".
This Agreement is subject to termination by Telxon for "Cause" at any
time. In the event of such a termination, Telxon's obligation to compensate
Consultant in accordance with this Agreement shall cease in accordance with the
vesting provisions applicable to the Shares, except for any and all amounts
vested up to and including the date of such termination. "Cause" shall mean any
material dishonesty, willful misconduct, or act of bad faith (termination on any
of the foregoing grounds being effective immediately upon the giving of written
notice thereof by Telxon to Consultant), or, if the same shall remain uncured
thirty (30) days after written notice thereof given by Telxon to Consultant, any
material breach (other than Consultant's failure to perform services hereunder
due to his death or disability) of this Agreement by Consultant or any
Assistant.
Telxon shall also have the right terminate this Agreement for other
than Cause (which may include for Consultant's inability to perform services
hereunder due to his becoming disabled or an election to terminate made
following a change in Telxon's senior management or a change in control of
Telxon), effective upon thirty (30) days prior written notice to Consultant.
Furthermore, this Agreement shall terminate immediately upon Consultant's death.
In the event of termination by reason of Consultant's death or his becoming
disabled so as to be unable substantially to perform the services contemplated
hereby, the vesting of that portion of the Shares (rounded up to the next whole
share) scheduled to vest during the Restricted Period during which the date of
death or the effective date of the termination for disability occurs which is
allocable, based on the number of days elapsed, to the portion of the Restricted
Period from, in the case of the Restricted Period ending upon the completion of
Phase I, May 25, 1999 through and including the date of death or effective
termination date, or in the case of the Restricted Period ending upon the
completion of Phase II, the date of the completion of Phase I through and
including the date of death or effective termination date, shall be
automatically accelerated such that Consultant or his estate shall be entitled
to retain such accelerated portion of the Shares effective as of and from and
after the date
TELXON CORPORATION/3330 West Market Street/P.O. Box 5582/Akron, Ohio 44334-0582
330.664.1000/800.800.8001/Fax 330.664.2220/www.telxon.com
<PAGE> 6
R. Dave Garwood
August 30, 1999
Page 6
of death or effective termination date without and free of any continuing risk
of forfeiture to Telxon, but all other Shares not theretofore vested shall be
forfeited to Telxon.
In the event of any termination by Telxon for other than Cause other
than with respect to Consultant's disability as provided for in the preceding
sentence, or Telxon in any manner otherwise does not allow Consultant the
opportunity to complete his services hereunder in accordance with the terms
hereof and Consultant is ready, willing and able to so perform (any such loss of
opportunity being deemed and given effect for purposes hereof as a termination
by Telxon for other than Cause), the vesting of all Shares which are not vested
in accordance with the original schedule therefor as of the effective date of
such termination shall be automatically accelerated such that Consultant shall
be entitled to retain all of the Shares (without regard to any time as may then
remain under the original vesting schedule) effective as of and from and after
such date without and free of any continuing risk of forfeiture to Telxon.
Except for Consultant's obligation to perform requested services and
Telxon's obligation to pay consulting fees, which shall cease upon the
expiration or any earlier termination of this Agreement subject to Consultant's
right to receive all vested Shares, including any portion of the Shares the
vesting of which is accelerated upon any termination of this Agreement, all of
the parties' respective rights and obligations under this Agreement shall
survive such expiration or termination.
Any notice given by Telxon to Consultant with respect to this Agreement
shall be deemed to be given if delivered to Consultant in person, if sent to
Consultant by certified mail, postage prepaid, return receipt requested or by
recognized express courier service for next or second business day delivery
charges prepaid or charged to sender, at his address last shown on the records
of Telxon, and any notice given by Consultant to Telxon shall be deemed to be
given if delivered in person or by mail or courier service as aforesaid,
addressed to Telxon's Chief Executive Officer at Telxon's principal executive
office, unless Consultant or Telxon shall have duly notified the other parties
in writing of a change of address. If sent by mail or courier service, notice
shall be deemed to have been given when deposited in the mail or with the
courier service as set forth above
Consultant is an independent contractor to Telxon, and nothing herein
shall be deemed to cause this Agreement to create an agency, partnership or
joint venture between the parties. Nothing in this Agreement shall be
interpreted or construed as creating or establishing the relationship of
employer and employee between Telxon and either Consultant or any Assistant. No
Assistant, nor any person or entity claiming by, through or under any such
person, shall be a third-party beneficiary of or under the terms of this
Agreement.
Consultant agrees to indemnify and hold harmless Telxon's officers,
directors, employees, and agents, and the administrators of Telxon's benefit
plans from and against any claims, liabilities, or expenses relating to any
loss, liability or expense proximately resulting from any breach of this
Agreement or any Exhibit hereto by Consultant or any Assistant, provided that
Telxon shall promptly notify Consultant of each such matter when and as it comes
to Telxon's attention and not settle or otherwise dispose of such matter in any
manner which results in any financial or other obligation on the part of
Consultant without Consultant's prior written consent, such consent not to be
unreasonably withheld.
TELXON CORPORATION/3330 West Market Street/P.O. Box 5582/Akron, Ohio 44334-0582
330.664.1000/800.800.8001/Fax 330.664.2220/www.telxon.com
<PAGE> 7
R. Dave Garwood
August 30, 1999
Page 7
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior discussions and
agreements between the parties with respect to such subject matter. This
Agreement shall be governed by the laws of the State of Ohio without regard to
principles of conflict of laws. All actions brought by you or Telxon in
connection with this Agreement shall be brought in the courts, state or federal,
sitting in Cuyahoga or Summit County, Ohio, and you and Telxon each hereby
submit to the jurisdiction of such courts and agree not to raise the issue of
improper venue or forum non conveniens in any such proceeding.
This Agreement may not be assigned or otherwise transferred by
Consultant without the prior written consent of Telxon's Chief Executive Officer
or Chief Operating Officer and may be amended only by a written document
executed by one of the foregoing Telxon officers and by Consultant.
Please sign the two counterparts of this letter agreement to
acknowledge your obligation to abide by its terms and conditions, and return one
of the fully executed counterparts to the undersigned.
Sincerely,
TELXON CORPORATION
By: /s/ John W. Paxton, Sr.
----------------------------
John W. Paxton, Sr.
Chairman of the Board and
Chief Executive Officer
ACKNOWLEDGED AND AGREED as of the date above:
/s/ R. Dave Garwood
- ------------------------------
R. Dave Garwood ("Consultant")
<PAGE> 1
EXHIBIT 10.3.3.a
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, dated as of August 26, 1999 (together
with all amendments, if any, from time to time hereto, this "Agreement") between
TELXON CORPORATION, a Delaware corporation (the "Pledgor") and FOOTHILL CAPITAL
CORPORATION in its capacity as Agent for Lenders ("Agent").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Loan and Security Agreement
dated as of the date hereof by and among Pledgor, Agent and the Persons
signatory thereto from time to time as Lenders (including all annexes, exhibits
and schedules thereto, and as from time to time amended, restated, supplemented
or otherwise modified (the "Loan Agreement") the Lenders have agreed to make the
loans and other extensions of credit to Pledgor;
WHEREAS, Pledgor is the record and beneficial owner of the
shares of Stock listed in Part A of Schedule I hereto and the owner of the
promissory notes and instruments listed in Part B of Schedule I hereto;
WHEREAS, in order to induce Agent and Lenders to make loans
and other extensions of credit as provided for in the Loan Agreement, Pledgor
has agreed to pledge the Pledged Collateral to Agent in accordance herewith;
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained and to induce Lenders to make the loans and
other extensions of credit under the Loan Agreement, it is agreed as follows:
1. DEFINITIONS. Unless otherwise defined herein, terms defined
in the Loan Agreement are used herein as therein defined, and the following
shall have (unless otherwise provided elsewhere in this Agreement) the following
respective meanings (such meanings being equally applicable to both the singular
and plural form of the terms defined):
"Lock-Up Agreement" means the Lock-Up Agreement dated as of
April 13, 1999 executed by Pledgor in favor of Aironet Wireless
Communications, Inc. ("Aironet"), SG Cowen Securities Corporation, Dain
Rauscher Wessels and Prudential Securities, Inc.
"Pledged Collateral" has the meaning assigned to such term in
Section 2 hereof.
"Pledged Entity" means an issuer of Pledged Stock or Pledged
Indebtedness.
<PAGE> 2
"Pledged Indebtedness" means the Indebtedness evidenced by
promissory notes and instruments listed on Part B of Schedule I hereto;
"Pledged Shares" means those shares listed on Part A of
Schedule I hereto and, if Stock Certificate No. CS 0145 is delivered to
Agent pursuant to the terms of the letter attached hereto as Schedule
III, those shares evidenced by such Stock Certificate No. CS 0145
"Registration Rights Agreement" means the Registration Rights
Agreement dated March 31, 1998 by and among Aironet and each of the
security holders that is a party thereto.
"Secured Obligations" has the meaning assigned to such term in
Section 3 hereof.
"Termination Date" has the meaning assigned to such term in
Section 6 hereof.
2. PLEDGE. Pledgor hereby pledges to Agent, and grants to
Agent for itself and the benefit of Lenders, a first priority security interest
in all of the following (collectively, the "Pledged Collateral"):
(i) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, distributions, cash, instruments and
other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
the Pledged Shares; and
(ii) such portion, as determined by Agent as provided in
Section 6(d) below, of any additional shares of stock of a Pledged
Entity from time to time acquired by Pledgor in any manner (which
shares shall be deemed to be part of the Pledged Shares), and the
certificates representing such additional shares, and all dividends,
distributions, cash, instruments and other property or proceeds from
time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of such Stock; and
(iii) the Pledged Indebtedness and the promissory notes or
instruments evidencing the Pledged Indebtedness, and all interest,
cash, instruments and other property and assets from time to time
received, receivable or otherwise distributed in respect of the Pledged
Indebtedness; and
(iv) all additional Indebtedness arising after the date hereof
and owing to Pledgor and evidenced by promissory notes or other
instruments, together with such promissory notes and instruments, and
all interest, cash, instruments and other property and assets from time
to time received, receivable or otherwise distributed in respect of
that Pledged Indebtedness.
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<PAGE> 3
3. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
Pledged Collateral is security for, the prompt payment in full when due, whether
at stated maturity, by acceleration or otherwise, and performance of all
Obligations of any kind under or in connection with the Loan Agreement and the
other Loan Documents and all obligations of Pledgor now or hereafter existing
under this Agreement including, without limitation, all fees, costs and expenses
whether in connection with collection actions hereunder or otherwise
(collectively, the "Secured Obligations").
4. DELIVERY OF PLEDGED COLLATERAL. All certificates and all
promissory notes and instruments evidencing the Pledged Collateral shall be
delivered to and held by or on behalf of Agent, for itself and the benefit of
Lenders, pursuant hereto. All Pledged Shares shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Agent and all promissory notes or other instruments
evidencing the Pledged Indebtedness shall be endorsed by Pledgor.
5. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
warrants to Agent that:
(a) Pledgor is, and at the time of delivery of the Pledged
Shares to Agent will be, the sole holder of record and the sole beneficial owner
of such Pledged Collateral pledged by Pledgor free and clear of any Lien thereon
or affecting the title thereto, except for any Lien created by this Agreement
and except as provided in the Lock-Up Agreement; Pledgor is and at the time of
delivery of the Pledged Indebtedness to Agent will be, the sole owner of such
Pledged Collateral free and clear of any Lien thereon or affecting title
thereto, except for any Lien created by this Agreement and except as provided in
the Lock-Up Agreement;
(b) All of the Pledged Shares have been duly authorized,
validly issued and are fully paid and non-assessable; the Pledged Indebtedness
has been duly authorized, authenticated or issued and delivered by, and is the
legal, valid and binding obligations of, the Pledged Entities, and no such
Pledged Entity is in default thereunder;
(c) Except as provided in the Lock-Up Agreement (with respect
to which a consent allowing Pledgor to enter into this Agreement has been
obtained), Pledgor has the right and requisite authority to pledge, assign,
transfer, deliver, deposit and set over the Pledged Collateral pledged by
Pledgor to Agent as provided herein;
(d) None of the Pledged Shares or Pledged Indebtedness has
been issued or transferred in, and neither the pledge to the Pledgor of the
Pledged Collateral or any transfer of the Pledged Collateral upon any exercise
of any remedies pursuant to this Agreement will result in a violation of (i) the
constituent documents or by-laws of the Pledgor or the Pledged Entity, (ii) any
laws, statutes, regulations, orders, judgment or declarations binding on the
Pledgor or the Pledged Entity, or (iii) the securities registration, securities
disclosure or similar laws of any jurisdiction to which such issuance or
transfer may be subject;
-3-
<PAGE> 4
(e) All of the Pledged Shares are presently owned by Pledgor,
and are presently represented by the certificates listed on Part A of Schedule I
hereto. As of the date hereof, there are no existing options, warrants, calls or
commitments of any character whatsoever relating to the Pledged Shares. As of
the date hereof, except for the Lock-Up Agreement and the Loan Documents,
neither Borrower nor any of the Pledged Shares is subject (including any
shareholders' agreement or declaration having like effect) to any agreement
restricting or limiting the disposition of any of the Pledged Shares;
(f) No consent, approval, authorization or other order or
other action by, and no notice to or filing with, any directors or shareholders
of the Pledgor or the Pledged Entity or any Governmental Authority or any other
Person is required (i) for the pledge by Pledgor of the Pledged Collateral
pursuant to this Agreement or for the execution, delivery or performance of this
Agreement by Pledgor, or (ii) for the exercise by Agent of the voting or other
rights provided for in this Agreement or the remedies in respect of the Pledged
Collateral pursuant to this Agreement, except as may be required in connection
with such disposition by laws affecting the offering and sale of securities
generally and except for an authorization of the board of directors of Telxon
Canada Corporation Ltd., evidence of which authorization has been provided to
Agent, and except as provided in the Lock-Up Agreement;
(g) The pledge, assignment and delivery of the Pledged
Collateral pursuant to this Agreement will create a valid first priority Lien on
and a first priority perfected security interest in favor of the Agent for the
benefit of Agent and Lenders in the Pledged Collateral and the proceeds thereof,
securing the payment of the Secured Obligations, subject to no other Lien;
(h) This Agreement has been duly authorized, executed and
delivered by Pledgor and, to the extent required, the Pledged Entity and
constitutes a legal, valid and binding obligation of Pledgor and the Pledged
Entity enforceable against Pledgor and the Pledged Entity in accordance with its
terms;
(i) The Pledged Shares constitute the percentage of each
Pledged Entity set forth on Part A of Schedule I; and
(j) Except as disclosed on Part B of Schedule I, none of the
Pledged Indebtedness is subordinated in right of payment to other Indebtedness
or subject to the terms of an indenture.
(k) The representations and warranties set forth in this
Section 5 shall survive the execution and delivery of this Agreement.
6. COVENANTS. Pledgor covenants and agrees that until the all
Secured Obligations have been paid and each commitment under the Loan Agreement
has terminated:
(a) Without the prior written consent of Agent, Pledgor will
not sell, assign, transfer, pledge, or otherwise encumber any of its rights in
or to the Pledged Collateral, or any unpaid dividends, interest or other
distributions or payments with respect to the Pledged Collateral or grant a Lien
in the Pledged
-4-
<PAGE> 5
Collateral, unless otherwise expressly permitted by the Loan Agreement;
(b) Pledgor will, at its expense, promptly execute,
acknowledge and deliver all such instruments and take all such actions as Agent
from time to time may request in order to ensure to Agent and Lenders the
benefits of the Liens in and to the Pledged Collateral intended to be created by
this Agreement, including the filing of any necessary Code financing statements,
which may be filed by Agent with or (to the extent permitted by law) without the
signature of Pledgor, and will cooperate with Agent, at Pledgor's expense, in
obtaining all necessary approvals and making all necessary filings under
federal, state, local or foreign law in connection with such Liens or any sale
or transfer of the Pledged Collateral;
(c) Pledgor has and will defend the title to the Pledged
Collateral and the Liens of Agent in the Pledged Collateral against the claim of
any Person and will maintain and preserve such Liens; and
(d) Pledgor will, upon obtaining ownership of any additional
Stock or promissory notes or instruments of a Pledged Entity or Stock or
promissory notes or instruments otherwise required to be pledged to Agent
pursuant to any of the Loan Documents, which Stock, notes or instruments are not
already Pledged Collateral, promptly (and in any event within three (3) Business
Days) deliver to Agent a Pledge Amendment, duly executed by Pledgor, in
substantially the form of Schedule II hereto (a "Pledge Amendment") in respect
of any such additional Stock, notes or instruments, pursuant to which Pledgor
shall pledge to Agent all of such additional Stock, notes and instruments.
Pledgor hereby authorizes Agent to attach each Pledge Amendment to this
Agreement and agrees that all Pledged Shares and Pledged Indebtedness listed on
any Pledge Amendment delivered to Agent shall for all purposes hereunder be
considered Pledged Collateral.
(e) Pledgor shall not permit the Registration Rights Agreement
or the Lock-Up Agreement to be amended, modified or terminated without the prior
written consent of Agent.
7. PLEDGOR'S RIGHTS. As long as no Default or Event of Default
shall have occurred and be continuing and until written notice shall be given to
Pledgor in accordance with Section 8(a) hereof:
(a) Pledgor shall have the right, from time to time, to vote
and give consents with respect to the Pledged Collateral, or any part thereof
for all purposes not inconsistent with the provisions of this Agreement, the
Loan Agreement or any other Loan Document; provided, however, that no vote shall
be cast, and no consent shall be given or action taken, which would have the
effect of impairing the position or interest of Agent in respect of the Pledged
Collateral or which would authorize, effect or consent to (unless and to the
extent expressly permitted by the Loan Agreement):
(i) the dissolution or liquidation, in whole or in part, of a
Pledged Entity;
-5-
<PAGE> 6
(ii) the consolidation, amalgamation or merger of a Pledged
Entity with any other Person;
(iii) the sale, disposition or encumbrance of all or
substantially all of the assets of a Pledged Entity;
(iv) any change in the authorized number of shares, the stated
capital or the authorized share capital of a Pledged Entity or the
issuance of any additional shares of its Stock; or
(v) the alteration of the voting rights with respect to the
Stock of a Pledged Entity; and
(b) (i) Pledgor shall be entitled, from time to time, to
collect and receive for its own use all cash dividends and interest paid in
respect of the Pledged Shares and Pledged Indebtedness other than any and all:
(A) dividends and interest paid or payable other than in cash in respect of any
Pledged Collateral, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged Collateral;
(B) dividends and other distributions paid or payable in cash in respect of any
Pledged Shares in connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital, capital surplus or paid-in capital
of a Pledged Entity; and (C) cash paid, payable or otherwise distributed, in
respect of principal of, or in redemption of, or in exchange for, any Pledged
Collateral; provided, however, that until actually paid all rights to such
distributions shall remain subject to the Lien created by this Agreement;
provided, further, notwithstanding the foregoing, Pledgor shall not be entitled
to collect or receive any cash dividends or interest paid in respect of the
Pledged Shares and Pledged Indebtedness if Pledgor is prohibited from doing so
under the Loan Agreement; and
(ii) all dividends and interest (other than such cash
dividends and interest as are permitted to be paid to Pledgor in accordance with
clause (i) above) and all other distributions in respect of any of the Pledged
Shares or Pledged Indebtedness, whenever paid or made, shall be delivered to
Agent to hold as Pledged Collateral and shall, if received by Pledgor, be
received in trust for the benefit of Agent, be segregated from the other
property or funds of Pledgor, and be forthwith delivered to Agent as Pledged
Collateral in the same form as so received (with any necessary endorsement).
8. DEFAULTS AND REMEDIES.
(a) Upon the occurrence of an Event of Default and during the
continuation of such Event of Default, and concurrently with written notice to
Pledgor, Agent (personally or through an agent) is hereby authorized and
empowered to transfer and register in its name or in the name of its nominee the
whole or any part of the Pledged Collateral, to exchange certificates or
instruments representing or evidencing Pledged Collateral for certificates or
instruments of smaller or larger denominations, to exercise the voting and all
other rights as a holder with respect thereto, to collect and receive all cash
dividends, interest, principal and other distributions made thereon, to sell in
one or more sales after ten (10) days' notice of the
-6-
<PAGE> 7
time and place of any public sale or of the time at which a private sale is to
take place (which notice Pledgor agrees is commercially reasonable) the whole or
any part of the Pledged Collateral and to otherwise act with respect to the
Pledged Collateral as though Agent was the outright owner thereof, Pledgor
hereby irrevocably constituting and appointing Agent as the proxy and
attorney-in-fact of Pledgor, with full power of substitution to do so, and which
appointment shall remain in effect until the Termination Date; provided,
however, Agent shall not have any duty to exercise any such right or to preserve
the same and shall not be liable for any failure to do so or for any delay in
doing so. Any sale shall be made at a public or private sale at Agent's place of
business, or at any place to be named in the notice of sale, either for cash or
upon credit or for future delivery at such price as Agent may deem fair, and
Agent may be the purchaser of the whole or any part of the Pledged Collateral so
sold and hold the same thereafter in its own right free from any claim of
Pledgor or any right of redemption. Each sale shall be made to the highest
bidder, but Agent reserves the right to reject any and all bids at such sale
which, in its discretion, it shall deem inadequate. Demands of performance,
except as otherwise herein specifically provided for, notices of sale,
advertisements and the presence of property at sale are hereby waived and any
sale hereunder may be conducted by an auctioneer or any officer or agent of
Agent.
(b) If, at the original time or times appointed for the sale
of the whole or any part of the Pledged Collateral, the highest bid, if there be
but one sale, shall be inadequate to discharge in full all the Secured
Obligations, or if the Pledged Collateral be offered for sale in lots, if at any
of such sales, the highest bid for the lot offered for sale would indicate to
Agent, in its discretion, that the proceeds of the sales of the whole of the
Pledged Collateral would be unlikely to be sufficient to discharge all the
Secured Obligations, Agent may, on one or more occasions and in its discretion,
postpone any of said sales by public announcement at the time of sale or the
time of previous postponement of sale, and no other notice of such postponement
or postponements of sale need be given, any other notice being hereby waived;
provided, however, that any sale or sales made after such postponement shall be
after ten (10) days' notice to Pledgor.
(c) If, at any time when Agent in its sole discretion
determines, following the occurrence and during the continuance of an Event of
Default, that, in connection with any actual or contemplated exercise of its
rights (when permitted under this Section 8) to sell the whole or any part of
the Pledged Shares hereunder, it is necessary or advisable to effect a public
registration of all or part of the Pledged Collateral pursuant to the Securities
Act of 1933, as amended (or any similar statute then in effect) (the "Act"),
Pledgor shall, to the extent it has a right to do so under the Registration
Rights Agreement or otherwise, in an expeditious manner cause the Pledged
Entities to:
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with respect to
the Pledged Shares and in good faith use commercially reasonable
efforts to cause such registration statement to become and remain
effective;
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<PAGE> 8
(ii) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Act with
respect to the sale or other disposition of the Pledged Shares covered
by such registration statement whenever Agent shall desire to sell or
otherwise dispose of the Pledged Shares;
(iii) Furnish to Agent such numbers of copies of a prospectus
and a preliminary prospectus, in conformity with the requirements of
the Act, and such other documents as Agent may request in order to
facilitate the public sale or other disposition of the Pledged Shares
by Agent;
(iv) Use commercially reasonable efforts to register or
qualify the Pledged Shares covered by such registration statement under
such other securities or blue sky laws of such jurisdictions within the
United States and Puerto Rico as Agent shall request, and do such other
reasonable acts and things as may be required of it to enable Agent to
consummate the public sale or other disposition in such jurisdictions
of the Pledged Shares by Agent;
(v) Furnish, at the request of Agent, on the date that shares
of the Pledged Collateral are delivered to the underwriters for sale
pursuant to such registration or, if the security is not being sold
through underwriters, on the date that the registration statement with
respect to such Pledged Shares becomes effective, (A) an opinion, dated
such date, of the independent counsel representing such registrant for
the purposes of such registration, addressed to the underwriters, if
any, and in the event the Pledged Shares are not being sold through
underwriters, then to Agent, in customary form and covering matters of
the type customarily covered in such legal opinions; and (B) a comfort
letter, dated such date, from the independent certified public
accountants of such registrant, addressed to the underwriters, if any,
and in the event the Pledged Shares are not being sold through
underwriters, then to Agent, in a customary form and covering matters
of the type customarily covered by such comfort letters and as the
underwriters or Agent shall reasonably request. The opinion of counsel
referred to above shall additionally cover such other legal matters
with respect to the registration in respect of which such opinion is
being given as Agent may reasonably request. The letter referred to
above from the independent certified public accountants shall
additionally cover such other financial matters (including information
as to the period ending not more than five (5) Business Days prior to
the date of such letter) with respect to the registration in respect of
which such letter is being given as Agent may reasonably request; and
(vi) Otherwise use commercially reasonable efforts to comply
with all applicable rules and regulations of the Commission, and make
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<PAGE> 9
available to its security holders, as soon as reasonably practicable
but not later than 18 months after the effective date of the
registration statement, an earnings statement covering the period of at
least 12 months beginning with the first full month after the effective
date of such registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(d) All expenses reasonably incurred in complying with Section
8(c) hereof, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), printing expenses, fees and disbursements of counsel
for the registrant, the reasonable fees and expenses of counsel for Agent,
expenses of the independent certified public accountants (including any special
audits incident to or required by any such registration) and expenses of
complying with the securities or blue sky laws or any jurisdictions, shall be
paid by Pledgor.
(e) If, at any time when Agent shall determine to exercise its
right to sell the whole or any part of the Pledged Collateral hereunder, such
Pledged Collateral or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Act, Agent may, in its
discretion (subject only to applicable requirements of law), sell such Pledged
Collateral or part thereof by private sale in such manner and under such
circumstances as Agent may deem necessary or advisable, but subject to the other
requirements of this Section 8, and shall not be required to effect such
registration or to cause the same to be effected. Without limiting the
generality of the foregoing, in any such event, Agent in its discretion (x) may,
in accordance with applicable securities laws, proceed to make such private sale
notwithstanding that a registration statement for the purpose of registering
such Pledged Collateral or part thereof could be or shall have been filed under
said Act (or similar statute), (y) may approach and negotiate with a single
possible purchaser to effect such sale, and (z) may restrict such sale to a
purchaser who is an accredited investor under the Act and who will represent and
agree that such purchaser is purchasing for its own account, for investment and
not with a view to the distribution or sale of such Pledged Collateral or any
part thereof. In addition to a private sale as provided above in this Section 8,
if any of the Pledged Collateral shall not be freely distributable to the public
without registration under the Act (or similar statute) at the time of any
proposed sale pursuant to this Section 8, then Agent shall not be required to
effect such registration or cause the same to be effected but, in its discretion
(subject only to applicable requirements of law), may require that any sale
hereunder (including a sale at auction) be conducted subject to restrictions:
(i) as to the financial sophistication and ability of any
Person permitted to bid or purchase at any such sale;
(ii) as to the content of legends to be placed upon any
certificates representing the Pledged Collateral sold in such sale,
including restrictions on future transfer thereof;
(iii) as to the representations required to be made by each
Person bidding or purchasing at such sale relating to that Person's
access to
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<PAGE> 10
financial information about Pledgor and such Person's intentions as to
the holding of the Pledged Collateral so sold for investment for its
own account and not with a view to the distribution thereof; and
(iv) as to such other matters as Agent may, in its discretion,
deem necessary or appropriate in order that such sale (notwithstanding
any failure so to register) may be effected in compliance with the
Bankruptcy Code and other laws affecting the enforcement of creditors'
rights and the Act and all applicable state securities laws.
(f) PLEDGOR RECOGNIZES THAT AGENT MAY BE UNABLE TO EFFECT A
PUBLIC SALE OF ANY OR ALL THE PLEDGED COLLATERAL AND MAY BE COMPELLED TO RESORT
TO ONE OR MORE PRIVATE SALES THEREOF IN ACCORDANCE WITH CLAUSE (E) ABOVE.
PLEDGOR ALSO ACKNOWLEDGES THAT ANY SUCH PRIVATE SALE MAY RESULT IN PRICES AND
OTHER TERMS LESS FAVORABLE TO THE SELLER THAN IF SUCH SALE WERE A PUBLIC SALE
AND, NOTWITHSTANDING SUCH CIRCUMSTANCES, AGREES THAT ANY SUCH PRIVATE SALE SHALL
NOT BE DEEMED TO HAVE BEEN MADE IN A COMMERCIALLY UNREASONABLE MANNER SOLELY BY
VIRTUE OF SUCH SALE BEING PRIVATE. AGENT SHALL BE UNDER NO OBLIGATION TO DELAY A
SALE OF ANY OF THE PLEDGED COLLATERAL FOR THE PERIOD OF TIME NECESSARY TO PERMIT
THE PLEDGED ENTITY TO REGISTER SUCH SECURITIES FOR PUBLIC SALE UNDER THE ACT, OR
UNDER APPLICABLE STATE SECURITIES LAWS, EVEN IF PLEDGOR AND THE PLEDGED ENTITY
WOULD AGREE TO DO SO.
(g) Pledgor agrees to the maximum extent permitted by
applicable law that following the occurrence and during the continuance of an
Event of Default it will not at any time plead, claim or take the benefit of any
appraisal, valuation, stay, extension, moratorium or redemption law now or
hereafter in force in order to prevent or delay the enforcement of this
Agreement, or the absolute sale of the whole or any part of the Pledged
Collateral or the possession thereof by any purchaser at any sale hereunder, and
Pledgor waives the benefit of all such laws to the extent it lawfully may do so.
Pledgor agrees that it will not interfere with any right, power and remedy of
Agent provided for in this Agreement or now or hereafter existing at law or in
equity or by statute or otherwise, or the exercise or beginning of the exercise
by Agent of any one or more of such rights, powers or remedies. No failure or
delay on the part of Agent to exercise any such right, power or remedy and no
notice or demand which may be given to or made upon Pledgor by Agent with
respect to any such remedies shall operate as a waiver thereof, or limit or
impair Agent's right to take any action or to exercise any power or remedy
hereunder, without notice or demand, or prejudice its rights as against Pledgor
in any respect.
(h) Pledgor further agrees that a breach of any of the
covenants contained in this Section 8 will cause irreparable injury to Agent,
that Agent shall have no adequate
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<PAGE> 11
remedy at law in respect of such breach and, as a consequence, agrees that each
and every covenant contained in this Section 8 shall be specifically enforceable
against Pledgor, and Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that the Secured Obligations are not then due and payable in accordance
with the agreements and instruments governing and evidencing such obligations.
9. WAIVER. No delay on Agent's part in exercising any power of
sale, Lien, option or other right hereunder, and no notice or demand which may
be given to or made upon Pledgor by Agent with respect to any power of sale,
Lien, option or other right hereunder, shall constitute a waiver thereof, or
limit or impair Agent's right to take any action or to exercise any power of
sale, Lien, option, or any other right hereunder, without notice or demand, or
prejudice Agent's rights as against Pledgor in any respect.
10. ASSIGNMENT. Agent may assign, endorse or transfer any
instrument evidencing all or any part of the Secured Obligations as provided in,
and in accordance with, the Loan Agreement, and the holder of such instrument
shall be entitled to the benefits of this Agreement.
11. TERMINATION. Immediately following the Termination Date,
Agent shall deliver to Pledgor the Pledged Collateral pledged by Pledgor at the
time subject to this Agreement and all instruments of assignment executed in
connection therewith, free and clear of the Liens hereof and, except as
otherwise provided herein, all of Pledgor's obligations hereunder shall at such
time terminate.
12. LIEN ABSOLUTE. All rights of Agent hereunder, and all
obligations of Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Loan
Agreement, any other Loan Document or any other agreement or instrument
governing or evidencing any Secured Obligations;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any part of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Loan Agreement,
any other Loan Document or any other agreement or instrument governing or
evidencing any Secured Obligations;
(c) any exchange, release or non-perfection of any other
Collateral, or any release or amendment or waiver of or consent to departure
from any guaranty, for all or any of the Secured Obligations;
(d) the insolvency of Borrower or any guarantor of the
Obligations; or
(e) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Pledgor.
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<PAGE> 12
13. RELEASE. Pledgor consents and agrees that Agent may at any
time, or from time to time, in its discretion:
(a) renew, extend or change the time of payment, and/or the
manner, place or terms of payment of all or any part of the Secured Obligations;
and
(b) exchange, release and/or surrender all or any of the
Collateral (including the Pledged Collateral), or any part thereof, by
whomsoever deposited, which is now or may hereafter be held by Agent in
connection with all or any of the Secured Obligations; all in such manner and
upon such terms as Agent may deem proper, and without notice to or further
assent from Pledgor, it being hereby agreed that Pledgor shall be and remain
bound upon this Agreement, irrespective of the value or condition of any of the
Collateral, and notwithstanding any such change, exchange, settlement,
compromise, surrender, release, renewal or extension, and notwithstanding also
that the Secured Obligations may, at any time, exceed the aggregate principal
amount thereof set forth in the Loan Agreement, or any other agreement governing
any Secured Obligations. Pledgor hereby waives notice of acceptance of this
Agreement, and also presentment, demand, protest and notice of dishonor of any
and all of the Secured Obligations, and promptness in commencing suit against
any party hereto or liable hereon, and in giving any notice to or of making any
claim or demand hereunder upon Pledgor. No act or omission of any kind on
Agent's part shall in any event affect or impair this Agreement.
14. REINSTATEMENT. This Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against Pledgor or any Pledged Entity for liquidation or reorganization, should
Pledgor or any Pledged Entity become insolvent or make an assignment for the
benefit of creditors or should Pledgor or any Pledged Entity seek any other
relief under any bankruptcy, insolvency or similar laws or laws relating to the
relief of debtors or should a receiver or trustee be appointed for all or any
significant part of Pledgor's or a Pledged Entity's assets, and shall continue
to be effective or be reinstated, as the case may be, if at any time payment and
performance of the Secured Obligations, or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Secured Obligations, whether as a "voidable
preference", "fraudulent conveyance", or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Secured Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.
15. MISCELLANEOUS.
(a) Agent may execute any of its duties hereunder by or
through agents or employees and shall be entitled to advice of counsel
concerning all matters pertaining to its duties hereunder.
(b) Pledgor agrees to promptly reimburse Agent for actual
out-of-pocket expenses, including, without limitation, reasonable counsel fees,
incurred by Agent in connection with the administration and enforcement of this
Agreement.
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<PAGE> 13
(c) Neither Agent, nor any of its respective officers,
directors, employees, agents or counsel shall be liable for any action lawfully
taken or omitted to be taken by it or them hereunder or in connection herewith,
except for its or their own gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
(D) THIS AGREEMENT SHALL BE BINDING UPON PLEDGOR AND ITS
SUCCESSORS AND ASSIGNS (INCLUDING A DEBTOR-IN-POSSESSION ON BEHALF OF PLEDGOR),
AND SHALL INURE TO THE BENEFIT OF, AND BE ENFORCEABLE BY, AGENT AND ITS
SUCCESSORS AND ASSIGNS, AND SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN THAT STATE, AND NONE OF THE TERMS OR PROVISIONS OF THIS
AGREEMENT MAY BE WAIVED, ALTERED, MODIFIED OR AMENDED EXCEPT IN WRITING DULY
SIGNED FOR AND ON BEHALF OF AGENT AND PLEDGOR.
16. SEVERABILITY. If for any reason any provision or
provisions hereof are determined to be invalid and contrary to any existing or
future law, such invalidity shall not impair the operation of or effect those
portions of this Agreement which are valid.
17. NOTICES. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to
give or serve upon any other a communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and either shall be delivered in person or
sent by registered or certified mail, return receipt requested, with proper
postage prepaid, or by facsimile transmission and confirmed by delivery of a
copy by personal delivery or United States Mail as otherwise provided herein:
(a) If to Agent, at:
Foothill Capital Corporation
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attention: Business Finance Division Manager
Fax No.: (310) 478-9788
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<PAGE> 14
With copies to:
Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
Attention: Gary Zussman
Fax No.: (312) 332-2196
(b) If to Pledgor, at:
Telxon Corporation
3330 West Market Street
Akron, Ohio 44333
Attention: Woody McGee
Fax No.: (330) 664-2009
With copies to:
Goodman Weiss Miller LLP
100 Erieview Plaza
27th Floor
Cleveland, Ohio 44114-1824
Attention: Robert A. Goodman
Fax No.: (216) 363-5835
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. All notices delivered hereunder
shall be delivered in the manner provided in the Loan Agreement. Failure or
delay in delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to the persons designated above to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
18. SECTION TITLES. The Section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
19. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, which shall, collectively and separately, constitute one
agreement.
20. BENEFIT OF LENDERS. All security interests granted or
contemplated hereby shall be for the benefit of Agent and Lenders, and all
proceeds or payments realized from the Pledged Collateral in accordance herewith
shall be applied to the Obligations in accordance with the terms of the Loan
Agreement.
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<PAGE> 15
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
TELXON CORPORATION
By /s/ Woody M. McGee
----------------------
Title VP/CFO
--------------------
FOOTHILL CAPITAL CORPORATION,
as Agent
By /s/ Bruce Rivers
----------------------
Title VP
-------------------
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<PAGE> 1
EXHIBIT 10.3.3.b
THIS DEED OF TRUST SECURES FUTURE ADVANCES MADE FROM TIME TO
TIME UNDER THE LOAN INSTRUMENTS SECURED HEREBY
REAL PROPERTY DEED OF TRUST
(Harris County, Texas)
STATE OF TEXAS )
) SS
COUNTY OF HARRIS )
THIS REAL PROPERTY DEED OF TRUST ("DEED OF TRUST"), made as of
August 26, 1999, is made and executed by TELXON CORPORATION, a Delaware
corporation ("TRUSTOR"), having its principal offices at 3330 West Market
Street, Akron, Ohio 44333, unto JOSEPH C. MATHEWS, as trustee, having an address
at 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202 ("TRUSTEE"), for the
benefit of FOOTHILL CAPITAL CORPORATION, a California corporation (in its
individual capacity, "FOOTHILL") having an office at 11111 Santa Monica
Boulevard, Suite 1500, Los Angeles, California 90025-3333, as agent (Foothill in
its capacity as agent being hereinafter referred to as "AGENT") for Lenders (as
"LENDERS" is defined in the Loan and Security Agreement referred to below).
RECITALS
I. Pursuant to the terms of a certain Loan and Security
Agreement of even date herewith (said Loan and Security Agreement, together with
all amendments, supplements, modifications and replacements thereof, being
hereinafter referred to as the "LOAN AGREEMENT") by and between Foothill, as a
Lender and as Agent for all Lenders, such other financial institutions which may
now or hereafter become signatory thereto as Lenders, and Trustor, Agent and
Lenders have agreed to make loans to Trustor and extend other financial
accommodations to Trustor in an aggregate principal amount of $100,000,000
(collectively, the "LOANS"). The interest chargeable thereon is calculated at
variable rates as more fully set forth in the Loan Agreement. The Loans consist
of (i) a revolving loan in a maximum principal amount of $80,000,000 (the
"REVOLVING LOAN"), which revolving loan is evidenced by the Loan Agreement, (ii)
a term loan "No. 1" in the original principal amount of $6,000,000 (the "TERM
LOAN NO. 1"), which term loan is evidenced by one or more notes in the aggregate
principal amount of $6,000,000 (said notes, together with all amendments,
supplements, modifications and full or partial replacements thereof, being
hereinafter referred to as the "TERM NOTES NO. 1"), (iii) a term loan "No. 2" in
the original principal amount of $10,000,000 (the "TERM LOAN NO. 2"), which term
loan is evidenced by one or more notes in the aggregate principal amount of
$10,000,000 (said notes, together with all amendments, supplements,
modifications and full or partial replacements thereof, being
<PAGE> 2
hereinafter referred to as the "TERM NOTES NO. 2"), and (iv) a bridge term loan
in the original principal amount of $30,000,000 (the "BRIDGE LOAN"), which term
loan is evidenced by one or more notes in the aggregate principal amount of
$30,000,000 (said notes, together with all amendments, supplements,
modifications and full or partial replacements thereof, being hereinafter
referred to as the "BRIDGE NOTES"). Term Notes No. 1, Term Notes No. 2 and the
Bridge Notes are hereinafter collectively referred to as the "NOTES." The Loans
have a final maturity date of August 26, 2001. The terms and provisions of the
Notes and the Loan Agreement are hereby incorporated by reference in this Deed
of Trust. The rate or rates of interest payable under the Loan Agreement may
vary from time to time.
II. This Deed of Trust secures not only present indebtedness
but also future advances of principal indebtedness under the Loan Agreement as
if such future advances were made on the date hereof. The total indebtedness
secured by this Deed of Trust may increase or decrease from time to time.
GRANTING CLAUSES
To secure the payment of the indebtedness evidenced by the
Notes and the Loan Agreement, and the payment of all amounts due under and the
performance and observance of all covenants and conditions contained in this
Deed of Trust, the Notes, the Loan Agreement and any other documents and
instruments now or hereafter executed by Trustor or any party related thereto or
affiliated therewith to evidence, secure or guarantee the payment of all or any
portion of the indebtedness under the Notes, the Loan Agreement and any and all
renewals, extensions, amendments and replacements of this Deed of Trust, the
Notes, the Loan Agreement and any such other documents and instruments (the
Notes, the Loan Agreement, this Deed of Trust, such other documents and
instruments now or hereafter executed and delivered in connection with the
Loans, and any and all amendments, renewals, extensions and replacements hereof
and thereof, being sometimes referred to collectively as the "LOAN
INSTRUMENTS"), (all indebtedness and liabilities secured hereby being
hereinafter sometimes referred to as "BORROWER'S LIABILITIES"), FOR GOOD AND
VALUABLE CONSIDERATION, including the indebtedness herein recited and the trust
herein created, the receipt of which is hereby acknowledged, Trustor, hereby
irrevocably assigns, grants, bargains, sells, warrants and conveys to Trustee,
IN TRUST, WITH POWER OF SALE, for the benefit of Agent, and grants to Agent a
security interest in the following described property, subject to the terms and
conditions herein:
(A) The land located in Harris County, Texas, legally
described in attached EXHIBIT A ("LAND" [Borrower's Manufacturing Plant and
National Service Center in Houston, Texas]);
(B) All the buildings, structures, improvements and fixtures
of every kind or nature now or hereafter situated on the Land and all machinery,
appliances, equipment, furniture and all other personal property of every kind
or nature which constitute fixtures with respect to the Land, together with all
extensions, additions, improvements, substitutions and replacements of the
foregoing ("IMPROVEMENTS");
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<PAGE> 3
(C) All easements, tenements, rights-of-way, vaults, gores of
land, streets, ways, alleys, passages, sewer rights, water courses, water rights
and powers and appurtenances in any way belonging, relating or appertaining to
any of the Land or Improvements, or which hereafter shall in any way belong,
relate or be appurtenant thereto, whether now owned or hereafter acquired
("APPURTENANCES");
(D)(i) All judgments, insurance proceeds, awards of damages
and settlements which may result from any damage to all or any portion of the
Land, Improvements or Appurtenances or any part thereof or to any rights
appurtenant thereto;
(ii) All compensation, awards, damages, claims, rights of
action and proceeds of or on account of (a) any damage or taking, pursuant to
the power of eminent domain, of the Land, Improvements or Appurtenances or any
part thereof, (b) damage to all or any portion of the Land, Improvements or
Appurtenances by reason of the taking, pursuant to the power of eminent domain,
of all or any portion of the Land, Improvements, Appurtenances or of other
property, or (c) the alteration of the grade of any street or highway on or
about the Land, Improvements, Appurtenances or any part thereof; and, except as
otherwise provided herein, Agent is hereby authorized to collect and receive
said awards and proceeds and to give proper receipts and acquittances therefor
and, except as otherwise provided herein, to apply the same toward the payment
of the indebtedness and other sums secured hereby; and
(iii) All proceeds, products, replacements, additions,
substitutions, renewals and accessions of and to the Land, Improvements or
Appurtenances;
(E) All rents, issues, profits, income and other benefits now
or hereafter arising from or in respect of the Land, Improvements or
Appurtenances (the "RENTS"); it being intended that this Granting Clause shall
constitute an absolute and present assignment of the Rents, subject, however, to
the license given to Trustor to collect and use the Rents as provided in this
Deed of Trust;
(F) Any and all leases, licenses and other occupancy
agreements now or hereafter affecting the Land, Improvements or Appurtenances,
together with all security therefor and guaranties thereof and all monies
payable thereunder, and all books and records owned by Trustor which contain
evidence of payments made under the leases and all security given therefor
(collectively, the "LEASES"), subject, however, to the license given in this
Deed of Trust to Trustor to collect the Rents arising under the Leases as
provided in this Deed of Trust;
(G) Any and all after-acquired right, title or interest of
Trustor in and to any of the property described in the preceding Granting
Clauses; and
(H) The proceeds from the sale, transfer, pledge or other
disposition of any or all of the property described in the preceding Granting
Clauses;
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<PAGE> 4
All of the Property described in the Granting Clauses is
hereinafter referred to as the "PROPERTY."
TO HAVE AND TO HOLD, together with all and singular the
rights, privileges, hereditaments and appurtenances thereunto in any way
incident, appertaining or belonging, the same unto Trustee and his successor or
successors forever, and Trustor hereby binds itself, his successors and assigns,
to warrant and forever defend title to the Property unto Trustee and his
successor or successors, against every person whomsoever lawfully claiming or to
claim the same or any part thereof, subject only to Permitted Encumbrances (as
hereinafter defined).
ARTICLE ONE
COVENANTS OF TRUSTOR
Trustor covenants and agrees with Agent as follows:
1.1. PERFORMANCE UNDER LOAN AGREEMENT, NOTES, DEED OF TRUST
AND OTHER LOAN INSTRUMENTS. Trustor shall perform, observe and comply with or
cause to be performed, observed and complied with in a complete and timely
manner all provisions hereof, of the Loan Agreement and of the Notes, every
other Loan Instrument and every instrument evidencing or securing Borrower's
Liabilities.
1.2. GENERAL COVENANTS AND REPRESENTATIONS. Trustor covenants,
represents and warrants that as of the date hereof and at all times thereafter
during the term hereof: (a) Trustor is seized of an indefeasible estate in fee
simple in that portion of the Property which is real property, and has good and
absolute title to it and the balance of the Property free and clear of all
liens, security interests, charges and encumbrances whatsoever, except those
permitted by Agent (such liens, security interests, charges and encumbrances
being hereinafter referred to as the "PERMITTED ENCUMBRANCES"); and (b) Trustor
will maintain and preserve the lien of this Deed of Trust as a first and
paramount lien on the Property, subject only to the Permitted Encumbrances until
Borrower's Liabilities have been paid in full and all obligations of Agent and
Lenders under the Loan Agreement have been terminated.
1.3. COMPLIANCE WITH LAWS AND OTHER RESTRICTIONS. Trustor
covenants and represents that the Land and the Improvements and the use thereof
presently comply with, and, to the extent required by the Loan Agreement, will
continue to comply with, all applicable restrictive covenants, zoning and
subdivision ordinances and building codes, licenses, health and environmental
laws and regulations and all other applicable laws, ordinances, rules and
regulations.
1.4. TAXES AND OTHER CHARGES.
1.4.1. TAXES AND ASSESSMENTS. Trustor shall pay promptly when
due all taxes, assessments, rates, dues, charges, fees, levies, fines,
impositions, liabilities, obligations,
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liens and encumbrances of every kind and nature whatsoever now or hereafter
imposed, levied or assessed upon or against the Property or any part thereof, or
upon or against this Deed of Trust or Borrower's Liabilities; provided, however,
that Trustor may in good faith contest the validity, applicability or amount of
any tax, assessment or other charge, if Trustor complies with any provisions
which may be set forth in the Loan Agreement regarding the contest of taxes.
1.4.2. TAXES AFFECTING INTEREST OF AGENT AND LENDERS. If any
state, federal, municipal or other governmental law, order, rule or regulation,
which becomes effective subsequent to the date hereof, in any manner changes or
modifies existing laws governing the taxation of mortgages or deeds of trust or
debts secured by mortgages or deeds of trust, or the manner of collecting taxes,
so as to impose on Agent or Lenders a tax by reason of its ownership of any or
all of the Loan Instruments or measured by the principal amount of Borrower's
Liabilities, requires or has the practical effect of requiring Agent or Lenders
to pay any portion of the real estate taxes levied in respect of the Property or
to pay any tax levied in whole or in part in substitution for real estate taxes
or otherwise affects materially and adversely the rights of Agent or Lenders in
respect of Borrower's Liabilities, this Deed of Trust or the other Loan
Instruments, Borrower's Liabilities and all interest accrued thereon shall, upon
thirty (30) days' notice, become due and payable forthwith at the option of
Agent, whether or not there shall have occurred an Event of Default, provided,
however, that, if Trustor may, without violating or causing a violation of such
law, order, rule or regulation, pay such taxes or other sums as are necessary to
eliminate such adverse effect upon the rights of Agent and Lenders and does pay
such taxes or other sums when due, Agent may not elect to declare due Borrower's
Liabilities by reason of the provisions of this Section 1.4.2.
1.5. MECHANIC'S AND OTHER LIENS. Trustor shall not permit or
suffer any mechanic's, laborer's, materialman's, statutory or other lien or
encumbrance (other than any lien for taxes and assessments not yet due) to be
created upon or against the Property; provided, however, that Trustor may in
good faith, by appropriate proceedings, contest the validity, applicability or
amount of any asserted lien, if Trustor bonds off such lien in a manner
sufficient to transfer such lien from the title to the property to such bond or
otherwise complies with any provisions which may be set forth in the Loan
Agreement regarding the contest of liens.
1.6. INSURANCE AND CONDEMNATION.
1.6.1. INSURANCE POLICIES. Trustor shall, at its sole expense,
obtain for, deliver to, assign to and maintain for the benefit of Agent, until
Borrower's Liabilities are paid in full, such policies of insurance as are
required by the Loan Agreement.
1.6.2. ADJUSTMENT OF LOSS; APPLICATION OF PROCEEDS. Except as
otherwise may be provided by the Loan Agreement, Agent is hereby authorized and
empowered, at its option, to adjust or compromise any loss under any insurance
policies covering the Property and to collect and receive the proceeds from any
such policy or policies. Trustor hereby irrevocably appoints Agent as its
attorney-in-fact for the purposes set forth in the preceding
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sentence. The entire amount of such proceeds, awards or compensation shall be
applied as provided in the Loan Agreement.
1.6.3. CONDEMNATION AWARDS. Agent shall be entitled to all
compensation, awards, damages, claims, rights of action and proceeds of, or on
account of, (i) any damage or taking, pursuant to the power of eminent domain,
of the Property or any part thereof, (ii) damage to the Property by reason of
the taking, pursuant to the power of eminent domain, of other property, or (iii)
the alteration of the grade of any street or highway on or about the Property.
Agent is hereby authorized, at its option, to commence, appear in and prosecute
in its own or Trustor's name any action or proceeding relating to any such
compensation, awards, damages, claims, rights of action and proceeds and to
settle or compromise any claim in connection therewith. Trustor hereby
irrevocably appoints Agent as its attorney-in-fact for the purposes set forth in
the preceding sentence. In the event that Trustor acquires any real estate to
replace all or any portion of the Property which became subject to any such
action or proceeding, Trustor shall execute and deliver to Agent a deed of trust
of such replacement property, which Deed of Trust shall be in substantially the
same form as this Deed of Trust, and Trustor shall deliver to Agent a survey and
a title insurance policy and such other items in connection with such
replacement property as Agent may require, all in form and substance
satisfactory to Agent.
1.6.4. OBLIGATION TO REPAIR. If all or any part of the
Property shall be damaged or destroyed by fire or other casualty or shall be
damaged or taken through the exercise of the power of eminent domain or other
cause described in Section 1.6.3, Trustor shall promptly and with all due
diligence restore and repair the Property to the extent that the proceeds, award
or other compensation are made available to Trustor and are sufficient to pay
the cost of such restoration or repair.
1.7. AGENT MAY PAY; DEFAULT RATE. Upon Trustor's failure to
pay any amount required to be paid by Trustor under any provision of this Deed
of Trust, Agent may pay the same. Trustor shall pay to Agent on demand the
amount so paid by Agent together with interest at a rate equal to the highest
rate payable under the Loan Agreement after the occurrence of an "Event of
Default" as such term is defined in the Loan Agreement (the "DEFAULT RATE") and
the amount so paid by Agent, together with interest, shall be added to
Borrower's Liabilities.
1.8. CARE OF THE PROPERTY. Trustor shall preserve and maintain
the Property in good operating condition. Trustor shall not, without the prior
written consent of Agent, permit, commit or suffer any waste, impairment or
deterioration of the Property or of any part thereof. Except to the extent that
capital expenditures are permitted by the Loan Agreement, no new improvements
shall be constructed on the Property by Trustor and no part of the Property
shall be altered in any material manner without the prior written consent of
Agent.
1.9. TRANSFER OR ENCUMBRANCE OF THE PROPERTY. Except as
permitted by the Loan Agreement, Trustor shall not permit or suffer to occur any
sale, assignment, conveyance, transfer, mortgage, lease or encumbrance of the
Property, any part thereof, or any interest therein, without the prior written
consent of Agent having been obtained.
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1.10. FURTHER ASSURANCES. At any time and from time to time,
upon Agent's request, Trustor shall make, execute and deliver, or cause to be
made, executed and delivered, to Agent, and where appropriate shall cause to be
recorded, registered or filed, and from time to time thereafter to be
re-recorded, re-registered and refiled at such time and in such offices and
places as shall be deemed desirable by Agent, any and all such further mortgages
or deeds of trust, security agreements, financing statements, instruments of
further assurance, certificates and other documents as Agent may consider
reasonably necessary in order to effectuate or perfect, or to continue and
preserve the obligations under, this Deed of Trust.
1.11. ASSIGNMENT OF RENTS. The assignment of rents, income and
other benefits contained in Section (E) of the Granting Clauses of this Deed of
Trust shall be fully operative without any further action on the part of either
party, and, specifically, Agent shall be entitled, at its option, upon the
occurrence of an Event of Default hereunder, to all rents, income and other
benefits from the Property, whether or not Agent takes possession of such
property. Such assignment and grant shall continue in effect until Borrower's
Liabilities are paid in full and all obligations of Agent and Lenders under the
Loan Agreement have been terminated, the execution of this Deed of Trust
constituting and evidencing the irrevocable consent of Trustor to the entry upon
and taking possession of the Property by Agent pursuant to such grant, whether
or not foreclosure proceedings have been instituted. Notwithstanding the
foregoing, so long as no Event of Default has occurred, Trustor shall have the
license, right and authority to continue to collect the rents, income and other
benefits from the Property as they become due and payable but not more than
thirty (30) days prior to the due date thereof. Notwithstanding anything
contained herein to the contrary, in no event shall this assignment of rents be
deemed to reduce the indebtedness evidenced by the Loan Agreement or the Notes
by an amount in excess of the actual amount of cash received by Agent under any
leases of the Property, whether before, during or after the occurrence of an
Event of Default, and Trustor acknowledges that in no event shall the
indebtedness secured hereby be reduced by the value from time to time of the
rents from the Property. Agent reserves the right, at any time, whether before
or after the occurrence of an Event of Default, to recharacterize this
assignment of rents as merely constituting security for the indebtedness of
Trustor to Agent, which recharacterization shall be made by written notice
delivered to Trustor.
1.12. AFTER-ACQUIRED PROPERTY. To the extent permitted by, and
subject to, applicable law, the lien of this Deed of Trust shall automatically
attach, without further act, to all property hereafter acquired by Trustor
located in or on, or attached to, or used or intended to be used in connection
with, or with the operation of, the Property or any part thereof.
1.13. LEASES AFFECTING PROPERTY. Trustor shall comply with and
perform in a complete and timely manner all of its obligations as landlord under
all leases affecting the Property or any part thereof. The assignment contained
in Sections (E) and (F) of the Granting Clauses shall not be deemed to impose
upon Agent any of the obligations or duties of the landlord or Trustor provided
in any lease.
1.14. MANAGEMENT OF PROPERTY. Trustor shall cause the Property
to be managed at all times in accordance with sound business practice.
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1.15. EXECUTION OF LEASES. Trustor shall not permit any leases
to be made of the Property, or to be modified, terminated, extended or renewed,
without the prior written consent of Agent.
1.16. EXPENSES. In the event of foreclosure hereof, Agent
shall be entitled to add to the indebtedness found to be due by the court its
reasonable expenses incurred in connection with obtaining and processing after
entry of the decree of foreclosure hereunder.
1.17. ENVIRONMENTAL CONDITIONS.
(a) Trustor covenants, warrants and represents that there are
no, nor will Trustor knowingly permit, for so long as any of Borrower's
Liabilities remain outstanding, be, any Hazardous Materials (as
hereinafter defined) generated, released, stored, buried or deposited
over, beneath, in or upon the Property except as such Hazardous
Materials may be required to be used, stored or transported in
connection with the permitted uses of the Property and then only to the
extent permitted by law after obtaining all necessary permits and
licenses therefor. For purposes of this Deed of Trust, "HAZARDOUS
MATERIALS" shall mean and include any pollutants, flammables,
explosives, petroleum (including crude oil) or any fraction thereof,
radioactive materials, hazardous wastes, toxic substances or related
materials, including, without limitation, any substances defined as or
included in the definition of toxic or hazardous substances, wastes, or
materials under any federal, state or local laws, ordinances,
regulations or guidances which regulate, govern, prohibit or pertain to
the generation, manufacture, use, transportation, disposal, release,
storage, treatment of, or response or exposure to, toxic or hazardous
substances, wastes or materials. Such laws, ordinances and regulations
are hereinafter collectively referred to as the "HAZARDOUS MATERIALS
LAWS."
(b) Trustor shall, and Trustor shall use reasonable efforts to
cause all employees, agents, contractors and subcontractors of Trustor
and any other persons from time to time present on or occupying the
Property to, keep and maintain the Property in compliance with, and not
cause or knowingly permit the Property to be in violation of, any
applicable Hazardous Materials Laws. Neither Trustor nor any employees,
agents, contractors or subcontractors of Trustor or any other persons
occupying or present on the Property shall use, generate, manufacture,
store or dispose of on, under or about the Property or transport to or
from the Property any Hazardous Materials, except as such Hazardous
Materials may be required to be used, stored or transported in
connection with the permitted uses of the Property and then only to the
extent permitted by law after obtaining all necessary permits and
licenses therefor.
(c) Trustor shall immediately advise Agent in writing of: (i)
any notices received by Trustor (whether such notices are from the
Environmental Protection Agency, or any other federal, state or local
governmental agency or regional office thereof with jurisdiction over
the Property) of the violation or
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potential violation occurring on or about the Property of any
applicable Hazardous Materials Laws; (ii) any and all enforcement,
cleanup, removal or other governmental or regulatory actions
instituted, completed or threatened pursuant to any Hazardous Materials
Laws; (iii) all claims made or threatened by any third party against
Trustor or the Property relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Materials
(the matters set forth in clauses (i), (ii) and (iii) above are
hereinafter referred to as "HAZARDOUS MATERIALS CLAIMS"); and (iv)
Trustor's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that could cause the
Property or any part thereof to be subject to any Hazardous Materials
Claims. Agent shall have the right but not the obligation to join and
participate in, as a party if it so elects, any legal proceedings or
actions initiated in connection with any Hazardous Materials Claims and
Trustor shall pay to Agent, upon demand, all reasonable attorneys' and
consultants' fees reasonably incurred by Agent in connection therewith.
(d) TRUSTOR SHALL BE SOLELY RESPONSIBLE FOR, AND SHALL
INDEMNIFY AND HOLD HARMLESS AGENT AND LENDERS, AND THE DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS OF EACH OF THEM,
FROM AND AGAINST ANY LOSS, DAMAGE, COST, EXPENSE OR LIABILITY DIRECTLY
OR INDIRECTLY ARISING OUT OF OR ATTRIBUTABLE TO THE USE, GENERATION,
STORAGE, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL OR PRESENCE
(WHETHER PRIOR TO OR DURING THE TERM OF THE LOANS OR OTHERWISE AND
REGARDLESS OF BY WHOM CAUSED, WHETHER BY TRUSTOR OR ANY PREDECESSOR IN
TITLE OR ANY OWNER OF LAND ADJACENT TO THE PROPERTY OR ANY OTHER THIRD
PARTY, OR ANY EMPLOYEE, AGENT, CONTRACTOR OR SUBCONTRACTOR OF TRUSTOR
OR ANY PREDECESSOR IN TITLE OR ANY SUCH ADJACENT LAND OWNER OR ANY
THIRD PERSON) OF HAZARDOUS MATERIALS ON, UNDER OR ABOUT THE PROPERTY;
INCLUDING, WITHOUT LIMITATION: (I) CLAIMS OF THIRD PARTIES (INCLUDING
GOVERNMENTAL AGENCIES) FOR DAMAGES, PENALTIES, LOSSES, COSTS, FEES,
EXPENSES, DAMAGES, INJUNCTIVE OR OTHER RELIEF; (II) RESPONSE COSTS,
CLEAN-UP COSTS, COSTS AND EXPENSES OF REMOVAL AND RESTORATION,
INCLUDING FEES OF ATTORNEYS AND EXPERTS, AND COSTS OF DETERMINING THE
EXISTENCE OF HAZARDOUS MATERIALS AND REPORTING SAME TO ANY GOVERNMENTAL
AGENCY; AND (III) ANY AND ALL EXPENSES OR OBLIGATIONS, INCLUDING
ATTORNEYS' FEES, INCURRED AT, BEFORE OR AFTER ANY TRIAL OR APPEAL
THEREFROM WHETHER OR NOT TAXABLE AS COSTS, INCLUDING, WITHOUT
LIMITATION, ATTORNEYS' FEES, WITNESS FEES, DEPOSITION COSTS, COPYING
AND TELEPHONE
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CHARGES AND OTHER EXPENSES. THE OBLIGATIONS OF TRUSTOR UNDER THIS
SUBSECTION SHALL SURVIVE ANY OF THE FORECLOSURE OF THIS DEED OF TRUST,
THE REPAYMENT OF BORROWER'S LIABILITIES, OR OTHER SATISFACTION OF THE
INDEBTEDNESS SECURED BY THIS DEED OF TRUST, WHETHER BY DEED IN LIEU OF
FORECLOSURE OR OTHERWISE. Notwithstanding the foregoing, Trustor shall
have no liability for any of the foregoing which arise out of the gross
negligence or wilful misconduct of Agent or any Lender. Further,
notwithstanding anything to the contrary in this Agreement, Trustor
shall have no liability under this subsection for any Hazardous
Materials which are first generated, released, stored, buried,
incorporated or deposited over, beneath, in, on, under, about or from
the Property after the date that Trustor is dispossessed from the
Property by Agent; provided that, neither Trustor, nor any employees,
agents, contractors, or subcontractors of Trustor, nor any persons
occupying or present on the Land or the Improvements during the period
of Trustor's ownership, shall have contributed to the release of such
Hazardous Materials.
(e) Any loss, damage, cost, expense or liability incurred by
Agent or Lenders as a result of a breach or misrepresentation by
Trustor or for which Trustor is responsible or for which Trustor has
indemnified Agent and Lenders shall be paid to Agent or Lenders, as the
case may be, on demand, and, failing prompt reimbursement, such amounts
shall, together with interest thereon at the Default Rate from the date
incurred by Agent or Lenders, as the case may be, until paid by
Trustor, be added to Borrower's Liabilities, be immediately due and
payable and be secured by the lien of this Deed of Trust and the other
Loan Instruments.
ARTICLE TWO
DEFAULTS
2.1. EVENT OF DEFAULT. The term "EVENT OF DEFAULT," wherever
used in this Deed of Trust, shall mean any one or more of the following events:
(a) The failure by Trustor to keep, perform, or observe any
covenant, condition or agreement contained in this Deed of Trust,
except that Trustor shall be entitled to a grace or cure period for
occurrences described in the Loan Agreement for which a grace or cure
period is specified.
(b) The occurrence of an "Event of Default" under and as
defined in the Loan Agreement or any of the other Loan Instruments.
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ARTICLE THREE
REMEDIES
3.1. FORECLOSURE. If an Event of Default shall have occurred,
then and in any of such events Agent may elect, Trustor hereby expressly waiving
notice, notice of intention to accelerate the indebtedness secured hereby,
notice of acceleration of the indebtedness evidenced hereby, presentment and
demand for payment, to declare Borrower's Liabilities to be immediately due and
payable, and Trustee, or his successor or substitute as hereinafter provided,
upon request and direction from Agent shall enforce this trust by selling the
Property (or any portion thereof) at public venue in accordance with Section
51.002 of the Texas Property Code and applicable law; and after advertising the
time, place (including the county) and terms of the sale of the Property for at
least twenty-one (21) days preceding the date of sale by filing with the
appropriate county clerk and by posting written or printed notice thereof at the
courthouse door of the county where the Land, or any portion thereof, to be sold
is situated, which notice may be filed and posted by Trustee acting, or by any
person acting for him, and Agent has, at least twenty-one (21) days preceding
the date of sale, served written or printed notice of the proposed sale by
certified mail on each person obligated to pay the indebtedness secured hereby
by the deposit of such notice, enclosed in a postpaid wrapper, properly
addressed to such obligor at such obligor's most recent address as shown by the
records of Agent, in a post office or official depository under the care and
custody of the United States Postal Service, Trustee shall sell the Property at
public auction in accordance with such notice in the area designated by the
applicable County for the conduct of sales of real property under contract lien,
and if no area is so designated by the County, the notice of sale shall
designate an area at the courthouse where the sale is to take place. Such sale
shall occur on the first Tuesday in any month between the hours of 10:00 a.m.
and 4:00 p.m., provided that the sale must begin at the time stated on the
notice of sale or not later than three hours after that time, to the highest
bidder for cash, selling all of the Property as an entirety or in such parcels
as Trustee acting may elect, and make due conveyance to the purchaser or
purchasers, with general warranty binding Trustor, its successors and assigns;
and out of the money arising from such sale, Trustee acting shall pay first, all
the expenses of advertising the sale and making the conveyance, including a
reasonable fee for himself, which fee shall be due and owing in addition to the
attorneys' fees provided for in the Loan Instruments, and then to Agent the full
amount of Borrower's Liabilities, attorneys' fees and other charges due and
unpaid on the Loan Agreement and the Notes and all other indebtedness secured
hereby, rendering the balance of the sales price, if any, to the persons legally
entitled thereto; and the recitals in the conveyance to the purchaser or
purchasers shall be prima facie evidence of the truth of the matters therein
stated, and the prerequisites to said sale shall be presumed to have been
performed, and such sale and conveyance shall be conclusive against Trustor, its
successors and assigns, provided such sale and conveyance shall have been
completed in accordance with the terms of this Section 3.1. It is agreed that in
the event a foreclosure hereunder should be commenced by Trustee, or his
substitute or successor, Agent may at any time before the sale of the Property
direct Trustee to abandon the sale, and may then institute suit for the
collection of Borrower's Liabilities, and for the foreclosure of this lien; it
is further agreed that if Agent should institute a suit for the collection
thereof, and for a foreclosure of this lien, that he may at any time before the
entry of a final judgment in said suit dismiss the same, and require Trustee,
its substitute or successor to sell the Property in accordance with the
provisions of this Deed of Trust and applicable law. Agent shall have the right
to purchase at any
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sale of the Property, being the highest bidder and to have the amount for which
such Property is sold credited on the debt then owing. In the event any sale is
made of the Property, or any portion thereof, under the terms of this Deed of
Trust, Trustor, its successors and assigns, shall forthwith upon the making of
such sale surrender and deliver possession of the Property so sold to the
purchaser at such sale, and in the event of their failure to do so they shall
thereupon from and after the making of such sale be and continue as tenants at
will of such purchaser, and in the event of their failure to surrender
possession of said Property upon demand, purchaser, his heirs or assigns, shall
be entitled to institute and maintain an action for forcible detainer of said
property in the Justice Court having venue or in any other court having venue.
In case of any sale hereunder all prerequisites to the sale shall be presumed to
have been performed, and in any conveyance given hereunder, all statements of
fact, or other recitals therein made as to the nonpayment of money secured, or
as to the request to Trustee to enforce this Deed of Trust, or as to the proper
and due appointment of any substitute trustee, or as to the advertisement of
sale, or time, place, and manner of sale, or as to any other preliminary fact or
thing, shall be taken in all courts of law or equity as prima facie evidence
that the facts so stated or recited are true. Agent may, at its option,
accomplish all or any of the aforesaid in such manner as permitted or required
by Section 51.002 of the Texas Property Code relating to the sale of real
property or by Chapter 9 of the Texas Business and Commerce Code relating to the
sale of collateral after default by a debtor (as said section and chapter now
exist or may be hereinafter amended or succeeded), or by any other present or
subsequent articles or enactments relating to same. At any such sale of the
Property:
(a) whether made under the power herein contained, the
aforesaid Section 51.002, the Texas Business and Commerce Code, any
other applicable law or by virtue of any judicial proceedings or any
other legal right, remedy or recourse, it shall not be necessary for
Trustee to have physically present, or to have constructive possession
of, the Property (Trustor shall deliver to Trustee any portion of the
Property not actually or constructively possessed by Trustee
immediately upon demand by Trustee), and the title to and right of
possession of any such property shall pass to the purchaser thereof as
completely as if the same had been actually present and delivered to
purchaser at such sale;
(b) the receipt by Trustee or of such other party or officer
making the same of the full amount of the purchase money shall be
sufficient to discharge the purchaser or purchasers from any further
obligation for the payment thereof, and no such purchaser or
purchasers, or his or their assigns or personal representatives, shall
thereafter be obligated to see to the application of such purchase
money or be in any way answerable for any loss, misapplication or
nonapplication thereof; and
(c) to the fullest extent permitted by law, Trustor shall be
completely and irrevocably divested of all of its right, title,
interest, claim and demand whatsoever, either at law or in equity, in
and to the property sold, and such sale shall be a perpetual bar, both
at law and in equity, against Trustor and against all other persons
claiming or to claim the property sold or to any part thereof by,
through or under Trustor.
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3.2. NO CONDITIONS PRESENT TO EXERCISE OF REMEDIES. Neither
Trustor nor any other person hereafter obligated for payment of all or any part
of the indebtedness secured hereby or fulfillment of all or any of Borrower's
Liabilities shall be relieved of such obligation by reason (a) the failure of
the Trustee to comply with any request of Trustor or any other person so
obligated to foreclose the lien of this Deed of Trust or to enforce any
provisions of the other Loan Instruments; (b) the release, regardless of
consideration, of the Property or any portion thereof or the addition of any
other property to the Property; (c) any agreement or stipulation between any
subsequent owner of the Property and Agent extending, renewing, rearranging, or
in any other way modifying the terms of the Loan Instruments without first
having obtained the consent of, given notice to or paid any consideration to
Trustor of such other person, and in such event, Trustor and all such other
persons shall continue to be liable to make payment according to the terms of
any such extension or modification agreement unless expressly released and
discharged in writing by Agent (notwithstanding anything contained herein to the
contrary, Agent is under no obligation to give notice to or pay any
consideration to Trustor or any other such person for any modifications,
extensions, renewals or rearrangements of the Loan Instruments); or (d) by any
other act save and except the complete payment of the indebtedness secured
hereby and the complete fulfillment of all of Borrower's Liabilities.
3.3. RELEASE OF AND RESORT TO COLLATERAL. Any part of the
Property may be released by Agent without affecting, subordinating or releasing
the lien, security interest and assignment hereof against the remainder. The
lien, security interest and other rights granted hereby shall not affect or be
affected by any other security taken for the same indebtedness or any part
thereof. The taking of additional security, or the rearrangement, extension or
renewal of the indebtedness secured hereby, or any part thereof, shall not
release or impair the lien, security interest and other rights granted hereby or
affect the liability of Trustor or of any endorser, guarantor or surety, or
improve the right of any permitted junior lienholder; and this Deed of Trust, as
well as any instrument given to secure any rearrangement, renewal or extension
of the indebtedness secured hereby, or any part thereof, shall be and remain a
first and prior lien on all of the Property not expressly released until the
indebtedness secured hereby is completely paid. For payment of the indebtedness
secured hereby, Agent may resort to any other security therefore held by Agent
or Trustee in such order and manner as Agent may elect.
3.4. WAIVER. To the fullest extent permitted by law, Trustor
hereby irrevocably and unconditionally waives and releases (a) all benefits that
might accrue to Trustor by any present or future laws exempting the Property
from attachment, levy or sale on execution or providing for any stay of
execution, exemption from civil process, redemption or extension of time for
payment; (b) any right to marshalling of assets or a sale in inverse order of
alienation; (c) the exemption of homestead; and (d) the administration of
estates of decedents, or other matter to defeat, reduce or affect the right of
Agent under the terms of this Deed of Trust to sell the Property for the
collection of the indebtedness secured thereby (without any prior or different
resort for collection) or the right of Agent, under the terms of this Deed of
Trust, to the payment of the indebtedness secured hereby out of the proceeds of
sale of the Property in preference to every other person and claimant whatever
(only reasonable expenses of such sale being first deducted). Trustor expressly
waives and relinquishes any right or remedy which it may have or be able to
assert by reason of the
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provisions of Chapter 34 of the Texas Business and Commerce Code pertaining to
the rights and remedies of sureties.
3.5. DISCONTINUANCE OF PROCEEDINGS. In case Agent shall have
proceeded to invoke any right, remedy or recourse permitted under the Loan
Instruments and shall thereafter elect to discontinue or abandon the same for
any reason, Agent shall have the unqualified right so to do and, in such event,
Trustor and Agent shall be restored to their former positions with respect to
the indebtedness secured hereby, Borrower's Liabilities, the Loan Instruments,
the Property and otherwise, and the rights, remedies, recourses and power of
Agent shall continue as if the same had never been involved.
3.6. DEFICIENCY OBLIGATION. Trustor shall be liable for any
deficiency remaining in the indebtedness secured hereby and Borrower's
Liabilities subsequent to the sale referenced in this Article.
3.7. DISAFFIRMATION OF CONTRACTS. The purchaser at any
Trustee's or foreclosure sale hereunder may disaffirm any easement granted, or
rental, lease or other contract made in violation of any provisions of this Deed
of Trust and may take immediate possession of the Property free from, and
despite the terms of, any such grant of easement, rental, lease or other
contract.
3.8. RECEIVER. If an Event of a Default shall have occurred,
either before or after the foreclosure sale, Trustor agrees that as a matter of
right a receiver may be appointed by the court without notice, without regard to
(i) the solvency or insolvency of Trustor, (ii) the then value of the Property
or (iii) whether it is then occupied as a homestead. The receiver shall have the
power to collect any rents and income from the Property during the pendency of
the foreclosure sale and, in the case of a sale and a deficiency, during the
full statutory period of redemption (if any), whether there be a redemption or
not. The receiver shall have the other powers for the protection, possession,
management and operation of the Property which an absolute owner would have, but
the net rents, if any, in the hands of the receiver shall be applied to the debt
hereby secured or to such expenses of the receivership or foreclosure suit as
the court may direct.
3.9. AGENT IN POSSESSION.
(a) If an Event of Default shall have occurred under this Deed
of Trust whether or not the entire debt has then been accelerated and
whether or not foreclosure proceedings have been commenced, Agent may,
without notice to or demand (each of which, together with notice of
intention to accelerate and notice of acceleration are hereby waived)
upon Trustor, to the maximum extent permitted by law, take possession
of the Property and while in possession of the Property, Agent shall
have the power to pay repair charges, taxes, insurance fees and all
other expenses and add such amounts to the indebtedness secured hereby.
(b) In the event of a foreclosure, Agent may remain in
possession of the Property until the foreclosure sale and thereafter
during the entire period of redemption (if any), if a deficiency
exists. AGENT SHALL INCUR NO
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<PAGE> 15
LIABILITY FOR, NOR SHALL TRUSTOR ASSERT ANY CLAIM OR SETOFF AS A RESULT
OF, ANY ACTION TAKEN WHILE AGENT IS IN POSSESSION OF THE PROPERTY,
EXCEPT ONLY FOR AGENT'S OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. In
the event no foreclosure proceedings are commenced, Agent may remain in
possession as long as there exists an Event of Default.
3.10. ENFORCEMENT OF ASSIGNMENT OF RENTS AND LEASES. If an
Event of Default shall have occurred under this Deed of Trust, Agent may:
(a) terminate the license granted to Trustor to collect the
Rents, collect and sue for the Rents in Agent's own name, give receipts
and releases therefor, and after deducting all expenses of collection,
including reasonable attorneys' fees, apply the net proceeds thereof to
Borrower's Liabilities as Agent may elect;
(b) make, modify, enforce, cancel, terminate or accept
surrender of any subleases, evict tenants, adjust the Rents, maintain,
decorate, refurbish, repair, clean, and make space ready for renting,
and otherwise do anything Agent deems advisable in connection with the
Property;
(c) apply the Rents so collected to the operation and
management of the Property, including the payment of reasonable
management, brokerage and attorneys' fees, and/or to Borrower's
Liabilities; and
(d) require Trustor to transfer all security deposits and
records thereof to Agent, together with all original counterparts of
the Leases.
3.11. WAIVER OF REDEMPTION. To the extent permitted by law and
as an additional inducement to Agent to advance funds secured hereby, Trustor
hereby expressly waives and renounces the benefit of (i) all present and future
laws providing for any appraisement before sale of the Property, commonly known
as "appraisement laws," and all present and future laws extending in any manner
the time for enforcement of collection of the indebtedness secured hereby,
commonly known as "stay laws" and "redemption laws"; (ii) notice of any intent
by Agent to accelerate the maturity of the indebtedness secured hereby; (iii)
notice of the acceleration of the maturity of the indebtedness secured hereby;
and (iv) notice of the commencement by Agent of an action to foreclose this Deed
of Trust. Trustor does not intend, however, to waive any rights granted by
Section 51.003 of the Texas Property Code.
3.12. REMEDIES CUMULATIVE. No right, power or remedy conferred
upon or reserved to Agent or Lenders by the Notes, the Loan Agreement, this Deed
of Trust or any other Loan Instrument or any instrument evidencing or securing
Borrower's Liabilities is exclusive of any other right, power or remedy, but
each and every such right, power and remedy shall be cumulative and concurrent
and shall be in addition to any other right, power and remedy given hereunder or
under the Notes, the Loan Agreement or any other Loan
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<PAGE> 16
Instrument or any instrument evidencing or securing Borrower's Liabilities, or
now or hereafter existing at law, in equity or by statute.
ARTICLE FOUR
MISCELLANEOUS PROVISIONS
4.1. HEIRS, SUCCESSORS AND ASSIGNS INCLUDED IN PARTIES.
Whenever Trustor, Agent or Lenders are named or referred to herein, heirs and
successors and assigns of such person or entity shall be included, and all
covenants and agreements contained in this Deed of Trust shall bind the
successors and assigns of Trustor, including any subsequent owner of all or any
part of the Property and inure to the benefit of the successors and assigns of
Agent and Lenders.
4.2. NOTICES. All notices, requests, reports, demands or other
instruments required or contemplated to be given or furnished under this Deed of
Trust to Trustor or Agent shall be directed to Trustor or Agent, as the case may
be, in the manner and at the addresses for notice set forth in the Loan
Agreement. The address for Trustee shall be the address given on the first page
of this Deed of Trust. Notwithstanding the foregoing, notices of foreclosure
shall be given and deemed to be received as required by Section 51.002 of the
Texas Property Code, as amended from time to time.
4.3. HEADINGS. The headings of the articles, sections,
paragraphs and subdivisions of this Deed of Trust are for convenience only, are
not to be considered a part hereof, and shall not limit, expand or otherwise
affect any of the terms hereof.
4.4. INVALID PROVISIONS. In the event that any of the
covenants, agreements, terms or provisions contained in this Deed of Trust shall
be invalid, illegal or unenforceable in any respect, the validity of the
remaining covenants, agreements, terms or provisions contained herein (or the
application of the covenant, agreement, term held to be invalid, illegal or
unenforceable, to persons or circumstances other than those in respect of which
it is invalid, illegal or unenforceable) shall be in no way affected, prejudiced
or disturbed thereby.
4.5. CHANGES. Neither this Deed of Trust nor any term hereof
may be released, changed, waived, discharged or terminated orally, or by any
action or inaction, but only by an instrument in writing signed by the party
against which enforcement of the release, change, waiver, discharge or
termination is sought.
4.6. GOVERNING LAW. THIS DEED OF TRUST SHALL BE CONSTRUED,
INTERPRETED, ENFORCED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS; EXCEPT THAT THE LAWS OF THE STATE IN WHICH THE PROPERTY IS
SITUATED SHALL APPLY TO ALL MATTERS AFFECTING OR RELATING TO THE CREATION,
PERFECTION AND PRIORITY OF THE LIENS AND SECURITY INTERESTS GRANTED UNDER THIS
DEED OF TRUST AND TO THE FORECLOSURE AND
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<PAGE> 17
OTHER PROVISIONS OF THIS DEED OF TRUST RELATING TO THE ENFORCEMENT OF THE RIGHTS
AND REMEDIES OF AGENT WITH RESPECT TO SUCH PROPERTY.
4.7. LIMITATION OF INTEREST. The provisions of the Loan
Agreement regarding the payment of lawful interest are hereby incorporated
herein by reference.
4.8. FUTURE ADVANCES. This Deed of Trust is given to secure
not only existing indebtedness, but also future advances (whether such advances
are obligatory or are to be made at the option of Agent or Lenders, or
otherwise) made by Agent or Lenders under the Notes or the Loan Agreement, to
the same extent as if such future advances were made on the date of the
execution of this Deed of Trust. The total amount of indebtedness that may be so
secured may decrease or increase from time to time. The lien of this Deed of
Trust shall remain in effect until the last dollar of Borrower's Liabilities is
paid in full and all obligations of Agent and Lenders under the Loan Agreement
have been terminated.
4.9. LAST DOLLAR. The lien of this Deed of Trust shall remain
in effect until the last dollar of Borrower's Liabilities is paid in full and
all obligations of Agent and Lenders under the Loan Agreement have been
terminated.
4.10. RELEASE. Upon full payment and satisfaction of
Borrower's Liabilities and the termination of all obligations of Agent and
Lenders under the Loan Agreement, Agent shall issue to Trustor an appropriate
release or satisfaction in recordable form.
4.11. TIME OF THE ESSENCE. Time is of the essence with respect
to this Deed of Trust and all the provisions hereof.
4.12. LOAN AGREEMENT. The Loans are governed by terms and
provisions set forth in the Loan Agreement and in the event of any conflict
between the terms of this Deed of Trust and the terms of the Loan Agreement, the
terms of the Loan Agreement shall control.
4.13. REPLACEMENT OF NOTES. Any one or more of the financial
institutions which are or become a party to the Loan Agreement as Lenders may
from time to time be replaced and, accordingly, one or more of the Notes may
from time to time be replaced, provided that the terms of the Notes following
such replacement, including the principal amount evidenced thereby, shall remain
the same. As the indebtedness secured by this Deed of Trust shall remain the
same, such replacement of the Notes shall not be construed as a novation and
shall not affect, diminish or abrogate Trustor's liability under this Deed of
Trust or the priority of this Deed of Trust.
4.14. FIXTURE FILING. This Deed of Trust covers goods that are
or are to become fixtures on the real property described herein. This Deed of
Trust is to be filed for record in the real estate records and shall constitute
a "fixture filing" for all purposes of the Uniform Commercial Code of Texas. The
name of the record owner of the real estate concerned is the Trustor. The
mailing address of the Trustor (debtor) and the Agent (secured party) are set
out on the first page of this Deed of Trust.
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<PAGE> 18
4.15. WARRANTY. Trustor warrants that the extension of credit
evidenced by the Loan Agreement and the Notes secured hereby are solely for
business or commercial purposes other than agricultural purposes.
ARTICLE FIVE
CONCERNING THE TRUSTEE
5.1. NO LIABILITY. Trustee shall not be liable for any error
of judgment or act done by Trustee, or be otherwise responsible or accountable
under any circumstances whatsoever. Trustee shall not be personally liable in
case of entry by him or anyone acting by virtue of the powers herein granted him
upon the Property for debts contracted or liability or damages incurred in the
management or operation of the Property. Trustee shall have the right to rely on
any instrument, document or signature authorizing or supporting any action taken
or proposed to be taken by him hereunder or believed by him in good faith to be
genuine. Trustee shall be entitled to reimbursement for expenses incurred by him
in the performance of his duties hereunder and to reasonable compensation for
such of his services hereunder as shall be rendered. Trustor will, from time to
time, pay compensation due the Trustee hereunder and reimburse Trustee for and
save and hold him harmless from and against any and all loss, cost, liability,
damage and expense whatsoever incurred by him in the performance of his duties.
5.2. RETENTION OF MONIES. All monies received by Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received, but need not be segregated in any manner
from any other monies (except to the extent required by law) and Trustee shall
be under no liability for interest on any monies received by him hereunder.
5.3. SUCCESSOR TRUSTEE. Trustee may resign by giving of notice
of such resignation in writing to Agent. If Trustee shall die, resign or become
disqualified from acting in the execution of this Trust or shall fail or refuse
to exercise the same when requested by Agent so to do if for any reason and
without cause Agent shall prefer to appoint a substitute trustee to act instead
of the original Trustee named herein, or any prior successor or substitute
trustee, Agent shall have full power to appoint a substitute trustee and, if
preferred, several substitute trustees in succession who shall succeed to all
the estate, rights, powers and duties of the aforenamed Trustee. Such
appointment may be executed by an authorized officer or agent of Agent and such
appointment shall be conclusively presumed to be executed with authority and
shall be valid and sufficient without proof of any action by the Board of
Directors or any superior officer of Agent.
5.4. SUCCESSION INSTRUMENTS. Any new Trustee appointed
pursuant to any of the provisions hereof shall, without any further act, deed or
conveyance, become vested with all the estates, properties, rights, powers and
trusts of its or his predecessor in the rights hereunder with like effect as if
originally named as Trustee herein; but, nevertheless, upon the written request
of Agent or his successor trustee, the Trustee ceasing to act shall execute and
deliver an instrument transferring to such successor trustee, upon the trust
herein expressed, all the estates, properties, rights, powers and trusts of the
Trustee so ceasing to act, and shall duly assign, transfer and deliver any of
the property and monies held by the Trustee to the successor trustee so
appointed in its or his place.
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<PAGE> 19
5.5. PERFORMANCE OF DUTIES BY AGENT. Trustee may authorize one
or more parties to act on his behalf to perform the ministerial functions
required of him hereunder, including, without limitation, the transmittal and
posting of any notices.
5.6. NO REQUIRED ACTION. Trustee shall not be required to take
any action toward the execution and enforcement of the trustee hereby created or
to institute, appear in or defend any action, suit or other proceedings in
connection therewith where in his opinion such action will be likely to involve
him in expense or liability, unless requested to do so by a written instrument
signed by Agent and, if Trustee so requests, unless Trustee is tendered security
and indemnity satisfactory to him against any and all costs, expenses and
liabilities arising therefrom. Trustee shall not be responsible for the
execution, acknowledgment or validity of the Loan Instruments, or for the proper
authorization thereof, or for the sufficiency of the lien and security interest
purposed to be created hereby, and makes no representation in respect thereof or
in respect of the rights, remedies and recourses of Agent.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
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<PAGE> 20
IN WITNESS WHEREOF, Trustor has caused this instrument to be
executed by its duly authorized officers as of the day and year first above
written.
TELXON CORPORATION,
a Delaware corporation
By: /s/ Woody M. McGee
-------------------------
Its: CFO
------------------------
THIS INSTRUMENT PREPARED BY
AND AFTER RECORDING RETURN TO:
Carole K. Towne, Esq.
Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
(312) 201-4000
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<PAGE> 21
ACKNOWLEDGMENT
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
This instrument was acknowledged before me this August 26,
1999, by W. M. McGee, the CFO of TELXON CORORATION, a Delaware corporation, on
behalf of the corporation.
/s/ Dawn L. Rinchiuso
----------------------------------------
Notary Public
Dawn L. Rinchiuso
----------------------------------------
Printed Name (or Stamp) of Notary Public
"OFFICIAL SEAL" My Appointment Expires:
DAWN L. RINCHIUSO April 26, 2002
Notary Public, State of Illinois --------------
My Commission Expires April 26, 2002
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<PAGE> 1
EXHIBIT 10.3.3.c
PATENT, TRADEMARK, COPYRIGHT AND LICENSE MORTGAGE
THIS PATENT, TRADEMARK, COPYRIGHT AND LICENSE MORTGAGE (the
"Mortgage") made as of this 26th day of August, 1999, by TELXON CORPORATION, a
Delaware corporation, with its principal business and chief executive office at
3330 West Market Street, Akron, Ohio 44333 ("Mortgagor") in favor of FOOTHILL
CAPITAL CORPORATION, as agent for the Lenders from time to time party to the
Loan and Security Agreement referred to below, with an office at 11111 Santa
Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333 ("Mortgagee"):
W I T N E S S E T H:
WHEREAS, Mortgagor, Mortgagee and certain lenders are parties
to a certain Loan and Security Agreement of even date herewith (the lenders that
are from time to time a party thereto being herein referred to as "Lenders") and
other related loan documents of even date herewith (collectively, the "Loan
Agreements"), which Loan Agreements provide (i) for Lenders to, from time to
time, extend credit to or for the account of Mortgagor and (ii) for the grant by
Mortgagor to Mortgagee, for the benefit of Mortgagee and Lenders, of a security
interest in certain of Mortgagor's assets, including, without limitation, its
patents, patent applications, trademarks, trademark applications, trade names,
service marks, service mark applications, copyrights, copyright applications,
goodwill and licenses;
NOW, THEREFORE, in consideration of the premises set forth
herein and for other good and valuable consideration, receipt and sufficiency of
which are hereby acknowledged, Mortgagor agrees as follows:
1. Incorporation of Loan Agreements. The Loan Agreements and
the terms and provisions thereof are hereby incorporated herein in their
entirety by this reference thereto. All terms capitalized but not otherwise
defined herein shall have the same meanings herein as in the Loan Agreements.
2. Mortgage of Patents, Trademarks and Licenses. To secure the
complete and timely satisfaction of all of Mortgagor's Obligations, Mortgagor
hereby grants a security interest in and mortgages to Mortgagee, for the benefit
of Mortgagee and each Lender, as and by way of a first mortgage and security
interest having priority over all other security interests, with power of sale
upon the occurrence and during the continuance of an Event of Default, to the
extent permitted by law, in all of Mortgagor's right, title and interest in and
to all of its now existing and hereafter created or acquired:
(a) patents and patent applications, including, without
limitation, the inventions and improvements described and claimed therein, and
those patents listed on Exhibit A attached hereto and hereby made a part hereof,
and (i) the reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof, (ii) all income, damages and payments
<PAGE> 2
now and hereafter due or payable under or with respect thereto, including,
without limitation, damages and payments for past or future infringements
thereof, (iii) the right to sue for past, present and future infringements
thereof, and (iv) all rights corresponding thereto throughout the world (all of
the foregoing patents and applications, together with the items described in
clauses (i)-(iv) of this subsection 2(a), are sometimes hereinafter referred to
individually as a "Patent" and, collectively, as the "Patents");
(b) trademarks, trademark registrations, trademark
applications, trade names and tradestyles, service marks, service mark
registrations, service mark applications and brand names, including, without
limitation, the trademarks, trade names, service marks and applications and
registrations thereof listed on Exhibit B attached hereto and hereby made a part
hereof, and (i) renewals or extensions, thereof, (ii) all income, damages and
payments now and hereafter due or payable with respect thereto, including,
without limitation, damages and payments for past or future infringements
thereof, (iii) the right to sue for past, present and future infringements
thereof, and (iv) all rights corresponding thereto throughout the world (all of
the foregoing trademarks, trade names, service marks and applications and
registrations thereof, together with the items described in clauses (i)-(iv) of
this subsection 2(b), are sometimes hereinafter referred individually as a
"Trademark" and, collectively, as the "Trademarks");
(c) copyrights, rights and interests in copyrights, works
protectable by copyrights, copyright registrations and copyright applications,
including, without limitation, the copyright registrations and applications
listed on Exhibit C attached hereto and made a part hereof, and all renewals of
any of the foregoing, all income, royalties, damages and payments now and
hereafter due and/or payable under or with respect to the any of the foregoing,
including, without limitation, damages, and payments for past, present and
future infringements of any of the foregoing and the right to sue for past,
present and future infringements of any of the foregoing (all of the foregoing
are sometimes hereinafter individually, as a "Copyright" and, collectively as
the "Copyrights").
(d) license agreements (to the extent such license agreements
may be assigned without violating the terms of any such license agreement) with
respect to any of the Patents, Trademarks or Copyrights, or any other patent,
trademark, service mark, copyright or any application or registration thereof or
any other trade name or tradestyle between Mortgagor and any other party,
whether Mortgagor is a licensor or licensee under any such license agreement,
including, without limitation, the licenses listed on Exhibit D attached hereto
and hereby made a part hereof (all of the foregoing license agreements and
Mortgagor's rights thereunder are referred to collectively as the "Licenses");
and
(e) the goodwill of Mortgagor's business connected with and
symbolized by the Trademarks.
3. Warranties and Representations. Mortgagor warrants and
represents to Mortgagee that, except as set forth on Schedule 5.16 to the Loan
Agreement:
(a) no Patent, Trademark, Copyright or License has been
adjudged invalid or unenforceable nor has any such Patent, Trademark, Copyright
or, to the best of Mortgagor's
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<PAGE> 3
knowledge, no License been cancelled, in whole or in part and each such Patent,
Trademark, Copyright and License is presently subsisting;
(b) each Patent, Trademark, Copyright and License is valid and
enforceable;
(c) Mortgagor is the sole and exclusive owner of the entire
and unencumbered right, title and interest in and to each Patent, Trademark,
Copyright and License, free and clear of any liens, charges and encumbrances,
including, without limitation, licenses, shop rights and covenants by Mortgagor
not to sue third persons except for Permitted Liens;
(d) Mortgagor has adopted, used and is currently using all its
Trademarks;
(e) Mortgagor has no notice of any suits or actions commenced
or threatened with reference to the Patents, Trademarks, Copyrights or Licenses;
and
(f) Mortgagor has the unqualified right to execute and deliver
this Mortgage and perform its terms.
4. Restrictions on Future Agreements. Mortgagor agrees that
until Mortgagor's Obligations shall have been satisfied in full and the Loan
Agreements shall have been terminated, Mortgagor shall not, without the prior
written consent of Mortgagee, sell or assign its interest in, or grant any
license or sublicense under, the Patents, Trademarks, Copyrights or Licenses, or
enter into any other agreement with respect to the Patents, Trademarks,
Copyrights or Licenses, and Mortgagor further agrees that it shall not take any
action or permit any action to be taken by others subject to its control,
including licensees, or fail to take any action which would materially and
adversely affect the validity or enforcement of the rights transferred to
Mortgagee under this Mortgage. Nothing in this Section 4 shall be deemed,
however, to prevent Mortgagor in its sound business discretion and without the
prior written consent of Mortgagee to notify third parties of actual or alleged
infringement of the Patents, Trademarks, Copyrights or Licenses and pursue all
avenues available by law to enforce Mortgagor's rights in the patents,
Trademarks, Copyrights or Licenses.
5. New Patents, Trademarks, and Licenses. Mortgagor represents
and warrants that the Patents, Trademarks, Copyrights and Licenses listed on
Exhibits A, B, C, and D, respectively, constitute all of the Patents,
Trademarks, Copyrights and Licenses now owned by Mortgagor. If, before
Mortgagor's Obligations shall have been satisfied in full or before the Loan
Agreements have been terminated, Mortgagor shall (a) become aware of any
existing Patents, Trademarks, copyright works, Copyrights or Licenses of which
Mortgagor has not previously informed Mortgagee, (b) obtain rights to any new
Patents, Trademarks or Licenses, or (c) become entitled to the benefit of any
Patents, Trademarks, Copyrights or Licenses which benefit is not in existence on
the date hereof, the provisions of this Mortgage above shall automatically apply
thereto and Mortgagor shall give to Mortgagee prompt written notice thereof.
Mortgagor hereby authorizes Mortgagee to modify this Mortgage by amending
Exhibits A, B, C and D, as applicable, to include any such Patents, Trademarks,
Copyrights and Licenses.
6. Royalties; Terms. The term of the mortgages granted herein
shall extend until the earlier of (a) the expiration of each of the respective
Patents, Trademarks, Copyrights and
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<PAGE> 4
Licenses assigned hereunder, and (b) the payment in full of Mortgagor's
Obligations and the termination of the Loan Agreements. Mortgagor agrees that
upon the occurrence and during the continuance of an Event of Default, the use
by Mortgagee of all Patents, Trademarks, Copyrights and Licenses shall be
worldwide, except as limited by their terms, and without any liability for
royalties or other related charges from Mortgagee to Mortgagor. Notwithstanding
anything to the contrary set forth herein or in any other Loan Documents, so
long as this Mortgage is in effect and so long as Mortgagee shall not have
commenced the exercise of any of its remedies hereunder or under the other Loan
Documents, Mortgagor shall continue to have the exclusive right to use the
Patents, Trademarks, Copyrights and Licenses and Mortgagee shall have no right
to use the Patents, Trademarks, Copyrights and Licenses or to issue any license
with respect thereto, or to assign, pledge or otherwise transfer title to the
Patents, Trademarks, Copyrights and Licenses to any other Person. Mortgagor
agrees not to sell, assign or further encumber (other than Permitted Liens) its
rights and interests in the Patents, Trademarks, Copyrights and Licenses without
the prior written consent of Mortgagee.
7. Product Quality. Mortgagor agrees (a) to maintain the
quality of any and all products in connection with which the Patents,
Trademarks, Copyrights and Licenses are used, consistent with commercially
reasonable business practices, and (b) to provide Mortgagee, upon Mortgagee's
reasonable request from time to time, with a certificate of an officer of
Mortgagor certifying Mortgagor's compliance with the foregoing. Upon the
occurrence and during the continuance of an Event of Default, Mortgagor agrees
that Mortgagee, or a conservator appointed by Mortgagee, shall have the right to
establish such additional product quality controls as Mortgagee, or said
conservator, in its reasonable judgment, may deem necessary to assure
maintenance of the quality of products sold by Mortgagor under the Patents,
Trademarks, Copyrights or Licenses.
8. Release of Mortgage. This Mortgage is made for collateral
purposes only. Upon payment in full of Mortgagor's Obligations and termination
of the Loan Agreements, Mortgagee shall execute and deliver to Mortgagor all
deeds, assignments and other instruments, and shall take such other actions, as
may be necessary or proper to re-vest in Mortgagor full title to the Patents,
Trademarks, Copyrights and Licenses, subject to any disposition thereof which
may have been made by Mortgagee pursuant to the Loan Agreements.
9. Expenses. All expenses incurred in connection with the
performance of any of the agreements set forth herein shall be borne by
Mortgagor. All reasonable fees, costs and expenses, of whatever kind or nature,
including attorneys' fees and legal expenses, incurred by Mortgagee in
connection with the filing or recording of any documents (including all taxes in
connection therewith) in public offices, the payment or discharge of any taxes,
reasonable counsel fees, maintenance fees, encumbrances or otherwise in
protecting, maintaining or preserving the Patents, Trademarks, Copyrights and
Licenses, or in defending or prosecuting any actions or proceedings arising out
of or related to the Patents, Trademarks, Copyrights and Licenses, shall be
borne by and paid by Mortgagor and shall be charged against the Obligations.
10. Duties of Mortgagor. Mortgagor shall have the duty (a) to
file and prosecute diligently any patent, trademark, service mark and copyright
applications pending as of the date hereof or hereafter until Mortgagor's
Obligations shall have been paid in full and the Loan
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<PAGE> 5
Agreements have been terminated, (b) upon the request of Mortgagee, to make
application on unpatented but patentable inventions and on trademarks and
service marks, (c) to preserve and maintain all rights in the Patents,
Trademarks, Copyrights and Licenses, and (d) to ensure that the Patents,
Trademarks and Licenses are and remain enforceable. Any expenses incurred in
connection with Mortgagor's obligations under this Section 10 shall be borne by
Mortgagor.
11. Mortgagee's Right to Sue. After an Event of Default shall
have occurred and be continuing, Mortgagee shall have the right, but shall in no
way be obligated, to bring suit in its own name to enforce the Patents,
Trademarks, Copyrights and Licenses, and, if Mortgagee shall commence any such
suit, Mortgagor shall, at the request of Mortgagee, do any and all lawful acts
and execute any and all proper documents required by Mortgagee in aid of such
enforcement and Mortgagor shall promptly, upon demand, reimburse and indemnify
Mortgagee for all costs and expenses incurred by Mortgagee in the exercise of
its rights under this Section 11.
12. Waivers. No course of dealing between Mortgagor and
Mortgagee, nor any failure to exercise, nor any delay in exercising, on the part
of Mortgagee, any right, power or privilege hereunder or under the Loan
Agreements shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or thereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
13. Severability. The provisions of this Mortgage are
severable, and if any clause or provision shall be held invalid and
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Mortgage in
any jurisdiction.
14. Modification. This Mortgage cannot be altered, amended or
modified in any way, except as specifically provided in Section 5 hereof or by a
writing signed by the parties hereto.
15. Cumulative Remedies; Power of Attorney; Effect on Loan
Agreements. All of Mortgagee's rights and remedies with respect to the Patents,
Trademarks, Copyrights and Licenses, whether established hereby or by the Loan
Agreements, or by any other agreements or by law shall be cumulative and may be
exercised singularly or concurrently. Mortgagor hereby authorizes Mortgagee upon
the occurrence and during the continuance of an Event of Default, to make,
constitute and appoint any officer or agent of Mortgagee as Mortgagee may
select, in its sole discretion, as Mortgagor's true and lawful attorney-in-fact,
with power to (a) endorse Mortgagor's name on all applications, documents,
papers and instruments necessary or desirable for Mortgagee in the use of the
Patents, Trademarks, Copyrights and Licenses, or (b) take any other actions with
respect to the Patents, Trademarks, Copyrights and Licenses as Mortgagee deems
to be in the best interest of Mortgagee, or (c) grant or issue any exclusive or
non-exclusive license under the Patents, Trademarks, Copyrights or Licenses to
anyone, or (d) assign, pledge, convey or otherwise transfer title in or dispose
of the Patents, Trademarks, Copyrights or Licenses to anyone. Mortgagor hereby
ratifies all that such attorney shall lawfully do or cause to be done by virtue
hereof. This power of attorney shall be irrevocable until Mortgagor's
Obligations shall have been paid in full and the Loan Agreements have been
terminated. Mortgagor acknowledges and agrees
-5-
<PAGE> 6
that this Mortgage is not intended to limit or restrict in any way the rights
and remedies of Mortgagee under the Loan Agreements but rather is intended to
facilitate the exercise of such rights and remedies. Mortgagee shall have, in
addition to all other rights and remedies given it by the terms of this Mortgage
and the Loan Agreements, all rights and remedies allowed by law and the rights
and remedies of a secured party under the Uniform Commercial Code as enacted in
Illinois.
16. Binding Effect; Benefits. This Mortgage shall be binding
upon Mortgagor and its respective successors and assigns, and shall inure to the
benefit of Mortgagee, its successors, nominees and assigns.
17. Governing Law. This Mortgage shall be governed by and
construed in accordance with the laws of the State of Illinois.
18. Headings. Paragraph headings used herein are for
convenience only and shall not modify the provisions which they precede.
19. Further Assurances. Mortgagor agrees to execute and
deliver such further agreements, instruments and documents, and to perform such
further acts, as Mortgagee shall reasonably request from time to time in order
to carry out the purpose of this Mortgage and agreements set forth herein.
20. Survival of Representations. All representations and
warranties of Mortgagor contained in this Mortgage shall survive the execution
and delivery of this Mortgage and shall be remade on the date of each borrowing
under the Loan Agreements.
-6-
<PAGE> 7
IN WITNESS WHEREOF, Mortgagor has duly executed this Mortgage
in favor of Mortgagee as of the date first written above.
TELXON CORPORATION
By /s/ Woody M. McGee
--------------------------
Its VP/CFO
-------------------------
-7-
<PAGE> 8
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
The foregoing Patent, Trademark, Copyright and License
Mortgage was executed and acknowledged before me this 26 day of August, 1999, by
Woody McGee, personally known to me to be the Vice President and Chief Financial
Officer of Telxon Corporation, a Delaware corporation, on behalf of such
corporation.
/s/ Nancy Wegrzyn
-------------------------
NOTARY PUBLIC
"OFFICIAL SEAL"
NANCY WEGRZYN
Notary Public, State of Illinois
My Commission Expires March 31, 2000
THIS INSTRUMENT PREPARED BY
AND AFTER RECORDING RETURN TO:
Gary Zussman, Esq.
Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
(312) 201-4000
-8-
<PAGE> 1
EXHIBIT 10.5.2
--------------
AGREEMENT
---------
THIS AGREEMENT (this "Agreement") is entered into as of
November 8, 1999 by and among Telxon Corporation, a Delaware corporation
("Telxon"), Cisco Systems, Inc., a California corporation ("Cisco"), and Aironet
Wireless Communications, Inc., a Delaware corporation ("Aironet"). Capitalized
terms used but not defined herein shall have the meanings ascribed to such terms
in the Merger Agreement (as defined below).
RECITALS:
WHEREAS, Cisco and Aironet have entered into that certain
Agreement and Plan of Merger and Reorganization dated of even date herewith (the
"Merger Agreement"), pursuant to which, among other things, Cisco would acquire
Aironet pursuant to a merger of a subsidiary of Cisco with and into Aironet (the
"Merger") and Aironet stockholders would receive shares of Cisco Common Stock;
WHEREAS, Telxon beneficially owns approximately 35% of
Aironet's outstanding stock and as a result stands to benefit substantially from
the Merger;
WHEREAS, Telxon and Aironet are parties to a number of
agreements and have certain relationships which Cisco desires to terminate or
clarify in connection with entering into the Merger Agreement; and
WHEREAS, in order to induce Cisco to enter into the Merger
Agreement, Telxon and Aironet have agreed to enter into this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises,
the covenants and representations set forth herein, and certain other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
SECTION 1. TERMINATION OF TELXON/AIRONET AGREEMENTS; EXECUTION OF
PURCHASE AND LICENSE AGREEMENTS.
1.1 Effective as of, and conditioned upon the occurrence of,
the Effective Time, Telxon, Aironet and Cisco agree that with no further action
on the part of any party hereto or thereto, that certain License, Rights and
Supply Agreement and that certain Services Agreement, each dated March 31, 1998,
by and between Telxon and Aironet (the "Terminated Agreements"), and all
licenses granted thereunder, shall terminate effective as of the Effective Time,
and that none of Telxon, Cisco or the Surviving Corporation shall have any
further liability or obligations with respect thereto.
1.2 Unless specifically contemplated by the Merger Agreement
or with the express prior written consent of Cisco, from the date hereof until
the earlier of the Effective Time or the date on which the Merger Agreement is
terminated Aironet and Telxon will not
<PAGE> 2
amend, modify or otherwise alter, or otherwise cause or permit to be amended,
modified or otherwise altered, the Terminated Agreements.
1.3 Effective as of, and conditioned upon the occurrence of,
the Effective Time, Cisco and Telxon will enter into a Purchase Agreement in
substantially the form attached as EXHIBIT A hereto and a License Agreement in
substantially the form attached as EXHIBIT B hereto (together, the "New
Agreements"). The New Agreements shall become effective as of, and are expressly
conditioned upon, the occurrence of the Effective Time with no further action on
the part of Cisco or Telxon; provided that in the event that the Merger
Agreement is terminated or the Merger is not consummated, the New Agreements
shall terminate and be deemed void ab initio.
SECTION 2. CONSENTS TO ASSIGNMENT. Effective as of the
Effective Time, Telxon hereby consents to the assignment to Cisco and the
Surviving Corporation, and any other direct or indirect Cisco subsidiary of each
of the agreements set forth on SCHEDULE 1 hereto. Such consent shall be
effective at the Effective Time whether or not the corporate existence of
Aironet ceases, including, but not limited to, as a result of the merger of
Aironet with and into Cisco (or any subsidiary of Cisco) following the Merger.
Without limiting the generality of the foregoing, Telxon hereby expressly
acknowledges that Cisco is not a "direct competitor" of Telxon for purposes of
each of the LM3000 Software Agreement and the Patent License Agreement, each
dated March 30, 1998 by and between Telxon and Aironet and the Tax Benefit and
Indemnification Agreement dated March 31, 1998 by and between Telxon and
Aironet, and any other agreement for which such acknowledgement would be
appropriate.
SECTION 3. NON-COMPETITION AGREEMENT.
3.1 As an additional material inducement for Cisco to enter
into the Merger Agreement and consummate the Merger, from and after the date
hereof and prior to the consummation of the Merger for so long as the Merger
Agreement shall remain in effect, and upon the consummation of the Merger for a
period of two (2) years after the Effective Time, Telxon will not, other than
through its ownership of Aironet stock between the date hereof and the Effective
Time, as an employer, employee, agent, consultant, advisor, independent
contractor, partner, officer, director, stockholder, investor, member, lender or
guarantor of any business corporation, partnership or other entity, or in any
other capacity, directly or indirectly, on a worldwide basis:
(i) design or develop any PHY and/or MAC level
networking devices, or acquire (by means of merger, stock
purchase, asset purchase or otherwise) any business that
designs or develops such devices, which comply with the IEEE
802.11 standard (including each of the various specifications
thereunder), and any drafts, proposals, extensions and
modifications to the IEEE 802.11 standard and the
specifications thereunder (collectively, the "Business"); or
(ii) permit Telxon's name to be used in connection
with the Business.
2
<PAGE> 3
3.2 Notwithstanding the foregoing, Telxon may beneficially own,
directly or indirectly, solely for investment purposes, up to two percent (2%)
of any class of "publicly traded securities" of any person or entity which owns
or operates a business that is competitive or substantially similar to the
Business. The term "publicly traded securities" shall mean securities that are
traded on a national securities exchange or quoted on the National Association
of Securities Dealers Automated Quotation System.
3.3 If any restriction set forth in this Section 3 is found by a court
to be unreasonable and therefore unenforceable, or for any other reason to be
unenforceable, then Telxon agrees, and hereby submits, to the reduction and
limitation of such prohibition to such area or period as shall be deemed
enforceable.
SECTION 4. STOCKHOLDER LAWSUIT INDEMNIFICATION.
(a) INDEMNIFICATION. Telxon shall indemnify and hold
harmless Cisco and the Surviving Corporation and their respective directors,
officers, representatives, agents and affiliates (within the meaning of the
Securities Act of 1933, as amended) (collectively, the "Indemnified Parties")
from and against any cost, damage, disbursement, expense, liability, judgment,
loss, deficiency, obligation, penalty or settlement of any kind or nature,
whether foreseeable or unforeseeable, including, but not limited to, interest or
other carrying costs, penalties, legal, accounting and other professional,
expert witness and consultant fees and expenses incurred in investigation,
response to collection, prosecution and defense of claims and amounts paid to
settlement (collectively, "Losses") that may be imposed on, incurred or suffered
by any Indemnified Party as a result of or in connection with the two class
action lawsuits filed by Telxon's stockholders in the court of Chancery of the
State of Delaware on May 8, 1998 or the 27 class action lawsuits filed by
Telxon's stockholders in the U.S. District Court, Northern District of Ohio from
December 1998 through March 1999, including any successor or consolidated
actions or any future lawsuits or actions arising out of or with respect to the
facts alleged in such pending actions (each, an "Action").
4.2 PROCEDURES. If any Action indemnifiable under this Section 4
shall be brought, asserted or threatened against any person indemnified under
this Section 4, the Indemnified Party shall promptly notify the indemnifying
person ("Indemnitor"); PROVIDED that any failure to notify Indemnitor timely or
at all shall reduce the liabilities and obligations of Indemnitor under this
Section 4 only to the extent Indemnitor actually shall be prejudiced by the
failure. Indemnitor shall assume the payment of all related fees and expenses to
the Action, and Indemnitor may, at its option, assume the defense of, or respond
to, the Action. If Indemnitor has assumed the defense of (or responded to) the
Action, then the Indemnified Party shall not have the right to assume the
defense of (or respond to) the Action and, subject to the provisions of this
Section 4, Indemnitor shall have the right to control the defense, compromise or
settlement of any such Action. If Indemnitor, within 30 days after notice of any
such Action, or such shorter period as is reasonably required, fails to assume
the defense of such Action, the Indemnified Party will have the right to
undertake the defense, compromise or settlement of such Action on behalf of, and
for the account and risk, and at the expense of, Indemnitor, subject to the
right of Indemnitor to assume the defense of such Action at any time prior to
settlement, compromise or final determination thereof. The Indemnified Party
shall be bound by the result of the defense of any Action, whether the defense
shall have been assumed by Indemnitor or by
3
<PAGE> 4
the Indemnified Party; PROVIDED, HOWEVER, that Indemnitor shall not enter into
any settlement or compromise of any Action or consent to the entry of any
judgment (i) which does not include as an unconditional term thereof the
delivery to the Indemnified Party, of a written release from all liability in
respect of such Action or (ii) for other than monetary damages to be borne by
Indemnitor, without the prior written consent of the Indemnified Party, which
consent shall not be unreasonably withheld. The Indemnified Party shall
cooperate fully in all aspects of any investigation, defense, pre-trial
activities, trial, compromise, settlement or discharge of any Action in respect
of which indemnity is sought pursuant to this Section 4; PROVIDED that in any
event the costs associated therewith shall also be deemed Losses hereunder.
4.3 APPEAL. Notwithstanding anything in this Section 4 to the
contrary, if, in connection with an Action indemnifiable under this Section 4, a
court, governmental body or other authority of competent jurisdiction or other
person having authority or jurisdiction over a matter or matters related to the
Action shall have rendered, entered or granted a binding judgment, decision,
ruling, order or award with respect to the matter or matters providing for the
payment of money damages or the claimant and Indemnitor shall have agreed to
settle the Action for an amount of money damages without reservation of any
rights or defenses against the Indemnified Party, and if the Indemnified Party
elects to appeal the judgment, decision, ruling, order or award or declines to
agree to the proposed settlement, as the case may be, then the Indemnified Party
may continue to defend the Action, free of any participation by Indemnitor, but
the amount of any ultimate liability under this Section 4 with respect to Losses
related to or allegedly arising in connection with the matter or matters that
shall have been comprehended by the judgment, decision, ruling, order or award
or by the proposed settlement, as the case may be, shall then be limited to the
amount of the judgment, decision, ruling, order or award or the amount of the
proposed settlement, as the case may be.
4.4 LIMITATION ON OTHER RIGHTS OF RECOVERY. The rights of the
Indemnified Party to indemnification as provided for in this Section 4 shall
constitute the Indemnified Party's sole remedy against Indemnitor for
indemnification with respect to an Action and Indemnitor shall have no other
liability or damages to the Indemnified Party resulting from any Action. The
provisions of this Section 4 shall not eliminate or otherwise limit the right of
any Indemnified Party hereunder or any other person to seek to recover
contribution, damages or otherwise enforce its rights against any person other
than Indemnitor without regard to the provisions of this Section 4.
SECTION 5. MISCELLANEOUS.
5.1 FURTHER ASSURANCES. Each party hereto, at the reasonable request
of another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement.
5.2 GOVERNING LAW AND VENUE. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Delaware,
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 DELAWARE,
AND
4
<PAGE> 5
EACH PARTY HERETO CONSENTS TO THE JURISDICTION AND VENUE OF SUCH COURTS, AND
AGREES NOT TO CONSENT VENUE ON THE GROUNDS OF FORUM NON CONVENIENS OR OTHERWISE.
5.3 SEVERABILITY. In addition to the reformation provision of Section
3, if any term, provision, covenant or restriction of this Agreement is held by
a court of competent jurisdiction to be invalid, void or unenforceable, then the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
5.4 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without the prior written consent of the other.
5.5 AMENDMENT AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except by the execution and delivery of a
written agreement executed by the parties hereto.
5.6 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that Cisco will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Telxon set forth herein. Therefore, it is agreed that, in addition to any other
remedies that may be available to Cisco upon any such violation, Cisco shall
have the right to enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to Cisco at law or in equity
and each of Aironet and Telxon hereby waives any requirement for the security or
posting of any bond in connection with such enforcement.
5.7 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) If to Telxon to:
Telxon Corporation
3330 West Market Street
Akron Ohio, 44333
Attention: President
Facsimile No.: (330) 664-2220
(b) If to Aironet to:
Aironet Wireless Communications, Inc.
3875 Embassy Parkway
Akron, OH 44333
5
<PAGE> 6
Attention: Roger J. Murphy
Facsimile No.: (330) 664-7922
(c) If to Cisco to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134-1706
Attention: Senior Vice President, Legal
and Government Affairs
Facsimile No.: (408) 526-5925
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Therese A. Mrozek, Esq.
Facsimile No.: (650) 496-2885
; or to such other address as any party hereto may designate for itself by
notice given as herein provided.
5.8 EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
5.9 ENTIRE AGREEMENT. This Agreement represents and contains the
entire agreement and understanding among the parties hereto with respect to the
subject matter of this Agreement, and supersedes any and all prior oral and
written agreements and understandings.
[Signature page follows.]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first above written.
CISCO SYSTEMS, INC.
By: /s/ Larry Carter
----------------------------------------------
Name:
Title
TELXON CORPORATION
By: /s/ John W. Paxton, Sr.
----------------------------------------------
Name: John W. Paxton, Sr.
Title: Chairman and CEO
AIRONET WIRELESS COMMUNICATIONS, INC.
By: /s/ Roger J. Murphy
----------------------------------------------
Name: Roger J. Murphy
Title: President & CEO
[SIGNATURE PAGE TO AGREEMENT]
<PAGE> 8
SCHEDULE 1
1. Nondisclosure Agreement, dated March 31, 1998, by and between Telxon and
Aironet.
2. LM3000 Software Agreement, dated March 30, 1998, by and between Telxon and
Aironet.
3. Patent License Agreement, dated March 30, 1998, by and between Telxon and
Aironet.
4. Tax Benefit and Indemnification Agreement, dated March 31, 1998, by and
between Telxon and Aironet.
5. Patent License Agreement, dated August 4, 1999, by and between Telxon and
Aironet.
6. Lease for 91 Springside Drive, dated April 1, 1998, by and between Telxon
and Aironet.
7. Sublease for 3875 Embassy Parkway, dated August 1, 1998, by and between
Telxon and Aironet.
8. Cross Covenant Not to Sue, dated March 31, 1998, by and between Telxon and
Aironet.
<PAGE> 9
EXHIBIT A
PURCHASE AGREEMENT
<PAGE> 10
[AIRONET LOGO]
PURCHASE AGREEMENT
Between: and:
Aironet Wireless Communications, Inc. Telxon Corporation
3875 Embassy Parkway 3330 West Market Street
Akron, Ohio 44333 Akron, Ohio
(330) 664-7900
(330) 664-7922 (Fax)
("Aironet") ("Buyer")
1. PRODUCTS, PRICES, TAXES AND TERM. Aironet agrees to sell its products
("Products") to Buyer in available quantities for use by Buyer or sale by
Buyer to its customers as part of ,or for use with, Buyer's finished
products. Buyer shall place its orders for Products in writing specifying
the Products ordered, quantity and desired shipping date. Prices for the
Products shall be the same price Aironet charges its other customers for
same Products in like quantities and similar terms and conditions. Prices
are F.O.B. point of shipment, exclusive of shipping charges, federal, state
and/or local excise, sales, use property, occupation or similar taxes. This
agreement supersedes any terms or conditions contained in printed forms
submitted by either party in connection with this purchase, such as
purchase orders, sales acknowledgments or invoices, which shall be void and
of no effect. The term of this agreement is the one year period commencing
on the date of the last signature below, provided that the term may be
extended by mutual written agreement of the parties. Aironet may terminate
this agreement prior to the expiration of the term upon Telxon's material
breach, provided that Telxon shall have five days from written notice of
breach to cure and avoid termination.
2. CREDIT APPROVAL AND PAYMENT TERMS. Buyer shall pay for its orders net 30
days from the date of invoice. Aironet's invoicing and shipment of orders
is subject to Aironet's approval of Buyer's credit. Buyer will provide
Aironet with such financial information as Aironet reasonably requests to
establish credit approval. Aironet may assess late charges of up to one and
one-half percent (1 1/2%) per month or a higher rate as may be allowed by
law. Aironet may also collect from Buyer all costs, including reasonable
legal fees, which Aironet may incur to collect any delinquent amount.
3. DELIVERY. Aironet will use reasonable efforts to meet the delivery dates
specified in Buyer's orders; however, Aironet will not be liable for delays
in delivery for any reason. Aironet will select the carrier, who will
deliver the Products to Buyer at the location(s) shown in Buyer's orders,
or as otherwise agreed in writing by the parties. Title and risk of loss or
damage will pass to Buyer at Aironet's place of shipment upon delivery to
the first carrier. Buyer may not cancel this agreement for any reason.
Buyer may modify or cancel its orders without charge if done at least sixty
days prior to the scheduled shipping date. Orders may not be modified or
canceled sixty or fewer days prior to the scheduled shipping date.
4. WARRANTY. Aironet warrants the Aironet manufactured products purchased
pursuant to this agreement against defects in material and workmanship
under normal use and service for one year from the date of shipment to
Buyer. Aironet, at its option, will at no charge either repair, replace, or
refund the purchase price of the Product during the warranty period
provided it is returned in accordance with the terms of this warranty to
the location specified by Aironet from time
1
<PAGE> 11
to time. Repair, at Aironet's option, may include the replacement of parts
or boards with functionally equivalent reconditioned or new parts or
boards. Replaced parts or boards are warranted for the balance of the
original applicable warranty period. All replaced parts, boards, or Product
shall become the property of Aironet. This warranty is extended by Aironet
to Buyer only and is not assignable or transferable to any other party.
Aironet is not responsible under this warranty for ancillary equipment,
whether or not manufactured by Aironet, which is attached to or used in
connection with the Product, nor for operation of the Product with any such
ancillary equipment. Because each Product system is unique, Aironet
disclaims liability for range, coverage, or operation of the system as a
whole under this warranty. This warranty does not cover: defects or damage
resulting from use of the Products in other than its normal and customary
manner; defects or damage from misuse, accident or neglect; defects or
damage from improper testing, operation, maintenance, installation,
alteration, modification or adjustment; breakage or damage to antennas
unless caused directly by defects in material or workmanship; product
disassembled or repaired in such a manner as to adversely affect
performance or prevent adequate inspection and testing to verify any
warranty claim; or Product which has had the serial number removed or made
illegible.
5. PATENT AND COPYRIGHT INDEMNIFICATION. Aironet agrees to defend, at its
expense, any suits against Buyer based upon a claim that the Products
purchased hereunder infringe a now existing U.S. patent or copyright and to
pay costs and damages finally awarded in any such suit, provided that
Aironet is notified promptly in writing of the suit and Aironet is given
sole control of said suit and is provided by Buyer with all requested
assistance for defense of same. If the use or sale of any Products
furnished is enjoined as a result of such suit, Aironet at its option and
at no expense to Buyer will either (i) obtain for Buyer the right to use or
sell the Products, (ii) substitute a substantially equivalent product or
(iii) require the return of the Products and reimburse Buyer the purchase
price, less a charge for reasonable wear and tear and depreciation. This
indemnity does not extend to any suit based upon any infringement or
alleged infringement of any patent or copyright by Products which have been
altered by any person or entity other than Aironet or by the combination of
any Products with other items other than when the Products are used for
their intended purpose. This states the entire liability of Aironet for
intellectual property infringement.
6. FIRMWARE, MASK WORKS, SOFTWARE AND LICENSE DISCLAIMER. The Products may be
accompanied by software, and one or more components of the Products may
contain firmware or mask works programs built into their circuitry. Buyer's
purchase of the Products includes a non-exclusive, royalty-free,
non-transferable license to use such software, firmware and mask works with
or as part of the Products, but only under the conditions prescribed by
this Section 6. Any firmware, mask works or software which Aironet
furnishes with the Product is subject to the following minimum conditions,
in addition to those which may be imposed by law or other license terms
included with the Products: (i) Aironet (or its supplier) retains all title
and ownership to such firmware, mask works or software, and Aironet
reserves all rights in patents, copyrights, trade secrets and other
intellectual property in it; (ii) Buyer may not copy, disassemble,
decompile or reverse engineer the firmware, mask works or software under
any circumstances, nor will Buyer assist or cooperate with third parties
attempting any of the foregoing; and (iii) Buyer will exercise the same
care to prevent any unauthorized copying or dissemination by Buyer's
customers and others who are to use the Products as Buyer would take to
protect Buyer's own proprietary information, but in no event less than
reasonable care. If Buyer
2
<PAGE> 12
ever transfers the Products to any other party, Buyer shall bind its
transferee to the terms of this Section 6. Except for the right to use the
software, firmware or maskworks as provided in this Section 6, nothing
contained in this agreement shall be deemed to grant to Buyer or any other
person or entity, either directly or by implication, estoppel, or otherwise
any license or right under any patents, copyrights, trademarks or trade
secrets of Aironet or any third party.
7. WARRANTY DISCLAIMERS. THE WARRANTY GIVEN IN SECTION 4 IS LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT, WHICH ARE SPECIFICALLY EXCLUDED. SECTION 4 SETS FORTH THE
FULL EXTENT OF AIRONET'S RESPONSIBILITIES AND LIABILITY REGARDING THE
PRODUCTS, AND REPAIR, REPLACEMENT, OR REFUND OF THE PURCHASE PRICE, AT
AIRONET'S OPTION, IS BUYER'S EXCLUSIVE REMEDY. SECTION 5 SETS FORTH THE
FULL EXTENT OF AIRONET'S RESPONSIBILITY AND LIABILITY REGARDING
INTELLECTUAL PROPERTY INFRINGEMENT.
8. CONSEQUENTIAL DAMAGES WAIVER. IN NO EVENT SHALL AIRONET BE LIABLE FOR ANY
LOSS OF USE, LOSS OF TIME, LOST DATA, INCONVENIENCE, COMMERCIAL LOSS, LOST
PROFITS OR SAVINGS OR OTHER INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES,
REGARDLESS OF HOW ARISING OR WHETHER AIRONET HAS BEEN NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
9. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING ELSE HEREIN, ALL
LIABILITY OF AIRONET AND ITS SUPPLIERS UNDER THIS AGREEMENT OR OTHERWISE
SHALL BE LIMITED TO THE PURCHASE PRICE PAID TO AIRONET FOR THE AFFECTED
PRODUCTS DURING THE SIX (6) MONTH PERIOD PRECEDING THE EVENT OR
CIRCUMSTANCES GIVING RISE TO SUCH LIABILITY. THIS LIMITATION OF LIABILITY
IS CUMULATIVE AND NOT PER INCIDENT.
10. GOVERNMENT SALES. Any software or firmware which is part of or accompanies
the Products constitutes commercial computer software programs developed at
private expense, and to the extent that the Products or any accompanying
software is provided to or on behalf of the United States of America, its
agencies and/or instrumentalities (collectively, the "Government"), Buyer
must provide such Products (A) with "restricted rights" within the meaning
of, and use, duplication and disclosure thereof by the Government is
subject to the restriction set forth in, the Rights in Technical Data and
Computer Licensed Program clause at 48 C.F.R. 252.227-7013 and (B) Buyer
shall provide that the software and firmware constitute "restricted
computer software" within the meaning of the Commercial Computer Licensed
Program - Restricted Rights clause at 48 C.F.R. 52.227-19, as applicable,
or as set forth in the particular department or agency regulations or rules
which provide protection equivalent to or greater than the above cited
clauses or any successor provisions to any of the foregoing. The
Manufacturer/Contractor is Aironet Wireless Communications, Inc., 3875
Embassy Parkway, Akron, Ohio 44334.
11. COMPLIANCE WITH LAW. Buyer shall not use or transfer the Products except in
accordance with all applicable federal, state, and local laws and
regulations. In the event that Buyer
3
<PAGE> 13
uses or sells the Products outside of the United States, Buyer shall comply
with all the United States export control laws and similar laws of the
foreign county involved. The Products have been configured to operate in
the United States unless otherwise agreed by Aironet as to any specific
order.
12. YEAR 2000. In reference to requests regarding "Year 2000" compliance,
please be advised that for all Aironet products, there is no reliance upon
any function that keeps time or calendar information. Therefore, Aironet
products do not require any "Year 2000" specific modifications or updates
to operate correctly before, during or after the year 2000, provided that
all other products (for example, hardware, software and firmware) used with
the Aironet products, properly exchange accurate data with it.
13. GENERAL. Buyer may not assign this agreement or Buyer's rights or
obligations hereunder without the express written consent of Aironet.
Notices under this agreement must be sent by telegram, telex, telecopy, or
registered or certified mail to the appropriate party at its address stated
on the first page of this agreement (or to a new address if the other has
been properly notified of the change). If Aironet, the notice must be
addressed to the President of Aironet. A notice will not be effective until
the addressee actually receives it. All terms and pricing of this agreement
are confidential and Buyer will not disclose same without Aironet's prior
written consent. This agreement constitutes the entire and final expression
of agreement between the parties pertaining to the subject matter of the
agreement and supersedes all other communications between the parties,
including all previous oral or written communications. If any provision is
held invalid all other provisions shall remain valid, unless such
invalidity would frustrate the purpose of this agreement. No waiver of any
term, or alteration or modification of the agreement will be binding upon
either Buyer or Aironet unless made in writing and signed by an authorized
representative of each. No failure or delay to act on any rights under this
agreement shall be construed as a waiver of these or any other rights of
the parties. Any term which by its nature survives the expiration or
termination of this agreement shall so survive. This agreement shall be
governed in accordance with the law of the state of Ohio without regard to
conflict-of-laws principles.
4
<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this agreement to be
executed by their duly-authorized representatives as of the dates set forth
below.
AIRONET WIRELESS COMMUNICATIONS, INC. TELXON CORPORATION
------------------
By: By:
------------------------------------- ---------------------------------
(Authorized Signature) (Authorized Signature)
(Print Name) (Print Name)
Title: Title:
---------------------------------- ------------------------------
Date: Date:
---------------------------------- ------------------------------
5
<PAGE> 15
EXHIBIT B
LICENSE AGREEMENT
<PAGE> 16
LICENSE AGREEMENT
This License Agreement (this "Agreement") is made as of November 8,
1999, by between Aironet Wireless Communications, Inc. ("Aironet") and Telxon
Corporation. This Agreement shall become operative only upon closing ("Closing")
under the Agreement and Plan of Merger and Reorganization dated as of the date
hereof by and among Cisco Systems, Inc., Aironet, and Osprey Acquisition
Corporation.
BACKGROUND
WHEREAS, Aironet and Telxon are parties to a License, Rights, and
Supply Agreement dated as of March 31, 1998 (together with all exhibits and
schedules thereto and as amended, the "Prior Agreement"), pursuant to which
Aironet has granted to Telxon certain rights and licenses, and has agreed to
supply Telxon with certain products; and
WHEREAS, to accommodate changes in the respective business plans of the
parties, effective as of the Closing, the Prior Agreement is hereby terminated
and this Agreement shall be entered into in its place.
AGREEMENT
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. LICENSE. Subject to the other provisions of this Agreement, Aironet
hereby grants a perpetual (subject to Section 14), worldwide, non-exclusive
fully paid license to Telxon to make, support, service, maintain, repair,
integrate, install, combine, use, market, sell, lease, and transfer the hardware
products identified in SCHEDULE 1 and to copy the software and firmware used
therein and to load or integrate the software and firmware into such hardware
and to transfer such copies, in object code form only, with its associated
hardware and to support, service and maintain the software and firmware (such
hardware, software and firmware being collectively referred to as "Legacy
Products") to its customers. Telxon shall, and shall require its distributors,
OEMs, VARs and other resellers to, include an end user software license with
each copy of the software distributed with Legacy Products in an end user in
form reasonably acceptable to Aironet.
2. TERMINATION OF PRIOR AGREEMENT. The Prior Agreement and all licenses
and rights thereunder are terminated effective as of the Closing; provided,
however, that the following sections of the Prior Agreement and only those
sections shall survive termination: Sec. 18.3 (Confidentiality), 18.5
(Limitation of Liability).
3. NO ROYALTIES. No royalties or fees are due in payment of the rights
and licenses
1
<PAGE> 17
granted to Telxon in this Agreement which are fully paid.
4. CONTRACTORS. Telxon may have the licensed activities performed for
it by third parties that are not direct competitors of Aironet, but Telxon has
no right to sublicense or re-license its rights hereunder.
5. RESTRICTIONS. Telxon shall not:
5.1 prepare improvements, refinements, enhancements,
modifications, adaptations, revisions, or derivatives of the Legacy
Products, except for minor changes to permit the Legacy Products to be
compatible or interface with Telxon's finished products,
5.2 sell any subassemblies or radios for Legacy 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;
5.3 sell Legacy Products through its alternate distribution
channels except to those partners which are certified to sell complete
Telxon integrated PTCs and pen-based products; or
5.4 otherwise engage in any activities prohibited under
Section 2.7 of the Prior Agreement.
6. DOCUMENTS. Telxon is in possession of documentation, procedures,
engineering drawings, manufacturing specifications, know how, schematics,
diagnostic programs, test procedures, code , specifications, vendor and parts
lists, technical bulletins, and the like necessary for Telxon to exercise its
rights under the license ("Documentation"). Telxon may copy and use the
Documentation in connection with the exercise of the license.
6.1 COPYRIGHT NOTICES. Telxon shall ensure that all copies of
the Documentation in Telxon's possession or control incorporate
copyright and other proprietary notices in the same manner that Aironet
incorporates such notices in the Documentation or in any manner
reasonably requested by Aironet. Telxon shall promptly notify Aironet
in writing upon its discovery of any unauthorized use of the
Documentation or infringement of the Documentation or Aironet's
proprietary rights in the Documentation.
6.2 PROTECTION OF DOCUMENTATION. Documentation is the
confidential and proprietary property of Aironet. Telxon receives no
rights to and, other than copies of Documentation customarily provided
to customers or members of its distribution channels and maintenance
providers, will not sell, assign, lease, rent, market, transfer,
encumber or suffer to exist any lien or security interest (other than
those of Aironet and Telxon's commercial lenders) nor allow any person,
firm, or corporation to copy, reproduce or disclose, in whole or in
part in any manner, the Documentation. Telxon shall take all reasonable
steps, both during and after the term of this Agreement, to ensure
2
<PAGE> 18
that no unauthorized person shall have access to Documentation and that
no unauthorized copy, in whole or in part, in any form shall be made.
7. LICENSING TO U.S. GOVERNMENT. Telxon shall identify or mark any
copies of the Software and Documentation provided pursuant to any agreement with
the United States Government or any contractor therefor, as follows: (i) For
acquisition by or on behalf of civilian agencies, as necessary to obtain
protection substantially equivalent to that afforded to restricted computer
software and related documentation developed at private expenses and which is
existing computer no part of which was developed with government funds and
provided with Restricted Rights in accordance with subparagraphs (a) through (d)
of the "Commercial Computer Software Restricted Rights" clause at 48 C.F.R.
52.227-19 of the Federal Acquisition Regulations and its successors; or (ii) For
acquisition by or on behalf of units of the Department of Defense ("DOD") as
necessary to obtain protection substantially equivalent to that afforded to
commercial computer software and related documentation developed at private
expenses and provided with Restricted Rights as defined in DOD FAR Supplement 48
C.F.R. 52.227-7013(c)(1)(ii) and its successors.
8. OWNERSHIP. 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 intellectual property underlying the
Legacy Products and Documentation is Aironet's sole property, and that Telxon
has no right, title, or interest in or thereto except for the license granted in
this Agreement. Aironet's and Telxon's intellectual property rights shall remain
separate property and shall not be, or be deemed to be, a joint work,
compilation, or any other type of work of multiple authorship by reason of this
Agreement.
9. NO IMPLIED RIGHTS. Except for the specific and unequivocal rights
and licenses conferred herein, nothing contained in this Agreement shall be
deemed to grant to Telxon or any other person or entity, either directly or by
implication, estoppel, or otherwise any license or right under any patents,
copyrights, trademarks, trade secrets, or other intellectual or industrial
property rights of Aironet or any third party.
10. TRADEMARKS; PROPRIETARY LEGENDS. Telxon's products, including the
Legacy Products, shall not carry any of Aironet's trademarks. Aironet may
reasonably require Telxon to mark the Legacy Products with proprietary rights
notices required either (a) by or in accordance with law or (b) to prevent
prejudice to Aironet's intellectual property rights.
11. DISCLAIMER. AIRONET MAKES NO WARRANTY OF ANY KIND WITH RESPECT TO
ANY LEGACY PRODUCT, 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, SATISFACTORY QUALITY OR PERFORMANCE, OR NON-INFRINGEMENT.
12 Telxon 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. At the request of Aironet and during the normal business
3
<PAGE> 19
hours of Telxon, no more than once in any fiscal quarter, Telxon shall permit an
Aironet's representative, to have access to such books, records and inventories
as may be necessary to determine Telxon's compliance with this Agreement.
13. COVENANTS. Telxon agrees that it shall at all times: (i) act to
protect the Documentation with the same level of diligence and care that it
takes to protect its own trade secrets, but in no case less than a reasonable
degree of care; (ii) maintain high standards of quality in Legacy Products; and
(iii) comply in all material respects with all applicable laws, rules, and
regulations in its performance hereunder.
14. TERMINATION. Aironet may terminate this Agreement upon a material
breach by Telxon, provided that Telxon may avoid termination by curing the
breach within seven (7) days following receipt of written notice of breach from
Aironet. Upon termination or expiration Telxon shall return or destroy the
Documentation at Aironet's direction. The provisions of Section 6.2 shall
survive termination of this Agreement.
15. ASSIGNMENT. Telxon may not assign this Agreement or its rights or
obligations hereunder without the express written consent of Aironet.
16. INDEMNIFICATION. Telxon shall indemnify, defend, and hold harmless
Aironet, 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 Telxon's exercise of its rights hereunder.
17. LIMITATION OF LIABILITY. EXCEPT FOR BREACH OF THE OBLIGATION TO
KEEP THE DOCUMENTATION CONFIDENTIAL AND BREACH OF THE SCOPE OF THE LICENSE,
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.
4
<PAGE> 20
18. MISCELLANEOUS. 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. 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 counterparts, each of
which shall be deemed and enforceable as an original, and all of which together
shall constitute one and the same instrument. 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. 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 the parties at their principal offices to the attention of their
presidents. This Agreement, together with any 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 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.
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:_________________________ By:________________________________
Roger J. Murphy, President John W. Paxton, Chairman
and Chief Executive Officer and Chief Executive Officer
5
<PAGE> 21
SCHEDULE 1.1
LEGACY PRODUCTS
<TABLE>
<CAPTION>
-------------------------------- ----------------------------- -------------------------------
1000 SERIES 2000 SERIES
----------- -----------
-------------------------------- ----------------------------- -------------------------------
900 MHz 2.4 GHz
DSSS DSSS
Proprietary Proprietary
-------------------------------- ----------------------------- -------------------------------
<S> <C> <C>
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> 1
EXHIBIT 10.15
-------------
STOCKHOLDER AGREEMENT
(TELXON CORPORATION)
THIS STOCKHOLDER AGREEMENT (the "Agreement") is made and
entered into as of November 8, 1999, between Cisco Systems, Inc., a California
corporation ("Parent"), Osprey Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of Parent ("Merger Sub"), and Telxon Corporation
("Stockholder"), a stockholder of Aironet Wireless Communications, Inc., a
corporation existing under the laws of Delaware ("Company").
RECITALS:
WHEREAS, pursuant to an Agreement and Plan of Merger and
Reorganization dated as of November 8, 1999, by and among Parent, Merger Sub and
Company (such agreement as it may be amended or restated is hereinafter referred
to as the "Reorganization Agreement"), the parties agreed that on the signing of
the Reorganization Agreement, Parent, Merger Sub and Stockholder would execute
and deliver a Stockholder Agreement containing the terms and conditions set
forth in an Exhibit to the Reorganization Agreement together with such other
terms and conditions as may be agreed to by the parties to the Reorganization
Agreement acting reasonably;
WHEREAS, Parent has agreed to acquire the outstanding
securities of Company pursuant to a statutory merger of Merger Sub with and into
Company (the "Merger") effected in part through the conversion of each
outstanding share of capital stock of Company (the "Company Capital Stock"),
into shares of common stock of Parent (the "Parent Shares") at the rate set
forth in the Reorganization Agreement (the "Transaction");
WHEREAS, in order to induce Parent to enter into the
Transaction, Company has agreed to use its best efforts to solicit the proxy of
certain stockholders of Company on behalf of Parent, and to cause certain
stockholders of Company to execute and deliver Stockholder Agreements to Parent;
WHEREAS, Stockholder is the registered and beneficial owner of
such number of shares of the outstanding Company Capital Stock as is indicated
on the signature page of this Agreement (the "Shares"); and
WHEREAS, in order to induce Parent to enter into the
Transaction, certain stockholders of Company have agreed not to transfer or
otherwise dispose of any of the Shares, or any other shares of Company Capital
Stock acquired by such stockholder hereafter and prior to the Expiration Date
(as defined in Section 1.1 below), and have agreed to vote the Shares and any
other such shares of Company Capital Stock so as to facilitate consummation of
the Transaction.
<PAGE> 2
NOW, THEREFORE, the parties agree as follows:
1. SHARE OWNERSHIP AND AGREEMENT TO RETAIN SHARES.
1.1 TRANSFER AND ENCUMBRANCE.
(a) Stockholder is the beneficial owner of
that number of Shares of Company Capital Stock set forth on the signature page
hereto and, except as otherwise set forth on the signature page hereto, has held
such Company Capital Stock at all times since the date set forth on such
signature page. The Shares constitute the Stockholder's entire interest in the
outstanding Company Capital Stock. No other person or entity not a signatory to
this Agreement has a beneficial interest in or a right to acquire the Shares or
any portion of the Shares. The Shares are and will be at all times up until the
Expiration Date free and clear of any liens, claims, options, charges or other
encumbrances other than the existing pledge of the Shares in favor of Foothill
Capital Corporation.
(b) Stockholder agrees not to transfer
(except to a Permitted Assignee as provided in Section 9.2 below or as may be
specifically required by court order or by operation of law), sell, exchange,
pledge or otherwise dispose of or encumber the Shares or any New Shares (as
defined below), or to make any offer or agreement relating thereto, at any time
prior to the Expiration Date. As used herein, the term "Expiration Date" shall
mean the earlier to occur of (i) the Effective Time (as defined in the
Reorganization Agreement) of the Transaction, and (ii) the termination of the
Reorganization Agreement.
1.2 NEW SHARES. Stockholder agrees that any shares of
Company Capital Stock that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership after the date of this
Agreement and prior to the Expiration Date ("New Shares") shall be subject to
the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. AGREEMENT TO VOTE SHARES. Prior to the Expiration Date, at
every meeting of the stockholders of Company called with respect to any of the
following, and at every adjournment thereof, and on every action or approval by
written resolution of the stockholders of Company with respect to any of the
following, Stockholder shall vote the Shares and any New Shares (i) in favor of
approval of the Transaction and the other transactions contemplated by the
Reorganization Agreement and (ii) against any proposal for any recapitalization,
merger, sale of assets or other business combination (other than the
Transaction) between Company and any person or entity other than Parent and
Merger Sub (a "Competing Transaction").
3. IRREVOCABLE PROXY. Stockholder is hereby delivering to
Parent a duly executed proxy in the form attached hereto as EXHIBIT A (the
"Proxy") with respect to each meeting of stockholders of Company, such Proxy to
cover the total number of Shares and New Shares in respect of which Stockholder
is entitled to vote at any such meeting. Upon the execution of this Agreement by
the Stockholder, the Stockholder hereby revokes any and all prior proxies given
by the Stockholder with respect to the Shares and agrees not to grant any
subsequent proxies with respect to the Shares or any New Shares until after the
Expiration Date.
2
<PAGE> 3
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDER.
Stockholder hereby represents, warrants and covenants to Parent as follows:
(a) Until the Expiration Date, the Stockholder
will not (and will use such Stockholder's reasonable best efforts to cause
Company, its affiliates, officers, directors and employees and any investment
banker, attorney, accountant or other agent retained by such Stockholder or
them, not to): (i) initiate or solicit, directly or indirectly, any proposal,
plan of offer to acquire all or any substantial part of the business or
properties or Company Capital Stock, whether by merger, purchase of assets,
tender offer or otherwise, or to liquidate Company or otherwise distribute to
the Stockholders of Company all or any substantial part of the business,
properties or Company Capital Stock (each, an "Acquisition Proposal"); (ii)
initiate, directly or indirectly, any contact with any person in an effort to or
with a view towards soliciting any Acquisition Proposal; (iii) furnish
information concerning Company's business, properties or assets to any
corporation, partnership, person or other entity or group (other than Parent or
Merger Sub, or any associate, agent or representative of Parent or Merger Sub),
under any circumstances that would reasonably be expected to relate to an actual
or potential Acquisition Proposal; or (iv) negotiate or enter into discussions
or an agreement, directly or indirectly, with any entity or group with respect
of any potential Acquisition Proposal provided that, in the case of clauses
(iii) and (iv), the foregoing (A) shall not prevent Stockholder, in
Stockholder's capacity as a director or officer (as the case may be) of Company,
from taking any actions permitted under Section 4.3 of the Reorganization
Agreement and (B) shall not require Stockholder to use its reasonable best
efforts to cause the Company or its affiliates, officers, directors, or
employees or any investment banker, accountant, attorney or other agent to
refrain from taking any action permitted by Section 4.3 of the Reorganization
Agreement. In the event the Stockholder shall receive or become aware of any
Acquisition Proposal subsequent to the date hereof, such Stockholder shall
promptly inform Parent as to any such matter and the details thereof to the
extent possible without breaching any other agreement to which such Stockholder
is a party or violating its fiduciary duties.
(b) Stockholder has the corporate authority to
execute and deliver this Stockholder Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This
Stockholder Agreement has been duly and validly executed and delivered by
Stockholder and, assuming the due authorization, execution and delivery by
Parent, constitutes a legal, valid and binding obligation of Stockholder,
enforceable against Stockholder in accordance with its terms except that (i) the
enforceability thereof may be subject to applicable bankruptcy, insolvency or
other similar laws, now or hereinafter in effect affecting creditors' rights
generally and (ii) the availability of the remedy of specific performance or
injunctive or other forms of equitable relief may be subject to equitable
defenses and would be subject to the discretion of the court before which any
proceeding therefor may be brought.
(c) The execution and delivery of this
Stockholder Agreement by Stockholder does not, and the performance of this
Stockholder Agreement by Stockholder shall not result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance, on any of the Shares or New Shares pursuant to, any note, bond,
mortgage, indenture, contract,
3
<PAGE> 4
agreement, lease, license, permit, franchise or other instrument or obligation
to which Stockholder is a party or by which Stockholder or the Shares or New
Shares are or will be bound or affected.
5. ADDITIONAL DOCUMENTS. Stockholder hereby covenants and
agrees to execute and deliver any additional documents reasonably necessary, to
carry out the purpose and intent of this Agreement.
6. CONSENT AND WAIVER. Stockholder hereby gives any consents
or waivers that are reasonably required for the consummation of the Transaction
under the terms of any agreement to which Stockholder is a party or pursuant to
any rights Stockholder may have.
7. TERMINATION. This Agreement and the Proxy delivered in
connection herewith shall terminate and shall have no further force or effect as
of the Expiration Date.
8. CONFIDENTIALITY. Each of the parties hereto agrees (i) to
hold any information regarding this Agreement and the Transaction in strict
confidence, and (ii) not to divulge any such information to any third person,
until such time as the Transaction has been publicly disclosed by the parties.
9. MISCELLANEOUS.
9.1 SEVERABILITY. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
9.2 BINDING EFFECT AND ASSIGNMENT. This Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this Agreement
nor any of the rights, interests or obligations of the parties hereto may be
assigned by either of the parties without the prior written consent of the
other. No such prior consent shall be required with respect to any assignment of
the Shares to a wholly owned subsidiary of Stockholder, provided that the
assignee subsidiary agrees in writing to be bound by the terms of this Agreement
with the same force and effect as if it were Stockholder and executes and
delivers to Parent an irrevocable Proxy in substantially the same form as
executed by Stockholder pursuant to this Agreement. This Agreement is binding
upon Stockholder in Stockholder's capacity as a stockholder of Company (and not
in Stockholder's capacity as a director or officer, as the case may be, of
Company) and only with respect to the specific matters set forth herein.
9.3 AMENDMENT AND MODIFICATION. This Agreement may
not be modified, amended, altered or supplemented except by the execution and
delivery of a written agreement executed by the parties hereto.
9.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The
parties hereto acknowledge that Parent will be irreparably harmed and that there
will be no adequate remedy at law for a violation of any of the covenants or
agreements of Stockholder set forth herein.
4
<PAGE> 5
Therefore, it is agreed that, in addition to any other remedies that may be
available to Parent or Merger Sub upon any such violation, Parent and Merger Sub
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent or
Merger Sub at law or in equity and the Stockholder hereby waives any and all
defenses which could exist in its favor in connection with such enforcement and
waives any requirement for the security or posting of any bond in connection
with such enforcement.
9.5 NOTICES. All notices, requests, demands or other
communications that are required or may be given pursuant to the terms of this
Stockholder Agreement shall be in writing and shall be deemed to have been duly
given if delivered by hand or mailed by registered or certified mail, postage
prepaid, as follows:
(a) If to the Stockholder, at the
address set forth below the Stockholder's signature at the end hereof.
(b) if to Parent or Merger Sub, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134-1706
Attention: Senior Vice President, Legal and
Government Affairs
Facsimile No.: (408) 526-5925
Telephone No.: (408) 526-8252
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Therese A. Mrozek, Esq.
Facsimile No.: (650) 496-2885
Telephone No.: (650) 424-0160
(c) if to Company, to:
Aironet Wireless Communications, Inc.
3875 Embassy Parkway
Akron, OH 44333
Attention: Roger J. Murphy
Facsimile No.: (330) 664-7922
Telephone No.: (330) 664-7900
5
<PAGE> 6
with a copy to:
Day, Berry & Howard LLP
City Place I
Hartford, CT 06103
Attention: Frank Marco, Esq.
Facsimile No.: (860) 275-0343
Telephone No.: (860) 275-0100
and
Goodman Weiss Miller LLP
100 Erieview Plaza
27th Floor
Cleveland, OH 44114
Attention: Robert Goodman, Esq. and Jay R.
Faeges, Esq.
Facsimile No.: (216) 363-5835
Telephone No.: (216) 696-3366
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
9.6 GOVERNING LAW. This Amendment shall be
governed by, construed and enforced in accordance with the laws of the State of
Delaware.
9.7 ENTIRE AGREEMENT. This Agreement and the
Proxy contain the entire understanding of the parties in respect of the subject
matter hereof, and supersede all prior negotiations and understandings between
the parties with respect to such subject matter.
9.8 COUNTERPART. This Agreement may be executed
in several counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
9.9 EFFECT OF HEADINGS. The section headings
herein are for convenience only and shall not affect the construction or
interpretation of this Agreement.
[Signature page follows.]
6
<PAGE> 7
[SIGNATURE PAGE TO STOCKHOLDER AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this Stockholder Agreement
to be executed as of the date first above written.
CISCO SYSTEMS, INC. STOCKHOLDER:
------------
TELXON CORPORATION
By: /s/ Larry Carter By: /s/ JOHN W. PAXTON, SR.
------------------------------ --------------------------------
Name: Name: John W. Paxton, Sr.
----------------------------- Title Chairman and CEO
Title:
Address: 3300 W. Market Street
Akron, OH 44334
OSPREY ACQUISITION CORPORATION
By: /s/ Larry Carter
------------------------------
Name:
-----------------------------
Title:
----------------------------
Total Number of Shares of Company Capital Stock owned on the date hereof:
Common Stock:
---------------------
[SIGNATURE PAGE TO STOCKHOLDER AGREEMENT]
<PAGE> 8
IRREVOCABLE PROXY
TO VOTE STOCK OF
AIRONET WIRELESS COMMUNCIATIONS, INC.
The undersigned stockholder of Aironet Wireless
Communications, Inc., a Delaware corporation ("Company"), hereby irrevocably (to
the full extent permitted by the Delaware General Corporation Law) appoints the
members of the Board of Directors of Cisco Systems, Inc., a California
corporation ("Parent"), and each of them, or any other designee of Parent, as
the sole and exclusive attorneys and proxies of the undersigned, with full power
of substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of Company that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares") in accordance with the terms
of this Irrevocable Proxy. The Shares beneficially owned by the undersigned
stockholder of Company as of the date of this Irrevocable Proxy are listed on
the final page of this Irrevocable Proxy. Upon the undersigned's execution of
this Irrevocable Proxy, any and all prior proxies given by the undersigned with
respect to any Shares are hereby revoked and the undersigned agrees not to grant
any subsequent proxies with respect to the Shares until after the Expiration
Date (as defined below).
This Irrevocable Proxy is irrevocable (to the extent provided
in the Delaware Corporations Code), is coupled with an interest, including, but
not limited to, that certain Stockholder Agreement dated as of even date
herewith by and among Parent, Osprey Acquisition Corporation and the
undersigned, and is granted in consideration of Parent entering into that
certain Agreement and Plan of Merger and Reorganization between Company, Parent
and Merger Sub (the "Reorganization Agreement"), which agreement provides for
the merger of Merger Sub with and into Company (the "Merger"). As used herein,
the term "Expiration Date" shall mean the earlier to occur of (i) such date and
time as the Merger shall become effective in accordance with the terms and
provisions of the Reorganization Agreement, and (ii) the date of termination of
the Reorganization Agreement. This Irrevocable Proxy shall terminate on the
Expiration Date.
The attorneys and proxies named above, and each of them are
hereby authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting and other rights of the undersigned with
respect to the Shares (including, without limitation, the power to execute and
deliver written consents pursuant to the Delaware Corporations Code), at every
annual, special or adjourned meeting of the stockholders of Company and in every
written consent in lieu of such meeting as follows:
<PAGE> 9
|X| In favor of approval of the Merger and the
Reorganization Agreement, in favor of any matter that
could reasonably be expected to facilitate the Merger
and against any proposal for any recapitalization,
merger, sale of assets or other business combination
relating to the Company (other than the Merger) and
against any other action or agreement that would
result in a breach of any covenant, representation or
warranty or any other obligation or agreement of
Company under an acquisition agreement in respect of
the Merger or which would result in any of the
conditions to the completion of the Merger not being
fulfilled.
The attorneys and proxies named above may not exercise this
Irrevocable Proxy on any other matter except as provided above. The undersigned
stockholder may vote the Shares on all other matters.
All authority herein conferred shall survive the death or
incapacity of the undersigned and any obligation of the undersigned hereunder
shall be binding upon the heirs, personal representatives, successors and
assigns of the undersigned.
[Signature page follows.]
<PAGE> 10
This Irrevocable Proxy is coupled with an interest as
aforesaid and is irrevocable.
Dated: November 8, 1999
TELXON CORPORATION
By: /s/ John W. Paxton, Sr.
-----------------------------------
Name: John W. Paxton, Sr.
----------------------------------
Title: Chairman and CEO
---------------------------------
Shares beneficially owned:
4,994,262 shares of Company Common Stock
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 12,176
<SECURITIES> 0
<RECEIVABLES> 75,850
<ALLOWANCES> 4,573
<INVENTORY> 95,422
<CURRENT-ASSETS> 189,147
<PP&E> 173,848
<DEPRECIATION> 106,323
<TOTAL-ASSETS> 302,078
<CURRENT-LIABILITIES> 159,685
<BONDS> 121,204
0
0
<COMMON> 163
<OTHER-SE> 16,629
<TOTAL-LIABILITY-AND-EQUITY> 302,078
<SALES> 76,621
<TOTAL-REVENUES> 96,295
<CGS> 57,428
<TOTAL-COSTS> 69,506
<OTHER-EXPENSES> 40,341
<LOSS-PROVISION> 1,256
<INTEREST-EXPENSE> 3,559
<INCOME-PRETAX> 15,968
<INCOME-TAX> 738
<INCOME-CONTINUING> 14,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,960
<EPS-BASIC> .92
<EPS-DILUTED> .92
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