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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 0-11402
TELXON CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 74-1666060
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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3330 WEST MARKET STREET, AKRON, OHIO 44333
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(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (330) 664-1000
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SECURITIES REGISTERED PURSUANT NAME OF EACH EXCHANGE
TO SECTION 12(b) OF THE ACT: ON WHICH REGISTERED:
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None None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 Par Value
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(TITLE OF CLASS)
7 1/2% Convertible Subordinated Debentures Due 2012
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(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ]. No [X].*
* Other than its Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1998 and this Annual Report on Form 10-K, the
registrant 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 (during which period the registrant has been subject to
such filing requirements).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of registrant's Common Stock held by non-affiliates
as of June 30, 1999, based on the last reported sales price of the Common Stock
as reported on the Nasdaq National Market for such date, was $127,737,637.
At June 30, 1999, there were 16,155,606 outstanding shares of the registrant's
Common Stock.
This Document contains 106 pages.
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PART I
ITEM 1. BUSINESS
GENERAL
DESCRIPTION OF COMPANY'S BUSINESS
Telxon Corporation (including its subsidiaries, "Telxon" or the "Company")
designs, manufactures, integrates, markets and supports transaction-based mobile
information systems. The Company's mobile computing devices and wireless local
area network ("LAN") products are integrated with its customers' host enterprise
computer systems and third party wide area networks ("WANs"), enabling mobile
workers to process information on a real-time basis at the point of transaction.
The needs of its customers to reduce cycle times, improve asset management and
create new services drive their requirements for real-time information
throughout their organizations. Telxon's products are sold worldwide for use in
key vertical markets, including retail, transportation/logistics,
warehouse/distribution, route sales, and manufacturing. The Company also serves
several segments of the emerging mobile services market, such as field service,
insurance claims processing and work force automation.
HISTORICAL OVERVIEW
The Company was incorporated in Delaware in 1969 as "Electronic
Laboratories, Inc.", as the successor to a business established in Texas in
1967. The Company's name was changed to "Telxon Corporation" in 1974.
Telxon completed its initial public offering of 1,600,000 shares of common
stock in July 1983, a secondary offering of 1,150,000 common shares in July
1985, a $46 million issue of 7 1/2% Convertible Subordinated Debentures due 2012
in June 1987, and an $82.5 million issue of 5 3/4% Convertible Subordinated
Notes due 2003 in December 1995. During fiscal 1991, the Company purchased and
retired $21.3 million of the 7 1/2% Debentures, and to date, the holders of $.3
million of the 7 1/2% Debentures have elected to convert them into common
shares.
For three decades, the Company has developed and marketed portable handheld
terminals to retailers and wholesalers in the grocery, drug, hardware, mass
merchandising, full-line department store and specialty retail chain segments.
An increasing number of markets outside retail are also adopting mobile
transaction-based systems, including transportation/logistics,
warehouse/distribution, route sales, manufacturing and mobile services.
Through its Aironet Wireless Communications(R), Inc. Subsidiary
("Aironet"(R)), Telxon pioneered the commercialization of spread spectrum radio
frequency ("RF") technology in wireless LANs for vertical market applications.
Telxon is a leading supplier of RF-enabled devices, having shipped nearly
700,000 units to date.
The Company's core mobile computing and wireless data communication
products integrate a wide array of electronic and RF components and advanced
data collection technologies. Through a combination of proprietary
application-specific integrated circuit ("ASIC") technology, RF technology and
market-responsive packaging, the Company seeks to deliver cost-effective
products that meet the technical and ergonomic needs of the Company's targeted
markets. The Company's wireless data networks are designed to take advantage of
Aironet's patented microcellular network architecture to allow mobile devices to
roam seamlessly through large buildings and groups of buildings with
uninterrupted flow of information.
The Company competes in a highly competitive marketplace characterized by
rapidly evolving technology. Certain of the important factors, risks and
uncertainties affecting its business and results of operations are referenced in
the discussion of the Company's business that follows. For a more detailed
discussion of those and other such factors, risks and uncertainties, see
"FACTORS THAT MAY AFFECT FUTURE RESULTS" under Item 7. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND
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* Aironet and Aironet Wireless Communications are registered trademarks of
Aironet Wireless Communications, Inc.
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ITEM 1. BUSINESS (CONTINUED)
FINANCIAL CONDITION" below in this Form 10-K, which discussion should be read in
conjunction with the discussion under this Item 1.
FORMATION OF FY 2000 STRATEGIC PLAN
To stabilize the Company, position it for profitable growth within the
mobile information systems industry, and improve the return to its stockholders,
Telxon's senior management team met in April 1999 to begin implementing a new,
three-year strategic plan.
The strategic plan is being tied to an operational plan that is being
developed with milestones for each objective to be implemented and measured.
Emphasis is being placed on regaining Telxon's leadership position by reducing
costs, being competitive in the marketplace and returning the Company to
profitability. A primary focus will be on preserving and protecting Telxon's
core competencies and technologies. The Company is conducting an in-depth review
of its product development process, which will be aimed at improving
productivity through the implementation of such tools as design-to-cost
programs. In addition, the Company will implement a MRPII materials resource
planning process to ensure customer satisfaction through enabling the Company's
sales force to accurately forecast and commit to customer delivery dates.
GLOBAL SALES AND MARKETING
The Company's sales in the United States and Canada are made directly
through its own sales force as well as through selected distributors,
value-added resellers ("VARs"), independent software vendors ("ISVs"), system
integrators, OEMs and strategic partners.
The Company's international sales are made through subsidiaries located in
Australia, Belgium, France, Germany, Italy, Japan, Spain and the United Kingdom,
and through distributors in Africa, Asia, Europe, Mexico, the Middle East and
South America. Distributor support offices are located in Belgium, Brazil and
Singapore. (For further information regarding geographical segments and revenues
from the Company's International Division, see Note 15 to the consolidated
financial statements and Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.")
No customer accounted for 10% or more of the Company's total revenues in
fiscal 1999.
WORLD CLASS SYSTEMS INTEGRATION WITH VERTICAL MARKET FOCUS
Telxon delivers transaction-based mobile information systems to its
customers on a worldwide basis. The Company utilizes its global technical
resources to integrate its full line of mobile computing products with a wide
array of operating systems and application software, advanced data collection
technologies and wireless networking systems. The end result is a fully
integrated solution that seamlessly connects the customers' mobile workers with
its host enterprise system, providing them with real-time access to the
information they need. The Company has developed a full menu of system
integration services, including engineering site surveys and project management.
The Company's global technical resources are available in each of its
targeted vertical markets. Telxon employs marketing specialists with
industry-specific knowledge to partner with its direct sales representatives and
systems engineers, VARs and system integrators to provide industry specific
solutions for its customers.
TECHNICAL SUBSIDIARIES
To more fully participate in rapidly growing sectors of the wireless
communications and computing industries, Telxon, in fiscal 1993, began a program
to accelerate advanced research, technology and product development. The major
initiative in this strategy was to form or purchase new product and technology
companies exhibiting entrepreneurial innovation and leadership. Telxon also
increased its investment in its own research and product development operations.
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ITEM 1. BUSINESS (CONTINUED)
Products and technologies that have been identified through this strategy
include:
- Ruggedized mobile computers with WAN radio capabilities
- Wireless pen-based workslates
- Advanced character recognition software
- Advanced 2D bar code encoding and auto discriminating decode software
- Advanced image processing technology
- Advanced 900 MHz and 2.4 GHz spread spectrum radios and wireless LANs
- Advanced CPU and ASIC design
The Company's technical subsidiaries have been structured to work together
with its own advanced research and product development resources to design,
develop and produce leading-edge technology products for the future. Companys
subsidiaries acquired or formed through this program are detailed below.
Aironet Wireless Communications, Inc.
In January 1994, the Company formed Aironet Wireless Communications, Inc.
of Akron, Ohio, to continue development and marketing of wireless LAN
systems. Aironet was formed from one subsidiary company and two units of
the Company:
- Telesystems SLW, Inc. -- designer and manufacturer of spread spectrum
wireless LAN radios that was purchased by Telxon in 1992.
- Telxon's Radio and Wireless Network Engineering Group -- designers of
advanced spread spectrum radio technology and network software.
- Telxon's RF Software Engineering Group -- advanced software designers of
universal wireless connectivity systems for integration to other computer
manufacturers' networks.
Aironet developed one of the first commercial applications for spread
spectrum radio technology and currently designs and develops universal
modular wireless LAN radio products and networks which it sells to OEMs,
including Telxon, and resellers. On July 30, 1999, Aironet made an initial
public offering of six million shares of its common stock, which included
two million shares sold by Telxon as selling stockholder and reduced
Telxon's interest in Aironet to 39%.
Metanetics(R) Corporation
Metanetics Corporation ("Metanetics") was formed in January 1994 in Fort
Myers, Florida, in part from the acquisition of Metamedia Corporation of
Port Jefferson, New York.
Metanetics develops 2D bar code encoding and auto discriminating decodes
software and advanced image-processing technology.
Teletransaction(TM), Inc.
In February 1993, the Company acquired Teletransaction, Inc.
("Teletransaction") of Akron, Ohio. The advanced pen and touch-screen
wireless mobile workslates developed by Teletransaction for vertical
markets served by the Company have been integrated into the mainstream of
Telxon's operations.
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* Metanetics is a registered trademark of Metanetics Corporation.
* Teletransaction is a trademark of Teletransaction, Inc.
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ITEM 1. BUSINESS (CONTINUED)
PenRight!(R) Corporation
In February 1994, the Company acquired PenRight! Corporation ("PenRight!")
of Fremont, California. PenRight! is a leading developer of pen-based
operating environments and application development tools. PenRight!
MobileBuilder(R) is specifically designed to quickly create powerful
pen-based applications for the widest choice of mobile platforms on the
market today. Its open, flexible development environment creates
cross-platform applications for Windows(R) NT, Windows 98, Windows 95,
Windows 3.1, MS-DOS(R), DPMI, and in the near future, Palm OS and Windows
CE operating systems.
In addition to their technological value, the Company's technical
subsidiaries are also a potential source of financial value. The Company has
realized the value of two of its former technical subsidiaries through sale
transactions, under the term of which the Company retained access to the
technologies developed by the former subsidiaries important to the Company's
business going forward. The Company sold its ruggedized notebook computer
subsidiary, Itronix Corporation, which it had acquired in March 1993, to
Dynatech Corporation of Burlington, Massachusetts. The Company also sold its
head mounted display subsidiary, Virtual Vision(R), Inc., to FED Corporation of
Hopewell Junction, New York in March 1998.
ADVANCED RESEARCH AND PRODUCT DEVELOPMENT
The Company utilizes on advanced hardware, software, and firmware designs
that include Telxon proprietary ASIC chips. The Company's product development
strategy is to enhance the functionality and improve the price and performance
of its hardware and software, and to improve the packaging of its mobile
computing devices to address the specific requirements of each targeted market.
Products and systems are designed for modularity and the ability to upgrade,
where possible.
There can be no assurance that the Company's research and development
activities will lead to the introduction of new or improved products with
functional features and performance satisfactory in the market place at a
financial return acceptable to the Company or that the Company will not
encounter delays, unanticipated expenses or other problems in connection
therewith. Furthermore, customers may defer purchases of existing products in
anticipation of new or improved products by the Company or its competitors.
Although the Company contemplates the introduction of new products in fiscal
2000, there can be no assurance that there will not be delays in commencing
volume production of such products or that such products will ultimately be
commercially successful.
During fiscal 1999, 1998 and 1997, the Company spent $43.0 million, $37.5
million and $45.2 million, respectively, for Company-sponsored product
development and engineering. For further discussion, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION -- Operating Expenses."
VIII. MANUFACTURING AND PRODUCT MAINTENANCE
MANUFACTURING OPERATIONS
Manufacturing operations consist of the assembly, testing and quality
assurance of components, sub-assemblies and finished products. The Company's
products are built and configured with various memory sizes, packaging,
peripherals, keyboards and displays.
In 1994, the Company's principal manufacturing operations were consolidated
into a newly constructed, Company-owned 116,000 square foot facility. The
facility provides a more efficient plant layout and an opportunity for expansion
of manufacturing capacity in the future. For further information regarding the
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* PenRight! and PenRight! Pro are registered trademarks of PenRight!
Corporation.
* Microsoft and Pen for Windows are registered trademarks of Microsoft
Corporation.
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ITEM 1. BUSINESS (CONTINUED)
Company's manufacturing facility, as well as the assembly facility of the
Company's Aironet subsidiary see "Item 2 -- PROPERTIES."
All component parts in the Company's products are purchased from outside
sources. Packaging, custom-integrated circuits, keyboards and printed circuit
boards are produced to the Company's specifications. A number of peripheral
products, including wands, laser scanners, controllers and receivers, are
purchased as completed assemblies and attached to and staged with Telxon's own
products before delivery. Some products are produced by outside contract
manufacturers.
Telxon's International Procurement Office ("IPO") located in Singapore
provides the Company with an opportunity to procure materials from lower cost,
Far East suppliers. As more commodities are procured by the IPO staff, continued
cost savings are expected. The Company has not to date experienced any adverse
effects from its Singapore procurement operations as the result of the recent
economic difficulties experienced in Southeast Asia, though there can be no
assurance that future events, including government economic regulation, civil
unrest or otherwise, will not materially adversely affect the Singapore
operations and, in turn, the operations and financial results of the Company.
The Company has in the past encountered, and may in the future encounter,
shortages of supplies and delays in deliveries of necessary components. While
such shortages and delays could have a material adverse effect on the Company's
ability to ship products, the Company has not suffered any such effects as the
result of past shortages and delays. Additionally, the Company does not believe
that the loss of any one supplier or subassembly manufacturer would have a
material long-term adverse effect on its business, although set-up costs and
delays could occur if the Company changed any single source supplier.
PRODUCT MAINTENANCE OPERATIONS
The Company provides maintenance and repair services for Telxon customers
from its 36,000 square foot National Service Center in Houston, Texas. The
Company also services various third party products, including personal
computers, printers and communication devices. The Company services its high
volume, low-end products, at a newly constructed 50,000 square foot leased
facility in Ciudad Juarez, Mexico. The Company also maintains a number of
customer specific service depots to provide service to users with large
concentrations of Telxon products.
The Company offers a broad array of repair services and maintenance
agreements ranging from time and material charges to sophisticated plans, such
as the "just in time" program that offers spare Telxon equipment supplied
on-site to the customer, virtually eliminating any system downtime.
PRODUCTS AND SYSTEMS
HANDHELDS, WORKSLATES AND OTHER MOBILE COMPUTING DEVICES
The Company has developed a broad line of handheld devices, which range
from low-end batch terminals to highly integrated mobile computers incorporating
laser bar code readers and spread spectrum radios, including a variety of
pen-based and touch-screen workslate devices.
WIRELESS DATA COMMUNICATION PRODUCTS, NETWORK SYSTEMS AND SOFTWARE
Telxon provides wireless data communication solutions for mobile
information systems through handheld or mountable devices equipped with radios
to transfer information to and from other computers or peripheral devices while
remaining mobile. The four types of available radios are (1) spread spectrum
(both direct sequence and frequency hopping), (2) wide area, (3) micro, and (4)
narrow band FM. The Company uses industry standard "open" system protocols to
provide seamless connectivity across a wide range of host computer systems,
including SNA and TCP/IP and other manufacturers' communication networks.
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ITEM 1. BUSINESS (CONTINUED)
Through Aironet, the Company has developed a series of spread spectrum
radios, access points, repeaters, routers and bridges. The current products use
the 900 MHz or 2.4 GHz frequency bands, available utilizing either direct
sequence or frequency hopping technology, at data rates ranging up to 11 Mbps.
These radio products are built upon Telxon's AirAWARE(TM) family of enterprise
software for mobile information solutions and are integrated with Telxon's
Microcellular Architecture ("TMA") software to build wireless networks.
The Company has been granted a number of patents for its spread spectrum
technology and was the first company in the wireless industry to receive FCC and
Canadian Department of Communication approval for its spread spectrum radios. In
June 1996, Aironet received approval from the United States Federal
Communication Commission ("FCC") for its new 2.4 GHz frequency hopping family of
wireless LAN products, making Aironet the only company that currently designs
and manufactures both 900 MHz and 2.4 GHz direct sequence and 2.4 GHz frequency
hopping spread spectrum radios. The designs of the Company's wireless LAN
systems and products are based upon the Institute of Electrical and Electronic
Engineer's (IEEE) 802.11 specification for RF protocol standards, which was
ratified by the IEEE Standards Activity Board on June 26, 1997. In April 1998,
Aironet became the first company in the wireless LAN industry to break the 10
Mbps barrier and receive FCC approval for its newly announced 11 Mbps wireless
PC card for operation in the unlicensed 2.4 GHz ISM band.
Telxon's Air-I/O(TM) System provides 900 MHz and 2.4 GHz spread spectrum
radio technology for fast, robust wireless data communications by using spread
spectrum technology and the Company's Gateway Connectivity System(TM)
("GCS"(TM)) to create a wireless interface between Telxon mobile devices and
customers' host computers. Aironet's spread spectrum radios are designed to fit
into Telxon's mobile devices and a variety of personal computers (PCs), client
servers and other mobile devices.
The Air-I/O System creates one or more radio cells, with each cell
supporting an area of coverage. TMA allows mobile devices to move from cell to
cell while maintaining a wireless connection to the host computer.
Implementation of the system have included an installation providing coverage
for over 4 million square feet.
The Company makes a line of base station and client/server card
transceivers that interface portable wireless products with a client/server or
mainframe. The Company also offers customers optional built-in acoustic couplers
and integrated modems that allow data transmission from remote telecommunication
locations into a host computer or client servers.
Third party wide area network radios are integrated with the Company's
mobile computing devices for access to wireless wide area packet data networks
such as ARDIS(R), RAM(R) or CDPD.
"Micro radios" are small, low-power FM radios designed and manufactured by
the Company and integrated into Telxon mobile devices and peripherals to provide
cable-free data communications between system components.
Narrow band FM radios from major manufacturers have been provided by Telxon
since 1984. These radios operate in the 450 Mhz band and require FCC site
licensing.
In June, 1998, the Company announced ShopKeeper(TM), a low cost wireless
solution that will enable retail chains with small store formats to link their
in-store processors, POS systems and wireless mobile computers together on the
same network. ShopKeeper is based on the Company's new MiniNet(TM) 2.4 Ghz radio
and new, low cost Connection Manager(TM), which combine with AirAWARE to create
a single cell wireless network supporting up to eight Telxon wireless mobile
computers for a single site retail environment.
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* Air-I/O, AirAWARE, Gateway Connectivity System and GCS are trademarks of
Telxon Corporation.
* ARDIS is a registered trademark of IBM Corporation and Motorola
Corporation.
* RAM is a registered trademark of RAM Mobile Data, Inc.
* ShopKeeper and MiniNet are trademarks of Telxon Corporation.
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ITEM 1. BUSINESS (CONTINUED)
PERIPHERALS
The Company integrates a variety of peripheral products into or with its
regular product line, including laser bar code readers (internal and external),
modular printers (24, 40 and 80 columns), chargers, cradles, modems and
communication interfaces. Many of these products or components are purchased
from outside vendors.
SOFTWARE OPERATING SYSTEMS, LANGUAGES AND APPLICATIONS
The Company is transitioning to a new generation of modularly designed
mobile computers, which embrace industry standard, open systems architectures in
order to offer its customers access to a multitude of operating systems,
including Windows(R) NT, Windows CE, Windows 98 and Windows 95 and Sun
Microsystems' JavaOS(TM) and HotJava(TM) Browser.
The Company develops, through its PenRight! and Metanetics subsidiaries,
advanced character recognition software, advanced image processing and 2D bar
code encoding and auto discriminating decode software.
INTELLECTUAL PROPERTY
The Company regards certain of its hardware and software products as
proprietary and relies on a combination of United States and foreign patent,
copyright, trademark and trade secret laws and licenses and other contractual
confidentiality provisions to protect its proprietary rights. In addition, the
Company's products also utilize hardware and software technologies licensed from
third parties. Given the rapidly changing nature of the industry's technology,
however, the competence and creative ability of the Company's development,
engineering, programming, marketing and service personnel may be as or more
important to its competitive position as the legal protections and rights
afforded by patent and other owned or licensed intellectual property rights. The
Company believes that its products and trademarks do not infringe on the rights
of third parties, but there can be no assurance that third parties will not
assert infringement claims.
GOVERNMENT REGULATION
The Company believes that its products are in material compliance with
current government regulations; however, regulatory changes may require
modifications to Company products in order for the Company to continue to be
able to manufacture and market these products. There can be no assurance that
more stringent regulations will not be issued in the future which could have an
adverse effect on the business of the Company. In addition, sales of the
Company's products could be adversely affected if more stringent safety
standards are adopted by customers.
Certain Company products intentionally transmit radio signals as part of
their normal operation. These products are subject to regulatory approval by the
FCC and corresponding authorities in each country in which they are marketed.
Such approvals are typically valid for the life of the product unless and until
the circuitry of the product is altered in material respects, in which case a
new approval may be required.
BACKLOG
Backlog at any particular date is dependent on timing of receipt of orders
and, therefore, is not a reliable indicator of future sales over an extended
period of time.
Historically, shipments made by the Company during any particular quarter
have generally represented orders received either during that quarter or shortly
before the beginning of that quarter, and shipments for orders received in a
fiscal quarter have generally been filled from products manufactured in that
quarter. The Company
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* Windows is a registered trademark of Microsoft Corporation.
* JavaOS and HotJava browser are trademarks of Sun Microsystems, Inc.
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ITEM 1. BUSINESS (CONTINUED)
maintains significant levels of raw materials to facilitate meeting delivery
requirements of its customers, but there can be no assurance that during any
given quarter, the Company has or can procure the appropriate mix of raw
materials in order to accommodate such orders. Therefore, the Company's
financial performance in any quarter has generally been dependent to a
significant degree upon obtaining orders in that quarter which can be
manufactured and delivered to its customers in that quarter.
COMPETITION
The computer industry, of which Telxon's mobile computing systems are a
part, is highly competitive and characterized by advances in technology which
frequently result in the introduction of new products with improved performance
characteristics. Failure to keep pace with product and technological advances
could negatively affect the Company's competitive position and prospects for
growth and, in turn, its business, results of operations and financial
condition.
The Company competes directly and indirectly with a number of companies in
its market segments. Frequent competitors include Symbol Technologies, Inc.,
Holtsville, New York, and the Intermec and Norand divisions of UNOVA, Inc.,
Woodland Hills, California. In addition, companies that are participants in the
broader computer industry are potential competitors. Some of the Company's
competitors and potential competitors have substantially greater financial,
technical, intellectual property, marketing and human resources than the
Company.
EMPLOYEES
As of May 31, 1999, the Company employed approximately 1,501 full-time
personnel. The Company also employs temporary production and other personnel.
ITEM 2. PROPERTIES
The Company's corporate offices are located in Akron, Ohio in a 100,000
square foot office building constructed in 1979 and occupied under a lease
expiring December 31, 2001. The lease provides the Company with an option,
exercisable on September 1, 2001, to purchase the office building and the land
on which it is situated for its then current fair market value.
In May 1998, the Company opened its World Technology Center in The
Woodlands, Texas (north of Houston). The one-story, 70,000 square foot leased
building of concrete and glazed curtain wall construction was designed and
constructed to bring the Company's engineering, research, software and product
development functions in closer proximity to the Company's pre-existing
manufacturing and service facilities located in nearby Houston, Texas. In
addition to the Company's technical operations and supporting administration,
the facility houses a new Customer Support Call Center, the Company's Industry
and Product Marketing operations and a Customer Conferencing and Executive
Briefing Center. Expiring in May 2008, the lease includes a renewal option for
an additional ten-year term.
The Company owns two buildings in Houston, Texas of concrete construction,
located on a 15 acre site. The first building is a 116,000 square foot
manufacturing facility that was completed in April 1994. That building houses
all Telxon manufacturing operations, as well as warehousing operations and
administrative and manufacturing engineering offices. The second building is the
Company's 36,000 square foot National Service Center, completed in November
1993, which houses its product repair and maintenance operations. The Company
maintains an additional 12,000 square feet of warehousing space at a separate
location in Houston leased through May 31, 2000.
As of the end of the second quarter of fiscal 1998, the Company relocated
its product repair and maintenance operations (other than radio-equipped units
and its top-of-the-line Depot Express maintenance program) to a new 50,000
square foot facility of masonry construction built for it in Ciudad Juarez,
Chihuahua, Mexico. The facility is leased for an initial term that expires in
June 2004, with two five-year renewal options, and the Company has
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ITEM 2. PROPERTIES (CONTINUED)
an option to purchase the facility at the end of the initial term or any renewal
term for its then current fair market value. The Company is also leasing 20,000
square feet of warehouse space in El Paso, Texas as a companion receiving,
staging and parts-stocking facility for the Mexican operations for an initial
term of five years, with two five-year renewal options.
The Company leases approximately 34,000 square feet of office space within
a three mile radius of its corporate offices pursuant to a lease expiring
February 28, 2001, which facility is subleased to the Company's former Aironet
subsidiary for its corporate offices. Aironet's product assembly and service
operations are located in a one-story, 32,500 square foot facility owned by the
Company within approximately one mile from its corporate offices.
In addition to these principal locations, the Company maintains 53
locations in the United Sates, Canada, Western Europe, Australia, Japan and
Southeast Asia which are used principally for sales and customer service
offices, as well as for executive, engineering and procurement offices for
certain of its domestic and international subsidiaries. These locations are
generally leased for terms which range from one to three years.
The Company believes that its existing facilities will be adequate for its
reasonably foreseeable level of operations. Should the operations of the
Company's principal corporate offices, engineering and research and development,
manufacturing, or repair and maintenance facilities be lost or disrupted by
natural disaster, fire or other cause, the Company's operations would be
materially adversely affected until replacement operations could be established.
ITEM 3. LEGAL PROCEEDINGS
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 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-
9
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
intervention claims are the subject of ongoing discovery, and no deadline for
the completion of the discovery or trial date has yet been set by the Court.
The defendants believe that the post-intervention claims lack merit, and
they intend to continue vigorously defending this action. While the ultimate
outcome of this action cannot presently be determined, the Company does not
anticipate that this matter will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows and
accordingly has not made provisions for any loss or related insurance recovery
in its financial statements.
On February 17, 1998, a complaint was filed against the Company in the
District Court of Harris County, Texas, by Southwest Business Properties, the
landlord of the Company's former Wynnwood Lane facility in Houston, Texas. The
complaint alleges counts for breach of contract and temporary and permanent
injunctive relief, all related to alleged environmental contamination at the
Wynnwood property, and seeks specific performance, unspecified monetary damages
for all injuries suffered by plaintiff, payment of pre-judgement interest,
attorneys' fees and costs and other unspecified relief. In its Answer, the
Company 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 8, 1999 has been reset to commence on a day
during the Court's two week docket beginning October 25, 1999, with the specific
trial date to be set by the Court at that time.
While the litigation with the landlord remains pending, the Company and the
landlord have agreed to file, and on July 7, 1999, filed 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 proposed plan projects completion of remediation
and issuance of a closure certificate in 2002. Telxon has not to date been
advised of any action by the Commission with respect to the proposed plan, which
could require modifications thereto as a condition of approval. Until such time
as the plan is accepted and completed, its actual cost to the Company cannot be
quantified; however, the Company does not believe that remediation in accordance
with the plan as proposed would have a material adverse effect on its results of
operations for any quarter in which any associated charges would be taken. If
the plan is not accepted substantially as proposed, or closure is not certified
when contemplated by the proposed 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. Telxon believes that these claims
lack merit, and it intends to vigorously defend this action.
On May 8, 1998, two class action suits were filed in the Court of Chancery
of the State of Delaware, in and for the County of New Castle, by certain
alleged stockholders of Telxon on behalf of themselves and purported classes
consisting of Telxon stockholders, other than defendants and their affiliates,
relating to an alleged offer by Symbol Technologies, Inc. ("Symbol") to acquire
the Company. The named defendants are Telxon and its 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.
10
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
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, but the
Court has not yet ruled on those motions. 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, attorneys' fees and costs. The defendants believe that these
claims lack merit, and they intend to vigorously defend these actions.
Defendants anticipate filing a Motion to Dismiss.
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. In cooperation with the informal
inquiry, the Company has voluntarily provided certain responsive information to
the Staff. On January 20, 1999, the Commission issued a formal Order Directing
Private Investigation And Designating Officers To Take Testimony with respect to
the referenced trading and specified accounting matters, pursuant to which
subpoenas duces tecum have been served on the Company requiring the production
of specified documents. Similar subpoenas have been issued to one of the
Company's directors, certain current Company officers and, to the belief of the
Company, former Company officers and certain unaffiliated companies and their
officers. The Company has delivered documents to, and intends to continue
cooperating fully with, the Staff. The referenced director and current officers
have also produced documents, and the director has given oral testimony, to the
Staff. Telxon believes that the unaffiliated parties have also responded to the
Staff.
On February 1, 1999, Telxon filed a Complaint in the United States District
Court, Northern District of Ohio, against Symbol, to which Symbol filed an
Answer and Counterclaim on February 24, 1999. Symbol Motions to Strike certain
of Telxon's allegations and to Dismiss certain claims from Telxon's complaint
were denied by the Court on April 27, 1999. Telxon and Symbol have finalized and
approved a settlement agreement, which awaits execution. Based on the
settlement, the Court dismissed the case with prejudice on July 31, 1999.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended March 31, 1999.
11
<PAGE> 13
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of the Company, who have been
either elected by the Board of Directors of the Company or appointed by the
Chief Executive Officer and ratified and approved by the Board of Directors:
John W. Paxton, Sr., age 62, has been Chairman of the Board of
Directors and CEO since joining the Company in March 1999. Mr. Paxton was
also President of the Company from March 1999 until that title was assumed
by Telxon's new Chief Operating Officer upon his hire in June 1999. He
became a member of the Board of Directors of the Company's Aironet
subsidiary in April 1999. From December 1998 until March 1999, Mr. Paxton
was Chairman of Odyssey Industrial Technologies L.L.C., a joint venture
with Odyssey Investment Partners, a private equity fund. From March 1997
until November 1998, Mr. Paxton was Executive Vice President of Paxar
Corporation and, upon its formation in June 1998, President of Paxar's
Printing Solutions Group. He was President and Chief Executive Officer of
Monarch Marking Systems, Inc. from October 1995 until Paxar combined newly
acquired operations with its existing Monarch operations to form the Paxar
Printing Solutions Group. From March 1994 until October 1995, Mr. Paxton
was Corporate Executive Vice President and Chief Operating Officer of The
Industrial Automation Systems Group of Western Atlas Inc. Mr. Paxton is a
member of the Board of Directors of TransDigm, Inc. (supplier of highly
engineered commercial and military aircraft parts).
Kenneth A. Cassady, age 45, has been President and Chief Operating
Officer since joining the Company in June 1999. From March 1996 to June
1999, Mr. Cassady was President of Monarch Marking Systems, a manufacturer
and distributor of bar code printing and price marking systems, and a
subsidiary of Paxar Corporation. From September 1995 to March 1996, Mr.
Cassady was Vice President, Business Operations for the Environmental Group
of Lockheed Martin Corporation. He was Vice President of Mergers and
Acquisitions for Lockheed from March 1995 to September 1995 and served as
Vice President, Business Operations for Lockheed's Information Group from
May 1993 to March 1995.
Woody M. McGee, age 47, has been Vice President and Chief Financial
Officer since joining the Company in June 1999. From March 1997 to May
1999, Mr. McGee was Senior Vice President, General Manager of HK Systems, a
supplier of material handling systems (which was purchased from Western
Atlas in 1996). From September 1996 to March 1997, Mr. McGee was Vice
President, CFO/Treasurer of Mosler, Inc., a supplier of currency handling
systems and security products (to the gaming, financial, commercial and
government communities). From May 1995 to September 1996, Mr. McGee was
Vice President of Sales for the Material Handling Systems Division (MHSD)
of Western Atlas. He was Vice President of Operations and CFO for the MHSD
of Western Atlas and President and Chief Operating Officer of its
Installation Division, from January 1991 to May 1995.
David H. Biggs, age 53, has been Vice President and Chief Technology
Officer since joining the Company in June 1999. From June 1997 to June
1999, Mr. Biggs was Vice President of RD Garwood, Inc., a consulting and
educational firm specializing in business process improvements. From
December 1996 to May 1997, Mr. Biggs was a Senior Vice President of Bently
Nevada Corporation, a machinery vibration instrumentation company. From
March 1988 to December 1996, Mr. Biggs was Senior Vice President of
Operations and Product Development for Bently. He was Vice President of
Product Development for Bently from June 1985 to March 1988, and its Vice
President of Manufacturing from January 1981 to June 1985. Mr. Biggs holds
a B.S. in Electrical Engineering from University of Nevada and an M.A. in
Mechanical Engineering from University of Virginia.
James G. Cleveland, age 47, has been Executive Vice President,
America's of the Company since March 1999. He has also served the Company
as President, North America from May 1997 to March 1999 Senior Vice
President, North America from September 1996 to May 1997; Senior Vice
President, North American Sales from February 1996 to September 1996;
Senior Vice President, North American Sales and Operations from October
1995 to February 1996; Senior Vice President, Vertical Systems Group from
March 1995 to October 1995; and Vice President, Sales and Marketing from
September 1993 to March 1995. Mr. Cleveland joined the Company from
Basicomputer, where he had served as Vice President,
12
<PAGE> 14
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Sales from January 1993 to August 1993 and as Area Vice President, Midwest
Operations from February 1992 to January 1993.
Peter A. Lomax, age 47, has been Executive Vice President,
Europe/Middle East/Africa of the Company since June 1999. He has also
served the Company as Executive Vice President, International Operations
from June 1998 to June 1999; and was head of the Company's International
Business Development Group from June 1997 to June 1998. Mr. Lomax joined
the Company from Sunguard Business Systems, where he had served as European
Sales Director from January 1993 to April 1997.
13
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been publicly traded since July 21, 1983, in
the over-the-counter market under the symbol TLXN. The principal trading market
for the Company's Common Stock is The Nasdaq Stock Market's National Market
("NNM"). The following table sets forth, with respect to the past two fiscal
years of the Company, the range of high and low closing prices as reported in
the NNM and cash dividends paid. The Company has not paid other than nominal
dividends. The Company intends to follow a policy of retaining earnings in order
to finance the continued growth and development of its business. Payment of
dividends is within the discretion of the Company's Board of Directors and will
depend on, among other factors, earnings, capital requirements and the operating
and financial condition of the Company.
<TABLE>
<CAPTION>
FISCAL QUARTER
------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
1999
High................................................ $35.94 $32.25 $30.13 $15.00 $35.94
Low................................................. 24.50 17.13 11.06 5.75 5.75
Dividends paid...................................... -- -- -- .01 .01
1998
High................................................ $19.25 $24.88 $29.00 $26.63 $29.00
Low................................................. 13.63 18.00 22.00 21.63 13.63
Dividends paid...................................... -- -- -- .01 .01
</TABLE>
As of June 30, 1999, there were approximately 954 holders of record of the
Company's Common Stock.
Historically, variations in the Company's actual or expected results of
operations, changes in analysts' earnings estimates and investment
recommendations and rumors of or publicly disclosed proposals for business
combination transactions involving the Company have resulted in significant
changes in the market price of the Company's Common Stock. As a result, the
market price of the Company's Common Stock, like that of other technology
companies, has been subject to significant volatility. The Company's stock may
also be affected by broader market trends unrelated to the Company's own
performance that involve the Company's competitors, technology stocks in general
or the economy as a whole.
While the Company does, from time to time, communicate with securities
analysts, any opinions, projections and forecasts contained in reports issued by
securities analysts have been prepared by each analyst based on his own judgment
and research and are not the responsibility of the Company. It should not be
assumed that the Company agrees with any report issued by any analyst.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are selected financial data for the five years ended March
31, 1999, which have been derived from the Company's audited financial
statements for the periods indicated. The selected financial data should be read
in conjunction with the financial statements, including the notes thereto, for
the three years ended March 31, 1999, 1998 and 1997, as included in Item 8
herein. The selected financial data for the years ended March 31, 1998, 1997 and
1996 have been presented as restated. Refer to Note 3 -- Restatement to the
consolidated financial statements for additional details regarding the
restatement adjustments. For further details on fiscal 1999 results, also refer
to Item 7.
14
<PAGE> 16
Statement of Operations Data:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
--------- ---------- ---------- ---------- --------
(RESTATED) (RESTATED) (RESTATED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Product, net.............................. $ 305,380 $386,410 $386,791 $415,383 $323,916
Customer service, net..................... 82,914 76,746 74,606 68,744 55,603
--------- -------- -------- -------- --------
Total net revenues................ 388,294 463,156 461,397 484,127 379,519
Costs and expenses:
Cost of product revenues.................. 241,265 227,850 262,862 249,610 189,568
Cost of customer service revenues......... 55,078 48,836 47,248 39,016 32,455
Selling expenses.......................... 96,109 82,054 88,374 82,207 68,279
Product development and engineering
expenses............................... 42,986 37,500 45,189 45,383 33,728
General and administrative expenses....... 54,923 39,462 53,408 39,415 34,583
Asset impairment charge................... -- 6,069 -- -- --
Unconsummated business combination
costs.................................. 8,070 -- -- -- --
--------- -------- -------- -------- --------
Total costs and expenses.......... 498,431 441,771 497,081 455,631 358,613
--------- -------- -------- -------- --------
(Loss) income from operations.......... (110,137) 21,385 (35,684) 28,496 20,906
Interest income........................... 801 1,573 1,489 760 658
Interest expense.......................... (9,872) (7,181) (8,056) (6,770) (4,354)
Other non-operating (expense) income...... (414) 625 34,726 1,517 --
--------- -------- -------- -------- --------
(Loss) income before income taxes and
cumulative effect of an accounting
change............................... (119,622) 16,402 (7,525) 24,003 17,210
Provision for income taxes................ 17,360 7,227 726 9,028 8,192
--------- -------- -------- -------- --------
(Loss) income before cumulative effect
of an accounting change.............. (136,982) 9,175 (8,251) 14,975 9,018
Cumulative effect of an accounting change,
net of taxes........................... -- 1,016 -- -- --
--------- -------- -------- -------- --------
Net (loss) income................. $(136,982) $ 8,159 $ (8,251) $ 14,975 $ 9,018
========= ======== ======== ======== ========
Earnings per common and common equivalent
share:
(Loss) income before cumulative effect
of an accounting change
Basic............................. $ (8.50) $ .58 $ (.51) $ .94 $ .58
========= ======== ======== ======== ========
Diluted........................... $ (8.50) $ .56 $ (.51) $ .91 $ .57
========= ======== ======== ======== ========
Cumulative effect of an accounting
change
Basic............................. $ -- $ (.06) $ -- $ -- $ --
========= ======== ======== ======== ========
Diluted........................... $ -- $ (.06) $ -- $ -- $ --
========= ======== ======== ======== ========
Net (loss) income per share
Basic............................. $ (8.50) $ .52 $ (.51) $ .94 $ .58
========= ======== ======== ======== ========
Diluted........................... $ (8.50) $ .50 $ (.51) $ .91 $ .57
========= ======== ======== ======== ========
Average number of common and common
equivalent shares outstanding
Basic............................. 16,108 15,809 16,062 15,910 15,485
Diluted........................... 16,108 16,317 16,062 16,472 15,873
Cash dividends per common share............. $ .01 $ .01 $ .01 $ .01 $ .01
</TABLE>
15
<PAGE> 17
Balance Sheet Data:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
-------- ---------- ---------- ---------- --------
(RESTATED) (RESTATED) (RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets........................ $348,844 $378,465 $357,698 $387,368 $276,127
Notes payable, capital lease and
other obligations due within one
year.............................. 69,092 3,968 1,060 2,119 27,507
Total long-term debt and capital
lease obligations................. 108,348 109,100 108,192 110,537 32,209
Working capital..................... 34,275 183,148 167,845 184,154 101,617
Stockholders' equity................ 16,966 153,155 142,373 159,188 138,578
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SUMMARY
The following table sets forth for the periods indicated (1) certain
expense and income items expressed as a percentage of total revenues, and (2)
the percentage increase or decrease of such items as compared to the
corresponding prior period. This table and the textual discussion and analysis
which follows should be read in conjunction with the accompanying consolidated
financial statements, including the notes thereto, for each of the three years
in the period ended March 31, 1999, as included in Item 8 herein.
<TABLE>
<CAPTION>
PERIOD TO PERIOD
PERCENTAGE OF TOTAL REVENUES INCREASE (DECREASE)
--------------------------------- ----------------------
YEAR ENDED MARCH 31, 1999 1998
--------------------------------- COMPARED COMPARED
1999 1998 1997 TO 1998 TO 1997
----- ---------- ---------- -------- ----------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Product revenues, net.................... 78.6% 83.4% 83.8% (21.0)% (.1)%
Customer service revenues, net........... 21.4 16.6 16.2 8.0 2.9
----- ------- -------
Total net revenues............. 100.0 100.0 100.0 (16.2) (.4)
Cost of product revenues................. 62.1 49.2 57.0 5.9 (13.3)
Cost of customer service revenues........ 14.2 10.6 10.2 12.8 3.4
Selling expenses......................... 24.8 17.7 19.2 17.1 (7.2)
Product development and engineering
expenses............................... 11.1 8.1 9.8 14.6 (17.0)
General and administrative expenses...... 14.1 8.5 11.5 39.2 (26.1)
Other operating items.................... 2.1 1.3 -- 33.0 N.M.
----- ------- -------
Total costs and expenses....... 128.4 95.4 107.7 12.8 (11.1)
----- ------- -------
(Loss) income from operations....... (28.4) 4.6 (7.7) (615.0) 159.9
Interest income.......................... .2 .3 .3 (49.1) 5.6
Interest expense......................... (2.5) (1.5) (1.7) 37.5 (10.9)
Other non-operating income (expense)..... (.1) .1 7.5 (166.2) (98.2)
----- ------- -------
(Loss) income before income taxes
and cumulative effect of an
accounting change................. (30.8) 3.5 (1.6) (829.3) 318.0
Provision for income taxes............... 4.5 1.5 .2 140.2 895.5
----- ------- -------
Net (loss) income before
cumulative effect of an
accounting change.............. (35.3) 2.0 (1.8) (1,593.0) 211.2
----- ------- -------
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
PERIOD TO PERIOD
PERCENTAGE OF TOTAL REVENUES INCREASE (DECREASE)
--------------------------------- ----------------------
YEAR ENDED MARCH 31, 1999 1998
--------------------------------- COMPARED COMPARED
1999 1998 1997 TO 1998 TO 1997
----- ---------- ---------- -------- ----------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Cumulative effect of accounting change,
net of taxes........................... -- .2 -- (100.0) N.M.
----- ------- -------
Net (loss) income................. (35.3)% 1.8% (1.8)% (1,778.9) 198.9
===== ======= =======
</TABLE>
TELXON CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IN ADDITION TO DISCUSSING AND ANALYZING THE COMPANY'S RECENT HISTORICAL
FINANCIAL RESULTS AND CONDITION, THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDES STATEMENTS
REGARDING CERTAIN TRENDS OR OF OTHER FORWARD-LOOKING INFORMATION CONCERNING THE
COMPANY'S ANTICIPATED REVENUES, COSTS, FINANCIAL RESOURCES OR OTHERWISE
AFFECTING OR RELATING TO THE COMPANY WHICH ARE INTENDED TO QUALIFY FOR THE
PROTECTIONS AFFORDED "FORWARD-LOOKING STATEMENTS" UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, PUBLIC LAW 104-67. THE FORWARD-LOOKING STATEMENTS
MADE HEREIN AND ELSEWHERE IN THIS FORM 10-K 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. SEE "FACTORS THAT MAY AFFECT FUTURE RESULTS" BELOW AND OTHER
CAUTIONARY STATEMENTS APPEARING UNDER "ITEM 1. BUSINESS" AND ELSEWHERE, IN THIS
FORM 10-K FOR A DISCUSSION OF THE IMPORTANT FACTORS AFFECTING THE REALIZATION OF
THOSE RESULTS OR THE OCCURRENCE OF THOSE EVENTS.
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. Additionally, the Company announced on June 16, 1999, that it
would further restate its results for the second quarter of fiscal 1999. These
restatements were 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 outside auditors, PricewaterhouseCoopers
LLP. See Note 3 -- 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.
OVERVIEW
In fiscal 1999, the Company recorded a net loss of $137.0 million or $8.50
per common share (diluted) as compared to net income of $8.2 million or $.50 per
common share (diluted) recorded in fiscal 1998. Consolidated revenues decreased
$74.9 million or 16% from fiscal 1998 levels. The fiscal 1999 results included
significant inventory and other charges related to the discontinuance of certain
of the Company's products aggregating $23.6 million. Additionally, the Company's
results include a tax provision of $17.4 million on a pre-tax loss due to a
valuation allowance of $10.1 million established against the net deferred tax
asset at the beginning of the year and foreign income taxes of $5.2 million. No
tax benefit has been recognized for the fiscal 1999 net operating loss based on
the Company's current assessment regarding the utilization of such assets. The
fiscal 1999 results included $8.1 million of costs incurred in response to
takeover and proxy contest proposals as well as terminated discussions of
proposed business combination transactions. These charges, as well as other
significant charges
17
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
relating primarily to inventory, accounts receivable, severance, stock
compensation and investment valuation are discussed below.
The Company anticipates that it will incur an operating loss in fiscal 2000
as the Company's new management team continues its review of all aspects of its
operations to improve profitability. Management actions taken to increase the
efficiency of the Company's operations may result in one-time charges in fiscal
2000.
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.
Further, there is no assurance that the Company's strategies and plans will take
into account all market conditions and changes thereto or that such strategies
and plans will be successfully implemented. Accordingly, neither the historical
results presented in the Company's consolidated financial statements and
discussed herein, nor any forward-looking statements in this Form 10-K, are
necessarily indicative of the Company's future results. See "Factors That May
Affect Future Results" for a discussion of risk factors which may affect the
Company's future results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The risks and other important factors which may affect the Company's
business, operating results, and financial and other conditions include, without
limitation, the following:
The Company's results of operations are affected by a variety of factors,
including economic conditions generally (both domestic and foreign) as well as
those specific to the industry in which it competes, decreases in average
selling price over the life of any particular product, the timing, manufacturing
complexity and expense of new product introductions (both by the Company and its
competitors), the timely implementation of new manufacturing technologies, the
ability to safeguard patents and other intellectual property in a rapidly
evolving market, the rapid increase in demand for some products and the rapid
decline in demand for others and the Company's ability to anticipate and plan
for that changing market demand. Certain of these factors are beyond the
Company's control.
Historically, the Company's shipments during any particular quarter
generally represent orders received either during that quarter or shortly before
the beginning of that quarter. There can be no assurance that during any given
quarter the Company will have on hand or can timely procure the appropriate mix
of purchased components to accommodate the delivery requirements of its
customers for such orders. Therefore, the Company's financial performance in any
quarter is dependent to a significant degree upon obtaining orders which can be
manufactured and delivered to its customers in that quarter. As a result,
financial performance for any given quarter cannot be known or fully assessed
until near the end of that quarter.
The Company has also historically recognized a substantial portion of its
product revenues in the last month of each quarter. A significant portion of the
Company's expenses are relatively fixed, and timing of increases in such
expenses is based in large part on the Company's forecast of future revenues. As
a result, if revenues do not meet expectations, the Company may be unable to
quickly adjust expenses to levels appropriate to actual revenues, which could
have a materially adverse effect on the Company's results of operations.
The Company's sales efforts have increasingly been focused on sales, both
by the Company directly and through OEMs, VARs, ISVs and other indirect sales
channels, of complete data transaction systems rather than on sales of handheld
computer products alone. System sales tend to be more costly and, therefore,
require a longer selling cycle, longer payment terms and more complex
integration and installation services. The Company's recognition of revenue from
systems sales may be delayed as a result of the extended time that may be
required to complete these roll-outs, correct any product non-conformance issues
that may be encountered and achieve customer acceptance.
18
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The markets in which the Company competes are intensely competitive and
characterized by increasingly rapid technological change, introduction of new
products with improved performance characteristics, product obsolescence and
price erosion. Failure to keep pace with product and technological advances
could negatively affect the Company's competitive position and prospects for
growth. Customers' anticipation of new or enhanced product offerings by the
Company or a competitor may lead them to defer purchases of the Company's
existing products. In addition, companies that are participants in the broader
computer industry are potential competitors. Some of the Company's competitors
and potential competitors have substantially greater financial, technical,
intellectual property, marketing and human resources than the Company.
The Company's future success depends on its ability to develop and rapidly
bring to market technologically advanced products through internal development
as well as through the licensing or other acquisition of new technologies.
Historically, the Company's development activities have included investments in
or acquisitions of development stage and other entities who possess or who could
potentially possess strategically important technologies. Due to the nature of
these entities and their operations, there can be no assurance that these
investments will be realizable or profitable or will result in marketable and/or
successful products. There can be no assurance that the Company's research and
development activities will lead to the commercially successful introduction of
new or improved products or that the Company will not encounter delays or
problems in connection with those products. The cost of perfecting new and
improved technologies to satisfy customer quality and delivery expectations as
they are brought to market cannot always be fully anticipated and may adversely
affect Company operating profits during such introductions. In addition, the
average selling prices for computer products generally decrease over the
products' lives. To mitigate such decreases, the Company seeks to reduce
manufacturing costs of existing products and to introduce new products,
functions and other price/performance-enhancing features. To the extent that
these product enhancements do not occur on a timely basis or do not result in a
sufficient increase in sales prices to end users, the Company's operating
results could be materially adversely affected.
To date, the Company's revenues have been concentrated in the retail
industry, historically representing over 50% of its total revenues. Among other
factors, the economic condition and prospects of current and prospective
customers in the markets which the Company serves may affect the Company's own
financial results. The Company's future growth depends, in part, on its ability
to successfully penetrate and expand its revenues in new markets as well as
increased penetration in the retail market. There can be no assurance that
penetration and expansion into new and existing markets can be profitably
achieved.
The Company regards certain of its hardware and software technologies as
proprietary and relies on a combination of United States and foreign patent,
copyright, trademark and trade secret laws, as well as license and other
contractual confidentiality provisions, to protect its proprietary rights.
Despite the Company's efforts to safeguard its proprietary rights, there can be
no assurance that the Company will be successful in doing so or that the
Company's competitors will not independently develop or patent technologies that
are substantially equivalent or superior to or otherwise circumvent the
Company's technologies and proprietary rights.
The Company's products utilize hardware and software technologies licensed
from third parties. There can be no assurance that the Company will be able to
license needed technology in the future. An early termination of certain of
these license agreements (including patent rights licensed from Symbol
Technologies, Inc., one of its principal competitors, necessary for the
Company's manufacture and sale of its integrated laser scanning terminals which
account for a material portion of the Company's current sales) could have a
materially adverse effect on the Company's ability to market certain of its
products and, hence, on its business, results of operations and financial
condition. The Company believes that its products, processes and trademarks do
not infringe on the rights of third parties, but third parties have asserted,
and there can be no assurance that they will not in the future assert,
infringement or other related claims against the Company or its licensors. Any
infringement claim or related litigation against the Company, or any challenge
to the validity of the Company's own intellectual property rights, and the
expense of defending the same could materially adversely effect the Company's
ability to market its products and, hence, its business, results of operations
and financial condition.
19
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Certain of the Company's products, sub-assemblies and components are
procured from single source suppliers, and others are procured from only a
limited number of suppliers. The Company has in the past encountered, and may in
the future encounter, shortages of supplies and delays in deliveries of product,
sub-assemblies and components from its third party suppliers. Such shortages and
delays, or should any third party supplier become unable or unwilling to supply
such items to the Company consistent with the Company's volume and quality
requirements, could have a material adverse effect on the Company's ability to
ship products, and in turn, its business and results of operations could be
materially adversely affected.
As a substantial portion of the Company's total revenues, ranging from
approximately 25%-30% in recent years, is from customers located outside of the
United States, the Company's results could be negatively affected by global and
regional economic conditions, changes in foreign currency exchange rates, trade
protection measures, regulatory acceptance of the Company's products in foreign
countries, longer accounts receivable collection patterns and other
considerations peculiar to the conduct of international business. Additionally,
the Company is subject to similar risks in its procurement of certain of its
products, components and sub-assemblies outside the United States. As a
particular instance, the financial press has widely reported the significant
economic difficulties which recently have been or are being experienced by a
number of Asian economies. While the Company's cost of doing business in the
affected Asian countries has declined as a result of those difficulties, the
revenues derived from such countries (which have historically not been material
in amount) are likely to be adversely affected by those difficulties. In the
event of a significant adverse change in Asian business conditions due to
government economic regulation, civil unrest or otherwise, or should economic
difficulties in such countries spread or have an adverse impact of business
activities in North America, Europe and/or elsewhere in the world, the Company's
results of operations could be materially adversely affected.
Certain of the Company's products intentionally transmit radio signals as
part of their normal operation. These products are subject to regulatory
approval, restrictions on the use of certain frequencies and the creation of
interference, and other requirements by the Federal Communications Commission
and corresponding authorities in each country in which they are marketed.
Regulatory changes could significantly impact the Company's operations by
restricting the Company's development efforts, making current products obsolete
or increasing the opportunity for additional competition. The intentional
emission of electromagnetic radiation has also been the subject of recent public
concern regarding possible health and safety risks, and though the Company
believes that the low power output and the distance typically maintained between
a product and the user means that its products do not pose material safety
concerns, there can be no assurance that such safety issues will not arise in
the future and will not have a materially adverse effect on the Company's
business.
The Company's new management team is working to implement a comprehensive
business strategy to stabilize the Company and position it for future,
profitable growth. Key elements of that strategic plan include a
"design-to-cost" program and MRP-II material resource planning process. Though
management believes that its business process improvement initiatives are the
best means for improving the Company's business operations, financial results
and future prospects, there can be no assurance that management will be able to
obtain and successfully deploy the necessary technical, production, financial,
human and other resources and otherwise implement these strategies or that these
strategies will achieve their desired results. For a discussion of the financial
resources available to management, see "Financial Condition -- Liquidity -- 1999
vs. 1998" below. If the Company is unable to successfully achieve and manage the
desired growth, its business and results of operations could be adversely
affected.
Among other things, the Company's future success depends in large part on
the continued service of its key technical, marketing and management personnel
and on its ability to continue to attract, to effectively motivate and manage
and to retain qualified employees, particularly those highly skilled design,
process and test engineers involved in the manufacture of existing products and
the development of products and processes. The competition for such personnel is
intense, and the loss of key employees could have a materially adverse effect on
the Company's business, financial condition and results of operations.
20
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Company is in the process of completing the development and
installation of new corporate-wide information systems. The new systems should
provide the Company's new management team with the systems support necessary for
the implementation of its business process changes. Though the implementation of
the new systems could disrupt the normal flow of the Company's operations in the
near-term, including manufacturing schedules, invoicing procedures and resulting
cash flows, no such material disruption has been experienced to date. There can
be no assurance that disruptions of this nature will not occur that could have a
material adverse effect on the Company's operations and financial results.
In addition to the factors discussed above and elsewhere in this Form 10-K
which may adversely affect the Company's conduct of its business and the results
thereof, the Company's financial condition is also subject to the possible
adverse effects of certain pending litigation and other contingencies discussed
above under "Item 3. LEGAL PROCEEDINGS", and in Note 19 -- Commitments and
Contingencies to the consolidated financial statements included below in Item 8
in this Form 10-K.
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 the completion of
debugging activities. Subject to negotiated contractual commitments, the Company
will make the 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 will be charged customers who requested an older
software version when they ordered the equipment. Customers will
21
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
be 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 has purchased and is working with outside contractors to
develop and install new corporate-wide information systems. 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. To date, the Company has installed the
following phases of the new systems installation: key financial reporting,
accounting, services help desk and contract billing, order entry, manufacturing,
engineering documents management, and accounts receivable. One to four
additional months of work may be required in order to achieve full user
acceptance of these installed systems. While the new information systems will be
dynamic ones permitting ongoing improvements as business needs are identified,
the basic operational systems remaining to be installed are the product repair
and service management systems. The installation of these remaining systems is
expected to be substantially completed during the second quarter of fiscal 2000.
The total capital expenditures for the new systems installation, including
the addition of interfaces for "bolt-on" enhancements, is presently estimated to
be approximately $36.0 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 March 31, 1999, the Company had spent
approximately $28.1 million in capital expenditures, purchased $.8 million of
replacement computer hardware and leased an additional $4.2 million of
replacement computer hardware. The company anticipates that it will lease all of
its remaining replacement hardware requirements. The forgoing time and cost
targets are management's current best estimates based on presently available
information and numerous assumptions. Given the uncertainties and complexities
inherent in any new system installation, there can be no assurance that the
project will be completed within the expected time and cost parameters. The
Company's monthly systems development expenditures have ranged from
approximately $1.3 million to approximately $2.1 million.
In addition to these capitalized expenditures, the Company had incurred
approximately $4.0 million of non-capitalizable expenses as of March 31, 1999,
related to the new systems installation. 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 97-13
"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 estimates that it may incur an
additional $1.4 million in non-capitalizable expenses in connection with the
completion of the initial installation of the new systems.
The Company has engaged an outside consultant 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, approximately 80% of the inventoried items
are currently Year 2000 ready. The costs of the study and resulting remediation
have not been material to date, with the remediation costs being borne by the
respective functional areas. The functional teams continue to work toward
completing their review and any necessary remediation as soon as practicable. To
the extent any further Year 2000 issues are identified, 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 any remaining
remediation needs. The timetable and cost for any further remediation that may
be required with respect to the Company's Process Management Systems cannot be
estimated.
22
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
To the extent that the re-writing of affected software is selected as the
means for remediating any Year 2000 issues, whether in preparing upgrades to
Company products, making Process Management Systems Year 2000 ready or
otherwise, given the technical nature of the task of isolating and correcting
non-compliant programming and the limited internal resources available, the
increasing demand for available external resources and the Company's ability to
fund the use of external resources to perform the work, there can be no
assurances as to if, when and at what cost any such software work can be
completed.
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. Insofar as no single customer has accounted
for more than ten percent of the Company's revenues in recent fiscal years, the
Company does not anticipate that its operating results will be materially
adversely affected by the failure of any particular customer to itself be Year
2000 ready. 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 further 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
three-quarters 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 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 is still
in the process of receiving, assessing and following 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, 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 adversely 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 intends to
develop appropriate contingency plans if and when any significant risks relating
to its Year 2000 readiness can be more definitely identified.
23
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
REVENUES
1999 VS. 1998
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
--------------------- ---------------------
1999 1998 DOLLAR PERCENTAGE
-------- ---------- -------- ----------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Product, net.......................................... $305,380 $386,410 $(81,030) (21.0)%
Customer service, net................................. 82,914 76,746 6,168 8.0%
-------- -------- --------
Total net revenues.................................... $388,294 $463,156 $(74,862) (16.2)%
======== ======== ========
</TABLE>
Product revenues include the sale of portable tele-transaction computers
("PTCs"), including rugged, wireless mobile computers and pen-based and
touch-screen workslates; hardware accessories; wireless data communication
products; custom application software and software licenses; and a variety of
professional services, including system integration and project management.
Consolidated product revenues decreased $81.0 million or 21% during fiscal
1999 as compared to fiscal 1998. Product revenues were negatively impacted by
the absence in the current fiscal year of a sale of approximately $30.0 million
to a major domestic retail customer recorded in the third quarter of fiscal
1998. Additionally, fiscal 1999 revenues were negatively impacted by the
cancellation, during the third quarter of fiscal 1999, of a $13.0 million order
to a large domestic logistics company. Fiscal 1999 product revenues were further
negatively impacted by a delay in the recognition of revenue from extended
roll-outs of Company products to customer sites of $12.5 million. An additional
$10.4 million in revenue related to goods shipped to customers was delayed due
to customer acceptance and product non-conformance issues. Finally, revenue for
goods shipped of $8.0 million was deferred due to the Company's guarantee of
lease payments to third-party lessors of Company products.
The $6.2 million or 8% increase in consolidated customer service revenue
during fiscal 1999 as compared to fiscal 1998 was primarily due to the continued
increase in the installed base of the Company's products, in turn generating
increased maintenance and "time and material" billings. Consolidated customer
service revenues, as a percentage of total revenues, increased to 21% in fiscal
1999 from 17% in fiscal 1998. This increase was primarily due to the decrease in
product revenues for the reasons described above. The product revenue issues
described above did not have an immediate impact on the levels of customer
service revenues recorded in fiscal 1999, but may limit service revenue growth
in future years.
The Company's international operations (including Canada and international
distributors) provided revenues of $130.7 million and $133.7 million in fiscal
1999 and 1998, respectively. This decrease was primarily due to the relocation
of the Company's Aironet Wireless Communication, Inc. ("Aironet") subsidiary, a
developer, manufacturer, and marketer of wireless LAN systems, Canadian
operations to Akron, Ohio during the second and third quarters of fiscal 1998
($6.5 million). This decrease was offset by a $2.4 million increase in revenue
reported by other foreign Company subsidiaries as well as increased sales to
foreign distributors. The strength of the United States dollar against the
local, functional currencies of certain of the Company's foreign subsidiaries
negatively impacted international revenues by $1.5 million or 1.5% during fiscal
1999 as compared to the $6.2 million or 6.3% foreign currency impact in fiscal
1998.
The Company anticipates that consolidated total revenues for fiscal 2000
will be greater than those experienced in fiscal 1999 but below those
experienced in fiscal 1998.
24
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
1998 VS. 1997
The table below sets forth the consolidated net revenues of the Company for
fiscal 1998 and 1997, without adjustments for the sale of its former Itronix
Corporation ("Itronix") subsidiary, which was effective December 31, 1996. As
further explained below, after adjusting fiscal 1997 revenues to exclude the
Itronix operations, consolidated revenues from the Company's continuing
operations increased $65.6 million or 16.5%, as compared to fiscal 1997.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
----------------------- -------------------
1998 1997 DOLLAR PERCENTAGE
---------- ---------- ------ ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Product, net............................................ $386,410 $386,791 $ (381) (0.1)%
Customer service, net................................... 76,746 74,606 2,140 2.9%
-------- -------- ------
Total net revenues...................................... $463,156 $461,397 $1,759 0.4%
======== ======== ======
</TABLE>
Consolidated product revenues from continuing operations increased $62.3
million or 19.2% during fiscal 1998 as compared to fiscal 1997. The reported
results of fiscal 1997 included $62.6 million of product revenues recorded by
Itronix. The increase in consolidated product revenues was due to a 19.9%
increase in consolidated volume with a 2.1% reduction in the average selling
price per PTC unit. The increase in consolidated volume was comprised of a 10.0%
increase in non pen-based units, reflecting continued growth in customers'
demand for the Company's newer, more sophisticated units, and a 53.4% increase
in pen-based unit volume, the result of the Company's development and increased
market penetration of its more powerful workslate models.
The $3.3 million or 4.5% increase in consolidated customer service revenue
from continuing operations during fiscal 1998 as compared to fiscal 1997 was due
primarily to the continued increase in the installed base of the Company's
products, in turn generating increased maintenance and "time & material"
billings. Consolidated customer service revenue, as a percentage of consolidated
product revenue, has remained relatively constant, 19.9% in fiscal 1998 vs.
19.3% in fiscal 1997, illustrating the correlative relationship between
consolidated customer service revenue and consolidated product revenue.
The Company's international operations (including Canada and international
distributors) provided revenues of $133.7 million and $134.2 million in fiscal
1998 and 1997, respectively. This slight decrease was the result of the $6.5
million decline in Canadian sales caused by the relocation of the Aironet's
Canadian operations to Akron, Ohio during the second and third quarters of
fiscal 1998 partially offset by the $6.0 million of increased revenue reported
by the Company's other foreign subsidiaries, primarily in the United Kingdom and
Germany, as well as increased sales to foreign distributors. The strength of the
United States dollar against the local, functional currencies of certain of the
Company's foreign subsidiaries negatively impacted international revenues by
$6.2 million or 6.3% during fiscal 1998 as compared to the $3.3 million or 3.4%
foreign currency effect of fiscal 1997.
25
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
COST OF REVENUES
1999 VS. 1998
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE
--------------------- --------------------
1999 1998 DOLLAR PERCENTAGE
-------- ---------- ------- ----------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Product................................................ $241,265 $227,850 $13,415 5.9%
Customer service....................................... 55,078 48,836 6,242 12.8%
-------- -------- -------
Total cost of revenues................................. $296,343 $276,686 $19,657 7.1%
======== ======== =======
Cost of product revenues as a percentage of product
revenues, net........................................ 79.0% 59.0%
Cost of customer service revenues as a percentage of
customer service revenues, net....................... 66.4% 63.6%
</TABLE>
The consolidated cost of product revenues increased $13.4 million or 5.9%
during fiscal 1999 as compared to fiscal 1998. This increase was despite the
overall decrease in product revenues in fiscal 1999 of $81.0 million as compared
to fiscal 1998. In addition to the total excess and obsolete inventory
provisions of $37.4 million as discussed below, the Company incurred increased
costs related to underabsorbed manufacturing overhead costs due to decreased
volumes and manufacturing inefficiencies of $9.8 million and material rework and
repair costs of $3.0 million. The Company also incurred severance charges
related to terminated manufacturing personnel of $.7 million, increased
provisions for warranties related to the Company's international operations of
$.3 million and provisions for disputed royalties and vendor charges of $.7
million.
Consolidated inventory allowance accounts increased to $28.8 million at
March 31, 1999, from $11.7 million at March 31, 1998. In addition to the
inventory allowance accounts, accrued liabilities totaling $12.4 million were
provided for purchase commitments to outside contract manufacturers for
discontinued products.
At March 31, 1999, the inventory allowance accounts were primarily composed
of manufacturing purchased components of $22.9 million, customer service spare
parts and used equipment of $4.0 million and international finished goods
inventories of $1.9 million. The overall increase in the allowance accounts was
due to provisions related to the discontinuance of several of the Company's
products, including the PTC 1194, PTC 1124, PTC 1134, PTC 1184 as well as other
products. The total charges related to the discontinuance of these products were
$23.6 million. These charges included costs for the net realizable value of
related tooling of $.8 million, reserves for related test and demonstration
equipment of $1.1 million and vendor contract cancellation costs of $.8 million.
A number of factors arose during the later part of the fiscal year that
contributed to the management decision to discontinue these products. These
included the extended length of time the development cycle experienced with
these products, customer acceptance issues related to products shipped and more
advanced features contained in competing products. These factors led to a
reduction in customer demand and the related backlog for these products.
Additionally, the effort needed to be put forth in order to modify the existing
products to meet increased customer demands for performance features was
determined to be cost prohibitive.
In addition to the amounts noted above, provisions were made for
manufacturing components of $7.6 million, test equipment held by customers of
$3.0 million, remanufactured equipment of $2.8 million, customer service spare
parts and used equipment of $1.2 million and international finished goods of
$1.2 million. The provisions for remanufacturing obsolescence were made as
revenues related to the Company's remanufacturing operations did not materialize
as anticipated. During the fourth quarter of 1999, the Company significantly
reduced its management emphasis on remanufacturing operations. Provisions for
test equipment held by customers were made as such inventory aged and was
determined either not to be saleable to such customers or able to be returned
and utilized by the Company. During fiscal 1999, the Company reduced its
shipments of test equipment to customers as a sales tool.
26
<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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, although there are no formal programs to do so. During fiscal
1999, the following amounts were scrapped: manufacturing purchased components,
$3.1 million, international inventories of finished goods $.5 million and test
equipment held at customers of $3.7 million. Management plans to scrap the
inventory related to discontinued products as soon as practicable. Recoveries
related to the disposition of such inventory are expected to be immaterial.
At March 31, 1999, the Company had approximately $25.7 million of finished
goods inventory held at customers and distributors and approximately $5.7
million of manufacturing components at contract manufacturers. At March 31,
1998, the Company had approximately $7.6 million of finished goods inventory
held at distributors and customers and approximately $2.0 million of
manufacturing components at contract manufacturers. The increase in the amount
of inventory held at customers and distributors was due primarily to the
increase in amount of inventory shipped to customers but where revenue has not
been recognized as installation of the product or ultimate customer acceptance
of the products has not occurred. This increase was partially offset by a
decrease in the amount of test equipment held by customers.
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 sale
value of the goods to the end user. During fiscal 1999, the Company incurred
$2.4 million of these fees.
The increase in the fiscal 1999 consolidated customer service cost
percentage was primarily due to increased internal and contract labor and parts
costs associated with repair work performed on the Company's more sophisticated
products. It is estimated that these greater direct costs and excess repair
costs for warranty repairs were approximately $2.0 million. In addition to these
costs the Company also incurred severance charges related to terminated domestic
customer service personnel of $.3 million.
The Company believes that it will realize significant improvements in the
consolidated gross margin percentage for fiscal 2000 as compared to fiscal 1999.
However, the Company believes that these improvements will not result in the
fiscal 2000 gross margin percentage exceeding those experienced in fiscal 1998.
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
----------------------- ---------------------
1998 1997 DOLLAR PERCENTAGE
---------- ---------- -------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Product............................................... $227,850 $262,862 $(35,012) (13.3)%
Customer service...................................... 48,836 47,248 1,588 3.4%
-------- -------- -------- ------
Total cost of revenues................................ $276,686 $310,110 $(33,424) (10.8)%
======== ======== ======== ======
Cost of product revenues as a percentage of product
revenues, net....................................... 59.0% 68.0%
Cost of customer service revenues as a percentage of
customer service revenues, net...................... 63.6% 63.3%
</TABLE>
The consolidated cost of product revenues from continuing operations
increased $8.7 million or 4.0% during fiscal 1998 as compared to fiscal 1997.
The reported consolidated results of fiscal 1997 included $43.7 million of cost
of product revenues recorded by Itronix. The increase in cost of product
revenues from continuing operations is directly related to the increase in
consolidated product revenue. Consolidated product gross margins from continuing
operations increased to 41% in fiscal 1998 from 32% in fiscal 1997, due
primarily to the absence of non-recurring charges recorded in fiscal 1997 for
the decreased carrying value of the inventory affected by the
27
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
streamlining of the Company's product lines ($7.2 million) and the Company's
workforce reduction and early retirement initiatives ($1.8 million). Fiscal
1998's consolidated product gross margin was also positively impacted by the
reduced provisions for inventory obsolescence due to improved inventory
management and the streamlining of the Company's product offerings.
Consolidated inventory allowance accounts decreased to $11.7 million at
March 31, 1998, from $15.3 million at March 31, 1997. At March 31, 1998, the
inventory allowance accounts were primarily composed of manufacturing purchased
components of $6.3 million, customer service spare parts of $2.4 million,
international inventories of $1.2 million and test equipment held at customers
of $1.0 million. The decrease from the fiscal 1997 allowance accounts was
primarily the result of the physical disposition of $9.1 million of fully
reserved obsolete material during the third quarter of fiscal 1998 that had
previously been identified during the streamlining of the Company's product
lines in fiscal 1997, partially offset by the continued provision for inventory
obsolescence. Management disposes of excess and obsolete inventory. During
fiscal 1998, the following amounts were scrapped: manufacturing purchased
components, $7.9 million, international inventories $0.7 million and test
equipment held at customers of $1.1 million. Subsequent to March 31, 1998, the
Company scrapped $1.2 million of excess and obsolete inventories. As a
percentage of consolidated gross inventories, the Company's consolidated
inventory allowances decreased to 10% at March 31, 1998, from 15% at March 31,
1997.
OPERATING EXPENSES
1999 VS. 1998
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
---------------------- ---------------------
1999 1998 DOLLAR PERCENTAGE
-------- ---------- ------- ----------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Selling expenses............................... $ 96,109 $ 82,054 $14,055 17.1%
Product development and engineering expenses... 42,986 37,500 5,486 14.6%
General and administrative expenses............ 54,923 39,462 15,461 39.2%
Asset impairment charge........................ -- 6,069 (6,069) (100.0)%
Unconsummated business combination costs....... 8,070 -- 8,070 N.M.
-------- -------- ------- ------
Total operating expenses....................... $202,088 $165,085 $37,003 22.4%
======== ======== ======= ======
</TABLE>
Consolidated selling expenses as a percentage of total revenues were 25%
and 18% in fiscal 1999 and 1998, respectively. The primary reasons for this
increase were as follows. Bad debt provisions related to specific customer
accounts increased substantially during fiscal 1999. Provisions related to these
accounts aggregated $4.3 million. Also contributing to the increased selling
expenses were an increase in the Company's international infrastructure of $2.9
million and approximately $.3 million of severance charges related to the
Company's international operations. Selling and marketing expenses increased
$2.2 million at Aironet as it increased its selling and marketing efforts in
order to expand its outside customer base and promote separate name recognition.
Domestic marketing expenses increased $1.8 million due the inclusion in fiscal
1999 results of a full year of expenditures related to a new marketing group
created during fiscal 1998. Domestic advertising expenses increased $.7 million
in fiscal 1999. Increased provisions for the past due accounts receivable
related to a foreign distributor of $.7 million also increased overall selling
expenses. Total provisions related to this one distributor were $3.6 million in
fiscal 1999.
Consolidated product development and engineering expenses as a percentage
of total revenues were 11% and 8% in fiscal 1999 and 1998, respectively. The
increase in product development and engineering expenses was primarily related
to the decreased amount of capitalization of internal software development costs
of $4.5 million as the result of a shift in the nature of those development
efforts and the ability to qualify for capitalization under generally accepted
accounting principles. Additionally, overall expense levels increased in the
Company's
28
<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
engineering and product development functions due to large amounts of open
design projects associated with the Company's pen-based products and new
products. Direct expenses such as labor, contract labor, outside design services
and operating parts and supplies increased $6.1 million in fiscal 1999 as
compared to fiscal 1998 levels. Engineering expenses were also increased by
greater spending at the Company's Metanetics Corporation ("Metanetics")
subsidiary, a licensor and developer of image processing technology, of $.6
million related to the development of its optical scanning product line and at
Aironet of $.9 million related to the continued development of wireless network
products. During fiscal 1999, amortization of goodwill of $.5 million resulting
from the repurchase of Metanetics common stock was recorded as engineering
expense. As part of the management change and related workforce reductions
during the fourth quarter of fiscal 1999, severance charges of $.3 million were
incurred. These increases were offset by the absence of $2.4 million of expenses
incurred in fiscal 1998 to relocate certain of the Company's engineering and
product development operations from Akron, Ohio to Houston, Texas. Additionally,
product development and engineering expenses were decreased by the absence of
$2.6 million of development expenses related to the Company's Virtual Vision
subsidiary which was divested in April 1998. Also, engineering expenses were
decreased by the absence of amortization of goodwill related to the acquisition
of Teletransaction of $1.3 million, as that asset had become fully amortized
during fiscal 1998.
During fiscal 1999, the Company continued to capitalize internal software
development costs in accordance with the requirements of the Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed" ("SFAS No. 86") aggregating $3.3 million. Amortization
related to capitalized internal software development costs was $7.2 million.
During the year, the Company provided for accelerated amortization of $.7
million under the requirements of such Statement as the subject software was
either replaced with newer versions or the related hardware products were
discontinued.
General and administrative expenses as a percentage of total revenues were
14% and 9% in fiscal 1999 and 1998, respectively. The increase in general and
administrative expenses was primarily related to the following items. The
Company experienced increased expenses related to its corporate information
systems project of $3.4 million. Stock based compensation related to Aironet of
$3.4 million was recorded due to the impact of variable plan accounting and
changes to the vesting provisions of the underlying plan. As part of the
management change and related workforce reductions during the fourth quarter of
fiscal 1999, severance charges of $2.0 million were incurred. The change in the
Company's management also led to the discontinuation of consulting contracts
with Robert F. Meyerson, the Company's former Chairman and CEO, as these
services will no longer be utilized. The discontinuation of such contracts
resulted in a charge of $1.3 million. The Company also incurred start-up costs
related to a joint venture entered into by Metanetics of $1.3 million. These
start-up costs were paid to Robert F. Meyerson for services performed on behalf
of the Company. Also contributing to the increase in general and administrative
expenses was increased legal and accounting fees related to the Company's
announced restatement of earnings, related shareholders suits and regulatory
investigations of approximately $1.2 million. Depreciation and computer hardware
and software maintenance primarily related to the Company's on-going information
systems increased $.8 million and $1.2 million, respectively, in fiscal 1999 as
compared to fiscal 1998. Additionally, rent allocated to general and
administrative functions increased $.6 million in fiscal 1999 due to the move of
the Company's engineering functions in fiscal 1998. The Company also expensed
$.5 million of bank waiver fees related to its violation of its credit facility
covenants.
As discussed above, the Company incurred significant severance charges due
to its management changes, which included related charges for the CEO, CFO and
CTO of the Company as well as other members of senior executive management, and
a general workforce reduction that took place during the fourth quarter of
fiscal 1999. The areas of the Company effected were executive management,
domestic sales operations, domestic product development, customer service and
manufacturing operations. A total of 53 employees were terminated. Of this
number, 5 employees were given a short term stay notice. All other employees
were terminated prior to
29
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
March 31, 1999. The remaining employees were terminated subsequent to March 31,
1999. There have been no material changes to the amounts accrued.
During fiscal 1999, the Company incurred charges aggregating $8.1 million
as follows: unsolicited takeover bid, $3.2 million; proxy contest and settlement
with shareholder, $.4 million; and two unconsummated business combination
transactions of $2.9 million and $1.6 million, respectively.
The Company plans to reduce operating expenses for fiscal 2000, both in
absolute dollars and as a percentage of revenues. The Company anticipates that
total operating expenses will be below those experienced in fiscal 1999 and
1998.
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
----------------------- ---------------------
1998 1997 DOLLAR PERCENTAGE
---------- ---------- -------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Selling expenses.................................... $ 82,054 $ 88,374 $ (6,320) (7.2)%
Product development and engineering expenses........ 37,500 45,189 (7,689) (17.0)%
General and administrative expenses................. 39,462 53,408 (13,946) (26.1)%
Asset impairment charge............................. 6,069 -- 6,069 N.M.
-------- -------- --------
Total operating expenses............................ $165,085 $186,971 $(21,886) (11.7)%
======== ======== ========
</TABLE>
Consolidated selling expenses as a percentage of total revenues were 18%
and 19% in fiscal 1998 and 1997, respectively. The selling expenses reported in
fiscal 1997 included $6.2 million of selling expenses recorded by Itronix.
Consolidated selling expenses from continuing operations decreased primarily due
to the absence of $4.6 million of non-recurring charges recorded during fiscal
1997 related to the Company's workforce reduction and early retirement
initiatives and the redesign of the Company's worldwide distribution and
logistics operations. This reduction was offset by increased marketing expenses
during fiscal 1998 related to the creation of a new product marketing group,
Aironet's increased emphasis on the development of its external sales and the
building of greater customer awareness and name recognition, provisions for the
past due accounts receivable related to a certain foreign distributor of $2.9
million and $1.4 million of charges related to workforce reductions in the
Company's international operations.
Product development and engineering expenses as a percentage of total
revenues were 8% in fiscal 1998 as compared to 10% in fiscal 1997. The Company's
fiscal 1997 consolidated results included $5.2 million of product development
and engineering expenses incurred by Itronix. Product development and
engineering expenses from continuing operations decreased $2.4 million or 6% in
fiscal 1998 from fiscal 1997. This decrease was the result of the absence of
$3.0 million of non-recurring charges related primarily to the Company's
workforce reduction and early retirement initiatives recorded during fiscal
1997, offset by approximately $2.4 million of expenses incurred in fiscal 1998
to relocate certain of the Company's engineering and product development
operations from Akron, Ohio to Houston, Texas.
During fiscal 1998, the Company capitalized internal software development
costs in accordance with the requirements of the Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed"
("SFAS No. 86") aggregating $.5 million, net of amortization of $6.4 million.
General and administrative expenses as a percentage of total revenues were
9% in fiscal 1998 as compared to 12% in fiscal 1997. The decrease in
consolidated general and administrative expenses during fiscal 1998 was due
primarily to the absence of the $5.9 million of non-recurring charges related to
the Company's workforce reduction and early retirement initiatives, corporate
information systems and certain consulting agreements as well as the $5.5
million charge related to the retirement of Robert F. Meyerson, the Company's
former Chairman and CEO, all of which were recorded during fiscal 1997.
30
<PAGE> 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
During fiscal 1998, the Company incurred impairment charges aggregating
$4.6 million related to the uncollected notes receivable from the fiscal 1997
divestiture of certain retail software operations to a third party as well as an
investment in that entity. In addition to these charges, the Company also
recorded an impairment charge of $1.4 million related to its investment in the
foreign distributor referenced above, as such investment was deemed to not be
recoverable. These investments were fully impaired due to poor historical
financial performance, inability to repay amounts owed to the Company and lack
of persuasive evidence that would indicate a future ability or intent of these
entities that would support the carrying value of the Company's investments.
INTEREST EXPENSE
1999 VS. 1998
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
---------------------- --------------------
1999 1998 DOLLAR PERCENTAGE
-------- ---------- ------ ----------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income................................... $ 801 $ 1,573 $ (772) (49.1)%
Interest expense.................................. (9,872) (7,181) 2,691 37.5%
------- ------- ------
Net interest expense.............................. $(9,071) $(5,608) $3,463 61.8%
======= ======= ======
</TABLE>
Net interest expense as a percentage of total revenues increased to 2% in
fiscal 1999 as compared to 1% in fiscal 1998. This increase was primarily due to
the increase in the fiscal 1999 weighted average borrowings under the Company's
credit agreements and product financing arrangements of $49.7 million as
compared $3.5 million in fiscal 1998. The impact of this increase was partially
offset by the increased capitalization of interest costs related to the
Company's corporate information systems project. The increased capitalization of
these costs reduced interest expense by $1.2 million in fiscal 1999 as compared
to $.3 million in fiscal 1998.
The Company anticipates continued need for borrowings during fiscal 2000.
Therefore, the Company believes that interest expense will increase as compared
with fiscal 1999.
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
----------------------- -------------------
1998 1997 DOLLAR PERCENTAGE
---------- ---------- ------ ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Interest income........................................... $ 1,573 $ 1,489 $ 84 5.6%
Interest expense.......................................... (7,181) (8,056) (875) (10.9)%
------- ------- -----
Net interest expense...................................... $(5,608) $(6,567) $(959) (14.6)%
======= ======= =====
</TABLE>
Net interest expense as a percentage of revenues was approximately 1% in
both fiscal 1998 and fiscal 1997. The decrease in the Company's consolidated net
interest expense between fiscal 1998 and fiscal 1997 was the result of the
decrease in the Company's borrowings under its credit agreements. The Company
had a weighted average of $3.5 million outstanding under its credit agreements
during fiscal 1998 as compared to a weighted average of $7.8 million outstanding
during fiscal 1997. This was partially offset by an increase in the weighted
average interest rate (8.9% per annum in fiscal 1998 as compared to 7.0% per
annum in fiscal 1997).
31
<PAGE> 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NON-OPERATING INCOME
1999 VS. 1998
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
-------------------- ----------------------
1999 1998 DOLLAR PERCENTAGE
----- ---------- ------- ----------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gain on sale of subsidiary stock.............. $ 340 $ 1,637 $(1,297) (79.2)%
Other non-operating (expense) income.......... (754) (1,012) 258 (25.5)%
----- ------- -------
Total non-operating (expense) income.......... $(414) $ 625 $(1,039) (166.2)%
===== ======= =======
</TABLE>
During the first quarter of fiscal 1999, the transaction to sell the stock
of the Company's Virtual Vision subsidiary was consummated, resulting in a $.9
million gain. Subsequent to the consummation of the transaction, positive
adjustments to such gain totaling $.2 million were recorded. These adjustments
related to changes in purchase price based upon key employee retention rates
subsequent to the transaction.
During the fourth quarter of fiscal 1999, the Company reduced the carrying
value of a $4.5 million investment in non-marketable securities by $1.7 million.
The Company's estimate of the decrease in the carrying value was based upon
subsequent equity transactions of the investee with third-parties. This
investment is composed of preferred shares in the development-stage technology
company that purchased the Company's Virtual Vision subsidiary.
The Company also reduced the carrying value of certain notes receivable
from third-parties totaling $.4 million based upon subsequent settlements of
amounts due.
In fiscal 1999, the Company recorded minority interest of $.3 million as
other non-operating income due to the minority interest share of Aironet's
losses.
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. Proceeds from this sale of stock totaled $.8 million in cash and notes
receivable. The resulting pre-tax gain of $.3 million was recorded as a gain on
sale of subsidiary stock in the accompanying 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
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 stock of Aironet at March 31, 1999 was 76%, as compared to 78% at March
31, 1998.
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE (DECREASE)
------------------------- -----------------------
1998 1997 DOLLAR PERCENTAGE
---------- ---------- -------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Gain on sale of subsidiary stock.............. $1,637 $ -- $ 1,637 N.M.
Other non-operating (expense) income.......... (1,012) 34,726 (35,738) (102.9)%
------ ------- -------- ------
Total non-operating income.......... $ 625 $34,726 $(34,101) (98.2)%
====== ======= ======== ======
</TABLE>
During the fourth quarter of fiscal 1998, the Company recorded
non-operating expense of $.4 million related to the minority interest in the
income of Aironet, $1.2 million of non-operating expense related to the
revaluation of certain non-marketable investments and approximately $1.0 million
of non-operating income related to the sale of its investment in a start-up
wireless technology entity. During the third quarter 1998 the Company recorded a
non-operating loss of $.4 million related to a discrete litigation settlement
related to the divestiture of Itronix.
During fiscal 1998, Aironet sold 984,126 shares of voting common stock to
third party investors at a price of $3.50 per share. Proceeds from this sale of
stock totaled $3.4 million in cash. The resulting pre-tax gain of
32
<PAGE> 34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
$.4 million, net of related transaction costs, was recorded as a gain on sale of
subsidiary stock in the accompanying consolidated statement of operations. The
Company's remaining interest in the voting common stock of Aironet at March 31,
1998, was 78%, as compared to 90% at March 31, 1997.
During fiscal 1998, certain employees of Aironet exercised 270,000 options
to purchase Aironet voting common stock at $1.86 per share. The pre-tax gain of
$.2 million was recorded as a gain on sale of subsidiary stock in the
accompanying consolidated statement of operations.
During fiscal 1997, the Company sold 808,500 shares of Aironet stock in a
transaction which, as further discussed in Note 17 -- Subsidiary Stock
Transactions of the accompanying consolidated financial statements, resulted in
a $1.0 million deferred gain at March 31, 1997, as the criteria for the
recognition of gain on the sale of subsidiary stock had not been met. During
fiscal 1998, the criteria for the recognition of gain on the sale of subsidiary
stock were fulfilled, and accordingly, the deferred gain was recorded as a gain
on sale of subsidiary stock in the accompanying consolidated statement of
operations.
INCOME TAXES
1999 VS. 1998
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE
---------------------- ----------------------
1999 1998 DOLLAR PERCENTAGE
------- ---------- ------- ----------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Provision for income taxes..................... $17,360 $7,227 $10,133 140.2%
</TABLE>
The Company's consolidated fiscal 1999 tax provision reflects a valuation
allowance of $10.1 million established against the net deferred tax asset at the
beginning of the year and foreign income taxes of $5.2 million. No tax benefit
was recognized for the fiscal 1999 net operating loss based on the Company's
assessment that it is more likely than not that these deferred tax assets will
not be utilized through future taxable income or implementation of tax planning
strategies.
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, INCREASE
------------------------- ---------------------
1998 1997 DOLLAR PERCENTAGE
---------- ---------- ------ ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Provision for income taxes...................... $7,227 $726 $6,501 895.5%
</TABLE>
The Company's consolidated effective tax rate was 44% in fiscal 1998 as
compared to 10% in fiscal 1997. The consolidated effective tax rate for fiscal
1998 reflects income before taxes multiplied by the United States federal
statutory tax rate. The rate was increased by, nondeductible goodwill
amortization, other miscellaneous items such as state income tax expense and tax
reserve and international rate differentials. The effective tax rate was
decreased by research and development credits and the favorable tax treatment of
the foreign sales corporation.
33
<PAGE> 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION
LIQUIDITY
1999 VS. 1998
<TABLE>
<CAPTION>
MARCH 31, DOLLAR
---------------------- INCREASE
1999 1998 (DECREASE)
-------- ---------- ----------
(RESTATED)
(IN THOUSANDS EXCEPT RATIOS)
<S> <C> <C> <C>
Cash and cash equivalents.................................. $ 22,459 $ 27,500 $ (5,041)
Accounts and notes receivable.............................. 88,515 137,685 (49,170)
Inventories................................................ 129,049 109,935 19,114
Prepaid expenses and other................................. 9,029 16,084 (7,055)
-------- -------- ---------
Total current assets....................................... $249,052 $291,204 $ (42,152)
======== ======== =========
Notes payable.............................................. $ 68,567 $ 3,000 $ 65,567
Accounts payable........................................... 64,966 58,634 6,332
Income taxes payable....................................... 6,434 3,466 2,968
Accrued liabilities........................................ 74,285 41,988 32,297
Other...................................................... 525 968 (443)
-------- -------- ---------
Total current liabilities.................................. $214,777 $108,056 $ 106,721
======== ======== =========
Working capital (current assets less current
liabilities)............................................. $ 34,275 $183,148 $(148,873)
======== ======== =========
Current ratio (current assets divided by current
liabilities)............................................. 1.2 to 1 2.7 to 1
</TABLE>
The decrease in the Company's working capital at March 31, 1999, from March
31, 1998, was primarily attributable to the increase in notes payable, accrued
liabilities and accounts payable, supplemented by a decrease in accounts
receivable and partially offset by an increase in inventories. The increase in
notes payable was due to increased financing needs as a result of the net loss
incurred during the last half of fiscal 1999, high levels of inventory
purchases, and capital expenditures of $36.0 million, including expenditures
related to the Company's information systems project. The increase in accrued
liabilities and accounts payable was primarily due to amounts recorded for
deferred product revenues of $14.2 million and for costs related to purchases of
components related to discontinued products of $12.4 million as well as
decreased payments to vendors. Inventories increased during fiscal 1999
primarily due to an $18.1 million increase of finished goods inventory held by
customers and distributors. The increase in the amount of inventory held at
customers and distributors was due primarily to the increase in the amount of
inventory shipped to customers but where revenue has not been recognized as
installation of the product or ultimate customer acceptance of the products has
not occurred. Consolidated inventory turns remained consistent at 2.3 as of
March 31, 1999 and 1998.
Accounts receivable decreased between years primarily due to decreased
revenues during the last quarter of fiscal 1999 as compared to fiscal 1998. The
overall increases of accounts receivable allowance accounts for bad debts of
$6.3 million and sales returns and allowances of $11.8 million also contributed
to the decrease in accounts receivable. Additionally, the reclassification of
$4.5 million of proceeds in the form of shares related to the sale of Virtual
Vision from other accounts receivable into long-term assets when such proceeds
were released from escrow added to the decrease in accounts receivable. Days
sales outstanding increased from 84 days at March 31, 1998 to 98 days at March
31, 1999 as revenues for the last quarter of fiscal 1999, relative to those
recorded in the last quarter of fiscal 1998, decreased at a faster rate than the
net accounts receivable balance. Other decreases of $10.4 million included other
accounts receivable and prepaid assets. Other decreases in prepaid assets were
in part due to decreased deferred income tax assets, which were subject to a
substantial valuation allowance in the current year.
34
<PAGE> 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Company has incurred a net loss in fiscal 1999 of $137.0 million with a
decrease in consolidated revenues of $74.9 million as compared to fiscal 1998.
Cash flows used by operations were $27.6 million, and cash flows used in
investing activities were $40.9 million. The primarily source of cash flows for
fiscal 1999 were net borrowings under its credit facilities and including
product financing arrangements which aggregated $65.6 million. The Company is
currently in violation of its debt covenants related to these credit facilities
and is unable to borrow additional funds against these facilities. Waivers for
non-compliance have been received through August 30, 1999. The Company's
stockholders' equity and working capital at March 31, 1999 were $17.0 million
and $34.3 million, respectively.
Since joining the Company in March 1999, the Chief Executive Officer has
formed the Company's executive management team and is in the process of
implementing the team's operating plan to stabilize the Company and pursue
growth opportunities in the mobile information systems industry. Management is
actively seeking opportunities to generate cash from sources such as inventories
and accounts receivable, managing vendor payments and related operating
expenditures and is improving operating processes, such as material requirements
planning and design-to-cost, required to achieve its operating and financial
goals. However, there can be no assurance that the cash flows generated 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 disruption of the
flow of necessary materials, components, services or other cash requirements of
the Company. In addition, payments may ultimately be required in the near-term
in settlement of the litigation, commitments and contingencies referenced in
Note 19 -- Commitments and Contingencies. Such payments 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.
In connection with the granting of the waivers discussed above, the
Company's existing lenders exercised their rights under the terms of their
respective loans to file UCC financing statements to perfect the security
interests previously conditionally granted in their favor by the Company in its
accounts receivable, inventory and equipment and the proceeds thereof and
subsequently required that the Company grant them security interest in
substantially all of the Company's assets. The Company has been negotiating with
financial institutions to provide adequate financial resources to execute the
management team's operating plans.
As discussed in Note 22 -- Subsequent Events to the accompanying
consolidated financial statements, the Company has received a commitment letter
from a financial institution for a $100 million senior credit facility. This
commitment letter contains conditions precedent and subsequent; therefore, there
can be no absolute assurance that this credit facility will ultimately be
executed and provide the financing sufficient to fund management's plans. The
planned use of the proceeds from this facility is to repay the existing credit
facility in full and to reduce amounts payable to vendors.
The Company has received $20.5 million of the proceeds from the initial
public offering of Aironet's common stock. One-half of these proceeds are to be
used in order to partially repay the Company's current borrowings under its
existing credit agreement. The remaining proceeds are to be utilized to reduce
amounts payable to vendors.
The Company's independent accountants have included a "going concern"
paragraph in their audit report accompanying the fiscal 1999 consolidated
financial statements. The paragraph states that the Company's operating losses,
negative operating cash flows, net retained deficit and debt covenant violations
raise substantial doubt about the Company's ability to continue as a going
concern and cautions that the financial statements do not include adjustments
that might result from this uncertainty.
The Company is currently meeting cash flow requirements from internally
generated cash flows and has successfully managed the payments of vendors and
employees without the disruption of the flow of necessary materials, components
and services. However, there can be no assurance that the Company will continue
to do so in the future. If the contemplated financing is not obtained prior to
August 30, 1999, the Company will be required to obtain additional waivers under
its current credit facilities. The lenders thereunder are under no
35
<PAGE> 37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
obligation to grant such waivers. In the absence of any required further
waivers, the Company will be in default of, and subject to the lenders' rights
of acceleration under its existing credit agreements and the lenders' rights and
remedies as secured parties. Pending the establishment of replacement credit
facilities, the Company will continue to rely upon internally generated cash
flows. Management believes that, despite the financial hurdles, liquidity
constraints and funding uncertainties going forward, it has a business plan
that, if successfully funded and executed, should significantly improve the
Company's operations and financial results. The support of the Company's
vendors, customers, lenders, stockholders and employees will continue to be key
to the Company's future success.
1998 VS. 1997
<TABLE>
<CAPTION>
MARCH 31, DOLLAR
----------------------- INCREASE
1998 1997 (DECREASE)
---------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 27,500 $ 45,386 $(17,886)
Accounts and notes receivable............................... 137,685 123,144 14,541
Inventories................................................. 109,935 85,220 24,715
Prepaid expenses and other.................................. 16,084 13,589 2,495
-------- -------- --------
Total current assets........................................ $291,204 $267,339 $ 23,865
======== ======== ========
Notes payable............................................... $ 3,000 $ 50 $ 2,950
Accounts payable............................................ 58,634 47,917 10,717
Income taxes payable........................................ 3,466 3,077 389
Accrued liabilities......................................... 41,988 47,440 (5,452)
Other....................................................... 968 1,010 (42)
-------- -------- --------
Total current liabilities................................... $108,056 $ 99,494 $ 8,562
======== ======== ========
Working capital (current assets less current liabilities)... $183,148 $167,845 $ 15,303
======== ======== ========
Current ratio (current assets divided by current
liabilities).............................................. 2.7 to 1 2.7 to 1
</TABLE>
The increase in the Company's working capital at March 31, 1998, from March
31, 1997, was primarily attributable to the increases in accounts and notes
receivable and inventories and the decrease in accrued liabilities. The increase
in accounts receivable was primarily the result of the increase in domestic
sales in the fourth quarter of fiscal 1998 versus the fourth quarter of fiscal
1997. Additionally, domestic days sales outstanding decreased to 84 days at
March 31, 1998, from 86 days at March 31, 1997. The increase in inventories at
March 31, 1998, was due to increased purchases of raw materials to take
advantage of volume discounts and inventory required for the initial production
of two new pen-based product models. Consolidated inventory turns decreased to
2.3 at March 31, 1998, from 2.6 at March 31, 1997. The increases in the
components of the Company's working capital were partially reduced by a decrease
in cash and cash equivalents and an increase in accounts payable. The decrease
in cash, as illustrated in the "Consolidated Statement of Cash Flows", was due
primarily to the increase in accounts receivable. The increase in accounts
payable was the result of increased liabilities for inventory purchases.
36
<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CASH FLOWS FROM OPERATING ACTIVITIES
1999 VS. 1998
<TABLE>
<CAPTION>
DOLLAR INCREASE
YEAR ENDED MARCH 31, (DECREASE) IN
---------------------- CASH FLOW
1999 1998 IMPACT
--------- ---------- ---------------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C>
Net (loss) income........................................... $(136,982) $ 8,159 $(145,141)
Cumulative effect of an accounting change................... -- 2,176 (2,176)
Depreciation and amortization............................... 29,174 26,872 2,302
Amortization of restricted stock awards, net................ 152 199 (47)
Non-cash stock compensation expense, net of minority
interest impact........................................... 2,340 -- 2,340
Provision for doubtful accounts............................. 7,752 3,038 4,714
Provision for inventory obsolescence........................ 37,430 4,999 32,431
Deferred income taxes....................................... 9,525 (3,306) 12,831
Gain on sale of assets...................................... (88) (669) 581
Gain on sale of subsidiary and subsidiary stock............. (1,240) (1,637) 397
Asset impairment charge..................................... -- 6,069 (6,069)
Loss related to carrying value of non-marketable
investments............................................... 2,094 -- 2,094
Loss on disposal of assets.................................. -- 800 (800)
Minority interest........................................... (258) 659 (917)
Accounts and notes receivable............................... 37,206 (14,286) 51,492
Inventories................................................. (44,089) (30,834) (13,255)
Prepaid expenses and other.................................. 2,408 2,094 314
Intangibles and other assets................................ (833) 1,254 (2,087)
Accounts payable and accrued liabilities.................... 29,305 3,333 25,972
Income taxes payable........................................ 2,527 808 1,719
Other long-term liabilities................................. (4,039) (2,913) (1,126)
--------- -------- ---------
Net cash (used in) provided by operating activities......... $ (27,616) $ 6,815 $ (34,431)
========= ======== =========
</TABLE>
The decrease in the Company's cash flows from operating activities was
primarily the result of the decrease in cash flows resulting from the change in
net income from $8.2 million in fiscal 1998 to a net loss of $137.0 million in
fiscal 1999, supplemented by the increased negative cash flow impact of
inventories. These negative cash flow impacts were partially offset by the
positive cash flow impact of the increased provision for inventory obsolescence,
the net change in accounts and notes receivable, the net change in accounts
payable and accrued liabilities and the cash flow impact of deferred income
taxes.
1998 VS. 1997
<TABLE>
<CAPTION>
DOLLAR INCREASE
YEAR ENDED MARCH 31, (DECREASE) IN
------------------------ CASH FLOW
1998 1997 IMPACT
---------- ---------- ---------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Net income (loss)........................................ $ 8,159 $ (8,251) $16,410
Cumulative effect of an accounting change................ 2,176 -- 2,176
Depreciation and amortization............................ 26,872 29,502 (2,630)
Provision for doubtful accounts.......................... 3,038 1,310 1,728
Provision for inventory obsolescence..................... 4,999 10,310 (5,311)
Deferred income taxes.................................... (3,306) (4,110) 804
Gain on sale of assets................................... (669) (32,653) 31,984
</TABLE>
37
<PAGE> 39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
DOLLAR INCREASE
YEAR ENDED MARCH 31, (DECREASE) IN
------------------------ CASH FLOW
1998 1997 IMPACT
---------- ---------- ---------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Gain from sale of subsidiary stock....................... (1,637) -- (1,637)
Asset impairment charge.................................. 6,069 -- 6,069
Minority interest........................................ 659 1,127 (468)
Accounts and notes receivable............................ (14,286) (112) (14,174)
Inventories.............................................. (30,834) 511 (31,345)
Prepaid assets and other................................. 2,094 1,193 901
Intangibles and other assets............................. 1,254 1,948 (694)
Accounts payable and accrued liabilities................. 3,333 (8,197) 11,530
Income taxes payable..................................... 808 (3,005) 3,813
Other.................................................... (1,914) (64) (1,850)
-------- -------- -------
Net cash provided by (used in) operating activities...... $ 6,815 $(10,491) $17,306
======== ======== =======
</TABLE>
The increase in the Company's cash flows from operations for fiscal 1998
was primarily the result of the cash flow impact of the increase in net income,
the absence of the cash flow impact from the gain on the sale of Itronix, the
cash flow impact of asset impairment charges and the change in the cash flow
impact of accounts payable and accrued liabilities. The effect of these positive
cash flow items was partially offset by the negative cash flow impact of the
change in accounts and notes receivable and the change in the cash flow impact
of inventories.
CASH FLOWS FROM INVESTING ACTIVITIES
1999 VS. 1998
<TABLE>
<CAPTION>
DOLLAR INCREASE
YEAR ENDED MARCH 31, (DECREASE) IN
---------------------- CASH FLOW
1999 1998 IMPACT
-------- ---------- ---------------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sale of assets............................. $ -- $ 5,444 $ (5,444)
Proceeds from sale of subsidiary stock................... 700 3,100 (2,400)
Additions to property and equipment...................... (36,024) (26,490) (9,534)
Software investments..................................... (3,781) (6,936) 3,155
Purchase of non-marketable investments................... -- (5,600) 5,600
Additions to long-term notes receivable.................. (795) (580) (215)
Proceeds from non-marketable investments................. 929 1,033 (104)
Repurchase of subsidiary stock........................... (1,950) -- (1,950)
-------- -------- --------
Net cash used in investing activities.................... $(40,921) $(30,029) $(10,892)
======== ======== ========
</TABLE>
Fiscal 1999 cash flows from investing activities were negatively impacted
by the increase in the additions to property and equipment, the cash paid for
the repurchase of subsidiary stock and the decreases in the proceeds from asset
and subsidiary stock sales. These decreases were partially offset by the
positive cash flow impact of reduced software investments and the absence of the
purchase of non-marketable investments. The increase in the additions to
property and equipment was primarily due to the Company's increased investment
in its corporate information systems project and related computer hardware and
capitalized interest costs.
38
<PAGE> 40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
1998 VS. 1997
<TABLE>
<CAPTION>
DOLLAR INCREASE
YEAR ENDED MARCH 31, (DECREASE) IN
------------------------ CASH FLOW
1998 1997 IMPACT
---------- ---------- ---------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Proceeds from sale of assets............................... $ 5,444 $65,674 $(60,230)
Proceeds from sale of subsidiary stock..................... 3,100 -- 3,100
Additions to property and equipment........................ (26,490) (16,837) (9,653)
Software investments....................................... (6,936) (7,731) 795
Purchase of non-marketable investments..................... (5,600) (6,691) 1,091
Other...................................................... 453 (2,000) 2,453
-------- ------- --------
Net cash (used in) provided by investing activities........ $(30,029) $32,415 $(62,444)
======== ======= ========
</TABLE>
The Company's cash flows from investing activities decreased in fiscal 1998
from fiscal 1997, primarily as the result of the absence of the cash proceeds
from the sale of Itronix and the capitalization of $8.6 million of expenditures
relating to the installation of a new corporate-wide information system. These
negative cash flow items were partially offset by the positive cash flow effect
of proceeds from the sale of subsidiary stock and other investing activities.
CASH FLOWS FROM FINANCING ACTIVITIES
1999 VS. 1998
<TABLE>
<CAPTION>
DOLLAR INCREASE
YEAR ENDED MARCH 31, (DECREASE) IN
--------------------- CASH FLOW
1999 1998 IMPACT
------- ---------- ---------------
(RESTATED)
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable, net.......................................... $65,567 $2,567 $63,000
Principal payments on capital leases........................ (884) (832) (52)
Debt issue costs paid....................................... (2) (24) 22
Debt waiver fees paid....................................... (1,148) -- (1,148)
Proceeds from exercise of stock options..................... 1,397 9,190 (7,793)
Purchase of treasury stock.................................. (1,202) (5,070) 3,868
Payment of cash dividends................................... (162) (162) --
------- ------ -------
Net cash provided by financing activities................... $63,566 $5,669 $57,897
======= ====== =======
</TABLE>
The Company's cash flows from financing activities increased for fiscal
1999 as a result of increased borrowing under the Company's credit facilities.
This borrowing was necessitated by the Company's net loss for the year as well
as investments in inventories and the cash outlay related to the Company's
corporate information systems project. Also increasing the cash provided by
financing activities was the reduction in the Company's common stock repurchase
activity during fiscal 1999 (63,300 shares during fiscal 1999 at a weighted
average price of $17.19 per share vs. 294,200 shares during fiscal 1998 at a
weighted average price of $17.23 per share). These increases in cash flows from
financing activities were partially offset by the reduced cash proceeds from the
exercises of stock options for the Company's common stock due to the decrease in
the market value of such stock during the last half of fiscal 1999.
39
<PAGE> 41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
1998 VS. 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, DOLLAR INCREASE
----------------------- IN CASH FLOW
1998 1997 IMPACT
---------- --------- ---------------
(RESTATED)
<S> <C> <C> <C>
Notes payable, net........................................ $2,567 $ (16) $ 2,583
Purchase of treasury stock................................ (5,070) (9,328) 4,258
Proceeds from exercise of stock options................... 9,190 1,615 7,575
Other..................................................... (1,018) (3,428) 2,410
------ -------- -------
Net cash provided by (used in) financing activities....... $5,669 $(11,157) $16,826
====== ======== =======
</TABLE>
The increase in the Company's cash flows from financing activities was the
result of the positive cash flow impact of the increase in the Company's notes
payable, the positive cash flow impact of the reduction in the number of shares
of common stock repurchased under the Company's open market repurchase programs
during fiscal 1998 (294,200 shares during fiscal 1998 at a weighted average
price of $17.23 per share vs. 633,000 shares during fiscal 1997 at a weighted
average price of $14.74 per share) as well as the positive cash flow impact of
the increase in the proceeds from the exercise of stock options.
ACCOUNTING CHANGE
On November 20, 1997, the FASB's Emerging Issues Task Force issued a new
consensus ruling, "Accounting for Costs Incurred in Connection with a Consulting
Contract or an Internal Project That Combines Business Process Reengineering and
Information Technology Transformation" ("EITF 97-13"). EITF 97-13 requires
business process reengineering costs associated with information system
development to be expensed as incurred. The Company has been involved in a
corporate-wide information systems implementation project that was affected by
this pronouncement. In accordance with this ruling, during fiscal 1998, the
Company recorded a one-time, after-tax, non-cash charge of $1.0 million or $.08
per share to expense previously capitalized costs associated with this project.
Such costs had primarily been incurred during the second quarter of fiscal 1998.
NEW ACCOUNTING STANDARDS
In fiscal 1998, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting comprehensive income, which has been defined
as the change in equity of an entity during a period from transactions and other
events and circumstances from nonowner sources, in the basic financial
statements. The Company was required to adopt the provisions of SFAS No. 130 for
the fiscal year ended March 31, 1999, beginning with the quarter ended June 30,
1998, and to restate any prior period financial statements included for
comparative purposes to reflect the application of SFAS No. 130. As the adoption
of this pronouncement only modifies disclosures, there is no effect on the
Company's consolidated financial position, results of operations or cash flows.
During fiscal 1998, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 revises the manner in which an
entity determines the operating segments it must report as well as requires the
disclosure of additional segment information. The Company adopted the provisions
of SFAS No. 131 for the fiscal year ended March 31, 1999, and has restated prior
period financial statements included for comparative purposes to reflect the
application of SFAS No. 131. As the adoption of this pronouncement only modifies
disclosures, there is no effect on the Company's consolidated financial
position, results of operations or cash flows.
In fiscal 1998, the AICPA issued Statement of Position 97-2, "Software
Revenue Recognition" ("SOP 97-2"). SOP 97-2 provides guidance on the recognition
of revenue for the licensing, selling, leasing and marketing of computer
software to customers. The Company adopted the provisions of SOP 97-2 for the
fiscal year ended
40
<PAGE> 42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
March 31, 1999. The adoption of this pronouncement did not have a material
effect on the Company's consolidated financial position, results of operations
or cash flows.
In fiscal 1998, the AICPA issued Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 requires the capitalization of certain costs incurred in the
development of software used by a company for its own internal operations. The
Company adopted the provisions of SOP 98-1 for the fiscal year ended March 31,
1999. The adoption of this pronouncement did not have a material effect on the
Company's consolidated financial position, results of operations or cash flows.
During fiscal 1999, the AICPA issued Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. The
Company adopted the provisions of SOP 98-5 for the fiscal year ended March 31,
1999. The adoption of this pronouncement did not have a material effect on the
Company's consolidation financial position, results of operations or cash flows.
During fiscal 1999, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 provides accounting and reporting
standards for derivative instruments. This standard will require the Company to
recognize all derivatives as either assets or liabilities in the statement of
financial position and to measure those instruments at fair value. The Company
is required to adopt the provisions of SFAS No. 133 during the first quarter of
fiscal 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.
ITEM 7A. 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 revolving credit agreement and business purpose revolving
promissory note carry interest rate risk that is generally related to either the
agent bank's "Prime Commercial Lending Rate", the Federal Funds Rate, the
Eurodollar rate or the Money Market rate. If any of these rates were to change
while the Company has borrowings under the agreements, the related interest
expense would increase or decrease accordingly. As of March 31, 1999, the
Company had outstanding $55.0 million and $4.0 million under the revolving
credit agreement and business purpose revolving promissory note, 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
March 31, 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 to mitigate such risk.
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 year and revenues and expenses are
translated at average rates of exchange during the year. Resulting translation
adjustments are reported as a component of comprehensive income.
41
<PAGE> 43
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK (CONTINUED)
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 foreign currency exchange contracts in place at
March 31, 1999, it does monitor its foreign currency exposure and has utilized
these derivative financial instruments to mitigate foreign currency risk when
necessary.
42
<PAGE> 44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Independent Accountants........................... 44
Consolidated Financial Statements:
Consolidated Balance Sheet................................ 45
Consolidated Statements of Operations and Comprehensive
(Loss) Income.......................................... 46
Consolidated Statement of Cash Flows...................... 47
Consolidated Statement of Changes in Stockholders'
Equity................................................. 49
Notes to Consolidated Financial Statements................ 50
Financial Statement Schedule:
II -- Valuation and Qualifying Accounts and Reserves... 104
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is presented in the financial statements or the notes
thereto.
43
<PAGE> 45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Telxon Corporation:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Telxon Corporation and its Subsidiaries at March 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended March 31, 1999 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company had a significant loss
from operations and negative cash flows from operations, has a net retained
deficit, and is currently in violation of certain restrictive debt covenants,
which have been waived by the lenders through August 30, 1999, all of which
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for certain matters resulting in the
restatement of the consolidated financial statements as of and for the fiscal
years ended March 31, 1998, 1997 and 1996.
As discussed in Note 20 to the consolidated financial statements, in fiscal
year 1998, the Company changed its method of accounting for business process
reengineering costs.
/s/ PRICEWATERHOUSECOOPERS LLP
Cleveland, Ohio
August 6, 1999
44
<PAGE> 46
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1999 1998
-------- ----------
(RESTATED)
<S> <C> <C>
ASSETS
Current assets:
Cash (including cash equivalents of $-- and $6,778)....... $ 22,459 $ 27,500
Accounts receivable, net of allowance for doubtful
accounts of $11,069 and $4,749......................... 84,500 121,932
Notes and other accounts receivable....................... 4,015 15,753
Inventories............................................... 129,049 109,935
Prepaid expenses and other................................ 9,029 16,084
-------- --------
Total current assets.............................. 249,052 291,204
Property and equipment, net................................. 69,557 53,969
Intangible and other assets, net............................ 30,235 33,292
-------- --------
Total............................................. $348,844 $378,465
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 68,567 $ 3,000
Capital lease obligations due within one year............. 525 968
Accounts payable.......................................... 64,966 58,634
Income taxes payable...................................... 6,434 3,466
Accrued liabilities....................................... 74,285 41,988
-------- --------
Total current liabilities......................... 214,777 108,056
Capital lease obligations................................... 1,435 1,876
Convertible subordinated notes and debentures............... 106,913 107,224
Other long-term liabilities................................. 5,446 6,867
-------- --------
Total liabilities................................. 328,571 224,023
Minority interests (Note 1)................................. 3,307 1,287
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, 16,234 and 16,219 shares issued............ 162 162
Additional paid-in capital................................ 87,029 87,489
Retained (deficit) earnings............................... (61,977) 75,267
Equity adjustment for foreign currency translation........ (5,464) (4,929)
Unearned compensation relating to restricted stock
awards................................................. (82) (493)
Treasury stock; 78 and 162 shares of common stock at
cost................................................... (1,423) (3,062)
Notes related to purchase of subsidiary stock............. (1,279) (1,279)
-------- --------
Total stockholders' equity........................ 16,966 153,155
-------- --------
Commitments and contingencies (Note 19)..................... -- --
-------- --------
Total............................................. $348,844 $378,465
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
45
<PAGE> 47
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
1999 1998 1997
--------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Revenues:
Product, net.............................................. $ 305,380 $386,410 $386,791
Customer service, net..................................... 82,914 76,746 74,606
--------- -------- --------
Total net revenues..................................... 388,294 463,156 461,397
--------- -------- --------
Cost of revenues:
Product................................................... 241,265 227,850 262,862
Customer service.......................................... 55,078 48,836 47,248
--------- -------- --------
Total cost of revenues................................. 296,343 276,686 310,110
--------- -------- --------
Gross profit.............................................. 91,951 186,470 151,287
Operating expenses:
Selling expenses.......................................... 96,109 82,054 88,374
Product development and engineering expenses.............. 42,986 37,500 45,189
General and administrative expenses....................... 54,923 39,462 53,408
Asset impairment charge................................... -- 6,069 --
Unconsummated business combination costs.................. 8,070 -- --
--------- -------- --------
Total operating expenses............................... 202,088 165,085 186,971
--------- -------- --------
(Loss) income from operations.......................... (110,137) 21,385 (35,684)
Interest income............................................. 801 1,573 1,489
Interest expense............................................ (9,872) (7,181) (8,056)
Gain on sale of subsidiary stock............................ 340 1,637 --
Other non-operating (expense) income........................ (754) (1,012) 34,726
--------- -------- --------
(Loss) income before income taxes and cumulative effect
of an accounting change.............................. (119,622) 16,402 (7,525)
Provision for income taxes.................................. 17,360 7,227 726
--------- -------- --------
(Loss) income before cumulative effect of an accounting
change............................................... (136,982) 9,175 (8,251)
--------- -------- --------
Cumulative effect of an accounting change, net of taxes..... -- 1,016 --
--------- -------- --------
Net (loss) income...................................... $(136,982) $ 8,159 $ (8,251)
========= ======== ========
Net (loss) income per share before cumulative effect of
an accounting change:
Basic................................................ $ (8.50) $ .58 $ (.51)
========= ======== ========
Diluted.............................................. $ (8.50) $ .56 $ (.51)
========= ======== ========
Cumulative effect of an accounting change:
Basic................................................ $ -- $ (.06) $ --
========= ======== ========
Diluted.............................................. $ -- $ (.06) $ --
========= ======== ========
Net (loss) income per share:
Basic................................................ $ (8.50) $ .52 $ (.51)
========= ======== ========
Diluted.............................................. $ (8.50) $ .50 $ (.51)
========= ======== ========
Average number of common shares outstanding:
Basic................................................ 16,108 15,809 16,062
Diluted.............................................. 16,108 16,317 16,062
Net (loss) income...................................... $(136,982) $ 8,159 $ (8,251)
Other comprehensive (expense) income:
Foreign currency translation adjustment................... (535) (2,286) (579)
--------- -------- --------
Total comprehensive (loss) income...................... $(137,517) $ 5,873 $ (8,830)
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
46
<PAGE> 48
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
1999 1998 1997
--------- ---------- ----------
(RESTATED) (RESTATED)
---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income......................................... $(136,982) $ 8,159 $(8,251)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Cumulative effect of an accounting change.............. -- 2,176 --
Depreciation and amortization.......................... 29,174 26,872 29,502
Amortization of restricted stock awards, net........... 152 199 119
Non-cash stock compensation expense, net of minority
interest impact...................................... 2,340 -- --
Provision for doubtful accounts........................ 7,752 3,038 1,310
Provision for inventory obsolescence................... 37,430 4,999 10,310
Deferred income taxes.................................. 9,525 (3,306) (4,110)
Gain on sale of assets................................. (88) (669) (32,653)
Gain on sale of subsidiary and subsidiary stock........ (1,240) (1,637) --
Asset impairment charge................................ -- 6,069 --
Loss related to carrying value of non-marketable
investments.......................................... 2,094 -- --
Trading securities, net................................ -- -- 902
Loss on disposal of assets............................. -- 800 592
Minority Interest...................................... (258) 659 1,127
Changes in assets and liabilities:
Accounts and notes receivable........................ 37,206 (14,286) (112)
Refundable income taxes.............................. -- -- (284)
Inventories.......................................... (44,089) (30,834) 511
Prepaid expenses and other........................... 2,408 2,094 1,193
Intangibles and other assets......................... (833) 1,254 1,948
Accounts payable and accrued liabilities............. 29,305 3,333 (8,197)
Income taxes payable................................. 2,527 808 (3,005)
Other long-term liabilities.......................... (4,039) (2,913) (1,393)
--------- -------- -------
Net cash (used in) provided by operating activities....... (27,616) 6,815 (10,491)
Cash flows from investing activities:
Proceeds from sale of assets.............................. -- 5,444 65,674
Proceeds from sale of subsidiary stock.................... 700 3,100 --
Additions to property and equipment....................... (36,024) (26,490) (16,837)
Software investments...................................... (3,781) (6,936) (7,731)
Purchase of non-marketable investments.................... (795) (5,600) (6,691)
Additions to long-term notes receivable................... -- (580) (2,000)
Proceeds from non-marketable investments.................. 929 1,033 --
Repurchase of subsidiary stock............................ (1,950) -- --
--------- -------- -------
Net cash (used in) provided by investing activities....... (40,921) (30,029) 32,415
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
1999 1998 1997
--------- ---------- ----------
(RESTATED) (RESTATED)
---------- ----------
<S> <C> <C> <C>
Cash flows from financing activities:
Notes payable, net........................................ 65,567 2,567 (16)
Principal payments on long-term financing................. -- -- (2,104)
Principal payments on capital leases...................... (884) (832) (856)
Debt issue costs paid..................................... (2) (24) (306)
Debt waiver fees paid..................................... (1,148) -- --
Proceeds from exercise of stock options................... 1,397 9,190 1,615
Purchase of treasury stock................................ (1,202) (5,070) (9,328)
Payment of cash dividends................................. (162) (162) (162)
--------- -------- -------
Net cash provided by (used in) financing activities....... 63,566 5,669 (11,157)
Effect of exchange rate changes on cash................... (70) (341) (209)
--------- -------- -------
Net (decrease) increase in cash and cash equivalents...... (5,041) (17,886) 10,558
Cash and cash equivalents at beginning of year............ 27,500 45,386 34,828
--------- -------- -------
Cash and cash equivalents at end of year.................. $ 22,459 $ 27,500 $45,386
========= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements
48
<PAGE> 50
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
IN THOUSANDS (EXCEPT SHARE AND PER SHARE AMOUNTS)
(RESTATED)
<TABLE>
<CAPTION>
FOREIGN UNEARNED NOTES
ADDITIONAL CURRENCY COMPENSATION TREASURY RECEIVABLE
COMMON PAID-IN RETAINED TRANSLATION RESTRICTED STOCK AT SALE OF
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK COST STOCK
------ ---------- --------- ----------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 (As Reported).... $161 $85,750 $ 78,096 $(2,064) $(753) $ -- $ --
Adjustments -- See Note 3 -- Restatement... -- (295) (1,546) -- -- -- --
---- ------- --------- ------- ----- ------- -------
Balance at March 31, 1996 (Restated)....... 161 85,455 76,550 (2,064) (753) -- --
Exercise of non-qualified stock options,
including tax benefit.................... 1 1,670 (51) -- -- -- --
Retirement of common stock (15,037
shares).................................. -- (2) (3) -- -- -- --
Amortization of restricted stock........... -- -- -- -- 376 -- --
Forfeiture of restricted stock............. -- (424) -- -- 167 -- --
Repurchase of common stock (633,000
shares).................................. -- -- -- -- -- (9,328) --
Reissue of treasury stock under employee
stock purchase plan (75,560 shares)...... -- 111 -- -- -- 794 --
Notes receivable related to sale of
subsidiary stock......................... -- -- -- -- -- -- (1,295)
Currency translation adjustment............ -- -- -- (579) -- -- --
Dividends paid ($.01 per share)............ -- -- (162) -- -- -- --
Net loss for 1997.......................... -- -- (8,251) -- -- -- --
---- ------- --------- ------- ----- ------- -------
Balance at March 31, 1997 (Restated)....... 162 86,810 68,083 (2,643) (210) (8,534) (1,295)
Exercise of non-qualified stock options,
including tax benefit.................... -- 370 (813) -- -- 9,634 --
Amortization of restricted stock........... -- -- -- -- 199 -- --
Grants of restricted stock................. -- 482 -- -- (482) -- --
Repurchase of common stock (294,200
shares).................................. -- -- -- -- -- (5,070) --
Reissue of treasury stock under employee
stock purchase plan (57,112 shares)...... -- (173) -- -- -- 908 --
Note receivable related to sale of
subsidiary stock......................... -- -- -- -- -- -- 16
Currency translation adjustment............ -- -- -- (2,286) -- -- --
Dividends paid ($.01 per share)............ -- -- (162) -- -- -- --
Net income for 1998........................ -- -- 8,159 -- -- -- --
---- ------- --------- ------- ----- ------- -------
Balance at March 31, 1998 (Restated)....... 162 87,489 75,267 (4,929) (493) (3,062) (1,279)
Conversion of debentures................... -- 311 -- -- -- -- --
Exercise of non-qualified stock options,
including tax benefit.................... -- (81) (100) -- -- 1,578 --
Forfeiture of restricted stock............. -- (259) -- -- 259 -- --
Amortization of restricted stock........... -- -- -- -- 152 -- --
Retirement of common stock (63,300
shares).................................. -- (113) -- -- -- (1,089) --
Reissue of treasury stock under employee
stock purchase plan (52,999 shares)...... -- (318) -- -- -- 1,150 --
Currency translation adjustment............ -- -- -- (535) -- -- --
Dividends paid ($.01) per share)........... -- -- (162) -- -- -- --
Net loss for 1999.......................... -- -- (136,982) -- -- -- --
---- ------- --------- ------- ----- ------- -------
Balance at March 31, 1999.................. $162 $87,029 $ (61,977) $(5,464) $ (82) $(1,423) $(1,279)
==== ======= ========= ======= ===== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
49
<PAGE> 51
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN THOUSANDS (EXCEPT PER SHARE AMOUNTS)
(1998, 1997 AND 1996 AS RESTATED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the financial
statements of Telxon Corporation and its wholly-owned and majority-owned
subsidiaries (the "Company"). All significant intercompany transactions have
been eliminated in consolidation.
MINORITY INTERESTS
The difference between the proceeds from the sale of stock by a subsidiary
and the Company's carrying value of such stock is recorded as a non-operating
gain or loss at the time of the sale, provided that the criteria for gain
recognition on the sale of subsidiary stock have been met. For purposes of the
consolidated balance sheet, minority interests represent the unaffiliated
stockholders' interests in the cumulative earnings of the subsidiary. For
purposes of the consolidated statement of operations, minority interests are
included as other non-operating income or expense.
At March 31, 1999 and 1998, the Company has recorded minority interests of
approximately $5,233 and $2,791, respectively related to sales of common stock
of its Aironet Wireless Communications, Inc. ("Aironet") subsidiary, a
developer, manufacturer, and marketer of wireless LAN systems. The consideration
received for such common stock, and the common stock of the Company's Metanetics
Corporation ("Metanetics") subsidiary, a licensor and developer of image
processing technology, included notes receivable. As such, the amount of these
notes receivable has been offset against the minority interests and then as a
separate component of stockholders' equity (where amounts exceeded the minority
interests). The aggregate amount of such notes receivable offset against
minority interest was $1,926 and $1,504 at March 31, 1999 and 1998,
respectively. Refer to Note 17 -- Subsidiary Stock Transactions for additional
details on sales of Aironet and Metanetics common stock.
FOREIGN CURRENCY TRANSLATION
The financial statements of foreign operations are translated into U.S.
dollars using the local currency as the functional currency in accordance with
the Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation". Accordingly, all
assets and liabilities are translated at current rates of exchange, and
operating transactions are translated at weighted average rates during the year.
The translation gains and losses are accumulated as a separate component of
stockholders' equity until realized. There were no income taxes allocated to the
translation adjustments or to the transaction gains or losses in 1999, 1998 and
1997. Net transaction gains or losses are included in results of operations and
were not material in 1999, 1998 and 1997.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Company may enter into forward foreign currency exchange contracts from
time to time with reputable financial institutions, which generally involve the
exchange of one currency for a second currency at some future date, to hedge
against the impact of changes in foreign currency exchange rates on specific
foreign currency commitments. Unrealized gains and losses on these forward
foreign exchange contracts are deferred and realized upon settlement of the
commitment transaction. Refer to Note 13 -- Fair Value of Financial Instruments
for additional details on forward foreign currency exchange contracts.
50
<PAGE> 52
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments which are both readily
convertible to cash and have a maturity of three months or less when purchased
to be cash equivalents. At March 31, 1999, 1998 and 1997, the Company had $500
held in escrow related to a standstill agreement with a third party. Subsequent
to March 31, 1999, such funds were released to the Company from escrow.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at historical cost and depreciated over
the estimated useful lives of the assets using the straight-line method for
financial reporting purposes. The ranges of the estimated useful lives are:
buildings, 19-25 years; machinery and equipment, furniture and fixtures, and
transportation equipment, 3-10 years; enterprise-wide business system, 7 years;
marketing and customer service equipment and tooling, 3 years; and leasehold
improvements, over the shorter of the useful life of the asset or the life of
the lease. Gains and losses from the sale or retirement of property and
equipment are included in results of operations. Fully depreciated assets are
written off against accumulated depreciation.
SOFTWARE COSTS, INTANGIBLES AND OTHER ASSETS
Software costs are capitalized in accordance with the FASB Statement of
Financial Accounting Standards No. 86, "Accounting for the Cost of Computer
Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS No. 86") and are
included in intangible and other assets in the accompanying consolidated balance
sheet. Purchased computer software is capitalized and amortized for both
financial and tax reporting purposes, using the straight-line method, over the
expected useful life of the software, generally three years. Similarly,
internally developed computer software for sale or lease is capitalized and
amortized for financial reporting purposes using the straight-line method over
three years; for tax purposes, these costs are generally expensed as incurred,
although certain of these costs have been capitalized and are amortized using
the straight-line method over three years.
The excess of the purchase cost over the fair value of net assets acquired
in an acquisition (goodwill) is included in intangible and other assets in the
accompanying consolidated balance sheet. Goodwill is amortized on a
straight-line basis over three to ten years. The Company periodically reviews
goodwill to assess recoverability by comparing the carrying amount to expected
undiscounted future cash flows, and impairments, if any, would be recognized in
results of operations if a permanent reduction in value were to occur.
Non-compete agreements, deferred financing costs and license agreements
have also been included in intangible and other assets in the accompanying
consolidated balance sheet. Non-compete and license agreements are amortized on
a straight-line basis over the life of the related contract. Deferred financing
costs are amortized on a straight-line basis over the life of the related debt,
with accelerated amortization recorded on any indebtedness retired prior to its
scheduled maturity. All other assets, except investments in non-traded, closely
held companies (see Note 6), included in intangible and other assets are
recorded at cost and are amortized on a straight-line basis over their expected
useful lives.
REVENUE RECOGNITION
Revenues from computer hardware sales and software licenses to end-user
customers are generally recognized upon shipment and title transfer. Recognition
of revenue is delayed until installation and customer
51
<PAGE> 53
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
acceptance if one or more of the following conditions exist: 1) the Company
provides professional services to install its products at the customer's
site(s), 2) the Company integrates software with its hardware, or 3) there are
substantial acceptance criteria incorporated in the underlying sales agreement.
If the Company provides professional services to its customers over a period of
time together with its hardware and software, revenue is recognized on the
entire contract using the percentage-of-completion (unit of delivery) method.
Recognition of revenue is deferred until after shipment and title transfer
if product-financing arrangements exist and the Company continues to have
interests, financial or otherwise, in the goods delivered. Revenue is then
recognized when such interests have expired. The Company recognizes revenue from
transactions where it guarantees customer lease payments to third party leasing
companies as if renting the goods itself directly to the customer under an
operating lease and depreciating the equipment.
Revenue from computer hardware sales and software licenses to Value Add
Distributors ("VADs") and Value Added Resellers ("VARs") are generally
recognized upon shipment and title transfer. Allowances are recorded to provide
for future sales returns, price protection credits and stock balancing credits.
These allowances are based upon historical experience with this class of
customer and specific circumstances surrounding particular transactions.
In accordance with the American Institute of Certified Public Accountants
("AICPA") Statement of Position 97-2, "Software Revenue Recognition", revenues
from custom application software sales are recognized using the
percentage-of-completion or completed contract method, whichever is more
appropriate.
Revenues from customer service maintenance contracts are recognized on a
straight-line basis over the terms of such contracts.
PRODUCT WARRANTIES
The Company provides end-user customers with warranties of varying terms,
depending upon model types and specific customer arrangements. Warranty periods
generally extend from three months to one year. Estimated warranty obligations
are accrued at the time of sale based upon historical experience by model. The
Company's warranty accrual is classified as a current liability on the
accompanying consolidated balance sheet.
PRODUCT DEVELOPMENT AND ENGINEERING EXPENSES
Expenditures for the development and engineering of products are expensed
as incurred in accordance with the requirements of the FASB Statement of
Financial Accounting Standards No. 2, "Accounting for Research and Development
Costs". Product development and engineering expenses are expensed as incurred
for both financial and tax reporting purposes until products reach technological
feasibility under SFAS No. 86. Included in the product development and
engineering expenses line item in the accompanying consolidated statement of
operations were research and development costs of $29,518, $32,402 and $37,746
for fiscal years 1999, 1998 and 1997, respectively.
DEFINED CONTRIBUTION PLAN
The Company sponsors a discretionary defined contribution plan.
Participation in the plan is available to all employees of the Company. Company
contributions to the plan are based on a percentage of employee contributions as
per the plan provisions. Company contributions totaled $1,626, $1,633 and $1,720
in fiscal 1999, 1998 and 1997, respectively.
52
<PAGE> 54
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTION AND STOCK PURCHASE PLANS
Stock options, which are granted to employees and non-employee directors at
the quoted closing market price of the Company's common stock as of the last
trading day prior to the grant date, and stock purchased by eligible employees
under the Company's employee stock purchase plan are accounted for under
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25"). The Employee Stock Purchase Plan meets the criteria of a
non-compensatory plan under APB 25.
EARNINGS PER SHARE
Computations of basic and diluted earnings per share ("EPS") of common
stock have been made in accordance with the FASB Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128). 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) income represents the numerator, and the
shares represent the denominator, in the earnings per share calculation.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1997
--------------------------- ------------------------ -------------------------
(RESTATED) (RESTATED)
PER- PER- PER-
NET SHARE NET SHARE NET SHARE
LOSS SHARES AMOUNT INCOME SHARES AMOUNT LOSS SHARES AMOUNT
--------- ------ ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net (loss) income....................... $(136,982) $8,159 $(8,251)
========= ====== =======
BASIC EPS
(Loss) income available to common
stockholders.......................... $(136,982) 16,108 $(8.50) $8,159 15,809 $.52 $(8,251) 16,062 $(.51)
--------- ------ ------ ---- ------- -----
EFFECT OF DILUTIVE SECURITIES
Options................................. -- 508 --
------ ------ ------
DILUTED EPS
(Loss) income available to stockholders
of common shares and common share
equivalents........................... $(136,982) 16,108 $(8.50) $8,159 16,317 $.50 $(8,251) 16,062 $(.51)
========= ====== ====== ====== ====== ==== ======= ====== =====
</TABLE>
Options to purchase 3,457,625 shares of common stock at a weighted average
exercise price of $17.12 per share were outstanding at March 31, 1999, but were
not included in the computation of diluted earnings per share for the fiscal
year then ended because the options would have had an anti-dilutive effect on
the net loss per year.
Options to purchase 958,101 shares of common stock at a weighted average
exercise price of $23.73 per share were outstanding at March 31, 1998, but were
not included in the computation of diluted earnings per share for the fiscal
year then ended because the options' exercise prices were greater than the
average market price for the common shares during the period.
Options to purchase 3,527,722 shares of common stock at a weighted average
exercise price of $15.41 per share were outstanding at March 31, 1997, but were
not included in the computation of diluted earnings per share
53
<PAGE> 55
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for the fiscal year then ended because the options would have had an
anti-dilutive effect on the net loss for the period.
The shares issuable upon conversion of the Company'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
March 31, 1999, 1998 and 1997, would have had an anti-dilutive effect on
earnings for the fiscal years then ended.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONTINGENT AND UNUSUAL ITEMS
Contingent and unusual items are expensed as incurred when events giving
rise to such items are probable and the amounts are estimable in accordance with
the requirements of the FASB Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies".
RECLASSIFICATIONS
Certain items in the fiscal 1998 and 1997 consolidated financial statements
and notes thereto have been reclassified to conform to the fiscal 1999
presentation.
NOTE 2 -- FINANCIAL RESULTS AND LIQUIDITY
The Company has 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 by operations 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 credit facilities (including product
financing arrangements) which aggregated $65,567. The Company is currently in
violation of its debt covenants related to these credit facilities and is unable
to borrow additional funds against these facilities. Waivers for non-compliance
have been obtained through August 30, 1999. The Company's stockholders' equity
and working capital at March 31, 1999 were $16,966 and $34,275, respectively.
Since joining the Company in March 1999, the Chief Executive Officer has
formed the Company's executive management team and is in the process of
implementing the team's operating plan to stabilize the Company and pursue
growth opportunities in the mobile information systems industry. Management is
actively seeking opportunities to generate cash from sources such as inventories
and accounts receivable, managing vendor payments and related operating
expenditures and is improving operating processes, such as material requirements
planning and design-to-cost, required to achieve its operating and financial
goals. However, there can be no assurance that the cash flows generated 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 disruption of the
flow of necessary materials, components, services or other cash requirements of
the Company. In addition, payments may ultimately be required in the near-term
in settlement of the litigation, commitments and contingencies referenced in
Note 19 -- Commitments and Contingencies. Such payments 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.
54
<PAGE> 56
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- FINANCIAL RESULTS AND LIQUIDITY (CONTINUED)
In connection with the granting of the waivers discussed above, the
Company's existing lenders exercised their rights under the terms of their
respective loans to file UCC financing statements to perfect the security
interests previously conditionally granted in their favor by the Company in its
accounts receivable, inventory and equipment and the proceeds thereof and
subsequently required that the Company grant them security interest in
substantially all of the Company's assets. The Company has been negotiating with
financial institutions to provide adequate financial resources to execute the
management team's operating plans.
As discussed in Note 22 -- Subsequent Events, the Company has received a
commitment letter from a financial institution for a $100,000 senior credit
facility. This commitment letter contains conditions precedent and subsequent
that are not irrevocable. Therefore, there can be no absolute assurance that
this credit facility will ultimately be executed and provide the financing
sufficient to fund management's plans. The planned use of the proceeds from this
facility is to repay the existing credit facility in full and to reduce amounts
payable to vendors.
The Company has received $20,460 of the proceeds from the Initial Public
Offering ("IPO") of Aironet. One-half of these proceeds are to be used in order
to partially repay the Company's current borrowings under its existing credit
agreement. The remaining proceeds are to be utilized to reduce amounts payable
to critical vendors. Additionally, the Company plans to sell additional Aironet
shares to enhance its cash position and reduce its outstanding debt.
The Company is currently meeting cash flow requirements from internally
generated cash flows and has successfully managed the payments of vendors and
employees without the disruption of the flow of necessary materials, components
and services. However, there can be no assurance that the Company will continue
to do so in the future. If the contemplated financing is not obtained prior to
August 30, 1999, the Company will be required to obtain additional waivers under
its current credit facilities. The lenders thereunder are under no obligation to
grant such waivers. In the absence of any required further waivers the Company
will be in default of, and subject to the lenders' rights of acceleration under
its existing credit agreements and the lenders' rights and remedies as secured
parties. Pending establishment of replacement credit facilities, the Company
will continue to rely upon internally generated cash flows.
Management believes that, despite the financial hurdles, liquidity
shortfall and funding uncertainties going forward, it has a business plan that,
if successfully funded and executed, can significantly improve that Company's
operations and financial results. The support of the Company's vendors,
customers, lenders, stockholders and employees will continue to be key to the
Company's future success.
NOTE 3 -- RESTATEMENT
On February 23, 1999, the Company announced that, having completed the
review of certain judgmental accounting matters with the Company's outside
auditors, it would be restating its previously issued financial statements for
the fiscal years 1996, 1997 and 1998, and its unaudited interim consolidated
financial statements for the first and second quarters of fiscal 1999.
Additionally, the Company announced on June 16, 1999, that it would further
restate its unaudited results for the second quarter of fiscal 1999. The
accompanying consolidated financial statements reflect the announced
restatements. The more significant restatement adjustments affecting the periods
covered by the accompanying consolidated financial statements are described
below.
The fiscal 1998 consolidated financial statements have been adjusted as
follows. Revenues and related costs of goods sold deferred for goods subject to
a lease in fiscal 1997 as described below were recognized over the term of the
lease on a straight-line basis and aggregated $1,386 and $766, respectively, for
fiscal 1998. The consolidated statement of operations has been adjusted by
$2,907 to reflect additional provisions for bad debts for the past due accounts
receivable owed by a foreign distributor as a result of questions regarding the
on-going financial viability of the distributor. Software license revenues and
related software royalty costs aggregating $1,600 and $764, respectively, have
been reversed to defer recognition of such items until those transaction are
55
<PAGE> 57
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- RESTATEMENT (CONTINUED)
settled in cash. The Company has also recorded impairment charges aggregating
$4,635 related to the uncollected notes receivable from the fiscal 1997
divestiture of certain retail software operations ($3,535) as well as an
investment in the entity acquiring the software ($1,100). In addition to these
charges, the Company also recorded an impairment charge of $1,434 related to its
investment in the referenced foreign distributor as such investment was deemed
to not be recoverable. The amount of notes receivable related to the retail
software assets divested was further reduced by amortization charges totaling
$932. Adjustment was made to reverse charges taken in fiscal 1998 totaling $642
for bad debt write-offs related to divested software accounts receivable
adjusted in the restated fiscal 1997 results as discussed below. Adjustments of
$1,350 have also been made to record charges related to the accrual of costs for
the streamlining of the Company's international operations. An adjustment was
made to defer the gain of $900 related to the sale of the stock of the Company's
Virtual Vision subsidiary as all of the conditions of the sale were not
satisfied prior to March 31, 1998. The Company also increased by $750 the amount
of gain recorded relating to the sale of its investment in a start-up wireless
technology entity related to amounts that were expensed in the fiscal 1997
restated results. Items were also recorded to increase inventory obsolescence
reserves by $721 and to reverse a sale of $1,900 where inventory was staged at a
Company location. As the sales and cost of sales on the $1,900 transaction were
approximately the same, there was no gross profit impact as the result of this
adjustment.
The fiscal 1997 consolidated financial statements have been adjusted as
follows. Revenues related to a $1,446 gross profit sale of Company products
subject to a lease have been deferred for recognition over the term of the lease
on a straight-line basis. The statement of operations has been adjusted by
$1,342 to reflect additional provisions for bad debts for the past due accounts
receivable owed by the foreign distributor referenced above as well as certain
bad debt write-offs related to divested software accounts receivable. Software
license revenues and related software royalty costs related to divested software
operations aggregating $1,250 and $1,222, respectively, have been reversed to
defer recognition of such items until those transaction are settled in cash. The
amount of notes receivable related to the retail software assets divested was
further reduced by amortization charges totaling $932. Additionally, $750 of
amounts previously capitalized as product purchase advances have been expensed
as research and development costs. Adjustments have also been made to reverse
previously recorded charges of $1,350 related to the streamlining of the
Company's international operations as the requirements for the accrual of
severance costs had not been met. In addition, adjustments were recorded to
decrease inventory obsolescence reserves by $1,211.
The fiscal 1996 consolidated financial statements have been adjusted to
reverse the recording of $2,000 of product revenue related to the sale of retail
software licenses to a third party for a secured promissory note. As there have
been minimal collections on the note beyond the initial payment, the associated
revenue has been reversed until such time as payment under such promissory note
is reasonably assured. In addition, adjustments were recorded to increase
inventory obsolescence reserves by $490 and increase sales returns and allowance
reserves by $342.
A summary of the effects of the restatement of the Company's consolidated
statements of operations for the years ended March 31, 1998, 1997 and 1996
follows. Also presented below is a summary of the effects of the
56
<PAGE> 58
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- RESTATEMENT (CONTINUED)
restatement adjustments on the consolidated balance sheets as of March 31, 1998
and 1997 (in thousands, except per share data):
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------
1998 1997
--------------------- ---------------------
AS AS
PREVIOUSLY PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Revenues:
Product, net........................................ $389,124 $386,410 $391,406 $386,791
Customer service, net............................... 76,746 76,746 74,606 74,606
-------- -------- -------- --------
Total net revenues.......................... 465,870 463,156 466,012 461,397
-------- -------- -------- --------
Cost of revenues:
Product............................................. 228,318 227,850 266,624 262,862
Customer service.................................... 48,836 48,836 47,248 47,248
-------- -------- -------- --------
Total cost of revenues...................... 277,154 276,686 313,872 310,110
-------- -------- -------- --------
Gross profit.......................................... 188,716 186,470 152,140 151,287
Operating expenses:
Selling expenses.................................... 77,858 82,054 88,321 88,374
Product development and engineering expenses........ 37,500 37,500 44,439 45,189
General and administrative expenses................. 39,028 39,462 53,230 53,408
Asset impairment charge............................. -- 6,069 -- --
-------- -------- -------- --------
Total operating expenses.................... 154,386 165,085 185,990 186,971
Income (loss) from operations......................... 34,330 21,385 (33,850) (35,684)
Interest income....................................... 1,573 1,573 1,489 1,489
Interest expense...................................... (7,181) (7,181) (8,056) (8,056)
Gain on sale of subsidiary stock...................... 1,637 1,637 -- --
Other non-operating (expense) income.................. (1,504) (1,012) 34,726 34,726
-------- -------- -------- --------
Income (loss) before income taxes and cumulative
effect of an accounting change...................... 28,855 16,402 (5,691) (7,525)
Provision for income taxes............................ 12,408 7,227 1,368 726
-------- -------- -------- --------
Net income (loss) before cumulative effect............ 16,447 9,175 (7,059) (8,251)
Cumulative effect of change in accounting principle... 1,240 1,016 -- --
-------- -------- -------- --------
Net income (loss)..................................... $ 15,207 $ 8,159 $ (7,059) $ (8,251)
======== ======== ======== ========
Net income (loss) per share before cumulative effect
of an accounting change:
Basic............................................ $ 1.04 $ .58 $ (.44) $ (.51)
======== ======== ======== ========
Diluted.......................................... $ 1.01 $ .56 $ (.44) $ (.51)
======== ======== ======== ========
</TABLE>
57
<PAGE> 59
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- RESTATEMENT (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------
1998 1997
--------------------- ---------------------
AS AS
PREVIOUSLY PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Cumulative effect of an accounting change:
Basic............................................ $ (.08) $ (.06) $ -- $ --
======== ======== ======== ========
Diluted.......................................... $ (.08) $ (.06) $ -- $ --
======== ======== ======== ========
Net income (loss) per share:
Basic............................................ $ .96 $ .52 $ (.44) $ (.51)
======== ======== ======== ========
Diluted.......................................... $ .93 $ .50 $ (.44) $ (.51)
======== ======== ======== ========
Average number of common shares outstanding:
Basic............................................ 15,809 15,809 16,062 16,062
======== ======== ======== ========
Diluted.......................................... 16,289 16,317 16,062 16,062
======== ======== ======== ========
</TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1996
---------------------
AS
PREVIOUSLY
REPORTED RESTATED
---------- --------
<S> <C> <C>
Revenues:
Product, net.............................................. $417,725 $415,383
Customer service, net..................................... 68,744 68,744
-------- --------
Total net revenues................................ 486,469 484,127
Cost of revenues:
Product................................................... 249,120 249,610
Customer service.......................................... 39,016 39,016
-------- --------
Total cost of revenues............................ 288,136 288,626
-------- --------
Gross profit................................................ 198,333 195,501
Operating expenses:
Selling expenses.......................................... 82,207 82,207
Product development and engineering expenses.............. 45,383 45,383
General and administrative expenses....................... 39,415 39,415
-------- --------
Total operating expenses.......................... 167,005 167,005
-------- --------
Income from operations...................................... 31,328 28,496
Interest income............................................. 760 760
Interest expense............................................ (6,770) (6,770)
Gain on sale of subsidiary stock............................ 1,116 1,116
Other non-operating income.................................. 401 401
-------- --------
Income before income taxes.................................. 26,835 24,003
Provision for income taxes.................................. 10,314 9,028
-------- --------
</TABLE>
58
<PAGE> 60
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- RESTATEMENT (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1996
---------------------
AS
PREVIOUSLY
REPORTED RESTATED
---------- --------
<S> <C> <C>
Net income.................................................. $ 16,521 $ 14,975
======== ========
Net income per share:
Basic.................................................. $ 1.04 $ .94
======== ========
Diluted................................................ $ 1.00 $ .91
======== ========
Average number of common shares outstanding:
Basic.................................................. 15,910 15,910
======== ========
Diluted................................................ 16,479 16,472
======== ========
</TABLE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------
AS
PREVIOUSLY
REPORTED RESTATED
---------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash (including cash equivalents of $6,778 and $6,778).... $ 27,500 $ 27,500
Accounts receivable, net of allowance for doubtful
accounts of $1,142 and $4,749.......................... 125,739 121,932
Notes and other accounts receivable....................... 22,949 15,753
Inventories............................................... 108,178 109,935
Prepaid expenses and other................................ 11,307 16,084
-------- --------
Total current assets.............................. 295,673 291,204
Property and equipment, net................................. 52,108 53,969
Intangible and other assets, net............................ 42,758 33,292
-------- --------
Total............................................. $390,539 $378,465
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 3,000 $ 3,000
Capital lease obligations due within one year............. 968 968
Accounts payable.......................................... 58,634 58,634
Income taxes payable...................................... 3,390 3,466
Accrued liabilities....................................... 41,034 41,988
-------- --------
Total current liabilities......................... 107,026 108,056
Capital lease obligations................................... 1,876 1,876
Convertible subordinated debentures......................... 107,224 107,224
Other long-term liabilities................................. 6,897 6,867
-------- --------
Total liabilities................................. 223,023 224,023
Minority interest........................................... 2,791 1,287
</TABLE>
59
<PAGE> 61
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- RESTATEMENT (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------
AS
PREVIOUSLY
REPORTED RESTATED
---------- --------
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $1.00 par value per share; 500 shares
authorized, none issued................................ -- --
Common Stock. $.01 par value per share; 50,000 shares
authorized, 16,219 and 16,219 issued................... 162 162
Additional paid-in capital.................................. 87,994 87,489
Retained earnings........................................... 85,053 75,267
Equity adjustment for foreign currency translation.......... (4,929) (4,929)
Unearned compensation relating to restricted stock awards... (493) (493)
Treasury stock; 162 and 162 shares of common stock at
cost...................................................... (3,062) (3,062)
Notes related to the purchase of subsidiary stock........... -- (1,279)
-------- --------
Total stockholders' equity........................ 164,725 153,155
-------- --------
Commitments and contingencies............................... -- --
-------- --------
Total............................................. $390,539 $378,465
======== ========
</TABLE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------
AS
PREVIOUSLY
REPORTED RESTATED
---------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash (including cash equivalents of $38,100 and
$38,100)............................................... $ 45,386 $ 45,386
Accounts receivable, net of allowance for doubtful
accounts of $1,596 and $2,528.......................... 111,959 111,027
Notes and other accounts receivable....................... 16,312 12,117
Inventories............................................... 84,499 85,220
Prepaid expenses and other................................ 11,956 13,589
-------- --------
Total current assets.............................. 270,112 267,339
Property and equipment, net................................. 45,578 47,839
Intangible and other assets, net............................ 46,094 42,520
-------- --------
Total............................................. $361,784 $357,698
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 50 $ 50
Current portion of long-term debt......................... 383 383
Capital lease obligations due within one year............. 627 627
Accounts payable.......................................... 47,917 47,917
Income taxes payable...................................... 3,077 3,077
Accrued liabilities....................................... 49,000 47,440
-------- --------
Total current liabilities......................... 101,054 99,494
Capital lease obligations................................... 968 968
Convertible subordinated debentures......................... 107,224 107,224
</TABLE>
60
<PAGE> 62
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- RESTATEMENT (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------
AS
PREVIOUSLY
REPORTED RESTATED
---------- --------
<S> <C> <C>
Other long-term liabilities................................. 5,168 7,639
-------- --------
Total liabilities................................. 214,414 215,325
Minority interests.......................................... 669 --
Stockholders' equity:
Preferred Stock, $1.00 par value per share; 500 shares
authorized, none issued................................ -- --
Common Stock. $.01 par value per share; 50,000 shares
authorized, 16,186 and 16,186 issued................... 162 162
Additional paid-in capital.................................. 87,105 86,810
Retained earnings........................................... 70,821 68,083
Equity adjustment for foreign currency translation.......... (2,643) (2,643)
Unearned compensation relating to restricted stock awards... (210) (210)
Treasury stock; 162 and 162 shares of common stock at
cost...................................................... (8,534) (8,534)
Notes related to purchase of subsidiary stock............... -- (1,295)
-------- --------
Total stockholders' equity........................ 146,701 142,373
-------- --------
Commitments and contingencies............................... -- --
-------- --------
Total............................................. $361,784 $357,698
======== ========
</TABLE>
NOTE 4 -- INVENTORIES
Inventories at March 31, consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------- ----------
(RESTATED)
<S> <C> <C>
Purchased components........................................ $ 51,112 $ 49,371
Work-in-process............................................. 32,360 37,375
Finished goods.............................................. 45,577 23,189
-------- --------
$129,049 $109,935
======== ========
</TABLE>
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment, at cost, at March 31, consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------- ----------
(RESTATED)
<S> <C> <C>
Machinery and equipment..................................... $ 65,471 $ 59,849
Enterprise-wide business system, including capitalized
interest of $1,486 and $252, respectively................. 28,122 8,629
Tooling..................................................... 30,888 28,624
Furniture and office equipment.............................. 18,241 19,620
Capital lease assets and other.............................. 5,537 5,757
Assets held for lease....................................... -- 2,627
Buildings, improvements and leasehold interest.............. 11,836 11,672
Leasehold improvements...................................... 10,028 7,680
Land........................................................ 1,978 1,978
</TABLE>
61
<PAGE> 63
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- PROPERTY AND EQUIPMENT (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
-------- ----------
(RESTATED)
<S> <C> <C>
Transportation equipment.................................... -- 660
-------- --------
172,101 147,096
Less-accumulated depreciation and amortization.............. 102,544 93,127
-------- --------
$ 69,557 $ 53,969
======== ========
</TABLE>
Depreciation expense for fiscal 1999, 1998 and 1997 amounted to $19,104,
$15,135 and $18,893, respectively. Fiscal 1999 includes $1,262 of accelerated
depreciation and amortization related to demo equipment and tooling associated
with end-of-life products.
Net capital lease additions (retirements) were $0, $1,698 and $(1,008) in
fiscal 1999, 1998 and 1997, respectively. These additions and retirements were
non-cash transactions and, accordingly, have been excluded from property and
equipment additions in the accompanying consolidated statement of cash flows.
Amortization of capital lease assets has been included in depreciation expense.
Accumulated amortization related to capital lease assets aggregated $2,483,
$1,732, and $1,177 in fiscal 1999, 1998 and 1997, respectively.
NOTE 6 -- INTANGIBLE AND OTHER ASSETS
Intangible and other assets, net, consisted of the following at March 31,:
<TABLE>
<CAPTION>
1999 1998
------- ----------
(RESTATED)
<S> <C> <C>
Investments in non-traded, closely held companies........... $12,727 $ 8,650
Capitalized software, net of amortization of $19,269 and
$12,670................................................... 7,934 11,954
Long-term notes receivable.................................. 445 1,169
Goodwill, net of amortization of $19,892 and $18,540........ 2,597 3,463
Deferred financing costs, net of amortization of $2,939 and
$2,339.................................................... 2,229 2,935
Other, net of amortization of $1,106 and $464............... 4,303 5,121
------- -------
$30,235 $33,292
======= =======
</TABLE>
Amortization expense for the years ended March 31, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Capitalized software................................. $ 7,354 $ 6,433 $ 3,862
Goodwill............................................. 1,352 3,500 4,126
Deferred financing costs............................. 708 631 612
Non-compete agreements............................... -- -- 600
Other................................................ 656 1,173 1,059
------- ------- -------
$10,070 $11,737 $10,259
======= ======= =======
</TABLE>
The Company assesses the carrying value of non-marketable securities at
each balance sheet date using all available information, including external
audited and internal financial statements of investees, investee transactions
with third parties and convertibility into marketable equity securities. The
Company carries all of its investments in non-marketable securities under the
cost method as no investment represents more than 20% of the voting interest in
any investee and the Company cannot exert significant influence over such
investee. If a
62
<PAGE> 64
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INTANGIBLE AND OTHER ASSETS (CONTINUED)
permanent decline in the value below cost is indicated based upon information
obtained, the carrying value of the investment is adjusted to such value.
During fiscal 1999, the Company recorded an impairment charge of $1,725
against its investment in the purchaser of its Virtual Vision subsidiary. The
Company received 750,000 shares of the purchaser's Series F Preferred Shares,
with a value of $4,500, as payment for the stock of Virtual Vision. The $1,725
impairment reflects the dilution of the Company's investment in the purchaser
resulting from the purchaser's fiscal 1999 issuance of a series of preferred
shares with superior rights over the preferred shares owned by the Company.
Refer to Note 16 -- Divestitures for additional details on the sale.
During fiscal 1999, the Company repurchased 400,000 shares of the voting
common stock of Metanetics from a third party at a price of $4.88 per share. As
Metanetics was already included in the Company's consolidated results as a
majority-owned subsidiary due to the Company's 100% funding of the Metanetics
operations, this repurchase of shares from a third party reflected an additional
investment and has been capitalized as an investment in a non-traded, closely
held company. This additional investment is being amortized over a useful life
of three years. During fiscal 1999, the Company recorded $486 of amortization
related to this additional investment, which was presented as goodwill
amortization expense in the above table. Refer to Note 17 -- Subsidiary Stock
Transactions for additional details on the repurchase of Metanetics stock.
During fiscal 1998, impairment charges of $1,100 and $1,434, respectively,
were recorded against the Company's investments in two unrelated third parties.
These investments were fully impaired due to poor historical financial
performance, inability to repay amounts owed to the Company and lack of evidence
that would indicate a future ability of these entities to support the carrying
value of the Company's investments.
During fiscal 1998, the Company recorded a charge of $3,535 to fully impair
the long-term notes receivable due from the purchaser of the assets of certain
of the Company's retail application software operations for its purchase of
those assets. These long-term notes receivable were fully impaired due to the
purchaser's inability to make its scheduled payments against the promissory
notes and the lack of persuasive evidence indicating its ability to make such
payments in the future. Refer to Note 16 -- Divestitures for additional details
on the sale.
Additionally, in connection with the impairment of the promissory notes
receivable related to the Company's divestiture of retail software operations
during fiscal 1998, the Company continued to amortize the underlying software
associated with the divested asset and recorded $932 of amortization in both
fiscal 1998 and 1997. Refer to Note 16 -- Divestitures for additional details on
the sale.
During fiscal 1997, the Company sold substantially all of the assets of its
Itronix Corporation subsidiary, including capitalized software with a net book
value of $439. Additionally, the Company reduced its gain on disposition of
Itronix as the net assets sold included $1,589 of unamortized goodwill. Refer to
Note 16 -- Divestitures for additional details on the sale.
In connection with the acquisition of Teletransaction, Inc. in fiscal 1993,
the Company acquired the rights to consulting services (principally, to be
performed by Robert F. Meyerson, then Chairman of the Board and Chief Executive
Officer of the Company) from Accipiter Corporation ("Accipiter"), a company
owned by Mr. Meyerson's wife, and also secured a non-competition covenant from
Accipiter and Mr. Meyerson. Aggregate payments for these rights were $3,600. The
costs of these rights were amortized over the five year terms of the agreements
and were fully amortized at March 31, 1997.
NOTE 7 -- SHORT-TERM FINANCING
The Company has a revolving credit agreement with a group of eight banks
("the Bank Group"). The credit agreement, which expires on March 8, 2001,
originally provided the Company with a maximum credit facility of $100,000 and
permitted the Company to borrow funds as domestic or Eurodollar advances. Funds
borrowed as
63
<PAGE> 65
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- SHORT-TERM FINANCING (CONTINUED)
domestic advances bore interest at the greater of the agent bank's "Prime
Commercial Lending Rate" or the Federal Funds rate plus .50% while Eurodollar
advances bore interest at the agent bank's Eurodollar rate plus .50% to 1.25%
based on certain capitalization levels. In addition, the original agreement
required the Company to pay a commitment fee of .15% to .375% per annum, based
on certain capitalization levels, on the unused portion of the revolving
commitment amount. The Company was also required to pay, under the original
agreement, a utilization fee of .125% to .25% per annum, based on certain
capitalization levels, on Eurodollar advances at certain borrowing levels.
Finally, the original agreement contained restrictive covenants which required
the Company to maintain specified leverage, net worth and fixed charge coverage
ratios. During fiscal 1999 and as of March 31, 1999, the Company violated
certain of the restrictive covenants under its revolving credit facility arising
from the Company's fiscal 1999 financial results and the restatement described
in Note 3 -- Restatement above. During December 1998, the Company obtained a
covenant waiver from, and entered into an agreement with, the Bank Group which
reduced the Company's available maximum credit facility to $59,000, increased
the interest rate on domestic advances to the agent bank's "Prime Commercial
Lending Rate" plus 2% and increased the commitment fee rate to .625%. However,
without the prior approval of the Bank Group, the waiver restricted the
Company's maximum credit facility to the lesser of $55,000 (the amount then, and
as of March 31, 1999, outstanding under the facility) or the sum of eligible
accounts receivable and inventory as included in the Company's borrowing base.
The Company obtained a further covenant waiver in March 1999 which, in addition
to continuing the terms of the December 1998 waiver, requires that a portion of
any proceeds obtained from the disposition of certain investments be used first
to reduce the existing outstanding balance of the revolving credit facility and
then to permanently reduce the maximum credit available under the facility. At
March 31, 1999, the interest rate in effect under this credit agreement for
domestic advances was 9.75% and the commitment fee rate was .625%. However, as
of March 31, 1999, the Company was not permitted to access Eurodollar funds
under the conditions of the covenant waiver, and there was no utilization fee in
effect as the Company had fully utilized the maximum credit of $55,000 available
under the facility. In June 1999, the Company obtained an additional covenant
waiver from the Bank Group continuing the terms of the previous waiver through
August 30, 1999.
The Company also has a business purpose revolving promissory note with one
of the banks in the Bank Group. The original note provided the Company with a
maximum credit facility of $20,000 and bore interest at the lending bank's
"Money Market Rate" plus .50% to 1.25% per annum, based on certain
capitalization levels. Effective August 4, 1998, the note was extended to August
3, 1999. Contemporaneously with the revolving credit facility waivers, the
Company has also obtained waivers under its separate $20,000 business purpose
revolving promissory note. This note incorporates the same covenants as apply
under the revolving credit facility, which the bank also waived with respect to
the business purpose revolving promissory note through August 30, 1999. In
connection with the most recent waiver, the maturity of the business purpose
revolving promissory note was extended to August 30, 1999. At March 31, 1999,
there was approximately $4,000 outstanding under the note, and the Company was
not permitted to make any further borrowings thereunder. At March 31, 1999, the
interest rate in effect under the note was 9.75%.
Both credit facilities had been amended in August 1996 to conditionally
grant to the lenders a security interest in certain assets of the Company which
will only become effective if the Company were to become in default under the
credit agreement and then only if the requisite lenders under that facility were
to direct that the security documents be filed. In connection with the above
waivers the lenders, under both the revolving credit facility and the business
purpose revolving promissory note, exercised their rights under the terms of
their respective loans to file UCC financing statements in December 1998 to
perfect the security interests previously conditionally granted in their favor
by the Company in its accounts receivable, inventory and equipment, and the
proceeds thereof. In connection with further waivers obtained in March 1999, the
Company granted additional collateral under both credit facilities such that
they are each now secured by substantially all of the Company's assets.
64
<PAGE> 66
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- SHORT-TERM FINANCING (CONTINUED)
During fiscal 1999, the Company capitalized $1,148 in waiver fees for the
aforementioned waivers. The capitalized waiver fees, which are amortized over
the respective waiver periods, were included in the prepaid expenses and other
current assets line item of the accompanying consolidated balance sheet. At
March 31, 1999, the Company had $432 in unamortized waiver fees.
During fiscal 1999, the Company entered into a product financing
arrangement with a commercial finance institution under which the Company
borrowed $14,100 and inventory was consigned to one of the Company's value-added
distributors. The financing agreement called for the payment of various
administrative and advance fees by the Company as well as interest payable at
the financial institution's prime lending rate minus .15%. As of March 31, 1999,
approximately $7,097 of the advanced amount remained outstanding and was
recorded as a note payable in the accompanying consolidated balance sheet. The
interest rate on this financing agreement was subsequently increased to the
financial institution's prime lending rate plus 2.5%, which amounted to 10.25%
per annum as of March 31, 1999. The financing agreement had originally provided
for the Company to take back any remaining inventory, upon demand by the
commercial finance institution, by March 26, 1999. However, the commercial
finance institution subsequently extended the Company's obligation to take back
any remaining inventory, upon demand by the commercial finance institution, to
June 30, 1999. As of the date of these consolidated financial statements, the
commercial finance institution has not demanded the Company to take back the
remaining inventory. During fiscal 1999, the Company had a weighted average of
$49,706 outstanding under its revolving credit agreement, revolving promissory
note and product financing arrangement with a weighted average interest rate of
8.2% per annum. During fiscal 1998, the Company had a weighted average of $3,463
outstanding under its revolving credit agreement and revolving promissory note
with a weighted average interest rate of 8.9% per annum.
NOTE 8 -- ACCRUED LIABILITIES
Accrued liabilities at March 31, consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------- ----------
(RESTATED)
<S> <C> <C>
Deferred customer service revenues.......................... $15,351 $13,448
Deferred product revenues................................... 14,168 --
Accrued discontinued product costs.......................... 12,422 --
Accrued payroll and other employee compensation............. 9,624 9,559
Accrued professional fees................................... 4,263 690
Accrued employee termination benefits....................... 3,610 593
Accrued royalties........................................... 3,466 2,399
Accrued commissions......................................... 2,025 2,794
Accrued interest............................................ 1,929 1,875
Accrued taxes other than payroll and income taxes........... 1,132 3,000
Other accrued liabilities................................... 6,295 7,630
------- -------
$74,285 $41,988
======= =======
</TABLE>
Accrued employee termination benefits at March 31, 1999, include the costs
to terminate 53 employees. Severance costs totaling $700, $311, $295, $260 and
$1,968 were charged to cost of product revenues, cost of customer service
revenues, selling expenses, product development and engineering expenses and
general and administrative expenses, respectively. All employee termination
benefits are expected to be paid in cash during fiscal 2000.
65
<PAGE> 67
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- INCOME TAXES
Components of income (loss) before taxes:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Domestic operations................................ $(130,883) $ 8,042 $(21,423)
International operations........................... 11,261 8,360 13,898
--------- ------- --------
$(119,622) $16,402 $ (7,525)
========= ======= ========
</TABLE>
The Company accounts for income taxes in accordance with the FASB Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). Under SFAS No. 109, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the tax rates and laws that are
currently in effect.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Components of the provision for income taxes by taxing jurisdiction are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Current:
U.S................................................ $ 2,982 $ 6,565 $ (450)
State and local.................................... 30 498 196
Foreign............................................ 4,823 3,470 5,090
------- ------- -------
7,835 10,533 4,836
------- ------- -------
Deferred:
U.S................................................ 9,297 (3,130) (3,542)
State and local.................................... (99) (46) (393)
Foreign............................................ 327 (130) (175)
------- ------- -------
9,525 (3,306) (4,110)
------- ------- -------
Provision for income taxes........................... $17,360 $ 7,227 $ 726
======= ======= =======
</TABLE>
66
<PAGE> 68
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- INCOME TAXES (CONTINUED)
The reconciliation between the reported total income tax expense and the
amount computed by multiplying income (loss) before income taxes by the U.S.
federal statutory tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
U.S. federal statutory tax rate......................... (35.0)% 35.0% (35.0)%
Net taxes on repatriated foreign earnings............... 0.2 -- 31.6
Foreign tax rate differential........................... 0.7 1.5 5.6
Research and development credits........................ -- (1.3) (14.9)
Goodwill................................................ 0.4 7.3 19.3
Foreign sales corporation tax benefit................... -- (1.8) (4.7)
Net operating losses not currently recognized........... 25.7 -- 5.9
Change in valuation allowance........................... 18.7 -- --
Tax refund claims, audit issues and other matters....... 2.3 2.0 0.6
Other................................................... 1.5 1.4 1.3
----- ---- -----
Consolidated effective income tax rate.................. 14.5% 44.1% 9.7%
===== ==== =====
</TABLE>
The reconciliation between the reported total income tax expense and the
amount computed by multiplying income (loss) before income taxes by the U.S.
statutory tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Amount at U.S. federal statutory tax rate............ $(41,868) $5,741 $(2,634)
Net taxes on repatriated foreign earnings............ 181 -- 2,380
Foreign tax rate differential........................ 816 249 422
Research and development credits..................... (37) (207) (1,121)
Goodwill............................................. 501 1,202 1,449
Foreign sales corporation tax benefit................ -- (291) (357)
Net operating losses not currently recognized........ 30,748 -- 442
Change in valuation allowance........................ 22,406 -- --
Tax refund claims, audit issues and other matters.... 2,787 336 43
Other................................................ 1,826 197 102
-------- ------ -------
Provision for income taxes........................... $ 17,360 $7,227 $ 726
======== ====== =======
</TABLE>
67
<PAGE> 69
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at March 31, are presented
below:
<TABLE>
<CAPTION>
1999 1998
-------- ----------
(RESTATED)
<S> <C> <C>
Deferred tax assets:
Foreign tax credit carryover.............................. $ 1,289 $ 1,289
Allowance for doubtful accounts........................... 2,966 4,695
Inventory obsolescence and capitalization................. 13,411 4,544
State and local income benefits........................... 34 127
Net operating loss and research and development and
alternative minimum tax credit carryovers.............. 35,040 3,862
Warranty reserves......................................... 593 1,007
Employee benefits and compensation........................ 1,581 1,176
Other..................................................... 6,981 6,357
-------- -------
Total gross deferred tax assets........................ 61,895 23,057
Less valuation allowance............................... (57,073) (3,919)
-------- -------
Total deferred tax assets.............................. 4,822 19,138
-------- -------
Deferred tax liabilities:
Depreciation and amortization............................. (5,854) (7,522)
Other..................................................... 2,481 (2,282)
-------- -------
Total gross deferred tax liabilities................... (3,373) (9,804)
-------- -------
Net deferred tax asset............................... $ 1,449 $ 9,334
======== =======
</TABLE>
The net change in the total valuation allowance for the years ended March
31, 1999 and 1998, was an increase of $53,154 and a decrease of $3,640,
respectively. The $53,154 increase to the valuation allowance for year ended
March 31, 1999 is based on the Company's assessment that it is more likely than
not that the net deferred tax asset will not be realized through future taxable
earnings or implementation of tax planning strategies. Accordingly, a valuation
allowance was established in the current year in accordance with provisions of
SFAS No. 109.
A provision in the amount of $250 was recorded for U.S. income taxes and
applicable foreign withholding taxes on $5,000 of undistributed earnings
attributable to various foreign subsidiaries due to management's decision not to
reinvest such earnings at March 31, 1999. No provision for U.S. income taxes has
been provided on the $11,956 balance of undistributed earnings since the amounts
are indefinitely reinvested at March 31, 1999. The determination of the amount
of the unrecognized deferred tax liability for temporary differences related to
investments in foreign subsidiaries is not practicable.
Income taxes paid in fiscal 1999, 1998 and 1997, were $2,667, $9,428 and
$8,734, respectively. Income tax refunds received in fiscal 1999, 1998 and 1997
aggregated $1,077, $473 and $604, respectively.
As of March 31, 1999, the Company has foreign operating loss carryovers of
$327 for both tax and financial reporting purposes. This foreign loss carryover
period is indefinite. The Company has a total of $94,000 in U.S. net operating
loss carryovers. These net operating loss carryovers begin to expire in fiscal
2011 through fiscal 2019.
68
<PAGE> 70
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- INCOME TAXES (CONTINUED)
As a result of acquisitions in prior years, the Company has domestic
research and development credit carryovers for tax and financial reporting
purposes in the amount of $1,189, of which $188 is subject to separate
limitations of the acquired company. These carryovers expire beginning in fiscal
2009 through fiscal 2019.
As of March 31, 1999, the Company has domestic alternative minimum tax
credit carryovers of $1,741. The domestic alternative minimum tax credit
carryforward period is indefinite. There can be no assurance that foreign and
domestic tax carryovers will be utilized.
As of March 31, 1999, the Company has foreign tax credit carryovers of
$1,289. The carryforward period is five years and expires in fiscal 2002.
NOTE 10 -- STOCK OPTIONS AND RESTRICTED STOCK
The Company accounts for stock based compensation issued to its employees
and non-employee directors in accordance with APB 25 and has elected to adopt
the "disclosure-only" provisions of the FASB Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS No. 123").
During the periods shown below, the officers and other key employees of the
Company received and held stock options under the Telxon Corporation 1990 Stock
Option Plan (the "1990 Plan"). The persons to whom options are granted, the
number of shares granted to each, the period over which the options become
exercisable (generally in equal installments over a three-year period on the
first three anniversaries of the date of grant) and the maximum term of the
options (generally eight years after the date of grant) are determined by the
Option and Stock Committee of the Board of Directors ("the Committee"). The
exercise price is equal to the closing market price for the Company's Common
Stock as of the last trading day prior to the grant date. During fiscal 1998,
the Company's stockholders approved an amendment to the 1990 Plan that increased
the number of shares authorized for issuance under the Plan by 750,000 shares,
to a total of 4,100,000 shares. Options available to be granted under the 1990
Plan at March 31, 1999, were 256,209.
The following is a summary of the activity in the Company's 1990 employee
stock option plan during fiscal 1999, 1998 and 1997:
<TABLE>
<CAPTION>
STOCK OPTIONS
--------------------------
WEIGHTED
AVERAGE PRICE
SHARES PER SHARE
--------- -------------
<S> <C> <C>
March 31, 1996.............................................. 2,950,930 $15.54
Granted................................................... 956,500 $14.89
Exercised................................................. (127,337) $11.84
Returned to pool due to employee terminations............. (665,471) $16.27
---------
March 31, 1997.............................................. 3,114,622 $15.23
Granted................................................... 727,475 $23.19
Exercised................................................. (745,358) $13.28
Returned to pool due to employee terminations............. (151,154) $19.19
---------
March 31, 1998.............................................. 2,945,585 $17.59
Granted................................................... 345,000 $11.24
Exercised................................................. (110,177) $14.89
Returned to pool due to employee terminations............. (74,350) $20.05
---------
March 31, 1999.............................................. 3,106,058 $16.92
=========
</TABLE>
69
<PAGE> 71
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- STOCK OPTIONS AND RESTRICTED STOCK (CONTINUED)
At March 31, 1997, 1998 and 1999, 1,349,267, 1,644,852 and 2,253,613
options outstanding under the 1990 Plan, respectively, were exercisable. The
options outstanding at March 31, 1999 were granted at exercise prices ranging
from $8.72 to $34.00 per share and had a remaining weighted average contractual
life of 5.71 years.
OUTSTANDING AND EXERCISABLE
AT MARCH 31, 1999
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ ----------------------------
WEIGHTED AVE. WEIGHTED AVE. WEIGHTED AVE.
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 3/31/99 LIFE PRICE AT 3/31/99 PRICE
- ------------------------ ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 8.719 - $11.500 710,459 5.55 $10.16 355,940 $11.19
$12.500 - $14.500 428,204 5.71 $13.65 415,700 $13.68
$15.250 - $16.750 806,707 5.90 $16.19 746,695 $16.15
$18.063 - $20.125 365,000 4.71 $19.93 288,000 $20.04
$20.750 - $22.500 300,149 5.32 $22.00 226,036 $22.04
$23.375 - $25.310 460,539 6.57 $24.88 221,242 $24.43
$29.625 - $34.000 35,000 7.26 $30.88 -- --
--------- ---------
3,106,058 5.71 $16.92 2,253,613 $16.81
========= =========
</TABLE>
The Company also has in effect a stock option plan for non-employee
directors (the "Director Plan"). Under the Director Plan, each non-employee
director is granted 25,000 options upon first being elected to the Board of
Directors and 10,000 additional options each year thereafter. Additionally, the
Director Plan also permits the making of discretionary option grants to
non-employee directors. Each non-employee director's initial grant becomes
exercisable in equal thirds on each of the first three anniversaries of the
grant date, while each subsequent grant becomes exercisable in full on the third
anniversary of its grate date. Each option granted under the Director Plan has a
seven year term, which may be extended to up to ten years and an option exercise
price equal to the closing market price for the Company's Common Stock as of the
last trading day prior to the grant date. During fiscal 1996, the Company's
stockholders approved an amendment to the Director Plan that increased the
number of shares authorized for issuance under the Director Plan by 150,000
shares, to a total of 400,000 shares. At March 31, 1999, there were no options
available to be granted under the Director Plan.
70
<PAGE> 72
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- STOCK OPTIONS AND RESTRICTED STOCK (CONTINUED)
The following is a summary of the activity in the Company's non-employee
directors stock option plan during fiscal 1997, 1998 and 1999:
<TABLE>
<CAPTION>
STOCK OPTIONS
------------------------
AVERAGE PRICE
SHARES PER SHARE
------- -------------
<S> <C> <C>
March 31, 1996.............................................. 210,000 $17.02
Granted................................................... 50,000 $12.24
Exercised................................................. -- --
-------
March 31, 1997.............................................. 260,000 $16.10
Granted................................................... 105,000 $23.62
Exercised................................................. (25,000) $ 9.88
-------
March 31, 1998.............................................. 340,000 $18.88
Granted................................................... 11,567 $19.44
Exercised................................................. -- --
-------
March 31, 1999.............................................. 351,567 $18.90
=======
</TABLE>
At March 31, 1997, 1998 and 1999, 133,333, 186,667 and 251,567 options
outstanding under the Director Plan, respectively, were exercisable. The options
outstanding under the Director Plan at March 31, 1999, were granted at exercise
prices ranging from $9.13 to $25.25 per share and had a weighted average
contractual life of 4.08 years.
OUTSTANDING AND EXERCISABLE
AT MARCH 31, 1999
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ ----------------------------
WEIGHTED AVE. WEIGHTED AVE. WEIGHTED AVE.
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 3/31/99 LIFE PRICE AT 3/31/99 PRICE
------------------------ ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 9.125 - $11.125 50,000 4.43 $10.45 20,000 $ 9.44
$11.500 - $14.500 50,000 2.46 $13.33 40,000 $13.72
$15.750 - $17.750 30,000 3.26 $16.52 20,000 $16.75
$19.375 - $20.125 46,567 4.06 $19.79 46,567 $19.79
$21.250 - $23.250 90,000 3.90 $22.72 50,000 $22.45
$23.375 - $25.250 85,000 5.30 $23.79 75,000 $23.77
------- -------
351,567 4.08 $18.98 251,567 $19.47
======= =======
</TABLE>
At March 31, 1997, 1998 and 1999, there were 6,000 options outstanding and
exercisable at $14.63 per share which were granted to a non-employee director
prior to the adoption of the Director plan.
During fiscal 1993, the Company adopted a Restricted Stock Plan (the
"Restricted Stock Plan"), under which 250,000 shares may be issued. The
Committee determines the persons to whom restricted stock is granted, the number
of shares granted to each and the time periods during which and the criteria
upon which the restricted stock is subject to forfeiture (generally, the
forfeiture restrictions lapse as to equal installments of each grant over a
five-year period on the first five anniversaries of the date of grant, provided
that the grantee then continues in the Company's employ). During fiscal 1998,
19,000 shares were granted under the Restricted Stock Plan at a weighted-average
grant date fair value of $25.35 per share. There were no shares granted under
the Restricted
71
<PAGE> 73
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- STOCK OPTIONS AND RESTRICTED STOCK (CONTINUED)
Stock Plan during fiscal 1997 or 1999. At March 31, 1999, 214,800 shares granted
under the Restricted Stock Plan had vested, 16,200 shares were outstanding
subject to forfeiture, and 19,000 shares were available to be granted as a
result of forfeited shares.
During fiscal 1996, the Company's stockholders approved the 1995 Employee
Stock Purchase Plan (the "1995 Stock Purchase Plan"), under which 500,000 shares
of common stock were authorized for sale to eligible employees at a 15% discount
from market value. During fiscal 1997, 1998 and 1999, the Company re-issued
75,560, 57,112 and 52,999 shares of its treasury stock at a weighted average
price of $11.97, $15.15 and $19.34 per share, respectively, in satisfaction of
purchases made under the 1995 Stock Purchase Plan. At March 31, 1999, a total of
194,486 shares had been issued and purchased under the 1995 Stock Purchase Plan
since its inception, and 305,514 shares remained available for future purchases.
Effective March 22, 1999, the Company entered into a letter agreement with
John W. Paxton to serve as Chairman, Chief Executive Officer and President of
the Company. The letter summarized the principal elements of Mr. Paxton's
employment obligations and compensation package to be included in a definitive
agreement, and specified, among other things, term of employment, salary, bonus
compensation, stock-based compensation and termination benefits. The letter
obligates Mr. Paxton to purchase 300,000 shares of the Company's common stock at
$8.719 per share. The letter also grants Mr. Paxton options to purchase 700,000
shares of the Company's common stock, with vesting provisions as follows: a)
300,000 shares to vest in equal annual installments over three years; b) 200,000
shares to vest if and when the Company's common stock price reaches $14.00 per
share; c) 100,000 shares to vest if and when the Company's common stock price
reaches $22.00 per share; and d) 100,000 shares to vest if and when the
Company's common stock price reaches $27.00 per share. Included in the options
to purchase 700,000 shares of the Company's common stock were 300,000 stock
options granted to Mr. Paxton during fiscal 1999 under the 1990 Plan. No
compensation expense was recorded during fiscal 1999 related to the stock-based
compensation outlined in the letter agreement between the Company and Mr. Paxton
in accordance with the provisions of APB No. 25.
In July 1996, Aironet established the Aironet Wireless Communications, Inc.
1996 Stock Option Plan which was amended and restated on March 30, 1998 ("1996
Amended Plan"). The 1996 Amended Plan provides for the granting of options to
key Aironet employees and to certain employees of the Company and outside
Aironet directors. The total number of shares for which Aironet may grant
options under the 1996 Amended Plan cannot exceed 2,150,500. Options are awarded
at a price not less than the fair market value on the date the option is
granted. Options granted prior to March 30, 1998, have a term of ten years and
generally vest one-third on the date granted and one-third on each of the two
successive anniversary dates therefrom. Options granted on or after March 30,
1998, have the same terms except an option can only be exercised after the
earlier of a change in control or an initial public offering, as defined in the
1996 Amended Plan and vest in one-third increments on each of the three
successive anniversary dates from the date of grant.
Effective March 31, 1999, Aironet's Board of Directors and Stockholders
approved an additional amendment to the 1996 Amended Plan that permits vested
options granted under the 1996 Amended Plan to be exercised at any time after
the earlier of an initial public offering, a change in control, as defined, or
March 31, 2001. In addition, Aironet's Board of Directors accelerated the
vesting of certain options held by persons not employed by Aironet. As a result
of this amendment to the 1996 Amended Plan and immediate vesting of certain
outstanding options on March 31, 1999, Aironet recorded non-cash compensation
expense related to employees of $933 and non-cash compensation expense related
to non-employees of $943.
72
<PAGE> 74
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- STOCK OPTIONS AND RESTRICTED STOCK (CONTINUED)
The following is a summary of the activity in Aironet's 1996 Amended Plan
during fiscal years 1997, 1998 and 1999:
<TABLE>
<CAPTION>
STOCK OPTIONS
--------------------------
AVERAGE PRICE
SHARES PER SHARE
--------- -------------
<S> <C> <C>
March 31, 1996.............................................. 384,000 $1.86
Granted................................................... 1,040,500 $1.86
Exercised................................................. -- --
Returned to pool due to employee terminations............. (167,500) $1.86
---------
March 31, 1997.............................................. 1,257,000 $1.86
Granted................................................... 500,000 $3.50
Exercised................................................. (270,000) $1.86
Returned to pool due to employee terminations............. (6,500) $1.86
---------
March 31, 1998.............................................. 1,480,500 $2.41
Granted................................................... 105,000 $3.50
Exercised................................................. (5,833) $3.50
Returned to pool due to employee terminations............. (36,667) $3.09
---------
March 31, 1999.............................................. 1,543,000 $2.47
=========
</TABLE>
At March 31, 1999, options to purchase 1,543,000 shares were outstanding
under the 1996 Amended Plan of which 784,012 are currently exercisable at a
weighted-average price per share of $1.86. In February 1998, an Aironet employee
exercised 200,000 options with a grant price and fair value of $1.86 per share.
At the date of grant, Aironet provided the employee a non-recourse loan of $372
which was applied towards the payment of the exercise price of the options. The
terms of the note did not extend the original option period. The note bears non-
recourse interest at 6% per annum on amounts outstanding through maturity,
October 31, 2002, and at a prime rate plus 4% per annum thereafter until paid.
All unpaid principal and all accrued interest is due in full on October 31,
2002. The 200,000 shares issued (or approved replacement collateral of equal
value at the employee's discretion) collateralize the note. Any amounts paid on
the note shall be applied first to accrued but unpaid interest and then to
unpaid principal. The employee may, at any time, prepay the note without premium
or penalty in amounts of at least $25. Pursuant to Emerging Issues Task Force
("EITF") Issue No. 85-1, "Classifying Notes Received for Capital Stock" the note
has been recorded as a reduction of Aironet's additional paid-in capital rather
than an asset. In addition, pursuant to EITF No. 95-16, "Accounting for Stock
Compensation Arrangements with Employee Loan Features Under APB Opinion No. 25,"
Aironet has accounted for the options as variable plan options from the note
issuance date until the note is settled or otherwise amended resulting in a $325
non-cash charge recorded in March 1998 and a non-cash charge of $1,078 recorded
for the year ended March 31, 1999.
On February 16, 1999, Aironet's Board of Directors had approved, subject to
stockholder approval (which was determined to be perfunctory), the to be adopted
Aironet Wireless Communications, Inc. 1999 Omnibus Stock Incentive Plan (the
"1999 Plan") and granted options to acquire 400,000 shares at $9.00 under such
plan. The 1999 Plan provides for the granting of options, stock appreciation
rights ("SARs"), restricted stock and performance units, as defined, to certain
officers and other key employees of the Company. The total number of shares
Aironet may grant under the 1999 Plan cannot exceed 1,765,817. Options granted
under the 1999 Plan have a ten-year term and must have an exercise price equal
to or greater than the fair market value of Aironet's common stock on the date
of grant. Options granted generally vest over a three-year period on the first
three anniversary dates after the date of grant. Aironet's Board of Directors
formally adopted and approved the 1999
73
<PAGE> 75
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- STOCK OPTIONS AND RESTRICTED STOCK (CONTINUED)
Plan on April 12, 1999, and Aironet's stockholders formally adopted and approved
the 1999 Plan on May 7, 1999.
At March 31, 1999, there were options outstanding under the 1999 Plan to
purchase 400,000 shares of Aironet common stock, none of which are currently
exercisable, at a weighted average price per share of $9.00.
Aironet's compensation expense related to all Aironet options granted to
Aironet employees for the fiscal years ended March 31, 1999, 1998 and 1997 was
$2,010, $325 and $0 respectively. Aironet's compensation expense related to all
Aironet options granted to Company employees and Aironet's outside directors,
for the fiscal years ended March 31, 1999, 1998 and 1997 was $994, $80, and $0
respectively.
For SFAS No. 123 purposes, the fair value of each option granted under the
Company's 1990 and Director Plans is estimated as of the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for stock options granted in fiscal 1997, 1998 and 1999,
respectively: dividend yield of .047%, .038% and .069%, expected volatility of
56.22%, 44.66% and 51.57%, risk-free interest rates of 6.40%, 5.88% and 5.29%,
and an expected life of five years for grants.
Additionally, the fair value of each right to purchase stock under the
Company's 1995 Stock Purchase Plan for SFAS No. 123 purposes is estimated as of
the first day of each six-month payment period (during which payroll deductions
for purchases are made) using the Black-Scholes option pricing model with the
following weighted average assumptions used in fiscal 1997, 1998 and 1999,
respectively: dividend yield of .047%, .038% and .069%, expected volatility of
56.22%, 44.66% and 53.13%, risk-free interest rates of 5.18%, 5.29% and 5.18%,
and an expected life of six months.
The fair value of Mr. Paxton's options to purchase 400,000 shares of the
Company's common stock upon the stock's attainment of certain per share prices
as identified above, is estimated for SFAS No. 123 purposes, as of the date of
grant using a path dependent model with the following assumptions: a dividend
yield of .069%, an expected volatility of 53.13% and a risk-free interest rate
of 5.25%. The expected term of these options is determined by the path dependent
model.
For SFAS No. 123 purposes, the fair value of each option granted under
Aironet's 1996 Amended Plan and 1999 Plan are estimated as of the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for stock options granted in fiscal 1997, 1998 and 1999,
respectively: dividend yield of 0%, expected volatility of 56.22%, 56.00% and
51.57%, risk-free interest rates of 6.74%, 5.72% and 5.14%, and an expected life
of five years. The weighted average fair value on the date of grant for options
granted during fiscal years 1997, 1998 and 1999 were $1.86, $3.50 and $8.43,
respectively.
If the Company had elected to recognize the compensation cost of its stock
option and stock purchase plans, certain portions of Mr. Paxton's stock-based
compensation and Aironet's stock option plans based on the fair value of the
awards under those plans and letter agreement in accordance with SFAS No. 123,
net income (loss) and earnings (loss) per share would have been reduced
(increased) to the pro forma amounts below:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Net (loss) income: As reported......................... $(136,982) $8,159 $(8,251)
Pro forma........................... (143,011) 521 (13,107)
(Loss) earnings per share:
Basic As reported......................... $ (8.50) $ .52 $ (.51)
Pro forma........................... (8.88) .03 (.82)
Diluted As reported......................... $ (8.50) $ .50 $ (.51)
Pro forma........................... (8.88) .03 (.82)
</TABLE>
74
<PAGE> 76
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- STOCK OPTIONS AND RESTRICTED STOCK (CONTINUED)
The significant increase in the pro forma compensation expense in fiscal
1998 from the fiscal 1997 amount was the result of 495,000 options that were
granted March 17, 1997. The compensation expense recorded in the pro forma
disclosure of fiscal 1997 included 14 days of expense as compared to the full
year of expense recorded in fiscal 1998. The proforma compensation expense did
not include estimated income tax expense or benefit.
NOTE 11 -- LEASES
The Company leases certain equipment under capital leases generally for
terms of five years or less with renewal and purchase options. The present value
of future minimum lease payments for these capital lease obligations is
reflected in the consolidated balance sheet as current and noncurrent capital
lease obligations. In addition, the Company leases office facilities, customer
service locations and certain equipment under noncancellable operating leases.
Future minimum lease payments for the fiscal years ending March 31, are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
2000..................................................... $ 640 $ 9,080
2001..................................................... 512 7,686
2002..................................................... 512 5,371
2003..................................................... 492 3,283
2004..................................................... 130 2,611
2005 and thereafter...................................... -- 7,878
------ -------
2,286 $35,909
=======
Amount representing interest............................. (326)
------
Present value of net minimum lease payments.............. 1,960
Current portion.......................................... (525)
------
Long-term portion........................................ $1,435
======
</TABLE>
The Company has an option to purchase the 100,000 square foot facility
currently occupied by its corporate offices. The purchase option is exercisable
prior to September 1, 2001 for a price equal to the fair market value of the
premises as determined by an independent appraisal.
Rent expense, net of sublease rental income, for fiscal 1999, 1998 and 1997
amounted to $13,057, $10,820 and $12,296, respectively.
The Company also subleases certain of its leased office facilities to third
parties. Sublease rental income is recorded as a reduction to the Company's rent
expense in the accompanying consolidated statement of operations.
Future minimum lease payment receivables for the fiscal years ending March
31, are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
2000..................................................... $1,028
2001..................................................... 853
2002..................................................... 228
2003 and thereafter...................................... --
------
$2,109
======
</TABLE>
75
<PAGE> 77
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- LEASES (CONTINUED)
Sublease rental income for fiscal 1999, 1998 and 1997 amounted to $1,092,
$337 and $ 0, respectively.
NOTE 12 -- CONVERTIBLE SUBORDINATED NOTES AND DEBENTURES
Convertible subordinated notes and debentures consisted of $82,500 of
5 3/4% Convertible Subordinated Notes (the "5 3/4% Notes") and $24,413 of 7 1/2%
Convertible Subordinated Debentures (the "7 1/2% Debentures") at March 31, 1999.
The March 31, 1998, amounts consisted of $82,500 of 5 3/4% Notes and $24,724 of
7 1/2% Debentures.
The 5 3/4% Notes, issued December 12, 1995, are due January 1, 2003. The
conversion price for the 5 3/4% Notes is $27.50 per common share and is subject
to adjustment in certain events. Interest is payable on January 1 and July 1 in
each year, and commenced July 1, 1996. On or after January 5, 1999, the 5 3/4%
Notes are redeemable at any time at the option of the Company, in whole or in
part, at the following prices for the following calendar years: 1999, 103.286%;
2000, 102.464%; 2001, 101.643% and 2002, 100.821%.
The 7 1/2% Debentures, issued June 1, 1987, are due June 1, 2012. The
conversion price for the 7 1/2% Debentures of $26.75 per common share is subject
to adjustment in certain events. Interest is payable on June 1 and December 1 in
each year, and commenced December 1, 1987. On and after June 1, 1997, the
Debentures are redeemable at par. The sinking fund requires mandatory annual
payments of 5% of the original $46,000 principal amount commencing June 1, 1997,
calculated to retire 75% of the issue prior to maturity. During fiscal 1991, the
Company purchased and retired Debentures with a principal face amount
aggregating $21,266, which is being applied to the earliest of the Company's
sinking fund payment obligations.
During fiscal 1999, $311 in aggregate principal amount of the Company's
7 1/2% Convertible Subordinated Debentures were surrendered for conversion into
11,621 shares of the Company's common stock. The surrendered Convertible
Subordinated Debentures have been canceled effective as of their conversion into
common stock.
Total interest paid by the Company in fiscal 1999, 1998 and 1997 (including
but not limited to the interest on the Convertible Subordinated Notes and
Debentures) was $10,852, $7,417 and $8,368, respectively.
The combined annual aggregate amount of maturities and sinking fund
requirements are as follows:
<TABLE>
<S> <C>
2000.................................................... $ 2,300
2001.................................................... 2,300
2002.................................................... 2,300
2003.................................................... 2,300
2004.................................................... 84,800
Thereafter.............................................. 12,913
--------
$106,913
========
</TABLE>
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating the fair value of the following financial instruments:
Cash and Cash Equivalents
The carrying amounts reported in the accompanying consolidated balance
sheets for cash and cash equivalents approximate fair value due to the
short-term nature of these instruments.
76
<PAGE> 78
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
5 3/4% Notes
The fair value of the Company's 5 3/4% Notes is based on discounted cash
flow analysis (there being no regular public trading market for the 5 3/4%
Notes). Refer to Note 12 -- Convertible Subordinated Notes and Debentures
for additional information concerning the 5 3/4% Notes.
7 1/2% Debentures
The fair value of the Company's 7 1/2% Debentures is based on quoted market
prices. Refer to Note 12 -- Convertible Subordinated Notes and Debentures
for additional information concerning the 7 1/2% Debentures.
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Cash and cash equivalents................... $22,459 $22,459 $27,500 $27,500
5 3/4% Notes................................ 82,500 86,484 82,500 85,059
7 1/2% Debentures........................... 24,413 15,106 24,724 25,713
</TABLE>
Forward Foreign Currency Exchange Contracts
The fair value of forward foreign currency exchange contracts is estimated
based on quotes from currency brokers. At March 31, 1998, the Company had
several forward foreign currency exchange contracts to purchase various
foreign currencies as presented in the table below. These contracts matured
in April 1998. The Company had no forward foreign currency exchange
contracts at March 31, 1999.
<TABLE>
<CAPTION>
1998
NOTIONAL NOTIONAL FAIR
CURRENCY VALUE(1) VALUE(2) VALUE(3)
- -------- -------- -------- --------
<S> <C> <C> <C>
Italian Lira............................................. $ 240 $ 242 $ (2)
Canadian Dollar.......................................... 359 360 (1)
Spanish Peseta........................................... 238 241 (3)
Australian Dollar........................................ 593 600 (7)
Japanese Yen............................................. 95 98 (3)
British Pound............................................ 370 372 (2)
German Mark.............................................. 968 982 (14)
British Pound............................................ 1,671 1,679 (8)
------ ------ ----
Total.................................................... $4,534 $4,574 $(40)
====== ====== ====
</TABLE>
- ---------------
(1) Represents US Dollar equivalent based on contractual exchange rate.
(2) Represents US Dollar equivalent based on March 31, 1998 exchange rate.
(3) Represents difference between notional values at contractual exchange rate
and March 31, 1998 exchange rate.
Investments in Non-traded Companies
It was not practicable for the Company to estimate the fair value of its
investments in non-traded, closely held companies because of the lack of
quoted market prices for those investments and the inability to estimate
fair values without incurring excessive costs. These investments, which the
Company holds for purposes other than trading, totaled $12,727 and $8,650
at March 31, 1999 and 1998, respectively, and are
77
<PAGE> 79
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
carried at cost in intangible and other assets in the accompanying
consolidated balance sheets. However, during fiscal 1999, the Company
recorded an impairment charge of $1,725 against its investment in the third
party that acquired the Company's Virtual Vision subsidiary. The $1,725
impairment reflects the dilution of the Company's investment resulting from
this third party's fiscal 1999 issuance of a series of preferred shares
with superior rights over the preferred shares owned by the Company.
Additionally, during fiscal 1998, the Company recorded impairment charges
of $1,100 and $1,434, respectively, against its investments in two separate
third parties. These investments were fully impaired due to poor historical
financial performance, inability to repay amounts owed to the Company and
lack of evidence that would indicate a future ability of these entities to
support the carrying value of the Company's investments. Refer to Note
6 -- Intangible and Other Assets for additional information concerning the
Company's investments in non-traded companies.
Long-term Notes Receivable
It was not practicable for the Company to estimate the fair value of
certain of its long-term notes receivable from non-traded, closely held
companies because of the lack of quoted market prices for similar financial
instruments and the inability to estimate fair values without incurring
excessive costs. The notes, which the Company intends to hold to maturity,
bear interest at various fixed and variable rates and have maturities
ranging from one to four years. The long-term notes receivable, which total
$445 and $1,169 at March 31, 1999 and 1998, respectively, are carried at
cost in intangible and other assets in the accompanying consolidated
balance sheets. However, during fiscal 1998, the Company recorded an
impairment charge of $3,535 against the long-term asset purchase notes
receivable due from the third party that had agreed to acquire the
Company's retail software operations. These long-term notes receivable were
fully impaired due to the third party's inability to make its scheduled
payments against the promissory notes and the lack of evidence indicating
their ability to make such payments in the future. Refer to Note
6 -- Intangible and Other Assets for additional information concerning
long-term notes receivable.
NOTE 14 -- STOCKHOLDERS' EQUITY
The exercise of non-qualified stock options results in state and federal
income tax benefits to the Company based on the difference between the market
price at the date of exercise and the option price. During fiscal 1999, 1998 and
1997, ($411), $1,970 and $58, respectively, was (debited) credited to additional
paid-in capital as a result of such option exercises.
NOTE 15 -- BUSINESS SEGMENTS
During fiscal 1999, the Company adopted FASB Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131"). SFAS 131 requires additional financial disclosure of segment information
in the manner in which management organizes the segments within the enterprise
for making operating decisions and assessing performance. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate and their major customers.
Prior year financial data by geographic area has been restated to conform to the
current year's presentation.
The Company designs, develops, manufactures, markets and services mobile
and wireless transaction systems and solutions for vertical markets. The
Company's business consists of four 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 incorporating laser bar code
readers, including a variety of pen-based and touch screen workslate devices; b)
Its Aironet subsidiary, which designs, develops, markets and services high
speed,
78
<PAGE> 80
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- BUSINESS SEGMENTS (CONTINUED)
standards-based wireless local area networking (LAN) solutions; Aironet's
products utilize advanced high radio frequency and data communication
technologies to connect users to computer networks ranging in size and
complexity from enterprise-wide LANs to home networks; c) Sales and distribution
of all its product lines in Europe; and d) Sales and distribution of all its
product lines in international locations outside of Europe. The Company does not
believe that it is dependent upon any one customer or group of customers. No
customer accounted for 10% or more of total net revenues in fiscal 1999, 1998 or
1997.
The Company sells its products to customers in diversified industries,
primarily in North America and Europe. The Company realizes over one-half of its
revenues from customers in retail industries who are in widely diversified
geographic locations and markets. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. The
Company maintains reserves for potential credit losses, and such losses have
historically been within management's expectations.
The Company has operations in the United States, Europe, Canada, Mexico,
Australia and Asia. Information for fiscal 1999, 1998 and 1997 follows below.
Intercompany sales were at cost plus a negotiated mark-up.
Assets of geographic areas are identified with the operations of each area.
<TABLE>
<CAPTION>
UNITED STATES
OTHER THAN CONSOLIDATED OTHER ADJUSTMENT &
1999 AIRONET AIRONET EUROPE INT'L ELIMINATION CONSOLIDATED
- ---- ------------- ------------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from unaffiliated
customers.................... $ 257,227 $28,413 $76,902 $25,752 -- $ 388,294
Revenues from Intercompany
sales........................ 45,163 16,840 564 2,434 (65,001) --
--------- ------- ------- ------- -------- ---------
Total revenues................. $ 302,390 $45,253 $77,466 $28,186 $(65,001) $ 388,294
========= ======= ======= ======= ======== =========
Income (loss) from
operations................... $(119,273) $(1,038) $ 7,647 $ 3,669 $ (1,142) $(110,137)
Interest (expense)............. (9,702) (130) (39) -- (1) (9,872)
Interest income................ 483 157 128 33 -- 801
Gain on sale of subsidiary
stock........................ 340 -- -- -- -- 340
Other non-operating (expense)
income....................... (754) -- -- -- -- (754)
--------- ------- ------- ------- -------- ---------
Income (loss) before income
taxes........................ (128,906) (1,011) 7,736 3,702 (1,143) (119,622)
Provision for income taxes..... 12,386 391 3,175 1,408 -- 17,360
--------- ------- ------- ------- -------- ---------
Net income (loss).............. $(141,292) $(1,402) $ 4,561 $ 2,294 $ (1,143) $(136,982)
========= ======= ======= ======= ======== =========
Depreciation and
Amortization................. $ 24,973 $ 2,468 $ 1,461 $ 272 $ 29,174
========= ======= ======= ======= =========
Unusual items:
Provision for inventory
obsolescence................. $ 35,797 $ 454 $ 628 $ 551 $ 37,430
========= ======= ======= ======= =========
Provisions for bad debts....... $ 6,936 $ 308 $ 310 $ 198 $ 7,752
========= ======= ======= ======= =========
Identifiable assets at March
31, 1999..................... $ 282,246 $13,804(1) $37,180 $15,614 $ 348,844
========= ======= ======= ======= =========
</TABLE>
- ---------------
(1) Includes assets from non-US locations of $2,768.
79
<PAGE> 81
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
UNITED STATES
OTHER THAN CONSOLIDATED OTHER ADJUSTMENT &
1998 AIRONET AIRONET EUROPE INT'L ELIMINATION CONSOLIDATED
- ---- ------------- ------------ ------- ------- ------------ ------------
(RESTATED)
<S> <C> <C> <C> <C> <C> <C>
Revenues from unaffiliated
customers.................... $ 345,289 $20,404(1) $71,834 $25,629 $ -- $ 463,156
Revenues from Intercompany
sales........................ 13,062 51,149 567 1,889 (66,667) --
--------- ------- ------- ------- -------- ---------
Total revenues................. $ 358,351 $71,553 $72,401 $27,518 $(66,667) $ 463,156
========= ======= ======= ======= ======== =========
Income (loss) from
operations................... $ 16,198 $ 4,794 $ 5,509 $ 3,480 $ (8,596) $ 21,385
Interest (expense)............. (7,268) (5) (27) -- 119 (7,181)
Interest income................ 1,334 67 120 52 -- 1,573
Gain on sale of subsidiary
stock........................ 1,637 -- -- -- -- 1,637
Other non-operating (expense)
income....................... (907) -- -- -- (105) (1,012)
--------- ------- ------- ------- -------- ---------
Income (loss) before income
taxes and cumulative effect
of an accounting change...... 10,994 4,856 5,602 3,532 (8,582) 16,402
Provision for income taxes..... 2,152 1,964 1,938 1,173 -- 7,227
--------- ------- ------- ------- -------- ---------
Income (loss) before cumulative
effect of an accounting
change....................... 8,842 2,892 3,664 2,359 (8,582) 9,175
Cumulative effect of an
accounting change, net of
taxes........................ 1,016 -- -- -- -- 1,016
--------- ------- ------- ------- -------- ---------
Net income (loss).............. $ 7,826 $ 2,892 $ 3,664 $ 2,359 $ (8,582) $ 8,159
========= ======= ======= ======= ======== =========
Depreciation and
Amortization................. $ 22,977 $ 2,239 $ 1,352 $ 304 $ 26,872
========= ======= ======= ======= =========
Unusual items-
Provisions for bad debts....... $ 2,347 $ 373 $ 256 $ 62 $ 3,038
========= ======= ======= ======= =========
Identifiable assets at March
31, 1998..................... $ 307,631 $17,785(1) $38,556 $14,493 $ 378,465
========= ======= ======= ======= =========
</TABLE>
- ---------------
(1) Includes external revenues and assets from non-US locations of $5,630 and
$7,553, respectively.
<TABLE>
<CAPTION>
UNITED STATES
OTHER THAN CONSOLIDATED OTHER ADJUSTMENT &
1997 AIRONET AIRONET EUROPE INT'L ELIMINATION CONSOLIDATED
- ---- ------------- ------------ ------- ------- ------------ ------------
(RESTATED)
<S> <C> <C> <C> <C> <C> <C>
Revenues from unaffiliated
customers.................... $ 350,126 $14,995(1) $65,292 $30,984 $ -- $ 461,397
Revenues from intercompany
sales........................ 54,779 59,345 463 1 (114,588) --
--------- ------- ------- ------- --------- ---------
Total revenues................. $ 404,905 $74,340 $65,755 $30,985 $(114,588) $ 461,397
========= ======= ======= ======= ========= =========
Income (loss) from
operations................... $ (34,746) $ 3,058 $ 1,293 $20,352 $ (25,641) $ (35,684)
Interest (expense)............. (7,961) (231) (54) (9) 199 (8,056)
Interest income................ 1,151 101 157 80 -- 1,489
Other non-operating (expense)
income....................... 34,726(2) -- -- -- -- 34,726
--------- ------- ------- ------- --------- ---------
Income (loss) before income
taxes........................ (6,830) 2,928 1,396 20,423 (25,442) (7,525)
Provision for (benefit from)
income taxes................. (3,940) 2,040 737 2,738 (849) 726
--------- ------- ------- ------- --------- ---------
Net income (loss).............. $ (2,890) $ 888 $ 659 $17,685 $ (24,593) $ (8,251)
========= ======= ======= ======= ========= =========
</TABLE>
80
<PAGE> 82
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
UNITED STATES
OTHER THAN CONSOLIDATED OTHER ADJUSTMENT &
1997 AIRONET AIRONET EUROPE INT'L ELIMINATION CONSOLIDATED
- ---- ------------- ------------ ------- ------- ------------ ------------
(RESTATED)
<S> <C> <C> <C> <C> <C> <C>
Depreciation and
Amortization................. $ 25,609 $ 1,980 $ 1,527 $ 386 $ 29,502
========= ======= ======= ======= =========
Identifiable assets at March
31, 1997..................... $ 297,618 $ 345(3) $32,578 $27,157 $ 357,698
========= ======= ======= ======= =========
</TABLE>
- ---------------
(1) Includes revenues from non-US locations of $14,479.
(2) Includes $32,653 gain on the sale of assets of a subsidiary.
(3) Non-US identifiable assets are not significant.
NOTE 16 -- DIVESTITURES
Effective March 31, 1998, the Company sold the stock of its Virtual Vision
subsidiary to a third party in exchange for $500 in cash and 750,000 shares of
the acquirer's Series F Preferred Stock valued at $6.00 per share or $4,500. As
all of the conditions of the sale were not satisfied as of March 31, 1998, the
related gain of $900 was deferred. During fiscal 1999, all conditions of the
sale were satisfied, and the $900 gain was recognized as non-operating income in
the accompanying consolidated statement of operations.
Effective April 1, 1996, the Company sold the assets of certain retail
application software operations, with net assets of approximately $5,000, to a
third party, in exchange for $150 in cash and $7,000 in secured promissory
notes, including interest. In addition to the proceeds from the sale, the
Company also entered into a software license agreement with the third party
purchaser. The agreement provided for the Company to receive over the next five
years (1996-2001) license fees amounting to 20% of the revenue generated by the
purchased software, with minimum required payments aggregating $6,600. Due to
the third party's poor historical financial performance, inability to repay
amounts owed to the Company and lack of evidence indicating their ability to
make such payments in the future, the Company fully impaired the secured
promissory notes during fiscal 1998. Additionally, during fiscal 1997 and 1998
the Company only recognized software license revenue under the aforementioned
agreement to the extent that the transaction was settled in cash and continued
to recognize amortization on the software sold. Refer to Note 3 -- Restatement
for additional details on the adjustments made to the accompanying consolidated
financial statements related to this transaction.
Effective December 31, 1996, the Company sold substantially all of the
assets of its Itronix Corporation subsidiary, with a net book value of $30,848,
as well as all of the subsidiary's associated business, in exchange for $65,524
in cash, plus the buyer's assumption of certain specified liabilities of the
transferred business totaling $8,229. The transaction resulted in a $32,653
gain, net of transaction costs of $10,252, which has been recorded as other
non-operating income in the accompanying fiscal 1997 consolidated statement of
operations. The buyer was entitled to customary indemnification from the Company
with respect to retained liabilities and taxes for a limited period which has
since expired. Under the terms of the sale, the Company is precluded from
competing with the buyer in the manufacture and sale of ruggedized notebook
computers for a period of five years after the date of sale, other than the
Company's resale of products obtained from the buyer under a mutual reseller
agreement.
NOTE 17 -- SUBSIDIARY STOCK TRANSACTIONS
During 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. Proceeds from
this sale of stock were $778. The resulting pre-tax net gain of $340 was
recorded as a gain on sale of subsidiary stock 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
81
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TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 -- SUBSIDIARY STOCK TRANSACTIONS (CONTINUED)
common stock were issued. A gain of $47 relating to these warrants has been
deferred until the warrants are exercised or lapse. Prior to Aironet's fiscal
1999 stock sales, the Company's interest in the voting common stock of Aironet
was 78%. Subsequent to these sales and as of March 31, 1999, the Company's
interest in the voting common stock of Aironet was 76%.
During fiscal 1999, the Company repurchased 400,000 shares of the voting
common stock of Metanetics from a third party, at a price of $4.88 per share.
Prior to the repurchase of these shares, the Company's interest in the voting
common stock of Metanetics was 52%. Subsequent to the repurchase and as of March
31, 1999, the Company's interest in the voting common stock of Metanetics was
60%. Refer to Note 6 -- Intangible and Other Assets for additional details.
During fiscal 1998, options to purchase 270,000 shares of Aironet voting
common stock at $1.86 per share were exercised. The pre-tax gain of $241 was
recorded as a gain on sale of subsidiary stock in the accompanying consolidated
statement of operations. Prior to the option exercises, the Company's interest
in the voting common stock of Aironet was 90%. The Company's remaining interest
subsequent to these purchases was 87%.
During fiscal 1998, Aironet sold 984,126 shares of its voting common stock
to various third party investors at a price of $3.50 per share. Proceeds from
the sale of stock totaled $3,444. The resulting pre-tax gain of $402, net of
related transaction costs, was recorded as a gain on sale of subsidiary stock in
the accompanying consolidated statement of operations. Prior to Aironet's fiscal
1998 stock sales, the Company's interest in the voting common stock of Aironet
was 87%. Subsequent to these sales and as of March 31, 1998, the Company's
remaining interest in the voting common stock of Aironet was 78%. In addition to
the sale of the shares of stock, 395,237 warrants for the purchase of Aironet
voting common stock were issued. A gain of $251 relating to these warrants has
been deferred until the warrants are exercised or lapse. As of March 31, 1999,
the following warrants for the purchase of Aironet common stock at an exercise
price of $3.50 per share were outstanding: 395,237 March 1998 warrants, 17,143
April 1998 warrants, 42,857 May 1998 warrants and 6,667 December 1998 warrants.
During fiscal 1998, the Company repurchased 100,000 shares of the voting
common stock of Metanetics from former employees, at a price of $1.04 per share.
Prior to the repurchase of these shares, the Company's interest in the voting
common stock of Metanetics was 50%. Subsequent to the repurchase and as of March
31, 1998, the Company's interest in the voting common stock of Metanetics was
52%.
During fiscal 1997, the Company sold 808,500 shares of Aironet voting
common stock to a corporation owned by Mr. Meyerson at a price of $1.86 per
share in exchange for a promissory note, secured by the purchased stock, in the
amount of $1,504. This transaction resulted in the establishment of a minority
interest of $669 which has been included in Minority Interest at March 31, 1997.
The Company's interest in the voting common stock of Aironet, which had been
100%, was reduced to 90% at March 31, 1997, as a result of this transaction. The
sale of Aironet common stock has been excluded from the accompanying fiscal 1997
consolidated statement of cash flows as a non-cash transaction. At March 31,
1997, the Company deferred recognition of any gain as the criteria for the
recognition of gain on the sale of subsidiary stock had not been met. During
fiscal 1998, the criteria for the recognition of the gain were fulfilled, and
accordingly, the $994 of deferred gain was recorded as a gain on sale of
subsidiary stock in the accompanying consolidated statement of operations.
During fiscal 1997, Metanetics repurchased 432,558 shares of the voting
common stock of Metanetics from a former employee at a price of $1.04 per share.
Prior to the repurchase of these shares, the Company's interest in the voting
common stock of Metanetics was 49%. After this repurchase, the Company's
interest in the voting common stock of Metanetics was 54%. Metanetics
subsequently re-sold the repurchased shares during fiscal 1997 to a corporation
owned by Mr. Meyerson and his wife at the same $1.04 per share price. Subsequent
to the
82
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TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 -- SUBSIDIARY STOCK TRANSACTIONS (CONTINUED)
sale of stock to the corporation owned by Mr. Meyerson and his wife, the
Company's interest in the voting common stock of Metanetics was 49%.
Later during fiscal 1997, the Company repurchased 60,000 shares of the
voting common stock of Metanetics from a former employee. Prior to the
repurchase of these shares, the Company's interest in the voting common stock of
Metanetics was 49%. Subsequent to this repurchase and as of March 31, 1997, the
Company's remaining percentage interest in the voting common stock of Metanetics
was 50%.
NOTE 18 -- TREASURY STOCK TRANSACTIONS
During fiscal 1999, the Company repurchased 63,300 shares of its common
stock, at a weighted average price of $17.19 per share, pursuant to its open
market repurchase program. The Company also re-issued 52,999 shares of its
treasury stock during the year at a weighted average price of $19.34 per share
to satisfy purchases made by employees through its 1995 Stock Purchase Plan and
94,234 shares at a weighted average price of $21.82 per share to satisfy stock
options exercised under the Company's stock options plans. The 78,484 shares of
treasury stock remaining at March 31, 1999, have been accounted for at cost plus
brokerage fees under the caption of treasury stock in the accompanying
consolidated financial statements. The re-issuances of treasury stock in
satisfaction of purchases made through the 1995 Stock Purchase Plan and
exercises of stock options under the Company's stock option plans have been
excluded from the accompanying consolidated statement of cash flows as non-cash
transactions.
During fiscal 1998, the Company repurchased 294,200 shares of its common
stock, at a weighted average price of $17.23 per share, pursuant to its open
market repurchase programs. The Company also re-issued 57,112 shares of its
treasury stock during the year at a weighted average price of $15.91 per share
to satisfy purchases made by employees through the 1995 Stock Purchase Plan and
632,111 shares at a weighted average price of $16.00 per share to satisfy stock
options exercised under the Company's stock options plans. The 162,417 shares of
treasury stock remaining at March 31, 1998, have been accounted for at cost plus
brokerage fees under the caption of treasury stock in the accompanying
consolidated financial statements. The re-issuances of treasury stock in
satisfaction of purchases made through the 1995 Stock Purchase Plan and
exercises of stock options under the Company's stock option plans have been
excluded from the accompanying consolidated statement of cash flows as non-cash
transactions.
NOTE 19 -- COMMITMENTS AND CONTINGENCIES
On September 21, 1993, a derivative Complaint was filed in the Court of
Chancery of the State of Delaware, in and for Newcastle County, by an alleged
stockholder of the Company derivatively on behalf of Telxon. The named
defendants are the Company; Robert F. Meyerson, former Chairman of the Board,
Chief Executive Officer and director; Dan R. Wipff, then President, Chief
Operating Officer and Chief Financial Officer and director; Robert A. Goodman,
Corporate Secretary and outside director; Norton W. Rose, outside director; and
Dr. Raj Reddy, outside director. The Complaint alleges breach of fiduciary duty
to the Company and waste of the Company's assets in connection with certain
transactions entered into by Telxon and compensation amounts paid by the
Company. The Complaint seeks an accounting, injunction, rescission, 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.
83
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TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
On October 31, 1996, plaintiff's counsel filed a Motion to Intervene in the
derivative action on behalf of a new plaintiff stockholder. As part of the
Motion to Intervene, the intervening plaintiff asked that the Court designate as
operative for the action the intervening plaintiff's proposed Complaint, which
alleges that a series of transactions in which the Company acquired 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, and no
deadline for the completion of the discovery or trial date has yet been set by
the Court.
The defendants believe that the post-intervention claims lack merit, and
they intend to continue vigorously defending this action. While the ultimate
outcome of this action cannot presently be determined, the Company does not
anticipate that this matter will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows and
accordingly has not made provisions for any loss or related insurance recovery
in its financial statements.
On February 17, 1998, a complaint was filed against the Company in the
District Court of Harris County, Texas, by Southwest Business Properties, the
landlord of the Company's former Wynnwood Lane facility in Houston, Texas. The
complaint alleges counts for breach of contract and temporary and permanent
injunctive relief, all related to alleged environmental contamination at the
Wynnwood property, and seeks specific performance, unspecified monetary damages
for all injuries suffered by plaintiff, payment of pre-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 8, 1999 has been reset to commence on a day
during the Court's two week docket beginning October 25, 1999, with the specific
trial date to be set by the Court at that time.
While the litigation with the landlord remains pending, Telxon and the
landlord have agreed to file, and on July 7, 1999 filed, 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 proposed plan projects completion of remediation
and issuance of a closure certificate in 2002. Telxon has not to date been
advised of any action by the Commission with respect to the proposed plan, which
could require modifications thereto as a condition of approval. Until such time
as the plan is accepted and completed, its actual cost to Telxon cannot be
quantified; however, the Company does not believe that remediation in accordance
with the plan as proposed would have a material adverse effect on its results of
operations for any quarter in which any associated charges would be taken. If
the plan is not accepted substantially as proposed, or closure is not certified
when contemplated by the proposed 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. Telxon believes that these claims
lack merit, and it intends to vigorously defend this action.
On May 8, 1998, two class action suits were filed in the Court of Chancery
of the State of Delaware, in and for the County of New Castle, by certain
alleged stockholders of Telxon on behalf of themselves and purported classes
consisting of Telxon stockholders, other than defendants and their affiliates,
relating to an alleged offer by Symbol Technologies, Inc. ("Symbol") to acquire
the Company. The named defendants are Telxon and its
84
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TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
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, but the
Court has not yet ruled on those motions. 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. The defendants believe that
these claims lack merit, and they intend to vigorously defend these actions.
Defendants anticipate filing a Motion to Dismiss.
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. In cooperation with the informal
inquiry, the Company has voluntarily provided certain responsive information to
the Staff. On January 20, 1999, the Commission issued a formal Order Directing
Private Investigation And Designating Officers To Take Testimony with respect to
the referenced trading and specified accounting matters, pursuant to which
subpoenas duces tecum have been served on the Company requiring the production
of specified documents. Similar subpoenas have been issued to one of the
Company's directors, certain current Company officers and, to the belief of the
Company, former Company officers and certain unaffiliated companies and their
officers. The Company has delivered documents to, and intends to continue
cooperating fully with, the Staff. The referenced director and current officers
have also produced documents, and the director has given oral testimony, to the
Staff. Telxon believes that the unaffiliated parties have also responded to the
Staff.
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. However, the Foundation has not to date asserted
any
85
<PAGE> 87
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
claim directly against the Company. The Company believes that the patents so
being asserted against 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 announced their joint filing of 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.
NOTE 20 -- CHANGE IN ACCOUNTING PRINCIPLE
On November 20, 1997, the FASB's Emerging Issues Task Force issued a new
consensus ruling, "Accounting for Costs Incurred in Connection with a Consulting
Contract or an Internal Project That Combines Business Process Reengineering and
Information Technology Transformation" ("EITF 97-13"). EITF 97-13 requires
business process reengineering costs associated with information systems
development to be expensed as incurred. The Company has been involved in a
corporate-wide information systems implementation project that is affected by
this pronouncement. In accordance with this ruling, during fiscal 1998, the
Company recorded a one-time, after-tax, non-cash charge of $1,016 to expense
previously capitalized costs associated with this project. Such costs had
primarily been incurred during the second quarter of fiscal 1998.
NOTE 21 -- NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In fiscal 1998, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting comprehensive income, which has been defined
as the change in equity of an entity during a period from transactions and other
events and circumstances from non-owner sources, in the basic financial
statements. The Company adopted the provisions of SFAS No. 130 for the fiscal
year ended March 31, 1999, beginning with the quarter ended June 30, 1998, and
restated prior period financial statements included for comparative purposes to
reflect the application of SFAS No. 130. As the adoption of this pronouncement
only modifies disclosures, there is no effect on the Company's consolidated
financial position, results of operations or cash flows.
During fiscal 1998, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 revises the manner in which an
entity determines the operating segments it must report as well as requires the
disclosure of additional segment information. The Company adopted the provisions
of SFAS No. 131 for the fiscal year ended March 31, 1999, and has restated prior
period disclosures included for comparative purposes to reflect the application
of SFAS No. 131. As the adoption of this pronouncement only modifies
disclosures, there is no effect on the Company's consolidated financial
position, results of operations or cash flows.
In fiscal 1998, the AICPA issued Statement of Position 97-2, "Software
Revenue Recognition" ("SOP 97-2"). SOP 97-2 provides guidance on the recognition
of revenue for the licensing, selling, leasing and marketing of computer
software to customers. The Company adopted the provisions of SOP 97-2 for the
fiscal year ended March 31, 1999. The adoption of this pronouncement did not
have a material effect on the Company's consolidated financial position, results
of operations or cash flows.
86
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TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21 -- NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In fiscal 1998, the AICPA issued Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 requires the capitalization of certain costs incurred in the
development of software used by a company for its own internal operations. The
Company adopted the provisions of SOP 98-1 for the fiscal year ended March 31,
1999. The adoption of this pronouncement did not have a material effect on the
Company's consolidated financial position, results of operations or cash flows.
During fiscal 1999, the AICPA issued Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. The
Company adopted the provisions of SOP 98-5 for the fiscal year ended March 31,
1999. The adoption of this pronouncement did not have a material effect on the
Company's consolidated financial position, results of operations or cash flows.
During fiscal 1999, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 provides accounting and reporting
standards for derivative instruments. This standard will require the Company to
recognize all derivatives as either assets or liabilities in the statement of
financial position and to measure those instruments at fair value. The Company
is required to adopt the provisions of SFAS No. 133 during the first quarter of
fiscal 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.
NOTE 22 -- SUBSEQUENT EVENTS
On June 23, 1999, the Company and a third party contract manufacturer
entered into a promissory note replacing and settling accrued liabilities
related to purchases of discontinued products. The promissory note principal
amount was $10,208, is payable in equal installments over a twelve month period,
and does not bear interest. The Company has discounted the liability to a
principal amount of $9,370 at its estimated incremental borrowing rate of
10.375% and recorded such adjustment in the fiscal 1999 consolidated financial
statements.
On June 29, 1999, the Company also obtained an additional waiver through
August 30, 1999, for covenant violations under its revolving credit facility. On
June 29, 1999, the Company also obtained an additional waiver through August 30,
1999, for covenant violations under its revolving business purpose promissory
note which continued the term of the previous waiver and increased the interest
rate on the note to the bank's "Prime Commercial Lending Rate" plus 4%.
Subsequent to March 31, 1999, the Company's Aironet Wireless
Communications, Inc. ("Aironet") subsidiary sold 6,000,000 shares of its 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 4,000,000 shares and
the Company sold 2,000,000 shares. The aggregate proceeds, net of underwriting
discounts and commissions, was $40,920 to Aironet and $20,460 to Telxon.
Subsequent to this transaction the Company's remaining interest in Aironet was
39%. As a result of this transaction and the dilution of its voting interest and
control of Aironet, it is anticipated that the Company will no longer
consolidate the results of Aironet.
Subsequent to March 31, 1999, the Company received a commitment letter from
a financial institution to provide a $100,000 senior secured credit facility to
the Company as a replacement for the Company's existing revolving credit
agreement and business purpose revolving promissory note. Such commitment letter
is subject to conditions precedent and subsequent to closing. Borrowings under
the revolving loan provisions of such facility would be subject to availability
based on qualifying accounts receivable and inventory, reduced by amounts
borrowed under the facility's term loan features and amounts outstanding under
letters of credit. Availability under the agreement is estimated at $71,000 as
of August 1, 1999. The facility has three term loan features. The
87
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TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22 -- SUBSEQUENT EVENTS (CONTINUED)
first term loan has a limit of $6,000, but is limited to a portion of the
liquidation value of the Company's machinery and equipment. The repayment terms
for this term loan would be straight-line over a 10-year period. The second term
loan would have a limit of $10,000 and would be limited, together with the
$20,000 term loan discussed below, by specified percentages of the market value
of Aironet capital stock owned by the Company. The repayment of this term loan
would be straight-line over a 3-year period. The third term loan of $20,000 is
limited by a specified percentage of the market value of Aironet capital stock
owned by the Company. The repayment term of this loan is the earlier of 120 days
from closing or upon any sale of additional capital stock of Aironet by the
Company. The interest rate to be charged on the revolving loan, the $6,000 term
loan and the $20,000 term loan are 2.75% above the Eurodollar rate or 0.5% above
the financial institution's prime lending rate. Interest is payable monthly. The
interest rate charged will be subject to change based upon the Company's
financial results. The interest rate on the $10,000 term loan will be fixed at
12.5%. The facility also calls for the payment of an unused line fee of 0.375%
per annum on a monthly basis. The facility will be collateralized by
substantially all of the Company's assets. Restrictive covenants with respect to
this facility have not yet been determined.
NOTE 23 -- QUARTERLY DATA (UNAUDITED)
On February 23, 1999, the Company announced that, having completed the
review of certain judgmental accounting matters with the Company's outside
auditors, it would restate its previously issued audited financial statements
for fiscal years 1998, 1997 and 1996 and its unaudited interim consolidated
financial statements for the first, second and third quarters of fiscal years
1999, 1998 and 1997. Additionally, the Company announced on June 16, 1999 that
it would further restate its unaudited results for the second quarter of fiscal
1999. The more significant restatement adjustments affecting these periods are
described below. Refer to Note 3 -- Restatement for additional details on the
Company's restatement of its consolidated financial statements.
<TABLE>
<CAPTION>
QUARTER
---------------------------------------------------
1999 FIRST SECOND THIRD FOURTH(a) YEAR(b)
- ---- ---------- ---------- ---------- --------- ---------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Revenues............................ $111,162 $103,641 $ 96,408 $ 77,083 $ 388,294
Gross profit........................ 43,863 37,389 24,915 (14,216) 91,951
Net loss............................ $ (100) $ (6,314) $(45,856) $(84,712) $(136,982)
======== ======== ======== ======== =========
Net loss per share:
Basic............................. $ (.01) $ (.39) $ (2.86) $ (5.27) $ (8.50)
======== ======== ======== ======== =========
Diluted........................... $ (.01) $ (.39) $ (2.86) $ (5.27) $ (8.50)
======== ======== ======== ======== =========
</TABLE>
- ---------------
(a) During the fourth quarter of fiscal 1999, the Company recorded charges of
$23,626 related to the discontinuance of certain of its products and $7,278
for excess and obsolete inventories. The fourth quarter results of
operations also include severance charges of $3,534, bad debt provisions of
$3,695, non-cash compensation related to stock options in its Aironet
subsidiary of $3,409 and charges related to the carrying value of
investments of $2,094.
(b) The net loss per share for the quarters does not equal net income per share
for the year due to differentials in the impact of quarterly and annual
weighted new stock issuances on the weighted average number of shares
outstanding for each respective period.
88
<PAGE> 90
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23 -- QUARTERLY DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
1999 (AS PREVIOUSLY REPORTED) FIRST SECOND THIRD FOURTH YEAR
- ----------------------------- -------- -------- -------- ------ ----
<S> <C> <C> <C> <C> <C>
Revenues................................... $115,047 $124,369 $ 96,409 N/A N/A
Gross profit............................... 44,911 48,456 24,916 N/A N/A
Net income (loss).......................... $ 246 $ 2,498 $(45,853) N/A N/A
======== ======== ========
Net income (loss) per share:
Basic.................................... $ .02 $ .16 $ (2.86) N/A N/A
======== ======== ========
Diluted.................................. $ .01 $ .15 $ (2.86) N/A N/A
======== ======== ========
</TABLE>
During the three months ended June 30, 1998, the Company increased its
product sales returns reserves 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 distribution channel. The Company also capitalized $1,950
previously expensed during the three months ended June 30, 1998, related to the
repurchase of the 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 fully been satisfied. Such product revenue and related cost
of product revenue will be recognized upon sell-through to the end-user
customer. Product revenues of $6,984 and corresponding cost of product 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 revenue 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 as of the date of these
financial statements. 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 the foreign distributor referenced above. The
Company recorded an adjustment to reduce its 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.
89
<PAGE> 91
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23 -- QUARTERLY DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
QUARTER
---------------------------------------------
1998 (RESTATED) FIRST SECOND THIRD FOURTH(a) YEAR(b)
- --------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................ $104,222 $110,129 $117,416 $131,389 $463,156
Gross profit........................ 40,999 43,272 48,101 54,098 186,470
Income before cumulative effect of
an accounting change.............. 126 2,138 2,486 4,425 9,175
Net income.......................... $ 126 $ 2,138 $ 1,246 $ 4,649 $ 8,159
======== ======== ======== ======== ========
Income per share before cumulative
effect of an accounting change:
Basic............................. $ .01 $ .14 $ .16 $ .28 $ .58
======== ======== ======== ======== ========
Diluted........................... $ .01 $ .13 $ .15 $ .27 $ .56
======== ======== ======== ======== ========
Net income per share:
Basic............................. $ .01 $ .14 $ .08 $ .30 $ .52
======== ======== ======== ======== ========
Diluted........................... $ .01 $ .13 $ .08 $ .29 $ .50
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) During the fourth quarter of fiscal 1998, the Company recorded a true-up of
capitalized software costs, net of amortization of $1,722. After the
related income tax impact, the aggregate impact on fourth quarter earnings
was $1,119 or $.05 per share (diluted). The impact of such adjustment on
the reported earnings during the first three quarters of fiscal 1998 was
not material. In addition, during the fourth quarter the Company recorded a
$1,637 gain on the sale of voting common stock of its Aironet subsidiary.
(b) The net income per share for the quarters does not equal net income per
share for the year due to differentials in the impact of quarterly and
annual weighted new stock issuances on the weighted average number of
shares outstanding for each respective period.
<TABLE>
<CAPTION>
QUARTER
---------------------------------------------
1998 (AS PREVIOUSLY REPORTED) FIRST SECOND THIRD FOURTH(a) YEAR(b)
- ----------------------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................ $104,913 $110,320 $117,307 $133,330 $465,870
Gross profit........................ 41,226 43,708 48,576 55,206 188,716
Income before cumulative effect of
an accounting change.............. 1,594 2,388 4,357 8,108 16,447
Net Income.......................... $ 1,594 $ 2,388 $ 3,117 $ 8,108 $ 15,207
======== ======== ======== ======== ========
Income per share before cumulative
effect of an accounting change:
Basic............................. $ .10 $ .15 $ .28 $ .52 $ 1.04
Diluted........................... $ .10 $ .15 $ .27 $ .50 $ 1.01
Net income per share:
Basic............................. $ .10 $ .15 $ .20 $ .52 $ .96
Diluted........................... $ .10 $ .15 $ .19 $ .50 $ .93
</TABLE>
- ---------------
(a) Fourth quarter adjustments were not material to the quarterly results of
operations.
(b) The net income per share for the quarters does not equal net income per
share for the year due to differentials in the impact of quarterly and
annual weighted new stock issuances on the weighted average number of
shares outstanding for each respective period.
90
<PAGE> 92
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23 -- QUARTERLY DATA (UNAUDITED) (CONTINUED)
The statement of operations for the three months ended June 30, 1997 has
been restated to reflect additional provisions of $2,010 for the past due
accounts receivable owed by the foreign distributor referenced above. The
Company's operating results for the three months ended June 30, 1997 were
reduced by $273 due to the net reversal of certain software license revenues,
amortization of the underlying assets divested, accrued software royalties
related to a previously divested software operation, and to defer recognition of
such items until those transactions are settled in cash. Previously accrued
professional fees were reduced by $178 during the three months ended June 30,
1997 to better reflect the Company's obligations as of the period's end. During
the three months ended June 30, 1997, the Company also reduced its inventory
reserves by $140 to better approximate the exposure related to on-hand
inventories. An adjustment to increase the provisions related to certain of the
Company's leased facilities by $110 was recorded during the three months ended
June 30, 1997. Additionally, severance charges of $90 related to the accrual of
costs for the Company's international operations for the three months ended June
30, 1997, have been expensed.
The Company's operating results for the three months ended September 30,
1997, were reduced by $418 due to the net reversal of software license revenues,
amortization of the underlying assets divested, accrued software royalties
related to a previously divested software operation, and to defer recognition of
such items until those transactions are settled in cash. Additionally, severance
charges of $210 related to the accrual of costs for the Company's international
operations for the three months ended September 30, 1997, have been expensed.
The statement of operations for the three months ended September 30, 1997, were
also restated to recognize, on a straight-line basis over the term of the lease,
$359 in revenue and $199 in cost of sales related to a product sale that had
been deferred in the fourth quarter of fiscal 1997.
The statement of operations for the three months ended December 31, 1997,
has been restated to reflect additional provisions of $650 for the past due
accounts receivable owed by the foreign distributor referenced above. The
Company's operating results for the three months ended December 31, 1997, were
reduced by $534 due to the net reversal of certain software license revenues,
amortization of the underlying assets divested, accrued software royalties
accrued related to a previously divested software operation, and to defer
recognition of such items until those transactions are settled in cash.
Additionally, severance charges of $320 related to the accrual of costs for the
Company's international operations for the three months ended December 31, 1997,
have been expensed. The statement of operations for the three months ended
December 31, 1997, were also restated to recognize, on a straight-line basis
over the term of the lease, $359 in product revenue and $199 in product cost of
sales related to a sale of the Company's product that had been deferred in the
fourth quarter of fiscal 1997. The settlement of certain contingencies related
to the divestiture of Itronix of $380 have been expensed during the three months
ended December 31, 1997. The results for the three months ended December 31,
1997 have also been adjusted to reflect a $1,434 asset impairment of a note
receivable due from the referenced foreign distributor.
The statement of operations for the three months ended March 31, 1998, were
restated to recognize, on a straight-line basis over the term of the lease, $359
in product revenue and $199 of product cost of sales related to a sale of the
Company's product that had been deferred in the fourth quarter of fiscal 1997.
The statement of operations has also been adjusted by $337 to reflect additional
bad debt provisions for the past due accounts receivable owed by the foreign
distributor referenced above. The Company's operating results for the three
months ended March 31, 1998, were reduced by $543 due to the net reversal of
certain software license revenues, amortization of the underlying assets
divested, software royalties accrued related to a previously divested software
operation, and to defer recognition of such items until those transactions are
settled in cash. The Company has also recorded impairment charges aggregating
$4,635 related to the uncollected notes receivable from the fiscal 1997
divestiture of certain retail software operations as well as an investment in
that entity. Adjustment was made to reverse charges taken in fiscal 1998
totaling $642 for bad debt write-offs related to divested software accounts
receivable (as these amounts have been adjusted in the restated fiscal 1997
results).
91
<PAGE> 93
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23 -- QUARTERLY DATA (UNAUDITED) (CONTINUED)
Adjustments have also been made to record charges of $730 related to the accrual
of costs for the streamlining of the Company's international operations. An
adjustment has been made to defer the gain of $900 related to the sale of the
stock of Virtual Vision as all of the conditions of the sale were not satisfied
prior to March 31, 1998. The Company also increased by $750 the amount of gain
recorded relating to the sale of its investment in a start-up wireless
technology entity related to amounts that were expensed in the restated fiscal
1997 results. Adjustments were recorded to increase inventory obsolescence
reserves by $1,105 and to reverse a sale of $1,900 where inventory was staged at
a Company location. As the sales and cost of sales on the staged transaction
were approximately the same, there was no gross profit impact as the result of
this adjustment.
<TABLE>
<CAPTION>
QUARTER
---------------------------------------------
1997 (RESTATED) FIRST SECOND THIRD FOURTH(a) YEAR(b)
- --------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................ $111,981 $108,258 $123,375 $117,783 $461,397
Gross profit........................ 35,494 34,301 33,848 47,644 151,287
Net (loss) income................... $ (5,564) $ (4,385) $ 3,295 $ (1,597) $ (8,251)
======== ======== ======== ======== ========
Net (loss) income per share:
Basic............................. $ (.35) $ (.27) $ .20 $ (.10) $ (.51)
======== ======== ======== ======== ========
Diluted........................... $ (.35) $ (.27) $ .20 $ (.10) $ (.51)
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) Fourth quarter adjustments were not material to the quarterly results of
operations.
(b) The net income (loss) per share for the quarters does not equal net loss per
share for the year due to differentials in the impact of quarterly and
annual weighted new stock issuances on the weighted average number of shares
outstanding for each respective period.
<TABLE>
<CAPTION>
QUARTER
---------------------------------------------
1997 (AS PREVIOUSLY REPORTED) FIRST SECOND THIRD FOURTH(a) YEAR
- ----------------------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................ $112,383 $108,314 $123,575 $121,740 $466,012
Gross profit........................ 35,510 34,335 33,963 48,332 152,140
Net (loss) income................... $ (4,797) $ (4,702) $ 2,135 $ 305 $ (7,059)
======== ======== ======== ======== ========
Net (loss) income per share
Basic............................. $ (.30) $ (.29) $ .13 $ .02 $ (.44)
======== ======== ======== ======== ========
Diluted........................... $ (.30) $ (.29) $ .13 $ .02 $ (.44)
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) Fourth quarter adjustments were not material to the quarterly results of
operations.
The Company's operating results for the three months ended June 30, 1996,
were reduced by $642 to reflect additional bad debt provisions related to
divested software accounts receivable. The Company's operating results for the
three months ended June 30, 1996, were also reduced by $733 due to the net
reversal of software license revenues, the amortization of the underlying assets
divested related to a previously divested software operation, and to defer
recognition until the transactions are settled in cash. In addition, items were
recorded to decrease inventory obsolescence reserves by $490, decrease reserves
for sales returns and allowances by $227, and accrue for customer disputes of
$522.
The Company's operating results for the three months ended September 30,
1996, were also reduced by $149 due to the net reversal of software license
revenues, amortization of the underlying assets divested, accrued software
royalties related to a previously divested software operation, and to defer
recognition until the transactions are settled in cash. In addition, items were
recorded during the three months ended September 30,
92
<PAGE> 94
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23 -- QUARTERLY DATA (UNAUDITED) (CONTINUED)
1996, to reverse an accrual for customer disputes of $522 and to decrease the
reserve for sales returns and allowances by $115.
The Company's operating results for the three months ended December 31,
1996, were also reduced by $114 due to the net reversal of software license
revenues, amortization of the underlying assets divested, accrued software
royalties related to a previously divested software operation, and to defer
recognition until the transactions are settled in cash. Adjustments have also
been made during the three months ended December 31, 1996, to reverse previously
recorded charges of $2,650 related to the streamlining of the Company's
international operations as the requirements for the accrual of severance costs
had not been met. Additionally, $750 of amounts previously capitalized as
product purchase advances have been expensed as research and development costs
during the three months ended December 31, 1996, as the subject product
purchases were not subsequently made.
Product revenue of $3,142 and related cost of product sales of $1,696
associated with a sale of the Company's product subject to a lease have been
deferred from the statement of operations for the three months ended March 31,
1997, and will be recognized over the term of the lease on a straight-line
basis. The statement of operations has also been adjusted by $700 to reflect
additional bad debt provisions for the past due accounts receivable owed by the
foreign distributor referenced above. The Company's operating results for the
three months ended March 31, 1997, were increased by $37 due to the net reversal
of software license revenues, amortization of the underlying assets divested and
software royalties accrued related to a previously divested software operation
to defer recognition until the transactions are settled in cash. Adjustments
have also been made to record charges of $1,300 related to the streamlining of
the Company's international operations as such charges were incurred. In
addition, adjustments were recorded to decrease inventory obsolescence reserves
by $721, increase the accrual for professional fees by $178 and increase the
general bad debt provision by $232.
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------
FOURTH(a) YEAR(b)
1996 FIRST SECOND THIRD (RESTATED) (RESTATED)
- ---- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues............................ $103,541 $107,016 $131,030 $142,540 $484,127
Gross profit........................ 43,127 45,516 52,491 54,367 195,501
Net income.......................... $ 2,229 $ 2,811 $ 4,205 $ 5,730 $ 14,975
======== ======== ======== ======== ========
Net (loss) income per share:
Basic............................. $ .14 $ .17 $ .27 $ .37 $ .94
======== ======== ======== ======== ========
Diluted........................... $ .14 $ .17 $ .26 $ .35 $ .91
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) During the fourth quarter of fiscal 1996, the Company recorded capitalized
software costs, net of amortization, aggregating $7,075. Offsetting the
software capitalization were other unusual non-recurring adjustments
aggregating $4,255. After the related income tax impact, the aggregate
impact on fourth quarter earnings was $1,749 or $.11 per share (diluted).
The impact of such quarterly adjustments on the reported earnings during the
first three quarters of fiscal 1996 was not material.
Also during the fourth quarter, the Company refined its estimates for
inventory valuation based on previously unavailable information. As a
result, the Company's inventory valuation reserves for both manufacturing
and customer service inventories were reduced by $2,863. After the related
income tax benefit, the impact on fourth quarter earnings was $1,775 or
$.11 per share (diluted).
(b) The net income per share for the quarters does not equal net loss per share
for the year due to differentials in the impact of quarterly and annual
weighted new stock issuances on the weighted average number of shares
outstanding for each respective period.
93
<PAGE> 95
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23 -- QUARTERLY DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
QUARTER
---------------------------------------------
1996 (AS PREVIOUSLY REPORTED) FIRST SECOND THIRD FOURTH(a) YEAR(b)
- ----------------------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................ $103,541 $107,016 $131,030 $144,882 $486,469
Gross profit........................ 43,127 45,516 52,491 57,199 198,333
Net income.......................... $ 2,229 $ 2,811 $ 4,205 $ 7,276 $ 16,521
======== ======== ======== ======== ========
Net (loss) income per share:
Basic............................. $ .14 $ .17 $ .27 $ .47 $ 1.04
======== ======== ======== ======== ========
Diluted........................... $ .14 $ .17 $ .26 $ .45 $ 1.00
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) During the fourth quarter of fiscal 1996, the Company recorded capitalized
software costs, net of amortization, aggregating $7,075. Offsetting the
software capitalization were other unusual non-recurring adjustments
aggregating $4,255. After the related income tax impact, the aggregate
impact on fourth quarter earnings was $1,749 or $.11 per share (diluted).
The impact of such quarterly adjustments on the reported earnings during the
first three quarters of fiscal 1996 was not material.
Also during the fourth quarter, the Company refined its estimates for
inventory valuation based on previously unavailable information. As a
result, the Company's inventory valuation reserves for both manufacturing
and customer service inventories were reduced by $2,863. After the related
income tax benefit, the impact on fourth quarter earnings was $1,775 or
$.11 per share (diluted).
(b) The net income per share for the quarters does not equal net loss per share
for the year due to differentials in the impact of quarterly and annual
weighted new stock issuances on the weighted average number of shares
outstanding for each respective period.
The consolidated statement of operations for the three months ended March
31, 1996, have been adjusted to eliminate the recording of $2,000 of product
revenue related to the sale of retail software licenses to a third party for a
secured promissory note. As there have been minimal collections on the note
beyond the initial payment, the associated revenue has been reversed until such
time as payment under such promissory note is reasonably assured. In addition,
adjustments were recorded to increase inventory obsolescence reserves by $490
and increase sales returns and allowance reserves by $342.
94
<PAGE> 96
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
On July 19, 1999, the Company engaged Arthur Andersen LLP to audit the
Company's consolidated financial statements for the fiscal year ending March 31,
2000, replacing PricewaterhouseCoopers LLP as the Company's principal accountant
to audit its consolidated financial statements. The change in accountants has
been previously reported by the Company in a Current Report on Form 8-K dated
the date of the new engagement, which disclosures are omitted from this Annual
Report on Form 10-K in reliance upon Instruction 1 to Item 304 of Regulation S-K
and to which prior disclosures reference should be made for further information
regarding the change in accountants. The dismissal of PricewaterhouseCoopers
became effective upon the issuance of their audit report on the Company's
consolidated financial statements for the fiscal year ended March 31, 1999
included in this Annual Report on Form 10-K.
PART III
To be provided by subsequent filing.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements: Reference is made to the Index
on page 42 of this Annual Report on Form 10-K.
(2) Financial Statement Schedule: Reference is made to the Index on
page 42 of this Annual Report on Form 10-K. All other schedules are omitted
because they are not applicable or the required information is shown in the
financial statements of the notes thereto.
(3) Exhibits required by Item 601 of Regulation S-K:
<TABLE>
<C> <S>
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 Second Amended and Restated By-Laws of Registrant, filed
herewith.
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.
</TABLE>
95
<PAGE> 97
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K (CONTINUED)
<TABLE>
<C> <S>
4.3 Rights Agreement between Registrant and KeyBank National
Association, as Rights Agent, dated as of August 25, 1987,
as amended and restated as of July 31, 1996, incorporated
herein by reference to Exhibit 4 to Registrant's Form 8-K
dated August 5, 1996.
4.3.1 Form of Rights Certificate (included as Exhibit A
to the Rights Agreement included as Exhibit 4.3 above).
Until the Distribution Date (as defined in the
Rights Agreement), the Rights Agreement provides
that the common stock purchase rights created
thereunder are evidenced by the certificates for
Registrant's Common Stock (the text of which and
description thereof is included as Exhibit 4.2
above, which stock certificates are deemed also to
be certificates for such common stock purchase
rights) and not by separate Rights Certificates;
as soon as practicable after the Distribution
Date, Rights Certificates will be mailed to each
holder of Registrant's Common Stock as of the
close of business on the Distribution Date.
4.3.2 Letter agreement among Registrant, KeyBank
National Association and Harris Trust and Savings
Bank, dated June 11, 1997, with respect to the
appointment of Harris Trust and Savings Bank as
successor Rights Agent under the Rights Agreement
included as Exhibit 4.3 above, incorporated herein
by reference to Exhibit 4.3.2 to Registrant's Form
10-K for the year ended March 31, 1997.
4.4 Indenture by and between Registrant and AmeriTrust Company
National Association, as Trustee, dated as of June 1, 1987,
regarding Registrant's 7 1/2% Convertible Subordinated
Debentures Due 2012, incorporated herein by reference to
Exhibit 4.2 to Registrant's Registration Statement on Form
S-3, Registration No. 33-14348, filed May 18, 1987.
4.4.1 Form of Registrant's 7 1/2% Convertible
Subordinated Debentures Due 2012 (set forth in
the Indenture included as Exhibit 4.4 above).
4.5 Indenture by and between Registrant and Bank One Trust
Company, N.A., as Trustee, dated as of December 1, 1995,
regarding Registrant's 5 3/4% Convertible Subordinated Notes
due 2003, incorporated herein by reference to Exhibit 4.1 to
Registrant's Registration Statement on Form S-3,
Registration No. 333-1189, filed February 23, 1996.
4.5.1 Form of Registrant's 5 3/4% Convertible
Subordinated Notes due 2003 issued under the Indenture
included as Exhibit 4.5 above, incorporated herein
by reference to Exhibit 4.2 to Registrant's
Registration Statement on Form S-3, Registration
No. 333-1189, filed February 23, 1996.
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, filed herewith.
10.1.2 1990 Stock Option Plan for employees of Registrant,
as amended, incorporated herein by reference to
Exhibit 10.1.2 to Registrant's Form 10-Q for the quarter
ended September 30, 1997.
10.1.3 1990 Stock Option Plan for Non-Employee Directors
of Registrant, as amended, incorporated herein by reference
to Exhibit 10.1.3 to Registrant's Form 10-Q for the
quarter ended September 30, 1998.
</TABLE>
96
<PAGE> 98
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K (CONTINUED)
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10.1.4 Non-Qualified Stock Option Agreement between
Registrant and Raj Reddy, dated as of October 17, 1988,
filed herewith.
10.1.4.a Description of amendments extending the term of
the Agreement included as Exhibit 10.1.4 above,
incorporated herein by reference to Exhibit 10.1.4.a
to Registrant's Form 10-Q for the quarter ended
September 30, 1998.
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., filed herewith.
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 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 Form of Employment Agreement between Registrant and
John W. Paxton, Sr., filed herewith.
10.1.11 Employment Agreement between Registrant and Kenneth
A. Cassady, effective as of June 7, 1999, filed herewith.
10.1.12 Employment Agreement between Registrant and Woody
M. McGee, effective as of June 1, 1999, filed herewith.
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.
</TABLE>
97
<PAGE> 99
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K (CONTINUED)
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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.
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.
10.2 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, filed
herewith.
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 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, filed herewith.
</TABLE>
98
<PAGE> 100
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K (CONTINUED)
<TABLE>
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10.2.3.i Renewal, dated June 16, 1999, with respect to the
Sublease Agreement included as Exhibit 10.2.3.h above,
filed herewith.
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, 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.
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, 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, filed
herewith.
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,
filed herewith.
</TABLE>
99
<PAGE> 101
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K (CONTINUED)
<TABLE>
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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, filed
herewith.
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 , 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, filed herewith.
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, filed
herewith.
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, filed
herewith.
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.
10.4 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., a subsidiary of Registrant,
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, 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.
</TABLE>
100
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K (CONTINUED)
<TABLE>
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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 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.
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.
</TABLE>
101
<PAGE> 103
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K (CONTINUED)
<TABLE>
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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 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.
21. Subsidiaries of Registrant, filed herewith.
23. Consent of PricewaterhouseCoopers LLP, filed herewith.
24. Power of Attorney executed by the members of Registrant's
Board of Directors, filed herewith.
27. Financial Data Schedule as of March 31, 1999, filed
herewith.
27.1 Restated Financial Data Schedule as of March 31, 1998, filed
herewith(1).
27.2 Restated Financial Data Schedule as of March 31, 1997, filed
herewith(1).
27.3 Restated Financial Data Schedule as of March 31, 1996, filed
herewith(1).
</TABLE>
- ---------------
(1) Included for convenience of reference with respect to the identified prior
period affected by the restatements of Registrant's financial statements
described in its press releases of December 11, 1998, February 23, 1999
and/or June 16, 1999, each as filed under cover of a Current Report on Form
8-K dated the respective dates of the press releases. The restated financial
results are reflected and discussed in the consolidated financial statements
included in Part II, Item 8 hereof and notes 2 and 23 thereto in lieu of
Registrant separately filing of amendments to its Form 10-K and 10-Q filings
for the affected periods as originally contemplated by the referenced press
releases.
(b) Reports on Form 8-K
During the last quarter of the period covered by this Annual Report on Form
10-K, Registrant filed the following Current Reports on Form 8-K: (1) Current
Report dated January 27, 1999, attaching Registrant's press release of that date
(the "January Release"), which announced that its financial results for the
third quarter, ended December 31, 1998, of its 1999 fiscal year, and the
restated results for the fiscal year 1999 second quarter, ended September 30,
1998, the need for which restatement was announced in Registrant's press release
of December 11, 1998 (the "December Release") filed under cover of a Current
Report on Form 8-K of that same date, had been rescheduled to mid-February
pending the completion of a review of certain judgmental accounting matters with
its outside auditors and also updated certain of the information contained in
the December Release concerning Registrant's expectations for the fiscal 1999
third and fourth quarters and the full year, stating that revenues were expected
to be under $100 million with less than targeted gross margins in the third
quarter and below prior year levels for the full year, and that a loss was
expected for the fourth quarter and the full year; (2) Current Report dated
February 23, 1999, attaching Registrant's press release of that date (the
"February Release"), which announced Registrant's financial results for the
third quarter of fiscal 1999, and the nine month period, ended December 31,
1998, and that, having completed the review of certain judgmental accounting
matters with Registrant's outside auditors previously reported in the January
Release, Registrant will be restating its audited financial statements for
fiscal years 1996, 1997 and 1998 and its unaudited interim financial statements
for the first and second quarters of fiscal 1999 (the press release, as
incorporated in the Form 8-K, includes comparative unaudited consolidated
statements of operations for Registrant for its fiscal years ended March 31,
1996, 1997 and 1998 and first and second quarters ended June 10 and September
30, 1998 [including, as to the September 30 quarter, the effects of the
restatement item announced in the December Release] as previously reported and
as restated, as well as consolidated statements of operations for the quarterly
and nine-month periods ended
102
<PAGE> 104
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K (CONTINUED)
December 31, 1998 and 1997 which give effect to those restatements); and (3)
Current Report dated March 1, 1999, attaching Registrant's press release of that
date (the "March Release"), which announced Registrant's consolidated balance
sheet for the third quarter of fiscal 1999 ended December 31, 1998, which was
not available at the time of the February Release due to the complexity of
deriving it from the restated consolidated statements of operations included as
attachments to the February Release (the press release, as incorporated in the
Form 8-K, includes an unaudited consolidated balance sheet for the Registrant
comparing its financial position at December 31, 1998 and, as restated to give
effect to the restated consolidated statements of operations attached to the
February Release, at the end of Registrant's prior fiscal year on March 31,
1998).
Subsequent to the end of the period covered by this Annual Report on Form
10-K, Registrant filed the following Current Reports on Form 8-K: (i) Current
Report dated April 1, 1999, attaching Registrant's press release of that date,
announcing the extension of waivers under Registrant's revolving credit facility
and separate business purpose revolving promissory note, effective through June
29, 1999, and certain related amendments to the underlying credit agreements,
including the broadening of the lenders' collateral, as well as an approximately
4% reduction in Registrant's workforce; (ii) Current Report dated May 14, 1999,
attaching the press release issued by Registrant's Aironet Wireless
Communications, Inc. subsidiary on that date regarding the filing of a
Registration Statement with the Securities and Exchange Commission for a
contemplated initial public offering of Aironet common stock; (iii) Current
Report dated June 16, 1999, attaching Registrant's press release of that date
(the "June Release"), announcing a delay in the release of its financial results
for the fourth quarter, ended March 31, 1999, of its 1999 fiscal year, that it
expects a significant loss for the quarter, including adjustments for the
"end-of-life" and discontinuation of certain products, a further restatement of
the previously released results for its second fiscal quarter ended September
30, 1998 based on a year-end review by Registrant's outside auditors of a
customer lease transaction and progress made by Registrant in the implementation
of its new strategic plan; (iv) Current Report dated 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 statements; (v)
Current Report dated 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 financial statements give effect to the restatements
previously discussed in the Registrant's February, March and June Releases
referenced above in this Item 14(b)); and (vi) Current Report dated July 19,
1999, 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.
103
<PAGE> 105
TELXON CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Valuation account for accounts receivable:
Year ended March 31, 1999: $ 4,749 $ 7,752 $ 1,432(a) $11,069
Year ended March 31, 1998(e): $ 2,528 $ 3,038 $ 817(a) $ 4,749
Year ended March 31, 1997(e): $ 1,731 $ 1,310 $ 513(a) $ 2,528
Valuation account for sales returns and
allowances:
Year ended March 31, 1999: $ 3,270 $54,000 $42,243(b) $15,027
Year ended March 31, 1998(e): $ 4,762 $13,310 $14,802(b) $ 3,270
Year ended March 31, 1997(e): $ 1,931 $24,404 $21,573(b) $ 4,762
Valuation account for inventory:
Year ended March 31, 1999: $11,709 $37,430 $20,293(c) $28,846
Year ended March 31, 1998(e): $15,262 $ 4,999 $ 8,552(c) $11,709
Year ended March 31, 1997(e): $10,553 $10,310 $ 5,601(c) $15,262
Valuation account for warranty costs:
Year ended March 31, 1999: $ 926 $ 3,067 $ 2,388(d) $ 1,605
Year ended March 31, 1998(e): $ 468 $ 1,772 $ 1,314(d) $ 926
Year ended March 31, 1997(e): $ -- $ 1,088 $ 620(d) $ 468
</TABLE>
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(a) Doubtful accounts charged off, net of recoveries
(b) Sales return credits issued
(c) Write off of excess and/or obsolete material
(d) Lapse of warranty coverage
(e) Restated
104
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELXON CORPORATION
Date: August 6, 1999 By: /s/ JOHN W. PAXTON
------------------------------------
John W. Paxton, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. This report may be
signed in multiple counterparts, all of which taken together shall constitute a
single document.
<TABLE>
<S> <C> <C>
/s/ JOHN W. PAXTON Chairman and Chief Executive August 6, 1999
- --------------------------------------------------- Officer (principal executive
John W. Paxton officer)
/s/ WOODY M. MCGEE Vice President and Chief Financial August 6, 1999
- --------------------------------------------------- Officer (principal financial
Woody M. McGee officer)
/s/ GARY L. GRAND Corporate Controller (principal August 6, 1999
- --------------------------------------------------- accounting officer)
Gary L. Grand
* DR. RAJ REDDY Director August 6, 1999
- ---------------------------------------------------
Dr. Raj Reddy
* JOHN H. CRIBB Vice Chairman of the Board and August 6, 1999
- --------------------------------------------------- Director
John H. Cribb
* ROBERT A. GOODMAN Director August 6, 1999
- ---------------------------------------------------
Robert A. Goodman
* NORTON W. ROSE Director August 6, 1999
- ---------------------------------------------------
Norton W. Rose
* RICHARD J. BOGOMOLNY Director August 6, 1999
- ---------------------------------------------------
Richard J. Bogomolny
* JONATHAN R. MACEY Director August 6, 1999
- ---------------------------------------------------
Jonathan R. Macey
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Annual Report on Form 10-K pursuant to the Power of Attorney filed with the
Securities and Exchange Commission as Exhibit 24 hereto on behalf of the
Directors named therein unless otherwise indicated by manual signature on this
Annual Report on Form 10-K.
105
<PAGE> 107
Date: August 6, 1999 By: /s/ WOODY M. MCGEE
----------------------------------
Woody M. McGee, Attorney-in-fact
106
<PAGE> 108
TELXON CORPORATION
EXHIBITS
TO
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
<PAGE> 109
INDEX TO EXHIBITS
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* 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 Second Amended and Restated By-Laws of Registrant, filed
herewith.
* 4.1 Portions of the Restated Certificate of Incorporation of
Registrant pertaining to the rights of holders of
Registrant's Common Stock, par value $.01 per share,
incorporated herein by reference to Exhibit No. 2(b) to
Registrant's Registration Statement on Form 8-A with respect
to its Common Stock filed pursuant to Section 12(g) of the
Securities Exchange Act, as amended by Amendment No. 1
thereto filed under cover of a Form 8 and Amendment No. 2
thereto filed on Form 8-A/A.
* 4.2 Text of form of Certificate for Registrant's Common Stock,
par value $.01 per share, and description of graphic and
image material appearing thereon, incorporated herein by
reference to Exhibit 4.2 to Registrant's Form 10-Q for the
quarter ended June 30, 1995.
* 4.3 Rights Agreement between Registrant and KeyBank National
Association, as Rights Agent, dated as of August 25, 1987,
as amended and restated as of July 31, 1996, incorporated
herein by reference to Exhibit 4 to Registrant's Form 8-K
dated August 5, 1996.
* 4.3.1 Form of Rights Certificate (included as Exhibit A to
the Rights Agreement included as Exhibit 4.3 above).
Until the Distribution Date (as defined in the Rights
Agreement), the Rights Agreement provides that the
common stock purchase rights created thereunder are
evidenced by the certificates for Registrant's Common
Stock (the text of which and description thereof is
included as Exhibit 4.2 above, which stock
certificates are deemed also to be certificates for
such common stock purchase rights) and not by
separate Rights Certificates; as soon as practicable
after the Distribution Date, Rights Certificates will
be mailed to each holder of Registrant's Common Stock
as of the close of business on the Distribution Date.
* 4.3.2 Letter agreement among Registrant, KeyBank National
Association and Harris Trust and Savings Bank, dated June
11, 1997, with respect to the appointment of Harris
Trust and Savings Bank as successor Rights Agent
under the Rights Agreement included as Exhibit 4.3
above, incorporated herein by reference to Exhibit
4.3.2 to Registrant's Form 10-K for the year ended
March 31, 1997.
* 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, 4
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.
</TABLE>
<PAGE> 110
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* 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, filed
herewith.
* 10.1.2 1990 Stock Option Plan for employees of Registrant,
as amended, incorporated herein by reference to Exhibit
10.1.2 to Registrant's Form 10-Q for the quarter
ended September 30, 1997.
* 10.1.3 1990 Stock Option Plan for Non-Employee Directors of
Registrant, as amended, incorporated herein by reference
to Exhibit 10.1.3 to Registrant's Form 10-Q for the
quarter ended September 30, 1998.
** 10.1.4 Non-Qualified Stock Option Agreement between
Registrant and Raj Reddy, dated as of October 17, 1988,
filed herewith.
* 10.1.4.a Description of amendments extending the term of
the Agreement included as Exhibit 10.1.4 above,
incorporated herein by reference to Exhibit 10.1.4.a
to Registrant's Form 10-Q for the quarter ended
September 30, 1998.
* 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., filed herewith.
** 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 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 Form of Employment Agreement between Registrant and
John W. Paxton, Sr., filed herewith.
** 10.1.11 Employment Agreement between Registrant and Kenneth
A. Cassady, effective as of June 7, 1999, filed
herewith.
</TABLE>
<PAGE> 111
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** 10.1.12 Employment Agreement between Registrant and Woody
M. McGee, effective as of June 1, 1999, filed herewith.
* 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.
* 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.
10.2 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, filed
herewith.
* 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.
</TABLE>
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* 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 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, filed herewith.
** 10.2.3.i Renewal, dated June 16, 1999, with respect to the
Sublease Agreement included as Exhibit 10.2.3.h above,
filed herewith.
* 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, incorporated herein by reference to Exhibit
10.3.2 to Registrant's Form 10-K for the year ended
March 31, 1996.
</TABLE>
<PAGE> 113
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* 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.
* 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, 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, filed
herewith.
** 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,
filed herewith.
** 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, filed
herewith.
* 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.
</TABLE>
<PAGE> 114
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* 10.3.2 Business Purpose Revolving Promissory Note (Swing
Line) made by Registrant in favor of Bank One, NA ,
dated August 4, 1998, 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, filed herewith.
** 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, filed
herewith.
** 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, filed
herewith.
* 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.
* 10.4 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., a subsidiary of Registrant,
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, 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.
</TABLE>
<PAGE> 115
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* 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 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.
* 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.
</TABLE>
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* 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 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.
** 21. Subsidiaries of Registrant, filed herewith.
** 23. Consent of PricewaterhouseCoopers LLP, filed herewith.
** 24. Power of Attorney executed by the members of Registrant's
Board of Directors, filed herewith.
** 27. Financial Data Schedule as of March 31, 1999, filed
herewith.
** 27.1 Restated Financial Data Schedule as of March 31, 1998, filed
herewith(1).
** 27.2 Restated Financial Data Schedule as of March 31, 1997, filed
herewith(1).
** 27.3 Restated Financial Data Schedule as of March 31, 1996, filed
herewith(1).
</TABLE>
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* Previously filed
** Filed herewith
(1) Included for convenience of reference with respect to the identified prior
period affected by the restatements of Registrant's financial statements
described in its press releases of December 11, 1998, February 23, 1999
and/or June 16, 1999, each as filed under cover of a Current Report on Form
8-K dated the respective dates of the press releases. The restated financial
results are reflected and discussed in the consolidated financial statements
included in Part II, Item 8 hereof and notes 2 and 23 thereto in lieu of
Registrant separately filing of amendments to its Form 10-K and 10-Q filings
for the affected periods as originally contemplated by the referenced press
releases.
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EXHIBIT 3.2
SECOND
AMENDED AND RESTATED BY-LAWS
OF
TELXON CORPORATION
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meetings of Stockholders. All meetings of the
stockholders of the Corporation shall be held at such place or places, within or
outside the State of Delaware, as may be fixed by the Board of Directors from
time to time or shall be specified in the respective notices thereof.
Section 2. Date, Hour and Purpose of Annual Meetings of Stockholders.
Annual Meetings of stockholders shall be held at such date and time as shall be
designated form time to time by the Board of Directors and stated in the notice
of the meeting. Such Annual Meetings shall be called and held at least once each
fiscal year. At such meeting, the stockholders shall elect, by a plurality of
the votes cast at such election, the successors to the class of Directors whose
term expires at that meeting, and transact such other business as may properly
be brought before the meeting.
Section 3. Special Meetings of Stockholders. Special meetings of the
stockholders or any class thereof entitled to vote may be called by the Chairman
of the Board, by the Chief Executive Officer, by the President or by the Board
of Directors, and shall be called by any of the foregoing at the request in
writing of stockholders owning a majority in amount of the entire capital stock
of the Corporation issued and outstanding and entitled to vote. Such request
shall state the purpose or purposes of the meeting.
Section 4. Notice of Meetings of Stockholders. Except as otherwise
expressly required or permitted by the laws of the State of Delaware, not less
than ten (10) days nor more than sixty (60) days before the date of every
meeting of stockholders, the Secretary shall give to each stockholder of record
entitled to vote at such meeting written notice stating place, day, and hour of
the meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Such notice, if mailed, shall be deemed to be given
deposited in the United States mail, with postage thereon prepaid, addressed to
each stockholder at the post office address for notices to such stockholder as
it appears on the records of the Corporation.
An Affidavit of the Secretary or an Assistant Secretary or of a
transfer agent of the Corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
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Section 5. Quorum of Stockholders.
(a) Unless otherwise provided by the laws of the State of
Delaware, at any meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of the votes entitled to be cast at
such meeting shall constitute a quorum.
(b) At any meeting of stockholders at which a quorum shall be
present, a majority of those present in person or by proxy may adjourn the
meeting from time to time without notice other than announcement at the meeting.
In the absence of a quorum, the officer presiding thereat shall have power to
adjourn the meeting from time to time until a quorum shall be present. Notice of
any adjourned meeting other than announcement at the meeting shall not be
required to be given, except as provided in paragraph (d) of this Section 5 and
except where expressly required by law.
(c) At any adjourned meeting of stockholders at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting originally called, but only those stockholders
entitled to vote at the meeting as originally noticed shall be entitled to vote
at any adjournment or adjournments thereof, unless a new record date is fixed by
the Board of Directors.
(d) If an adjournment of a meeting of stockholders is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
Section 6. Presiding Officer and Secretary of Meetings of Stockholders.
The Chief Executive Officer, or in his absence, the President, or if neither of
the foregoing is present, the Chairman of the Board, the Vice Chairman of the
Board or, in their absence, any other member of the Board of Directors selected
by the members present, shall preside at meetings of the stockholders. The
Secretary, or in his absence, an Assistant Secretary, shall act as secretary of
the meeting, and if neither the Secretary nor any Assistant Secretary is
present, then the presiding officer shall appoint a person to act as secretary
of the meeting.
Section 7. Voting by Stockholders. Except as may be otherwise provided
by the Certificate of Incorporation or these By-laws, at every meeting of the
stockholders each stockholder shall be entitled to one vote for each share of
stock standing in his name on the books of the Corporation on the record date
for the meeting. All elections and questions shall be decided by the vote of the
majority in interest of the stockholders present in person or represented by
proxy and entitled to vote at the meeting, except as otherwise permitted or
required by the laws of the State of Delaware, the Certificate of Incorporation,
or these By-laws.
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Section 8. Proxies. Any stockholder entitled to vote at any meeting of
stockholders may vote either in person or by his attorney-in-fact. Every proxy
shall be in writing and subscribed by the stockholder or his duly authorized
attorney-in-fact but need not be dated, sealed, witnessed or acknowledged.
Section 9. List of Stockholders.
(a) At least ten (10) days before every meeting of the
stockholders, the Secretary shall prepare or cause to be prepared a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder.
(b) During ordinary business hours, for a period of at least
ten (10) days prior to a meeting of stockholders, the list of stockholders
required by paragraph (a) of this Section 9 shall be open to examination by any
stockholder for any purpose germane to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held.
(c) The list of stockholders required by paragraph (a) of this
Section 9 shall also be produced and kept at the time and place of the meeting
during the whole time of the meeting, and it may be inspected by any stockholder
who is present.
(d) The stock ledger shall be the only evidence as to who are
the stockholders entitled to examine the stock ledger, the list of stockholders
required by paragraph (a) of this Section 9 or the books of the Corporation or
to vote in person or by proxy at any meeting of stockholders.
ARTICLE II
DIRECTORS
Section 1. Powers of the Board of Directors. The property, business and
affairs of the Corporation shall be managed by its Board of Directors, which may
exercise all the powers of the Corporation except such as are by the laws of the
State of Delaware, the Certificate of Incorporation or these By-laws required to
be exercised or done by the stockholders.
Section 2. Number, Method of Election and Terms of Office of Directors.
The number of Directors which shall constitute the whole Board of Directors, the
method of their election and their respective terms of office shall be governed
by the Certificate of Incorporation. Each Director shall hold office until his
successor is elected and qualified; provided, however, that a Director may
resign at any time by delivering his resignation in writing to the Chairman of
the Board, the Chief Executive Officer or the Secretary. Such resignation shall
take effect at the time specified therein, or if no time is
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specified, it shall be effective at the time of its receipt by the Corporation.
The acceptance of a resignation shall not be necessary to make it effective,
unless expressly so provided in the resignation.
Section 3. Meetings of the Board of Directors.
(a) The Board of Directors may hold their meetings, both
regular and special, either within or outside the State of Delaware.
(b) As soon as practicable after each Annual Meeting of
stockholders, a meeting of the Board of Directors, including the class of
Directors newly elected by the stockholders at such Annual Meeting, shall be
held to elect the executive officers of the Corporation and to transact such
other business as may come before the Board. Additional regular meetings of the
Board of Directors may be held without notice at such time and place as may from
time to time be determined by resolution of the Board of Directors, provided
that the schedule of regular meetings so determined is mailed to those Directors
who were not present at the meeting at which such resolution was adopted at
least two (2) days before the first regular meeting so scheduled or is
telegraphed or otherwise delivered to such Directors not later than the day
before the first such meeting.
(c) Special meetings of the Board of Directors shall be held
whenever called by direction of the Chairman of the Board or the Chief Executive
Officer or at the request of Directors, constituting at least one-third (1/3rd)
of the number of Directors then in office, but not less than two (2) Directors.
(d) The Secretary shall provide written notice to each
Director of any meeting of the Board of Directors called pursuant to paragraph
(c) of this Section 3 by mailing the same at least two (2) days before the
meeting or by telephonic facsimile or other delivery, or by telephonic advice
of, the same not later than the day before the meeting. Such notice need not
include a statement of the business to be transacted at, or the purpose of, any
such meeting. Any and all business may be transacted at any meeting of the Board
of Directors. No notice of any adjourned meeting need be given. No notice to or
waiver by any Director shall be required with respect to any meeting at which
the Director is present.
Section 4. Quorum and Action. A majority of the entire Board of
Directors, but in no event less than three (3) Directors, shall constitute a
quorum for the transaction of business, but if there shall be less than a quorum
at any meeting of the Board, a majority of those present may adjourn the meeting
from time to time. Unless otherwise provided by the laws of the State of
Delaware, the Certificate of Incorporation or these By-laws, the act of a
majority of the Directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors.
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Section 5. Presiding Officer and Secretary of Meetings of the Board of
Directors. The Chairman of the Board, or in his absence, the Vice Chairman of
the Board, or if neither of the foregoing is present, the Chief Executive
Officer, or if none of the foregoing is present, a member of the Board of
Directors selected by the members present, shall preside at meetings of the
Board. The Secretary, or in his absence, a person appointed by the presiding
officer, shall act as secretary of the meeting.
Section 6. Action by Consent Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the records of the Board or committee.
Section 7. Executive Committee. The Board of Directors may from time to
time appoint from among its members, and may fill vacancies on, an Executive
Committee to serve during the pleasure of the Board, provided that the Chairman
of the Board and the Chief Executive Officer shall be members of any such
Executive Committee. During the intervals between the meetings of the powers of
the Board, the Executive Committee shall possess and may exercise all of the
powers of the Board in the management of the business and affairs of the
Corporation conferred by these By-laws or otherwise. The Executive Committee
shall keep a record of all its proceedings and report the same to the Board. A
majority of the members of the Executive Committee shall constitute a quorum.
The act of a majority of the members of the Executive Committee present at any
meeting at which a quorum is present shall be the act of the Executive
Committee.
Section 8. Other Committees. The Board of Directors may also appoint
from among its members such other committees of two (2) or more Directors as it
may from time to time deem desirable and may delegate to such committees such
powers of the Board as it may consider appropriate.
Section 9. Compensation of Directors. Directors shall receive such
reasonable compensation for their service on the Board of Directors or any
committees thereof, whether in the form of salary or a fixed fee for attendance
at meetings, or both, with expenses, if any, as the Board of Directors may from
time to time determine. Nothing herein contained shall be construed to preclude
any Director from serving the Corporation in any other capacity and receiving
compensation therefor.
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ARTICLE III
OFFICERS
Section 1. Executive Officers of the Corporation. The executive
officers of the Corporation shall be chosen by the Board of Directors and shall
be a Chairman of the Board, a Vice Chairman of the Board (if such office is
created by the Board), a Chief Executive Officer, a President, a Chief Operating
Officer (if such office is created by the Board), a Chief Financial Officer, a
Chief Technology Officer (if such office is created by the Board), a Secretary
and a Treasurer. Any two offices, except those of (i) Chairman of the Board and
Vice Chairman of the Board and (ii) President and Secretary, may be filled by
the same person. The Board of Directors shall elect the executive officers at
its first meeting after each Annual Meeting of the stockholders and may elect
any such officer at any time as there may be a vacancy in any such office. None
of the executive officers need be a member of the Board except the Chairman of
the Board, the Vice Chairman of the Board, and the Chief Executive Officer.
Section 2. Additional Officers. The Chief Executive Officer of the
Corporation may appoint officers of the Corporation to serve in addition to the
executive officers named in Section 1 of this Article III. The titles of such
additional officers may include Executive Vice President, Vice President,
Assistant Secretary, Assistant Treasurer, Corporate Controller, Assistant
Corporate Controller or such other titles as the Chief Executive Officer deems
appropriate to the duties and responsibilities of such additional officers. All
such additional officers appointed by the Chief Executive Officer shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Chief Executive Officer,
provided that the appointment of each such additional officer by the Chief
Executive Officer shall be subject to ratification and approval thereof by the
Board of Directors within one (1) year following the date of appointment of each
such additional officer.
Section 3. Salaries. The salaries of all executive officers of the
Corporation appointed by the Board pursuant to Section 1 of this Article III
shall be fixed by the Board of Directors. The salaries of all additional
officers appointed by the Chief Executive Officer shall be fixed by the Chief
Executive Officer.
Section 4. Term, Resignation, Removal, and Vacancies. The officers of
the Corporation shall hold office until their respective successors are chosen
and qualify or, if appointed for a specific term, upon the expiration of such
term. Any officer may resign at any time by giving written notice to the Board
of Directors, or to the Chairman of the Board of Directors, the Chief Executive
Officer or the Secretary of the Corporation, which resignation shall take effect
at the time specified therein, and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. Any
officer, whether elected by the Board of Directors or appointed by the Chief
Executive Officer, may be removed at any time, with or without cause, by the
affirmative vote of a majority of the Board of Directors. Officers appointed by
the Chief
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Executive Officer shall also be subject to removal, at any time, with or without
cause, by the Chief Executive Officer. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise shall be filled by
the Board of Directors or the Chief Executive Officer having authority under
this Article III to fill such office.
Section 5. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board of Directors of the Corporation and shall
serve as chairman of any Executive Committee appointed by the Board of Directors
pursuant to Section 7 of Article II. He shall have such other powers and perform
such other duties as are provided in these By-laws and as may from time to time
be assigned to him by the Board of Directors.
Section 6. Vice Chairman of the Board. The Vice Chairman of the Board
shall have such powers and perform such duties as may from time to time be
delegated to him by the Chairman of the Board and shall have such other powers
and perform such other duties as are provided in these By-laws and as may from
time to time be assigned to him by the Board of Directors.
Section 7. Chief Executive Officer. The Chief Executive Officer shall
preside at all meetings of stockholders and shall have general charge and
supervision of the business of the Corporation. In the absence of the Chairman
of the Board and the Vice Chairman of the Board, the Chief Executive Officer
shall preside at all meetings of the Board of Directors and shall serve as
chairman of any Executive Committee appointed by the Board of Directors pursuant
to Section 7 of Article II. He shall have such other powers and perform such
other duties as are provided in these By-laws and as may from time to time be
assigned to him by the Board of Directors.
Section 8. President. The President shall, in the absence, disability,
or inability to act of the Chief Executive Officer, exercise all powers and
perform all duties of the Chief Executive Officer (except such powers and duties
as are incident to the Chief Executive Officer's position as a member of the
Board of Directors or of any Executive Committee appointed by the Board of
Directors pursuant to Section 7 of Article II) and shall have such other powers
and perform such other duties as are provided in these By-laws and as may from
time to time be assigned to him by the Board of Directors or the Chief Executive
Officer.
Section 9. Chief Operating Officer. The Chief Operating Officer shall
have such powers and perform such duties as are provided in these By-laws and as
may from time to time be assigned to him by the Board of Directors or the Chief
Executive Officer.
Section 10. Chief Financial Officer. The Chief Financial Officer shall
have such powers and perform such duties as are provided in these By-laws and as
may from time to time be assigned to him by the Board of Directors or the Chief
Executive Officer.
Section 11. Chief Technology Officer. The Chief Technology Officer
shall have such powers and perform such duties as are provided in these By-laws
and as may
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from time to time be assigned to him by the Board of Directors or the Chief
Executive Officer.
Section 12. Powers and Duties of Treasurer and Assistant Treasurers.
(a) The Treasurer shall have the care and custody of all the funds and
securities of the Corporation except as may be otherwise ordered by the Board of
Directors, the Chief Executive Officer, the Chief Operating Officer or the Chief
Financial Officer, shall cause such funds to be deposited to the credit of the
Corporation in such banks or depositories as may be designated by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer or the Treasurer, and shall cause
such securities to be placed in safekeeping in such manner as may be designated
by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer, the Chief Operating Officer, the Chief Financial Officer, or the
Treasurer.
(b) The Treasurer, any Assistant Treasurer and/or such other person or
persons as may be designated for such purpose by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer,
the Chief Financial Officer or the Treasurer, may endorse or cause to be
endorsed in the name and on behalf of the Corporation all instruments for the
payment of money, bills of lading, warehouse receipts, insurance policies and
other commercial documents requiring such endorsement and may sign or cause to
be signed all receipts and vouchers for payments made to the Corporation.
(c) The Treasurer shall render a statement of the cash account of the
Corporation to the Board of Directors as often as it shall require the same and
shall enter or cause to be entered regularly in books to be kept by him for that
purpose full and accurate accounts of all moneys received and paid for the
account of the Corporation and of all securities received and delivered by the
Corporation.
(d) The Treasurer shall have such other powers and perform such other
duties as are provided in these By-laws and as may from time to time be assigned
to him by the Board of Directors, the Chief Executive Officer or the Chief
Financial Officer. Each Assistant Treasurer shall have such powers and perform
such duties as may from time to time be assigned to him by the Treasurer or by
the Board of Directors, the Chief Executive Officer or the Chief Financial
Officer. In the absence, disability or inability to act of the Treasurer, any
Assistant Treasurer may exercise any of the powers and may perform any of the
duties of the Treasurer.
Section 13. Powers and Duties of Secretary and Assistant Secretary.
(a) The Secretary shall attend all meetings of the Board of Directors
and of the stockholders and shall keep the minutes of all proceedings of the
stockholders and the Board of Directors in proper books provided for that
purpose. The Secretary shall attend to the giving and serving of all notices of
the Corporation in accordance with the
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provisions of the Certificate of Incorporation, these By-laws, and the laws of
the State of Delaware.
(b) The Secretary shall have such other powers and perform such other
duties as are provided in these By-laws and as may from time to time be assigned
to him by the Board of Directors and shall perform all other acts incident to
the office of Secretary. Each Assistant Secretary shall have such powers and
perform such duties as may from time to time be assigned to him by the Secretary
or by the Board of Directors. In the absence, disability or inability to act of
the Secretary, an Assistant Secretary may exercise any of the powers and may
perform any of the duties of the Secretary.
(c) In no case shall the Secretary or any Assistant Secretary, without
the express authorization and direction of the Board of Directors, have any
responsibility for, or any duty or authority with respect to, the withholding or
payment of any federal, state or local taxes of the Corporation or the
preparation or filing of any tax return.
ARTICLE IV
CAPITAL STOCK
Section 1. Stock Certificates.
(a) Every holder of stock in the Corporation shall be entitled
to have a certificate or certificates, signed in the name of the Corporation (i)
by the Chairman of the Board, the Vice Chairman of the Board, the Chief
Executive Officer or the President and (ii) by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary, certifying the number of
shares owned by such holder.
(b) If such a certificate is countersigned by a transfer agent
other than the Corporation or its employee, or by a registrar other than the
Corporation or its employee, the signatures of the officers of the Corporation
may be facsimiles, and if permitted by the laws of the State of Delaware, any
other signature on the certificate may be a facsimile.
(c) In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate is issued, it may be issued from the Corporation
with the same effect as if he were such officer at the date of issue.
(d) Certificates of stock shall be issued in such form not
inconsistent with the Certificate of Incorporation as shall be approved by the
Board of Directors. They shall be numbered and registered in the order in which
they are issued. No certificate shall be issued until fully paid.
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Section 2. Record Ownership. A record of the name and address of the
holder of each stock certificate, the number of shares represented thereby, and
the date of issue thereof shall be made on the Corporation's books. The
Corporation shall be entitled to treat the holder of record of any share of
stock as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in any share on the part
of any other person, whether or not it shall have express or other notice
thereof, except as required by the laws of the State of Delaware.
Section 3. Transfer of Record Ownership. Transfers of stock shall be
made on the books of the Corporation only by direction of the person named in
the certificate or his attorney, lawfully constituted in writing, and only upon
the surrender of the certificate therefor and a written assignment of the shares
evidenced thereby. Whenever any transfer of stock shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer if, when the certificates are presented to the Corporation for
transfer, both the transferor and transferee request the Corporation to do so.
Section 4. Lost, Stolen, or Destroyed Certificates. Certificates
representing shares of the stock of the Corporation shall be issued in place of
any certificate alleged to have been lost, stolen, or destroyed in such manner
and on such terms and conditions as the Board of Directors from time to time may
authorize.
Section 5. Transfer Agent, Registrar, and Rules Respecting
Certificates. The Corporation shall maintain one or more transfer offices or
agencies where stock of the Corporation shall be transferable. The Corporation
shall also maintain one or more registry offices where such stock shall be
registered. The Board of Directors may make such rules and regulations as it may
deem expedient concerning the issue, transfer, and registration of stock
certificates.
Section 6. Fixing Record Date for Determination of Stockholder of
Record. The Board of Directors may fix in advance a date as the record date for
the purpose of determining the stockholders entitled to notice of, or to vote
at, any meeting of the stockholders or any adjournment thereof, or the
stockholders entitled to receive payment of any dividend or other distribution
or the allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or to express consent to corporate
action in writing without a meeting, or in order to make a determination of
stockholders for the purpose of any other lawful action. Such record date in any
case shall not be more than sixty (60) days nor less than ten (10) days before
the date of a meeting of the stockholders, nor more than sixty (60) days prior
to any other action requiring such determination of the stockholders. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
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ARTICLE V
SECURITIES HELD BY THE CORPORATION
Section 1. Voting. Unless the Board of Directors shall otherwise order,
the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive
Officer, the President, the Chief Operating Officer, the Chief Financial Officer
and the Treasurer shall each have full power and authority on behalf of the
Corporation to attend, act and vote at any meeting of the stockholders of any
corporation in which the Corporation may hold stock and at such meeting to
exercise any or all rights and powers incident to the ownership of such stock,
and to execute on behalf of the Corporation a proxy or proxies empowering
another or others to act as aforesaid. The Board of Directors and the officers
named in this Section 1 may from time to time confer like powers upon any other
person or persons.
Section 2. General Authorization to Transfer Securities Held by the
Corporation.
(a) Each of the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Operating Officer, the Chief Financial Officer
and the Treasurer shall be and are hereby authorized and empowered to transfer,
convert, endorse, sell, assign, set over, and deliver any and all shares of
stock, bonds, debentures, notes, subscription warrants, stock purchase warrants,
evidences of indebtedness, or other securities now and hereafter standing in the
name of or owned by the Corporation, and to make, execute, and deliver, under
the seal, if any, of the Corporation or otherwise, any and all written
instruments of assignment and transfer necessary or proper to effectuate the
authority hereby conferred.
(b) Whenever there shall be annexed to any instrument of
assignment and transfer executed pursuant to and in accordance with paragraph
(a) of this Section 2 a certificate of the Secretary or an Assistant Secretary
of the Corporation in office at the date of such certificate setting forth the
provisions hereof and stating that they are in full force and effect and setting
forth the names of persons who are then officers of the Corporation, all persons
to whom such instrument and annexed certificate shall thereafter come shall be
entitled, without further inquiry or investigation and regardless of the date of
such certificate, to assume and to act in reliance upon the assumption that the
shares of stock or other securities named in such instrument were theretofore
duly and properly transferred, endorsed, sold, assigned, set over, and delivered
by the Corporation, and that with respect to such securities the authority of
these provisions of the By-laws and of such officer is still in full force and
effect.
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ARTICLE VI
DIVIDENDS
Section 1. Declaration of Dividends. Dividends upon the capital stock
of the Corporation may be declared by the Board of Directors at any regular or
special meeting in accordance with the laws of the State of Delaware. Dividends
may be paid in cash, in property, or in shares of the Corporation's capital
stock, subject to the provisions of the Certificate of Incorporation.
Section 2. Payment and Reserves. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for dividends
such sum or sums as the Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Directors shall deem to be in the
best interest of the Corporation, and the Directors may modify or abolish any
such reserves in the manner in which they were created.
Section 3. Record Date. The Board of Directors may, to the extent
provided by law, prescribe a period, in no event in excess of sixty (60) days,
prior to the date for payment of any dividend, as a record date for the
determination of the stockholders entitled to receive payment of any such
dividend, and in such case such stockholders and only such stockholders as shall
be stockholders of record on said date so fixed shall be entitled to receive
payment of such dividend, notwithstanding any transfer of any stock on the books
of the Corporation after any such record date fixed as aforesaid.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Signatures of Officers. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers of the
Corporation or such other person or persons as the Board of Directors may from
time to time designate. Unless the Board of Directors shall otherwise order, the
signature of any officer upon any of the foregoing instruments may be a
facsimile.
Section 2. Fiscal Year. The fiscal year of the Corporation shall end on
March 31 of each year.
ARTICLE VIII
WAIVER OF OR DISPENSING WITH NOTICE
Whenever any notice of the time, place, or purpose of any meeting of
the stockholders or of the Board of Directors or a committee thereof is required
to be given
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under the laws of the State of Delaware, the Certificate of Incorporation, or
these By-laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the holding thereof, or actual
attendance at the meeting in person, or in the case of the stockholders, by his
attorney-in-fact, shall be deemed equivalent to the giving of such notice to
such persons. No notice need be given to any person with whom communication is
made unlawful by any law of the United Stated or any rule, regulation,
proclamation, or executive order issued under any such law.
ARTICLE IX
AMENDMENT OF BY-LAWS
These By-laws, or any of them, may from time to time be supplemented,
amended, or repealed (i) by the Board of Directors or (ii) by the vote of a
majority in interest of the stockholders represented and entitled to vote at any
meeting of stockholders at which a quorum is present.
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EXHIBIT 10.1.1
TELXON'S RETIREMENT & UNIFORM
MATCHING PROFIT SHARING PLAN
THIS AGREEMENT, hereby made and entered into this __________ day
of _________________________, 19____, by and between Telxon Corp. (herein
referred to as the "Employer") and Charles Schwab Trust Company (herein referred
to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer heretofore established a Profit Sharing Plan
and Trust effective April 1, 1985, (hereinafter called the "Effective Date")
known as Telxon's Retirement & Uniform Matching Profit Sharing Plan (herein
referred to as the "Plan") in recognition of the contribution made to its
successful operation by its employees and for the exclusive benefit of its
eligible employees; and
WHEREAS, under the terms of the Plan, the Employer has the ability
to amend the Plan, provided the Trustee joins in such amendment if the
provisions of the Plan affecting the Trustee are amended;
NOW, THEREFORE, effective January 1, 1993, except as otherwise
provided, the Employer and the Trustee in accordance with the provisions of the
Plan pertaining to amendments thereof, hereby amend the Plan in its entirety and
restate the Plan to provide as follows:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
1.2 "Administrator" means the person designated by the Employer pursuant
to Section 2.4 to administer the Plan on behalf of the Employer.
1.3 "Affiliated Employer" means any corporation which is a member of a
controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414(c)) with the Employer;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
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1.4 "Aggregate Account" means, with respect to each Participant, the
value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the provisions of
Section 2.2.
1.5 "Anniversary Date" means December 31st.
1.6 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
6.2 and 6.6.
1.7 "Code" means the Internal Revenue Code of 1986, as amended or
replaced from time to time.
1.8 "Compensation" with respect to any Participant means such
Participant's wages, salaries, fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includible in
gross income (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Regulation
1.62-2(c)) for a Plan Year.
Compensation shall exclude (a) (1) contributions made by the
Employer to a plan of deferred compensation to the extent that, the
contributions are not includible in the gross income of the Participant for the
taxable year in which contributed, (2) Employer contributions made on behalf of
an Employee to a simplified employee pension plan described in Code Section
408(k) to the extent such contributions are excludable from the Employee's
gross income, (3) any distributions from a plan of deferred compensation; (b)
amounts realized from the exercise of a non-qualified stock option, or when
restricted stock (or property) held by an Employee either becomes freely
transferable or is no longer subject to a substantial risk of forfeiture; (c)
amounts realized from the sale, exchange or other disposition of stock acquired
under a qualified stock option; and (d) other amounts which receive special tax
benefits, or contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of any annuity contract described in
Code Section 403(b) (whether or not the contributions are actually excludable
from the gross income of the Employee).
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For purposes of this Section, the determination of Compensation
shall be made by:
(a) excluding taxable fringe benefits, including any bonus
paid to an employee intended as a reimbursement for taxes paid by
the employee on any taxable fringe benefits.
(b) including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not
includible in the gross income of the Participant under Code
Sections 125, 402(a)(8), 402(h), 403(b) or 457, and Employee
contributions described in Code Section 414(h)(2) that are treated
as Employer contributions.
For a Participant's initial year of participation, Compensation
shall be recognized as of such Employee's effective date of participation
pursuant to Section 3.3.
Compensation in excess of $200,000 shall be disregarded. Such
amount shall be adjusted at the same time and in such manner as permitted under
Code Section 415(d), except that the dollar increase in effect on January 1 of
any calendar year shall be effective for the Plan Year beginning with or within
such calendar year and the first adjustment to the $200,000 limitation shall be
effective on January 1, 1990. For any short Plan Year the Compensation limit
shall be an amount equal to the Compensation limit for the calendar year in
which the Plan Year begins multiplied by the ratio obtained by dividing the
number of full months in the short Plan Year by twelve (12). In applying this
limitation, the family group of a Highly Compensated Participant who is subject
to the Family Member aggregation rules of Code Section 414(q) (6) because such
Participant is either a "five percent owner" of the Employer or one of the ten
(10) Highly Compensated Employees paid the greatest "415 Compensation" during
the year, shall be treated as a single Participant, except that for this purpose
Family Members shall include only the affected Participant's spouse and any
lineal descendants who have not attained age nineteen (19) before the close of
the year. If, as a result of the application of such rules the adjusted $200,000
limitation is exceeded, then the limitation shall be prorated among the affected
Family Members in proportion to each such Family Member's Compensation prior to
the application of this limitation, or the limitation shall be adjusted in
accordance with any other method permitted by Regulation.
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If, as a result of such rules, the maximum "annual addition" limit
of Section 4.9(a) would be exceeded for one or more of the affected Family
Members, the prorated Compensation of all affected Family Members shall be
adjusted to avoid or reduce any excess. The prorated Compensation of any
affected Family Member whose allocation would exceed the limit shall be adjusted
downward to the level needed to provide an allocation equal to such limit. The
prorated Compensation of affected Family Members not affected by such limit
shall then be adjusted upward on a pro rata basis not to exceed each such
affected Family Member's Compensation as determined prior to application of the
Family Member rule. The resulting allocation shall not exceed such individual's
maximum "annual addition" limit. If, after these adjustments, an "excess amount"
still results, such "excess amount" shall be disposed of in the manner described
in Section 4.10(a) pro rata among all affected Family Members.
For purposes of this Section, if the Plan is a plan described in Code
Section 413(c) or 414(f) (a plan maintained by more than one Employer), the
$200,000 limitation applies separately with respect to the Compensation of any
Participant from each Employer maintaining the Plan.
If, in connection with the adoption of this amendment and
restatement, the definition of Compensation has been modified, then, for Plan
Years prior to the Plan Year which includes the adoption date of this amendment
and restatement, Compensation means compensation determined pursuant to the Plan
then in effect.
For Plan Years beginning prior to January 1, 1989, the $200,000 limit
(without regard to Family Member aggregation) shall apply only for Top Heavy
Plan Years and shall not be adjusted.
1.9 "Contract" or "Policy" means any life insurance policy, retirement
income or annuity policy, or annuity contract (group or individual) issued
pursuant to the terms of the Plan.
1.10 "Deferred Compensation" with respect to any Participant means the
amount of the Participant's total Compensation which has been contributed to the
Plan in accordance with the Participant's deferral election pursuant to Section
4.2 excluding any such amounts distributed as excess "annual additions" pursuant
to Section 4.10(a).
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1.11 "Early Retirement Date" means the first day of the month (prior to
the Normal Retirement Date) coinciding with or following the date on which a
Participant or Former Participant attains age 55 and has completed at least 5
Years of Service with the Employer (Early Retirement Age). A Participant shall
become fully Vested upon satisfying this requirement if still employed at his
Early Retirement Age.
A Former Participant who terminates employment after satisfying
the service requirement for Early Retirement and who thereafter reaches the age
requirement contained herein shall be entitled to receive his benefits under
this Plan.
1.12 "Elective Contribution" means the Employer's contributions to the
Plan of Deferred Compensation excluding any such amounts distributed as excess
"annual additions" pursuant to Section 4.10(a). In addition, any Employer
Qualified Non-Elective Contribution made pursuant to Section 4.6 shall be
considered an Elective Contribution for purposes of the Plan. Any such
contributions deemed to be Elective Contributions shall be subject to the
requirements of Sections 4.2(b) and 4.2(c) and shall further be required to
satisfy the discrimination requirements of Regulation 1.401(k)-1(b)(5), the
provisions of which are specifically incorporated herein by reference.
1.13 "Eligible Employee" means any Employee.
Employees whose employment is governed by the terms of a collective
bargaining agreement between Employee representatives (within the meaning of
Code Section 7701(a)(46)) and the Employer under which retirement benefits were
the subject of good faith bargaining between the parties will not be eligible to
participate in this Plan unless such agreement expressly provides for coverage
in this Plan or two percent or less of the Employees of the Employer who are
covered pursuant to that agreement are professionals as defined in Regulation
1.410(b)-9.
Employees who are nonresident aliens (within the meaning of Code
Section 7701(b) (1) (B)) and who receive no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer which constitutes income from sources
within the United States (within the meaning of Code Section 861(a)(3)) shall
not be eligible to participate in this Plan.
Employees of Affiliated Employers shall not be eligible to
participate in this Plan unless such Affiliated Employers have specifically
adopted this Plan in writing.
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1.14 "Employee" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n)(2) and 414(0) (2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
1.15 "Employer" means Teixon Corp. and any Participating Employer (as
defined in Section 10.1) which shall adopt this Plan; any successor which shall
maintain this Plan; and any predecessor which has maintained this Plan. The
Employer is a corporation, with principal offices in the State of Ohio.
1.16 "Excess Aggregate Contributions" means, with respect to any Plan
Year, the excess of the aggregate amount of the Employer matching contributions
made pursuant to Section 4.1(b), voluntary Employee contributions made pursuant
to Section 4.12, Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and any qualified non-elective
contributions or elective deferrals taken into account pursuant to Section
4.7(c) on behalf of Highly Compensated Participants for such Plan Year, over the
maximum amount of such contributions permitted under the limitations of Section
4.7(a).
1.17 "Excess Contributions" means, with respect to a Plan Year, the
excess of Elective Contributions made on behalf of Highly Compensated
Participants for the Plan Year over the maximum amount of such contributions
permitted under Section 4.5(a). Excess Contributions, including amounts
recharacterized pursuant to Section 4.6(a)(2), shall be treated as an "annual
addition" pursuant to Section 4.9(b).
1.18 "Excess Deferred Compensation" means, with respect to any taxable
year of a Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section 4.2(f)
actually made on behalf of such Participant for such taxable year, over the
dollar limitation provided for in Code Section 402(g), which is incorporated
herein by reference. Excess Deferred Compensation shall be treated as an "annual
addition" pursuant to Section 4.9(b) when contributed to the Plan unless
distributed to the affected Participant not later than the first April 15th
following the close of the Participant's taxable year. Additionally, for
purposes of Sections 2.2 and 4.4(g), Excess Deferred Compensation shall continue
to be treated as Employer contributions even if distributed pursuant to Section
4.2(f). However, Excess Deferred Compensation of Non-Highly Compensated
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Participants is not taken into account for purposes of Section 4.5(a) to the
extent such Excess Deferred Compensation occurs pursuant to Section 4.2(d).
1.19 "Family Member" means, with respect to an affected Participant, such
Participant's spouse, such Participant's lineal descendants and ascendants and
their spouses, all as described in Code Section 414(q)(6)(B).
1.20 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan, including, but
not limited to, the Trustee, the Employer and its representative body, and the
Administrator.
1.21 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on April 1st of each year and ending the following March 31st.
1.22 "Forfeiture" means that portion of a Participant's Account that is
not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a
Participant's Account, or
(b) the last day of the Plan Year in which the Participant
incurs five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated Participant
shall be deemed to have received a distribution of his Vested benefit upon his
termination of employment. Restoration of such amounts shall occur pursuant to
Section 6.4(g)(2). In addition, the term Forfeiture shall also include amounts
deemed to be Forfeitures pursuant to any other provision of this Plan.
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1.23 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.
1.24 "415 Compensation" with respect to any Participant means such
Participant's wages, salaries, fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includible in
gross income (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Regulation
1.62-2(c)) for a Plan Year.
"415 Compensation" shall exclude (a) (1) contributions made by the
Employer to a plan of deferred compensation to the extent that, the
contributions are not includible in the gross income of the Participant for the
taxable year in which contributed, (2) Employer contributions made on behalf of
an Employee to a simplified employee pension plan described in Code Section
408(k) to the extent such contributions are excludable from the Employee's gross
income, (3) any distributions from a plan of deferred compensation; (b) amounts
realized from the exercise of a non-qualified stock option, or when restricted
stock (or property) held by an Employee either becomes freely transferable or is
no longer subject to a substantial risk of forfeiture; (c) amounts realized from
the sale, exchange or other disposition of stock acquired under a qualified
stock option; and (d) other amounts which receive special tax benefits, or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of any annuity contract described in Code
Section 403(b) (whether or not the contributions are actually excludable from
the gross income of the Employee).
If, in connection with the adoption of this amendment and
restatement, the definition of "415 Compensation" has been modified, then, for
Plan Years prior to the Plan Year which includes the adoption date of this
amendment and restatement, "415 Compensation" means compensation determined
pursuant to the Plan then in effect.
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1.25 "414(s) Compensation" with respect to any Participant means such
Participant's Elective Contributions attributable to Deferred Compensation
recharacterized as voluntary Employee contributions pursuant to Section 4.6(a)
plus "415 Compensation" paid during a Plan Year. The amount of "414(s)
Compensation" with respect to any Participant shall include "414(s)
Compensation" for the entire twelve (12) month period ending on the last day of
such Plan Year, except that "414(s) Compensation" shall only be recognized for
that portion of the Plan Year during which an Employee was a Participant in the
Plan.
For purposes of this Section, the determination of "414(s)
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(a)(8),
402(h), 403(b) or 457, and Employee contributions described in Code Section
414(h) (2) that are treated as Employer contributions.
"414(s) Compensation" in excess of $200,000 shall be disregarded.
Such amount shall be adjusted at the same time and in such manner as permitted
under Code Section 415(d), except that the dollar increase in effect on January
1 of any calendar year shall be effective for the Plan Year beginning with or
within such calendar year and the first adjustment to the $200,000 limitation
shall be effective on January 1, 1990. For any short Plan Year the "414(s)
Compensation" limit shall be an amount equal to the "414(s) Compensation" limit
for the calendar year in which the Plan Year begins multiplied by the ratio
obtained by dividing the number of full months in the short Plan Year by twelve
(12). In applying this limitation, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation rules of Code
Section 414(q) (6) because such Participant is either a "five percent owner" of
the Employer or one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members shall include only the
affected Participant's spouse and any lineal descendants who have not attained
age nineteen (19) before the close of the year.
If, in connection with the adoption of this amendment and
restatement, the definition of "414(s) Compensation" has been modified, then,
for Plan Years prior to the Plan Year which includes the adoption date of this
amendment and restatement, "414(s) Compensation" means compensation determined
pursuant to the Plan then in effect.
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1.26 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the "determination
year" or "look-back year" were "five percent owners" as defined in
Section 1.32(c).
(b) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $50,000 and were in
the Top Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were
officers of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) and received
"415 Compensation" during the "look-back year" from the Employer
greater than 50 percent of the limit in effect under Code Section
415(b) (1) (A) for any such Plan Year. The number of officers shall
be limited to the lesser of (i) 50 employees; or (ii) the greater
of 3 employees or 10 percent of all employees. For the purpose of
determining the number of officers, Employees described in Section
1.56(a), (b), (c) and (d) shall be excluded, but such Employees
shall still be considered for the purpose of identifying the
particular Employees who are officers. If the Employer does not
have at least one officer whose annual "415 Compensation" is in
excess of 50 percent of the Code Section 415(b) (1) (A) limit, then
the highest paid officer of the Employer will be treated as a
Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100
Employees paid the greatest "415 Compensation" during the
"determination year" and are also described in (b) , (c) or (d)
above when these paragraphs are modified to substitute
"determination year" for "look-back year".
The "look-back year" shall be the calendar year ending with or
within the Plan Year for which testing is being performed, and the
"determination year" (if applicable) shall be
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the period of time, if any, which extends beyond the "look-back year" and ends
on the last day of the Plan Year for which testing is being performed (the "lag
period"). If the "lag period" is less than twelve months long, the dollar
threshold amounts specified in (b) , (c) and (d) above shall be prorated based
upon the number of months in the "lag period".
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts that would otherwise be
excluded from a Participant's gross income by reason of the application of Code
Sections 125, 402(a)(8), 402(h)(1)(B) and, in the case of Employer contributions
made pursuant to a salary reduction agreement, by including amounts that would
otherwise be excluded from a Participant's gross income by reason of the
application of Code Section 403(b). Additionally, the dollar threshold amounts
specified in (b) and (c) above shall be adjusted at such time and in such manner
as is provided in Regulations. In the case of such an adjustment, the dollar
limits which shall be applied are those for the calendar year in which the
"determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees who
are non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a) (3) shall not be treated as
Employees. Additionally, all Affiliated Employers shall be taken into account as
a single employer and Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n) (5) and are not
covered in any qualified plan maintained by the Employer. The exclusion of
Leased Employees for this purpose shall be applied on a uniform and consistent
basis for all of the Employer's retirement plans. Highly Compensated Former
Employees shall be treated as Highly Compensated Employees without regard to
whether they performed services during the "determination year".
1.27 "Highly Compensated Former Employee" means a former Employee who had
a separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who separated
from service prior to 1987 will be treated as a Highly Compensated Former
Employee only if during the separation year (or year preceding the separation
year) or any year after the Employee attains age 55 (or the last year ending
before the Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000 or was a "five percent owner".
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For purposes of this Section, "determination year", "415 Compensation" and "five
percent owner" shall be determined in accordance with Section 1.26. Highly
Compensated Former Employees shall be treated as Highly Compensated Employees.
The method set forth in this Section for determining who is a "Highly
Compensated Former Employee" shall be applied on a uniform and consistent basis
for all purposes for which the Code Section 414(q) definition is applicable.
1.28 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan pursuant to Section 3.1.
1.29 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (2) each
hour for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. These hours will be credited to the Employee for the
computation period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement or payment is made.
The same Hours of Service shall not be credited both under (1) or (2), as the
case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made
by or due from the Employer regardless of whether such payment is made by or due
from the Employer directly, or
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indirectly through, among others, a trust fund, or insurer, to which the
Employer contributes or pays premiums and regardless of whether contributions
made or due to the trust fund, insurer, or other entity are for the benefit of
particular Employees or are on behalf of a group of Employees in the aggregate.
An Hour of Service must be counted for the purpose of determining a
Year of Service, a year of participation for purposes of accrued benefits, a
1-Year Break in Service, and employment commencement date (or reemployment
commencement date). In addition, Hours of Service will be credited for
employment with other Affiliated Employers. The provisions of Department of
Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.
1.30 "Income" means the income or losses allocable to "excess amounts"
which shall equal the allocable gain or loss for the "applicable computation
period". The income allocable to "excess amounts" for the "applicable
computation period" is determined by multiplying the income for the "applicable
computation period" by a fraction. The numerator of the fraction is the "excess
amount" for the "applicable computation period". The denominator of the fraction
is the total "account balance" attributable to "Employer contributions" as of
the end of the "applicable computation period", reduced by the gain allocable to
such total amount for the "applicable computation period" and increased by the
loss allocable to such total amount for the "applicable computation period". The
provisions of this Section shall be applied:
(a) For purposes of Section 4.2(f), by substituting:
(1) "Excess Deferred Compensation" for "excess amounts";
(2) "taxable year of the Participant" for "applicable
computation period";
(3) "Deferred Compensation" for "Employer contributions";
and
(4) "Participant's Elective Account" for "account balance".
(b) For purposes of Section 4.6(a), by substituting:
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(1) "Excess Contributions" for "excess amounts";
(2) "Plan Year" for "applicable computation
period";
(3) "Elective Contributions" for "Employer contributions";
and
(4) "Participant's Elective Account" for "account balance".
(c) For purposes of Section 4.8(a), by substituting:
(1) "Excess Aggregate Contributions" for "excess amounts";
(2) "Plan Year" for "applicable computation period";
(3) "Employer matching contributions made pursuant to
Section 4.1(b), voluntary Employee contributions made
pursuant to Section 4.12 and any qualified non-elective
contributions or elective deferrals taken into account
pursuant to Section 4.7(c)" for "Employer contributions"; and
(4) "Participant's Account and Voluntary Contribution
Account" for "account balance".
Income allocable to any distribution of Excess Deferred Compensation
on or before the last day of the taxable year of the Participant shall be
calculated from the first day of the taxable year of the Participant to the date
on which the distribution is made pursuant to either the "fractional method" or
the "safe harbor method". Under such "safe harbor method", allocable Income for
such period shall be deemed to equal ten percent (10%) of the Income allocable
to such Excess Deferred Compensation multiplied by the number of calendar months
in such period. For purposes of determining the number of calendar months in
such period, a distribution occurring on or before the fifteenth day of the
month shall be treated as having been made on the last day of the preceding
month and a distribution occurring after such fifteenth day shall be treated as
having been made on the first day of the next subsequent month.
The Income allocable to Excess Aggregate Contributions resulting
from the recharacterization of Elective Contributions shall be determined and
distributed as if such recharacterized Elective Contributions had been
distributed as Excess
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Contributions.
Notwithstanding the above, for "applicable computation periods"
which began in 1987, Income during the "gap period" shall not be taken into
account.
1.31 "Investment Manager" means an entity that (a) has the power to
manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
1.32 "Key Employee" means an Employee as defined in Code Section 416(i)
and the Regulations thereunder. Generally, any Employee or former Employee (as
well as each of his Beneficiaries) is considered a Key Employee if he, at any
time during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined
within the meaning of the Regulations under Code Section 416)
having annual "415 Compensation" greater than 50 percent of the
amount in effect under Code Section 415(b) (1) (A) for any such
Plan Year.
(b) one of the ten employees having annual "415
Compensation" from the Employer for a Plan Year greater than the
dollar limitation in effect under Code Section 415(c) (1) (A) for
the calendar year in which such Plan Year ends and owning (or
considered as owning within the meaning of Code Section 318) both
more than one-half percent interest and the largest interests in
the Employer.
(c) a "five percent owner" of the Employer. "Five percent
owner" means any person who owns (or is considered as owning
within the meaning of Code Section 318) more than five percent
(5%) of the outstanding stock of the Employer or stock possessing
more than five percent (5%) of the total combined voting power of
all stock of the Employer or, in the case of an unincorporated
business, any person who owns more than five percent (5%) of the
capital or profits interest in the Employer. In determining
percentage ownership hereunder, employers that would otherwise be
aggregated under Code Sections 414(b), (c), (m) and (o) shall be
treated as separate employers.
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(d) a "one percent owner" of the Employer having an annual
"415 Compensation" from the Employer of more than $150,000. "One
percent owner" means any person who owns (or is considered as
owning within the meaning of Code Section 318) more than one
percent (1%) of the outstanding stock of the Employer or stock
possessing more than one percent (1%) of the total combined voting
power of all stock of the Employer or, in the case of an
unincorporated business, any person who owns more than one percent
(1%) of the capital or profits interest in the Employer. In
determining percentage ownership hereunder, employers that would
otherwise be aggregated under Code Sections 414(b), (c), (m) and
(o) shall be treated as separate employers. However, in
determining whether an individual has "415 Compensation" of more
than $150,000, "415 Compensation" from each employer required to
be aggregated under Code Sections 414(b), (c), (m) and (o) shall
be taken into account.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts that would otherwise be
excluded from a Participant's gross income by reason of the application of Code
Sections 125, 402(a)(8), 402(h)(1)(B) and, in the case of Employer
contributions made pursuant to a salary reduction agreement, by including
amounts that would otherwise be excluded from a Participant's gross income by
reason of the application of Code Section 403(b).
1.33 "Late Retirement Date" means the first day of the month coinciding
with or next following a Participant's actual Retirement Date after having
reached his Normal Retirement Date.
1.34 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer. A Leased Employee shall not be considered an Employee of the
recipient:
(a) if such employee is covered by a money purchase pension
plan providing:
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(1) a non-integrated employer contribution rate of at least
10% of compensation, as defined in Code Section 415(c)(3),
but including amounts contributed pursuant to a salary
reduction agreement which are excludable from the employee's
gross income under Code Sections 125, 402(a) (8), 402(h) or
403(b);
(2) immediate participation; and (3) full and immediate
vesting; and
(b) if Leased Employees do not constitute more than 20% of
the recipient's non-highly compensated work force.
1.35 "Non-Elective Contribution" means the Employer's contributions to
the Plan excluding, however, contributions made pursuant to the Participant's
deferral election provided for in Section 4.2 and any Qualified Non-Elective
Contribution.
1.36 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
1.37 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.38 "Normal Retirement Age" means the Participant's 65th birthday. A
Participant shall become fully Vested in his Participant's Account upon
attaining his Normal Retirement Age.
1.39 "Normal Retirement Date" means the first day of the month coinciding
with or next following the Participant's Normal Retirement Age.
1.40 "1-Year Break in Service" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence." Years of Service and 1-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation
from active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service, or
any other reason.
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A "maternity or paternity leave of absence" means, for Plan Years
beginning after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement of a child
with the Employee in connection with the adoption of such child, or any absence
for the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
1.41 "Participant" means any Eligible Employee who participates in the
Plan as provided in Sections 3.2 and 3.3, and has not for any reason become
ineligible to participate further in the Plan.
1.42 "Participant's Account" means the account established and maintained
by the Administrator for each Participant with respect to his total interest in
the Plan and Trust resulting from the Employer's Non-Elective Contributions.
A separate accounting shall be maintained with respect to that
portion of the Participant's Account attributable to Employer matching
contributions made pursuant to Section 4.1(b) and Employer discretionary
contributions made pursuant to Section 4.1(c).
1.43 "Participant's Combined Account" means the total aggregate amount of
each Participant's Elective Account and Participant's Account.
1.44 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Elective
Contributions. A separate accounting shall be maintained with respect to that
portion of the Participant's Elective Account attributable to Elective
Contributions pursuant to Section 4.2 and any Employer Qualified Non-Elective
Contributions.
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1.45 "Plan" means this instrument, including all amendments thereto.
1.46 "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on January 1st of each year and ending the following December 31st.
1.47 "Pre-Retirement Survivor Annuity" is an immediate annuity for the
life of the Participant's spouse the payments under which must be equal to the
amount of benefit which can be purchased with the accounts of a Participant used
to provide the death benefit under the Plan.
1.48 "Qualified Non-Elective Contribution" means the Employer's
contributions to the Plan that are made pursuant to Section 4.6. Such
contributions shall be considered an Elective Contribution for the purposes of
the Plan and used to satisfy the "Actual Deferral Percentage" tests.
In addition, the Employer's contributions to the Plan that are made
pursuant to Section 4.8(h) which are used to satisfy the "Actual Contribution
Percentage" tests shall be considered Qualified Non-Elective Contributions and
be subject to the provisions of Sections 4.2(b) and 4.2(c).
1.49 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.50 "Retired Participant" means a person who has been a Participant, but
who has become entitled to retirement benefits under the Plan.
1.51 "Retirement Date" means the date as of which a Participant retires
for reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date
(see Section 6.1).
1.52 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.53 "Terminated Participant" means a person who has been a Participant,
but whose employment has been terminated other than by death, Total and
Permanent Disability or retirement.
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1.54 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.55 "Top Heavy Plan Year" means a Plan Year during which the Plan is a
Top Heavy Plan.
1.56 "Top Paid Group" means the top 20 percent of Employees who performed
services for the Employer during the applicable year, ranked according to the
amount of "415 Compensation" (determined for this purpose in accordance with
Section 1.26) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
within the meaning of Code Sections 414(n) (2) and 414(o) (2) shall be
considered Employees unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and are not covered in any qualified plan
maintained by the Employer. Employees who are non-resident aliens and who
received no earned income (within the meaning of Code Section 911(d)(2)) from
the Employer constituting United States source income within the meaning of Code
Section 861(a) (3) shall not be treated as Employees. Additionally, for the
purpose of determining the number of active Employees in any year, the following
additional Employees shall also be excluded; however, such Employees shall still
be considered for the purpose of identifying the particular Employees in the Top
Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per
week;
(c) Employees who normally work less than six (6) months
during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer
are covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied
on a uniform and consistent basis for all purposes for which the Code Section
414(q) definition is applicable.
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1.57 "Total and Permanent Disability" means a physical or mental
condition of a Participant resulting from bodily injury, disease, or mental
disorder which renders him incapable of continuing his usual and customary
employment with the Employer. The disability of a Participant shall be
determined by a licensed physician chosen by the Administrator. The
determination shall be applied uniformly to all Participants.
1.58 "Trustee" means the person or entity named as trustee herein or in
any separate trust forming a part of this Plan, and any successors.
1.59 "Trust Fund" means the assets of the Plan and Trust as the same
shall exist from time to time.
1.60 "Vested" means the nonforfeitable portion of any account maintained
on behalf of a Participant.
1.61 "Voluntary Contribution Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from the Participant's nondeductible voluntary
contributions made pursuant to Section 4.12.
Amounts recharacterized as voluntary Employee contributions
pursuant to Section 4.6(a) shall remain subject to the limitations of Sections
4.2(b) and 4.2(c). Therefore, a separate accounting shall be maintained with
respect to that portion of the Voluntary Contribution Account attributable to
voluntary Employee contributions made pursuant to Section 4.12.
1.62 "Year of Service" means the computation period of twelve (12)
consecutive months, herein set forth, during which an Employee has at least 1000
Hours of Service.
For purposes of eligibility for participation, the initial
computation period shall begin with the date on which the Employee first
performs an Hour of Service. The participation computation period beginning
after a 1-Year Break in Service shall be measured from the date on which an
Employee again performs an Hour of Service. The participation computation period
shall shift to the Plan Year which includes the anniversary of the date on which
the Employee first performed an Hour of Service. An Employee who is credited
with the required Hours of Service in both the initial computation period (or
the computation period beginning after a 1-Year Break in Service) and the Plan
Year which includes the anniversary of the date on which the Employee first
performed an Hour of Service, shall be credited with two (2) Years of Service
for purposes of eligibility to participate.
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For vesting purposes, the computation period shall be the twelve
month period from the Participant's date of hire to the Anniversary of his or
her date of hire.
For all other purposes, the computation period shall be the Plan
Year.
Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service shall be
made in accordance with Department of Labor regulation 2530.203-2(c). However,
in determining whether an Employee has completed a Year of Service for benefit
accrual purposes in the short Plan Year, the number of the Hours of Service
required shall be proportionately reduced based on the number of full months in
the short Plan Year.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special
vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan
and the special minimum allocation requirements of Code Section 416(c) pursuant
to Section 4.4 of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year
in which, as of the Determination Date,
(1) the Present Value of Accrued Benefits of Key Employees and (2)
the sum of the Aggregate Accounts of Key Employees under this Plan
and all plans of an Aggregation Group, exceeds sixty percent (60%)
of the Present Value of Accrued Benefits and the Aggregate
Accounts of all Key and Non-Key Employees under this Plan and all
plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan
Year, but such Participant was a Key Employee for any prior Plan
Year, such Participant's Present Value of Accrued Benefit and/or
Aggregate Account balance shall not be taken into account for
purposes of determining whether this Plan is a Top Heavy or Super
Top Heavy Plan (or whether any Aggregation Group which
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includes this Plan is a Top Heavy Group). In addition , if a
Participant or Former Participant has not performed any services
for any Employer maintaining the Plan at any time during the five
year period ending on the Determination Date, any accrued benefit
for such Participant or Former Participant shall not be taken into
account for the purposes of determining whether this Plan is a Top
Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan
Year in which, as of the Determination Date, (1) the Present Value
of Accrued Benefits of Key Employees and (2) the sum of the
Aggregate Accounts of Key Employees under this Plan and all plans
of an Aggregation Group, exceeds ninety percent (90%) of the
Present Value of Accrued Benefits and the Aggregate Accounts of
all Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as
of the Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the
most recent valuation occurring within a twelve (12) month
period ending on the Determination Date;
(2) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the amount of
any contributions actually made after the valuation date
but due on or before the Determination Date, except for the
first Plan Year when such adjustment shall also reflect the
amount of any contributions made after the Determination
Date that are allocated as of a date in that first Plan
Year.
(3) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four (4)
preceding Plan Years. However, in the case of distributions
made after the valuation date and prior to the
Determination Date, such distributions are not included as
distributions for top heavy purposes to the extent that
such distributions are already included in the
Participant's Aggregate Account balance as of the valuation
date. Notwithstanding anything herein to the contrary, all
distributions, including distributions made prior
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to January 1, 1984, and distributions under a terminated
plan which if it had not been terminated would have been
required to be included in an Aggregation Group, will be
counted. Further, distributions from the Plan (including
the cash value of life insurance policies) of a
Participant's account balance because of death shall be
treated as a distribution for the purposes of this
paragraph.
(4) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax deductible
qualified voluntary employee contributions shall not be
considered to be a part of the Participant's Aggregate
Account balance.
(5) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee
and made from a plan maintained by one employer to a plan
maintained by another employer), if this Plan provides the
rollovers or plan-to-plan transfers, it shall always
consider such rollovers or plan-to-plan transfers as a
distribution for the purposes of this Section. If this Plan
is the plan accepting such rollovers or plan-to-plan
transfers, it shall not consider such rollovers or
plan-to-plan transfers as part of the Participant's
Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee or
made to a plan maintained by the same employer), if this
Plan provides the rollover or plan-to-plan transfer, it
shall not be counted as a distribution for purposes of this
Section. If this Plan is the plan accepting such rollover
or plan-to-plan transfer, it shall consider such rollover
or plan-to-plan transfer as part of the Participant's
Aggregate Account balance, irrespective of the date on
which such rollover or plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two employers
are to be treated as the same employer in (5) and (6)
above, all employers aggregated under Code Section 414(b),
(c), (m) and (o) are treated as the same employer.
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(d) "Aggregation Group" means either a Required
Aggregation Group or a Permissive Aggregation Group as hereinafter
determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each plan of the Employer in
which a Key Employee is a participant in the Plan Year
containing the Determination Date or any of the four
preceding Plan Years, and each other plan of the Employer
which enables any plan in which a Key Employee participates
to meet the requirements of Code Sections 401(a)(4) or 410,
will be required to be aggregated. Such group shall be
known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in
the group will be considered a Top Heavy Plan if the
Required Aggregation Group is a Top Heavy Group. No plan in
the Required Aggregation Group will be considered a Top
Heavy Plan if the Required Aggregation Group is not a Top
Heavy Group.
(2) Permissive Aggregation Group: The Employer may also
include any other plan not required to be included in the
Required Aggregation Group, provided the resulting group,
taken as a whole, would continue to satisfy the provisions
of Code Sections 401(a) (4) and 410. Such group shall be
known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan
that is part of the Required Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation
Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy Plan if
the Permissive Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year
shall be aggregated in order to determine whether such
plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated plan
of the Employer if it was maintained within the last five
(5) years ending on the Determination Date.
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(e) "Determination Date" means (a) the last day of the
preceding Plan Year, or (b) in the case of the first Plan
Year, the last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a
defined benefit plan, the Present Value of Accrued Benefit for a
Participant other than a Key Employee, shall be as determined
using the single accrual method used for all plans of the Employer
and Affiliated Employers, or if no such single method exists,
using a method which results in benefits accruing not more rapidly
than the slowest accrual rate permitted under Code Section 411(b)
(1) (C). The determination of the Present Value of Accrued Benefit
shall be determined as of the most recent valuation date that
falls within or ends with the 12-month period ending on the
Determination Date except as provided in Code Section 416 and the
Regulations thereunder for the first and second plan years of a
defined benefit plan.
(g) "Top Heavy Group" means an Aggregation Group in which,
as of the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees
under all defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all
defined contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined
for all Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove
the Trustee and the Administrator from time to time as it deems
necessary for the proper administration of the Plan to assure that
the Plan is being operated for the exclusive benefit of the
Participants and their Beneficiaries in accordance with the terms
of the Plan, the Code, and the Act.
(b) The Employer shall establish a "funding policy and
method", i.e., it shall determine whether the Plan has a short run
need for liquidity (e.g., to pay benefits) or whether liquidity is
a long run goal and investment growth (and stability of same) is a
more
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current need, or shall appoint a qualified person to do so. The
Employer or its delegate shall communicate such needs and goals to
the Trustee, who shall coordinate such Plan needs with its
investment policy. The communication of such a "funding policy and
method" shall not, however, constitute a directive to the Trustee
as to investment of the Trust Funds. Such "funding policy and
method" shall be consistent with the objectives of this Plan and
with the requirements of Title I of the Act.
(c) The Employer shall periodically review the performance
of any Fiduciary or other person to whom duties have been
delegated or allocated by it under the provisions of this Plan or
pursuant to procedures established hereunder. This requirement may
be satisfied by formal periodic review by the Employer or by a
qualified person specifically designated by the Employer, through
day-to-day conduct and evaluation, or through other appropriate
ways.
(d) The Employer, may, in its discretion, appoint an
Investment Manager to manage all or a designated portion of the
assets of the Plan. In such event, the Trustee shall follow the
directive of the Investment Manager in investing the assets of the
Plan managed by the Investment Manager.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any
person, including, but not limited to, the Employees of the Employer, shall be
eligible to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an
Administrator, shall promptly designate in writing a successor to this position.
If the Employer does not appoint an Administrator, the Employer will function as
the Administrator.
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2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the Employer
and the Trustee in writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation of
such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to
administer the Plan for the exclusive benefit of the Participants and their
Beneficiaries, subject to the specific terms of the Plan. The Administrator
shall administer the Plan in accordance with its terms and shall have the power
and discretion to construe the terms of the Plan and to determine all questions
arising in connection with the administration, interpretation, and application
of the Plan. Any such determination by the Administrator shall be conclusive and
binding upon all persons. The Administrator may establish procedures, correct
any defect, supply any information, or reconcile any inconsistency in such
manner and to such extent as shall be deemed necessary or advisable to carry out
the purpose of the Plan; provided, however, that any procedure, discretionary
act, interpretation or construction shall be done in a nondiscriminatory manner
based upon uniform principles consistently applied and shall be consistent with
the intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401(a), and shall comply with the terms of the Act and all
regulations issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the
general administration of the Plan, including, but not limited to, the
following:
(a) the discretion to determine all questions relating to
the eligibility of Employees to participate or remain a
Participant hereunder and to receive benefits under the Plan;
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(b) to compute, certify, and direct the Trustee with
respect to the amount and the kind of benefits to which any
Participant shall be entitled hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Trust;
(d) to maintain all necessary records for the
administration of the Plan;
(e) to interpret the provisions of the Plan and to make and
publish such rules for regulation of the Plan as are consistent
with the terms hereof;
(f) to determine the size and type of any Contract to be
purchased from any insurer, and to designate the insurer from
which such Contract shall be purchased;
(g) to compute and certify to the Employer and to the
Trustee from time to time the sums of money necessary or desirable
to be contributed to the Plan;
(h) to consult with the Employer and the Trustee regarding
the short and long-term liquidity needs of the Plan in order that
the Trustee can exercise any investment discretion in a manner
designed to accomplish specific objectives;
(i) to prepare and distribute to Employees a procedure for
notifying Participants and Beneficiaries of their rights to elect
joint and survivor annuities and Pre-Retirement Survivor Annuities
as required by the Act and Regulations thereunder;
(j) to prepare and implement a procedure to notify Eligible
Employees that they may elect to have a portion of their
Compensation deferred or paid to them in cash;
(k) to assist any Participant regarding his rights,
benefits, qr elections available under the Plan.
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2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall
keep all other books of account, records, and other data that may be necessary
for proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, and other persons as
the Administrator or the Trustee deems necessary or desirable in connection with
the administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer
shall supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their Hours of Service, their
Years of Service, their retirement, death, disability, or termination of
employment, and such other pertinent facts as the Administrator may require; and
the Administrator shall advise the Trustee of such of the foregoing facts as may
be pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund
unless paid by the Employer. Such expenses shall include any expenses incident
to the functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred.
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2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed with the
Administrator on forms supplied by the Employer. Written notice of the
disposition of a claim shall be furnished to the claimant within 90 days after
the application is filed. In the event the claim is denied, the reasons for the
denial shall be specifically set forth in the notice in language calculated to
be understood by the claimant, pertinent provisions of the Plan shall be cited,
and, where appropriate, an explanation as to how the claimant can perfect the
claim will be provided. In addition, the claimant shall be furnished with an
explanation of the Plan's claims review procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has
been denied a benefit by a decision of the Administrator pursuant to Section
2.12 shall be entitled to request the Administrator to give further
consideration to his claim by filing with the Administrator (on a form which may
be obtained from the Administrator) a request for a hearing. Such request,
together with a written statement of the reasons why the claimant believes his
claim should be allowed, shall be filed with the Administrator no later than 60
days after receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
choosing and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon 5 business days written notice to the Administrator) the
claimant or his representative shall have an opportunity to review all documents
in the possession of the Administrator which are pertinent to the claim at issue
and its disallowance. Either the claimant or the Administrator may cause a court
reporter to attend the hearing and record the proceedings. In such event, a
complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the court
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reporter to attend the hearing. A final decision as to the allowance of the
claim shall be made by the Administrator within 60 days of receipt of the appeal
(unless there has been an extension of 60 days due to special circumstances,
provided the delay and the special circumstances occasioning it are communicated
to the claimant within the 60 day period). Such communication shall be written
in a manner calculated to be understood by the claimant and shall include
specific reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Effective October 1, 1993, exclusively for purposes of Section 4.2
of this Plan, any Eligible Employee shall be eligible to participate hereunder
as of his or her date of hire. For all other purposes, including eligibility for
Contributions described in Sections 4.1(b) and 4.1(c), and, prior to October 1,
1993, also for purposes of eligibility for Contributions described in Section
4.2, any Eligible Employee who has completed one (1) Year of Service shall be
eligible to participate hereunder as of the date he has satisfied such
requirements. However, any Employee who was a Participant in the Plan prior to
the effective date of this amendment and restatement shall continue to
participate in the Plan. The Employer shall give each prospective Eligible
Employee written notice of his eligibility to participate in the Plan prior to
the close of the Plan Year in which he first becomes an Eligible Employee.
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible Employee
shall make application to the Employer for participation in the Plan and agree
to the terms hereof. Upon the acceptance of any benefits under this Plan, such
Employee shall automatically be deemed to have made application and shall be
bound by the terms and conditions of the Plan and all amendments hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the
earlier of the April 1 or October 1 coinciding with or next following the date
such Employee met the eligibility requirements of Section 3.1, provided said
Employee was still employed as of such date (or if not employed on such date, as
of the date of rehire if a 1-Year Break in Service has not occurred).
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In the event an Employee who is not a member of an eligible class of
Employees becomes a member of an eligible class, such Employee will participate
immediately if such Employee has satisfied the minimum age and service
requirements and would have otherwise previously become a Participant.
3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee
for participation in the Plan based upon information furnished by the Employer.
Such determination shall be conclusive and binding upon all persons, as long as
the same is made pursuant to the Plan and the Act. Such determination shall be
subject to review per Section 2.13.
3.5 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a
classification of an Eligible Employee to an ineligible Employee,
such Former Participant shall continue to vest in his interest in
the Plan for each Year of Service completed while a noneligible
Employee, until such time as his Participant's Account shall be
forfeited or distributed pursuant to the terms of the Plan.
Additionally, his interest in the Plan shall continue to share in
the earnings of the Trust Fund.
(b) In the event a Participant is no longer a member of an
eligible class of Employees and becomes ineligible to participate
but has not incurred a 1-Year Break in Service, such Employee will
participate immediately upon returning to an eligible class of
Employees. If such Participant incurs a 1-Year Break in Service,
eligibility will be determined under the break in service rules of
the Plan.
3.6 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
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3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included
as a Participant in the Plan is erroneously included and discovery of such
incorrect inclusion is not made until after a contribution for the year has been
made, the Employer shall not be entitled to recover the contribution made with
respect to the ineligible person regardless of whether or not a deduction is
allowable with respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall constitute a Forfeiture
(except for Deferred Compensation which shall be distributed to the ineligible
person) for the Plan Year in which the discovery is made.
3.8 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate must
be communicated to the Employer, in writing, at least thirty (30) days before
the beginning of a Plan Year.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of
all Participants made pursuant to Section 4.2(a), which amount
shall be deemed an Employer's Elective Contribution.
(b) On behalf of each Participant who is eligible to share
in matching contributions for the Plan Year, a discretionary
matching contribution equal to a percentage of each such
Participant's Deferred Compensation, the exact percentage to be
determined each year by the Employer, which amount shall be deemed
an Employer's Non-Elective Contribution. If a Participant's rate
of contribution changes during a Plan Year, the Employer Matching
Contribution percentage shall be applied to the percentage as in
effect from time to time rather than to the cumulative net
contribution of such Participant for the Plan Year.
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(c) A discretionary amount, which amount shall be deemed an
Employer's Non-Elective Contribution.
(d) Notwithstanding the foregoing, however, the Employer's
contributions for any Plan Year shall not exceed the maximum
amount allowable as a deduction to the Employer under the
provisions of Code Section 404. All contributions by the Employer
shall be made in cash or in such property as is acceptable to the
Trustee.
(e) Except, however, to the extent necessary to provide the
top heavy minimum allocations, the Employer shall make a
contribution even if it exceeds the amount which is deductible
under Code Section 404.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer from 1% to 15% of
his Compensation which would have been received in the Plan Year,
but for the deferral election. A deferral election (or
modification of an earlier election) may not be made with respect
to Compensation which is currently available on or before the date
the Participant executed such election.
The amount by which Compensation is reduced shall be
that Participant's Deferred Compensation and be treated as an
Employer Elective Contribution and allocated to that Participant's
Elective Account.
(b) The balance in each Participant's Elective Account
shall be fully Vested at all times and shall not be subject to
Forfeiture for any reason.
(c) Amounts held in the Participant's Elective Account may
not be distributable earlier than:
(1) a Participant's termination of employment, Total and
Permanent Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the termination of the Plan without the establishment
or existence of a "successor plan", as that term is
described in Regulation 1.401(k)-1(d) (3);
(4) the date of disposition by the Employer to an entity
that is not an Affiliated Employer of
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substantially all of the assets (within the meaning of Code
Section 409(d)(2)) used in a trade or business of such
corporation if such corporation continues to maintain this
Plan after the disposition with respect to a Participant
who continues employment with the corporation acquiring
such assets;
(5) the date of disposition by the Employer or an
Affiliated Employer who maintains the Plan of its interest
in a subsidiary (within the meaning of Code Section
409(d)(3)) to an entity which is not an Affiliated Employer
but only with respect to a Participant who continues
employment with such subsidiary; or
(6) the proven financial hardship of a Participant, subject
to the limitations of Section 6.11.
(d) For each Plan Year beginning after December 31, 1987, a
Participant's Deferred Compensation made under this Plan and all
other plans, contracts or arrangements of the Employer maintaining
this Plan shall not exceed, during any taxable year of the
Participant, the limitation imposed by Code Section 402(g), as in
effect at the beginning of such taxable year. If such dollar
limitation is exceeded, a Participant will be deemed to have
notified the Administrator of such excess amount which shall be
distributed in a manner consistent with 4.2(f). The dollar
limitation shall be adjusted annually pursuant to the method
provided in Code Section 415(d) in accordance with Regulations.
(e) In the event a Participant has received a hardship
distribution from his Participant's Elective Account pursuant to
Section 6.11 or pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B)
from any other plan maintained by the Employer, then such
Participant shall not be permitted to elect to have Deferred
Compensation contributed to the Plan on his behalf for a period of
twelve (12) months following the receipt of the distribution.
Furthermore, the dollar limitation under Code Section 402(g) shall
be reduced, with respect to the Participant's taxable year
following the taxable year in which the hardship distribution was
made, by the amount of such Participant's Deferred Compensation,
if any, pursuant to this Plan (and any other plan
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maintained by the Employer) for the taxable year of the hardship
distribution.
(f) If a Participant's Deferred Compensation under this
Plan together with any elective deferrals (as defined in
Regulation 1.402(g)-1(b)) under another qualified cash or deferred
arrangement (as defined in Code Section 401(k)), a simplified
employee pension (as defined in Code Section 408(k)), a salary
reduction arrangement (within the meaning of Code Section
3121(a)(5)(D)), a deferred compensation plan under Code Section
457, or a trust described in Code Section 501(c) (18) cumulatively
exceed the limitation imposed by Code Section 402(g) (as adjusted
annually in accordance with the method provided in Code Section
415(d) pursuant to Regulations) for such Participant's taxable
year, the Participant may, not later than March 1 following the
close of the Participant's taxable year, notify the Administrator
in writing of such excess and request that his Deferred
Compensation under this Plan be reduced by an amount specified by
the Participant. In such event, the Administrator may direct the
Trustee to distribute such excess amount (and any Income allocable
to such excess amount) to the Participant not later than the first
April 15th following the close of the Participant's taxable year.
Distributions in accordance with this paragraph may be made for
any taxable year of the Participant which begins after December
31, 1986. Any distribution of less than the entire amount of
Excess Deferred Compensation and Income shall be treated as a pro
rata distribution of Excess Deferred Compensation and Income. The
amount distributed shall not exceed the Participant's Deferred
Compensation under the Plan for the taxable year. Any distribution
on or before the last day of the Participant's taxable year must
satisfy each of the following conditions:
(1) the distribution must be made after the date on which
the Plan received the Excess Deferred Compensation;
(2) the Participant shall designate the distribution as
Excess Deferred Compensation; and
(3) the Plan must designate the distribution as a
distribution of Excess Deferred Compensation.
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Any distribution made pursuant to this Section 4.2(f)
shall be made simultaneously from Deferred Compensation and
matching contributions which relate to such Deferred Compensation
provided, however, that any such matching contributions which are
not Vested shall be forfeited in lieu of distribution.
(g) Notwithstanding Section 4.2(f) above, a Participant's
Excess Deferred Compensation shall be reduced, but not below zero,
by any distribution and/or recharacterization of Excess
Contributions pursuant to Section 4.6(a) for the Plan Year
beginning with or within the taxable year of the Participant.
(h) At Normal Retirement Date, or such other date when the
Participant shall be entitled to receive benefits, the fair market
value of the Participant's Elective Account shall be used to
provide additional benefits to the Participant or his Beneficiary.
(i) All amounts allocated to a Participant's Elective
Account may be treated as a Directed Investment Account pursuant to
Section 4.13.
(j) Employer Elective Contributions made pursuant to this
Section may be segregated into a separate account for each
Participant in a federally insured savings account, certificate of
deposit in a bank or savings and loan association, money market
certificate, or other short-term debt security acceptable to the
Trustee until such time as the allocations pursuant to Section 4.4
have been made.
(k) The Employer and the Administrator shall implement the
salary reduction elections provided for herein in accordance with
the following:
(1) A Participant may commence making elective deferrals to
the Plan only after first satisfying the eligibility and
participation requirements specified in Article III.
However, the Participant must make his initial salary
deferral election within a reasonable time, not to exceed
thirty (30) days, after entering the Plan pursuant to
Section 3.3. If the Participant fails to make an initial
salary deferral election within such time, then such
Participant may thereafter make an election in accordance
with the rules governing modifications. The
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Participant shall make such an election by entering into a
written salary reduction agreement with the Employer and
filing such agreement with the Administrator. Such election
shall initially be effective beginning with the pay period
following the acceptance of the salary reduction agreement
by the Administrator, shall not have retroactive effect and
shall remain in force until revoked.
(2) A Participant may modify a prior election on April 1 or
October 1 and concurrently make a new election by filing a
written notice with the Administrator within a reasonable
time before the pay period for which such modification is
to be effective. However, modifications to a salary
deferral election shall only be permitted semi-annually,
during election periods established by the Administrator
prior to the first day of a Plan Year and the first day of
the seventh month of a Plan Year. Any modification shall
not have retroactive effect and shall remain in force until
revoked.
(3) A Participant may elect to prospectively revoke his
salary reduction agreement in its entirety at any time
during the Plan Year by providing the Administrator with
thirty (30) days written notice of such revocation (or upon
such shorter notice period as may be acceptable to the
Administrator). Such revocation shall become effective as
of the beginning of the first pay period coiricident with
or next following the expiration of the notice period.
Furthermore, the termination of the Participant's
employment, or the cessation of participation for any
reason, shall be deemed to revoke any salary reduction
agreement then in effect, effective immediately following
the close of the pay period within which such termination
or cessation occurs.
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to
the Plan for each Plan Year within the time prescribed by law, including
extensions of time, for the filing of the Employer's federal income tax return
for the Fiscal Year.
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However, Employer Elective Contributions accumulated through
payroll deductions shall be paid to the Trustee as of the earliest date on
which such contributions can reasonably be segregated from the Employer's
general assets, but in any event within ninety (90) days from the date on which
such amounts would otherwise have been payable to the Participant in cash. The
provisions of Department of Labor regulations 2510.3-102 are incorporated
herein by reference. Furthermore, any additional Employer contributions which
are allocable to the Participant's Elective Account for a Plan Year shall be
paid to the Plan no later than the twelve-month period immediately following
the close of such Plan Year.
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an
account in the name of each Participant to which the Administrator
shall credit as of each Anniversary Date all amounts allocated to
each such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper
allocation of the Employer's contributions for each Plan Year.
Within a reasonable period of time after the date of receipt by
the Administrator of such information, the Administrator shall
allocate such contribution as follows:
(1) With respect to the Employer's Elective Contribution
made pursuant to Section 4.1(a), to each Participant's
Elective Account in an amount equal to each such
Participant's Deferred Compensation for the year.
(2) With respect to the Employer's Non-Elective
Contribution made pursuant to Section 4.1(b), to each
Participant's Account in accordance with Section 4.1(b).
Any Participant actively employed during the Plan Year
shall be eligible to share in the matching contribution for
the Plan Year.
(3) With respect to the Employer's Non-Elective
Contribution made pursuant to Section 4.1(c), to each
Participant's Account in the same proportion that each such
Participant's Compensation for the year bears to the total
Compensation of all Participants for such year.
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Only Participants who have completed a Year of Service
during the Plan Year shall be eligible to share in the
discretionary contribution for the year.
(c) As of each Anniversary Date any amounts which became
Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances of
Former Participants, if any, in accordance with Section 6.4(g)(2).
The remaining Forfeitures, if any, shall be allocated to
Participants' Accounts and used to reduce the contribution of the
Employer hereunder for the Plan Year in which such Forfeitures
occur in the following manner:
(1) Forfeitures attributable to Employer matching
contributions made pursuant to Section 4.1(b) shall be used
to reduce the Employer's contribution for the Plan Year in
which such Forfeitures occur.
(2) Forfeitures attributable to Employer discretionary
contributions made pursuant to Section 4.1(c) shall be
added to the Employer's discretionary contribution for the
Plan Year in which such Forfeitures occur and allocated
among the Participants' Accounts in the same manner as the
Employer's discretionary contributions.
Provided, however, that in the event the allocation of
Forfeitures provided herein shall cause the "annual addition" (as
defined in Section 4.9) to any Participant's Account to exceed the
amount allowable by the Code, the excess shall be reallocated in
accordance with Section 4.10.
(d) For any Top Heavy Plan Year, Employees not otherwise
eligible to share in the allocation of contributions and
Forfeitures as provided above, shall receive the minimum
allocation provided for in Section 4.4(g) if eligible pursuant to
the provisions of Section 4.4(i).
(e) Notwithstanding the foregoing, Participants who are not
actively employed on the last day of the Plan Year due to Retirement
(Early, Normal or Late) , Total and Permanent Disability or death
shall share in the allocation of contributions and Forfeitures for
that Plan Year.
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(f) On each business day of the Plan Year, a daily
determination of unrealized and realized gains and losses,
interest and dividends will be calculated and allocated based on
the actual activity in each Participant's account. Activity
includes, but is not limited to, allocation of contribution and
forfeitures, and distributions.
Participants' transfers from other qualified plans and
voluntary contributions deposited in the general Trust Fund shall
share in any earnings and losses (net appreciation or net
depreciation) of the Trust Fund in the same manner provided above.
Each segregated account maintained on behalf of a Participant
shall be credited or charged with its separate earnings and
losses.
(g) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the
sum of the Employer's contributions and Forfeitures allocated to
the Participant's Combined Account of each Employee shall be equal
to at least three percent (3%) of such Employee's "415
Compensation" (reduced by contributions and forfeitures, if any,
allocated to each Employee in any defined contribution plan
included with this plan in a Required Aggregation Group). However,
if (1) the sum of the Employer's contributions and Forfeitures
allocated to the Participant's Combined Account of each Key
Employee for such Top Heavy Plan Year is less than three percent
(3%) of each Key Employee's "415 Compensation" and (2) this Plan
is not required to be included in an Aggregation Group to enable a
defined benefit plan to meet the requirements of Code Section
401(a) (4) or 410, the sum of the Employer's contributions and
Forfeitures allocated to the Participant's Combined Account of
each Employee shall be equal to the largest percentage allocated
to the Participant's Combined Account of any Key Employee.
However, in determining whether a Non-Key Employee has received
the required minimum allocation, such Non-Key Employee's Deferred
Compensation and matching contributions needed to satisfy the
"Actual Contribution Percentage" tests pursuant to Section 4.7(a)
shall not be taken into account.
However, no such minimum allocation shall be required in
this Plan for any Employee who participates in another defined
contribution plan subject to Code
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Section 412 providing such benefits included with this Plan in a
Required Aggregation Group.
(h) For purposes of the minimum allocations set forth
above, the percentage allocated to the Participant's Combined
Account of any Key Employee shall be equal to the ratio of the sum
of the Employer's contributions and Forfeitures allocated on
behalf of such Key Employee divided by the "415 Compensation" for
such Key Employee.
(i) For any Top Heavy Plan Year, the minimum allocations
set forth above shall be allocated to the Participant's Combined
Account of all Employees who are Participants and who are employed
by the Employer on the last day of the Plan Year, including
Employees who have (1) failed to complete a Year of Service; and
(2) declined to make mandatory contributions (if required) or, in
the case of a cash or deferred arrangement, elective contributions
to the Plan.
(j) For the purposes of this Section, "415 Compensation"
shall be limited to $200,000. Such amount shall be adjusted at the
same time and in the same manner as permitted under Code Section
415(d), except that the dollar increase in effect on January 1 of
any calendar year shall be effective for the Plan Year beginning
with or within such calendar year and the first adjustment to the
$200,000 limitation shall be effective on January 1, 1990. For any
short Plan Year the "415 Compensation" limit shall be an amount
equal to the "415 Compensation" limit for the calendar year in
which the Plan Year begins multiplied by the ratio obtained by
dividing the number of full months in the short Plan Year by
twelve (12). However, for Plan Years beginning prior to January 1,
1989, the $200,000 limit shall apply only for Top Heavy Plan Years
and shall not be adjusted.
(k) Notwithstanding anything herein to the contrary,
Participants who terminated employment for any reason during the
Plan Year shall share in the salary reduction contributions made
by the Employer for the year of termination without regard to the
Hours of Service credited.
(1) If a Former Participant is reemployed after five (5)
consecutive 1-Year Breaks in Service, then separate accounts shall
be maintained as follows:
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(1) one account for nonforfeitable benefits attributable to
pre-break service; and
(2) one account representing his status in the Plan attributable
to post-break service.
(m) Notwithstanding anything to the contrary, for Plan Years
beginning after December 31, 1989, if this is a Plan that would otherwise
fail to meet the requirements of Code Sections 401(a)(26), 410(b)(l) or
410(b) (2) (A) (i) and the Regulations thereunder because Employer
contributions would not be allocated to a sufficient number or percentage
of Participants for a Plan Year, then the following rules shall apply:
(1) The group of Participants eligible to share in the Employer's
contribution and Forfeitures for the Plan Year shall be expanded
to include the minimum number of Participants who would not
otherwise be eligible as are necessary to satisfy the applicable
test specified above. The specific Participants who shall become
eligible under the terms of this paragraph shall be those who are
actively employed on the last day of the Plan Year and, when
compared to similarly situated Participants, have completed the
greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the applicable
test is still not satisfied, then the group of Participants
eligible to share in the Employer's contribution and Forfeitures
for the Plan Year shall be further expanded to include the minimum
number of Participants who are not actively employed on the last
day of the Plan Year as are necessary to satisfy the applicable
test. The specific Participants who shall become eligible to share
shall be those Participants, when compared to similarly situated
Participants, who have completed the greatest number of Hours of
Service in the Plan Year before terminating employment.
(3) Nothing in this Section shall permit the reduction of a
Participant's accrued benefit. Therefore any amounts that have
previously been allocated to Participants may not be reallocated
to satisfy these requirements. In such event, the Employer shall
make an additional contribution
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equal to the amount such affected Participants would have received
had they been included in the allocations, even if it exceeds the
amount which would be deductible under Code Section 404. Any
adjustment to the allocations pursuant to this paragraph shall be
considered a retroactive amendment adopted by the last day of the
Plan Year.
(4) Notwithstanding the foregoing, for any Top Heavy Plan Year
beginning after December 31, 1992, if the portion of the Plan
which is not a Code Section 401(k) or 401(m) plan would fail to
satisfy Code Section 410(b) if the coverage tests were applied by
treating those Participants whose only allocation (under such
portion of the Plan) would otherwise be provided under the top
heavy formula as if they were not currently benefiting under the
Plan, then, for purposes of this Section 4.4(m), such Participants
shall be treated as not benefiting and shall therefore be eligible
to be included in the expanded class of Participants who will
share in the allocation provided under the Plan's non top heavy
formula.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year beginning after
December 31, 1986, the annual allocation derived from Employer Elective
Contributions to a Participant's Elective Account shall satisfy one of
the following tests:
(1) The "Actual Deferral Percentage" for the Highly Compensated
Participant group shall not be more than the "Actual Deferral
Percentage" of the Non-Highly Compensated Participant group
multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the Highly
Compensated Participant group over the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group shall
not be more than two percentage points. Additionally, the "Actual
Deferral Percentage" for the Highly Compensated Participant group
shall not exceed the "Actual Deferral Percentage" for the
Non-Highly Compensated Participant group multiplied by 2.
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The provisions of Code Section 401(k)(3) and Regulation
1.401(k)-1(b) are incorporated herein by reference.
However, for Plan Years beginning after December 31, 1988, in
order to prevent the multiple use of the alternative method
described in (2) above and in Code Section 401(m)(9)(A), any
Highly Compensated Participant eligible to make elective deferrals
pursuant to Section 4.2 and to make Employee contributions or to
receive matching contributions under this Plan or under any other
plan maintained by the Employer or an Affiliated Employer shall
have his actual contribution ratio reduced pursuant to Regulation
1.401(m)-2, the provisions of which are incorporated herein by
reference.
(b) For the purposes of this Section "Actual Deferral Percentage"
means, with respect to the Highly Compensated Participant group and
Non-Highly Compensated Participant group for a Plan Year, the average of
the ratios, calculated separately for each Participant in such group, of
the amount of Employer Elective Contributions allocated to each
Participant's Elective Account for such Plan Year, to such Participant's
"414(s) Compensation" for such Plan Year. The actual deferral ratio for
each Participant and the "Actual Deferral Percentage" for each group
shall be calculated to the nearest one-hundredth of one percent for Plan
Years beginning after December 31, 1988. Employer Elective Contributions
allocated to each Non-Highly Compensated Participant's Elective Account
shall be reduced by Excess Deferred Compensation to the extent such
excess amounts are made under this Plan or any other plan maintained by
the Employer.
(c) For the purpose of determining the actual deferral ratio of a
Highly Compensated Employee who is subject to the Family Member
aggregation rules of Code Section 414(q) (6) because such Participant is
either a "five percent owner" of the Employer or one of the ten (10)
Highly Compensated Employees paid the greatest "415 Compensation" during
the year, the following shall apply:
(1) The combined actual deferral ratio for the family group (which
shall be treated as one Highly Compensated Participant) shall be
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<PAGE> 47
determined by aggregating Employer Elective Contributions and
"414(s) Compensation" of all eligible Family Members (including
Highly Compensated Participants). However, in applying the
$200,000 limit to "414(s) Compensation", for Plan Years beginning
after December 31, 1988, Family Members shall include only the
affected Employee's spouse and any lineal descendants who have not
attained age 19 before the close of the Plan Year. Notwithstanding
the foregoing, with respect to Plan Years beginning prior to
January 1, 1990, compliance with the Regulations then in effect
shall be deemed to be compliance with this paragraph.
(2) The Employer Elective Contributions and "414(s) Compensation"
of all Family Members shall be disregarded for purposes of
determining the "Actual Deferral Percentage" of the Non-Highly
Compensated Participant group except to the extent taken into
account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are
members of those family groups that include the Participant are
aggregated as one family group in accordance with paragraphs (1)
and (2) above.
(d) For the purposes of Sections 4.5(a) and 4.6, a Highly
Compensated Participant and a Non-Highly Compensated Participant shall
include any Employee eligible to make a deferral election pursuant to
Section 4.2, whether or not such deferral election was made or suspended
pursuant to Section 4.2.
(e) For the purposes of this Section and Code Sections 401(a)(4),
410(b) and 401(k), if two or more plans which include cash or deferred
arrangements are considered one plan for the purposes of Code Section
401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii)as in effect
for Plan Years beginning after December 31, 1988), the cash or deferred
arrangements included in such plans shall be treated as one arrangement.
In addition, two or more cash or deferred arrangements may be considered
as a single arrangement for purposes of determining whether or not such
arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In such
a case, the cash or deferred
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<PAGE> 48
arrangements included in such plans and the plans including such
arrangements shall be treated as one arrangement and as one plan for
purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k).
Plans may be aggregated under this paragraph (e) only if they have the
same plan year.
Notwithstanding the above, for Plan Years beginning after December
31, 1988, an employee stock ownership plan described in Code Section
4975(e)(7) or 409 may not be combined with this Plan for purposes of
determining whether the employee stock ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(k).
(f) For the purposes of this Section, if a Highly Compensated
Participant is a Participant under two or more cash or deferred
arrangements (other than a cash or deferred arrangement which is part of
an employee stock ownership plan as defined in Code Section 4975(e)(7) or
409 for Plan Years beginning after December 31, 1988) of the Employer or
an Affiliated Employer, all such cash or deferred arrangements shall be
treated as one cash or deferred arrangement for the purpose of
determining the actual deferral ratio with respect to such Highly
Compensated Participant. However, for Plan Years beginning after December
31, 1988, if the cash or deferred arrangements have different plan years,
this paragraph shall be applied by treating all cash or deferred
arrangements ending with or within the same calendar year as a single
arrangement.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's Elective
Contributions made pursuant to Section 4.4 do not satisfy one of the tests set
forth in Section 4.5(a) for Plan Years beginning after December 31, 1986, the
Administrator shall adjust Excess Contributions pursuant to the options set
forth below:
(a) On or before the fifteenth day of the third month following
the end of each Plan Year, the Highly Compensated Participant having the
highest actual deferral ratio shall have his portion of Excess
Contributions distributed to him and/or at his election recharacterized
as a voluntary Employee contribution pursuant to Section 4.12 until one
of the tests set
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<PAGE> 49
forth in Section 4.5(a) is satisfied, or until his actual deferral ratio
equals the actual deferral ratio of the Highly Compensated Participant
having the second highest actual deferral ratio. This process shall
continue until one of the tests set forth in Section 4.5(a) is satisfied.
For each Highly Compensated Participant, the amount of Excess
Contributions is equal to the Elective Contributions on behalf of such
Highly Compensated Participant (determined prior to the application of
this paragraph) minus the amount determined by multiplying the Highly
Compensated Participant's actual deferral ratio (determined after
application of this paragraph) by his "414(s) Compensation". However, in
determining the amount of Excess Contributions to be distributed and/or
recharacterized with respect to an affected Highly Compensated
Participant as determined herein, such amount shall be reduced by any
Excess Deferred Compensation previously distributed to such affected
Highly Compensated Participant for his taxable year ending with or within
such Plan Year.
(1) With respect to the distribution of Excess Contributions
pursuant to (a) above, such distribution:
(i) may be postponed but not later than the close of the
Plan Year following the Plan Year to which they are
allocable;
(ii) shall be made simultaneously from Deferred
Compensation and matching contributions which relate to
such Deferred Compensation provided, however, that any such
matching contributions which are not Vested shall be
forfeited in lieu of distribution;
(iii) shall be adjusted for Income; and
(iv) shall be designated by the Employer as a distribution
of Excess Contributions (and Income).
(2) With respect to the recharacterization of Excess Contributions
pursuant to (a) above, such recharacterized amounts:
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<PAGE> 50
(i) shall be deemed to have occurred on the date on which
the last of those Highly Compensated Participants with
Excess Contributions to be recharacterized is notified of
the recharacterization and the tax consequences of such
recharacterization;
(ii) shall not exceed the amount of Deferred Compensation
on behalf of any Highly Compensated Participant for any
Plan Year;
(iii) shall be treated as voluntary Employee contributions
for purposes of Code Section 401(a) (4) and Regulation
1.401(k)-1(b). However, for purposes of Sections 2.2 and
4.4(g), recharacterized Excess Contributions continue to be
treated as Employer contributions that are Deferred
Compensation. For Plan Years beginning after December 31,
1988, Excess Contributions recharacterized as voluntary
Employee contributions shall continue to be nonforfeitable
and subject to the same distribution rules provided for in
Section 4.2(c);
(iv) are not permitted if the amount recharacterized plus
voluntary Employee contributions actually made by such
Highly Compensated Participant, exceed the maximum amount
of voluntary Employee contributions (determined prior to
application of Section 4.7(a)) that such Highly Compensated
Participant is permitted to make under the Plan in the
absence of recharacterization; and
(v) shall be adjusted for Income.
(3) Any distribution and/or recharacterization of less than the
entire amount of Excess Contributions shall be treated as a pro
rata distribution and/or recharacterization of Excess
Contributions and Income.
(4) The determination and correction of Excess Contributions of a
Highly Compensated Participant whose actual deferral ratio is
determined under
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<PAGE> 51
the family aggregation rules shall be accomplished by reducing the
actual deferral ratio as required herein, and the Excess
Contributions for the family unit shall then be allocated among
the Family Members in proportion to the Elective Contributions of
each Family Member that were combined to determine the group
actual deferral ratio. Notwithstanding the foregoing, with respect
to Plan Years beginning prior to January 1, 1990, compliance with
the Regulations then in effect shall be deemed to be compliance
with this paragraph.
(b) Within twelve (12) months after the end of the Plan Year, the
Employer may make a special Qualified Non-Elective Contribution on behalf
of Non-Highly Compensated Participants in an amount sufficient to satisfy
one of the tests set forth in Section 4.5(a). Such contribution shall be
allocated to the Participant's Elective Account of each Non-Highly
Compensated Participant in the same proportion that each Non-Highly
Compensated Participant's Compensation for the year bears to the total
Compensation of all Non-Highly Compensated Participants.
(c) If during a Plan Year the projected aggregate amount of
Elective Contributions to be allocated to all Highly Compensated
Participants under this Plan would, by virtue of the tests set forth in
Section 4.5(a), cause the Plan to fail such tests, then the Administrator
may automatically reduce proportionately or in the order provided in
Section 4.6(a) each affected Highly Compensated Participant's deferral
election made pursuant to Section 4.2 by an amount necessary to satisfy
one of the tests set forth in Section 4.5(a).
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage" for Plan Years beginning
after December 31, 1986 for the Highly Compensated Participant group
shall not exceed the greater of:
(1) 125 percent of such percentage for the Non-Highly Compensated
Participant group; or
(2) the lesser of 200 percent of such percentage for the
Non-Highly Compensated Participant group,
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<PAGE> 52
or such percentage for the Non-Highly Compensated Participant
group plus 2 percentage points. However, for Plan Years beginning
after December 31, 1988, to prevent the multiple use of the
alternative method described in this paragraph and Code Section
401(m)(9)(A), any Highly Compensated Participant eligible to make
elective deferrals pursuant to Section 4.2 or any other cash or
deferred arrangement maintained by the Employer or an Affiliated
Employer and to make Employee contributions or to receive matching
contributions under this Plan or under any other plan maintained
by the Employer or an Affiliated Employer shall have his actual
contribution ratio reduced pursuant to Regulation 1.401(m)-2. The
provisions of Code Section 401(m) and Regulations 1.401(m)-l(b)
and l.401(m)-2 are incorporated herein by reference.
(b) For the purposes of this Section and Section 4.8, "Actual
Contribution Percentage" for a Plan Year means, with respect to the
Highly Compensated Participant group and Non-Highly Compensated
Participant group, the average of the ratios (calculated separately for
each Participant in each group) of:
(1) the sum of Employer matching contributions made pursuant to
Section 4.1(b), voluntary Employee contributions made pursuant to
Section 4.12 and Excess Contributions recharacterized as voluntary
Employee contributions pursuant to Section 4.6(a) on behalf of
each such Participant for such Plan Year; to
(2) the Participant's "414(s) Compensation" for such Plan Year.
(c) For purposes of determining the "Actual Contribution
Percentage" and the amount of Excess Aggregate Contributions pursuant to
Section 4.8(d), only Employer matching contributions (excluding Employer
matching contributions forfeited or distributed pursuant to Sections
4.2(f) and 4.6(a)(1) or forfeited pursuant to Section 4.8(a)) contributed
to the Plan prior to the end of the succeeding Plan Year shall be
considered. In addition, the Administrator may elect to take into
account, with respect to Employees eligible to have Employer matching
contributions
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<PAGE> 53
pursuant to Section 4.1(b) or voluntary Employee contributions pursuant
to Section 4.12 allocated to their accounts, elective deferrals (as
defined in Regulation 1.402(g)-1(b)) and qualified non-elective
contributions (as defined in Code Section 401(m)(4)(C)) contributed to
any plan maintained by the Employer. Such elective deferrals and
qualified non-elective contributions shall be treated as Employer
matching contributions subject to Regulation 1.401(m)-1(b)(5) which is
incorporated herein by reference. However, for Plan Years beginning after
December 31, 1988, the Plan Year must be the same as the plan year of the
plan to which the elective deferrals and the qualified non-elective.
contributions are made.
(d) For the purpose of determining the actual contribution ratio
of a Highly Compensated Employee who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Employee is
either a "five percent owner" of the Employer or one of the ten (10)
Highly Compensated Employees paid the greatest "415 Compensation" during
the year, the following shall apply:
(1) The combined actual contribution ratio for the family group
(which shall be treated as one Highly Compensated Participant)
shall be determined by aggregating Employer matching contributions
made pursuant to Section 4.1(b), voluntary Employee contributions
made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and "414(s) Compensation" of all eligible Family
Members (including Highly Compensated Participants). However, in
applying the $200,000 limit to "414(s) Compensation" for Plan
Years beginning after December 31, 1988, Family Members shall
include only the affected Employee's spouse and any lineal
descendants who have not attained age 19 before the close of the
Plan Year. Notwithstanding the foregoing, with respect to Plan
Years beginning prior to January 1, 1990, compliance with the
Regulations then in effect shall be deemed to be compliance with
this paragraph.
(2) The Employer matching contributions made pursuant to Section
4.1(b), voluntary Employee
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<PAGE> 54
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and "414(s) Compensation" of all Family Members
shall be disregarded for purposes of determining the "Actual
Contribution Percentage" of the Non-Highly Compensated Participant
group except to the extent taken into account in paragraph (1)
above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are
members of those family groups that include the Participant are
aggregated as one family group in accordance with paragraphs (1)
and (2) above.
(e) For purposes of this Section and Code Sections 401(a)(4),
410(b) and 401(m), if two or more plans of the Employer to which matching
contributions, Employee contributions, or both, are made are treated as
one plan for purposes of Code Sections 401(a) (4) or 410(b) (other than
the average benefits test under Code Section 410(b) (2) (A) (ii) as in
effect for Plan Years beginning after December 31, 1988), such plans
shall be treated as one plan. In addition, two or more plans of the
Employer to which matching contributions, Employee contributions, or
both, are made may be considered as a single plan for purposes of
determining whether or not such plans satisfy Code Sections 401(a)(4),
410(b) and 401(m). In such a case, the aggregated plans must satisfy this
Section and Code Sections 401(a)(4), 410(b) and 401(m) as though such
aggregated plans were a single plan. Plans may be aggregated under this
paragraph (e) for Plan Years beginning after December 31, 1988, only if
they have the same plan year.
Notwithstanding the above, for Plan Years beginning after
December 31, 1988, an employee stock ownership plan described in Code
Section 4975(e)(7) or 409 may not be aggregated with this Plan for
purposes of determining whether the employee stock ownership plan or this
Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and
401(m).
(f) If a Highly Compensated Participant is a Participant under two
or more plans (other than an employee stock ownership plan as defined in
Code Section 4975(e) (7) or 409 for Plan Years beginning
54
<PAGE> 55
after December 31, 1988) which are maintained by the Employer or an
Affiliated Employer to which matching contributions, Employee
contributions, or both, are made, all such contributions on behalf of
such Highly Compensated Participant shall be aggregated for purposes of
determining such Highly Compensated Participant's actual contribution
ratio. However, for Plan Years beginning after December 31, 1988, if the
plans have different plan years, this paragraph shall be applied by
treating all plans ending with or within the same calendar year as a
single plan.
(g) For purposes of Sections 4.7(a) and 4.8, a Highly Compensated
Participant and Non-Highly Compensated Participant shall include any
Employee eligible to have Employer matching contributions pursuant to
Section 4.1(b) (whether or not a deferral election was made or suspended
pursuant to Section 4.2(e)) or voluntary Employee contributions pursuant
to Section 4.12 (whether or not voluntary Employee contributioris are
made) allocated to his account for the Plan Year.
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that, for Plan Years beginning after December 31,
1986, the "Actual Contribution Percentage" for the Highly Compensated
Participant group exceeds the "Actual Contribution Percentage" for the
Non-Highly Compensated Participant group pursuant to Section 4.7(a), the
Administrator (on or before the fifteenth day of the third month
following the end of the Plan Year, but in no event later than the close
of the following Plan Year) shall direct the Trustee to distribute to the
Highly Compensated Participant having the highest actual contribution
ratio, his Vested portion of Excess Aggregate Contributions (and Income
allocable to such contributions) and, if forfeitable, forfeit such
non-Vested Excess Aggregate Contributions attributable to Employer
matching contributions (and Income allocable to such forfeitures) until
either one of the tests set forth in Section 4.7(a) is satisfied, or
until his actual contribution ratio equals the actual contribution ratio
of the Highly Compensated Participant having the second highest actual
contribution ratio. This process shall continue until one of the tests
set forth in Section 4.7(a) is satisfied. The distribution and/or
forfeiture of Excess Aggregate Contributions shall be made in the
following order:
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<PAGE> 56
(1) Voluntary Employee contributions including Excess
Contributions recharacterized as voluntary Employee contributions
pursuant to Section 4.6(a) (2);
(2) Employer matching contributions.
If the correction of Excess Aggregate Contributions
attributable to Employer matching contributions is not in proportion to
the Vested and non-Vested portion of such contributions, then the Vested
portion of the Participant's Account attributable to Employer matching
contributions after the correction shall be subject to Section 6.5(g).
(b) Any distribution and/or forfeiture of less than the entire
amount of Excess Aggregate Contributions (and Income) shall be treated as
a pro rata distribution and/or forfeiture of Excess Aggregate
Contributions and Income. Distribution of Excess Aggregate Contributions
shall be designated by the Employer as a distribution of Excess Aggregate
Contributions (and Income). Forfeitures of Excess Aggregate Contributions
shall be treated in accordance with Section 4.4.
(c) Excess Aggregate Contributions attributable to amounts other
than voluntary Employee contributions, including forfeited matching
contributions, shall be treated as Employer contributions for purposes of
Code Sections 404 and 415 even if distributed from the Plan.
Forfeited matching contributions that are reallocated to
Participants' Accounts for the Plan Year in which the forfeiture occurs
shall be treated as an "annual addition" pursuant to Section 4.9(b) for
the Participants to whose Accounts they are reallocated and for the
Participants from whose Accounts they are forfeited.
(d) For each Highly Compensated Participant, the amount of Excess
Aggregate Contributions is equal to the Employer matching contributions
made pursuant to Section 4.1(b), voluntary Employee contributions made
pursuant to Section 4.12, Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 4.6(a) and any
qualified non-elective contributions or elective deferrals taken into
account pursuant to Section 4.7(c) on behalf of
56
<PAGE> 57
the Highly Compensated Participant (determined prior to the application
of this paragraph) minus the amount determined by multiplying the Highly
Compensated Participant' 5 actual contribution ratio (determined after
application of this paragraph) by his "414(s) Compensation". The actual
contribution ratio must be rounded to the nearest one-hundredth of one
percent for Plan Years beginning after December 31, 1988. In no case
shall the amount of Excess Aggregate Contribution with respect to any
Highly Compensated Participant exceed the amount of Employer matching
contributions made pursuant to Section 4.1(b), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to Section
4.6(a) and any qualified non-elective contributions or elective deferrals
taken into account pursuant to Section 4.7(c) on behalf of such Highly
Compensated Participant for such Plan Year.
(e) The determination of the amount of Excess Aggregate
Contributions with respect to any Plan Year shall be made after first
determining the Excess Contributions, if any, to be treated as voluntary
Employee contributions due to recharacterization for the plan year of any
other qualified cash or deferred arrangement (as defined in Code Section
401(k)) maintained by the Employer that ends with or within the Plan Year
or which are treated as voluntary Employee contributions due to
recharacterization pursuant to Section 4.6(a).
(f) If the determination and correction of Excess Aggregate
Contributions of a Highly Compensated Participant whose actual
contribution ratio is determined under the family aggregation rules, then
the actual contribution ratio shall be reduced and the Excess Aggregate
Contributions for the family unit shall be allocated among the Family
Members in proportion to the sum of Employer matching contributions made
pursuant to Section 4.1(b), voluntary Employee contributions made
pursuant to Section 4.12, Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 4.6(a) and any
qualified non-elective contributions or elective deferrals taken into
account pursuant to Section 4.7(c) of each Family Member that were
combined to determine the group actual contribution ratio.
Notwithstanding the foregoing, with respect to Plan Years beginning prior
to January 1, 1990, compliance
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<PAGE> 58
with the Regulations then in effect shall be deemed to be compliance with
this paragraph.
(g) If during a Plan Year the projected aggregate amount of
Employer matching contributions, voluntary Employee contributions and
Excess Contributions recharacterized as voluntary Employee contributions
to be allocated to all Highly Compensated Participants under this Plan
would, by virtue of the tests set forth in Section 4.7(a), cause the Plan
to fail such tests, then the Administrator may automatically reduce
proportionately or in the order provided in Section 4.8(a) each affected
Highly Compensated Participant's projected share of such contributions by
an amount necessary to satisfy one of the tests set forth in Section
4.7(a).
(h) Notwithstanding the above, within twelve (12) months after the
end of the Plan Year, the Employer may make a special Qualified
Non-Elective Contribution on behalf of Non-Highly Compensated
Participants in an amount sufficient to satisfy one of the tests set
forth in Section 4.7(a). Such contribution shall be allocated to the
Participant's Elective Account of each Non-Highly Compensated Participant
in the same proportion that each Non-Highly Compensated Participant's
Compensation for the year bears to the total Compensation of all
Non-Highly Compensated Participants. A separate accounting shall be
maintained for the purpose of excluding such contributions from the
"Actual Deferral Percentage" tests pursuant to Section 4.5(a).
4.9 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual additions"
credited to a Participant's accounts for any "limitation year" shall
equal the lesser of: (1) $30,000 (or, if greater, one-fourth of the
dollar limitation in effect under Code Section 415(b)(1)(A)) or (2)
twenty-five percent (25%) of the Participant's "415 Compensation" for
such "limitation year". For any short "limitation year", the dollar
limitation in (1) above shall be reduced by a fraction, the numerator of
which is the number of full months in the short "limitation year" and the
denominator of which is twelve (12).
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<PAGE> 59
(b) For purposes of applying the limitations of Code Section 415,
"annual additions" means the sum credited to a Participant's accounts for
any "limitation year" of (1) Employer contributions, (2) Employee
contributions for "limitation years" beginning after December 31, 1986,
(3) forfeitures, (4) amounts allocated, after March 31, 1984, to an
individual medical account, as defined in Code Section 415(l)(2) which is
part of a pension or annuity plan maintained by the Employer and (5)
amounts derived from contributions paid or accrued after December 31,
1985, in taxable years ending after such date, which are attributable to
post-retirement medical benefits allocated to the separate account of a
key employee (as defined in Code Section 419A(d)(3)) under a welfare
benefit plan (as defined in Code Section 419(e)) maintained by the
Employer. Except, however, the "415 Compensation" percentage limitation
referred to in paragraph (a) (2) above shall not apply to: (1) any
contribution for medical benefits (within the meaning of Code Section
419A(f)(2)) after separation from service which is otherwise treated as
an "annual addition", or (2) any amount otherwise treated as an "annual
addition" under Code Section 415(1)(1).
(c) For purposes of applying the limitations of Code Section 415,
the transfer of funds from one qualified plan to another is not an
"annual addition". In addition, the following are not Employee
contributions for the purposes of Section 4.9(b)(2): (1) rollover
contributions (as defined in Code Sections 402(a)(5), 403(a)(4),
403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant
from the Plan; (3) repayments of distributions received by an Employee
pursuant to Code Section 411(a) (7) (B) (cash-outs); (4) repayments of
distributions received by an Employee pursuant to Code Section 411(a) (3)
(D) (mandatory contributions); and (5) Employee contributions to a
simplified employee pension excludable from gross income under Code
Section 408(k) (6).
(d) For purposes of applying the limitations of Code Section 415,
the "limitation year" shall be the Plan Year.
(e) The dollar limitation under Code Section 415(b) (1) (A) stated
in paragraph (a) (1) above shall be adjusted annually as provided in Code
Section 415(d)
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<PAGE> 60
pursuant to the Regulations. The adjusted limitation is effective as of
January 1st of each calendar year and is applicable to "limitation years"
ending with or within that calendar year.
(f) For the purpose of this Section, all qualified defined benefit
plans (whether terminated or not) ever maintained by the Employer shall
be treated as one defined benefit plan, and all qualified defined
contribution plans (whether terminated or not) ever maintained by the
Employer shall be treated as one defined contribution plan.
(g) For the purpose of this Section, if the Employer is a member
of a controlled group of corporations, trades or businesses under common
control (as defined by Code Section 1563(a) or Code Section 414(b) and
(c) as modified by Code Section 415(h)), is a member of an affiliated
service group (as defined by Code Section 414(m)), or is a member of a
group of entities required to be aggregated pursuant to Regulations under
Code Section 414 (0), all Employees of such Employers shall be considered
to be employed by a single Employer.
(h) For the purpose of this Section, if this Plan is a Code
Section 413(c) plan, all Employers of a Participant who maintain this
Plan will be considered to be a single Employer.
(i) (1) If a Participant participates in more than one defined
contribution plan maintained by the Employer which have different
Anniversary Dates, the maximum "annual additions" under this Plan shall
equal the maximum "annual additions" for the "limitation year" minus any
"annual additions" previously credited to such Participant's accounts
during the "limitation year".
(2) If a Participant participates in both a defined contribution
plan subject to Code Section 412 and a defined contribution plan
not subject to Code Section 412 maintained by the Employer which
have the same Anniversary Date, "annual additions" will be
credited to the Participant's accounts under the defined
contribution plan subject to Code Section 412 prior to crediting
"annual additions" to the Participant's accounts under the defined
contribution plan not subject to Code Section 412.
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(3) If a Participant participates in more than one defined
contribution plan not subject to Code Section 412 maintained by
the Employer which have the same Anniversary Date, the maximum
"annual additions" under this Plan shall equal the product of (A)
the maximum "annual additions" for the "limitation year" minus any
"annual additions" previously credited under subparagraphs (1) or
(2) above, multiplied by (B) a fraction (i) the numerator of which
is the "annual additions" which would be credited to such
Participant's accounts under this Plan without regard to the
limitations of Code Section 415 and (ii) the denominator of which
is such "annual additions" for all plans described in this
subparagraph.
(j) If an Employee is (or has been) a Participant in one or more
defined benefit plans and one or more defined contribution plans
maintained by the Employer, the sum of the defined benefit plan fraction
and the defined contribution plan fraction for any "limitation year" may
not exceed 1.0.
(k) The defined benefit plan fraction for any "limitation year" is
a fraction, the numerator of which is the sum of the Participant's
projected annual benefits under all the defined benefit plans (whether or
not terminated) maintained by the Employer, and the denominator of which
is the lesser of 125 percent of the dollar limitation determined for the
"limitation year" under Code Sections 415(b) and (d) or 140 percent of
the highest average compensation, including any adjustments under Code
Section 415(b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first "limitation year" beginning
after December 31, 1986, in one or more defined benefit plans maintained
by the Employer which were in existence on May 6, 1986, the denominator
of this fraction will not be less than 125 percent of the sum of the
annual benefits under such plans which the Participant had accrued as of
the close of the last "limitation year" beginning before January 1, 1987,
disregarding any changes in the terms and conditions of the plan after
May 5, 1986. The preceding sentence applies only if the defined benefit
plans individually and in the aggregate satisfied the requirements of
Code Section 415 for all "limitation years" beginning before January 1,
1987.
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(1) The defined contribution plan fraction for any "limitation
year" is a fraction, the numerator of which is the sum of the annual
additions to the Participant's Account under all the defined contribution
plans (whether or not terminated) maintained by the Employer for the
current and all prior "limitation years" (including the annual additions
attributable to the Participant's nondeductible Employee contributions to
all defined benefit plans, whether or not terminated, maintained by the
Employer, and the annual additions attributable to all welfare benefit
funds, as defined in Code Section 419(e), and individual medical
accounts, as defined in Code Section 415(l)(2), maintained by the
Employer), and the denominator of which is the sum of the maximum
aggregate amounts for the current and all prior "limitation years" of
service with the Employer (regardless of whether a defined contribution
plan was maintained by the Employer). The maximum aggregate amount in any
"limitation year" is the lesser of 125 percent of the dollar limitation
determined under Code Sections 415(b) and (d) in effect under Code
Section 415(c) (1) (A) or 35 percent of the Participant's Compensation
for such year.
If the Employee was a Participant as of the end of the first
day of the first "limitation year" beginning after December 31, 1986, in
one or more defined contribution plans maintained by the Employer which
were in existence on May 6, 1986, the numerator of this fraction will be
adjusted if the sum of this fraction and the defined benefit fraction
would otherwise exceed 1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of (1) the excess of the sum
of the fractions over 1.0 times (2) the denominator of this fraction,
will be permanently subtracted from the numerator of this fraction. The
adjustment is calculated using the fractions as they would be computed as
of the end of the last "limitation year" beginning before January 1,
1987, and disregarding any changes in the terms and conditions of the
Plan made after May 5, 1986, but using the Code Section 415 limitation
applicable to the first "limitation year" beginning on or after January
1, 1987. The annual addition for any "limitation year" beginning before
January 1, 1987 shall not be recomputed to treat all Employee
contributions as annual additions.
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(m) Notwithstanding the foregoing, for any "limitation year" in
which the Plan is a Top Heavy Plan, 100 percent shall be substituted for
125 percent in Sections 4.9(k) and 4.9(1) unless the extra minimum
allocation is being provided pursuant to Section 4.4. However, for any
"limitation year" in which the Plan is a Super Top Heavy Plan, 100
percent shall be substituted for 125 percent in any event.
(n) Notwithstanding anything contained in this Section to the
contrary, the limitations, adjustments and other requirements prescribed
in this Section shall at all times comply with the provisions of Code
Section 415 and the Regulations thereunder, the terms of which are
specifically incorporated herein by reference.
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of the allocation of Forfeitures, a reasonable
error in estimating a Participant's Compensation, a reasonable error in
determining the amount of elective deferrals (within the meaning of Code
Section 402(g)(3)) that may be made with respect to any Participant under
the limits of Section 4.9 or other facts and circumstances to which
Regulation 1.415-6(b) (6) shall be applicable, the "annual additions"
under this Plan would cause the maximum "annual additions" to be exceeded
for any Participant, the Administrator shall (1) distribute any elective
deferrals (within the meaning of Code Section 402(g)(3)) or return any
voluntary Employee contributions credited for the "limitation year" to
the extent that the return would reduce the "excess amount" in the
Participant's accounts (2) hold any "excess amount" remaining after the
return of any elective deferrals or voluntary Employee contributions in a
"Section 415 suspense account" (3) use the "Section 415 suspense account"
in the next "limitation year" (and succeeding "limitation years" if
necessary) to reduce Employer contributions for that Participant if that
Participant is covered by the Plan as of the end of the "limitation
year", or if the Participant is not so covered, allocate and reallocate
the "Section 415 suspense account" in the next "limitation year" (and
succeeding "limitation years" if necessary) to all Participants in the
Plan before any Employer or Employee contributions which would constitute
"annual additions" are made to the Plan for such "limitation year" (4)
reduce Employer contributions to the Plan for
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such "limitation year" by the amount of the "Section 415 suspense
account" allocated and reallocated during such "limitation year".
(b) For purposes of this Article, "excess amount" for any
Participant for a "limitation year" shall mean the excess, if any, of (1)
the "annual additions" which would be credited to his account under the
terms of the Plan without regard to the limitations of Code Section 415
over (2) the maximum "annual additions" determined pursuant to Section
4.9.
(c) For purposes of this Section, "Section 415 suspense account"
shall mean an unallocated account equal to the sum of "excess amounts"
for all Participants in the Plan during the "limitation year". The
"Section 415 suspense account" shall not share in any earnings or losses
of the Trust Fund.
4.11 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be
transferred from other qualified plans by Employees, provided that the
trust from which such funds are transferred permits the transfer to be
made and the transfer will not jeopardize the tax exempt status of the
Plan or Trust or create adverse tax consequences for the Employer. The
amounts transferred shall be set up in a separate account herein referred
to as a "Participant's Rollover Account". Such account shall be fully
Vested at all times and shall not be subject to Forfeiture for any
reason.
(b) Amounts in a Participant's Rollover Account shall be held by
the Trustee pursuant to the provisions of this Plan and may not be
withdrawn by, or distributed to the Participant, in whole or in part,
except as provided in paragraphs (c) and (d) of this Section.
(c) Except as permitted by Regulations (including Regulation
1.411(d)-4), amounts attributable to elective contributions (as defined
in Regulation 1.401(k)-1(g)(3)), including amounts treated as elective
contributions, which are transferred from another qualified plan in a
plan-to-plan transfer shall be subject to the distribution limitations
provided for in Regulation 1.401(k)-1(d).
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(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits, the
fair market value of the Participant's Rollover Account shall be used to
provide additional benefits to the Participant or his Beneficiary. Any
distributions of amounts held in a Participant's Rollover Account shall
be made in a manner which is consistent with and satisfies the provisions
of Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 417 and 411(a)(11) and the Regulations
thereunder. Furthermore, such amounts shall be considered as part of a
Participant's benefit in determining whether an involuntary cash-out of
benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers made
after a valuation date be segregated into a separate account for each
Participant in a federally insured savings account, certificate of
deposit in a bank or savings and loan association, money market
certificate, or other short term debt security acceptable to the Trustee
until such time as the allocations pursuant to this Plan have been made,
at which time they may remain segregated or be invested as part of the
general Trust Fund, to be determined by the Administrator.
(f) All amounts allocated to a Participant's Rollover Account may
be treated as a Directed Investment Account pursuant to Section 4.13.
(g) For purposes of this Section, the term "qualified plan" shall
mean any tax qualified plan under Code Section 401(a). The term "amounts
transferred from other qualified plans" shall mean: (i) amounts
transferred to this Plan directly from another qualified plan; (ii)
lump-sum distributions received by an Employee from another qualified
plan which are eligible for tax free rollover to a qualified plan and
which are transferred by the Employee to this Plan within sixty (60) days
following his receipt thereof; (iii) amounts transferred to this Plan
from a conduit individual retirement account provided that the conduit
individual retirement account has no assets other than assets which (A)
were previously distributed to the Employee by another qualified plan as
a lump-sum distribution (B) were eligible for tax-free rollover to a
qualified plan and (C) were deposited in such conduit
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individual retirement account within sixty (60) days of receipt thereof
and other than earnings on said assets; and (iv) amounts distributed to
the Employee from a conduit individual retirement account meeting the
requirements of clause (iii) above, and transferred by the Employee to
this Plan within sixty (60) days of his receipt thereof from such conduit
individual retirement account.
(h) Prior to accepting any transfers to which this Section
applies, the Administrator may require the Employee to establish that the
amounts to be transferred to this Plan meet the requirements of this
Section and may also require the Employee to provide an opinion of
counsel satisfactory to the Employer that the amounts to be transferred
meet the requirements of this Section.
(i) Notwithstanding anything herein to the contrary, a transfer
directly to this Plan from another qualified plan (or a transaction
having the effect of such a transfer) shall only be permitted if it will
not result in the elimination or reduction of any "Section 411(d) (6)
protected benefit" as described in Section 8.1.
4.12 VOLUNTARY CONTRIBUTIONS
(a) In order to allow Participants the opportunity to increase
their retirement income, each Participant may, at the discretion of the
Administrator, elect to voluntarily contribute a portion of his
compensation earned while a Participant under this Plan. Such
contributions shall be made via payroll deduction. Such contributions
shall be paid to the Trustee within a reasonable period of time but in no
event later than ninety (90) days after the receipt of the contribution.
The balance in each Participant's Voluntary Contribution Account shall be
fully Vested at all times and shall not be subject to Forfeiture for any
reason.
(b) A Participant may elect to withdraw his voluntary
contributions from his voluntary Contribution Account and the actual
earnings thereon in a manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited to, all notice and
consent requirements of Code Sections 417 and 411(a) (11) and the
Regulations thereunder. If the
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Administrator maintains sub-accounts with respect to voluntary
contributions (and earnings thereon) which were made on or before a
specified date, a Participant shall be permitted to designate which
sub-account shall be the source for his withdrawal.
In the event a Participant has received a hardship distribution
from his Participant's Elective Account pursuant to Section 6.11 or
pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B) from any other plan
maintained by the Employer, then such Participant shall be barred from
making any voluntary contributions to the Trust Fund for a period of
twelve (12) months after receipt of the distribution.
(c) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits, the
fair market value of the Voluntary Contribution Account shall be used to
provide additional benefits to the Participant or his Beneficiary.
(d) The Administrator may direct that voluntary contributions made
after a valuation date be segregated into a separate account for each
Participant in a federally insured savings account, certificate of
deposit in a bank or savings and loan association, money market
certificate, or other short term debt security acceptable to the Trustee
until such time as the allocations pursuant to this Plan have been made,
at which time they may remain segregated or be invested as part of the
general Trust Fund, to be determined by the Administrator.
(e) All amounts allocated to a Voluntary Contribution Account may
be treated as a Directed Investment Account pursuant to Section 4.13.
4.13 DIRECTED INVESTMENT ACCOUNT
(a) The Administrator, in his sole discretion, may determine that
all Participants be permitted to direct the Trustee as to the investment
of all or a portion of the interest in any one or more of their
individual account balances. If such authorization is given, Participants
may, subject to a procedure established by the Administrator and applied
in a uniform nondiscriminatory manner, direct the Trustee in writing to
invest any portion of their account in
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specific assets, specific funds or other investments permitted under the
Plan and the directed investment procedure. That portion of the account
of any Participant so directing will thereupon be considered a Directed
Investment Account, which shall not share in Trust Fund earnings.
(b) A separate Directed Investment Account shall be established
for each Participant who has directed an investment. Transfers between
the Participant's regular account and his Directed Investment Account
shall be charged and credited as the case may be to each account. The
Directed Investment Account shall not share in Trust Fund earnings, but
it shall be charged or credited as appropriate with the net earnings,
gains, losses and expenses as well as any appreciation or depreciation in
market value during each Plan Year attributable to such account.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary Date,
and at such other date or dates deemed necessary by the Administrator, herein
called "valuation date", to determine the net worth of the assets comprising the
Trust Fund as it exists on the "valuation date." In determining such net worth,
the Trustee shall value the assets comprising the Trust Fund at their fair
market value as of the "valuation date" and shall deduct all expenses for which
the Trustee has not yet obtained reimbursement from the Employer or the Trust
Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust Fund
which are listed on a registered stock exchange, the Administrator shall direct
the Trustee to value the same at the prices they were last traded on such
exchange preceding the close of business on the "valuation date". If such
securities were not traded on the "valuation date", or if the exchange on which
they are traded was not open for business on the "valuation date", then the
securities shall be valued at the prices at which they were last traded prior to
the "valuation date". Any unlisted security held in the Trust Fund shall be
valued at its bid price next preceding the close of business on the "valuation
date", which bid price shall be obtained from a registered broker or an
investment banker. In determining the
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fair market value of assets other than securities for which trading or bid
prices can be obtained, the Trustee may appraise such assets itself, or in its
discretion, employ one or more appraisers for that purpose and rely on the
values established by such appraiser or appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and
retire for the purposes hereof on his Normal Retirement Date or Early Retirement
Date. However, a Participant may postpone the termination of his employment with
the Employer to a later date, in which event the participation of such
Participant in the Plan, including the right to receive allocations pursuant to
Section 4.4, shall continue until his Late Retirement Date. Upon a Participant's
Retirement Date or attainment of his Normal Retirement Date without termination
of employment with the Employer, or as soon thereafter as is practicable, the
Trustee shall distribute all amounts credited to such Participant's Combined
Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or
other termination of his employment, all amounts credited to such
Participant's Combined Account shall become fully Vested. The
Administrator shall direct the Trustee, in accordance with the provisions
of Sections 6.6 and 6.7, to distribute the value of the deceased
Participant's accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the Administrator
shall direct the Trustee, in accordance with the provisions of Sections
6.6 and 6.7, to distribute any remaining Vested amounts credited to the
accounts of a deceased Former Participant to such Former Participant's
Beneficiary.
(c) Any security interest held by the Plan by reason of an
outstanding loan to the Participant or Former Participant shall be taken
into account in determining the amount of the Pre-Retirement Survivor
Annuity.
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(d) The Administrator may require such proper proof of death and
such evidence of the right of any person to receive payment of the value
of the account of a deceased Participant or Former Participant as the
Administrator may deem desirable. The Administrator's determination of
death and of the right of any person to receive payment shall be
conclusive.
(e) Unless otherwise elected in the manner prescribed in Section
6.6, the Beneficiary of the death benefit shall be the Participant's
spouse, who shall receive such benefit in the form of a Pre-Retirement
Survivor Annuity pursuant to Section 6.6. Except, however, the
Participant may designate a Beneficiary other than his spouse if:
(1) the Participant and his spouse have validly waived the
Pre-Retirement Survivor Annuity in the manner prescribed in
Section 6.6, and the spouse has waived his or her right to be the
Participant's Beneficiary, or
(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a court
order to such effect (and there is no "qualified domestic
relations order" as defined in Code Section 414 (p) which provides
otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made
on a form satisfactory to the Administrator. A Participant may at any
time revoke his designation of a Beneficiary or change his Beneficiary by
filing written notice of such revocation or change with the
Administrator. However, the Participant's spouse must again consent in
writing to any change in Beneficiary unless the original consent
acknowledged that the spouse had the right to limit consent only to a
specific Beneficiary and that the spouse voluntarily elected to
relinquish such right. In the event no valid designation of Beneficiary
exists at the time of the Participant's death, the death benefit shall be
payable to his estate.
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6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to
his Retirement Date or other termination of his employment, all amounts credited
to such Participant's Combined Account shall become fully Vested. In the event
of a Participant's Total and Permanent Disability, the Trustee, in accordance
with the provisions of Sections 6.5 and 6.7, shall distribute to such
Participant all amounts credited to such Participant's Combined Account as
though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or
subsequent to the termination of a Participant's employment for any
reason other than death, Total and Permanent Disability or retirement,
the Administrator may direct the Trustee to segregate the amount of the
Vested portion of such Terminated Participant's Combined Account and
invest the aggregate amount thereof in a separate, federally insured
savings account, certificate of deposit, common or collective trust fund
of a bank or a deferred annuity. In the event the Vested portion of a
Participant's Combined Account is not segregated, the amount shall remain
in a separate account for the Terminated Participant and share in
allocations pursuant to Section 4.4 until such time as a distribution is
made to the Terminated Participant.
Distribution of the funds due to a Terminated Participant
shall be made on the occurrence of an event which would result in the
distribution had the Terminated Participant remained in the employ of the
Employer (upon the Participant's death, Total and Permanent Disability,
Early or Normal Retirement). However, at the election of the Participant,
the Administrator shall direct the Trustee to cause the entire Vested
portion of the Terminated Participant's Combined Account to be payable to
such Terminated Participant, as soon as administratively feasible. Any
distribution under this paragraph shall be made in a manner which is
consistent with and satisfies the provisions of Section 6.5, including,
but not limited to, all notice and consent requirements of Code Sections
417 and 411(a) (11) and the Regulations thereunder.
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If the value of a Terminated Participant's Vested benefit
derived from Employer and Employee contributions does not exceed $3,500
and has never exceeded $3,500 at the time of any prior distribution, the
Administrator shall direct the Trustee to cause the entire Vested benefit
to be paid to such Participant in a single lump sum.
For purposes of this Section 6.4, if the value of a Terminated
Participant's Vested benefit is zero, the Terminated Participant shall be
deemed to have received a distribution of such Vested benefit.
(b) The Vested portion of any Participant's Account shall be a
percentage of the total amount credited to his Participant's Account
determined on the basis of the Participant's number of Years of Service
according to the following schedule:
Vesting Schedule
<TABLE>
<CAPTION>
Years of Service Percentage
<S> <C>
0-2 0%
3 60%
4 80%
5 100%
</TABLE>
For vesting purposes only, a Participant shall receive credit for the
number of years of service equal to the number of whole years of the
Participant's period of service from their date of hire. For purposes of the
foregoing, a Participant's nonconsecutive periods of service must be aggregated,
and any periods of service less than a whole year (whether of not aggregated)
must be aggregated on a basis such that 12 months of service (30 days are deemed
to equal a month) equals a whole year of service.
Furthermore, for vesting purposes only, if any employee severs from
service by reason of termination, discharge or retirement, and the employee then
performs an hour of service within twelve (12) months after the employee's
severance from service date, the employee shall not be deemed to have had a
break in service; provided however, that if the employee severs from service by
reason of termination, discharge or retirement during an absence from service of
twelve (12) months or less for any reason other than termination, discharge,
retirement of death, and then performs an hour of service within twelve (12)
months after the date on which the employee was first absent from service, the
employee shall not be deemed to have had a break in
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service.
(c) Notwithstanding the vesting provided for in paragraph (b)
above, for any Top Heavy Plan Year, the Vested portion of the
Participant's Account of any Participant who has an Hour of Service after
the Plan becomes top heavy shall be a percentage of the total amount
credited to his Participant's Account determined on the basis of the
Participant's number of Years of Service according to the following
schedule:
Vesting Schedule
<TABLE>
<CAPTION>
Years of Service Percentage
<S> <C>
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
If in any subsequent Plan Year, the Plan ceases to be a Top
Heavy Plan, the Administrator shall revert to the vesting schedule in
effect before this Plan became a Top Heavy Plan. Any such reversion shall
be treated as a Plan amendment pursuant to the terms of the Plan.
(d) Notwithstanding the vesting schedule above, the Vested
percentage of a Participant's Account shall not be less than the Vested
percentage attained as of the later of the effective date or adoption
date of this amendment and restatement.
(e) Notwithstanding the vesting schedule above, upon the complete
discontinuance of the Employer's contributions to the Plan or upon any
full or partial termination of the Plan, all amounts credited to the
account of any affected Participant shall become 100% Vested and shall
not thereafter be subject to Forfeiture.
(f) The computation of a Participant's nonforfeitable percentage
of his interest in the Plan shall not be reduced as the result of any
direct or indirect amendment to this Plan. For this purpose, the Plan
shall be treated as having been amended if the Plan provides for an
automatic change in vesting due to a change in top heavy status. In the
event that the
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Plan is amended to change or modify any vesting schedule, a Participant
with at least three (3) Years of Service as of the expiration date of the
election period may elect to have his nonforfeitable percentage computed
under the Plan without regard to such amendment. If a Participant fails
to make such election, then such Participant shall be subject to the new
vesting schedule. The Participant's election period shall commence on the
adoption date of the amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
(g) (1) If any Former Participant shall be reemployed by the
Employer before a 1-Year Break in Service occurs, he shall continue to
participate in the Plan in the same manner as if such termination had not
occurred.
(2) If any Former Participant shall be reemployed by the Employer
before five (5) consecutive 1-Year Breaks in Service, and such
Former Participant had received, or was deemed to have received, a
distribution of his entire Vested interest prior to his
reemployment, his forfeited account shall be reinstated only if he
repays the full amount distributed to him before the earlier of
five (5) years after the first date on which the Participant is
subsequently reemployed by the Employer or the close of the first
period of five (5) consecutive 1-Year Breaks in Service commencing
after the distribution, or in the event of a deemed distribution,
upon the reemployment of such Former Participant. In the event the
Former Participant does repay the full amount distributed to him,
or in the event of a deemed distribution, the undistributed
portion of the Participant's Account must be restored in full,
unadjusted by any gains or losses occurring subsequent to the
Anniversary Date or other valuation date coinciding with or
preceding his termination. The source for such reinstatement
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shall first be any Forfeitures occurring during the year. If such
source is insufficient, then the Employer shall contribute an
amount which is sufficient to restore any such forfeited Accounts
provided, however, that if a discretionary contribution is made
for such year pursuant to Section 4.1(c), such contribution shall
first be applied to restore any such Accounts and the remainder
shall be allocated in accordance with Section 4.4.
(3) If any Former Participant is reemployed after a
1-Year Break in Service has occurred, Years of Service shall
include Years of Service prior to his 1-Year Break in
Service subject to the following rules:
(i) If a Former Participant has a 1-Year Break in
Service, his pre-break and post-break service shall be used
for computing Years of Service for eligibility and for
vesting purposes only after he has been employed for one (1)
Year of Service following the date of his reemployment with
the Employer;
(ii) Any Former Participant who under the Plan does not have
a nonforfeitable right to any interest in the Plan
resulting from Employer contributions shall lose credits
otherwise allowable under (i) above if his consecutive
1-Year Breaks in Service equal or exceed the greater of (A)
five (5) or (B) the aggregate number of his pre-break Years
of Service;
(iii) After five (5) consecutive 1-Year Breaks in
Service, a Former Participant's Vested Account balance
attributable to pre-break service shall not be increased as
a result of post-break service;
(iv) If a Former Participant who has not had his Years
of Service before a 1-Year Break in Service disregarded
pursuant to (ii) above completes one (1) Year of Service for
eligibility purposes following his reemployment with the
Employer, he shall participate in the Plan retroactively
from his date of reemployment;
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(v) If a Former Participant who has not had his Years of Service
before a 1-Year Break in Service disregarded pursuant to (ii)
above completes a Year of Service (a 1-Year Break in Service
previously occurred, but employment had not terminated), he shall
participate in the Plan retroactively from the first day of the
Plan Year during which he completes one (1) Year of Service.
6.5 DISTRIBUTION OF BENEFITS
(a) (1) Unless otherwise elected as provided below, a Participant
who is married on the "annuity starting date" and who does not die before
the "annuity starting date" shall receive the value of all of his
benefits in the form of a joint and survivor annuity. The joint and
survivor annuity is an annuity that commences immediately and shall be
equal in value to a single life annuity. Such joint and survivor benefits
following the Participant's death shall continue to the spouse during the
spouse's lifetime at a rate equal to 50% of the rate at which such
benefits were payable to the Participant. This joint and 50% survivor
annuity shall be considered the designated qualified joint and survivor
annuity and automatic form of payment for the purposes of this Plan.
However, the Participant may elect to receive a smaller annuity benefit
with continuation of payments to the spouse at a rate of seventy-five
percent (75%) or one hundred percent (100%) of the rate payable to a
Participant during his lifetime, which alternative joint and survivor
annuity shall be equal in value to the automatic joint and 50% survivor
annuity. An unmarried Participant shall receive the value of his benefit
in the form of a life annuity. Such unmarried Participant, however, may
elect in writing to waive the life annuity. The election must comply with
the provisions of this Section as if it were an election to waive the
joint and survivor annuity by a married Participant, but without the
spousal consent requirement. The Participant may elect to have any
annuity provided for in this Section distributed upon the attainment of
the "earliest retirement age" under the Plan. The "earliest retirement
age" is the earliest date on which, under the Plan, the Participant could
elect to receive retirement benefits.
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(2) Any election to waive the joint and survivor annuity must be
made by the Participant in writing during the election period and
be consented to by the Participant's spouse. If the spouse is
legally incompetent to give consent, the spouse's legal guardian,
even if such guardian is the Participant, may give consent. Such
election shall designate a Beneficiary (or a form of benefits)
that may not be changed without spousal consent (unless the
consent of the spouse expressly permits designations by the
Participant without the requirement of further consent by the
spouse). Such spouse's consent shall be irrevocable and must
acknowledge the effect of such election and be witnessed by a Plan
representative or a notary public. Such consent shall not be
required if it is established to the satisfaction of the
Administrator that the required consent cannot be obtained because
there is no spouse, the spouse cannot be located, or other
circumstances that may be prescribed by Regulations. The election
made by the Participant and consented to by his spouse may be
revoked by the Participant in writing without the consent of the
spouse at any time during the election period. The number of
revocations shall not be limited. Any new election must comply
with the requirements of this paragraph. A former spouse's waiver
shall not be binding on a new spouse.
(3) The election period to waive the joint and survivor annuity
shall be the 90 day period ending on the "annuity starting date."
(4) For purposes of this Section, the "annuity starting date"
means the first day of the first period for which an amount is
paid as an annuity, or, in the case of a benefit not payable in
the form of an annuity, the first day on which all events have
occurred which entitle the Participant to such benefit.
(5) With regard to the election, the Administrator shall provide
to the Participant no less than 30 days and no more than 90 days
before the "annuity starting date" a written explanation of:
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(i) the terms and conditions of the joint and survivor
annuity, and
(ii) the Participant's right to make, and the effect of, an
election to waive the joint and survivor annuity, and
(iii) the right of the Participant's spouse to consent to
any election to waive the joint and survivor annuity, and
(iv) the right of the Participant to revoke such election,
and the effect of such revocation.
(b) In the event a married Participant duly elects pursuant to
paragraph (a) (2) above not to receive his benefit in the form of a joint
and survivor annuity, or if such Participant is not married, in the form
of a life annuity, the Administrator, pursuant to the election of the
Participant, shall direct the Trustee to distribute to a Participant or
his Beneficiary any amount to which he is entitled under the Plan in one
lump-sum payment in cash.
(c) The present value of a Participant's joint and survivor
annuity derived from Employer and Employee contributions may not be paid
without his written consent if the value exceeds, or has ever exceeded,
$3,500 at the time of any prior distribution. Further, the spouse of a
Participant must consent in writing to any immediate distribution. If the
value of the Participant's benefit derived from Employer and Employee
contributions does not exceed $3,500 and has never exceeded $3,500 at the
time of any prior distribution, the Administrator may immediately
distribute such benefit without such Participant's consent. No
distribution may be made under the preceding sentence after the "annuity
starting date" unless the Participant and his spouse consent in writing
to such distribution. Any written consent required under this paragraph
must be obtained not more than 90 days before commencement of the
distribution and shall be made in a manner consistent with Section 6.5
(a) 2.
(d) Any distribution to a Participant who has a benefit which
exceeds, or has ever exceeded, $3,500 at the time of any prior
distribution shall require such
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Participant's consent if such distribution commences prior to the later
of his Normal Retirement Age or age 62. With regard to this required
consent:
(1) No consent shall be valid unless the Participant has received
a general description of the material features and an explanation
of the relative values of the optional forms of benefit available
under the Plan that would satisfy the notice requirements of Code
Section 417.
(2) The Participant must be informed of his right to defer receipt
of the distribution. If a Participant fails to consent, it shall
be deemed an election to defer the commencement of payment of any
benefit. However, any election to defer the receipt of benefits
shall not apply with respect to distributions which are required
under Section 6.5(e).
(3) Notice of the rights specified under this paragraph shall be
provided no less than 30 days and no more than 90 days before the
"annuity starting date".
(4) Written consent of the Participant to the distribution must
not be made before the Participant receives the notice and must
not be made more than 90 days before the "annuity starting date".
(5) No consent shall be valid if a significant detriment is
imposed under the Plan on any Participant who does not consent to
the distribution.
(e) Notwithstanding any provision in tha Plan to the contrary, the
distribution of a Participant's benefits, whether under the Plan or
through the purchase of an annuity contract, shall be made in accordance
with the following requirements and shall otherwise comply with Code
Section 401(a) (9) and the Regulations thereunder (including Regulation
1.401(a)(9)-2), the provisions of which are incorporated herein by
reference:
(1) A Participant's benefits shall be distributed to him not later
than April 1st of the calendar year following the later of (i) the
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calendar year in which the Participant attains age 70 1/2 or (ii)
the calendar year in which the Participant retires, provided,
however, that this clause (ii) shall not apply in the case of a
Participant who is a "five (5) percent owner" at any time during
the five (5) Plan Year period ending in the calendar year in which
he attains age 70 1/2 or, in the case of a Participant who becomes
a "five (5) percent owner" during any subsequent Plan Year, clause
(ii) shall no longer apply and the required beginning date shall
be the April 1st of the calendar year following the calendar year
in which such subsequent Plan Year ends. Alternatively, if the
distribution is to be in the form of a joint and survivor annuity
or single life annuity as provided in paragraph (a) (1) above,
then distributions must begin no later than the applicable April
1st as determined under the preceding sentence and must be made
over the life of the Participant (or the lives of the Participant
and the Participant's designated Beneficiary) in accordance with
Regulations. Notwithstanding the foregoing, clause (ii) above
shall not apply to any Participant unless the Participant had
attained age 70 1/2 before January 1, 1988 and was not a "five (5)
percent owner" at any time during the Plan Year ending with or
within the calendar year in which the Participant attained age 66
1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall
only be made in accordance with the incidental death benefit
requirements of Code Section 401(a) (9) (G) and the Regulations
thereunder.
(f) All annuity Contracts under this Plan shall be
non-transferable when distributed. Furthermore, the terms of any annuity
Contract purchased and distributed to a Participant or spouse shall
comply with all of the requirements of the Plan.
(g) If a distribution is made at a time when a Participant is not
fully Vested in his Participant's Account (employment has not terminated)
and the Participant may increase the Vested percentage in such account:
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(1) a separate account shall be established for the Participant's
interest in the Plan as of the time of the distribution; and
(2) at any relevant time, the Participant's Vested portion of the
separate account shall be equal to an amount ("X") determined by
the formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested percentage
at the relevant time, AB is the account balance at the relevant
time, D is the amount of distribution, and R is the ratio of the
account balance at the relevant time to the account balance after
distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a Vested
Participant who dies before the annuity starting date and who has a
surviving spouse shall have his death benefit paid to his surviving
spouse in the form of a Pre-Retirement Survivor Annuity. The
Participant's spouse may direct that payment of the Pre-Retirement
Survivor Annuity commence within a reasonable period after the
Participant's death. If the spouse does not so direct, payment of such
benefit will commence at the time the Participant would have attained the
later of his Normal Retirement Age or age 62. However, the spouse may
elect a later commencement date. Any distribution to the Participant's
spouse shall be subject to the rules specified in Section 6.6(g).
(b) Any election to waive the Pre-Retirement Survivor Annuity
before the Participant's death must be made by the Participant in writing
during the election period and shall require the spouse's irrevocable
consent in the same manner provided for in Section 6.5(a)(2). Further,
the spouse's consent must acknowledge the specific nonspouse Beneficiary.
Notwithstanding the foregoing, the nonspouse Beneficiary need not be
acknowledged, provided the consent of the spouse acknowledges that the
spouse has the right to limit consent only to a specific Beneficiary and
that the spouse voluntarily elects to relinquish such right.
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(c) The election period to waive the Pre-Retirement Survivor
Annuity shall begin on the first day of the Plan Year in which the
Participant attains age 35 and end on the date of the Participant's
death. An earlier waiver (with spousal consent) may be made provided a
written explanation of the Pre-Retirement Survivor Annuity is given to
the Participant and such waiver becomes invalid at the beginning of the
Plan Year in which the Participant turns age 35. In the event a Vested
Participant separates from service prior to the beginning of the election
period, the election period shall begin on the date of such separation
from service.
(d) With regard to the election, the Administrator shall provide
each Participant within the applicable period, with respect to such
Participant (and consistent with Regulations), a written explanation of
the Pre-Retirement Survivor Annuity containing comparable information to
that required pursuant to Section 6.5(a)(5). For the purposes of this
paragraph, the term "applicable period" means, with respect to a
Participant, whichever of the following periods ends last:
(1) The period beginning with the first day of the Plan Year in
which the Participant attains age 32 and ending with the close of
the Plan Year preceding the Plan Year in which the Participant
attains age 35;
(2) A reasonable period after the individual becomes a
Participant;
(3) A reasonable period ending after the Plan no longer fully
subsidizes the cost of the Pre-Retir~ement Survivor Annuity with
respect to the Participant;
(4) A reasonable period ending after Code Section 401(a)(11)
applies to the Participant; or
(5) A reasonable period after separation from service in the case
of a Participant who separates before attaining age 35. For this
purpose, the Administrator must provide the explanation beginning
one year before the separation from service and ending one year
after such separation. If such a Participant thereafter
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returns to employment with the Employer, the applicable period for
such Participant shall be redetermined.
For purposes of applying this Section 6.6(d), a reasonable
period ending after the enumerated events described in paragraphs (2),
(3) and (4) is the end of the two year period beginning one year prior to
the date the applicable event occurs, and ending one year after that
date.
(e) If the present value of the Pre-Retirement Survivor Annuity
derived from Employer and Employee contributions does not exceed $3,500
and has never exceeded $3,500 at the time of any prior distribution, the
Administrator shall direct the immediate distribution of such amount to
the Participant's spouse. No distribution may be made under the preceding
sentence after the annuity starting date unless the spouse consents in
writing.
(f) In the event the death benefit is not paid in the form of a
Pre-Retirement Survivor Annuity, it shall be paid to the Participant's
Beneficiary in one lump sum in cash.
(g) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant shall be made in accordance
with the following requirements and shall otherwise comply with Code
Section 401(a) (9) and the Regulations thereunder. If the death benefit
is paid in the form of a Pre-Retirement Survivor Annuity, then
distributions to the Participant's surviving spouse must commence on or
before the later of: (1) December 31st of the calendar year immediately
following the calendar year in which the Participant died; or (2)
December 31st of the calendar year in which the Participant would have
attained age 70 1/2. If it is determined pursuant to Regulations that the
distribution of a Participant's interest has begun and the Participant
dies before his entire interest has been distributed to him, the
remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution selected pursuant to Section
6.5 as of his date of death. If a Participant dies before he has begun to
receive any distributions of his interest under the Plan or before
distributions are deemed to have begun pursuant to Regulations (and
distributions are not to
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be made in the form of a Pre-Retirement Survivor Annuity), then his death
benefit shall be distributed to his Beneficiaries by December 31st of the
calendar year in which the fifth anniversary of his date of death occurs.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to
make a distribution or to commence a series of payments on or as of an
Anniversary Date, the distribution may be made or begun on such date or as soon
thereafter as is practicable. However, unless a Former Participant elects in
writing to defer the receipt of benefits (such election may not result in a
death benefit that is more than incidental), the payment of benefits shall begin
not later than the 60th day after the close of the Plan Year in which the latest
of the following events occurs: (a) the date on which the Participant attains
the earlier of age 65 or the Normal Retirement Age specified herein; (b) the
10th anniversary of the year in which the Participant commenced participation in
the Plan; or (c) the date the Participant terminates his service with the
Employer.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a Forfeiture
pursuant to the Plan. In the event a Participant or Beneficiary is located
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subsequent to his benefit being reallocated, such benefit shall be restored.
6.10 PRE-RETIREMENT DISTRIBUTION
At such time as a Participant shall have attained the age of 59 1/2
years, the Administrator, at the election of the Participant, shall direct the
Trustee to distribute all or a portion of the amount then credited to the
accounts maintained on behalf of the Participant. However, no distribution from
the Participant's Account shall occur prior to 100% vesting. In the event that
the Administrator makes such a distribution, the Participant shall continue to
be eligible to participate in the Plan on the same basis as any other Employee.
Any distribution made pursuant to this Section shall be made in a manner
consistent with Section 6.5, including, but not limited to, all notice and
consent requirements of Code Sections 417 and 411 (a) (11) and the Regulations
thereunder.
Notwithstanding the above, pre-retirement distributions from a
Participant's Elective Account shall not be permitted prior to the Participant
attaining age 59 1/2 except as otherwise permitted under the terms of the Plan.
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the Participant, shall
direct the Trustee to distribute to any Participant in any one Plan Year
up to the lesser of 100% of his Participant's Elective Account and his
Participant's Account valued as of the last Anniversary Date or other
valuation date or the amount necessary to satisfy the immediate and heavy
financial need of the Participant. Any distribution made pursuant to this
Section shall be deemed to be made as of the first day of the Plan Year
or, if later, the valuation date immediately preceding the date of
distribution, and the Participant's Elective Account and his
Participant's Account shall be reduced accordingly. Withdrawal under this
Section shall be authorized only if the distribution is on account of:
(1) Expenses for medical care described in Code Section 213(d)
previously incurred by the Participant, his spouse, or any of his
dependents (as defined in Code Section 152) or necessary for these
persons to obtain medical care;
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(2) The costs directly related to the purchase of a principal
residence for the Participant (excluding mortgage payments);
(3) Payment of tuition and related educational fees for the next
twelve (12) months of post-secondary education for the
Participant, his spouse, children, or dependents; or
(4) Payments necessary to prevent the eviction of the Participant
from his principal residence or foreclosure on the mortgage of the
Participant' 5 principal residence.
(b) No such distribution shall be made from the Participant's
Account until such Account has become fully Vested.
(c) No distribution shall be made pursuant to this Section unless
the Administrator, based upon the Participant's representation and such
other facts as are known to the Administrator, determines that all of the
following conditions are satisfied:
(1) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant. The amount
of the immediate and heavy financial need may include any amounts
necessary to pay any federal, state, or local income taxes or
penalties reasonably anticipated to result from the distribution;
(2) The Participant has obtained all distributions, other than
hardship distributions, and all nontaxable (at the time of the
loan) loans currently available under all plans maintained by the
Employer;
(3) The Plan, and all other plans maintained by the Employer,
provide that the Participant's elective deferrals and voluntary
Employee contributions will be suspended for at least twelve (12)
months after receipt of the hardship distribution or, the
Participant, pursuant to a legally enforceable agreement, will
suspend his elective deferrals and voluntary Employee
contributions to the Plan and all other plans maintained by the
Employer for at least twelve (12) months after receipt of the
hardship distribution; and
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(4) The Plan, and all other plans maintained by the Employer,
provide that the Participant may not make elective deferrals for
the Participant's taxable year immediately following the taxable
year of the hardship distribution in excess of the applicable
limit under Code Section 402(g) for such next taxable year less
the amount of such Participant's elective deferrals for the
taxable year of the hardship distribution.
(d) Notwithstanding the above, for Plan Years beginning after
December 31, 1988, distributions from the Participant's Elective Account
pursuant to this Section shall be limited, as of the date of
distribution, to the Participant's Elective Account as of the end of the
last Plan Year ending before July 1, 1989, plus the total Participant's
Deferred Compensation after such date, reduced by the amount of any
previous distributions pursuant to this Section and Section 6.10.
(e) Any distribution made pursuant to this Section shall be made
in a manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 417 and 411(a)(11) and the Regulations
thereunder.
6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a Participant
in this Plan shall be subject to the rights afforded to any "alternate payee"
under a "qualified domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a
"qualified domestic relations order," even if the affected Participant has not
separated from service and has not reached the "earliest retirement age" under
the Plan. For the purposes of this Section, "alternate payee," "qualified
domestic relations order" and "earliest retirement age" shall have the meaning
set forth under Code Section 414(p).
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ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Consistent with the "funding policy and method" determined by
the Employer, to invest, manage, and control the Plan assets subject,
however, to the direction of an Investment Manager if the Employer should
appoint such manager as to all or a portion of the assets of the Plan;
(b) At the direction of the Administrator, to pay benefits
required under the Plan to be paid to Participants, or, in the event of
their death, to their Beneficiaries;
(c) To maintain records of receipts and disbursements and furnish
to the Employer and/or Administrator for each Plan Year a written annual
report per Section 7.7; and
(d) If there shall be more than one Trustee, they shall act by a
majority of their number, but may authorize one or more of them to sign
papers on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund to keep
the Trust Fund invested without distinction between principal and income
and in such securities or property, real or personal, wherever situated,
as the Trustee shall deem advisable, including, but not limited to,
stocks, common or preferred, bonds and other evidences of indebtedness or
ownership, and real estate or any interest therein. The Trustee shall at
all times in making investments of the Trust Fund consider, among other
factors, the short and long-term financial needs of the Plan on the basis
of information furnished by the Employer. In making such investments, the
Trustee shall not be restricted to securities or other property of the
character expressly authorized by the applicable law for trust
investments; however, the Trustee shall give due regard to any
limitations imposed by the Code or the Act so that at
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all times the Plan may qualify as a qualified Profit Sharing Plan and
Trust.
(b) The Trustee may employ a bank or trust company pursuant to the
terms of its usual and customary bank agency agreement, under which the
duties of such bank or trust company shall be of a custodial, clerical
and record-keeping nature.
(c) The Trustee may from time to time with the consent of the
Employer transfer to a common, collective, or pooled trust fund
maintained by any corporate Trustee hereunder, all or such part of the
Trust Fund as the Trustee may deem advisable, and such part or all of the
Trust Fund so transferred shall be subject to all the terms and
provisions of the common, collective, or pooled trust fund which
contemplate the commingling for investment purposes of such trust assets
with trust assets of other trusts. The Trustee may, from time to taime
with the consent of the Employer, withdraw from such common, collective,
or pooled trust fund all or such part of the Trust Fund as the Trustee
may deem advisable.
(d) To the extent permitted under applicable laws, to invest in
deposits, long and short term debt instruments, stocks, and other
securities, including those of the Trustee, The Charles Schwab
Corporation (the "Public Company"), Charles Schwab and Company, Inc. (the
"Broker/Dealer"), their affiliates and subsidiaries.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common law,
statutory authority, including the Act, and other provisions of the Plan, shall
have the following powers and authorities, to be exercised in the Trustee's sole
discretion:
(a) To purchase, or subscribe for, any securities or other
property and to retain the same. In conjunction with the purchase of
securities, margin accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to
purchase, or otherwise dispose of any securities or other property held
by the Trustee, by private contract or at public auction. No person
dealing with the Trustee shall be bound to see to the
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application of the purchase money or to inquire into the validity,
expediency, or propriety of any such sale or other disposition, with or
without advertisement;
(c) To deliver to the Administrator, Employer, or the persons
identified by the Employer, proxies and powers of attorney and related
informational material, for any shares or other property held in the
Trust. The Employer shall have responsibility for voting such shares, by
proxy, or in person, except to the extent such responsibility is
delegated to another person, under the terms of the Plan or Trust
Agreement or under an agreement between the named fiduciary of the Plan
and an investment manager, in which case such persons shall have such
responsibility. The Trustee may use agents to effect such delivery to the
Employer or the person or persons identified by the Employer. In no event
shall the Trustee be responsible for the voting of shares of securities
held in the Trust or for ascertaining or monitoring whether, or how,
proxies are voted or whether the proper number of proxies is received;
(d) To cause any securities or other property to be registered in
the Trustee's own name or in the name of one or more of the Trustee's
nominees, and to hold any investments in bearer form, but the books and
records of the Trustee shall at all times show that all such investments
are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in such
amount, and upon such terms and conditions, as the Trustee shall deem
advisable; and for any sum so borrowed, to issue a promissory note as
Trustee, and to secure the repayment thereof by pledging all, or any
part, of the Trust Fund; and no person lending money to the Trustee shall
be bound to see to the application of the money lent or to inquire into
the validity, expediency, or propriety of any borrowing;
(f) To keep such portion of the Trust Fund in cash or cash
balances as the Trustee may, from time to time, deem to be in the best
interests of the Plan, without liability for interest thereon;
(g) To accept and retain for such time as the Trustee may deem
advisable any securities or other property received or acquired as
Trustee hereunder,
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whether or not such securities or other property would normally be
purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other instruments
that may be necessary or appropriate to carry out the powers herein
granted;
(i) To settle, compromise, or submit to arbitration any claims,
debts, or damages due or owing to or from the Plan, to commence or defend
suits or legal or administrative proceedings, and to represent the Plan
in all suits and legal and administrative proceedings;
(j) To appoint agents as necessary or desirable, including legal
counsel who may be counsel for the Employer.
(k) To apply for and procure from responsible insurance companies,
to be selected by the Administrator, as an investment of the Trust Fund
such annuity, or other Contracts (on the life of any Participant) as the
Administrator shall deem proper; to exercise, at any time or from time to
time, whatever rights and privileges may be granted under such annuity,
or other Contracts; to collect, receive, and settle for the proceeds of
all such annuity or other Contracts as and when entitled to do so under
the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings
accounts bearing a reasonable rate of interest in the Trustee's bank;
(m) To invest in Treasury Bills and other forms of United States
government obligations;
(n) To invest in shares of investment companies registered under
the Investment Company Act of 1940;
(o) To sell, purchase and acquire put or call options if the
options are traded on and purchased through a national securities
exchange registered under the Securities Exchange Act of 1934, as
amended, or, if the options are not traded on a national securities
exchange, are guaranteed by a member firm of the New York Stock Exchange;
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(p) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(q) To pool all or any of the Trust Fund, from time to time, with
assets belonging to any other qualified employee pension benefit trust
created by the Employer or an affiliated company of the Employer, and to
commingle such assets and make joint or common investments and carry
joint accounts on behalf of this Plan and such other trust or trusts,
allocating undivided shares or interests in such investments or accounts
or any pooled assets of the two or more trusts in accordance with their
respective interests;
(r) To do all such acts and exercise all such rights and
privileges, although not specifically mentioned herein, as the Trustee
may deem necessary to carry out the purposes of the Plan.
(s) Directed Investment Account. The powers granted to the Trustee
shall be exercised in the sole fiduciary discretion of the Trustee.
However, if Participants are so empowered by the Administrator, each
Participant may direct the Trustee to separate and keep separate all or a
portion of his account; and further each Participant is authorized and
empowered, in his sole and absolute discretion, to give directions to the
Trustee pursuant to the procedure established by the Administrator and in
such form as the Trustee may require concerning the investment of the
Participant's Directed Investment Account. The Trustee shall comply as
promptly as practicable with directions given by the Participant
hereunder. The Trustee may refuse to comply with any direction from the
Participant in the event the Trustee, in its sole and absolute
discretion, deems such directions improper by virtue of applicable law.
The Trustee shall not be responsible or liable for any loss or expense
which may result from the Trustee's refusal or failure to comply with any
directions from the Participant. Any costs and expenses related to
compliance with the Participant's directions shall be borne by the
Participant's Directed Investment Account.
(t) To deposit securities in a security depository and permit the
securities so deposited to be held in the name of the depository's
nominee, and to deposit securities aissued or guaranteed by the U.S.
government or any agency or instrumentality thereof,
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including securities evidenced by book entry rather than by certificate,
with the U.S. Department of the Treasury, a Federal Reserve Bank or other
appropriate custodial entity, in the same account as the Trustee's own
property, provided the Trustee's records and accounts show that such
securities are assets of the Trust Fund.
(u) To hold securities issued by a foreign government or business
entity at a foreign office of the Trustee or any of its affiliates, or to
deposit such securities with a foreign depository regulated by a
government agency or regulatory authority in the foreign jurisdiction,
and to permit the securities so deposited to be held in the nominee name
of the depository bank, provided that the Trustee's records and accounts
show that such securities belong to the Trust Fund.
(v) Any dispute under this Agreement shall be resolved by
submission of the issue to a member of the American Arbitration
Association who is chosen by the Employer and the Trustee. If the
Employer and the Trustee cannot agree on such a choice, each shall
nominate a member of the American Arbitration Association, and the two
nominees will then select an arbitrator. Expenses of the arbitration
shall be paid as decided by the arbitrator.
(w) The Trustee is authorized to tape record conversations between
the Trustee and persons acting on behalf of the Plan or a participant in
the Plan to verify data on transactions.
(x) As stated in Article Number 4.13 of the Plan Document, each
participant and/or beneficiary may have investment power over the account
maintained for him or her, and may direct the investment and reinvestment
of assets of the account among the options authorized by the
Administrator. Such direction shall be furnished to the Trustee in
writing or some other agreed upon format established under procedures
agreed to by the Trustee and Administrator. To the extent provided under
ERISA section 404(c), the Trustee shall not be liable for any loss, or by
the reason of any breach, which results from such participant's or
beneficiary's exercise of control. If a participant who has investment
authority under the terms of the Plan fails to provide such directions,
the Administrator shall direct the
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investment of the participant's account. The Administrator shall maintain
records showing the interest of each participant and/or beneficiary in
the Trust Fund. The Trustee shall have no duty or responsibility to
review or make recommendations regarding investments made at the
direction of the Administrator or participant and shall be reguired to
act only upon receipt of properly authorized directions. A participant or
beneficiary shall not have authority to direct the investment of assets
in his or her account in "collectibles" within the meaning of Code
section 408(m)(2).
7.4 LOANS TO PARTICIPANTS
(a) The Trustee may, in the Trustee's discretion, make loans to
Participants and Beneficiaries under the following circumstances: (1)
loans shall be made available to all Participants and Beneficiaries on a
reasonably equivalent basis; (2) loans shall not be made available to
Highly Compensated Employees in an amount greater than the amount made
available to other Participants and Beneficiaries; (3) loans shall bear a
reasonable rate of interest; (4) loans shall be adequately secured; and
(5) shall provide for repayment over a reasonable period of time.
(b) Loans made pursuant to this Section (when added to the
outstanding balance of all other loans made by the Plan to the
Participant) shall be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans from the Plan to the Participant
during the one year period ending on the day before the date on
which such loan is made, over the outstanding balance of loans
from the Plan to the Participant on the date on which such loan
was made, or
(2) one-half (1/2) of the present value of the non-forfeitable
accrued benefit of the Participant under the Plan.
For purposes of this limit, all plans of the Employer shall be
considered one plan. Additionally, with respect to any loan made prior to
January 1, 1987, the $50,000 limit specified in (1) above shall be
unreduced.
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(c) Loans shall provide for level amortization with payments to be
made not less frequently than quarterly over a period not to exceed five
(5) years. However, loans used to acquire any dwelling unit which, within
a reasonable time, is to be used (determined at the time the loan is
made) as a principal residence of the Participant shall provide for
periodic repayment over a reasonable period of time that may exceed five
(5) years. Notwithstanding the foregoing, loans made prior to January 1,
1987 which are used to acquire, construct, reconstruct or substantially
rehabilitate any dwelling unit which, within a reasonable period of time
is to be used (determined at the time the loan is made) as a principal
residence of the Participant or a member of his family (within the
meaning of Code Section 267(c)(4)) may provide for periodic repayment
over a reasonable period of time that may exceed five (5) years.
Additionally, loans made prior to January 1, 1987, may provide for
periodic payments which are made less frequently than quarterly and which
do not necessarily result in level amortization.
(d) Any loan made pursuant to this Section after August 18, 1985
where the Vested interest of the Participant is used to secure such loan
shall require the written consent of the Participant's spouse in a manner
consistent with Section 6.5(a). Such written consent must be obtained
within the 90-day period prior to the date the loan is made. However, no
spousal consent shall be required under this paragraph if the total
accrued benefit subject to the security is not in excess of $3,500.
(e) Any loans granted or renewed on or after the last day of the
first Plan Year beginning after December 31, 1988 shall be made pursuant
to a Participant loan program. Such loan program shall be established in
writing and must include, but need not be limited to, the following:
(1) the identity of the person or positions authorized to
administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
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(4) limitations, if any, on the types and amounts of loans
offered;
(5) the procedure under the program for determining a reasonable
rate of interest;
(6) the types of collateral which may secure a Participant loan;
and
(7) the events constituting default and the steps that will be
taken to preserve Plan assets.
Such Participant loan program shall be contained in a separate
written document which, when properly executed, is hereby incorporated by
reference and made a part of the Plan. Furthermore, such Participant loan
program may be modified or amended in writing from time to time without
the necessity of amending this Section.
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from
time to time, in accordance with the terms of the Plan, make payments out
of the Trust Fund. The Trustee shall not be responsible in any way for
the application of such payments.
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as shall
from time to time be agreed upon in writing by the Employer and the
Trustee. An individual serving as Trustee who already receives full-time
pay from the Employer shall not receive compensation from the Plan. In
addition, the Trustee shall be reimbursed for any reasonable expenses,
including reasonable counsel fees incurred by it as Trustee. Such
compensation and expenses shall be paid from the Trust Fund unless paid
or advanced by the Employer. All taxes of any kind and all kinds
whatsoever that may be levied or assessed under existing or future laws
upon, or in respect of, the Trust Fund or the income thereof, shall be
paid from the Trust Fund.
7.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the
Anniversary Date or receipt of the Employer's contribution for each Plan
Year, the Trustee shall furnish to the Employer and Administrator a
written statement of account with respect to the Plan Year for which such
contribution was made setting forth:
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(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust Fund upon sales or
other disposition of the assets;
(c) the increase, or decrease, in the value of the Trust Fund;
(d) all payments and distributions made from the Trust Fund; and
(e) such further information as the Trustee and/or Administrator
deems appropriate. The Employer, forthwith upon its receipt of each such
statement of account, shall acknowledge receipt thereof in writing and
advise the Trustee and/or Administrator of its approval or disapproval
thereof. Failure by the Employer to disapprove any such statement of
account within thirty (30) days after its receipt thereof shall be deemed
an approval thereof. The approval by the Employer of any statement of
account shall be binding as to all matters embraced therein as between
the Employer and the Trustee to the same extent as if the account of the
Trustee had been settled by judgment or decree in an action for a
judicial settlement of its account in a court of competent jurisdiction
in which the Trustee, the Employer and all persons having or claiming an
interest in the Plan were parties; provided, however, that nothing herein
contained shall deprive the Trustee of its right to have its accounts
judicially settled if the Trustee so desires.
7.8 AUDIT
(a) If an audit of the Plan's records shall be required by the Act
and the regulations thereunder for any Plan Year, the Administrator shall
direct the Trustee to engage on behalf of all Participants an independent
qualified public accountant for that purpose. Such accountant shall,
after an audit of the books and records of the Plan in accordance with
generally accepted auditing standards, within a reasonable period after
the close of the Plan Year, furnish to the Administrator and the Trustee
a report of his audit setting forth his opinion as to whether any
statements, schedules or lists that are required by Act Section 103 or
the Secretary of Labor to be filed with the Plan's annual report, are
presented fairly in conformity with generally accepted accounting
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principles applied consistently. All auditing and accounting fees shall
be an expense of and may, at the election of the Administrator, be paid
from the Trust Fund.
(b) If some or all of the information necessary to enable the
Administrator to comply with Act Section 103 is maintained by a bank,
insurance company, or similar institution, regulated and supervised and
subject to periodic examination by a state or federal agency, it shall
transmit and certify the accuracy of that information to the
Administrator as provided in Act Section 103(b) within one hundred twenty
(120) days after the end of the Plan Year or by such other date as may be
prescribed under regulations of the Secretary of Labor.
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the
Employer, at least thirty (30) days before its effective date, a written
notice of his resignation.
(b) The Employer may remove the Trustee by mailing by registered
or certified mail, addressed to such Trustee at his last known address,
at least thirty (30) days before its effective date, a written notice of
his removal.
(c) Upon the death, resignation, incapacity, or removal of any
Trustee, a successor may be appointed by the Employer; and such
successor, upon accepting such appointment in writing and delivering same
to the Employer, shall, without further act, become vested with all the
estate, rights, powers, discretions, and duties of his predecessor with
like respect as if he were originally named as a Trustee herein. Until
such a successor is appointed, the remaining Trustee or Trustees shall
have full authority to act under the terms of the Plan.
(d) The Employer may designate one or more successors prior to the
death, resignation, incapacity, or removal of a Trustee. In the event a
successor is so designated by the Employer and accepts such designation,
the successor shall, without further act, become vested with all the
estate, rights, powers, discretions, and duties of his predecessor with
the
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like effect as if he were originally named as Trustee herein immediately
upon the death, resignation, incapacity, or removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he
shall furnish to the Employer and Administrator a written statement of
account with respect to the portion of the Plan Year during which he
served as Trustee. This statement shall be either (i) included as part of
the annual statement of account for the Plan Year required under Section
7.7 or (ii) set forth in a special statement. Any such special statement
of account should be rendered to the Employer no later than the due date
of the annual statement of account for the Plan Year. The procedures set
forth in Section 7.7 for the approval by the Employer of annual
statements of account shall apply to any special statement of account
rendered hereunder and approval by the Employer of any such special
statement in the manner provided in Section 7.7 shall have the same
effect upon the statement as the Employer's approval of an annual
statement of account. No successor to the Trustee shall have any duty or
responsibility to investigate the acts or transactions of any predecessor
who has rendered all statements of account required by Section 7.7 and
this subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee
at the direction of the Administrator shall transfer the Vested interest, if
any, of such Participant in his account to another trust forming part of a
pension, profit sharing or stock bonus plan maintained by such Participant's new
employer and represented by said employer in writing as meeting the requirements
of Code Section 401(a), provided that the trust to which such transfers are made
permits the transfer to be made.
7.11 DIRECT ROLLOVER
(a) This Section applies to distributions made on or after January
1, 1993. Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Section, a
distributee may elect, at the time and in the manner prescribed by the
Plan Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by
the distributee in a direct rollover.
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(1) An eligible rollover distribution is any distribution of all
or any portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not include:
any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or life expectancy) of the distributee or the joint lives
(or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period of
ten years or more; any distribution to the extent such
distribution is required under section 401 (a) (9) of the Code;
and the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(2) An eligible retirement plan is an individual retirement
account described in section 408(a) of the Code, an individual
retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a
qualified trust described in section 401(a) of the Code, that
accepts the distributee's eligible rollover distribution. However,
in the case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(3) A distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former spouse who is
the alternate payee under a qualified domestic relations order, as
defined in section 414(p) of the Code, are distributees with
regard to the interest of the spouse or former spouse.
(4) A direct rollover is a payment by the plan to the eligible
retirement plan specified by the distributee.
7.12 AFFILIATED COMPANY
(a) The Trustee is authorized to contact or make other arrangements with
The Charles Schwab Corporation (the
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"Public Company"), Charles Schwab and Co., Inc. (the "Broker/Dealer"),
their affiliates and subsidiaries, successors and assigns, and any other
organizations affiliated with or subsidiaries of the Trustee or related
entities, for the provision of services to the Trust or Plan, except
where such arrangements are prohibited by law or regulation.
(b) The Trustee is authorized to place securities orders, settle
securities trades, hold securities in custody, and other related
activities on behalf of the Trust through or by the Broker/Dealer
whenever possible, unless the Authorized Person specifically instructs
the use of another broker/dealer. Trades (and related activities)
conducted through the Broker/Dealer shall be subject to fees and
commissions established by the Broker/Dealer, which may be paid from the
Trust or netted from the proceeds of trades.
Trades shall not be executed through the Broker/Dealer unless the
Administrator and the Authorized Person have received disclosure
concerning the relationship of the Broker/Dealer to the Trustee, and fees
and commissions which may be paid to the Public Company, Broker/ Dealer,
the Trustee and/or affiliates or subsidiaries as a result of using the
Broker/Dealer's execution of other services.
The Trustee is authorized to disclose such information as is
necessary to the operation and administration of the Trust to the Public
Company or any of its affiliates, and to such other persons or
organizations that the Trustee determines have a legitimate business
purpose for obtaining such information.
(c) At the direction of the Administrator (or other Authorized Person),
the Trustee may purchase shares of regulated investment companies (or
other investment vehicles) advised by the Holding Company, Broker/Dealer
or the Trustee or any affiliate of any of them ("Schwab Funds") except to
the extent that such investment is prohibited by law or regulation.
Uninvested cash of the Trust may be invested in Schwab Funds
designated by the Administrator (of other Authorized Person) for that
purpose, unless the Administrator specifically instructs the use of
another fund or account, except to the extent prohibited by law
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or regulation.
Schwab Fund shares may not be purchased or held by the Trust
unless the Administrator has received disclosure concerning the Public
Company's, Broker/Dealer's, the Trustee's and/or their affiliate's or
subsidiary's relationship to the Funds, and any fees which may be paid to
the Public Company, Broker/Dealer, Trustee and/or their affiliates or
subsidiaries.
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend the
Plan, subject to the limitations of this Section. However, any amendment
which affects the rights, duties or responsibilities of the Trustee and
Administrator may only be made with the Trustee's and Administrator's
written consent. Any such amendment shall become effective as provided
therein upon its execution. The Trustee shall not be required to execute
any such amendment unless the Trust provisions contained herein are a
part of the Plan and the amendment affects the duties of the Trustee
hereunder.
(b) No amendment to the Plan shall be effective if it authorizes
or permits any part of the Trust Fund (other than such part as is
required to pay taxes and administration expenses) to be used for or
diverted to any purpose other than for the exclusive benefit of the
Participants or their Beneficiaries or estates; or causes any reduction
in the amount credited to the account of any Participant; or causes or
permits any portion of the Trust Fund to revert to or become property of
the Employer.
(c) Except as permitted by Regulations, no Plan amendment or
transaction having the effect of a Plan amendment (such as a merger, plan
transfer or similar transaction) shall be effective to the extent it
eliminates or reduces any "Section 411(d) (6) protected benefit" or adds
or modifies conditions relating to "Section 411(d) (6) protected
benefits" the result of which is a further restriction on such benefit
unless such protected benefits are preserved with respect to benefits
accrued as of the later of the adoption date or effective date of the
amendment. "Section 411(d) (6)
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protected benefits" are benefits described in Code Section 411(d)(6)(A),
early retirement benefits and retirement-type subsidies, and optional
forms of benefit.
8.2 TERMINATION
(a) The Employer shall have the right at any time to terminate the
Plan by delivering to the Trustee and Administrator written notice of
such termination. Upon any full or partial termination, all amounts
credited to the affected Participants' Combined Accounts shall become
100% Vested as provided in Section 6.4 and shall not thereafter be
subject to forfeiture, and all unallocated amounts shall be allocated to
the accounts of all Participants in accordance with the provisions
hereof.
(b) Upon the full termination of the Plan, the Employer shall
direct the distribution of the assets of the Trust Fund to Participants
in a manner which is consistent with and satisfies the provisions of
Section 6.5. Distributions to a Participant shall be made in cash or
through the purchase of irrevocable nontransferable deferred commitments
from an insurer. Except as permitted by Regulations, the termination of
the Plan shall not result in the reduction of "Section 411(d) (6)
protected benefits" in accordance with Section 8.1(c).
8.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its assets
and/or liabilities may be transferred to any other plan and trust only if the
benefits which would be received by a Participant of this Plan, in the event of
a termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d) (6) protected
benefits" in accordance with Section 8.1(c).
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ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan shall
be deemed to give any Participant or Employee the right to be retained in the
service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon him as a Participant of this Plan.
9.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit which
shall be payable out of the Trust Fund to any person (including a
Participant or his Beneficiary) shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be void; and
no such benefit shall in any manner be liable for, or subject to, the
debts, contracts, liabilities, engagements, or torts of any such person,
nor shall it be subject to attachment or legal process for or against
such person, and the same shall not be recognized by the Trustee, except
to such extent as may be required by law.
(b) This provision shall not apply to the extent a Participant or
Beneficiary is indebted to the Plan, as a result of a loan from the Plan.
At the time a distribution is to be made to or for a Participant's or
Beneficiary's benefit, such proportion of the amount distributed as shall
equal such loan indebtedness shall be paid by the Trustee to the Trustee
or the Administrator, at the direction of the Administrator, to apply
against or discharge such loan indebtedness. Prior to making a payment,
however, the Participant or Beneficiary must be given written notice by
the Administrator that such loan indebtedness is to be so paid in whole
or part from his Participant's Combined Account. If the Participant or
Beneficiary does not agree that the loan indebtedness is a valid claim
against his Vested Participant's Combined Account, he shall be entitled
to a review of the validity of the
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claim in accordance with procedures provided in Sections 2.12 and 2.13.
(c) This provision shall not apply to a "qualified domestic
relations order" defined in Code Section 414(p), and those other domestic
relations orders permitted to be so treated by the Administrator under
the provisions of the Retirement Equity Act of 1984. The Administrator
shall establish a written procedure to determine the qualified status of
domestic relations orders and to administer distributions under such
qualified orders. Further, to the extent provided under a "qualified
domestic relations order", a former spouse of a Participant shall be
treated as the spouse or surviving spouse for all purposes under the
Plan.
9.3 CONSTRUCTION OF PLAN
This Plan arid Trust shall be construed and enforced according to the Act
and the laws of the State of Ohio, other than its laws respecting choice of law,
to the extent not preempted by the Act.
9.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
9.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the
Trust and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, and such claim, suit, or proceeding is resolved in
favor of the Trustee or Administrator, they shall be entitled to be reimbursed
from the Trust Fund for any and all costs, attorney's fees, and other expenses
pertaining thereto incurred by them for which they shall have become liable.
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9.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted
by law, it shall be impossible by operation of the Plan or of the Trust,
by termination of either, by power of revocation or amendment, by the
happening of any contingency, by collateral arrangement or by any other
means, for any part of the corpus or income of any trust fund maintained
pursuant to the Plan or any funds contributed thereto to be used for, or
diverted to, purposes other than the exclusive benefit of Participants,
Retired Participants, or their Beneficiaries.
(b) In the event the Employer shall make an excessive contribution
under a mistake of fact pursuant to Act Section 403(c)(2)(A), the
Employer may demand repayment of such excessive contribution at any time
within one (1) year following the time of payment and the Trustees shall
return such amount to the Employer within the one (1) year period.
Earnings of the Plan attributable to the excess contributions may not be
returned to the Employer but any losses attributable thereto must reduce
the amount so returned.
9.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted
by the Act and regulations thereunder, shall be bonded in an amount not less
than 10% of the amount of the funds such Fiduciary handles; provided, however,
that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount
of funds handled shall be determined at the beginning of each Plan Year by the
amount of funds handled by such person, group, or class to be covered and their
predecessors, if any, during the preceding Plan Year, or if there is no
preceding Plan Year, then by the amount of the funds to be handled during the
then current year. The bond shall provide protection to the Plan against any
loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in Act Section 412(a)(2)), and the bond shall be in a form approved
by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary,
the cost of such bonds shall be an expense of and may, at the election of the
Administrator, be paid from the Trust Fund or by the Employer.
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9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the failure
on the part of the insurer to make payments provided by any such Contract, or
for the action of any person which may delay payment or render a Contract null
and void or unenforceable in whole or in part.
9.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
9.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary, or
to any guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of the Plan, shall, to the extent thereof, be in
full satisfaction of all claims hereunder against the Trustee and the Employer,
either of whom may require such Participant, legal representative, Beneficiary,
guardian or committee, as a condition precedent to such payment, to execute a
receipt and release thereof in such form as shall be determined by the Trustee
or Employer.
9.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
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9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator and (3) the Trustee. The named Fiduciaries shall have only those
specific powers, duties, responsibilities, and obligations as are specifically
given them under the Plan. In general, the Employer shall have the sole
responsibility for making the contributions provided for under Section 4.1; and
shall have the sole authority to appoint and remove the Trustee and the
Administrator; to formulate the Plan's "funding policy and method"; and to amend
or terminate, in whole or in part, the Plan. The Administrator shall have the
sole responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, except those
assets, the management of which has been assigned to an Investment Manager, who
shall be solely responsible for the management of the assets assigned to it, all
as specifically provided in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended under
the Plan that each named Fiduciary shall be responsible for the proper exercise
of its own powers, duties, responsibilities and obligations under the Plan. No
named Fiduciary shall guarantee the Trust Fund in any manner against investment
loss or depreciation in asset value. Any person or group may serve in more than
one Fiduciary capacity. In the furtherance of their responsibilities hereunder,
the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and
to resolve ambiguities, inconsistencies and omissions, which findings shall be
binding, final and conclusive.
9.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
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9.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, contributions
to this Plan are conditioned upon the initial qualification of the Plan
under Code Section 401. If the Plan receives an adverse determination
with respect to its initial qualification, then the Plan may return such
contributions to the Employer within one year after such determination,
provided the application for the determination is made by the time
prescribed by law for filing the Employer's return for the taxable year
in which the Plan was adopted, or such later date as the Secretary of the
Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary, except
Sections 3.6, 3.7, and 4.1(e), any contribution by the Employer to the
Trust Fund is conditioned upon the deductibility of the contribution by
the Employer under the Code and, to the extent any such deduction is
disallowed, the Employer may, within one (1) year following the
disallowance of the deduction, demand repayment of such disallowed
contribution and the Trustee shall return such contribution within one
(1) year following the disallowance. Earnings of the Plan attributable to
the excess contribution may not be returned to the Employer, but any
losses attributable thereto must reduce the amount so returned.
9.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner. In the event of any conflict between the
terms of this Plan and any Contract purchased hereunder, the Plan provisions
shall control.
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of the
Employer and Trustee, any other corporation or entity, whether an affiliate or
subsidiary or not, may adopt this Plan and all of the provisions hereof, and
participate herein and be known as a Participating Employer, by a properly
executed document evidencing said intent and will of such Participating
Employer.
109
<PAGE> 110
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to use the
same Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to, commingle, hold
and invest as one Trust Fund all contributions made by Participating
Employers, as well as all increments thereof. However, the assets of the
Plan shall, on an ongoing basis, be available to pay benefits to all
Participants and Beneficiaries under the Plan without regard to the
Employer or Participating Employer who contributed such assets.
(c) The transfer of any Participant from or to an Employer
participating in this Plan, whether he be an Employee of the Employer or
a Participating Employer, shall not affect such Participant's rights
under the Plan, and all amounts credited to such Participant's Combined
Account as well as his accumulated service time with the transferor or
predecessor, and his length of participation in the Plan, shall continue
to his credit.
(d) All rights and values forfeited by termination of employment
shall inure only to the benefit of the Participants of the Employer or
Participating Employer by which the forfeiting Participant was employed,
except if the Forfeiture is for an Employee whose Employer is an
Affiliated Employer, then said Forfeiture shall inure to the benefit of
the Participants of those Employers who are Affiliated Employers. Should
an Employee of one ("First") Employer be transferred to an associated
("Second") Employer which is an Affiliated Employer, such transfer shall
not cause his account balance (generated while an Employee of "First"
Employer) in any manner, or by any amount to be forfeited. Such
Employee's Participant Combined Account balance for all purposes of the
Plan, including length of service, shall be considered as though he had
always been employed by the "Second" Employer and as such had received
contributions, forfeitures, earnings or losses, and appreciation or
depreciation in value of assets totaling the amount so transferred.
(e) Any expenses of the Trust which are to be paid by the Employer
or borne by the Trust Fund shall
110
<PAGE> 111
be paid by each Participating Employer in the same proportion that the
total amount standing to the credit of all Participants employed by such
Employer bears to the total standing to the credit of all Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a party to this Plan;
provided, however, that with respect to all of its relations with the Trustee
and Administrator for the purpose of this Plan, each Participating Employer
shall be deemed to have designated irrevocably the Employer as its agent. Unless
the context of the Plan clearly indicates the contrary, the word "Employer"
shall be deemed to include each Participating Employer as related to its
adoption of the Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No such
transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Participating Employer from whom the Employee was transferred.
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION
Any contribution subject to allocation during each Plan Year shall be
allocated only among those Participants of the Employer or Participating
Employer making the contribution, except if the contribution is made by an
Affiliated Employer, in which event such contribution shall be allocated among
all Participants of all Participating Employers who are Affiliated Employers in
accordance with the provisions of this Plan. On the basis of the information
furnished by the Administrator, the Trustee shall keep separate books and
records concerning the affairs of each Participating Employer hereunder and as
to the accounts and credits of the Employees of each Participating Employer. The
Trustee may, but need not, register Contracts so as to evidence that a
particular Participating Employer is the interested Employer hereunder, but in
the event of an Employee transfer from one Participating Employer to another,
the employing Employer shall immediately notify the Trustee thereof.
111
<PAGE> 112
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be a
Participating Employer hereunder shall only be by the written action of each and
every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or revoke
its participation in the Plan. At the time of any such discontinuance or
revocation, satisfactory evidence thereof and of any applicable conditions
imposed shall be delivered to the Trustee. The Trustee shall thereafter
transfer, deliver and assign Contracts and other Trust Fund assets allocable to
the Participants of such Participating Employer to such new Trustee as shall
have been designated by such Participating Employer, in the event that it has
established a separate pension plan for its Employees provided, however, that no
such transfer shall be made if the result is the elimination or reduction of any
"Section 411(d) (6) protected benefits" in accordance with Section 8.1(c). If no
successor is designated, the Trustee shall retain such assets for the Employees
of said Participating Employer pursuant to the provisions of Article VII hereof.
In no such event shall any part of the corpus or income of the Trust as it
relates to such Participating Employer be used for or diverted to purposes other
than for the exclusive benefit of the Employees of such Participating Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.
112
<PAGE> 113
IN WITNESS WHEREOF, this Plan has been executed the day and year first
above written.
Signed, sealed, and delivered
in the presence of:
Telxon Corp.
By
- --------------------------- ---------------------------
EMPLOYER
- ---------------------------
WITNESSES AS TO EMPLOYER
Charles Schwab Trust Company
By
- --------------------------- ---------------------------
TRUSTEE
- ---------------------------
WITNESSES AS TO TRUSTEE
ATTEST
-----------------------
113
<PAGE> 114
TELXON'S RETIREMENT & UNIFORM MATCHING
PROFIT SHARING PLAN
PARTICIPANT LOAN PROGRAM
Telxon's Retirement & Uniform Matching Profit Sharing Plan permits loans
to be made to Participants and their beneficiaries. However, before any loan is
made, the Plan requires that a written loan program be established which sets
forth the rules and guidelines for making Participant loans. This document
shall serve as the required written loan program. In addition, the
Administrator may use this document to serve as, or supplement, any required
notice of the loan program to Participants and their beneficiaries. All
references to Participants in this loan program shall include Participants and
their Beneficiaries who are "parties in interest" as defined by Act Section
3(14).
1) The Administrator of the Plan is authorized to administer the
Participant loan program. All applications for loans shall be made by a
Participant to the Administrator on forms which the Administrator will
make available for such purpose.
2) All loan applications shall be considered by the Administrator
within a reasonable time after the Participant makes formal application.
The Participant shall also be required to provide such supporting
information deemed necessary by the Administrator. This may include a
financial statement, tax returns and such other financial information
which the Administrator may consider necessary and appropriate to
determine whether a loan should be granted. Furthermore, the Participant
shall authorize the Administrator to obtain a credit report on the
Participant.
3) The Administrator shall determine whether a Participant qualifies
for a loan, applying such criteria as a commercial lender of funds would
apply in like circumstances with respect to the Participant. Such
criteria shall include, but need not be limited to, the creditworthiness
of the Participant and his general ability to repay the loan, the period
of time such Participant has been employed by the Employer, whether
adequate security has been provided for the loan, and whether the
Participant agrees, as a condition for receiving the loan, to make
repayments through direct, after-tax payroll deduction.
4) With regard to any loan made pursuant to this program, the
following rule(s) and limitation(s) shall apply, in addition to such
other requirements set forth in the Plan:
(i) No loan in an amount less than $1,000 shall be granted to
any Participant.
(ii) All loans made pursuant to this program shall be
considered a directed investment from the account(s) of the
Participant maintained under the Plan. As such, all payments of
principal and interest made by the Participant shall be credited
only to the account(s) of such Participant.
(iii) Only one outstanding loan per participant will be
permitted.
(iv) All expenses associated with the establishment and
administration of the loan will be paid by or charged to the
Participant's account.
(v) All loans will be repaid through direct payroll deduction.
(vi) The maximum repayment period for all loans shall be five
years.
<PAGE> 115
5) Any loan granted or renewed under this program shall bear a
reasonable rate of interest. In determining such rate of interest, the
Plan shall require a rate of return commensurate with the prevailing
interest rate charged on similar commercial loans under like
circumstances by persons in the business of lending money. Such
prevailing interest rate standard shall permit the Administrator to
consider factors pertaining to the opportunity for gain and risk of loss
that a professional lender would consider on a similar arms-length
transaction, such as the creditworthiness of the Participant and the
security given for the loan. Therefore, in establishing the rate of
interest, the Administrator shall conduct a reasonable and prudent
inquiry with professional lenders in the same geographic locale where the
Participant and Employer reside to determine such prevailing interest
rate for loans under like circumstances.
6) The Plan shall require that adequate security be provided by the
Participant before a loan is granted. For this purpose, the Plan shall
consider a Participant's interest under the Plan to be adequate
security. However, in no event shall more than 50% of a Participant's
vested account balance (determined immediately after origination of the
loan) be used as security for the loan. Generally, it shall be the policy
of the Plan not to make loans which require security other than the
Participant's vested interest in the Plan. However, if additional
security is necessary to adequately secure the loan, then the
Administrator shall require that such security be provided before the
loan will be granted. For this purpose, the Participant's principal
residence may serve as additional security, if permitted by State law.
7) Generally, a default shall occur upon the failure of a Participant
to timely remit payments under the loan when due. In such event, the
Trustee shall take such reasonable actions which a prudent fiduciary in
like circumstances would take to protect and preserve Plan assets,
including foreclosing on any collateral and commencing such other legal
action for collection which the Trustee deems necessary and advisable.
However, the Trustee shall not be required to commence such actions
immediately upon a default. Instead, the Trustee may grant the
Participant reasonable rights to cure any default, provided such actions
would constitute a prudent and reasonable course of conduct for a
professional lender in like circumstances. In addition, if no risk of
loss of principal or income would result to the Plan, the Trustee may
choose, in its discretion, to defer enforcement proceedings. If the
qualified status of the Plan is not jeopardized, the Trustee and the
Administrator may treat a loan that has been defaulted upon and not cured
within a reasonable period of time as a deemed distribution from the
Plan.
8) In the event the Participant begins a leave of absence, without
pay, that is one year or less, or any periodic payment is not made in full
because of temporary reduction in the amount payable to the Participant
for a payroll period, the Administrator may waive any payments on the
loan during such leave of absence or may waive the full payment on the
loan for such payroll period and reamortize the loan over its remaining
term.
9) Upon satisfaction of the criteria established for granting a loan,
the Administrator shall inform the Trustee that the Participant has
qualified to receive a loan under the Plan's program. The Trustee shall
review the determination made by the Administrator (including the
prevailing interest rate which has been set for the loan) and, if it
determines that such loan would be a prudent investment for the Plan,
applying such fidiciary standards required by ERISA, the Trustee may
grant the loan request. In making such determination, the Trustee may
consider the liquidity of the Plan assets available for loans. The
Administrator shall then require that the Participant execute all
documents necessary to establish the loan, including a promissory note
and such other documents which will provide the Plan with adequate
security.
Adopted this 2 day of July, 1993. This loan program may be amended from time to
time.
<PAGE> 116
Employer: Fred L. Graf, Treasurer
------------------------
Trustee: [signature illegible]
-------------------------
Administrator:
-------------------
<PAGE> 117
AMENDMENT NUMBER ONE
TO TELXON'S RETIREMENT AND UNIFORM
MATCHING PROFIT SHARING PLAN
Effective date: January 1, 1993
Section 7.3, OTHER POWERS OF THE TRUSTEE of the Plan and Trust Document, has
been amended as follows:
(c) To deliver to the Administrator, Employer, or the person or persons
identified by the Employer, proxies and powers of attorney and related
informational material, for any shares or other property held in the Trust. The
Employer shall have responsibility for voting such shares, by proxy or in
person, except to the extent such responsibility is delegated to another person,
under the terms of the Plan or Trust Agreement or under an agreement between the
named fiduciary of the Plan and an investment manager, in which case such
persons shall have such responsibility. The Trustee may use agents to effect
such delivery to the Employer or the person or persons identified by the
Employer. In no event shall the Trustee be responsible for the voting of shares
of securities held in the Trust or for ascertaining or monitoring whether, or
how, proxies are voted or whether the proper number of proxies is received;
(j) To appoint agents as necessary or desirable, including legal counsel
who may be counsel for the Employer.
Section 7.3 of the Plan and Trust Document has been amended to add:
(s) To deposit securities in a security depository and permit the
securities so deposited to be held in the name of the depository's nominee, and
to deposit securities issued or guaranteed by the U.S. government or any agency
or instrumentality thereof, including securities evidenced by book entry rather
than by certificate, with the U.S. Department of the Treasury, a Federal Reserve
Bank or other appropriate custodial entity, in the same account as the Trustee's
own property, provided the Trustee's records and accounts show that such
securities are assets of the Trust Fund.
(t) To hold securities issued by a foreign government or business entity
at a foreign office of the Trustee or any of its affiliates, or to deposit such
securities with a foreign depository or bank regulated by a government agency or
regulatory authority in the foreign jurisdiction, and to permit the securities
so deposited to be held in the nominee name of the depository bank, provided
that the Trustee's records and accounts show that such securities belong to the
Trust Fund.
(u) Any dispute under this Agreement shall be resolved by submission of
the issue to a member of the American Arbitration Association who is chosen by
the Employer and the Trustee. If the Employer and the Trustee cannot agree on
such a choice, each shall nominate a member of the American Arbitration
Association, and the two nominees will then select an arbitrator. Expenses of
the arbitration shall be paid as decided by the arbitrator.
(v) The Trustee is authorized to tape record conversations between the
Trustee and persons acting on behalf of the Plan or a participant in the Plan to
verify data on transactions.
(w) As stated in Article Number 4.8 of the Plan Document, each
participant and/or beneficiary may have investment power over the account
maintained for him or her, and may direct the investment and reinvestment of
assets of the account among the options authorized by the Administrator. Such
direction shall be furnished to the Trustee in writing or some other agreed
upon format established under procedures agreed to by the Trustee and
Administrator. To the extent provided under ERISA section 404(c), the Trustee
shall not be liable for any loss, or by reason of any breach, which results from
such participant's or beneficiary's exercise of control. If a participant who
has investment authority under the terms of the Plan fails to provide such
directions, the Administrator shall direct the investment of the participant's
account. The Administrator shall maintain records showing the interest of each
participant and/or beneficiary in the Trust Fund. The Trustee shall have no duty
or responsibility to review or make recommendations regarding investments made
at the direction of the Administrator or participant and shall be required to
act only upon receipt of properly authorized directions. A participant or
beneficiary shall not have authority to direct the investment of assets in his
or her account in "collectibles" within the meaning of Code section 408(m)(2).
Section 7.2 of the Plan and Trust Document has been amended to add:
<PAGE> 118
(f) To the extent permitted under applicable laws, to invest in deposits,
long and short term debt instruments, stocks, and other securities, including
those of the Trustee, The Charles Schwab Corporation (the "Public Company"),
Charles Schwab and Company, Inc. (the "Broker/Dealer"), their affiliates and
subsidiaries.
The following Section has been added:
7.13 AFFILIATED COMPANY
(a) The Trustee is authorized to contract or make other arrangements with
The Charles Schwab Corporation (the "Public Company"), Charles Schwab and Co.,
Inc. (the "Broker/Dealer"), their affiliates and subsidiaries, successors and
assigns, and any other organizations affiliated with or subsidiaries of the
Trustee or related entities, for the provision of services to the Trust or Plan,
except where such arrangements are prohibited by law or regulation.
(b) The Trustee is authorized to place securities orders, settle
securities trades, hold securities in custody, and other related activities on
behalf of the Trust through or by the Broker/Dealer whenever possible, unless
the Authorized Person specifically instructs the use of another broker/dealer.
Trades (and related activities) conducted through the Broker/Dealer shall be
subject to fees and commissions established by the Broker/Dealer, which may be
paid from the Trust or netted from the proceeds of trades.
Trades shall not be executed through the Broker/Dealer unless the Administrator
and the Authorized Person have received disclosure concerning the relationship
of the Broker/Dealer to the Trustee, and fees and commissions which may be paid
to the Public Company, Broker/Dealer, the Trustee and/or affiliates or
subsidiaries as a result of using the Broker/Dealer's execution of other
services.
The Trustee is authorized to disclose such information as is necessary to the
operation and administration of the Trust to the Public Company or any of its
affiliates, and to such other persons or organizations that the Trustee
determines have a legitimate business purpose for obtaining such information.
(c) At the Direction of the Administrator (or other Authorized Person),
the Trustee may purchase shares of regulated investment companies (or other
investment vehicles) advised by the Holding Company, Broker/Dealer or the
Trustee or any affiliate of any of them ("Schwab Funds") except to the extent
that such investment is prohibited by law or regulation.
Uninvested cash of the Trust may be invested in Schwab Funds designated
by the Administrator (or other Authorized Person) for that purpose, unless the
Administrator specifically instructs the use of another fund or account, except
to the extent prohibited by law or regulation.
Schwab Fund shares may not be purchased or held by the Trust unless the
Administrator has received disclosure concerning the Public Company's,
Broker/Dealer's, the Trustee's and/or their affiliate's or subsidiary's
relationship to the Funds, and any fees which may be paid to the Public Company,
Broker/Dealer, Trustee and/or their affiliates or subsidiaries.
Executed by the Employer this 2nd day of July , 1993.
----- --------------
TELXON CORPORATION
Dan R. Wipff, President
- ------------------------------ ------------------------------
Witness as to Employer Employer
- ------------------------------ ------------------------------
Witness as to Trustee Trustee
(Charles Schwab Trust Company)
Date:
-------------------------
<PAGE> 119
AMENDMENT NUMBER TWO TO THE
TELXON'S RETIREMENT AND UNIFORM MATCH:ING PROFIT SHARING PLAN
Effective Date: April 1, 1994
Section 1.14, "EMPLOYEE" of the Plan and Trust Document, is hereby amended to
include the following provision:
Employee shall not include any person rendering service on a temporary
basis (as determined by the usual or historical categories of employment
as established by the Employer or any of its affiliates), or employees
classified as casual labor, or else a person serving solely as a director
of the Employer or any of the Employer's affiliates.
Participants in the above classification will no longer be eligible for
participation on or alter the above effective date.
Executed by the Employer on the 1st day of April 1994
---------- ----------------- -
TELXON CORPORATION
/s/ Margaret E. Pais By /s/ Dan R. Wipff, President
- --------------------------------- ------------------------------
Witness as to Employer Employer
MICRO OFFICE SYSTEM TECHNOLOGY
/s/ Margaret E. Pais By /s/ Dan R. Wipff, President
- --------------------------------- ------------------------------
Witness to Participating Employer Participating Employer
TELETRANSACTION
/s/ Margaret E. Pais By /s/ Yung Fu Chang
- --------------------------------- ------------------------------
Witness to Participating Employer Participating Employer
PTC AIRCO
/s/ Margaret E. Pais By /s/ Dan R. Wipff, President
- --------------------------------- ------------------------------
Witness as to Participating Employer Participating Employer
<PAGE> 120
Page Two, continued
Effective Date; April 1, 1994
AMENDMENT NUMBER TWO TO THE
TELXON'S RETIREMENT AND UNIFORM MATCHING PROFIT SHARING PLAN
RETAIL TECHNOLOGY GROUP
/s/ Margaret E. Pais By /s/ Dan R. Wipff
- --------------------------------- ------------------------------
Witness as to Participating Employer Participating Employer
AIRONET CORPORATION
/s/ Margaret E. Pais By /s/ Robert A. Eberle, Secretary
- --------------------------------- ------------------------------
Witness as to Participating Employer Participating Employer
PENRIGHT! CORPORATION
/s/ Margaret E. Pais By /s/ Robert A. Eberle, Secretary
- --------------------------------- -------------------------------
Witness as to Participating Employer Participating Employer
METANETICS CORPORMON
/s/ Margaret E. Pais By /s/ Robert A. Eberle, Secretary
- --------------------------------- -------------------------------
Witness as to Participating Employer Participating Employer
<PAGE> 121
AMENDMENT NUMBER THREE TO THE
TELXON'S RETIREMENT & UNIFORM MATCHING PROFIT SHARING PLAN
Effective Date: January 1, 1994
Section 1.8 "Compensation" has been amended to add:
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account
in determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
Section 1.25 "414(s) Compensation" has been amended to add:
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account
in determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
IN WITNESS WHEREOF, this Amendment has been executed as of this 31st day of
December, 1994.
TELXON CORPORATION
/s/ David B. Swank
- ---------------------------
Employer
<PAGE> 1
Exhibit 10.1.4
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
Raj Reddy - Grant Number 1539
THIS AGREEMENT made as of the 17th day of October, 1988, between
TELXON CORPORATION, a Delaware corporation (the "Corporation"), and RAJ
REDDY, an independent Director of the Corporation (the "Optionee").
WHEREAS, on the date hereof (the "Grant Date"), a non-qualified stock
option for the purchase of shares of common stock, par value $.01 per
share, of the Corporation ("Common Stock") was granted to Optionee by the
Corporation's Board of Directors in order to provide the Optionee with
additional incentive to promote the interests of the Corporation;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
have agreed, and do hereby agree, as follows:
1. GRANT OF OPTION.
---------------
Under Grant Number 1539, the Corporation has granted to the Optionee
the right and option (the "Option") to purchase all or any part of an
aggregate of 6,000 shares of Common Stock, such number of shares being
subject to adjustment as provided herein (as so adjusted, the "Shares").
2. OPTION PRICE.
------------
The option price of the Shares covered by the Option is $14.625 per
share, such price being subject to adjustment as provided herein (as so
adjusted, the "Option Price").
<PAGE> 2
3. TERM OF OPTION.
--------------
(a) The term of the Option shall be for a period commencing on the
Grant Date and ending on the fifth (5th) anniversary of the Grant Date (the
"Expiration Date"), subject to earlier termination as provided herein.
(b) Prior to its expiration or termination, the Option may be
exercised, in whole or in part, for such number of the Shares as the
Optionee may from time to time elect, in accordance with the following
limitations:
(i) From and after the Grant Date, it may be exercised
as to one-third (1/3) of the Shares, subject to the provisions
of Section 13 hereof.
(ii) After the first (lst) anniversary of the Grant Date, it may
be exercised as to two-thirds (2/3) of the Shares, less such number of
the Shares as to which the Option has theretofore been exercised.
(iii) After the second (2nd) anniversary of the Grant Date, it may
be exercised as to any part or all of the Shares, less such number of the
Shares as to which the Option has theretofore been exercised.
(c) Shares shall not be issued with respect to the Option unless the
exercise of such Option and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, the Securities Exchange Act of 1934
(the "Exchange Act"), the rules and regulations
-2-
<PAGE> 3
promulgated thereunder, any applicable state "blue sky" laws, and the
requirements of any inter-dealer quotation system or stock exchange upon
which the Shares may then be included or listed, and shall be further
subject to the approval of counsel for the Corporation with respect to such
compliance.
As a condition to the exercise of the Option or the issuance of the
Shares on exercise of the Option, the Corporation may require the person
exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Corporation, such a representation is required
by any of the aforementioned laws.
Inability of the Corporation to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Corporation's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Corporation of any liability in respect of the
failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
(d) Nothing in this Agreement shall confer upon the Optionee any
right to continue to be a Director of the Corporation.
4. EXERCISE OF OPTION.
------------------
(a) In order to exercise the Option, the person or persons entitled
to exercise it shall deliver to the Corporation written notice of the
number of Shares with respect to which the Option is to be exercised,
-3-
<PAGE> 4
accompanied by payment in full of the Option Price for the Shares being
purchased. No fractional shares will be issued. The payment of the Option
Price shall be either in cash, or through delivery to the Corporation of
shares of Common Stock evidenced by negotiable certificates registered in
the sole name of the Optionee, or by any combination of cash and such
shares.
(b) The value of shares delivered for payment of the Option Price
shall be the fair market value of such shares at the time the Option is
exercised. For purposes of this Agreement, the "fair market value" of a
share of Common Stock shall be the closing price on the last trading day
preceding the date of determination for which a sale price was reported on
the NASDAQ National Market System or on a stock exchange on which the
Common Stock is then listed (or for the next preceding day within thirty
(30) days prior to the date of determination on which sales occurred). In
the event no such quotations are available, the other members of the
Corporation's Board of Directors shall use any reasonable valuation method,
as determined in their sole discretion. If certificates representing
shares of Common Stock are used to pay all or part of the Option Price, the
Corporation shall cause two certificates to be delivered to the Optionee,
one certificate representing the number of shares, if any, represented by
the certificates delivered by Optionee for use in payment of the Option
Price in excess of the number of shares represented thereby necessary,
valued as hereinabove provided, to pay the portion of the Option Price not
-4-
<PAGE> 5
paid in cash, and a separate certificate representing the number of shares
with respect to which the Optionee exercised the Option.
(c) Until the issuance (as evidenced by the appropriate entry on
the books of the Corporation or of a duly authorized transfer agent of the
Corporation) of the stock certificate evidencing such Shares, no right to
vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Shares notwithstanding the exercise of the Option.
Except as otherwise provided in this Agreement, 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.
5. NONTRANSFERABILITY.
------------------
The Option shall not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws
of descent and distribution, and the Option may be exercised, during the
lifetime of the Optionee, only by him.
6. TERMINATION OF DIRECTORSHIP.
---------------------------
In the event that the Optionee shall cease to be a Director of the
Corporation (otherwise than by reason of the Optionee's death or
disability), the Option may be exercised (to the extent the Optionee shall
have been entitled to do so as of the date he ceases to be a Director)
until the earlier of (i) the date three (3) months after the date the
Optionee ceases to be a Director and (ii) the Expiration Date, and the
Option shall terminate on the earlier of such dates.
-5-
<PAGE> 6
7. DISABILITY OF OPTIONEE.
----------------------
In the event that the Optionee shall cease to be a Director of the
Corporation as a result of his having become "disabled" (as determined by
the other members of the Corporation's Board of Directors in their sole and
absolute discretion), the Option may be exercised (to the extent the
Optionee shall have been entitled to do so as of the date he ceases to be a
Director on account of his becoming so disabled) until the earlier of (i)
the date one (1) year after the date he ceases to be a Director and (ii)
the Expiration Date, and the Option shall terminate on the earlier of such
dates.
8. DEATH OF OPTIONEE.
-----------------
(a) In the event of the death of the Optionee at a time when he is
a Director of the Corporation, the Option may be exercised (to the extent
the Optionee would have been entitled to do so had he continued living and
terminated his Directorship six (6) months after the date of his death) by
the Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance until the earlier of (i) the date six (6)
months following the date of the Optionee's death or (ii) the Expiration
Date, and the Option shall terminate on the earlier of such dates.
(b) In the event of the Death of the Optionee within thirty (30)
days after the termination of his Directorship other than on account of his
becoming disabled, the Option may be exercised (to the extent the Optionee
would have been entitled to do so at the date of termination of his
Oirectorship) by the Optionee's estate or by a person who acquires the
-6-
<PAGE> 7
right to exercise the Option by bequest or inheritance until the earlier of
(i) the date six (6) months following the date of the Optionee's death or
(ii) the Expiration Date, and the Option shall terminate on the earlier of
such dates.
9. TAXES.
-----
(a) The Corporation shall have the right to deduct any taxes
required by law to be withheld in connection with the exercise of the
Option from any amounts payable in cash to the Optionee at the time of any
exercise or any time thereafter. The Corporation shall also have the right
to require a person entitled to receive Shares pursuant to the exercise of
the Option to pay to the Corporation the amount of any taxes which the
Corporation is or will be required to withhold with respect to the exercise
of the Option before the certificate for such Shares is delivered to him.
(b) The Optionee shall have the right to borrow from the
Corporation an amount sufficient to pay the income tax liability resulting
from the exercise of the Option. Such loan shall be for a term of five (5)
years at a rate of interest equal to the Corporation's then primary
commercial lender's prime or base rate as in effect from time to time.
Payments of interest on such loan shall be made quarterly and the principal
shall be repaid at the earlier of the expiration of the five (5) year term
or a disposition of any of the Shares acquired upon exercise of the Option.
10. CHANGES IN CAPITAL STRUCTURE.
----------------------------
(a) Subject to the provisions of Section 10(b) hereof and to any
required action by the stockholders of the Corporation, the number of
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<PAGE> 8
Shares covered by the Option, and the Option Price, shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock,
or any other increase or decrease in the aggregate number of issued shares
of Common Stock effected without receipt of consideration by the
Corporation; provided, however, that conversion of any convertible
securities of the Corporation shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
other members of the Corporation's Board of Directors, whose determination
in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Corporation of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of the Shares subject to the Option.
In the event of the proposed dissolution or liquidation of the
Corporation, the Option will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
other members of the Corporation's Board of Directors. The other members
of the Corporation's Board of Directors may, in the exercise of their sole
discretion in such instances, declare that the Option shall terminate as of
a date fixed by them and give the Optionee the right to exercise the Option
as to all or any part of the Shares, including Shares as to which the
Option would not otherwise be exercisable.
-8-
<PAGE> 9
Subject to the provisions of Section 10(b) hereof, in the event of a
proposed sale of all or substantially all of the assets of the Corporation, or
the merger or consolidation of the Corporation with or into another
corporation, the 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 other members of the Corporation's Board of
Directors determine, in the exercise of their sole discretion and in lieu of
such assumption or substitution, that the Optionee shall have the right to
exercise the Option as to all Shares, including Shares as to which the Option
would not otherwise be exercisable. If, in the event of a merger,
consolidation or sale of assets, the other members of the Corporation's Board
of Directors make the Option fully exercisable in lieu of assumption or
substitution, the Corporation shall notify the Optionee that the Option shall
be fully exercisable for a period of thirty (30) days from the date of such
notice, and the Option will terminate upon the expiration of such period.
(b) In the event of a "Change in Control" of the Corporation, as
defined in Section 10(c) below, unless otherwise determined by the other
members of the Corporation's Board of Directors prior to the occurrence of
such Change in Control, the following acceleration and valuation provisions
shall apply:
(i) As of the date of such Change in Control, the Option
shall become fully exercisable and vested as to all of the Shares;
and
-9-
<PAGE> 10
(ii) The value of the Option, measured by the excess of the
Change in Control Price (as hereinafter defined) over the Option
Price, shall, unless otherwise determined by the other members of the
Corporation's Board of Directors, be cashed out. The cash out
proceeds shall be paid to the Optionee or, in the event of death of
the Optionee prior to payment, to the estate of the Optionee or to a
person who acquires the right to exercise the Option by bequest or
inheritance.
(c) For purposes of this Section 10, 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 Exchange Act (other than the Corporation, a
Subsidiary or a Corporation or Subsidiary employee benefit plan,
including any trustee of such plan acting as trustee) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing
fifty percent (50%) or more of the combined voting power of the
Corporation's then outstanding securities; or
(ii) The consummation of a transaction requiring stockholder
approval, and involving the sale of all or substantially all of the
assets of the Corporation or the merger or consolidation of the
Corporation with or into another corporation.
(d) For purposes of this Section 10, "Change in Control Price"
shall be, as determined by the other members of the Corporation's Board of
-10-
<PAGE> 11
Directors, (i) the highest closing sale price of a share of Common Stock as
reported by the NASDAQ National Market System (or, if the Common Stock is
listed on a stock exchange, the highest closing price on such exchange as
reported by such exchange), 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 the
other members of the Corporation's Board of Directors, in any bona fide
transaction or bona fide offer related to the Change in Control of the
Corporation, at any time within the Sixty-Day Period.
11. ACCELERATION OF OPTION.
----------------------
The other members of the Corporation's Board of Directors may, with
the consent of the Optionee, if the Option is not then immediately
exercisable in full, accelerate the time or times at which the Option may
be exercised to any earlier time or times.
12. RESERVATION OF SHARES.
---------------------
The Corporation, during the term of the Option, shall at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of this Agreement.
13. STOCKHOLDER APPROVAL.
--------------------
The Option shall be submitted to the Corporation's stockholders for
their approval at the 1989 Annual Meeting of such stockholders in order
that the Option qualify for certain protections from the "short-swing
profit" liability provisions of the Exchange Act available under Securities
and Exchange Commission regulations. Notwithstanding anything in this
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<PAGE> 12
Agreement to the contrary, the Option shall not be exercisable, in whole or
in part, unless and until it has been approved by the Corporation,s
stockholders.
14. COUNTERPARTS.
------------
This Agreement may be executed by the parties hereto in several
counterparts, each of which when so executed shall be an original, but all
of such counterparts shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
duly executed by a duly authorized officer, and the Optionee has hereunto
set his hand, all as of the day and year first above written.
TELXON CORPORATION
By: /s/ Raymond D. Meyo
----------------------
Its: President
---------------------
/s/ Raj Reddy
--------------------------
Raj Reddy
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<PAGE> 1
Exhibit 10.1.7.b
FIRST AMENDMENT TO
AMENDED AND RESTATED
AIRONET WIRELESS COMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
BACKGROUND
A. The Amended and Restated Aironet Wireless Communications, Inc. 1996
Stock Option Plan (the "Plan") was adopted by the Board of Directors of Aironet
Wireless Communications, Inc. (the "Company") and approved by the stockholders
of the Company on March 30, 1998.
B. The Plan currently requires that certain conditions be satisfied
prior to the exercise of vested options (the "Exercise Conditions"). Subject to
stockholder approval, the Directors desire amend the Plan to remove the Exercise
Conditions by a date certain.
C. The maximum aggregate number of shares of Common Stock (as defined
in the Plan) which may be issued under the Plan is 2,150,500. Subject to
stockholder approval, the Directors desire to increase the number of shares of
Common Stock reserved under the Plan.
D. In accordance with the terms and conditions of the Plan, this
Amendment shall apply to previously issued Options without the consent of the
option holders, as this Amendment is favorable to such holders.
1. PLAN AMENDMENT.
Section 3(a) of the Plan captioned "NUMBER OF SHARES ISSUABLE" is
amended in its entirety to read as follows:
(a) NUMBER OF SHARES ISSUABLE. Subject to adjustment in accordance
with Section 12, the maximum aggregate number of shares of Common Stock
which may be issued and sold under Options granted pursuant to the Plan
is 2,223,000 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.
Section 10(a) of the Plan captioned "EXERCISE ELIGIBILITY" is
amended in its entirety to read as follows:
(a) EXERCISE ELIGIBILITY. An Option may be exercised in accordance
with the terms hereof at any time after, and only after, the earlier
of:
(i) a Change in Control (as defined in Paragraph (c) of
Section 12) or
(ii) an IPO; or
<PAGE> 2
(iii) March 31, 2001.
In the event of any conflict or apparent conflict between the
provisions of this Section 10(a) and any other provision in the Plan,
the provisions of this Section 10(a) shall control.
2. EFFECTIVENESS OF AMENDMENT. This Amendment was duly approved and
adopted by the Board of Directors and Stockholders of the Company effective
March 31, 1999.
3. Each initially capitalized term used but not defined in this
Amendment shall have the same meaning given to such term in the Plan.
4. Except as amended hereby, the provisions of the Plan shall remain
in full force and effect.
- END -
<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.
Page 1 of 15
<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
200,000 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
Page 5 of 15
<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 10.1.10
---------------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of March 22, 1999 (the "Effective Date"), at Akron, Ohio, by and between
TELXON CORPORATION ("Employer"), a Delaware corporation with headquarter offices
at 3330 West Market Street, Akron, Ohio 44333-3352, and JOHN W. PAXTON, SR.
("Employee").
All initially capitalized terms which are not defined where first used
are defined in the attached EXHIBIT A, which is incorporated into this Agreement
by this reference.
In consideration of the mutual promises and agreements contained
herein, the parties hereto, intending to be legally and equitably bound, agree
as follows:
1. EMPLOYMENT PERIOD. Employer agrees to employ Employee, and Employee
agrees to be employed by Employer, for the three (3) year period beginning on
the Effective Date and ending on March 31, 2002, subject to the earlier
termination thereof pursuant to Section 4 (the "Employment Period").
2. NATURE OF DUTIES.
(a) Employee shall serve hereunder as Employer's Chairman of the Board
of Directors, President and Chief Executive Officer, provided that Employee may
permit the title of President to be used by such other senior executive of
Employer as may be employed from time to time as approved by Employer's Board of
Directors (the "Board") upon Employee's recommendation. As such, Employee shall
act in conformity with the management policies, guidelines and directions issued
by the Board, and shall have general charge and supervision of those functions
and such other responsibilities as the Board shall, from time to time, determine
and assign as are typically performed by and the responsibility of a chief
executive officer of a Publicly-Held Corporation. Employee shall report and be
responsible to the Board.
<PAGE> 2
(b) Employee shall work exclusively for Employer on a full-time basis
in such capacity and shall carry on his employment at such location as shall be
required and directed by the Board, except for time spent traveling on business
on behalf of Employer. During normal business hours, Employee shall devote all
of his time and attention to Employer's business.
(c) Employee shall perform his duties and responsibilities hereunder
diligently, faithfully and loyally in order to cause the proper, efficient and
successful operation of Employer's business.
3. COMPENSATION AND BENEFITS.
(a) BASE SALARY AND EXPENSES.
(i) During the Employment Period, Employer shall pay to
Employee a salary at the rate of Eight Hundred Thousand Dollars
($800,000) per annum (the "Base Salary"). The Base Salary shall be
earned and paid in arrears, in equal installments, every second Friday,
or at such other interval as the Board shall direct and to which
Employee shall agree.
(ii) Employer shall reimburse Employee for all reasonable and
necessary out-of-pocket expenses incurred by Employee on Employer's
behalf during the Employment Period, as approved by Employer's Chief
Financial Officer, to be periodically reviewed by the Board.
(b) BONUS COMPENSATION.
(i) In addition to the Base Salary, in respect of each fiscal
year during the Employment Period beginning on or after April 1, 1999,
Employer shall pay to Employee bonus compensation of up to Six Hundred
Thousand Dollars ($600,000) (the
2
<PAGE> 3
"Bonus Compensation"). The Bonus Compensation shall be earned, if at
all, if Employee meets or exceeds the annual goals agreed upon by
Employee and the Board, the components of which shall include operating
earnings, back log, revenue, inventory, quality control and cash flow.
(ii) Bonus Compensation shall be earned, if at all, at such
time as the relevant goals are met, but no later than the end of the
fiscal year in question, and shall be paid within sixty (60) days after
the end of the fiscal year in respect of which it is earned.
(iii) Employer's payment of the Bonus Compensation to Employee
shall be made pursuant to a mutually agreeable deferred compensation
plan, which may include a "rabbi trust".
(c) STOCK AND STOCK OPTIONS. Employer and Employee acknowledge and
agree that Employer's agreement to issue to Employee, on the terms and
conditions set forth below, the following aggregate of 1 million (1,000,000)
shares of Common Stock is an inducement essential to Employee's entering into
the employ of Employer pursuant to this Agreement.
(i) Employer agrees to sell and issue to Employee, and
Employee hereby subscribes for and agrees to purchase from Employer,
Three Hundred Thousand (300,000) Shares (the "Subscription Shares") at
a price equal to their Effective Date Fair Market Value. Full payment
for the Subscription Shares shall be due and payable within one (1)
year of the Effective Date, upon and subject to the receipt of which
Employer shall issue the Subscription Shares to Employee. Employee
makes the following representations, warranties, acknowledgements and
agreements to Employer with respect to his purchase of the Subscription
Shares:
(1) Employee understands that the Subscription Shares
have not been registered, and that Employer is under no
obligation to register, and has not
3
<PAGE> 4
made any assurances to Employee regarding the registration of,
the Subscription Shares, under the Securities Act of 1933, as
amended (the "Securities Act"), or any state securities laws
and that the Subscription 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 Employee's representations contained in this Section
3(c)(i);
(2) Employee has, to his satisfaction, made a due
diligence investigation of Employer, its business, assets,
financial condition, prospects and affairs, including the
opportunity to his satisfaction to ask question of and receive
answers from the members of the Board and Employer's
management, and to review reports and analyses independently
prepared by third party professionals, regarding the
foregoing;
(3) Employee 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 Subscription Shares and of protecting his
interests in connection with such investment, and will arrange
for the payment of the purchase price utilizing his own
financial resources and is not relying upon any commitment or
assurance of Employer to provide purchase financing;
(4) Employee is not aware of the publication of any
advertisement in connection with the transactions contemplated
by this Section 3(c)(i);
(5) Employee is acquiring the Subscription 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
Subscription Shares unless and until, the
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Subscription Shares are registered under the Securities Act
and/or applicable state securities laws or an exemption from
such registration is available (Employee understanding that
the certificate(s) evidencing the Subscription 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 Employee to transfer all
or any portion of the Shares he may subsequently desire to
transfer).
(ii) In addition, Employer has granted to Employee as of the
Effective Date stock options (the "Installment Options") under
Employer's 1990 Stock Option Plan for employees, as amended (the
"Plan"), for Three Hundred Thousand (300,000) Shares vesting in equal
one-third annual installments on each anniversary of the Effective Date
over the succeeding three (3) year period and exercisable at the
Effective Date Fair Market Value until the expiration of their eight
(8) year term under the Plan (subject to earlier termination of the
term as therein provided).
(iii) In addition, Employer has granted to Employee as of the
Effective Date the following additional stock options (collectively,
the "Price Performance Options") for an aggregate of Four Hundred
Thousand (400,000) Shares vesting on the sixth (6th) anniversary of the
Effective Date, subject to acceleration of vesting upon the attainment
of an Average Trading Price equal to the respective price performance
targets set forth below, and exercisable at the Effective Date Fair
Market Value:
(1) Two Hundred Thousand (200,000) of the Price
Performance Options shall vest on the day immediately
following the first date after the Effective Date as of which
the Average Trading Price of the Common Stock reaches Fourteen
Dollars ($14.00) per Share;
(2) One Hundred Thousand (100,000) of the Price Performance
Options shall vest on the day immediately following the first
date after the Effective
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<PAGE> 6
Date as of which the Average Trading Price of the Common Stock
reaches Twenty-Two Dollars ($22.00) per Share; and
(3) One Hundred Thousand (100,000) of the Price Performance
Options shall vest on the day immediately following the first
date after the Effective Date as of which the Average Trading
Price of the Common Stock reaches Twenty-Seven Dollars
($27.00) per Share.
The Price Performance Options shall have ten (10) year terms, subject
to earlier termination of the term as provided in the grant agreements
evidencing the same.
(iv) In addition to any provision of, and notwithstanding any
provision to the contrary in, the Plan and/or the grant agreement or
any other document relating thereto, in the event of any Change in
Control, all of Employee's then outstanding un-vested Employer stock
options (including, but not limited to, the Installment Options and the
Price Performance Options) shall immediately vest and, unless
cashed-out pursuant to any such other applicable provision, shall be
exercisable as for the remainder of their original term (and shall not
be subject to earlier termination as may be provided by the terms
thereof), subject to equitable adjustment in the nature and amount of
securities or other property issuable upon the exercise thereof in the
event that, as a result of or subsequent to the Change in Control, the
Common Stock is converted into or otherwise replaced by other
securities or property.
(v) The Installment shall be evidenced by grant agreements in
the standard form generally used under the Plan, modified as necessary
to reflect the terms for such options set forth in this Section 3. The
Price Performance Options shall be evidenced by grant agreements
substantially in the form of the attached Exhibit B, which is
incorporated into this Agreement by this reference.
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(d) SEVERANCE. In addition to all other amounts due hereunder, if
Employer terminates, or is deemed to have terminated, Employee's employment
other than for Cause pursuant to Section 4(b) or (c), or this Agreement expires
and is not renewed by Employer, then Employer shall continue to pay to
Employee, as severance, at his rate of Base Salary over the twenty-four (24)
month period following the date of such termination or expiration, or for the
remaining term of this Agreement, whichever is longer; provided that if such
termination, deemed termination or expiration occurs upon or after a Change in
Control, then Employer shall instead pay to Employee, as severance, an m amount
equal to two and ninety-nine one-hundredths (2.99) times his Base Salary, which
severance amount shall payable in equal installments over the aforesaid
twenty-four (24) month period, in respect of which Employer shall, immediately
upon such event, deposit a sum sufficient to discharge such installment payment
obligation into a "rabbi trust" providing for the payment of such installments
to Employee subject to the provisions of Section 6(b) (provided that if a
further Change in Control occurs after such termination, deemed termination or
expiration, Employee shall, upon the occurrence thereof, be entitled to an
immediate lump sum payment of all installment amounts not theretofore received,
with any shortfall in the amounts then remaining in the "rabbi trust" from the
total accelerated installment payments then due Employee being paid by
Employer), except that in the case of a termination, deemed termination or
expiration occurring following a Hostile Change in Control, such severance
amount shall be paid to Employee in a lump sum immediately upon the occurrence
of such event .
(e) VACATION. During the Employment Period, Employee shall be entitled
to six (6) weeks of vacation on a calendar annual basis in accordance with
Employer's policies. In the event that all or any part of said vacation is not
taken for any reason during any calendar year, there will be no compensation
paid in lieu thereof, and accrued and unused vacation time shall not be carried
over and added to the vacation time for the succeeding year in accordance with
such policy, unless otherwise approved by the Board.
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(f) HEALTH, DISABILITY, RETIREMENT, DEATH, INSURANCE AND OTHER FRINGE
BENEFITS.
(i) Employer shall provide Employee with the same health,
disability, retirement and death and other fringe benefits as are
generally provided to the executive employees of Employer in accordance
with such terms, conditions and eligibility requirements as may from
time to time be established or modified by Employer.
(ii) Employer shall, to the extent allowable by law,
regulation, contract and policy, continue to pay Employee's basic
medical insurance premiums for eighteen (18) months following a
termination of Employee by Employer other than for Cause, or if this
Agreement expires and is not renewed by Employer.
(iii) In the event that within two (2) years after any Change
in Control shall have occurred, Employee's employment is, or is deemed,
terminated by Employer other than for Cause (other than termination for
disability or illness pursuant to Section 4(b)(ii)), Employee shall be
entitled to continued benefits (or if unavailable under the general
terms and provisions of the applicable plan, their equivalent) for
himself and his dependents, for a period terminating on the earliest of
(1) two (2) years after the effective date of termination of Employee's
employment, (2) the commencement date of equivalent benefits from a new
employer, or (3) Employee's attainment of age sixty-five (65), under
all insured and self-insured employee welfare benefit plans in which
Employee was entitled to participate immediately prior to such
termination, provided that Employee shall not be required to pay any
amount greater than the regular contribution made by Employee
immediately prior to such termination.
(iv) Subject to Employee's satisfaction of the insurer's
underwriting conditions and provided that it is not determined that
Employee has a health condition that results in extraordinary premium
rates, Employer shall pay the premiums for a One Million Dollar
($1,000,000) term life insurance policy on Employee (the "Term Life
Insurance") payable to such beneficiary(ies) as Employee shall
designate. Provided
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that Employer is able to procure coverage under terms which allow the
insured to elect to continue the policy following termination of
employment, upon the termination of Employee's employment by Employer
or Employee for any reason, other than by reason of Employee's death or
a termination by Employer for Cause, Employee shall permit Employee to
elect to do so subject to the terms and conditions of the policy.
(g) TRANSITIONAL LIVING EXPENSES. To facilitate the transition of
Employee to the new geographic location of his workplace during the initial
portion of the Employment Period ending March 31, 2000, Employer agrees, in
respect of such period, to pay directly, or reimburse Employee, or provide
Employee with an agreed upon allowance (subject to reconciliation and
reasonable adjustment), for the following (collectively, "Transitional Living
Expenses"):
(i) housing (including utilities and cleaning services) at
3800 Rosemont Boulevard, Apartment 113-D, Akron, Ohio or comparable
accommodations in reasonable proximity to Employer's Headquarters,
(ii) air fare for travel between Employer's Headquarters and
Employee's Cincinnati, Ohio family residence,
(iii) a mutually acceptable leased or rental automobile for
Employee's use while working out of Employer's Headquarters,
(iv) a "gross-up" for all income and employment taxes incurred
or required to be withheld with respect to Employee by reason of
Employer's provision or reimbursement of Living Expenses under this
Section 3(g).
(h) TAXES. Anything in this Agreement to the contrary notwithstanding,
in the event that any amounts payable to Employee hereunder, alone or together
with other payments which Employee has a right to receive from Employer (under
this Agreement or otherwise), its
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<PAGE> 10
successors or any person whose actions result in a Change in Control, would
constitute an "excess parachute payment " (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), or any successor
provision), then Employer shall pay the excise tax imposed by Section 4999 of
the Code as well as any taxes that would be due from Employee as a result of
Employer's payment of the excise tax and the payment of such taxes, until the
payments due Employee are fully "grossed-up." Except as otherwise expressly
provided in this Section 3(h) or elsewhere in this Agreement, all payments and
benefits to be made or provided to Employee shall be subject to required
withholding of federal, state and local income and employment taxes.
4. TERMINATION.
(a) This Agreement shall terminate automatically upon Employee's death.
(b) Employer may terminate Employee's employment at any time upon not
less than thirty (30) days prior written notice to Employee:
(i) other than for Cause; or
(ii) if at any time Employee, in the sole discretion of the
Board, is unable to perform the essential functions of his job, even
with reasonable accommodations, as a result of a disability or illness
(determined in accordance with the same standards applicable to the
employees of Employer generally under the disability benefits referred
to in Section 3(f)(i)). If Employer terminates Employee for disability
or illness reasons, such termination shall be deemed to be a
termination by Employer other than for Cause.
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(c) If, at any time during the Employment Period,
(i) Employer (including any Successor following a Change in
Control) assigns Employee to serve in a capacity other than as
Employer's Chairman of the Board, President and Chief Executive Officer
(other than the reassignment of the title of President to another
senior executive as contemplated by Section 2(a)) or assigns Employee
to perform tasks inconsistent with such positions ("Demotion"),
(ii) a Change in Control occurs (without regard to whether
there is Good Reason for Employee's voluntary termination of his
employment pursuant to clause (iii) immediately below), or
(iii) at any time within two (2) years after any Change in
Control shall have occurred, an event constituting Good Reason for
Employee's voluntary termination of his employment occurs,
then Employee may resign his employment within thirty (30) days of such event,
and such resignation shall be deemed to be a termination by Employer other than
for Cause. Employee's right to resign his employment in reliance upon clause
(ii) or (iii) of this Section 4(c), or any rights or benefits to which he is
entitled as a result thereof, shall not be limited or otherwise affected by any
physical or mental disability or illness he may have at the time or by his then
having an offer of employment from another employer or any other reason(s) for
terminating his employment with Employer.
(d) Employer shall have the right to terminate Employee at any time,
immediately, for Cause. "Cause" shall mean any action or inaction of Employee
which, in the sole judgment of the Board, is adverse to Employer's interests,
including, without limitation, Employee's dishonesty, grossly negligent
misconduct, willful misconduct, disloyalty, acts of bad faith, neglect of duty,
or material breach of this Agreement or any other agreement
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<PAGE> 12
Employee may have with Employer or of any Employer policy applicable to its
employees generally.
5. EFFECTS OF TERMINATION.
(a) In the event of automatic termination of his employment pursuant to
Section 4(a) by reason of Employee's death, all of Employer's obligations under
this Agreement shall cease except for Employer's obligations to pay Employee's
Base Salary, Bonus Compensation, if any, and Transitional Living Expenses, in
each case earned and accrued or incurred, but unpaid, to the date of death. In
such event, Employee's designated beneficiaries (or his estate if there are no
designated beneficiaries) shall have the right to receive any such Base Salary
and/or Bonus Compensation and any reimbursements of Transitional Living
Expenses, as well as the proceeds of the Term Life Insurance.
(b) In the event that Employer exercises its right of termination, or
is deemed to have terminated Employee, other than for Cause or for disability or
illness pursuant to Section 4(b) or 4(c), or if this Agreement expires and is
not renewed or extended by Employer, all of Employer's obligations under this
Agreement shall end except:
(i) Employer shall continue to be obligated to pay Employee's
Base Salary, Bonus Compensation, if any, and Transitional Living
Expenses, in each case earned and accrued or incurred, but unpaid, to
the date of termination (which, for purposes of this Section 5(b),
shall be ten (10) days after the date on which notification is provided
by Employer to Employee pursuant to Section 4(b), at the expiration of
this Agreement, or the date of resignation, whichever first occurs;
(ii) if such termination is for disability or illness,
Employee shall have the right to receive the benefits due under the
disability insurance policies provided to Employee pursuant to Section
3(f)(i), if any; and
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(iii) Employer shall continue to be obligated to pay health insurance
premiums for the greater of the periods specified in Section 3(f)(ii)
or 3(f)(iii), the premiums for the Term Life Insurance for the greater
of the balance of the unexpired portion of the originally scheduled
Employment Period or the period specified in Section 3(f)(iii), all
other benefits to which Employee is entitled under Section 3(f)(iii)
for the period there specified, any severance payments due under
Section 3(d) and any excise taxes and related payments due under
Section 3(h).
(c) In the event that Employer exercises its right of termination
pursuant to Section 4(d) for Cause, or Employee voluntarily leaves the employ of
Employer prior to the expiration of this Agreement for any reason other than as
permitted in Section 4(c) following a Demotion or a Change in Control (which
resignations are governed by Section 5(b)), all of Employer's obligations under
this Agreement shall cease except for Employer's obligations to pay Employee's
Base Salary and Transitional Living Expenses earned and accrued or incurred, but
unpaid, to the date of termination (which, for the purposes of this Section
5(c), shall be at the date of termination or at the date Employee otherwise
leaves the employ of Employer).
(d) All payments to be made to Employee under this Agreement are
subject to offset by Employer for any claims for damages, liabilities, expenses
or other indebtedness which Employer may have against Employee, provided that no
such offset may be made after the occurrence of a Change in Control.
(e) No payment or benefit to which Employee is entitled under this
Agreement shall, except as otherwise expressly provided in Section 6(b) or
elsewhere in this Agreement, be reduced, offset or subject to recovery by
Employer or any Successor by reason of any compensation or benefits received by
Employee as a result of his employment by another employer.
(f) Any controversy or claim arising out of or relating to the benefits
and entitlements of Employee following a Change of Control under this Section 5,
as well as those provided for
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following a Change in Control in Section 3, shall be settled by submitting the
matter to binding arbitration in Cleveland, Ohio, by and pursuant to the rules
of the American Arbitration Association then in effect. The determination of the
arbitrator shall be conclusive and binding on Employer and Employee, and
judgment may be entered on the arbitrator's award in any court of competent
jurisdiction. Employer shall pay all legal fees and related expenses incurred by
Employee to the extent Employee prevails in taking any action to protect, obtain
or enforce any right or benefit due Employee under this Agreement by reason of
the occurrence of a Change in Control or events required to have occurred after
a Change in Control; such fees and expenses shall be paid to Employee within
five (5) business days after delivery to Employer of Employee's written request
for the payment thereof together with such evidence of the amounts so incurred
by Employee as Employer may reasonably require. With respect to all other
controversies, claims and disputed matters arising under this Agreement,
Employer and Employee shall each pay its (his) own legal fees and expenses
incurred in disputing the same in good faith.
6. COVENANT NOT TO COMPETE.
(a) RESTRICTED ACTIVITIES - DURATION. Except as otherwise consented to
or approved by the Board in writing, Employee agrees that, in addition to being
operative during the Employment Period, the provisions of Sections 6(a)(i)
through (iii) hereof, inclusive, shall be operative for a period of twenty-four
(24) months after the effective date of the termination of Employee's employment
with Employer, regardless of the time, manner or reasons for termination, and
regardless of whether terminated by Employee or Employer. During such periods,
Employee will not, directly or indirectly, acting alone or in concert with
others or as a member of a partnership or as an owner, director, officer,
employee, manager, representative, agent, or consultant of any corporation or
other business entity or otherwise in any manner whatsoever:
(i) engage in any business or activity that is in competition
with or otherwise adverse to the business that is then conducted or is
known by Employee to be contemplated to be conducted by Employer, or,
without limiting the generality of the
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foregoing, engage in any business which manufactures, sells,
distributes, services or supports products or services which are of the
type manufactured, sold, marketed, serviced, supported, or otherwise
provided by Employer, or which are in the process of development in
which Employee has participated or has knowledge of, at the time of the
termination of Employee's employment with Employer, in the United
States, Canada or any European, Asian, Pacific or other foreign country
in which Employer then or thereafter transacts business or is making a
bona fide attempt to do so; or
(ii) induce, request or attempt to influence or induce any
customers or suppliers of Employer to curtail or cancel their business
or prospective business with Employer or in any way interfere with any
of Employer's business relationships; or
(iii) induce, solicit, assist, initiate, or facilitate the
inducement, solicitation or assistance by a third person of any
employee, officer, agent or representative of Employer, to terminate or
otherwise attenuate their respective relationship with Employer or in
any way interfere with Employer's employee, officer, agent or
representative relationships.
Employee acknowledges that Employer's business and Employee's responsibilities
are international in scope.
(b) TOLLING; RELIEF OF OBLIGATIONS. In the event that Employee breaches
any provision of this Section 6, such violation (i) shall toll the running of
the twenty-four (24) month period set forth in Section 6(a) from the date of
commencement of such violation until such violation ceases, and (ii) shall
relieve Employer, without further liability or duty, of any and all obligations
to Employee under or pursuant to this Agreement.
(c) "BLUE PENCILING" OR MODIFICATION. If either the length of time,
geographic area or scope of restricted business activity set forth in Section
6(a) is deemed unreasonably restrictive or unreasonable in any other respect by
any court of competent jurisdiction,
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Employee and Employer agree and consent to such court's modifying or reducing
such restriction(s) to the extent deemed reasonable under the circumstances then
presented and all other terms of this Agreement shall remain unmodified and in
full force and effect.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee acknowledges that the discharge of Employee's duties under
this Agreement will necessarily involve his access to Confidential Information.
Employee acknowledges that the unauthorized use by him or disclosure by him of
such Confidential Information to third persons might cause irreparable damage to
Employer and Employer's business. Accordingly, Employee agrees that at all times
after the Effective Date hereof he will not copy, publish, disclose, divulge to
or discuss with any third person nor use for his own benefit or that of persons
other than the Company, without the prior express written consent of the Board,
except in the normal conduct of his duties under this Agreement, any
Confidential Information, it being understood and acknowledged by Employee that
all Confidential Information created, compiled or obtained by Employee or
Employer, or furnished to Employee by any person, remains Employer's exclusive
property.
(b) Promptly upon termination of his employment, irrespective of the
time or manner thereof or reason therefor, and whether such termination is by
Employer or Employee, Employee agrees to promptly return and surrender to
Employer (i) all Confidential Information in any manner in his possession or
under his control, (ii) as well as all other Employer property.
8. RIGHTS. Employee acknowledges and agrees that any procedure, design
feature, schematic, invention, improvement, development discovery, know how,
concept, idea or the like (whether or not patentable, registrable under
copyright or trademark laws, or otherwise protectable under similar laws) that
Employee may conceive of, suggest, make, invent, develop or implement, during
the course of his service pursuant to this Agreement (whether individually or
jointly with any other person or persons), relating in any way to the business
of
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Employer or to the general industry of which Employer is a part, as well as all
physical embodiments and manifestations thereof, and all patent rights,
copyrights, trademarks (or applications therefor), trade names, service marks,
as well as all similar protections therein (all of the foregoing referred to as
"Work Product"), shall be the sole, exclusive and absolute property of Employer.
All Work Product shall be deemed to be works for hire, and to the extent that
any Work Product may not constitute a work for hire, Employee hereby assigns to
Employer all or his right, title and interest in, to and under such Work
Product, including without limitation, the right to obtain such patents,
copyright registrations, trademark registrations or similar protections as
Employer may desire to obtain. Employee shall immediately disclose all Work
Product to Employer. Employee further agrees, at any time, upon Employer's
request and without additional compensation, to promptly execute any documents
and otherwise to fully cooperate with Employer respecting the perfection of its
right, title and interest in, to and under such Work Product, and in any
litigation or controversy in connection therewith, to cooperate with Employer
and its counsel, with all expenses incident to such cooperation to be borne by
Employer.
9. INDUCEMENT; REMEDIES INADEQUATE; SURVIVAL.
(a) The covenants made by Employee in favor of Employer in Sections 6,
7 and 8 and this Section 9 are being executed and delivered by Employee in
connection with the commencement and as a condition of, and in consideration of,
Employee's employment with employer and Employer's obligations under this
Agreement (including, without limitation, the Base Salary, Bonus Compensation
and other benefits and payments set forth herein).
(b) Employee acknowledges that the services to be rendered by him to
Employer as contemplated by this Agreement are special, unique and of
extraordinary character. Employee expressly agrees and understand that the
remedy at law for any breach by him of Section 6, 7 or 8 of this Agreement will
be inadequate and that the damages flowing from such breach are not readily
susceptible to being measured in monetary terms. Accordingly, upon Employee's
violation of any legally enforceable provision of Section 6, 7 or 8, Employer
shall be entitled
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to immediate injunctive relief, including, without limitation, a temporary order
restraining any threatened or further breach. In the event any equitable
proceedings are brought to enforce any provision of Section 6, 7 or 8, Employee
agrees that he will not raise in any such proceedings any defense that there is
an adequate remedy at law, and Employee hereby waives any such defense. Nothing
in this Agreement shall be deemed to limit Employer's remedies at law or in
equity for any breach by Employee of any of the provisions of Section 6, 7 or 8
which may be pursued or availed of by Employer. Without limiting the generality
of the immediately preceding sentence, any covenant on Employee's part contained
in Section 6, 7 or 8, which may not be specifically enforceable or subject to
equitable remedy shall nevertheless, if breached, give rise to a cause of action
for monetary damages.
(c) Employee has carefully considered, and has had adequate time and
opportunity to consult with his own counsel or other advisors regarding the
nature and extent of the restrictions upon him and the rights and remedies
conferred upon Employer under Sections 6, 7 and 8 and this Section 9, and hereby
acknowledges and agrees that such restrictions are reasonable in time, territory
and scope, are designed to eliminate competition or interference which otherwise
would be unfair to Employer, do not stifle the inherent skill and experience of
Employee, would not operate as a bar to Employee's sole means of support, are
fully required to protect the legitimate interests of Employer and do not confer
a benefit upon Employer disproportionate to the detriment to Employee.
(d) As used in Sections 6, 7, 8 and 9 (a)-(c), the term "Employer"
shall include, in addition to Employer as first defined above, all subsidiaries
and other affiliates of Employer, whether so related to Employer during
Employee's employment with Employer or at any time thereafter.
(e) Subject only to such time limitations as may be expressly set forth
therein, the covenants and agreements made by Employee in Sections 6, 7 and 8
and this Section 9 shall survive full payment by Employer to Employee of the
amounts to which Employee is entitled under this Agreement, the expiration or
earlier termination of this Agreement, the
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Employment Period or Employee's employment with Employer. The provisions of
Sections 6, 7 and 8 and this Section 9, and to the extent applicable thereto,
Sections 12 through 19, shall continue to apply to and be binding upon Employee
in the event and for so long as Employee shall remain in the employ of Employer
following the expiration of or any termination under this Agreement and for such
post-employment period as may be specified in such covenants and agreements but
measured from the end of such continued employment.
10. ASSIGNMENT OF EMPLOYEE'S RIGHTS. In no event shall Employer be
obligated to make any payment under this Agreement to any assignee or creditor
of Employee. Prior to the time of payment under this Agreement, neither Employee
nor his legal representative shall have any right by way of anticipation or
otherwise dispose of any interest under this Agreement.
11. EMPLOYER'S OBLIGATIONS UNFUNDED. Except as to any benefits that may
be required to be funded under any benefit plan of Employer pursuant to law or
pursuant to other agreements and which are not for the sole benefit of Employee,
or as Employer may by other written document expressly agree, the obligations of
Employer under this Agreement are not funded and Employer shall not be required
to set aside or deposit in escrow any monies in advance of the due date for
payment thereof to Employee.
12. NOTICES. Any notice to be given hereunder by Employer to Employee
shall be deemed to be given if delivered to Employee in person, or if mailed to
Employee, by certified mail, postage prepaid, return receipt requested, at his
address last known on the records of Employer, and any notice to be given by
Employee to Employer shall be deemed to be given if delivered in person or by
mail, postage prepaid, return receipt requested, to the Chief Financial Officer
of Employer at Employer's Headquarters, unless Employee or Employer shall have
duly notified the other parties in writing of a change of address. If mailed,
such notice shall be deemed to have been given when deposited in the mail as set
forth above.
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13. AMENDMENTS AND ASSIGNMENT. This Agreement shall not be modified or
discharged, or assigned by either party hereto, in whole or in part, except by
an agreement in writing signed by the parties hereto.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties concerning the subject matter hereof. The parties are not
relying on any other representation or understanding with respect thereto,
express or implied, oral or written. This Agreement supersedes any prior
employment agreement, written or oral, between Employee and Employer.
15. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not affect the meaning of any terms or
provisions hereof.
16. INTERPRETATION OF TERMS. Whenever the context may permit, any
pronouns used herein shall include the corresponding masculine, feminine and
neuter forms, and the singular form of any noun or pronoun, including any
defined terms, shall include the plural and vice versa. References in this
Agreement to "termination of employment," "termination of Employee,"
"termination of this Agreement," "termination of the Employment Period,"
"resigns" and any other terms of similar meaning shall all be deemed equivalent.
17. BINDING EFFECT. The rights and obligations of Employer hereunder
shall inure to the benefit of, and shall be binding upon, Employer and its
successors and assigns, and the rights and obligations of Employee hereunder
shall inure to the benefit of, and shall be binding upon, Employee and his
heirs, personal representatives and estate. Employer agrees that it will require
any Successor, by agreement in form and substance satisfactory to Employee, to
assume and agree to perform this Agreement in the same manner and to the same
extent that Employer would be required to perform under this Agreement if no
such succession had taken place.
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18. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions and any
partially enforceable provision shall be binding and enforceable to the extent
enforceable in any jurisdiction.
19. GOVERNING LAW AND VENUE. This Agreement shall be interpreted,
construed, and enforced in all respects in accordance with the laws of the State
of Ohio, without regard to principles of conflict of laws. Any and all actions
brought arising out of, or based in whole or in part upon, this Agreement or the
employment relationship between Employer and Employee shall be brought in either
a federal or state court sitting in the State of Ohio, specifically and
exclusively in either the Cuyahoga County Court of Common Pleas sitting in
Cleveland, Ohio, the Summit County Court of Common Pleas sitting in Akron, Ohio,
or the Federal District Court for the Northern District of Ohio, Eastern
Division, and the parties consent and submit to, and agree not to contest, the
jurisdiction thereof and agree not to raise the issue of improper venue or forum
non conveniens in any such action.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the day and
year first above written, effective the Effective Date.
EMPLOYER:
TELXON CORPORATION
By:
--------------------------------------
Dr. Raj Reddy, Chairman of the
Executive Committee of the
Board of Directors
EMPLOYEE:
-----------------------------------------
John W. Paxton, Sr.
21
<PAGE> 22
EXHIBIT A
EMPLOYMENT AGREEMENT
JOHN W. PAXTON, SR./TELXON CORPORATION
DEFINITIONS
"Average Trading Price" shall mean the average of the closing price per
Share as reported on The Nasdaq National Market tier of The Nasdaq Stock Market
(or such other securities exchange, market or trading system which is then the
principal place or manner for trading in the Common Stock) for any period of ten
(10) consecutive days of trading on such securities market.
"Base Salary" shall have the meaning defined in Section 3(a)(i).
"Board" shall have the meaning defined in Section 2(a).
"Bonus Compensation" shall have the meaning defined in Section 3(b)(i).
"Budget" shall mean the targeted business and economic goals set in
advance for each fiscal year, Employer's management budget presented to and
approved by the Board for the fiscal year in question.
"Cause" shall have the meaning defined in Section 4(d).
"Change in Control" of Employer shall mean a change in control of
Employer of a nature which would be required to be reported in response to Item
1(a) of the Current Report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Without limitation, such a Change in Control shall
be deemed to have occurred at such time as: (i) any "person" (as such term is
used in Section 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of fifteen percent (15%) or more of the combined voting power of
Employer's Voting Securities; (ii) liquidation of all or substantially all of
the assets of Employer, or any merger, consolidation, or reorganization to which
Employer is a party and as the result of which Employer's stockholders prior to
the
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<PAGE> 23
transaction do not own at least fifty percent (50%) of the voting power of the
surviving entity in the election of directors; or (iii) individuals who
constitute the Continuing Directors cease for any reason to constitute at least
a majority of Employer's Board of Directors.
"Common Stock" or "Shares" shall mean the common stock, par value $.01
per share, of Employer as constituted as of the Effective Date.
"Confidential Information" means all information or trade secrets of
any type or description belonging to Employer which are proprietary and
confidential to Employer and which are not publicly disclosed or are only
disclosed with restrictions. Without limiting the generality of the foregoing,
Confidential Information includes strategic plans for carrying on business,
other business plans, cost data, internal financial information, customer lists,
employee lists, vendor lists, business partner or alliances lists manufacturing
methods or processes, product research or engineering data, drawings, designs,
schematics, flow charts, computer programs, program decks, routines,
subroutines, translators, compilers, operating systems, object and source codes,
specifications, inventions, calculations, discoveries and any letters, papers,
documents or instruments disclosing or reflecting any of the foregoing, and all
information revealed to, acquired or created by Employee during Employee's
employment by Employer relating to any of the foregoing.
"Continuing Directors" shall mean and include the persons constituting
Employer's Board of Directors as of the Effective Date, and any person who
becomes a director of Employer subsequent to the date hereof whose election, or
nomination for election by Employer's stockholders, was approved by an
affirmative vote of at least a majority of the then Continuing Directors (either
by a specific vote or by approval of the proxy statement of Employer in which
such person is named as a nominee for director or of the inclusion of such
person in such Proxy Statement as such a nominee, in any case without objection
by any member of such approving majority of the then Continuing Directors to the
nomination of such person or the naming of such person as a director nominee).
A-3
<PAGE> 24
"Demotion" shall have the meaning defined in Section 4(c).
"Effective Date Fair Market Value" means the closing price of $8.719
per Share as reported on The Nasdaq National Market tier of The Nasdaq Stock
Market for March 19, 1999, the last trading day for such securities market prior
to the Effective Date.
"Employment Period" shall have the meaning defined in Section 1.
"Good Reason" shall mean (i) failure by Employer to obtain the
assumption agreement provided for in the second sentence of Section 17 of the
Agreement within one (1) business day after any Person becomes a successor, (ii)
a reduction by Employer, without Employee's prior written consent, in his Base
Salary, or in the level of benefits provided to Employee and his dependents
under any Employer plan, program or policy intended to benefit all, or any
designated group of, Employer employees as in effect immediately prior to the
Change in Control, or (ii) Employer requiring Employee, without Employee's prior
written consent, to be based anywhere other than, or to relocate from, the
metropolitan area where Employee's office is located immediately prior to the
Change in Control.
"Headquarters" shall mean the executive offices maintained by Employer
at 3330 West Market Street, Akron, Ohio.
"Hostile Change in Control" shall mean a Change in Control which is not
approved by the affirmative vote of at least a majority of the Continuing
Directors.
"Installment Options" shall have the meaning defined in Section
3(c)(ii).
"Person" shall mean any individual, corporation, partnership, joint
venture, or association, any other "person" (as such term is used in Section
14(d) of the Securities Exchange Act of 1934, as amended) or any other group or
entity of any nature whatsoever, but
A-3
<PAGE> 25
excluding Employer or any employee benefit plan sponsored by Employer prior to a
Change in Control.
"Price Performance Options" shall have the meaning defined in Section
3(c)(iii).
"Publicly-Held Organization" shall mean an organization that is
required to file periodic reports with the Securities and Exchange Commission
pursuant to Sections 13 or 15(b) of the Securities Exchange Act of 1934, as
amended.
"Subscription Shares" shall have the meaning defined in Section
3(c)(i).
"Successor" shall mean any Person that, through one or a series of
transaction(s), succeeds to , of has or obtains the practical ability to control
(either immediately or after the passage of time), all or substantially all of
Employer's business directly, by merger, consolidation, purchase or lease of
assets or otherwise, or indirectly, by purchase of Voting Securities or
otherwise. References in the Agreement to "Employer" shall be deemed to also
refer to any Successor which executes and delivers the assumption agreement
provided for in the second sentence of Section 17 of the Agreement or which by
operation of law or otherwise becomes bound by the terms of this Agreement.
"Term Life Insurance" shall have the meaning defined in Section
3(f)(iv).
"Voting Securities" shall mean Employer's outstanding securities
ordinarily having the right to vote at elections of directors.
"Work Product" shall have the meaning defined in Section 9.
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<PAGE> 1
EXHIBIT 10.1.11
---------------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of June 7, 1999
(the "Effective Date") at Akron, Ohio between TELXON CORPORATION ("Employer"), a
Delaware corporation with offices at 3330 West Market Street, Akron, Ohio 44333,
and KENNETH A. CASSADY ("Key Employee").
WITNESSETH:
WHEREAS, Employer desires to employ Key Employee initially as President
and Chief Operating Officer of Employer, and thereafter, in such capacity as
Employer's chief executive officer (the "Chief Executive Officer"), or such
other officer of Employer as the Chief Executive Officer shall direct (the Chief
Executive Officer or such other officer being Key Employee's "Supervisor"),
shall direct, and Key Employee desires to be so employed, upon the terms and
conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing and in consideration of
the mutual promises and agreements contained herein, the parties hereto agree as
follows:
1. EMPLOYMENT PERIOD. Employer agrees to employ Key Employee, and Key
Employee agrees to be so employed, on the terms and conditions set
forth herein for the period beginning on the Effective Date and
ending June 6, 2002, which period shall thereafter be
automatically extended for successive additional twelve (12) month
periods, subject to the earlier termination of such employment, as
so extended, by Employer or Key Employee pursuant to paragraph 4
(the "Employment Period").
2. NATURE OF DUTIES.
a. Key Employee's duties and responsibilities shall be to serve
as President and Chief Operating Officer of Employer or in
such other capacity as the Supervisor may at any time and from
time to time in its discretion direct, in conformity with
management policies, guidelines and directions issued by
Employer. Key Employee shall report directly to the
Supervisor, and shall have general charge and supervision of
those functions and such other responsibilities as the
Supervisor shall from time to time determine in his
discretion.
b. Key Employee shall work exclusively for Employer on a
full-time basis in such capacity as he is to serve pursuant to
paragraph 2(a), devoting all of his time and attention during
normal business hours to Employer's business.
c. Key Employee shall perform his duties and responsibilities
hereunder diligently, faithfully and loyally in order to cause
the proper, efficient and successful operation of Employer's
business.
3. COMPENSATION AND BENEFITS.
a. Base Salary and Expenses. As compensation for Key Employee's
services, Employer shall pay to Key Employee during the
Employment Period a salary (the "Base Salary") at the annual
rate of $350,000 for FY`00. Any salary increases for future
fiscal years will be determined by the Board of Directors of
Employer or an appropriate committee thereof (the "Board") in
its discretion based upon the recommendation of the Chief
Executive Officer. Base salary will be payable in arrears, in
equal bi-weekly installments or at such other interval as the
Board or applicable Employer policies shall direct. Employer
shall reimburse
<PAGE> 2
Key Employee for all reasonable out-of-pocket expenses
incurred by Key Employee on Employer's behalf during the
Employment Period and approved by the Supervisor or such other
officer as the Supervisor or applicable Employer policies
shall direct.
b. Bonus Compensation. In addition to the Base Salary, Key
Employee shall, at the discretion of the Board, be eligible to
receive bonus compensation ("Bonus Compensation") with respect
to the Employment Period on such basis as shall be approved by
the Board. For FY`00, Key Employee shall be eligible for a
target bonus of up to $175,000 based upon achieving goals and
achievements agreed upon by Key Employee and the Supervisor,
subject to such approval thereof as may be required by the
Chief Executive Officer and/or the Board. Bonus compensation
for subsequent fiscal years will be determined by the Board in
its discretion based upon the recommendation of the Chief
Executive Officer.
c. Stock Options. During the Employment Period, Key Employee
shall be eligible to receive grants of stock option(s) and
other awards and benefits pursuant to such employee stock
option and other stock-based employee benefit plans as
Employer may maintain from time to time during the Employment
Period with respect to its key employees of like stature and
compensation, in such amounts as may be determined by the
Board in its discretion based upon the recommendation of the
Chief Executive Officer. In the event that, during the
Employment Period, Key Employee is re-assigned by Employer to
a position carrying duties and responsibilities of lesser
stature than his present position as recited in paragraph 2(a)
or such position in which Key Employee serves as of the time
that any such options or other rights or benefits were
previously (including any period prior to the Employment
Period during which Key Employee had duties and
responsibilities substantially similar in stature to those of
his present position) or are hereafter granted or awarded to
or otherwise received by Key Employee during the Employment
Period (other than a re-assignment occurring as the result of
or in connection with any change in control of Employer, in
which case the provisions of the governing benefit plan, or
any other written agreement between Telxon and Employee,
applicable in such a circumstance shall control), such
options, rights and benefits shall, to the extent unvested as
of the time of such re-assignment, be subject to such
reduction, cancellation and/or forfeiture as may then be
determined to be appropriate by the Board in its discretion.
d. Vacation. During the Employment Period, Key Employee shall be
entitled to four weeks vacation per calendar year.
e. Health, Disability, Retirement and Death Benefits. Employer
shall provide Key Employee with the same health, disability,
retirement and death and other fringe benefits as are
generally provided to the executive employees of Employer in
accordance with such terms, conditions and eligibility
requirements as may from time to time be established by
Employer.
4. Termination.
a. This Agreement shall terminate automatically upon Key
Employee's death.
b. Employer may terminate Key Employee's employment under this
Agreement at any time, upon thirty (30) days written notice to
Key Employee, if Key Employee becomes permanently disabled.
Permanent disability shall be determined by Employer according
to the same standards applicable to the employees of Employer
generally under the disability benefits referred to in
paragraph 3(e).
c. Employer shall have the right to terminate Key Employee's
employment under this Agreement at any time (i) immediately
for "cause" (which shall mean for any action or inaction of
Key Employee which is adverse to Employer's interests,
including, without
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<PAGE> 3
limitation, Key Employee's dishonesty, grossly negligent
misconduct, willful misconduct, disloyalty, act of bad faith,
neglect of duty or material breach of this Agreement or of any
Employer policy applicable to its employees generally), or
(ii) without cause upon thirty (30) days written notice to Key
Employee.
d. Key Employee may voluntarily terminate his employment under
this Agreement at any time, upon thirty (30) days written
notice to Employer.
5. EFFECTS OF TERMINATION.
a. In the event of automatic termination by reason of Key
Employee's death pursuant to paragraph 4(a), or by Employer by
reason of Key Employee's permanent disability pursuant to
paragraph 4(b), all of Employer's obligations under this
Agreement shall end except for Employer's obligations to pay
Key Employee's Base Salary and Bonus Compensation, if any
(which Bonus Compensation shall, for purposes of this
paragraph 5(a) and paragraph 5(c)(i), be prorated in light of
the circumstances), in each case earned but unpaid to the date
of death or permanent disability. Key Employee shall also have
the right to receive any payments under the death or
disability benefits, as the case may be, provided to Key
Employee pursuant to paragraph 3(e), if any.
b. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), or Key Employee
exercises his right of voluntary termination pursuant to
paragraph 4(d), all of Employer's obligations under this
Agreement shall end except for its obligations to pay Key
Employee's Base Salary, if any, earned but unpaid to the date
of termination (which, for purposes of this paragraph 5(b) and
paragraph 5(c), shall be thirty (30) days after the date on
which notification is provided by Employer to Key Employee
pursuant to paragraph 4(c)(ii) or by Key Employee to Employer
pursuant to paragraph 4(d), as the case may be) and, in the
case of termination pursuant to paragraph 4(c)(ii), Employer's
obligations under paragraph 5(c).
c. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), Employer shall
also be obligated to pay or provide to Key Employee:
i. Key Employee's Bonus Compensation, if any, earned but
unpaid to the date of termination;
ii. as severance pay, for the twelve (12) month period
following the date of such termination, annualized
compensation at a rate which shall be equal to Key
Employee's Base Salary at such termination date, payable
in equal bi-weekly installments or at such other interval
as the Board or Employer's corresponding payroll policies
shall direct; and
iii. continued benefits (or if unavailable under the general
terms and provisions of the applicable plan, their
equivalent) for Key Employee and his dependents, for a
period terminating on the earliest of (A) twelve (12)
months following the date of such termination, (B) the
commencement date of equivalent benefits from a new
employer, or (C) Key Employee's normal retirement date
(after which the terms of the retirement plan which would
have been applicable to Key Employee had he retired as of
such termination date rather than having been terminated
shall govern), under all insured and self-insured
employee welfare benefit plans in which Key Employee was
entitled to participate immediately prior to such
termination date, provided that Key Employee shall not be
required to pay any amount greater than the regular
contribution made by Key Employee for such participation
immediately prior to such termination date.
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<PAGE> 4
d. In the event Employer exercises its right of termination
pursuant to paragraph 4(c)(i) for cause, or Key Employee
leaves the employ of Employer other than pursuant to notice
duly given under paragraph 4(d), all of Employer's obligations
under this Agreement shall end except for Employer's
obligations to pay Key Employee's Base Salary, if any, earned
but unpaid to the date of such termination or of the Key
Employee so leaving Employer's employ.
6. COVENANT NOT TO COMPETE.
a. RESTRICTED ACTIVITIES--DURATION. Except as otherwise consented
to or approved by Employer's Board of Directors in writing,
Key Employee agrees that, in addition to being operative
during the Employment Period, the provisions of paragraphs
6(a)(i) through (iii), inclusive, shall be operative for a
period of twelve (12) months after the later of (1) the date
Key Employee's employment with Employer (pursuant to this
Agreement or otherwise) is terminated or otherwise ceases, or
(2) the end of all severance payments, if any, which Employer
is obligated to make to Key Employee under paragraph 5(c) or
any other subsequent written agreement between them,
regardless of the time, manner or reason for the termination
or other cessation of such employment. During such periods,
without Telxon's prior written consent, Key Employee will not,
directly or indirectly, acting alone or as a member of a
partnership or as an owner, director, officer, employee,
manager, representative or consultant of any corporation or
other business entity:
i. Engage in any business which manufactures, sells,
distributes, services or supports products or services of
a type manufactured, sold, marketed, serviced or
supported, or in any other business in competition with
or adverse to the business that is conducted by Employer,
or which Employer is in the process of developing and in
or of which Key Employee participated or has knowledge,
at the time of the cessation of Key Employee's employment
with the Employer, in the United States, Canada or any
European, Asian, Pacific Rim or other foreign country in
which Employer then or thereafter transacts business or
is making a bona fide attempt to do so;
ii. induce, request or attempt to influence any customer or
supplier of Employer to curtail or cancel their business
or prospective business with Employer or in any way
interfere with Employer's business relationships; or
iii. induce, solicit or assist or facilitate the inducement or
solicitation by any third person of any employee,
officer, agent or representative of Employer to terminate
his respective relationship with Employer or in any way
interfere with the Employer's employee, officer, agent or
representative relationships.
b. TOLLING; RELIEF OF OBLIGATIONS. In the event that Key Employee
breaches any provision of this paragraph 6, such violation (i)
shall toll the running of the twelve (12) month period set
forth in paragraph 6(a) from the date of commencement of such
violation until such violation ceases, and (ii) shall relieve
Employer of any obligations to Key Employee under this
Agreement.
c. "BLUE PENCILING" OR MODIFICATION. If either the length of
time, geographic area or scope of restricted business activity
set forth in paragraph 6(a) is deemed unreasonably restrictive
or unreasonable in any other respect in any proceeding before
a court of competent jurisdiction, Key Employee and Employer
agree and consent to such court's modifying or reducing such
restriction(s) with respect, but only with respect, to that
jurisdiction to the extent deemed reasonable under the
circumstances then presented.
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<PAGE> 5
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
a. For purposes of this Agreement, "Confidential Information"
means all information or trade secrets of any type or
description belonging to Employer which are proprietary and
confidential to Employer and which are not publicly disclosed
or are only disclosed with restrictions. Without limiting the
generality of the foregoing, Confidential Information
includes: strategic and other plans for carrying on business;
cost data and other financial information; lists of customers,
employees, vendors and business partners and alliances;
manufacturing methods and processes; product research and
engineering data, drawings, designs and schematics; computer
programs, flow charts, routines, subroutines, translators,
compilers, operating systems and object and source codes;
specifications, inventions, know-how, calculations and
discoveries; any letters, papers, documents and instruments
disclosing or reflecting any of the foregoing; and all
information revealed to or acquired or created by Key Employee
during Key Employee's employment by Employer relating to any
of the foregoing or otherwise to Employer's past, current or
future business.
b. Key Employee acknowledges that the discharge of Key Employee's
duties under this Agreement will necessarily involve his
access to Confidential Information. Key Employee acknowledges
that the unauthorized use by him or disclosure by him of such
Confidential Information to third parties might cause
irreparable damage to Employer and Employer's business.
Accordingly, Key Employee agrees that at all times after the
date hereof he will not, without the prior written consent of
Employer's Board of Directors, copy, publish, disclose,
divulge to or discuss with any third party, nor use for his
own benefit or that of others any Confidential Information,
except in the normal conduct of his duties under this
Agreement, it being understood and acknowledged by Key
Employee that all Confidential Information created, compiled
or obtained by Key Employee or Employer, or furnished to Key
Employee by any person while Key Employee is associated with
Employer, is and shall be and remain Employer's exclusive
property.
c. Promptly upon termination of his employment, irrespective of
the time or manner thereof or reason therefor, Key Employee
agrees to return and surrender to Employer all Confidential
Information copies thereof in any form which is in any manner
in his control or possession, as well as all other Employer
property.
8. RIGHTS. Key Employee acknowledges and agrees that any procedure,
design feature, schematic, invention, improvement, development,
discovery, know-how, concept, idea or the like (whether or not
patentable, registrable under copyright or trademark laws, or
otherwise protectable under similar laws) that Key Employee
(whether individually or jointly with any other person or persons)
may hereafter conceive of, suggest, make, invent, develop or
implement during the course of his service to Employer which
relates in any way to the business of Employer or to the general
industry of which Employer is a part, all physical embodiments and
manifestations thereof, and all patent rights, copyrights and
trademarks (and applications therefor) and similar protections
thereof (all of the foregoing referred to as "Work Product") are
and shall be the sole, exclusive and absolute property of
Employer. All Work Product shall be deemed to be works for hire
for the benefit of Employer, and to the extent that any Work
Product may not constitute a work for hire, Key Employee hereby
assigns to Employer all right, title and interest in, to and under
such Work Product, including, without limitation, the right to
obtain such patents, copyright registrations, trademark
registrations or similar protections as Employer may desire to
obtain. Key Employee will immediately disclose all Work Product to
Employer and agrees, at anytime, upon Employer's request and
without additional compensation, to execute any documents and
otherwise to cooperate with Employer (including, without
limitation, all lawful testimony and sworn statements or other
certifications as may be appropriate) respecting the perfection of
its right, title and interest in, to and under such Work Product
and in any litigation
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<PAGE> 6
or administrative or other proceeding or controversy in connection
therewith, all expenses incident thereto be borne by Employer.
9. INDUCEMENT; REMEDIES INADEQUATE; AND SURVIVAL.
a. The covenants made by Key Employee in favor of Employer under
paragraphs 6, 7 and 8 and this paragraph 9 are being executed
and delivered by Key Employee in consideration of Key
Employee's employment with Employer and Employer's obligations
hereunder (including, without limitation, the Base Salary, the
Bonus Compensation and other benefits and payments provided
for herein).
b. Key Employee has carefully considered, and has had adequate
time and opportunity to consult with his own counsel or other
advisors regarding the nature and extent of the restrictions
upon him, and the rights and remedies conferred upon Employer,
under paragraphs 6, 7 and 8 and this paragraph 9, and hereby
acknowledges and agrees that such restrictions are reasonable
in time, territory and scope, are designed to eliminate
competition which otherwise would be unfair to Employer, do
not stifle the inherent skill and experience of Key Employee,
would not operate as a bar to Key Employee's sole means of
support, are fully required to protect the legitimate
interests of Employer and do not confer a benefit upon
Employer disproportionate to the detriment to Key Employee.
c. Key Employee acknowledges that the services to be rendered by
him to Employer as contemplated by this Agreement are special,
unique and of extraordinary character. Key Employee expressly
agrees and understand that the remedy at law for any breach by
him of paragraph 6, 7 or 8 will be inadequate and that the
damages flowing from such breach are not readily susceptible
to being measured in monetary terms. Accordingly, upon
adequate proof of Key Employee's violation of any legally
enforceable provision of paragraph 6, 7 or 8, Employer shall
be entitled to immediate injunctive relief, including, without
limitation, a temporary order restraining any threatened or
further breach. In the event any equitable proceedings are
brought to enforce any provision of paragraphs 6, 7 and 8, Key
Employee agrees that he will not raise in such proceedings any
defense that Employer has an adequate remedy at law, and Key
Employee hereby waives any such defense. Nothing in this
Agreement shall be deemed to limit Employer's remedies at law
or in equity for any breach by Key Employee of any of the
provisions of paragraphs 6, 7 and 8 which may be pursued or
availed of by Employer. Without limiting the generality of the
immediately preceding sentence, any covenant on Key Employee's
part contained in paragraph 6, 7 or 8 which may not be
specifically enforceable shall nevertheless, if breached, give
rise to a cause of action for monetary damages.
d. As used in paragraphs 6, 7 and 8 and in this paragraph 9, the
term "Employer" (other than with respect to the Board of
Directors) shall include, in addition to Employer, all
subsidiaries and other affiliates of Employer, whether so
related to Employer during Key Employee's employment with
Employer or at any time thereafter.
e. Subject only to such time limitations as may be expressly set
forth therein, the covenants and agreements made by Key
Employee in paragraphs 6, 7 and 8 and this paragraph 9 shall
survive full payment by Employer to Key Employee of the
amounts to which Key Employee is entitled under this Agreement
and the termination of this Agreement and Key Employee's
employment hereunder or otherwise. The provisions of
paragraphs 6, 7 and 8 and this paragraph 9, and to the extent
applicable thereto, paragraphs 13 through 20, shall continue
to apply to and be binding upon Key Employee in the event and
for so long as Key Employee shall remain in the employ of
Employer following any termination under this Agreement and
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<PAGE> 7
for such post-employment period as may there be specified but
measured from the end of such continued employment.
10. ASSIGNMENT OF KEY EMPLOYEE'S RIGHTS. In no event shall Employer be
obligated to make any payment under this Agreement to any assignee
or creditor of Key Employee. Prior to the time provided for the
making of any payment under this Agreement, neither Key Employee
nor his legal representative shall have any right by way of
anticipation or otherwise to assign or otherwise dispose of any
interest under this Agreement.
11. RIGHT OF SET-OFF. Any payments to be made to Key Employee under
this Agreement shall be subject to offset by Employer for any
claims for damages, liabilities or expenses which it may have
against Key Employee.
12. EMPLOYER'S OBLIGATIONS UNFUNDED. Except as to any benefits that
may be required to be funded under any benefit plan of Employer
pursuant to law or under any other written agreement, the
obligations of Employer under this Agreement are not funded, and
Employer shall be not required to deposit in escrow or otherwise
set aside any moneys in advance of the due date for payment
thereof to Key Employee.
13. NOTICES. Any notice to be given hereunder by Employer to Key
Employee shall be deemed to be given if delivered to Key Employee
in person, or if mailed to Key Employee, by certified mail,
postage prepaid, return receipt requested, at his address last
shown on the records of Employer, and any notice to be given by
Key Employee to Employer shall be deemed to be given if delivered
in person or by mail, postage prepaid, return receipt requested to
the Chief Executive Officer at Employer's principal executive
office, unless Key Employee or Employer shall have duly notified
the other parties in writing of a change of address. If mailed,
notice shall be deemed to have been given when deposited in the
mail as set forth above.
14. AMENDMENTS. This Agreement shall not be modified or discharged, in
whole or in part, except by an agreement in writing signed by the
parties hereto.
15. ENTIRE AGREEMENT. This Agreement, together with any and all other
written agreement(s) made contemporaneously herewith, constitute
the entire agreement between the parties with respect to Key
Employee's employment by Employer from and after the Effective
Date. The parties are not relying on any other representation or
understanding with respect thereto, express or implied, oral or
written. This Agreement, as supplemented by such contemporaneous
agreement(s), supersedes any prior employment agreement, written
or oral, between Key Employee and Employer.
16. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not affect the meaning of any
terms or provisions hereof.
17. GENDER AND NUMBER. Whenever the context may permit, any pronouns
used herein shall include the corresponding masculine, feminine
and neuter forms, and the singular form of any noun or pronoun,
including any terms defined herein, shall include the plural and
vice versa.
18. BINDING EFFECT. The rights and obligations of Employer hereunder
shall inure to the benefit of, and shall be binding upon, Employer
and its respective successors and assigns, and the rights and
obligations of Key Employee hereunder shall inure to the benefit
of, and shall be binding upon, Key Employee and his heirs,
personal representatives and estate.
19. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable in any jurisdiction, in
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<PAGE> 8
whole or in part, the remaining provisions and any partially
enforceable provision shall be binding and enforceable to the
extent enforceable in such jurisdiction.
20. GOVERNING LAW. This Agreement shall be interpreted, construed, and
enforced in all respects in accordance with the laws of the State
of Ohio.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Effective Date.
TELXON CORPORATION KEY EMPLOYEE
By: /s/ John W. Paxton /s/ Kenneth A. Cassady
------------------------------ -------------------------------
John W. Paxton Kenneth A. Cassady
Chairman, President & CEO
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<PAGE> 1
EXHIBIT 10.1.12
---------------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of June 1, 1999
(the "Effective Date") at Akron, Ohio between TELXON CORPORATION ("Employer"), a
Delaware corporation with offices at 3330 West Market Street, Akron, Ohio 44333,
and WOODY M. MCGEE ("Key Employee").
WITNESSETH:
WHEREAS, Employer desires to employ Key Employee initially as Vice
President, Chief Financial Officer of Employer, and thereafter, in such capacity
as Employer's chief executive officer (the "Chief Executive Officer"), or such
other officer of Employer as the Chief Executive Officer shall direct (the Chief
Executive Officer or such other officer being Key Employee's "Supervisor"),
shall direct, and Key Employee desires to be so employed, upon the terms and
conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing and in consideration of
the mutual promises and agreements contained herein, the parties hereto agree as
follows:
1. EMPLOYMENT PERIOD. Employer agrees to employ Key Employee, and Key
Employee agrees to be so employed, on the terms and conditions set
forth herein for the period beginning on the Effective Date and
ending May 31, 2002 which period shall thereafter be automatically
extended for successive additional twelve (12) month periods,
subject to the earlier termination of such employment, as so
extended, by Employer or Key Employee pursuant to paragraph 4 (the
"Employment Period").
2. NATURE OF DUTIES.
a. Key Employee's duties and responsibilities shall be to serve
as Vice President, Chief Financial Officer of Employer or in
such other capacity as the Supervisor may at any time and from
time to time in its discretion direct, in conformity with
management policies, guidelines and directions issued by
Employer. Key Employee shall report directly to the
Supervisor, and shall have general charge and supervision of
those functions and such other responsibilities as the
Supervisor shall from time to time determine in his
discretion.
b. Key Employee shall work exclusively for Employer on a
full-time basis in such capacity as he is to serve pursuant to
paragraph 2(a), devoting all of his time and attention during
normal business hours to Employer's business.
c. Key Employee shall perform his duties and responsibilities
hereunder diligently, faithfully and loyally in order to cause
the proper, efficient and successful operation of Employer's
business.
3. COMPENSATION AND BENEFITS.
a. BASE SALARY AND EXPENSES. As compensation for Key Employee's
services, Employer shall pay to Key Employee during the
Employment Period a salary (the "Base Salary") at the annual
rate of $230,000 for FY`00. Any salary increases for future
fiscal years will be determined by the Board of Directors of
Employer or an appropriate committee thereof (the "Board") in
its discretion based upon the recommendation of the Chief
Executive Officer. Base salary will be payable in arrears, in
equal bi-weekly installments or at such other interval as the
Board or
<PAGE> 2
applicable Employer policies shall direct. Employer shall
reimburse Key Employee for all reasonable out-of-pocket
expenses incurred by Key Employee on Employer's behalf during
the Employment Period and approved by the Supervisor or such
other officer as the Supervisor or applicable Employer
policies shall direct.
b. BONUS COMPENSATION. In addition to the Base Salary, Key
Employee shall, at the discretion of the Board, be eligible to
receive bonus compensation ("Bonus Compensation") with respect
to the Employment Period on such basis as shall be approved by
the Board. For FY`00, Key Employee shall be eligible for a
potential bonus of up to $92,000 based upon achieving goals
and achievements agreed upon by Key Employee and the
Supervisor, subject to such approval thereof as may be
required by the Chief Executive Officer and/or the Board.
Bonus compensation for subsequent fiscal years will be
determined by the Board in its discretion based upon the
recommendation of the Chief Executive Officer.
c. STOCK OPTIONS. During the Employment Period, Key Employee
shall be eligible to receive grants of stock option(s) and
other awards and benefits pursuant to such employee stock
option and other stock-based employee benefit plans as
Employer may maintain from time to time during the Employment
Period with respect to its key employees of like stature and
compensation, in such amounts as may be determined by the
Board in its discretion based upon the recommendation of the
Chief Executive Officer. In the event that, during the
Employment Period, Key Employee is re-assigned by Employer to
a position carrying duties and responsibilities of lesser
stature than his present position as recited in paragraph 2(a)
or such position in which Key Employee serves as of the time
that any such options or other rights or benefits were
previously (including any period prior to the Employment
Period during which Key Employee had duties and
responsibilities substantially similar in stature to those of
his present position) or are hereafter granted or awarded to
or otherwise received by Key Employee during the Employment
Period (other than a re-assignment occurring as the result of
or in connection with any change in control of Employer, in
which case the provisions of the governing benefit plan, or
any other written agreement between Telxon and Employee,
applicable in such a circumstance shall control), such
options, rights and benefits shall, to the extent unvested as
of the time of such re-assignment, be subject to such
reduction, cancellation and/or forfeiture as may then be
determined to be appropriate by the Board in its discretion.
d. VACATION. During the Employment Period, Key Employee shall be
entitled to vacation in accordance with Employer's policies.
e. HEALTH, DISABILITY, RETIREMENT AND DEATH BENEFITS. Employer
shall provide Key Employee with the same health, disability,
retirement and death and other fringe benefits as are
generally provided to the executive employees of Employer in
accordance with such terms, conditions and eligibility
requirements as may from time to time be established by
Employer.
4. TERMINATION.
a. This Agreement shall terminate automatically upon Key
Employee's death.
b. Employer may terminate Key Employee's employment under this
Agreement at any time, upon thirty (30) days written notice to
Key Employee, if Key Employee becomes permanently disabled.
Permanent disability shall be determined by Employer according
to the same standards applicable to the employees of Employer
generally under the disability benefits referred to in
paragraph 3(e).
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<PAGE> 3
c. Employer shall have the right to terminate Key Employee's
employment under this Agreement at any time (i) immediately
for "cause" (which shall mean for any action or inaction of
Key Employee which is adverse to Employer's interests,
including, without limitation, Key Employee's dishonesty,
grossly negligent misconduct, willful misconduct, disloyalty,
act of bad faith, neglect of duty or material breach of this
Agreement or of any Employer policy applicable to its
employees generally), or (ii) without cause upon thirty (30)
days written notice to Key Employee.
d. Key Employee may voluntarily terminate his employment under
this Agreement at any time, upon thirty (30) days written
notice to Employer.
5. EFFECTS OF TERMINATION.
a. In the event of automatic termination by reason of Key
Employee's death pursuant to paragraph 4(a), or by Employer by
reason of Key Employee's permanent disability pursuant to
paragraph 4(b), all of Employer's obligations under this
Agreement shall end except for Employer's obligations to pay
Key Employee's Base Salary and Bonus Compensation, if any
(which Bonus Compensation shall, for purposes of this
paragraph 5(a) and paragraph 5(c)(i), be prorated in light of
the circumstances), in each case earned but unpaid to the date
of death or permanent disability. Key Employee shall also have
the right to receive any payments under the death or
disability benefits, as the case may be, provided to Key
Employee pursuant to paragraph 3(e), if any.
b. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), or Key Employee
exercises his right of voluntary termination pursuant to
paragraph 4(d), all of Employer's obligations under this
Agreement shall end except for its obligations to pay Key
Employee's Base Salary, if any, earned but unpaid to the date
of termination (which, for purposes of this paragraph 5(b) and
paragraph 5(c), shall be thirty (30) days after the date on
which notification is provided by Employer to Key Employee
pursuant to paragraph 4(c)(ii) or by Key Employee to Employer
pursuant to paragraph 4(d), as the case may be) and, in the
case of termination pursuant to paragraph 4(c)(ii), Employer's
obligations under paragraph 5(c).
c. In the event Employer exercises its right of termination other
than for cause pursuant to paragraph 4(c)(ii), Employer shall
also be obligated to pay or provide to Key Employee:
i. Key Employee's Bonus Compensation, if any, earned but
unpaid to the date of termination;
ii. as severance pay, for the twelve (12) month period
following the date of such termination, annualized
compensation at a rate which shall be equal to Key
Employee's Base Salary at such termination date, payable
in equal bi-weekly installments or at such other interval
as the Board or Employer's corresponding payroll policies
shall direct; and
iii. continued benefits (or if unavailable under the general
terms and provisions of the applicable plan, their
equivalent) for Key Employee and his dependents, for a
period terminating on the earliest of (A) twelve (12)
months following the date of such termination, (B) the
commencement date of equivalent benefits from a new
employer, or (C) Key Employee's normal retirement date
(after which the terms of the retirement plan which would
have been applicable to Key Employee had he retired as of
such termination date rather than having been terminated
shall govern), under all insured and self-insured
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<PAGE> 4
employee welfare benefit plans in which Key Employee was
entitled to participate immediately prior to such
termination date, provided that Key Employee shall not be
required to pay any amount greater than the regular
contribution made by Key Employee for such participation
immediately prior to such termination date.
d. In the event Employer exercises its right of termination
pursuant to paragraph 4(c)(i) for cause, or Key Employee
leaves the employ of Employer other than pursuant to notice
duly given under paragraph 4(d), all of Employer's obligations
under this Agreement shall end except for Employer's
obligations to pay Key Employee's Base Salary, if any, earned
but unpaid to the date of such termination or of the Key
Employee so leaving Employer's employ.
6. COVENANT NOT TO COMPETE.
a. RESTRICTED ACTIVITIES--DURATION. Except as otherwise consented
to or approved by Employer's Board of Directors in writing,
Key Employee agrees that, in addition to being operative
during the Employment Period, the provisions of paragraphs
6(a)(i) through (iii), inclusive, shall be operative for a
period of twelve (12) months after the later of (1) the date
Key Employee's employment with Employer (pursuant to this
Agreement or otherwise) is terminated or otherwise ceases, or
(2) the end of all severance payments, if any, which Employer
is obligated to make to Key Employee under paragraph 5(c) or
any other subsequent written agreement between them,
regardless of the time, manner or reason for the termination
or other cessation of such employment. During such periods,
without Telxon's prior written consent, Key Employee will not,
directly or indirectly, acting alone or as a member of a
partnership or as an owner, director, officer, employee,
manager, representative or consultant of any corporation or
other business entity:
i. Engage in any business which manufactures, sells,
distributes, services or supports products or services of
a type manufactured, sold, marketed, serviced or
supported, or in any other business in competition with
or adverse to the business that is conducted by Employer,
or which Employer is in the process of developing and in
or of which Key Employee participated or has knowledge,
at the time of the cessation of Key Employee's employment
with the Employer, in the United States, Canada or any
European, Asian, Pacific Rim or other foreign country in
which Employer then or thereafter transacts business or
is making a bona fide attempt to do so;
ii. induce, request or attempt to influence any customer or
supplier of Employer to curtail or cancel their business
or prospective business with Employer or in any way
interfere with Employer's business relationships; or
iii. induce, solicit or assist or facilitate the inducement or
solicitation by any third person of any employee,
officer, agent or representative of Employer to terminate
his respective relationship with Employer or in any way
interfere with the Employer's employee, officer, agent or
representative relationships.
b. TOLLING; RELIEF OF OBLIGATIONS. In the event that Key Employee
breaches any provision of this paragraph 6, such violation (i)
shall toll the running of the twelve (12) month period set
forth in paragraph 6(a) from the date of commencement of such
violation until such violation ceases, and (ii) shall relieve
Employer of any obligations to Key Employee under this
Agreement.
c. "BLUE PENCILING" OR MODIFICATION. If either the length of
time, geographic area or scope of restricted business activity
set forth in paragraph 6(a) is deemed unreasonably restrictive
or
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<PAGE> 5
unreasonable in any other respect in any proceeding before
a court of competent jurisdiction, Key Employee and Employer
agree and consent to such court's modifying or reducing such
restriction(s) with respect, but only with respect, to that
jurisdiction to the extent deemed reasonable under the
circumstances then presented.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
a. For purposes of this Agreement, "Confidential Information"
means all information or trade secrets of any type or
description belonging to Employer which are proprietary and
confidential to Employer and which are not publicly disclosed
or are only disclosed with restrictions. Without limiting the
generality of the foregoing, Confidential Information
includes: strategic and other plans for carrying on business;
cost data and other financial information; lists of customers,
employees, vendors and business partners and alliances;
manufacturing methods and processes; product research and
engineering data, drawings, designs and schematics; computer
programs, flow charts, routines, subroutines, translators,
compilers, operating systems and object and source codes;
specifications, inventions, know-how, calculations and
discoveries; any letters, papers, documents and instruments
disclosing or reflecting any of the foregoing; and all
information revealed to or acquired or created by Key Employee
during Key Employee's employment by Employer relating to any
of the foregoing or otherwise to Employer's past, current or
future business.
b. Key Employee acknowledges that the discharge of Key Employee's
duties under this Agreement will necessarily involve his
access to Confidential Information. Key Employee acknowledges
that the unauthorized use by him or disclosure by him of such
Confidential Information to third parties might cause
irreparable damage to Employer and Employer's business.
Accordingly, Key Employee agrees that at all times after the
date hereof he will not, without the prior written consent of
Employer's Board of Directors, copy, publish, disclose,
divulge to or discuss with any third party, nor use for his
own benefit or that of others any Confidential Information,
except in the normal conduct of his duties under this
Agreement, it being understood and acknowledged by Key
Employee that all Confidential Information created, compiled
or obtained by Key Employee or Employer, or furnished to Key
Employee by any person while Key Employee is associated with
Employer, is and shall be and remain Employer's exclusive
property.
c. Promptly upon termination of his employment, irrespective of
the time or manner thereof or reason therefor, Key Employee
agrees to return and surrender to Employer all Confidential
Information copies thereof in any form which is in any manner
in his control or possession, as well as all other Employer
property.
8. RIGHTS. Key Employee acknowledges and agrees that any procedure,
design feature, schematic, invention, improvement, development,
discovery, know-how, concept, idea or the like (whether or not
patentable, registrable under copyright or trademark laws, or
otherwise protectable under similar laws) that Key Employee
(whether individually or jointly with any other person or persons)
may hereafter conceive of, suggest, make, invent, develop or
implement, during the course of his service to Employer which
relates in any way to the business of Employer or to the general
industry of which Employer is a part, all physical embodiments and
manifestations thereof, and all patent rights, copyrights and
trademarks (and applications therefor) and similar protections
thereof (all of the foregoing referred to as "Work Product") are
and shall be the sole, exclusive and absolute property of
Employer. All Work Product shall be deemed to be works for hire
for the benefit of Employer, and to the extent that any Work
Product may not constitute a work for hire, Key Employee hereby
assigns to Employer all right, title and interest in, to and under
such Work
-5-
<PAGE> 6
Product, including, without limitation, the right to obtain such
patents, copyright registrations, trademark registrations or
similar protections as Employer may desire to obtain. Key Employee
will immediately disclose all Work Product to Employer and agrees,
at anytime, upon Employer's request and without additional
compensation, to execute any documents and otherwise to cooperate
with Employer (including, without limitation, all lawful testimony
and sworn statements or other certifications as may be
appropriate) respecting the perfection of its right, title and
interest in, to and under such Work Product and in any litigation
or administrative or other proceeding or controversy in connection
therewith, all expenses incident thereto be borne by Employer.
9. INDUCEMENT; REMEDIES INADEQUATE; AND SURVIVAL.
a. The covenants made by Key Employee in favor of Employer under
paragraphs 6, 7 and 8 and this paragraph 9 are being executed
and delivered by Key Employee in consideration of Key
Employee's employment with Employer and Employer's obligations
hereunder (including, without limitation, the Base Salary, the
Bonus Compensation and other benefits and payments provided
for herein).
b. Key Employee has carefully considered, and has had adequate
time and opportunity to consult with his own counsel or other
advisors regarding the nature and extent of the restrictions
upon him, and the rights and remedies conferred upon Employer,
under paragraphs 6, 7 and 8 and this paragraph 9, and hereby
acknowledges and agrees that such restrictions are reasonable
in time, territory and scope, are designed to eliminate
competition which otherwise would be unfair to Employer, do
not stifle the inherent skill and experience of Key Employee,
would not operate as a bar to Key Employee's sole means of
support, are fully required to protect the legitimate
interests of Employer and do not confer a benefit upon
Employer disproportionate to the detriment to Key Employee.
c. Key Employee acknowledges that the services to be rendered by
him to Employer as contemplated by this Agreement are special,
unique and of extraordinary character. Key Employee expressly
agrees and understand that the remedy at law for any breach by
him of paragraph 6, 7 or 8 will be inadequate and that the
damages flowing from such breach are not readily susceptible
to being measured in monetary terms. Accordingly, upon
adequate proof of Key Employee's violation of any legally
enforceable provision of paragraph 6, 7 or 8, Employer shall
be entitled to immediate injunctive relief, including, without
limitation, a temporary order restraining any threatened or
further breach. In the event any equitable proceedings are
brought to enforce any provision of paragraphs 6, 7 and 8, Key
Employee agrees that he will not raise in such proceedings any
defense that Employer has an adequate remedy at law, and Key
Employee hereby waives any such defense. Nothing in this
Agreement shall be deemed to limit Employer's remedies at law
or in equity for any breach by Key Employee of any of the
provisions of paragraphs 6, 7 and 8 which may be pursued or
availed of by Employer. Without limiting the generality of the
immediately preceding sentence, any covenant on Key Employee's
part contained in paragraph 6, 7 or 8 which may not be
specifically enforceable shall nevertheless, if breached, give
rise to a cause of action for monetary damages.
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<PAGE> 7
d. As used in paragraphs 6, 7 and 8 and in this paragraph 9, the
term "Employer" (other than with respect to the Board of
Directors) shall include, in addition to Employer, all
subsidiaries and other affiliates of Employer, whether so
related to Employer during Key Employee's employment with
Employer or at any time thereafter.
e. Subject only to such time limitations as may be expressly set
forth therein, the covenants and agreements made by Key
Employee in paragraphs 6, 7 and 8 and this paragraph 9 shall
survive full payment by Employer to Key Employee of the
amounts to which Key Employee is entitled under this Agreement
and the termination of this Agreement and Key Employee's
employment hereunder or otherwise. The provisions of
paragraphs 6, 7 and 8 and this paragraph 9, and to the extent
applicable thereto, paragraphs 13 through 20, shall continue
to apply to and be binding upon Key Employee in the event and
for so long as Key Employee shall remain in the employ of
Employer following any termination under this Agreement and
for such post-employment period as may there be specified but
measured from the end of such continued employment.
10. ASSIGNMENT OF KEY EMPLOYEE'S RIGHTS. In no event shall Employer be
obligated to make any payment under this Agreement to any assignee
or creditor of Key Employee. Prior to the time provided for the
making of any payment under this Agreement, neither Key Employee
nor his legal representative shall have any right by way of
anticipation or otherwise to assign or otherwise dispose of any
interest under this Agreement.
11. RIGHT OF SET-OFF. Any payments to be made to Key Employee under
this Agreement shall be subject to offset by Employer for any
claims for damages, liabilities or expenses which it may have
against Key Employee.
12. EMPLOYER'S OBLIGATIONS UNFUNDED. Except as to any benefits that
may be required to be funded under any benefit plan of Employer
pursuant to law or under any other written agreement, the
obligations of Employer under this Agreement are not funded, and
Employer shall be not required to deposit in escrow or otherwise
set aside any moneys in advance of the due date for payment
thereof to Key Employee.
13. NOTICES. Any notice to be given hereunder by Employer to Key
Employee shall be deemed to be given if delivered to Key Employee
in person, or if mailed to Key Employee, by certified mail,
postage prepaid, return receipt requested, at his address last
shown on the records of Employer, and any notice to be given by
Key Employee to Employer shall be deemed to be given if delivered
in person or by mail, postage prepaid, return receipt requested to
the Chief Executive Officer at Employer's principal executive
office, unless Key Employee or Employer shall have duly notified
the other parties in writing of a change of address. If mailed,
notice shall be deemed to have been given when deposited in the
mail as set forth above.
14. AMENDMENTS. This Agreement shall not be modified or discharged, in
whole or in part, except by an agreement in writing signed by the
parties hereto.
15. ENTIRE AGREEMENT. This Agreement, together with any and all other
written agreement(s) made contemporaneously herewith, constitute
the entire agreement between the parties with respect to Key
Employee's employment by Employer from and after the Effective
Date. The parties are not relying on any other representation or
understanding with respect thereto, express or implied, oral or
written. This Agreement, as supplemented by such contemporaneous
agreement(s),
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<PAGE> 8
supersedes any prior employment agreement, written or oral,
between Key Employee and Employer.
16. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not affect the meaning of any
terms or provisions hereof.
17. GENDER AND NUMBER. Whenever the context may permit, any pronouns
used herein shall include the corresponding masculine, feminine
and neuter forms, and the singular form of any noun or pronoun,
including any terms defined herein, shall include the plural and
vice versa.
18. BINDING EFFECT. The rights and obligations of Employer hereunder
shall inure to the benefit of, and shall be binding upon, Employer
and its respective successors and assigns, and the rights and
obligations of Key Employee hereunder shall inure to the benefit
of, and shall be binding upon, Key Employee and his heirs,
personal representatives and estate.
19. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable in any jurisdiction, in
whole or in part, the remaining provisions and any partially
enforceable provision shall be binding and enforceable to the
extent enforceable in such jurisdiction.
20. GOVERNING LAW. This Agreement shall be interpreted, construed, and
enforced in all respects in accordance with the laws of the State
of Ohio.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Effective Date.
TELXON CORPORATION KEY EMPLOYEE
By: /s/ John W. Paxton /s/ Woody M. Mcgee
----------------------------- -----------------------------
John W. Paxton Woody M. McGee
Chairman, President & CEO
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<PAGE> 1
Exhibit 10.2.1
LEASE
THIS LEASE is entered into and made as of the 30th day of December,
1986, by and between 3330 W. MARKET PROPERTIES, an Ohio General Partnership,
which has its principal office at 55 South Miller Road, Akron, Ohio 44313,
hereinafter called "Landlord" and TELXON CORPORATION, a Delaware corporation,
which has its principal office at 3330 West Market Street, Fairlawn, Ohio
44313, hereinafter called "Tenant".
W I T N E S S E T H:
Landlord, in consideration of the rents and covenants hereinafter set
forth, does hereby demise, let and lease to Tenant, and Tenant does hereby
hire, take and lease from Landlord, on the terms and conditions hereinafter set
forth, the following described space, hereinafter called the "Premises", to
have and to hold the same, with all appurtenances, unto Tenant for the term
hereinafter specified.
1. Description of the Premises.
The Premises are located in the City of Fairlawn, County of Summit,
State of Ohio, and include: (a) a certain tract of land containing
approximately 7.67 acres and commonly known as Summit Park Square, 3320, 3330
and 3340 West Market Street, on which Landlord's office buildings, hereinafter
called the "Buildings," containing a total of approximately 98,921 rentable
square feet, excluding those portions of the Buildings from time to time
subject to leaseholds in favor of third parties; and (b) a certain tract of
land contiguous with and south of the aforementioned 7.67 acre tract of land.
The Premises are more particularly described in Exhibit A attached to and made
a part of this Lease. Upon termination by expiration of the term or otherwise
of any lease in favor of a third party encumbering any part of the Buildings,
the premises covered by such lease shall be added to the Premises upon
restoration of such premises to "Building Standard" condition, i.e.,
broom-clean and freshly painted to Tenant's specifications.
2. Term and Possession.
(a) Term. Notwithstanding Section 2(b), the term of this Lease
shall be fifteen (15) years, beginning on the first day of January,
1987 (the "Commencement Date") and ending on the 31st day of December,
2001, unless terminated earlier as provided in this Lease.
(b) Early Occupancy. If Tenant begins to conduct business in
all or any portion of the Premises before the Commencement Date,
Tenant shall pay to Landlord on the Commencement Date a rental in
respect thereof for the period from the date Tenant begins to conduct
business therein to the Commencement Date, which rental shall be that
proportion of Rent for the calendar year 1987 which the number of days
in such period bears to 365. Except where clearly inappropriate, the
provisions of this Lease shall be applicable during such period.
(c) Acceptance of Premises. Taking possession of all or any
portion of the Premises by Tenant shall be conclusive as
against Tenant that the Premises or such portion thereof are in
satisfactory condition on the date of taking possession, subject only
to (i) matters specified in Tenant's written notice delivered to
Landlord on or before the date on which Tenant thus takes possession,
and (ii) latent defects.
3. Rent.
(a) Base Rent. Tenant shall pay to Landlord as base rent for
the Premises in respect of each year of the term of this Lease,
payable in advance and without notice in equal monthly installments
during each such
<PAGE> 2
year on the first day of each month during the term of this Lease, the
amount per square foot times the number of square feet from time to time
included in the Premises, as set forth below.
<TABLE>
<CAPTION>
Years Annual Rent Per Square Foot
<S> <C>
1987-1989 $13.78
1990-1994 14.75
1995-1999 16.23
2000-2001 17.85
</TABLE>
At such time as the number of square feet included in the Premises varies
such that the amount of base rent payable under this Lease is affected,
Landlord shall promptly deliver written notice of the new number of
square feet included in the Premises and the date from which the change
in the number of square feet included in the Premises shall have been
effective. Unless Tenant objects to the content of such notice within
thirty (30) days after its receipt thereof, Landlord's notice shall be
deemed conclusive and binding for purposes of calculating the amount of
base rent.
In addition to the base rent specified above, Tenant shall pay to
Landlord not later than thirty (30) days after either the end of each year
included in the term of this Lease or Tenant's receipt of Landlord's
statement therefor, whichever is later, the amount, if any, by which the
aggregate rent payable by third parties for all rentable premises other than
the Premises within the Buildings, including base rent and Annual Rental
Adjustment (as hereinafter defined) or the equivalent thereof, is less than the
aggregate number of square feet of such premises times the annual rent per
square foot specified above applicable to the year in question plus the Annual
Rental Adjustment applicable to such premises. Nothing contained in this
Section shall be deemed to constitute a guaranty by Tenant of Landlord's
collection of such amount payable, Tenant's obligation being limited to, and
defined by, the amount of rent payable (not collected) for such premises.
(b) Annual Rental Adjustment. In addition to the base rent
specified in Section 3(a) hereof, Tenant shall pay to Landlord as
additional rent for the Premises, in each calendar year throughout the
term of this Lease, a sum equal to Tenant's proportionate share of the
increase, if any, in Landlord's Total Cost of Operation of the Buildings
(as hereinafter defined) over the Base Expenses (as hereinafter defined)
and Tenant's proportionate share of the increase in real estate taxes
over Base Real Estate Taxes (as hereinafter defined). The amount of
Tenant's proportionate share of the increase in Landlord's Total Cost of
Operation of the Buildings and increase in real estate taxes for a
particular calendar year over the Base Expenses and Base Real Estate
Taxes (sometimes hereinafter referred to as the "Annual Rental
Adjustment") shall be estimated annually by Landlord, and written notice
thereof shall be given to Tenant at least thirty (30) days prior to the
beginning of each calendar year (in the case of 1987, not later than
March 31, 1987). Tenant shall pay each month, at the same time the
monthly installment of base rent is due, an amount equal to one-twelfth
(1/12) of the estimated Annual Rental Adjustment. Within ninety (90)
days after the end of each such calendar year, Landlord shall prepare and
deliver to Tenant a statement showing in reasonable detail the actual
amount of Landlord's Total Cost of Operation of the Building and real
estate taxes for the preceding calendar year and the actual amount of
Tenant's Annual Rental Adjustment. Within thirty (30) days after receipt
of the aforementioned statement, Tenant shall pay to Landlord, or
Landlord shall remit to Tenant, as the case may be, the difference
between the actual amount of Tenant's Annual Rental Adjustment for the
preceding calendar year and the estimated amount paid by Tenant during
such year.
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If the actual amount of Landlord's Total Cost of Operation of the
Buildings and real estate taxes for a particular calendar year is equal
to or less than that established for the Base Expenses and Base Real
Estate Taxes, then Tenant shall not be obligated to pay any Annual Rental
Adjustment, but Tenant shall not be entitled to any reimbursement or
abatement of base rent. If this Lease shall expire or be terminated on
any date other than the last day of a calendar year, the actual amount of
Tenant's Annual Rental Adjustment for such partial year shall be prorated
accordingly.
For purposes of this Section, the following definitions shall
apply:
(i) "Base Expenses" shall mean Landlord's predecessor's
Total Cost of Operation of the Buildings during 1986, which was
$3.871 per square foot or a total of $382,926 for the Buildings.
(ii) "Base Real Estate Taxes" shall mean real estate taxes
payable in respect of 1986 (other than penalties for late payment)
on the Buildings and the land included in the Premises, which were
$0.7893 per square foot or a total of $78,074 for the Buildings and
such land.
(iii) "Tenant's proportionate share" of the increase in
Base Expenses and the increase in Base Real Estate Taxes shall mean
the percentage determined by dividing the rentable area of the
Buildings from time to time included in the Premises by the total
rentable area within the Buildings (approximately 98,921 square
feet). For purposes of this lease, Tenant's proportionate share of
the increase in Base Expenses and Base Real Estate Taxes shall not
be combined but shall be calculated and billed separately.
(iv) "Landlord's Total Cost of Operation of the Buildings"
shall mean all of Landlord's direct costs and expenses of operation
and maintenance of the Buildings and the surrounding walks,
driveways, parking lot and landscaped areas (within the area
described in Exhibit A and outlined in Exhibit B) as determined by
Landlord in accordance with generally accepted accounting
principles or other recognized accounting practices, consistently
applied, plus all additional direct costs and expenses of operation
and maintenance which Landlord determines that it would have paid
or incurred if the Buildings had been one-hundred percent (100%)
occupied, including by way of illustration and not limitation:
insurance premiums, personal property taxes on personal property
used by Landlord in the Buildings; water, electrical and other
utility charges other than the separately billed electrical and
other charges paid by Tenant; service and other charges incurred in
the operation and maintenance of the elevators and the heating,
ventilation and air-conditioning system; cleaning services; tools
and supplies; landscape maintenance costs; building security
services; license and permit fees; building management fees; wages
and related employee benefits payable by Landlord to the on-site
employees of Landlord or its building management agent; and in
general all other costs and expenses which would, under generally
accepted accounting principles, consistently applied, be regarded
as operating and maintenance costs and expenses. "Landlord's Total
Cost of Operation of the Buildings" shall not include the cost of
tenant finish improvements or capital improvements' depreciation,
real estate brokerage and leasing commissions; principal and
interest payments on any mortgages or similar encumbrances; wages
and related employee benefits of Landlord's off-site management
personnel; and in general any other costs and expenses which would
not, under generally accepted accounting principles, consistently
applied, be regarded as operating and maintenance costs and
expenses incurred in connection with the Buildings.
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If Landlord shall, at any time after the Commencement Date, install
a labor-saving device or other equipment which improves the operating
efficiency of any system within the Buildings (such as an energy
management computer system) and thereby reduces any portion of Landlord's
Total Cost of Operation of the Buildings, then Landlord may, in
determining the amount of Tenant's Annual Rental Adjustment, add to
Landlord's Total Cost of Operation of the Buildings in each year during
the useful life of such installed device or equipment, an amount equal to
the annual depreciation or amortization allowance of the cost of such
installed device or equipment as determined in accordance with applicable
regulations of the Internal Revenue Service or generally accepted
accounting principles consistently applied; provided, however, that the
amount of such allowance shall not exceed the annual cost or expense
reduction properly attributable to such installed device or equipment.
Landlord's statement of the actual amount of Landlord's Total Cost
of Operation of the Buildings and real estate taxes for any particular
calendar year shall be signed by a general partner of Landlord and shall
state that, to the best of his knowledge and belief, the costs and
expenses listed therein accurately reflect the actual amount of
Landlord's Total Cost of Operation of the Buildings and real estate taxes
for such year. Tenant or its accountants shall have the right to inspect
and copy, at reasonable times and in a reasonable manner, during the one
hundred eighty (180) day period following Tenant's receipt of any such
statement, such of Landlord's books and records as pertain to and contain
information concerning such costs and expenses in order to verify the
amounts thereof.
If Tenant shall dispute any item or items included in the
determination of Landlord's Total Cost of Operation of the Buildings or
real estate taxes for a given calendar year, and such dispute is not
resolved by the parties hereto within one hundred eighty (180) days after
the statement for such year was received by Tenant, then either party
may, within thirty (30) days thereafter, request that a firm of certified
public accountants (other than such firm as then regularly serves Tenant)
selected by Tenant render an opinion as to whether or not the disputed
item or items may properly be included in the determination of Landlord's
Total Cost of Operation of the Buildings or real estate taxes for such
year; and the opinion of such firm on the matter shall be conclusive and
binding upon the parties hereto. The fees and expenses incurred in
obtaining such an opinion shall be borne by the party adversely affected
thereby; and if more than one item is disputed and the opinion adversely
affects both parties, the fees and expenses shall be apportioned
accordingly. If Tenant shall not dispute any item or items included in
the determination of Landlord's Total Cost of Operation of the Buildings
or real estate taxes for a given calendar year within one hundred eighty
(180) days after the statement for such year was delivered to it, Tenant
shall be deemed to have approved such statement.
(c) Service Charge. If any installment of base rent or
additional rent provided for herein, including the Annual Rental
Adjustment, or any part thereof, is not paid within ten (10) days after
its due date and notice of nonpayment thereof to Tenant, it shall be
subject to a service charge of one percent (1%) of the unpaid rent due
for each month, or such lesser amounts as may be the maximum amount
permitted by law, until paid.
4. Use of the Premises.
(a) Specific Use. The Premises shall be occupied and used as
office space and for all uses and purposes incidental thereto, including
but not limited to any and all computer facilities as may be required by
Tenant in connection with its business. ln addition, the Premises or any
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part thereof may be used for laboratory purposes, which purposes shall
mean and include use as a laboratory for soldering, mechanical assembly
and chemical or mechanical testing.
(b) Covenants Regarding Use. In connection with its use of the
Premises, Tenant agrees to do the following:
(i) Tenant shall use the Premises and conduct its
business thereon in a safe, careful, reputable and lawful manner;
shall keep and maintain the Premises in as good condition as they
were when Tenant first took possession thereof, ordinary wear and
acts of God excepted, and shall make all necessary repairs to the
Premises other than those which Landlord is obligated to make as
provided in this Lease.
(ii) Tenant shall not commit, nor allow to be committed,
in, on or about the Premises or the Buildings, any act of waste,
including any act which might deface, damage or destroy the
Buildings or any part thereof; use or permit to be used on the
Premises any hazardous substance, equipment or other thing which
might cause injury to person or property or increase the danger of
fire or other casualty in, on or about the Premises; permit any
objectionable or offensive noise or odors to be emitted from the
Premises; or do anything or permit anything to be done which would,
in Landlord's reasonable opinion, disturb or tend to disturb other
tenants occupying leased space in the Buildings.
(iii) Tenant shall not overload the floors of the Premises
beyond their designed weight-bearing capacity, which Landlord has
determined to be eighty (80) pounds per square foot live load,
including an allowance for partition load. Landlord reserves the
right reasonably to direct the positioning of all heavy equipment,
furniture and fixture which Tenant desires to place in the Premises
so as to distribute properly the weight thereof, and to require the
removal of any equipment or furniture which exceeds the weight
limit specified herein.
(iv) Tenant shall not use the Premises or allow the
Premises to be used for any purpose or in any manner which would
invalidate any policy of insurance now or hereafter carried on the
Buildings or increase the rate of premiums payable on any such
insurance policy. Should Tenant fail to comply with this covenant,
Landlord may require Tenant to reimburse Landlord as additional
rent for any increase in premiums charged during the term of this
Lease on the insurance carried by Landlord on the Premises and
attributable to the use being made of the Premises by Tenant.
(c) Compliance with Laws. Tenant shall comply with all laws,
statutes, ordinances, rules, regulations and orders of any federal,
state, municipal or other government or agency thereof having
jurisdiction over and relating to the use, condition and occupancy of the
Premises, except that Tenant shall not be responsible for or required to
make structural repairs to the Buildings or the Premises unless, in the
case of the latter, the need therefor is caused by its own negligence.
(d) Compliance with Building Rules and Regulations. Rules and
regulations reasonably governing the use and occupancy of the Premises
and all other leased space in the Buildings may be adopted by Landlord
for the mutual benefit and protection of all the tenants in the
Buildings. Tenant shall comply with and conform to the rules and
regulations from time to time in effect, so long as Tenant has been
provided a true, correct and complete copy of such rules and regulations.
Landlord shall have the right to change such rules and regulations or to
make new rules and regulations from time to time in any reasonable manner
that it deems necessary or desirable in order to insure the safety, care
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and cleanliness of the Buildings and the preservation of order therein.
Any such amendments to the rules and regulations shall be reasonable,
shall be set forth in writing and shall be given to Tenant, who shall
thereafter comply with and conform to the same.
5. Utilities and Other Building Services.
(a) Services to be Provided. Landlord shall furnish Tenant,
between the hours of 6:00 a.m. and 11:00 p.m. on Monday through Friday
and 6:00 a.m. and 5:00 p.m. on Saturday of each week except on legal
holidays on which Tenant's offices are closed and except as noted below,
with the following utilities and other building services to the extent
reasonably considered by Landlord to be necessary for Tenant's
comfortable use and occupancy of the Premises for general office use or
as may be required by law or directed by governmental authority:
(i) Heating, ventilation and air-conditioning;
(ii) Electricity for normal lighting and operating
business machines in the Premises and the common areas and
facilities of the Buildings;
(iii) Water for lavatory and drinking purposes;
(iv) Automatic elevator service;
(v) Cleaning and janitorial service, including the
supplying and installing of paper towels, toilet tissue and soap on
Monday through Friday of each week except legal holidays;
(vi) The washing of windows at reasonable intervals;
(vii) Replacement of all lamps, bulbs, starters and
ballasts as required from time to time as a result of normal usage;
(viii) Cleaning and maintenance of the common areas and
facilities of the Buildings and the walks, driveways, parking lot
and landscaped areas adjacent to the Buildings, including the
removal of rubbish and snow; and
(ix) Repair and maintenance of the Buildings and certain
systems within the Premises to the extent specified in Section 8
hereof.
Landlord hereby agrees to obtain and retain separate metering for
all electricity used in the Premises.
(b) Additional Services. If Tenant requests any other utilities
or building services in addition to those identified above or any of the
above utilities or building services in frequency, scope, quality or
quantities substantially greater than those which Landlord reasonably
determines are normally required by other tenants in the Buildings (or
other buildings substantially similar thereto) for general office use,
then Landlord shall use reasonable efforts to furnish Tenant with such
additional utilities or building services. In the event Landlord is able
to and does furnish such additional utilities or building services, the
cost thereof shall be borne by Tenant, who shall reimburse Landlord for
the same as provided in Section 5(d) hereof.
If any lights, machines or equipment (including but not limited to
computers) used by Tenant in the Premises materially affect the
temperature otherwise maintained by the Buildings' air-conditioning
system or generate substantially more heat in the Premises than that
which would normally be generated by the lights and business machines
typically used by other tenants in the Buildings or by tenants in
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substantially similar office buildings, then Landlord shall have the
right to install any machinery or equipment which Landlord considers
reasonably necessary in order to restore the temperature balance between
the Premises and the rest of the Buildings, including that which modifies
the Buildings' air-conditioning system. All costs expended by Landlord
to install any such machinery and equipment and any additional cost of
operation and maintenance occasioned thereby shall be borne by Tenant,
who shall reimburse Landlord for the same as provided in Section 5(d)
hereof.
Tenant shall not install or connect any electrical equipment other
than (i) that heretofore installed or connected, including but not
limited to a computer unit, special air-conditioning for the computer
unit, and a burglar alarm system, or replacements thereof, or (ii) the
business machines typically used for general office use by tenants in
office buildings comparable to the Buildings, without Landlord's prior
written consent, which consent shall not be unreasonably withheld. If
Landlord determines that electrical equipment to be so installed or
connected exceeds the designed load capacity of the Building's electrical
system or is in any way incompatible therewith, then Landlord shall have
the right, as a condition to granting its consent, to make such
modifications to the electrical system or other parts of the Buildings or
the Premises as are reasonably required, or to require Tenant to make
such modifications to the equipment to be installed or connected, as
Landlord reasonably considers to be necessary before such equipment may
be so installed or connected. The cost of any such modifications shall
be borne by Tenant, who shall reimburse Landlord for the same (or any
portion thereof paid by Landlord) as provided in Section 5(d) hereof.
Tenant shall have the right, after normal business hours, to take actions
which would prohibit the elevators from stopping at any floor on which
Tenant is the only tenant, provided that Tenant shall provide Landlord
with any cards or keys necessary to enable Landlord to have access to all
such floors at any time.
(c) Interruption of Services. Tenant understands, acknowledges
and agrees that any one or more of the utilities or other building
services identified above may be interrupted by reason of accident,
emergency or other causes beyond Landlord's control, or may be
discontinued or diminished temporarily by Landlord or other persons until
certain repairs, alterations or improvements can be made; that Landlord
does not represent or warrant the uninterrupted availability of such
utilities or building services; and that any such interruption shall not
be deemed an eviction or disturbance of Tenant's right to possession,
occupancy and use of the Premises or any part thereof, or, except in the
case of an interruption caused by the negligence or willful tort of
Landlord, its agents or employees, render Landlord liable to Tenant in
damages by abatement of rent or otherwise, or relieve Tenant from the
obligation to perform its covenants under this Lease. Landlord shall,
however, use its best efforts to restore any interrupted services as
promptly as possible.
(d) Payment of Utilities and Building Services. The cost of the
following utilities and other building services shall be borne by Tenant,
who shall be separately billed therefor and who shall reimburse and pay
Landlord monthly for the same as additional rent, at the same time the
monthly installment of base rent and other additional rent is due:
(i) Except to the extent paid by Tenant directly to the
utility providing same, all electricity used by Tenant for lighting
and operating business machines and equipment in the Premises. The
monthly amount to be billed for electricity so used by Tenant shall
be determined by Landlord on the basis of (A) the prevailing rates
for electrical usage charged in the municipality where the
Buildings are located, including any taxes levied thereon, and
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(B) the total number of kilowatt hours of electricity actually
consumed per month by Tenant in lighting and operating business
machines and equipment in the Premises;
(ii) All replacement lamps, bulbs, starters and ballasts
used in the Premises to the extent furnished by Landlord at
Tenant's request and the cost of their installation if done by
Landlord; and
(iii) All additional utilities or other building services
furnished by Landlord at the request of Tenant or as a result of
Tenant's activities as provided in Section 5(b) hereof.
The cost of all other utilities and building services identified in
Section 5(a) hereof shall be borne by Landlord.
6. Parking.
Landlord hereby gives to Tenant, its employees, agents, customers and
invitees, the privilege of parking in the parking lot adjacent to
the Buildings. The same privilege has been or will be given to other tenants
in the Buildings and to their employees, agents, customers and invitees, and it
does not entitle Tenant or the other tenants to any particular assigned spaces
in the parking lot. Landlord shall, however, reserve ten (10) parking spaces
in close proximity to the Buildings and shall mark such spaces with the words
"Visitor Parking".
7. Signs.
Tenant shall be permitted to have tenant identification information
included or shown on the directory board in the main lobby and on the tenant
access door to the Premises. Tenant shall be permitted to install an exterior
sign so long as such sign is approved by the appropriate public authority, is
in front of Building C (and/or such other Building(s) of which Tenant is the
sole occupant), is substantially similar to the signs in front of the
other Buildings and is approved by Landlord, which approval shall not be
unreasonably withheld or delayed. In addition, at such time as Tenant is the
sole occupant of the Buildings, Tenant shall have the right to rename the
Buildings to identify same with Tenant (e.g., "Telxon World Headquarters" or
"The Telxon Building," such examples being for purposes of illustration only
and not by way of limitation).
8. Repairs, Maintenance, Alterations, Improvements and Fixtures.
(a) Repair and Maintenance of Buildings. Landlord shall keep and
maintain in good order, condition and repair the roof, exterior and
interior structural walls (including any plate glass windows which are
a part thereof), foundation, basement, the common areas and facilities
of the Buildings and the electrical, plumbing, heating, ventilation and
air-conditioning systems serving the Premises and other parts of the
Buildings. The cost of all repairs required to be made by Landlord
shall be borne by Landlord unless made necessary by the negligence,
misuse or default of Tenant, its employees, agents, customers or
invitees, in which event they shall be borne by Tenant, who shall be
separately billed and shall reimburse Landlord for the same as
additional rent.
(b) Repair and Maintenance of the Premises. Except as provided
in Section 8(a) hereof, Tenant shall, at its own expense, keep and
maintain the Premises in good order, condition and repair.
(c) Alterations or Improvements. Tenant may make, or permit to
be made, alterations or improvements to the Premises, but in the case of
alterations or improvements requiring an expenditure in excess of Five
Thousand Dollars ($5,000.00) only if Tenant obtains the prior written
consent of Landlord thereto, which consent shall not be unreasonably
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withheld or delayed. Tenant shall make any and all such alterations and
improvements in accordance with all applicable laws and building codes,
in a good and workmanlike manner and in quality equal to or better than
the original construction of the Buildings and shall comply with such
requirements as Landlord reasonably considers necessary or desirable,
including without limitation requirements as to the manner in which and
the times at which such work shall be done. Tenant shall promptly pay
all costs attributable to such alterations and improvements and shall
indemnify Landlord against any mechanics' liens or other liens or claims
filed or asserted as a result thereof and against any costs or expenses
which may be incurred as a result of building code violations
attributable to such work. Tenant shall promptly repair any damage to
the Premises or the Buildings caused by any such alterations or
improvements. Any alterations or improvements to the Premises, except
movable office furniture and equipment and trade fixtures, shall become a
part of the realty and the property of Landlord, and shall not be removed
by Tenant without the consent of Landlord, which consent shall not be
unreasonably withheld or delayed.
Tenant's rights under this Section shall include without limitation
the right to construct or cause to be constructed additions to the
Buildings and/or expansion of the parking areas, provided that Tenant
complies with all the requirements of this Section and those of
applicable laws and ordinances, including but not limited to zoning
ordinances, and governmental rules and regulations promulgated
thereunder, and provided further that prior to any such construction or
expansion Landlord and Tenant shall have agreed in writing with respect
to responsibility for payment of the costs thus incurred and any
additional rent payable for such additions to the Premises. In the event
Landlord and Tenant shall be unable to agree in this connection within
ninety (90) days following Tenant's submission to Landlord of a written
proposal, including plans and specifications, for such additions and/or
expansion, then either Landlord or Tenant shall have the right to submit
the matter as to which Landlord and Tenant have been unable to agree to
the American Arbitration Association in Akron, Ohio for arbitration in
accordance with the commercial rules thereof then in effect, which
arbitration shall be conclusive and binding upon the parties for the
purposes of this Lease. In the event Landlord or an affiliate thereof is
known by Tenant to be engaged in the construction business, Tenant shall
afford Landlord or such affiliate an opportunity to bid for the contract
to construct any and all alterations, improvements, additions or
expansion contemplated under this Section, but Tenant shall nonetheless
retain unrestricted discretion in electing to accept or reject any bid
submitted by Landlord or its affiliate, whether or not such bid is the
most favorable submitted in strictly monetary terms.
Promptly on execution of this Lease, or at a mutually agreed time,
Landlord shall at its sole cost and expense, without any obligation on
Tenant's part under Section 3(b) hereof or otherwise, commence and, as
soon as practicable, complete a landscaping plan and remodeling and
redecorating of the main reception area of Tenant so as to enhance the
image of Tenant's main reception area and raise same to a level
commensurate with the status of the Premises as Tenant's world
headquarters.
(d) Trade Fixtures. Any trade fixtures installed on the Premises
by Tenant at its own expense, including but not limited to movable
partitions, counters, shelving, showcases, mirrors and the like, may and,
at the request of Landlord, shall be removed on the Expiration Date or
earlier termination of this Lease, provided that Tenant is not then in
default, that Tenant bears the cost of such removal, and further that
Tenant repairs at its own expense any and all damage to the Premises
resulting from such removal. If Tenant fails to remove any and all such
trade fixtures from the Premises on the Expiration Date or earlier
termination of this Lease, all such trade fixtures shall become the
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property of Landlord unless Landlord elects to require their removal, in
which case Tenant shall promptly remove same and restore the Premises to
their prior condition.
9. Fire or Other Casualty; Casualty Insurance
(a) Substantial Destruction of the Buildings. If the Buildings
should be substantially destroyed (which, as used herein, means
destruction or material damage to at least 50% of the Buildings) by fire
or other casualty or the Premises rendered wholly or substantially
untenantable for the purposes for which they were leased, Tenant may, at
its option, terminate this Lease by giving written notice thereof to the
other party within thirty (30) days of such casualty. In such event, the
rent shall be apportioned to and shall cease as of the date of such
casualty. In the event Tenant does not exercise this option, then the
Premises shall be reconstructed and restored at Landlord's expense.
(b) Partial Destruction of the Premises. If the Premises should
be rendered partially untenantable for the purpose for which they were
leased (which, as used herein, means such destruction or damage as would
prevent Tenant from carrying on its business on the Premises to an extent
exceeding 20% of its normal business activity) by fire or other casualty,
then such damaged part of the Premises shall be reconstructed and
restored, at Landlord's expense; rent shall be abated in the proportion
which the approximate area of the damaged part bears to the total area in
the Premises from the date of the casualty until substantial completion
of the reconstruction repairs; and this Lease shall continue in full
force and effect for the balance of the term. Landlord shall use
reasonable diligence in completing such reconstruction repairs, but in
the event Landlord fails to complete the same within one hundred eighty
(180) days from the date of the casualty, or if at such time it is
apparent that Landlord will not be able to reconstruct the Premises in
one hundred eighty (180) days, or if such casualty occurs during the last
twelve (12) months of the term of this Lease, then Tenant may, at its
option, terminate this Lease upon giving Landlord written notice to that
effect, whereupon both parties shall be released from all further
obligations and liability hereunder.
(c) Casualty Insurance. Landlord shall be responsible for
insuring and shall at all times during the term of this Lease carry, at
its own expense, a policy of insurance which insures the Buildings,
including the Premises, against loss or damage by fire or other casualty
(namely, the perils against which insurance is afforded by the standard
fire insurance policy and extended coverage endorsement); provided,
however, that Landlord shall not be responsible for, and shall not be
obligated to insure against, any loss or damage to personal property
(including, but not limited to, any furniture, machinery, equipment,
goods or supplies) of Tenant or which Tenant may have on the Premises or
any trade fixtures installed by or paid for by Tenant on the Premises or
any additional improvements which Tenant may construct on the Premises.
(d) Waiver of Subrogation. Landlord and Tenant hereby release
each other and each other's employees, agents, customers and invitees
from any and all liability for any loss, damage or injury to person or
property occurring in, on or about or to the Premises, improvements to
the Buildings or personal property within the Buildings, by reason of
fire or other casualty which could be insured against under a standard
fire and extended coverage insurance policy, regardless of cause,
including the negligence of Landlord or Tenant and their employees,
agents, customers and invitees. Because the provisions of this Section
will preclude the assignment of any claim mentioned herein by way of
subrogation or otherwise to an insurance company or any other person,
each party to this Lease shall give to each insurance company which has
issued to it one or more policies of fire and extended coverage insurance
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notice of the terms of the mutual releases contained in this Section, and
have such insurance policies properly endorsed, if necessary, to prevent
the invalidation of insurance coverages by reason of the mutual releases
contained in this Section.
10. General Public Liability, Indemnification and Insurance.
(a) Tenant shall be responsible for, shall have the obligation to
insure against and shall indemnify Landlord and hold it harmless from any
and all liability for any loss, damage or injury to person or property
occurring in, on or about the Premises, regardless of cause, including
the negligence of Landlord and its employees, agents, customers and
invitees, and Tenant hereby releases Landlord from any and all liability
for the same. Tenant's obligation to indemnify Landlord hereunder shall
include the duty to defend against any claims asserted by reason of such
loss, damage or injury and to pay any judgments, settlements, costs, fees
and expenses, including attorneys' fees, incurred in connection
therewith.
(b) Tenant, in order to enable it to meet its obligation to
insure against the liabilities specified in Section 10(a) hereof, shall
at all times during the term of this Lease carry, at its own expense, for
the protection of Tenant, Landlord and Landlord's management agent, if
any, as their interests may appear, one or more policies of general
public liability and property damage insurance, issued by one or more
insurance companies acceptable to Landlord, with minimum coverages of
$300,000 for injury to one person in any one accident, $500,000 for
injuries to more than one person in any one accident and $100,000 in
property damage per accident and insuring against any and all liability
for which Tenant is responsible hereunder. Such insurance policy or
policies shall name Landlord as an insured and shall provide that same
may not be cancelled on less than ten (10) days prior written notice to
Landlord. Tenant shall furnish Landlord with a copy of all certificates
evidencing such insurance. Should Tenant fail to carry such insurance
and furnish Landlord with a copy of all such policies after a request to
do so, Landlord shall have the right to obtain such insurance and collect
the cost thereof from Tenant as additional rent.
(c) Landlord shall be responsible for, shall have the obligation
to insure against, and shall indemnify Tenant and hold it harmless from
any and all liability for any loss, damage or injury to person or
property occurring in, on or about the common areas and facilities of the
Buildings and the walks, driveways, parking lot and landscaped areas
adjacent to the Buildings, regardless of cause, including the negligence
of Tenant and its employees, agents, customers and invitees; and Landlord
hereby releases Tenant from any and all liability for the same.
Landlord's obligation to indemnify Tenant hereunder shall include the
duty to defend against any claims asserted by reason of such loss, damage
or injury and to pay any judgments, settlements, costs, fees and
expenses, including attorneys' fees, incurred in connection therewith.
11. Eminent Domain.
If the whole or any part of the Premises shall be taken for public or
quasi-public use by a governmental authority under the power of eminent domain
or shall be conveyed to a governmental authority in lieu of such taking, and if
such taking or conveyance shall cause the remaining part of the Premises to be
untenantable or inadequate for use by Tenant for the purposes for which they
were leased, then Tenant may, at its option, terminate this Lease as of the
date Tenant is required to surrender possession of the Premises. If all or any
portion of the parking area shall be taken or conveyed and such taking or
conveyance substantially interferes with the contemplated use of the Premises
by Tenant, then Tenant shall have the right to terminate this Lease as of the
date of surrender of possession. Landlord shall have the right to provide
parking on adjoining parcels of land in substitution for any parking area so
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<PAGE> 12
taken or conveyed. All compensation awarded for such taking or conveyance
shall be the property of Landlord without any deduction therefrom for any
present or future estate of Tenant, and Tenant hereby assigns to Landlord all
its right, title and interest in and to any such award. However, Tenant shall
have the right to recover from Landlord such compensation as may be awarded to
Tenant on account of moving and relocation expenses and depreciation to and
removal of Tenant's trade fixtures and personal property.
12. Liens.
If, because of any act or omission of Tenant or anyone claiming by,
through or under Tenant, any mechanic's liens or other lien shall be filed
against the Premises or the Buildings or against other property of Landlord
(whether or not such lien is valid or enforceable as such), Tenant shall, at
its own expense, cause the same to be discharged of record by payment, bonding
or otherwise within a reasonable time, not to exceed thirty (30) days, after
the date of filing and notice thereof to Tenant, and shall also indemnify
Landlord and hold it harmless from any and all claims, losses, damages,
judgments, settlements, costs and expenses, including attorneys' fees,
resulting therefrom or by reason thereof.
13. Rental, Personal Property and Other Taxes.
(a) Tenant shall pay before delinquency any and all taxes,
assessments, fees or charges (hereinafter referred to as "taxes"),
including any sales, gross income, rental, business occupation or other
taxes, levied or imposed upon Tenant's business operations in the
Premises and any personal property or similar taxes levied or imposed
upon Tenant's trade fixtures, leasehold improvements or personal property
located within the Premises. In the event any such taxes are charged to
the account of, or are levied or imposed upon the property of, Landlord,
Tenant shall reimburse Landlord for the same as additional rent.
Notwithstanding the foregoing, Tenant shall have the right to contest in
good faith any such tax and to defer payment, if required, until after
Tenant's liability therefor is finally determined.
(b) If any tenant finish improvements, trade fixtures,
alterations or improvements or business machines and equipment located
in, on or about the Premises, regardless of whether they are installed or
paid for by Landlord or Tenant and whether or not they are affixed to and
become a part of the realty and the property of Landlord, are assessed
for real property tax purposes at a valuation higher than that at which
other such property in other leased space in the Buildings is assessed,
then Tenant shall reimburse Landlord as additional rent for the amount of
real property taxes shown on the appropriate county official's records as
having been levied upon the Building or other property of Landlord by
reason of such excess assessed valuation.
14. Assignment and Subletting.
(a) Except as expressly permitted pursuant to this section,
Tenant shall not, without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed, assign or
hypothecate this Lease or any interest herein or sublet the Premises or
any part thereof, or permit the use of the Premises by any party other
than Tenant. Any of the foregoing acts without such consent shall be
void and shall, at the option of Landlord, terminate this Lease. This
Lease shall not, nor shall any interest herein, be assignable as to the
interest of Tenant by operation of law without the written consent of
Landlord.
(b) Notwithstanding the provisions of Section (a) above, Tenant
may assign this Lease or sublet the Premises or any portion thereof,
without Landlord's consent and without extending any option to Landlord,
to any corporation which controls, is controlled by or is under common
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<PAGE> 13
control with Tenant, or to any corporation resulting from the merger or
consolidation with Tenant, or to any person or entity which acquires all
the assets of Tenant as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full,
the obligations of Tenant under this Lease.
(c) Regardless of Landlord's consent, no subletting or assignment
shall release Tenant of Tenant's obligation or alter the primary
liability of Tenant to pay the rental and to perform all other
obligations to be performed by Tenant hereunder. The acceptance of rent
by Landlord from any other person shall not be deemed to be a waiver by
Landlord of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting. In the event of default by an assignee of Tenant or any
successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of
exhausting remedies against such assignee or successor. Landlord may
consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees of Tenant,
without notifying Tenant, or any successor of Tenant, and without
obtaining its or their consent thereto and such action shall not relieve
Tenant of liability under this Lease.
15. Transfers by Landlord.
(a) Sales, Conveyance and Assignment. Nothing in this Lease
shall restrict the right of Landlord to sell, convey, assign or otherwise
deal with the Buildings, subject to the rights of Tenant under this
Lease.
(b) Effect of Sale, Conveyance or Assignment. A sale, conveyance
or assignment of the Buildings shall operate to release Landlord from
liability from and after the effective date thereof upon all of the
covenants, terms and conditions of this Lease, express or implied, except
as such may relate to the period prior to such effective date, and Tenant
shall thereafter look solely to Landlord's successor in interest in and
to this Lease. This Lease shall not be affected by any such sale,
conveyance or assignment, and Tenant shall attorn to Landlord's successor
in interest thereunder, provided such successor shall expressly assume
all of the obligations of Landlord under this Lease.
(c) Subordination. Landlord reserves the right to subject and
subordinate this Lease at all times to the lien of any first mortgage(s)
now or hereafter placed upon Landlord's interest in the leased premises
and on the land and buildings of which the leased premises are a part or
upon any buildings hereafter placed upon the land which the leased
premises are a part, and Tenant shall execute and deliver any and all
documents necessary to evidence such subordination. No default by
Landlord under any such first mortgage(s) shall affect Tenant's rights
hereunder so long as Tenant is not in default under this Lease. Tenant
shall, in the event any proceedings are brought for the foreclosure of,
or in the event of exercise of the power of sale under any mortgage made
by Landlord covering the leased premises, attorn to the purchaser upon
any such foreclosure or sale and recognize such purchaser as Landlord
under this Lease.
(d) It is a condition, however, of the sale, subordination and
lien provisions set forth in this Section, that Landlord shall procure
from any such successor, purchaser, mortgagee or trustee an agreement in
writing, which shall be delivered to Tenant, providing in substance that
so long as Tenant shall faithfully discharge the obligations on its part
to be kept and performed under the terms of this Lease, Tenant's tenancy
will not be disturbed nor this Lease affected by any default under such
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<PAGE> 14
mortgage or deed of trust, and the successor, purchaser, mortgagee or
trustee agrees that this Lease shall remain in full force and effect even
though default in the mortgage or deed of trust may occur.
(e) As a condition precedent to Tenant's obligations hereunder,
Landlord shall procure from any person, company, partnership, corporation
or entity which now has or may have at the commencement of this Lease a
mortgage lien encumbering the Demised Premises, an agreement in writing,
which shall be delivered to Tenant, providing in substance that so long
as Tenant shall faithfully discharge the obligations on its part to be
kept and performed under the terms of this Lease, its tenancy will not be
disturbed nor this Lease affected by any default under such mortgage, and
the agreement and acknowledgment of any such mortgagee that this Lease
shall remain in full force and effect even though default in the mortgage
may occur.
16. Defaults and Remedies.
(a) Default by Tenant. The occurrence of any one or more of the
following events shall be a default and breach of this Lease by Tenant:
(i) Tenant shall fail to pay (A) any monthly installment
of base rent or the Annual Rental Adjustment and such nonpayment
shall not have been cured within five (5) business days after the
date of Tenant's receipt of notice of such nonpayment, or (B) any
other additional rent and such nonpayment shall not have been cured
within thirty (30) days after the date of Tenant's receipt of
notice of such nonpayment;
(ii) Tenant shall fail to perform or observe any term,
condition, covenant or obligation required to be performed or
observed by it under this Lease for a period of thirty (30) days
after notice thereof from Landlord; provided, however, that if the
term, condition, covenant or obligation to be performed by Tenant
is of such nature that the same cannot reasonably be performed
within such thirty (30) day period, such default shall be deemed to
have been cured if Tenant commences such performance within said
thirty (30) day period and thereafter diligently undertakes to
complete the same;
(iii) A trustee or receiver shall be appointed to take
possession of substantially all of Tenant's assets in, on or about
the Premises or of Tenant's interest in this Lease (and Tenant does
not regain possession within sixty (60) days after such
appointment); Tenant makes an assignment for the benefit of
creditors; or substantially all of Tenant's assets in, on or about
the Premises or Tenant's interest in this Lease are attached or
levied upon under execution (and Tenant does not discharge the same
within sixty (60) days thereafter); and
(iv) A petition in bankruptcy, insolvency, or for
reorganization or arrangement is filed by or against Tenant
pursuant to any federal or state statute (and, with respect to any
such petition filed against it, Tenant fails to secure a stay or
discharge thereof within sixty (60) days after the filing of the
same).
(b) Remedies of landlord. Upon the occurrence of any event of
default set forth in Section 16(a) hereof, Landlord shall have the
following rights and remedies, in addition to those allowed by law, any
one or more of which may be exercised without further notice to or demand
upon Tenant:
(i) Landlord may re-enter the Premises and cure any
default of Tenant, in which event Tenant shall reimburse Landlord
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<PAGE> 15
as additional rent for any cost and expenses which Landlord may
incur to cure such default; and Landlord shall not be liable to
Tenant for any loss or damage which Tenant may sustain by reason of
Landlord's action, regardless of whether caused by Landlord's
negligence or otherwise;
(ii) Landlord may terminate this Lease as of the date of
such default, in which event: (A) neither Tenant nor any person
claiming under or through Tenant shall thereafter be entitled to
possession of the Premises, and Tenant shall immediately thereafter
surrender the Premises to Landlord; (B) Landlord may re-enter the
Premises and dispossess Tenant or any other occupants of the
Premises by force, summary proceedings, ejectment or otherwise, and
may remove their effects, without prejudice to any other remedy
which Landlord may have for possession or arrearages in rent; and
(C) upon the termination of this Lease Landlord shall use its best
efforts to re-let all or any part of the Premises for a term which
may be different from that which would otherwise have constituted
the balance of the term of this Lease and for rent and on terms and
conditions which may be different from those contained herein,
whereupon Tenant shall be obligated to pay to Landlord as
liquidated damages the difference between the rent provided for
herein and that actually received pursuant to any lease covering a
subsequent re-letting of the Premises, for the period which would
otherwise have constituted the balance of the term of this Lease,
together with all of Landlord's costs and expenses for preparing
the Premises for re-letting, including all repairs, tenant finish
improvements, brokers' and attorneys' fees, and all loss or damage
which Landlord may sustain by reason of such termination, re-entry
and re-letting, it being expressly understood and agreed that the
liabilities and remedies specified in this Section 16(b)(ii) shall
survive the termination of this Lease; and
(iii) Landlord may sue for injunctive relief or to recover
damages for any loss resulting from the breach.
Any agreement for an extension or renewal of the term of this Lease
or any additional period thereafter, shall not thereby prevent Landlord
from terminating this Lease during the term hereof for any reason
specified in this Lease. If any such right of termination is exercised
by Landlord during the term of this Lease or any extension or renewal
hereof, Tenant's right to any further extension or renewal of this Lease
shall thereby be automatically cancelled. Any such right of termination
of Landlord contained herein shall continue during the term of this Lease
and any subsequent extension or renewal hereof.
(c) Non-Waiver of Defaults. The failure or delay by either party
hereto to enforce or exercise at any time any of the rights or remedies
or other provisions of this Lease shall not be construed to be a waiver
thereof, nor affect the validity of any part of this Lease or the right
of either party thereafter to enforce each and every such right or remedy
or other provisions. No waiver of any default and breach of this Lease
shall be held to be a waiver of any other default and breach. The
receipt of rent by Landlord at a time after rent is due under this Lease
shall not be construed as a waiver of such default. The receipt by
Landlord of less than the full rent due shall not be construed to be
other than a payment on account of rent then due, nor shall any statement
on Tenant's check or any letter accompanying Tenant's check be deemed an
accord and satisfaction, and Landlord may accept such payment without
prejudice to Landlord's right to recover the balance of the rent due or
to pursue any other remedies provided in this Lease. No act or omission
by Landlord or its employees or agents during the term of this Lease
shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept such a surrender shall be valid unless in writing and
signed by Landlord.
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<PAGE> 16
17. Access to the Premises.
Landlord, its employees and agents and any mortgagee of the Buildings
shall have the right to enter any part of the Premises upon reasonable notice
to Tenant at all reasonable times for the purposes of examining or inspecting
the same, showing the same to prospective purchasers, mortgagees or tenants and
for making such repairs, alterations or improvements to the Premises or the
Buildings as Landlord may deem necessary or desirable. If representatives of
Tenant shall not be present to open and permit such entry into the Premises at
any time when such entry is necessary by reason of emergency, Landlord and its
employees and agents may enter the Premises by means of a master key or
otherwise. Such entry shall not constitute an eviction of Tenant or a
termination of this Lease, or entitle Tenant to any abatement of rent therefor.
18. Surrender of Premises.
Upon the expiration or earlier termination of this Lease, Tenant shall
surrender the Premises to Landlord, together with all alterations, improvements
and other property as provided elsewhere herein, in broom-clean condition and
in good order, condition and repair, except for ordinary wear and tear and
damage which Tenant is not obligated to repair, failing which Landlord may
restore the Premises to such condition at Tenant's expense. Upon such
expiration or termination, Tenant's trade fixtures, furniture and equipment,
including but not limited to computer equipment, shall remain Tenant's
property, and if Tenant shall not be in default under this Lease, Tenant shall
have the right to remove the same. Tenant shall promptly repair any damage
caused by any such removal, and shall restore the Premises to the condition
existing prior to the installation of the items so removed.
19. Holding Over.
In the event Tenant remains in possession of the Premises with the
consent of Landlord after the expiration or earlier termination of this Lease,
Tenant shall be deemed to hold the Premises as a tenant at will, subject to all
of the terms, conditions, covenants and provisions of this Lease (which shall
be applicable during the holdover period), except that Tenant shall pay to
Landlord such rent as Landlord shall then specify, which rent shall be payable
to Landlord on demand. Tenant shall vacate and surrender the Premises to
Landlord upon Tenant's receipt of notice from Landlord to vacate. No holding
over by Tenant, whether with or without the consent of Landlord, shall operate
to extend this Lease except as otherwise expressly provided herein.
20. Definition of Landlord, Landlord's Liability.
The term "Landlord" as used in this Lease so far as covenants or
obligations on the part of Landlord are concerned shall be limited to mean and
include only the owner or owners at the time in question of the fee of the
leased premises, and in the event of any transfer or transfers of the title to
such fee the Landlord herein named (and in case of any subsequent transfers or
conveyances the then grantor) shall be automatically freed and relieved from
and after the date of such transfer or conveyance of all personal liability as
respects the performance of any covenants or obligations on the part of
Landlord contained in this Lease thereafter to be performed, provided that any
funds in the hands of such Landlord or the then grantor at the time of such
transfer, in which Tenant has an interest, shall be turned over to the grantee
and any amount then due and payable to Tenant by Landlord of the then grantor
under any provision of this Lease shall be paid to Tenant, it being intended
hereby that the covenants and obligations contained in this Lease on the part
of Landlord shall, subject as aforesaid, be binding on Landlord, its successors
and assigns, only during and in respect of their respective successive periods
of ownership.
If Landlord shall fail to perform any covenant, term or condition of
this Lease upon Landlord's part to be performed, and if as a consequence of
such default Tenant shall recover a money judgment against Landlord, such
judgment
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<PAGE> 17
shall be satisfied only out of the proceeds of sale received upon execution of
such judgment and levied against the right, title and interest of Landlord in
the Buildings and out of rents or other income from such property receivable by
Landlord, or out of the consideration received by Landlord from the sale or
other disposition of all or any part of Landlord's right, title and interest in
the Buildings, and Landlord shall not be liable for any deficiency.
21. Quiet Enjoyment.
Landlord hereby covenants and agrees that if Tenant shall perform all
the covenants and agreements herein stipulated to be performed on Tenant's
part, Tenant shall at all times during the term of this Lease have the
peaceable and quiet enjoyment and possession of the Premises without any manner
of let or hindrance from Landlord or any persons lawfully claiming under or
through Landlord.
22. Default by Landlord.
It shall be a default and breach of this Lease by Landlord if it shall
fail to perform or observe any term, condition, covenant or obligation required
to be performed or observed by it under this Lease for a period of thirty (30)
days after notice thereof from Tenant; provided, however, that if the term,
condition, covenant or obligation to be performed by Landlord is of such nature
that the same cannot reasonably be performed within such thirty (30)
day period, such default shall be deemed to have been cured if Landlord
commences such performance within said thirty (30) day period and thereafter
diligently undertakes to complete the same.
23. Notice and Place of Payment.
(a) All rent and other payments required to be made by Tenant to
Landlord shall be delivered or mailed to Landlord at the address set
forth below or any other address Landlord may specify from time to time
by written notice given to Tenant:
3330 W. Market Properties
55 South Miller Road
Akron, Ohio 44313
Attention: Mr. Dan Marchetta
(b) All payments required to be made by Landlord to Tenant shall
be delivered or mailed to Tenant at the address set forth in
Section 23(c) hereof or at any other address within the United States as
Tenant may specify from time to time by written notice given to Landlord.
(c) Any notice required or permitted to be given under this Lease
shall be deemed to have been given if reduced in writing and delivered in
person or mailed by registered or certified mail, return receipt
requested, postage prepaid, to the party who is to receive such notice at
the address set forth below. When so mailed, the notice shall be deemed
to have been given as of the date it was mailed.
Landlord: 3330 W. Market Properties
55 South Miller Road
Akron, Ohio 44313
Attention: Mr. Dan Marchetta
With a
copy to: Patrick J. Wack, Esq.
41 Merz Boulevard
Akron, Ohio 44313
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<PAGE> 18
Tenant: Telxon Corporation
3330 West Market Street
Akron, Ohio 44313-3352
Attention: President
With a
copy to: Goodman Weiss Freedman
100 Erieview Plaza, 27th Floor
Cleveland, Ohio 44114
Attention: Howard J. Freedman, Esq.
24. Miscellaneous General Provisions.
(a) Any amounts of money to be paid by Tenant to Landlord
pursuant to the provisions of this Lease, whether or not such payments
are denominated "rent" or "additional rent" and whether or not they are
to be periodic or recurring, shall be deemed "rent" or "additional rent"
for purposes of this Lease; and any failure to pay any of the same as
provided in this Lease shall entitle Landlord to exercise all of the
rights and remedies afforded hereby or by law for the collection and
enforcement of Tenant's obligation to pay rent. Tenant's obligation to
pay any such rent or additional rent pursuant to the provisions of this
Lease shall survive the expiration or other termination of this Lease and
the surrender of possession of the Premises after any holdover period.
(b) Tenant shall, within ten (10) days following receipt of a
written request from Landlord, execute, acknowledge and deliver to
Landlord or to any lender, purchaser or prospective lender or purchaser
designated by Landlord a written statement certifying (i) that this Lease
is in full force and effect and unmodified (or, if modified, stating the
nature of such modification), (ii) the date to which rent has been paid,
and (iii) that there are not, to Tenant's knowledge, any uncured defaults
(or specifying such defaults if any are claimed). Any such statement may
be relied upon by any prospective purchaser or mortgagee for all or any
part of the Buildings. Tenant's failure to deliver such statement within
such period shall be conclusive upon Tenant that this Lease is in full
force and effect and unmodified, and that there are no uncured defaults
in Landlord's performance hereunder.
(c) If requested by either party, a Memorandum of Lease,
containing the information required by Ohio law concerning this Lease
shall be prepared, executed by both parties and filed for record in the
office of the Recorder of Summit County, Ohio.
(d) Landlord and Tenant hereby represent and warrant that no real
estate broker or finder was involved in this transaction. Each party
hereto shall indemnify and hold harmless the other party for any and all
liability (and related expense, including reasonable attorneys' fees)
incurred in connection with the negotiation or execution of this Lease
for any real estate broker's commission or finder's fee which has been
earned by a real estate broker or other person on such party's behalf.
(e) This Lease is being executed and delivered by Landlord in the
State of Ohio and shall be construed and enforced in accordance with the
laws of that state.
(f) This Lease, including all Exhibits, constitutes the entire
agreement between the parties hereto and may not be modified except by an
instrument in writing executed by the parties hereto.
(g) This Lease and the respective rights and obligations of the
parties hereto shall inure to the benefit of and be binding upon the
successors and assigns of the parties hereto as well as the parties
themselves; provided, however, that Landlord, its successors and assigns
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<PAGE> 19
shall be obligated to perform Landlord's covenants under this Lease only
during and in respect of their successive periods as Landlord during the
term of this Lease.
(h) If any provision of this Lease shall be held to be invalid,
void or unenforceable, the remaining provisions hereof shall not be
affected or impaired, and such remaining provisions shall remain in full
force and effect.
(i) Landlord shall not, by virtue of the execution of this Lease
or the leasing of the Premises to Tenant, become or be deemed a partner
of Tenant in the conduct of Tenant's business on the Premises or
otherwise.
(j) As used in this Lease, the word "person" shall mean and
include, where appropriate, an individual, corporation, partnership or
other entity; the plural shall be substituted for the singular, and the
singular for the plural, where appropriate; and words of any gender shall
include any other gender. The topical headings of the several Sections
of this Lease are inserted only as a matter of convenience and reference,
and do not affect, define, limit or describe the scope or intent of this
Lease.
25. Option to Purchase.
Provided Tenant is not then materially in default of any of its
obligations under this Lease, Tenant shall have the right and option to
purchase the Buildings and the parcels of land included in the Premises, in
their entirety, together with all improvements and personal property owned by
Landlord thereon (the "Property"), for such purchase price as may be agreed
between Landlord and Tenant or, failing such agreement, within thirty (30) days
following Tenant's exercise of its option to purchase, for a price equal to the
fair market value of the Property as determined by two qualified professional
M.I.A. real estate appraisers, one of whom shall be selected by Landlord and
the other of whom shall be selected by Tenant. The appraisers thus selected
shall submit their respective appraisals to Landlord and Tenant not later than
thirty (30) days following their selection and, provided that such appraisals
do not vary from the average thereof by a factor of ten percent (10%) or more,
the purchase price shall be equal to the average of such appraisals. In the
event such appraisals vary from the average thereof by ten percent (10%) or
more, the two appraisers thus selected shall jointly select a third
qualified professional M.I.A. real estate appraiser, who shall within thirty
(30) days following his selection render his appraisal, which shall not be
greater than the higher appraisal theretofore rendered pursuant to this Section
nor lower than the lower appraisal theretofore rendered pursuant to this
Section, and the purchase price for the Property shall be equal to the average
of the three appraisals. Tenant may exercise such option by written notice to
Landlord at either of the following times: (a) not later than September 1,
1993, in which event such purchase would be consummated on or before December
31, 1993, and Tenant would reimburse Landlord for any mortgage prepayment or
assumption fees incurred by Landlord as a result of such purchase; or (b)
September 1, 2001, in which event such purchase would be consummated on or
before December 31, 2001.
Such purchase would be consummated by deposit with Chicago Title
Insurance Company ("Chicago Title") or such other title company or financial
institution as Tenant may select as escrow agent (the "Escrow Agent") of a
recordable limited warranty deed (or deeds), which conveys fee simple
marketable title to the Property to Tenant or its nominee free and clear of any
and all liens and encumbrances whatsoever, except (a) those certain matters set
forth in Schedule B, Section 2, Items 3,4,5,6,7, and 10 of Commitment for Title
Insurance No. AK-220,630 (effective date: December 22, 1986) issued by Chicago
Title, a copy of the pertinent part of which is attached hereto and made a part
hereof as Exhibit B; (b) those certain matters set forth in Schedule B,
Section 2, Items 4,5, and 6 of Commitment for Title Insurance No. AK-220,643
(effective date: December 22, 1986) issued by Chicago Title, a copy of the
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<PAGE> 20
pertinent part of which is attached hereto and made a part hereof as Exhibit C;
and (c) zoning and building ordinances, if any, and general real estate taxes
not then due and payable; such items to be deposited with the Escrow Agent not
later than fifteen (15) days prior to consummation of such purchase (the
"Closing"). In addition, not later than fifteen (15) days prior to the
Closing, Landlord shall deposit with the Escrow Agent an assignment to Tenant
of all existing leases affecting the Property, a copy of Landlord's closing
affidavit given to the Escrow Agent with respect to payment of bills for work
performed and materials furnished to the Property within ninety (90) days of
Closing, a certificate of Landlord that it is not a foreign person within the
meaning of Section 1445 of the Internal Revenue Code, a bill of sale to Tenant
for the personal property included in the Property, and such other and further
documents and instruments as may be reasonably requested by Tenant, all in form
reasonably satisfactory to Tenant. Closing shall be accomplished by and upon
the following: (a) deposit in escrow of all documents and funds respectively
required of Landlord and Tenant; (b) payment of the purchase price; (c)
issuance by the Escrow Agent of an Owner's Title of Insurance Policy in the
amount of the purchase price, insuring fee simple title ownership of the
Property as of the Closing to Tenant or its nominee, free and clear of any
liens and encumbrances whatsoever except those matters stated above; and (d)
disbursement to Landlord of the net amount due it after giving effect to the
following cost allocations: Landlord shall pay the premium for title insurance
to the extent of the premium for a title guarantee in the same amount, and
Tenant shall pay the balance of such premium; real estate taxes shall be
apportioned as of the date of transfer of title according to the calendar year,
using the last available County Treasurer's tax duplicate for the purpose of
closing the escrow, with any current assessments, re-assessed assessments
and/or re-spread taxes upon the Premises to be paid out of Landlord's funds at
Closing; Tenant shall pay one-half (1/2) of the escrow fees and all recording
fees; Landlord shall pay real property conveyance fees and one-half (1/2) the
escrow fees; rents receivable, security deposits, utility and service contract
charges, and accounts payable and leasing commissions shall be equitably
adjusted as of the Closing by Landlord and Tenant.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first above written:
Witnesses as to Landlord: LANDLORD: 3330 W. MARKET PROPERTIES
/s/ Patrick J. Wack By: /s/ Dan Marchetta
/s/ Gerald J. Gabriel General Partner
Witnesses as to Tenant: TENANT: TELXON CORPORATION
/s/ Patrick J. Wack By: /s/ Eugene A. Novak
/s/ Gerald J. Gabriel Vice President
-20-
<PAGE> 21
STATE OF OHIO )
) SS
COUNTY OF SUMMIT )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above named , to me known to be
the person who executed the within and foregoing instrument, who acknowledged
that he is duly authorized to execute such instrument on behalf of 3330 W.
Market Properties, that he did execute said instrument on behalf of said
partnership and that the same is his free and voluntary act and deed as General
Partner of said partnership and is the free and voluntary act and deed of said
partnership for the uses and purposes therein set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Akron, Ohio, this 16th day of March, 1987.
/s/ Howard J. Freedman
Notary Public
STATE OF OHIO )
) SS
COUNTY OF SUMMIT )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above named Eugene A. Novak, known to me to be the Vice President
of Telxon Corporation, the corporation which executed the foregoing instrument,
who acknowledged that he did sign and seal the foregoing instrument for, and on
behalf of said corporation, being thereunto duly authorized by its Board of
Directors, that the same is his free act and deed as such officer and the free
act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Akron, Ohio, this 16th day of March, 1987.
/s/ Howard J. Freedman
Notary Public
-21-
<PAGE> 22
LEGAL DESCRIPTION
PARCEL I:
Situated in the City of Fairlawn, County of Summit and State of Ohio: and
known as being part of Lot 4, formerly Copley Township, and more fully
described as follows:
Beginning at the point of intersection of the East line of Fairlawn
Village Heights Estates, as recorded in Plat Book 62, Page 18 of the Summit
County Records of Plats, produced northerly and the original centerline of
West Market Street;
thence S. 58 deg. 23' 30" E. along the said original centerline, 378.00
feet to the true place of beginning;
thence continuing S. 58 deg. 23' 30" E. along said original centerline,
150.00 feet to a point;
thence S. 31 deg. 36' 10" W., 435.60 feet to an I.P.;
thence S. 58 deg. 23' 30" E., 115.67 feet to an I.P.;
thence S. 31 deg. 36' 30" W., 150.00 feet to an I.P.;
thence N. 58 deg. 23' 30" W. along the northerly line of land conveyed
to the First Universalist Church of Akron and recorded in Volume 3585, Page
548, Summit County Records, 282.45 feet to an I.P. on the southerly extension
of the Easterly line of said Fairlawn Village Heights Estates;
thence N. 00 deg. 09' 52" W. along the Easterly line of said Fairlawn
Village Heights Estates and the southerly extension thereof, 118.69 feet to
an I.P. at the southwesterly corner of land conveyed to William D. DeVere
and Mary Ann DeVere and recorded in Volume 4931, Page 9 of the Summit County
Records;
thence N. 89 deg. 50' 08" E. along the southerly line of said DeVere
parcel, 93.25 feet to an I.P. at the southeasterly corner of said DeVere
parcel;
thence N. 31 deg. 36' 10" E. along the easterly line of said DeVere
parcel, 435.60 feet to the true place of beginning, as surveyed by Charles
J. Messmore, Registered Surveyor, in December, 1978, but subject to all
legal roads and highways.
PARCEL II:
Situated--in the City of Fairlawn, County of Summit and State of Ohio, and
known as being part of Lot 4, formerly Copley Township, and being more fully
described as follows:
Beginning at the intersection of the original Centerline of West Market
Street and the Westerly line of Morewood Road, as dedicated in Plat Book 49,
Page 73 of the Summit County Record of Plats; Thence S. 31 deg. 36' 30" W.,
along said Westerly Street line, 435.60 feet to an I. P.; Thence N. 58 deg.
23' 30" W., 518.69 feet to an I. P. at the Southeasterly corner of land
conveyed to No. 547 Building Company by Deed dated June 8, 1972 and recorded
in Volume 4071, Page 644 of the Summit County Record of Deeds: Thence N. 31
deg. 36' 10" E., along the Easterly line of land so conveyed to No. 547
Building Company, 435.60 feet to a point on the original centerline of said
West Market Street (and passing through an I. P. set at 405.60 feet), said
point being S. 58 deg. 23' 30" E., 528.00 feet along said original centerline
from its intersection with the East line of Fairlawn Village Heights Estates,
as recorded in Plat Book 62, Page 18 of the Summit County Record of Plats;
Thence S. 58 deg. 23' 30" E., along said original street centerline, 518.72
feet to the place of beginning.
Exhibit A
Page 1 of 2
<PAGE> 23
Exhibit A
Page 1 of 2
<PAGE> 24
Situated in the City of Fairlawn, County of Summit and State of
Ohio and known as being part of Lot 4, formerly Copley Township, and
more fully described as follows:
(forward)
(SCHEDULE A continued)
Beginning at a point on the Westerly line of Morewood Road as
dedicated in Plat Book 49, Page 73, of the Summit County Record of
Plats, said point being S 31 deg. 36' 30" W along said line 435.60
feet from its intersection with the original centerline of West
Market Street:
Thence S 31 deg. 36' 30" W along said street line 150.00 feet
to an I.P.;
Thence N 58 deg. 23' 30" W, 403.02 feet to an I.P.;
Thence N 31 deg. 36' 30" E, 150.00 feet to an I.P.;
Thence S 58 deg. 23' 30" E, 403.02 feet to the place of beginning,
as surveyed by Messmore & Fay, Registered Surveyors, in March, 1978.
EXHIBIT 1
Page 2 of 2
<PAGE> 25
SCHEDULE B--continued
Number
AK-220,630 Page 1
SCHEDULE B - Section 2
Schedule B of the policy or policies to be issued will contain
exceptions to the following matters unless the same are disposed of to
the satisfaction of the Company.
1. Defects, liens, encumbrances, adverse claims or other matters, if any,
created first appearing in the public records or attaching subsequent to the
effective date hereof but prior to the date the proposed Insured acquires for
value of record the estate or interest or mortgage thereon covered by this
Commitment.
2. Any owner's policy issued pursuant hereto will contain under Schedule B
the standard exceptions set forth at the inside cover hereof. Any loan policy
will contain under Schedule B standard Exceptions 1, 2 and 3 unless a
satisfactory survey and inspection of the premises is made.
3. Restrictions and Reservations contained in the Warranty Deed from
Dorothy Braden Packard Smith to Blanche L. Hart, dated May 11, 1939, filed
for record May 16, 1939 at 9:40 A. M. and being recorded in Volume 1775,
Page 20 of Summit County Records, conveying a part of Parcel II of premises
described in Schedule C.
See Exhibit A attached hereto and made a part hereof.
Note: By the Dedication Plan of Moorewood Road filed for record July
1, 1957, at 1:05 P. M. and recorded in Plat Book 49, Page 73 of Summit County
Records, the Southeasterly 25 feet of the 35 feet reserved for street purposes
in the above deed was dedicated to the Public use for Highway purposes.
Note: Said restrictions contain no forfeiture clause and a violation
thereof would not work a forfeiture or reversion of title.
Note: This company insures against loss by reason of the present violation
of the restrictions.
RB:eb
EXHIBIT B
Page 1 of 2
<PAGE> 26
Number AK-220,630 Page 2
4. An Electric Distribution Easement from Blanche L. Hart and Clarence
W. Hart, to Ohio Edison Company, dated November 29, 1960, filed for record
December 19, 1960 at 10:21 A. M. and being recorded in Volume 3905, Page
221 of Summit County Records, for lines for the distribution of electric
current, including telephone and telegraph.
See Exhibit B attached hereto and made a part hereof.
5. An Underground Distribution Easement from Simon Joint Venture
IV to Ohio Edison Company, dated January 10, 1980, filed for record January
22, 1980 at 8:49 A. M. and being recorded in Volume 6333, Page 33 of
Summit County Records, for Distribution of electric current and the
operation of telephone and telegraph lines.
See Exhibit C attached hereto and made a part hereof.
6. Memorandum of Lease by and among Prudential Insurance Company
of America a New Jersey corporation and Simon & Company, an Ohio General
Partnership DBA Simon Joint Venture IV Landlord and Telxon Corporation
a Delaware Corporation, Tenant, dated June 4, 1981,1 filed for record
July 29, 1981 at 9:02 A. M. and recorded in Volume 6476, Page 170 of
Summit County Records.
Term 5 years commencing on the First Day of the calendar month succeed-
ing the date construction is substantially completed with an option of
1 renewal term of 5 years.
See Exhibit D attached hereto and made a part hereof.
7. Amendment to Memorandum of Lease by and among Prudential Insurance
Company of America, a New Jersey Corporation and Simon & Company an Ohio
General Partnership DBA Simon Joint Venture IV Landlord and Telxon Corporation
a Delaware Corporation, Tenant, dated May 15, 1982 filed for record May
20, 1982 at 9:40 A. M. and recorded in Volume 6554, Page 499 of Summit
County Records.
See Exhibit E attached hereto and made a part hereof.
8. Mortgage for $4,740,000.00 from Simon Joint Venture IV, an Ohio
Partnership to The Prudential Insurance Company of America, dated June
4, 1986, filed for record June 4, 1979 at 10:41 A. M. and being recorded
in Volume 6271, Page 587 of Summit County Records.
See Exhibit F attached hereto and made a part hereof.
9. Conditional Assignment of Rentals from Simon Joint Venture IV
an Ohio Partnership to The Prudential Insurance Company of America, dated
June 4, 1979, filed for record June 4, 1979 at 10:43 A. M. recorded in
Volume 6226, Page 59 of Summit County Records, in the amount of $4,740,000.00.
See Exhibit G attached hereto and made a part hereof.
10. Subject to two 0.5' curb encroachments from the most Southerly
side of Parcel I of caption premises upon the premises adjoining caption
and a 6.55' encroachment of a 2' in diameter catch basin from a storm
conduit on the Southwesterly side of Parcel II of caption premises upon
the premises adjoining caption as disclosed by Survey provided by C.
J. Messmore & Associates, Inc. by Registered Surveyor C. J. Messmore
#4512 Registered Surveyor.
EXHIBIT B
Page 2 of 2
<PAGE> 27
Number AK-220,643 Page 2
4. Restrictions and Reservations as contained in the Warranty Deed from
Dorothy B. Smith to Blanche L. Hart, dated February 27, 1945, filed for
record on April 10, 1945 at 10:27 A.M., and recorded in Volume 2162,
Page 445 of Summit County Records, conveying premises described in Schedule
C.
See Exhibit A attached hereto and made a part hereof.
NOTE: By the Dedication Plan of Morewood Road, filed for record on
July 1, 1957 at 1:05 P.M., and recorded in Plat Book 49, Page 73 of
Summit County Records, the Southeasterly 25 feet of the 35 feet reserved
for street purposes in the above deed was dedicated to the Public Use
for Highway Purposes.
5. Easement and Right of Way for distribution of electric current, in-
cluding telephone and telegraph, from Blanche L. Hart and Clarence W.
Hart to Ohio Edison Company, dated November 29, 1960, filed for record
on December 19, 1960 at 10:21 A.M., and recorded in Volume 3905, Page
271 of Summit County Records.
See Exhibit B attached hereto and made a part hereof.
EXHIBIT C
Page 1 of 2
<PAGE> 28
Number AK-220,643 (SCHEDULE B continued) Page 3
6. There are no Special Taxes or Assessments charged against premises
described in Schedule C, except an assessment for Sewer Maintenance
which is payable in semi-annual installments of $27.00 each for the
year through 1986.
No examination has been made for Special Taxes or Assessments
which have not been certified to the County Auditor.
7. Premises described in Schedule C, are listed for Taxation on the
1986 Duplicate, Fairlawn City, in the name of Simon Joint Venture
IV.
PM No. 09-00509
PPN CP-0005-02-002
Lot 4 W of Morewood Rd
Special Assessments for the first half 1986 amounting to $27.00
are a lien due and payable.
Taxes for the first half 1986, $1,369.55
920 Credit 347.58
Roll Back Credit 102.20
Adjusted Tax $ 919.77 are a lien due and
payable.
Taxes and Assessments for the last half 1986 are a lien not yet
due and payable.
Taxes and Assessments for the year 1987, amount not yet determined,
are a lien not yet due and payable.
Additions or abatements which may hereafter be made by legally
constituted authorities as provided for in Chapter 5713 of the Ohio
Revised Code.
EXHIBIT C
Page 2 of 2
<PAGE> 1
Exhibit 10.2.3.h
SUBLEASE AGREEMENT
for
WATERFORD
3875 EMBASSY PARKWAY
AKRON, OHIO 44333
By and Between
TELXON CORPORATION
Sublessor
and
AIRONET WIRELESS COMMUNICATIONS, INC.
Sublessee
Dated as of September 1, 1998
<PAGE> 2
BASIC SUBLEASE INFORMATION
SUBLESSOR: Telxon Corporation, a Delaware corporation.
SUBLESSOR'S 3330 West Market Street
ADDRESS: Akron, Ohio 44333
SUBLESSEE: Aironet Wireless Communications, Inc.
SUBLESSEE'S 3875 Embassy Parkway, Suite 350
ADDRESS: Akron, Ohio 44333
SUBLEASED 3875 Embassy Parkway
PREMISES: Akron, Ohio 44333
PERMITTED USES: General office use.
BASE RENT: $35,393.75 per month (annual rate of $12.50 per square
foot net of all operating costs).
RENTABLE
SQUARE FEET 33,978
LANDLORD: John D. Dellagnese III
LANDLORD'S 4000 Embassy Parkway, Suite 400
ADDRESS: Akron, Ohio 44333
COMMENCEMENT DATE: September 1, 1998
<PAGE> 3
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("the "Sublease") is entered into effective as
of the 1st day of September, 1998 by and between Telxon Corporation, a Delaware
corporation (the "Sublessor") and Aironet Wireless Communications, Inc., a
Delaware corporation (the "Sublessee").
THE PARTIES ENTER INTO THIS SUBLEASE on the basis of the following
facts, intentions and understandings:
A. Sublessor is a tenant in the building commonly known as the
Waterford Building, located in Akron, Ohio (the "Building") pursuant to that
certain lease between Sublessor as tenant and John D. Dellagnese III as landlord
(the "Landlord"), dated July 19, 1995, as amended, (the "Master Lease").
Sublessor represents and warrants that to the best of its knowledge, the Master
Lease is in full force and effect and that there are no current conditions that
presently constitute a default, by either party, under the terms of the Master
Lease. The Master Lease is attached hereto as Exhibit A.
B. On the terms and conditions set forth below, Sublessee desires to
sublet from Sublessor the premises Sublessor leases from Landlord.
NOW THEREFORE, IN CONSIDERATION of these premises and the mutual
covenants and promises of the parties set forth below, the parties agree as
follows:
<PAGE> 4
1. SUBLEASE. Sublessor subleases to Sublessee and Sublessee hires from
Sublessor the Subleased Premises, as defined in the Master Lease, (the
"Subleased Premises"). The Subleased Premises consisting of approximately Four
Thousand Thirty-eight (4,038) rentable square feet on the first floor and
Twenty-nine Thousand Nine Hundred Forty (29,940) rentable square feet on the
third floor are more particularly shown in Exhibit B attached hereto and
incorporated herein by reference.
2. TERM. The term of this Sublease shall be a twelve (12) month period
commencing on September 1, 1998. Upon delivery of written notice to do so, said
notice to be received no later than June 1, 1999, Sublessee shall have the right
to extend this Sublease for an additional eighteen (18) month period. In the
event Sublessee shall extend this Lease, it shall vacate the Subleased Premises
no later then February 28, 2001.
3. TERMINATION.
a. Upon Sublessor sending written notice to Sublessee to terminate
this Sublease for any default by Sublessee under the terms of the Sublease or
the Master Lease, prior to any such termination becoming effective, Sublessee
shall have ten (10) business days in which to cure any monetary default and
thirty (30) days in which to cure any non-monetary default. If Sublessee is
unable to cure any such default within the applicable cure period, Sublessee
shall vacate the Premises within thirty (30) days from effective date of such
termination.
b. Sublessee shall have the right to terminate this Sublease by
giving twelve (12) months written notice to Sublessor but such election to
terminate can only be exercised if during the term of this Sublease, Sublessor
sells its interest in the property located at 91
<PAGE> 5
Springside Drive, Akron, Ohio 44333 (the "Springside Property") and Sublessor
terminates the lease it currently has with Sublessee for said Springside
Property.
4. RENT.
A. BASE RENT. Sublessee agrees to pay to Sublessor for each month of
the Term the amount set forth in the Basic Sublease Information as Base Rent.
Sublessee's obligation to pay Base Rent shall begin on the Commencement Date.
Sublessee shall pay Base Rent to Sublessor in advance on or before the first day
of each calendar month during the Term. Sublessee shall pay all installments of
Rent (as defined below in Section 4.b.) at the offices of Sublessor at 3330 West
Market Street, Akron, Ohio 44333, Attention: Dennis Oleksuk, or at such other
place as may be designated in writing from time to time by Sublessor, in lawful
money of the United States and without prior notice, demand, deduction or offset
for any cause whatsoever.
b. ADDITIONAL CHARGES. As additional rent for the Subleased Premises
(the "Additional Charges"), Sublessee shall pay to Sublessor as and when due
under the Master Lease all amounts owed by Sublessor to Landlord pursuant to the
Master Lease. "Rent" when used in this Sublease shall mean Base Rent and
Additional Charges.
5. SUBLEASE SUBJECT TO MASTER LEASE. This Sublease shall be subject to
all of the terms and conditions of the Master Lease and Sublessee covenants to
perform all of the obligations of Sublessor as tenant under the Master Lease.
Sublessee shall not permit or cause to be permitted on the Subleased Premises or
the Building any act or omission which shall violate any term or condition of
the Master Lease. Sublessor and Landlord may alter the terms of the
<PAGE> 6
Master Lease without Sublessee's consent, provided that such changes do not
adversely affect Sublessee's rights and obligations under this Sublease.
6. DEFAULT BY SUBLESSOR. Sublessor has at all times, and, except as to
such obligations which Sublessee is obligated to abide, shall continue to,
comply with and perform all of its obligations under the Master Lease throughout
the term of the Sublease. In the event Sublessor defaults in keeping, observing
or performing any of the terms, provisions, covenants and conditions contained
in the Master Lease, and such default is not cured by Sublessor, Sublessee shall
have the right to remedy such default after it gives Sublessor written notice
thereof. If Sublessee shall incur any direct expenses in remedying such default,
Sublessee shall be entitled to off-set all such actual expenditures against the
next monthly installment or installments of Rent falling due hereunder.
Sublessor agrees to send to Sublessee a copy of any notice of default
immediately upon Sublessor's receipt of such.
7. QUIET ENJOYMENT. Sublessor agrees that if Sublessee pays the Rent
and keeps and performs all of the covenants contained in this Sublease and the
Master Lease, Sublessee will peaceably and quietly occupy the Premises during
the term hereof without any hindrance, ejection, or molestation by Sublessor or
any person lawfully claiming under Sublessor. However, Sublessee agrees that any
action allowed by this Sublease to be taken by Sublessor shall not be deemed a
breach of this Section 7.
8. INDEMNITY. Sublessor shall indemnify and hold Sublessee harmless
against any liability or loss arising out of injury to any persons or damage to
any property occurring on or
<PAGE> 7
about the Premises prior to the commencement date of this Sublease unless such
liability or loss is caused by acts of the Sublessee
9. INCORPORATION OF MASTER LEASE. All of the terms and conditions of
the Master Lease are incorporated herein as terms and conditions of this
Sublease, with references in the Master Lease to Landlord and Tenant to mean,
for purposes of this Sublease, Sublessor and Sublessee, respectively. Along with
the Sections set out in this Sublease Agreement, the incorporated portions of
the Master Lease shall be the complete terms and conditions of this Sublease.
Notwithstanding the incorporation of the Master Lease as described in this
Section 9, Sublessee acknowledges and agrees that all services and repairs
required in the Master Lease to be provided by Landlord will continue under this
Sublease to be provided by the Landlord under the Master Lease and not by
Sublessor. Sublessor agrees to cooperate with Sublessee as necessary to enforce
the rights of the Tenant under the Master Lease to receive the benefits of all
repair and service obligations of Landlord.
10. ENTIRE AGREEMENT. This Sublease represents the entire agreement
between the parties to this Sublease and supersedes all prior agreements between
the parties whether written or oral.
11. CONSENTS. With respect to any approvals called for under this
Sublease as the same incorporates the terms of the Master Lease, it shall be
deemed reasonable for Sublessor to withhold its consent if Landlord, for any
reason, has refused such consent when the same was requested of Landlord under
the Master Lease.
<PAGE> 8
12. CONDITION PRECEDENT. This Sublease is conditioned upon Landlord's
approval as required in the Master Lease.
13. BROKERAGE COMMISSION. Each party warrants and represents that it
has not engaged the services of or had contact with any real estate broker or
finder in connection with this transaction in a manner sufficient to provide any
real estate broker or finder with a basis for claiming the right to any
commission or other fee in connection with this Sublease. Each party shall
indemnify, defend with counsel of the indemnified party's choice, and hold the
other party harmless from and against all expense, loss, damage or claims
arising directly or indirectly from the indemnifying party's breach, or alleged
breach, of the foregoing representations and warranties.
14. CORPORATE AUTHORITY.
a. Sublessee and each person executing this Sublease on behalf of
Sublessee represents and warrants that (a) Sublessee is duly incorporated and
validly existing under the laws of its state of incorporation; (b) Sublessee is
qualified to do business in Ohio; (c) Sublessee has full corporate right and
authority to enter into this Sublease and to perform all of Sublessee's
obligations hereunder; and (d) each person signing this Sublease on behalf of
Sublessee is duly and validly authorized to do so.
b. Sublessor and each person executing this Sublease on behalf of
Sublessor represents and warrants that (a) Sublessor is duly incorporated and
validly existing under the laws of its state of incorporation; (b) Sublessor is
qualified to do business in Ohio; (c) Sublessor has
<PAGE> 9
full corporate right and authority to enter into this Sublease and to perform
all of Sublessor's obligations hereunder; and (d) each person signing this
Sublease on behalf of Sublessor is duly and validly authorized to do so.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease as
of the day first written above.
SUBLESSOR
WITNESSES TELXON CORPORATION
/s/ Lisa LeMasters By: /s/ Dennis K. Oleksuk
- -------------------------- -------------------------------------
Printed
Name: Lisa LeMasters Printed Name: Dennis K. Oleksuk
---------------------- ---------------------------
/s/ Monica Jamison Title: Sr. Director, Corporate Services
- -------------------------- ----------------------------------
Printed
Name: Monica Jamison
----------------------
SUBLESSEE
WITNESSES AIRONET WIRELESS COMMUNICATIONS, INC.
/s/ Candryth L. Mackey By: /s/ R.G. Holmes
- ------------------------- -------------------------------------
Printed
Name: Candryth L. Mackey Printed Name: R.G. Holmes
--------------------- ---------------------------
/s/ Diane Zielski Title: Sr. Vice President & CFO
- ------------------------- ----------------------------------
Printed
Name: Diane Zielski
---------------------
ACKNOWLEDGED AND AGREED:
LANDLORD
JOHN D. DELLAGNESE III
- ----------------------------
<PAGE> 1
Exhibit 10.2.3.i
[TELXON LETTERHEAD]
June 16, 1999
Richard G. Holmes
Senior Vice President & CFO
Aironet Wireless Communications, Inc.
3875 Embassy Parkway, Suite 350
Akron, Ohio 44333
Re: Aironet's renewal of real estate agreements for 3875
Embassy Parkway and 91 Springside Drive
Dear Dale:
This letter confirms receipt of your June 1, 1999 notice specifying that Aironet
Wireless Communications, Inc. ("Aironet") has elected to extend the sublease and
lease for the above respective properties for an additional eighteen-month
period. Aironet's leasehold interest in each space will now expire on February
28, 2001.
Pursuant to the Sublease Agreement, commencing September 1, 1999. the monthly
rental for the Springside facility will increase to $14,437.50 per month, net of
all operating expenses. The rental charges for 3875 Embassy Parkway will remain
$35,393.75 per month, in addition to all operating expenses and pass-through
expenses from Dellagnese.
Please let me know if you have any questions concerning this matter.
Sincerely,
/s/ Dennis K. Oleksuk
Dennis K. Oleksuk
Senior Director, Corporate Services
<PAGE> 1
EXHIBIT 10.3.1.h
----------------
DEED OF TRUST, ASSIGNMENT OF LEASES AND
RENTS, SECURITY AGREEMENT,
FIXTURE FILING AND FINANCING STATEMENT
From
TELXON CORPORATION
a Delaware Corporation
whose address is
3330 West Market Street
Akron, Ohio 44334
to
FIRST AMERICAN TITLE INSURANCE COMPANY,
a California Corporation
whose address is
1500 Dairy Ashford
Houston, Texas 77077,
as Trustee for the benefit of
THE BANK OF NEW YORK, a New York State Banking
Association, as Agent for the Lenders, the Issuer and the Swing Line Lender
whose address is:
One Wall Street
New York, New York 10286
Location of Premises:
6333 Rathway Street, Houston, Texas 77040-5040
14275 NW Freeway, Houston, Texas 77040-5051
Record and Return to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attention: Chester P. Lee, Esq.
<PAGE> 2
DEED OF TRUST, ASSIGNMENT OF LEASES AND
RENTS, SECURITY AGREEMENT,
FIXTURE FILING AND FINANCING STATEMENT
THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY
AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (this "DEED OF TRUST"), dated
as of March 26, 1999, is made by TELXON CORPORATION, a Delaware corporation,
having an address at 3330 West Market Street, Akron, Ohio, 44334 (the
"BORROWER") to FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation
(the "TRUSTEE"), for the benefit of THE BANK OF NEW YORK (the "BENEFICIARY"), as
Agent (the "AGENT") for the Lenders, the Issuer and The Swing Line Lender (each
as defined in the Credit Agreement as hereinafter defined) under the Credit
Agreement (as hereinafter defined).
RECITALS:
---------
A. The Borrower is justly indebted to the Beneficiary, as
Agent, pursuant to the terms and conditions of that certain Credit Agreement
dated as of March 8, 1996 by and among Borrower, the Lenders from time to time
party thereto, and the Bank of New York, as Issuer, Swing Line Lender and Agent,
as amended by Amendment No. 1, dated as of August 6, 1996, Amendment No. 2,
dated as of December 16, 1996, Amendment No. 3, dated as of December 12, 1997,
Waiver and Agreement, dated as of December 29, 1998, Waiver Extension and
Agreement dated as of February 12, 1999, and Second Waiver Extension and
Amendment No. 4, (the "SECOND WAIVER AGREEMENT") dated of even date herewith (as
the same may hereafter be amended, modified, supplemented or waived from time to
time the "CREDIT AGREEMENT");
B. As a condition of the Beneficiary executing and delivering
the Second Waiver Agreement, the Beneficiary has required that the Borrower
execute this Deed of Trust to secure the Obligations (as defined in the Credit
Agreement) of the Borrower under the Credit Agreement.
C. All of the property described under 1 through 4 below is
herein collectively called the "REAL PROPERTY COLLATERAL," which together with
all of the property described under 5 through 9 below (the "PERSONAL PROPERTY
COLLATERAL") is herein collectively called the "MORTGAGED PROPERTY."
(1) The lands and premises described in EXHIBIT A (and all
hereafter acquired estate, right, title and interest of the Borrower in
and to any and all other lands and premises), together with all and
singular the tenements, hereditaments, easements, rights of way and
appurtenances now or hereafter thereunto belonging or now or hereafter
in
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anywise appertaining and also all estate, right, title and interest of
the Borrower in and to the same and in and to the streets, ways,
sidewalks, alleys and areas now or hereafter adjacent thereto or now or
hereafter used in connection therewith (collectively, the "Land");
(2) All buildings and other improvements now or hereafter
erected on the Land (collectively, the "IMPROVEMENTS");
(3) Any and all reversions and remainders of the Land and/or
the Improvements and all estate, right, title and interest now owned or
hereafter acquired by the Borrower in and to any and all present and
future leases, subleases, occupancy agreements and similar arrangements
(and all renewals, modifications, and extensions thereof) in connection
with the Land, the Improvements and/or the Personal Property
(collectively, the "SPACE LEASES") and all rents, revenues, issues,
income and profits payable thereunder or otherwise in connection with
the Land, the Improvements and/or the Personal Property;
(4) All mineral, water, oil and gas rights and privileges and
royalties pertaining to the Land.
(5) All estate, right, title and interest now owned or
hereafter acquired by the Borrower in and to all fixtures, fittings,
appliances, apparatus, equipment, goods, machinery, furnishings,
furniture and other personal property (whether tangible or intangible)
and any and all replacements thereof and additions thereto, now or
hereafter affixed or attached to, placed upon or used or usable in
connection with the Land and/or the Improvements (collectively, the
"PERSONAL PROPERTY");
(6) All estate, right, title and interest now owned or
hereafter acquired by the Borrower in and to all proceeds of the
insurance required to be maintained under PARAGRAPH 7 and all awards
heretofore or hereafter made with respect to the Land, the Improvements
and/or the Personal Property as the result of the exercise of the power
of eminent domain, including, without limitation, any awards for
changes of the grades of streets and/or as the result of any other
damage to the Land, the Improvements and/or the Personal Property for
which compensation shall be given by any governmental authority (a
"TAKING"), all of which are hereby assigned to the Beneficiary who is
hereby authorized to collect and receive the proceeds thereof and to
give proper receipts and acquittances therefor, and to apply the same
in accordance with this Deed of Trust;
(7) Any and all air rights, development rights, zoning rights
and other similar rights or interests which benefit or are appurtenant
to the Land and/or the Improvements and any and all proceeds arising
therefrom;
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<PAGE> 4
(8) All estate, right, title and interest now owned or
hereafter acquired by the Borrower in and to any and all present and
future licenses, authorizations, consents, approvals, permits, grants
and franchises (including without limitation those set forth in EXHIBIT
B attached hereto) which are necessary or desirable in connection with
the use, occupancy, construction, maintenance, repair, replacement,
restoration, operation, management or ownership of the Land, the
Improvements and/or the Personal Property (collectively, the
"PERMITS"); and
(9) All estate, right, title and interest now owned or
hereafter acquired by the Borrower in and to any and all present and
future agreements, contracts, documents, guaranties, warranties,
instruments, certificates and indentures (including, without
limitation, those agreements, if any, set forth in EXHIBIT C attached
hereto) in connection with the use, occupancy, maintenance, repair,
replacement, restoration, operation, management or ownership of the
Land, the Improvements and/or the Personal Property (collectively, the
"OPERATING AGREEMENTS").
GRANTING CLAUSE
---------------
NOW, THEREFORE, in consideration of $10.00 and other good and
valuable consideration, the receipt whereof is hereby acknowledged, and in order
to secure the following (collectively, the "OBLIGATIONS"): (a) the payment of
all moneys payable pursuant to or in connection with the Credit Agreement, (b)
the payment of all other moneys required to be paid by any of the other Loan
Documents (as defined in the Credit Agreement) including without limitation the
payment of all moneys due under certain Notes (as defined in the Credit
Agreement) in the current aggregate principal sum of up to SIXTY MILLION DOLLARS
($60,000,000.00) bearing interest as therein stipulated and having a maturity
date of March 8, 2001, and (c) the performance and observance of the covenants
and agreements contained in the Credit Agreement and any of the other Loan
Documents, the Borrower does hereby irrevocably:
A. Grant, bargain, sell, assign, transfer and convey the Real
Property Collateral, whether now owned or hereafter acquired, to the Trustee, IN
TRUST, WITH POWER OF SALE AND RIGHT OF ENTRY AND POSSESSION, pursuant to this
Deed of Trust and applicable law, for the benefit of the Beneficiary, subject to
the rights of the Beneficiary under the assignment made in PARAGRAPH B below;
TO HAVE AND TO HOLD the Real Property Collateral to the
Trustee and the Trustee's successors and assigns forever, subject to all of the
terms, conditions, covenants and agreements herein set forth, for the security
and benefit of Beneficiary and its successors and assigns.
B. Assign and transfer to the Beneficiary all of the Rents (as
hereinafter defined); and
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<PAGE> 5
C. Pledge, assign, transfer and grant to the Beneficiary, a
lien on and a security interest in, all of the Borrower's right, title and
interest, whether now owned or hereafter acquired, in, to and under the Personal
Property Collateral.
TO HAVE AND TO HOLD unto the Beneficiary forever.
PROVIDED ALWAYS, that if the Borrower shall pay in full the
Obligations according to the terms of this Deed of Trust, the Credit Agreement
and the other Loan Documents and abide by and comply with each and every
covenant and agreement set forth in this Deed of Trust, this Credit Agreement
and the other Loan Documents, then this Deed of Trust and the estate hereby
granted shall cease, terminate and become void.
AND the Borrower hereby covenants with the Beneficiary as
follows:
1. PAYMENT OF THE OBLIGATIONS. The Borrower shall (a) pay the
Obligations according to the terms of this Deed of Trust, the Credit Agreement
and the other Loan Documents and (b) abide by and comply with each and every
covenant and agreement set forth in this Deed of Trust, the Credit Agreement and
the other Loan Documents. The Borrower acknowledges that as of the date hereof
it has no offsets, defenses or counterclaims with respect to the Obligations.
2. TITLE. The Borrower shall forever warrant, maintain,
preserve and defend the title to the Mortgaged Property, the lien of and
security interest created by this Deed of Trust and the Beneficiary's first lien
on and first security interest in the Mortgaged Property against the claims and
demands of all Persons whomsoever.
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants as follows:
(a) the Borrower is lawfully seized and possessed of
good and marketable title to an indefeasible fee simple estate
in and to the Real Property Collateral, subject to no
mortgage, lien, charge, encumbrance, lease, sublease, other
matters of title or adverse item, except the Permitted
Encumbrances (as hereinafter defined); no improvements on
adjoining property encroach upon the Land and none of the
Improvements encroach upon adjoining property or easement
areas; and to the best of Borrower's knowledge there are no
existing violations of any easements, covenants or
restrictions encumbering the Real Property Collateral (or
events which with notice or the passage of time, or both,
would constitute a violation);
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<PAGE> 6
(b) the Borrower has good title to the Mortgaged
Property (other than the Real Property Collateral), subject to
no lien, charge, encumbrance or other matter other than the
Permitted Encumbrances;
(c) upon the execution of this Deed of Trust, the
Beneficiary will have a valid and enforceable first mortgage
lien on and/or a valid enforceable first security interest in
all of the Borrower's rights, property and interests included
in the Mortgaged Property;
(d) the Mortgaged Property and the use, occupancy,
maintenance, repair, replacement, restoration, operation,
management and ownership thereof comply with all Legal
Requirements (as hereinafter defined) including without
limitation all zoning, building code, land use and similar
land regulation requirements and a validly issued permanent
certificate of occupancy for the existing Improvements dated *
and bearing certificate number * has been issued and is in
effect (a true and complete copy of which Borrower has or
shall cause to be delivered to the Beneficiary);
(e) there has been no use, discharge, distribution,
generation, manufacture, refinement, transportation,
treatment, storage, handling, disposition, transfer,
production, processing, presence, release or threatened
release of any Hazardous Substance (as hereinafter defined)
on, over, under, from, at, in and/or about the Mortgaged
Property and the Borrower has not received any notice of a
violation of any Environmental Law (as hereinafter defined),
except as set forth in any Phase I enviornmental report
prepared on behalf of the Agent;
(f) there has been no use, occupancy, maintenance,
repair, replacement, restoration, operation, management or
ownership of the Mortgaged Property (or any portion thereof)
in violation of any Environmental Law;
(g) there is no (i) pending condemnation, labor
dispute or administrative agency investigation or litigation
concerning the Improvements and (ii) no material casualty,
structural defect or other adverse physical condition which
materially and adversely would affect the Improvements and the
business conducted in connection therewith and to the best of
Borrower's knowledge, no such condemnation, labor dispute or
administrative agency investigation or litigation, casualty,
structural defect or other adverse physical condition is
threatened or threatening;
(h) the Permits set forth in Exhibit B constitute the
only Permits necessary for the use, occupancy, maintenance,
repair, replacement, restoration, operation, management and
ownership of the Mortgaged Property; the Permits have been
validly issued and are in full force and effect; there are no
actions,
* 5-26-94 #93065019 6333 Rothway
* 11-5-93 #93048297 14275 Northwest Freeway
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litigations, proceedings, claims or investigations pending,
contemplated or threatened with respect to any of the Permits;
(i) the Operating Agreements, if any, set forth in
EXHIBIT C constitute the only Operating Agreements (i)
affecting the Mortgaged Property and (ii) necessary for the
use, occupancy, maintenance, repair, replacement, restoration,
operation, management and ownership of the Mortgaged Property;
no event of default or event which with notice or the passage
of time or both would constitute such an event of default is
existing under any of the Permits or Operating Agreements;
(j) all roads and utilities (including, without
limitation, roadways, driveways, walkways, sidewalks, water,
oil, gas, telephone, sewer and electricity) which are
necessary or desirable for the use, occupancy, maintenance,
repair, replacement, restoration, operation, management and
ownership of the Mortgaged Property (and all portions thereof)
(i) have been connected and completed, (ii) are available for
use and (iii) enter the Land directly through adjoining public
streets and do not pass through private land;
(k) neither the Mortgaged Property nor any portion
thereof has been (i) taken by or transferred in lieu of
condemnation, eminent domain or similar proceedings and there
are no pending or threatened condemnation, eminent domain or
similar proceedings with respect to the Mortgaged Property or
(ii) damaged or destroyed by any casualty or other event;
(l) except for the Space Leases set forth in EXHIBIT
D, the Mortgaged Property is vacant of tenants and free of
Space Leases;
(m) the Borrower has not requested, applied for or
given its consent to, and has no knowledge of, any pending
zoning change or variance with respect to the Mortgaged
Property or any property adjoining the Land;
(n) the Land and the Improvements are assessed as a
separate tax lot and no part of the Land or the Improvements
is a part of any other tax lot;
(o) the Borrower does not owe any monies to any
contractor, supplier or materialman for labor or materials
performed, rendered or supplied in connection with the
Mortgaged Property for which such Person could claim a lien
against the Mortgaged Property;
(p) there are no incinerators, septic tanks,
underground storage tanks, PCB-containing equipment,
asbestos-containing material, formaldehyde insulators or
cesspools on, under, at, in and/or about the Mortgaged
Property, and all waste
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<PAGE> 8
is discharged from the Mortgaged Property into a public
sanitary sewer system in accordance with all Legal
Requirements;
(q) the Mortgaged Property is an independent unit
which does not rely on any drainage, sewer, access or other
facilities located on any property not included in the
Mortgaged Property: (i) to fulfill any Legal Requirement, (ii)
for structural support, (iii) to furnish to the Mortgaged
Property any building systems or utilities or (iv) to fulfill
the requirements of any agreement affecting the Mortgaged
Property;
(r) no building or other improvement not included in
the Mortgaged Property relies on any part of the Mortgaged
Property: (i) to fulfill any Legal Requirement, (ii) for
structural support or (iii) for the furnishing to such
building or improvement of any building systems or utilities;
4. CERTAIN DEFINITIONS. The following terms shall have the
meanings herein specified: "PERMITTED ENCUMBRANCES" means this Deed of Trust and
those matters listed in EXHIBIT E attached hereto. "PERSON" means any
individual, corporation, limited liability company, partnership, joint venture,
association, joint-stock company, company, trust, unincorporated organization,
entity or government (or any authority, agency or political subdivision
thereof). Capitalized terms used herein and not defined herein shall have the
meanings given to such terms in the Credit Agreement both before and after the
termination of the Credit Agreement. Terms defined herein shall apply equally in
the singular and plural forms.
5. FURTHER ASSURANCES; PAYMENTS. (a) The Borrower shall
execute, acknowledge and deliver, from time to time within 10 days after demand
therefor, such further instruments as the Beneficiary may require to accomplish
the purposes of this Deed of Trust, the Credit Agreement or any other Loan
Document(or any portion thereof) (collectively, the "FURTHER INSTRUMENTS"). If
the Borrower shall fail to execute, acknowledge or deliver any Further
Instrument, the Beneficiary shall be and is hereby irrevocably appointed the
agent and attorney-in-fact of the Borrower (which power is coupled with an
interest) to execute, acknowledge and deliver such Further Instrument.
(b) The Borrower immediately upon the execution,
acknowledgment and delivery of this Deed of Trust, and thereafter from time to
time within 10 days after demand therefor, shall cause this Deed of Trust and
each Further Instrument to be filed, registered and/or recorded, and refiled,
reregistered and/or rerecorded in such manner and in such places as may be
required by any present or future Legal Requirement in order to (i) publish
notice of and/or (ii) perfect the lien and estate of this Deed of Trust in and
to the Mortgaged Property. The Borrower shall pay to the Beneficiary all costs
and expenses (including, without limitation, filing, registration and recording
taxes, fees, charges, duties, stamps and imposts) related to such filing,
registration and/or recording.
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(c) The Borrower shall pay: (i) all filing, registration and
recording taxes, fees and charges, all refiling, reregistration and rerecording
taxes, fees and charges and all other costs and expenses in connection with: (1)
the execution, delivery, acknowledgment and/or recordation of this Deed of
Trust, any of the other Loan Documents and each Further Instrument and/or (2)
the transactions contemplated hereby (including, without limitation, title
insurance premiums, title examination charges and legal, consulting,
engineering, appraisal, survey and inspection fees, expenses and disbursements)
and (ii) all federal, state, county and municipal stamps, taxes, duties,
imposts, assessments and charges in connection with the execution, delivery,
acknowledgment and/or recordation of this Deed of Trust, any of the other Loan
Documents and each Further Instrument.
6. CREATION OF OTHER LIENS. The Borrower shall not create or
suffer to be created any pledges, mortgages, liens, charges, encumbrances,
condominium documentation or other matters of title upon the Mortgaged Property
prior to, on a parity with or subordinate to the lien of this Deed of Trust,
provided, that the Borrower may enter into a deed of trust with Bank One (as
defined in the Credit Agreement) in form satisfactory to the Agent, which shall
be subordinate in all respects to the security interest and lien granted to the
Agent hereunder and shall be subject to the terms and conditions of the
Intercreditor Agreement (as defined in the Credit Agreement).
7. INSURANCE. (a) The Borrower shall cause the Improvements
and the Personal Property to be kept insured for the benefit of the Beneficiary
(i) against loss or damage under an "all risk" type of casualty insurance policy
(including, without limitation, loss or damage by fire, lightning, windstorm,
hail, explosion, aircraft, vehicles, vandalism and malicious mischief and
smoke), (ii) (if the Land or any portion thereof is located in an area
identified by the Secretary of Housing and Urban Development as an area having
special flood hazards and in which flood insurance has been made available under
the National Flood Insurance Act of 1968 or otherwise) against flood risks,
(iii) (as, when and to the extent required by the Beneficiary and within 10 days
after request therefor by the Beneficiary ) against any other risk insured
against from time to time under good insurance practices by Persons operating
and/or owning like properties in the locality of the Land, and (iv) against such
other risks as may be included in the broad form of extended coverage insurance
from time to time available. All such insurance shall be in an amount
satisfactory to the Beneficiary, and in any event not less than 100% of Full
Replacement Cost (as hereinafter defined). "FULL REPLACEMENT COST" means the
actual replacement cost of the Improvements and the Personal Property (excluding
foundations, footings and excavation costs) without deduction for physical
depreciation. Full Replacement Cost shall be determined at the request of the
Beneficiary (but not more frequently than once in any twelve month period). Such
determination shall be made by an architect, appraiser, appraisal company or one
of the insurers selected by the Beneficiary and the cost thereof shall be
promptly paid by the Borrower. Each insurance policy in effect pursuant to this
PARAGRAPH 7(a) shall contain a "replacement cost endorsement", and losses
thereunder shall be payable to the Beneficiary pursuant to a standard mortgagee
endorsement, without contribution, substantially equivalent to the standard
mortgagee endorsement (a "MORTGAGEE ENDORSEMENT") in the state
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<PAGE> 10
where the Land is located. The Borrower shall promptly notify the Beneficiary of
any loss in connection with the Improvements and/or the Personal Property. The
Beneficiary shall have the right to join the Borrower in adjusting any loss
covered by any insurance policy in effect pursuant to this PARAGRAPH 7(a) if
such loss is in excess of $10,000. The Borrower shall not take out separate
insurance (and shall not permit the same to be taken out) in connection with the
Improvements and/or the Personal Property concurrent in form or contributing in
the event of loss with that required by this Deed of Trust unless losses
thereunder shall be payable to the Mortgagee pursuant to a Mortgagee
Endorsement.
(b) The Borrower shall maintain insurance against claims for
bodily injury and property damage occurring on, in and/or about the Land, the
Improvements and the adjoining streets under a policy of commercial general
liability insurance, with such limits as may be reasonably required by the
Beneficiary from time to time, and in any event not less than $3,000,000 per
occurrence for bodily injury and property damage combined. Each insurance policy
in effect pursuant to this PARAGRAPH 7(b) shall name the Beneficiary (and other
Persons designated by the Beneficiary) as an additional insured.
(c) If there exist any boilers at the Land and/or at the
Improvements, the Borrower shall maintain boiler insurance, with such limits as
may be required by the Beneficiary from time to time. Each insurance policy in
effect pursuant to this PARAGRAPH 7(c) shall contain a "replacement cost
endorsement", and losses thereunder shall be payable to the Beneficiary. The
Beneficiary shall have the right to join the Borrower in adjusting any loss
covered by such insurance policy if such loss in excess of $7,500.
(d) The Borrower shall maintain workmen's compensation
insurance, with such limits as may be required by the Legal Requirements from
time to time.
(e) Upon the execution and delivery of this Deed of Trust and
thereafter not less than 30 days prior to the expiration date of each insurance
policy then in effect pursuant to PARAGRAPH 7 (a), (b), (c) or (d), the Borrower
shall deliver to the Beneficiary an original of such insurance policy (or a
certificate thereof, such certificate shall be in form and substance acceptable
to the Beneficiary and shall be duly executed by the insurance company issuing
the relevant insurance policy) or a renewal insurance policy (or a certificate
thereof, such certificate shall be in form and substance acceptable to the
Beneficiary and shall be duly executed by the insurance company issuing the
relevant insurance policy), as the case may be, bearing a notation evidencing
payment of the premium therefor and accompanied by other proof of payment
satisfactory to the Beneficiary. Each such insurance policy shall (i) be written
by a company or companies having an A.M. Best rating of A or better in a
financial category of VII or better and be otherwise satisfactory to the
Beneficiary in form and substance and (ii) not be terminated, cancelled,
surrendered, modified, amended or supplemented without at least 30 days' prior
written notice thereof to the Beneficiary.
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<PAGE> 11
(f) The Beneficiary shall retain and apply any net insurance
proceeds received by it for loss or damage under any insurance policy in effect
pursuant to PARAGRAPH 7(a) or 7(c) at the option of the Beneficiary, to the
prepayment of the Obligations (notwithstanding the fact that the same may not
then be due and payable) or to the reimbursement of the Borrower for the costs
paid by the Borrower in connection with the repair, replacement or restoration
of the Improvements and the Personal Property, except that net insurance
proceeds of less than $25,000 shall be applied by the Beneficiary to repair,
replacement and/or restoration. The Borrower hereby (i) grants, bargains, sells,
conveys, warrants, assigns, transfers, pledges, sets over and confirms unto the
Beneficiary and (ii) grants the Beneficiary a security interest in, such net
insurance proceeds. Such net insurance proceeds shall be (1) collateral security
for the Obligations and (2) subject to disbursement solely by the Beneficiary
pursuant to this Deed of Trust.
(g) If, pursuant to PARAGRAPH 7(f), the Beneficiary shall
elect to apply any net insurance proceeds received by it to the reimbursement of
the Borrower for the costs paid by the Borrower in connection with the repair,
replacement and restoration of the Improvements and the Personal Property, such
net insurance proceeds shall be retained by the Beneficiary and shall be
disbursed by the Beneficiary from time to time as such repair, replacement and
restoration progresses. Each such disbursement shall be made upon request by the
Borrower and upon compliance by the Borrower with any conditions the Beneficiary
shall reasonably require.
8. IMPOSITIONS. The Borrower shall (i) pay, before any fine,
penalty, interest or cost for non-payment attaches thereto, all taxes,
assessments, water and sewer rates and all other governmental charges and/or
levies now or hereafter assessed and/or levied against the Mortgaged Property
(or any portion thereof) or upon the lien or estate of this Deed of Trust
therein (collectively, the "IMPOSITIONS"), as well as all claims for labor,
materials and/or, supplies which, if unpaid, might by law become a lien thereon
and (ii) within 10 days after request therefor by the Beneficiary, exhibit
evidence reasonably satisfactory to the Beneficiary showing payment of the
Impositions. The Borrower shall not be entitled to any credit against interest
or any other amount payable in connection with this Deed of Trust by virtue of
the payment by the Borrower of the Impositions.
9. CONDITION OF THE MORTGAGED PROPERTY. The Borrower shall (a)
not permit the Mortgaged Property (or any portion thereof) to be removed,
demolished or altered, (b) maintain the Mortgaged Property in good repair,
working order and condition, (c), notwithstanding anything to the contrary
contained herein, repair, replace and restore the Improvements and the Personal
Property now or hereafter damaged or destroyed by any casualty or other event
(whether or not insured against and insurable) or affected by any Taking so
that, when repaired, replaced and restored, the same shall be (i) at least equal
in quality, usefulness and value as the Improvements and the Personal Property
which existed immediately prior to such casualty, event or Taking, as the case
may be and (ii) of the same type and character as the type and character of the
Improvements and the Personal Property existing on the date of this Deed of
Trust and (d) perform any and all construction, equipping, alteration, repair,
replacement
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and/or restoration in a good and workmanlike manner, free and clear of all
mortgages, liens, charges, encumbrances and other matters of title (except for,
in the case of the Improvements, the Permitted Encumbrances).
10. COMPLIANCE WITH LEGAL REQUIREMENTS; HAZARDOUS SUBSTANCES.
(a) The Borrower shall comply with (i) all present and future statutes, laws,
ordinances, codes, orders, writs, injunctions, decrees, rules, regulations,
judgments, restrictions, licenses, authorizations, consents, approvals, permits,
grants and franchises of all foreign, federal, state, county and municipal
governments and the authorities, agencies, departments, commissions, boards,
courts and officers thereof (including, without limitation, all Environmental
Laws), (ii) the present and future requirements of the Board of Fire
Underwriters (or any other organization exercising similar functions), (iii) all
requirements of the insurance policies required to be maintained pursuant to
this Deed of Trust and (iv) all present and future covenants, conditions and
restrictions (including, without limitation, the Permitted Encumbrances)
(collectively, the "LEGAL REQUIREMENTS"). The Borrower shall indemnify, defend
and hold harmless the Beneficiary (and the affiliates, employees, agents,
contractors, officers and directors of the Beneficiary) from and against any and
all loss, cost, liability, expense, claim, suit, demand and judgment (including,
without limitation, attorneys' fees and disbursements) (1) in any way related to
any violation of and/or failure to comply with any Legal Requirement (including,
without limitation, CERCLA [as hereinafter defined], RCRA [as hereinafter
defined] and any other Environmental Law), (2) imposed upon the Borrower and/or
the Beneficiary by any Legal Requirement (including, without limitation, CERCLA,
RCRA and any other Environmental Law), (3) in any way related to the use,
discharge, distribution, generation, manufacture, refinement, transportation,
treatment, storage, handling, disposition, transfer, production, processing,
presence, release and/or threatened release on, over, under, from, at, in and/or
about the Mortgaged Property of any Hazardous Substance (whether caused by the
action, inaction and/or omission of the Borrower or of any other Person), (4) in
any way related to any personal injury (including, without limitation, wrongful
death) and/or property damage (real or personal) arising out of and/or in any
way related to such Hazardous Substance, (5) in any way related to any lawsuit
instituted or threatened, settlement reached and/or government order relating to
such Hazardous Substance and/or (6) in any way related to any violation of any
reasonable policies and/or requirements of the Beneficiary which are based upon
or in any way related to such Hazardous Substance. In case any action and/or
proceeding is brought against the Beneficiary in connection with any Legal
Requirement, the Borrower shall, upon notice from the Beneficiary, defend the
same by counsel satisfactory to the Beneficiary. The Borrower shall promptly pay
the cost of such defense. The foregoing indemnity shall survive the repayment in
full of the Obligations. "ENVIRONMENTAL LAWS" means all Legal Requirements in
connection with the environment, the use, discharge, distribution, generation,
manufacture, refinement, transportation, treatment, storage, handling,
disposition, transfer, production, processing, presence, release and/or
threatened release of any industrial, toxic, hazardous, dangerous and/or
environmental waste, contaminant, material, substance, pollutant and/or chemical
(including, without limitation, any Hazardous Substance), including, without
limitation, (A) the Comprehensive Environmental Response, Compensation and
Liability Act (as amended and/or supplemented from time to time,
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"CERCLA"), (B) the Resource Conservation and Recovery Act (as amended and/or
supplemented from time to time, "RCRA"), (C) the Federal Clean Water Act (as
amended and/or supplemented from time to time, the "WATER ACT") and (D) the
Emergency Planning and Community Right to Know Act, as amended and/or
supplemented from time to time. "HAZARDOUS SUBSTANCES" means (aa) the substances
included within the definitions of "hazardous substances", "hazardous
materials", "toxic substances" and/or "solid waste" in (y) CERCLA, RCRA and/or
the Hazardous Materials Transportation Act, as amended and/or supplemented from
time to time and (z) the regulations promulgated pursuant to any or all of the
foregoing, (bb) the substances listed (y) in the United States Department of
Transportation Table (49 C.F.R. ss.ss.172.101 - 172.102), as amended and/or
supplemented from time to time and/or (z) at any time and from time to time by
the Environmental Protection Agency (or any successor thereto) as hazardous
substances (40 C.F.R. ss.ss.302.1 - 302.7), (cc) any waste, contaminant,
material, substance, pollutant and/or chemical which is or becomes regulated or
defined as toxic, hazardous and/or dangerous under any other Legal Requirement
(including, without limitation, any other Environmental Law) and (dd) any waste,
contaminant, material, substance, pollutant and/or chemical which is (s) radon,
(t) petroleum, (u) asbestos, (iv) polychlorinated biphenyls, (w) designated as a
"hazardous substance" pursuant to the Water Act, (x) listed pursuant to ss.307
of the Water Act, (y) flammable and/or explosive and/or (z) radioactive.
(b) The Borrower shall keep or cause the Mortgaged Property to
be kept free of Hazardous Substances. Without limiting the generality of the
foregoing, the Borrower shall not cause or permit (whether by the action,
inaction or omission of the Borrower or of any other Person) the use, discharge,
distribution, generation, manufacture, refinement, transportation, treatment,
storage, handling, disposition, transfer, production, processing, presence,
release or threatened release of any Hazardous Substance on, over, under, from,
at, in and/or about the Mortgaged Property (or any portion thereof). In the
event that this Deed of Trust is foreclosed or the Borrower tenders a deed in
lieu of foreclosure, the Borrower shall deliver the Mortgaged Property free of
any and all Hazardous Substances.
11. LIMITATIONS OF USE. The Borrower shall not initiate, join
in or consent to any change in any private restrictive covenant, zoning
ordinance or other public or private restriction limiting the uses which may be
made of any portion of the Land and/or the Improvements.
12. ESTOPPEL CERTIFICATES. The Borrower shall, within 10 days
after request therefor, deliver to the Beneficiary a certificate, duly executed
and acknowledged by the Borrower, (a) setting forth the amount due on this Deed
of Trust, (b) stating whether any offsets, defenses and/or counterclaims exist
in connection with the Obligations and (c) addressing such other matters in
connection with the other Loan Documents as the Beneficiary may reasonably
request.
13. ACTIONS BY THE BENEFICIARY TO PROTECT THE MORTGAGED
PROPERTY; ETC. If the Borrower shall fail to (a) effect the insurance required
under PARAGRAPH 7, (b) make the payments
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required under PARAGRAPH 8, (c) make any other payment required under the Credit
Agreement, this Deed of Trust or any other Loan Document or (d) comply with any
other term or covenant of any Loan Document, the Beneficiary may effect, pay or
cure the same, as the case may be. All sums, including, without limitation,
attorneys' fees and disbursements, so incurred by the Beneficiary or incurred by
the Beneficiary (i) to sustain the lien or estate of this Deed of Trust or its
priority (including, without limitation, the sums specified in PARAGRAPH 28),
(ii) to protect or enforce any of the Beneficiary's rights under this Credit
Agreement, this Deed of Trust or any Loan Document, or (iii) to recover or
collect the Obligations, shall be a lien on the Mortgaged Property, shall be
deemed secured by this Deed of Trust and shall be paid to the Beneficiary by the
Borrower within 10 days after demand therefor (together with interest thereon at
the Default Rate (as defined in the Credit Agreement), from the date the same
was incurred to the date of the full payment thereof). In any action and/or
proceeding to foreclose this Deed of Trust and/or to recover and/or collect the
Obligations (or any portion thereof), the provisions of law respecting the
recovery of costs, disbursements and/or allowances shall prevail unaffected by
this covenant.
14. ASSIGNMENT OF LEASES.
(a) Pursuant to the assignment made by the Borrower in
PARAGRAPH B of the Granting Clause of this Deed of Trust, Borrower hereby
conveys, transfers and assigns to Beneficiary all Space Leases and the rents,
revenues, issues, income or profits therefrom ("RENTS"). This assignment shall
continue in effect until the satisfaction in full of the Obligations and this
Deed of Trust is canceled or discharged of record; however, so long as no
Default exists, Borrower shall have a license to collect, and may retain, use
and enjoy the Rents as they become due, but not prior to accrual. Such license
granted to Borrower shall be immediately revoked without further notice or
demand upon the occurrence of a Default. The Borrower irrevocably appoints the
Beneficiary its true and lawful attorney-in-fact, at any time and from time to
time following the occurrence and during the continuance of a Default, to
demand, receive and enforce payment, to give receipts, releases and
satisfactions, and to sue, in the name of the Borrower or otherwise, for the
Rents and apply the same to the Obligations. The foregoing assignment of Rents
is intended to be an absolute assignment from the Borrower to the beneficiary
and not merely the passing of a security interest. The Rents are assigned
absolutely by the Borrower to the Beneficiary for the benefit of the Beneficiary
subject only to the terms of this Deed of Trust.
(b) The Borrower shall not execute or deliver or permit the
execution or delivery of any Space Lease without the prior consent of the
Beneficiary. The Borrower shall (a) perform and observe or cause to be performed
and observed all covenants and agreements required to be performed or observed
by the lessor under each Space Lease and (b) enforce the performance and
observance of all covenants and agreements required to be performed or observed
by the lessee under each Space Lease. The Borrower shall not (i) assign or
permit the assignment of any Space Lease or the Rents to any Person other than
to the Beneficiary, (ii) accept or permit the acceptance of a prepayment of rent
under any Space Lease in excess of rent for one month, (iii) terminate, cancel
or permit a surrender, termination or cancellation of any
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<PAGE> 15
Space Lease, (iv) permit the assignment of the lessee's interest under any Space
Lease or permit the subletting of the space demised by any Space Lease or (v)
modify, amend or supplement or permit the modification, amendment or supplement
of any Space Lease.
(c) To the extent permitted by law, upon the occurrence of any
Default, the Beneficiary, at any time without notice, either in person, by agent
or by a receiver appointed by a court, and without regard to the adequacy of any
security for the Obligations secured hereby, may enter upon and take possession
of the Mortgaged Property, or any part thereof, in its own name, sue for or
otherwise collect the Rents including those past due and unpaid, and apply the
same, less costs and expenses of operation and collection, (including attorney's
fees and disbursements), to the payment of the Obligations secured hereby, and
in such order as the Beneficiary may determine. The collection of the Rents or
the entering upon and taking possession of the Mortgaged Property or any part
thereof, or the application thereof as aforesaid, shall not cure or waive any
Default or notice thereof or invalidate any act done in response to such Default
or pursuant to notice thereof. The Beneficiary is hereby absolved from all
liability for failure to enforce collection of any Rents, and from all other
responsibility in connection therewith.
(d) Nothing in this Deed of Trust shall be deemed to make the
Beneficiary a "mortgagee-in-possession" or otherwise be construed to create a
delegation to or assumption by the Beneficiary of the duties and obligations of
the Borrower under any agreement or contract relating to the Mortgaged Property
or any portion thereof, and all of the parties to any such contract shall
continue to look to the Borrower for performance of all covenants and other
obligations and the satisfaction of all representations and warranties of the
Borrower thereunder, notwithstanding the assignment of Rents herein made or the
exercise by the Beneficiary, prior to foreclosure, of any of its rights
hereunder or under applicable law.
15. DISPOSITION OF THE MORTGAGED PROPERTY; ETC. (a) The
Borrower shall not (whether voluntarily, involuntarily, by operation of law or
otherwise) sell, convey, transfer or otherwise dispose of or suffer any other
Person to sell, convey, transfer or otherwise dispose of all or any part of the
Mortgaged Property or any interest therein. A sale, conveyance, transfer or
other disposition of the Mortgaged Property shall include, without limitation
(i) any direct or indirect sale, conveyance, transfer or other disposition of
all or any part of the Mortgaged Property or any interest therein, (ii) the
execution of any lease for (a) the Mortgaged Property (or any portion
thereof)(other than the Improvements) and/or (b) space in the Improvements
covering space (in the aggregate) in excess of 2,000 square feet and (iii) any
assignment, encumbrance, pledge, grant of security interest, conditional sale or
title retention agreement in connection with the Personal Property.
(b) No interest (whether legal, beneficial or otherwise) in
the Borrower or in any Person (at any tier) directly or indirectly owning any
interest (whether legal, beneficial or otherwise) in the Borrower shall be
pledged, encumbered, sold, conveyed, transferred or otherwise disposed of
(whether voluntarily, involuntarily, by operation of law or otherwise). The
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<PAGE> 16
Borrower shall not, without the prior consent of the Beneficiary, issue any
additional stock or other equity interest.
(c) Notwithstanding anything to the contrary contained in
PARAGRAPH 15(A), the Borrower shall have the right, at any time and from time to
time, to remove and dispose of any of the Personal Property which is obsolete or
no longer useful in the use, occupancy, maintenance, repair, replacement,
restoration, operation, management and ownership of the Improvements, provided
that the Borrower promptly replaces the same with other Personal Property which
is (i) owned by the Borrower free of all mortgages, liens, charges, encumbrances
and other matters of title and (ii) at least equal in quality, usefulness and
value in connection with the use, occupancy, maintenance, repair, replacement,
restoration, operation, management and ownership of the Improvements as the
Personal Property that was removed and disposed of.
16. INTEREST AFTER A TAKING; AWARDS. The Beneficiary shall
have the right to join the Borrower in adjusting and compromising any and all
awards in connection with any Taking. All such awards shall be paid to the
Beneficiary and shall be applied by the Beneficiary to the payment of the
Obligations (notwithstanding the fact that the same may not then be due and
payable).
17. ADDITIONAL COVENANTS.
(a) The Borrower shall not assign or permit the assignment of
any of the Permits to any Person other than the Beneficiary.
(b) The Borrower shall not terminate, cancel or permit a
surrender, termination or cancellation of any of the Permits or Permitted
Encumbrances benefitting the Mortgaged Property.
(c) The Borrower shall not modify, amend or supplement or
permit the modification, amendment or supplement of any of the Permits or
Permitted Encumbrances benefitting the Mortgaged Property.
(d) The Borrower shall keep the Permits in full force and
effect.
(e) The Borrower shall promptly notify the Beneficiary of the
commencement and/or existence of any action, litigation, proceeding, claim
and/or investigation against any of the Borrower's property (including, without
limitation, the Mortgaged Property) or the Borrower.
(f) The Borrower shall deliver to the Beneficiary (a),
promptly after the Borrower knows or has reason to know that any Default (as
hereinafter defined) has occurred, a notice of such Default, describing the same
in reasonable detail and (b), promptly after the Borrower knows or has reason to
know that any event has occurred or failed to occur which with
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<PAGE> 17
notice and/or the lapse of time could became a Default, a notice of such events,
describing the same in reasonable detail.
18. DEFAULTS. If any one of the following defaults (a
"DEFAULT") shall occur and be continuing:
(a) The occurrence of any default under the Credit
Agreement or any other Loan Document or the breach of any of the terms
or provisions of the Credit Agreement or any Loan Document, which
default or breach continues beyond any period of grace, if any therein
provided;
(b) The breach by the Borrower of any of the terms or
provisions of this Deed of Trust;
thereupon, the Beneficiary may declare the Obligations to be immediately due and
payable from the Borrower, whereupon the same shall become immediately due and
payable without presentment, demand, notice of dishonor, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower.
19. REMEDIES; ETC. (a) If a Default shall have occurred and be
continuing, the Beneficiary may exercise all remedies set forth in the Credit
Agreement and other Loan Documents, and the Beneficiary shall have all other
rights and remedies of a mortgagee of a mortgage or beneficiary of a deed of
trust (the power of sale permitted and provided by applicable statute including
without limitation Texas Property Code, Section 51.002, or any successor
statute, being hereby expressly granted by the Borrower to the Trustee and the
Beneficiary) with respect to any or all of the Mortgaged Property, and to the
extent permitted by law, personally or, to the extent permitted by law, by
agents, with or without entry, the Beneficiary shall have the right and power to
(or on its behalf, instruct the Trustee to):
(i) sell the Mortgaged Property (or any
portion thereof) to the highest bidder at public
auction at a sale or sales held at such place and
time and upon such notice or otherwise in such manner
as may be required by law, or in the absence of any
such requirement, as the Beneficiary may deem
appropriate and from time to time adjourn such sale
by announcement at the time and place specified for
such sale or for such adjourned sale or sales without
further notice, except such as may be required by
law;
(ii) proceed to protect and enforce its
rights under the Credit Agreement or any of the other
Loan Documents by suit for specific performance of
any covenant herein contained or contained in the
Credit Agreement or any of the other Loan Documents,
or in aid of the execution of any power herein
granted or granted in the Credit Agreement or any of
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<PAGE> 18
the other Loan Documents, or for the foreclosure of
this Deed of Trust and the sale of the Mortgaged
Property (or any portion thereof) under the judgment
or decree of a court of competent jurisdiction, or
for the enforcement of any other right as the
Beneficiary shall deem most effectual for such
purpose; and
(iii) enter upon and take immediate
possession of the real property included in the
Mortgaged Property or any part thereof, to exclude
the Borrower therefrom, to hold, use, operate, manage
and control the real property included in the
Mortgaged Property, to make all such repairs,
replacements, alterations, additions and improvements
to the Mortgaged Property or any part thereof as the
Beneficiary may deem proper, and to demand, collect
and retain the Rents as provided in paragraph 14
hereof.
(b) In any action to foreclose this Deed of Trust, the Beneficiary, to
the extent permitted by law, shall be entitled as a matter of right to the
appointment of a receiver of the Mortgaged Property and/or of the rents,
revenues, issues, income and/or profits thereof, without notice or demand, and
without regard to the adequacy of the security for the Obligations or the
solvency of the Borrower.
(c) The Borrower, in the event of any Default, shall pay monthly in
advance to the Beneficiary or to any receiver appointed at the request of the
Beneficiary to collect the rents, revenues, issues, income and/or profits of the
Mortgaged Property, the fair and reasonable rental value for the use and
occupancy of the Mortgaged Property or of such portion thereof as may be in the
possession of the Borrower. Upon default in the payment thereof, the Borrower
shall vacate and surrender possession of the Mortgaged Property or such portion
to the Beneficiary or to such receiver, and upon a failure so to do may be
evicted by summary proceedings.
(d) In any sale under any provision of this Deed of Trust or pursuant
to any judgment or decree of court, the Mortgaged Property, to the extent
permitted by law, may be sold in one or more parcels, or as an entirety, and in
such order as the Beneficiary may elect, without regard to the right of the
Borrower or any Person claiming under the Borrower to the marshaling of assets.
The purchaser at such sale shall take title to the property so sold free and
discharged of the estate of the Borrower therein, the purchaser being hereby
discharged from all liability to see to the application of the purchase money.
Any Person, including, without limitation, the Beneficiary, may purchase at any
such sale.
(e) The Borrower shall indemnify, defend and hold harmless the
Beneficiary (and the affiliates, employees, agents, contractors, officers and
directors of the Beneficiary) from and against any and all loss, cost,
liability, expense, claim, suit,
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<PAGE> 19
demand and judgment (including, without limitation, attorneys' fees and
disbursements) in any way related to any action, litigation, proceeding, claim,
investigation, demand, defense or assertion based on, grounded upon or resulting
from any alleged or actual breach of any representation, warranty or
certification made by the Borrower in any of the other Loan Documents, and in
case any action and/or proceeding is brought against the Beneficiary in
connection with any such breach, the Borrower shall, upon notice from the
Beneficiary, defend the same by counsel satisfactory to the Beneficiary. The
Borrower shall promptly pay the cost of such defense.
20. APPLICATION OF PROCEEDS. The proceeds of any sale made
either under the power of sale hereby given or under a judgment, order or decree
made in any action to foreclose or to enforce this Deed of Trust shall be
applied:
(a) first to the payment of (i) all costs and expenses of such
sale, including, without limitation, attorneys' fees and disbursements
in the court of original jurisdiction and in any appellate proceedings
and (ii) all charges, expenses and advances incurred or paid by the
Beneficiary in order to protect the lien or estate of this Deed of
Trust or the security afforded thereby;
(b) then to the payment of the Obligations (in such order and
priority as the Beneficiary shall determine); and
(c) any surplus remaining to be paid to the Borrower or to
whosoever may be lawfully entitled to receive the same.
21. NO JOINT VENTURE OR PARTNERSHIP. The relationship between
the Borrower and the Beneficiary created hereby is strictly of debtor/creditor
and nothing contained herein or in any other Loan Document shall be deemed or
construed to create a joint venture or partnership between the Borrower and the
Beneficiary.
22. WAIVERS BY THE BORROWER. The Borrower hereby waives, to
the fullest extent permitted by law, (a) any and all rights and equities of
redemption from sale under the power of sale created under this Deed of Trust
and from sale under any judgment, order or decree of foreclosure of this Deed of
Trust and all notice or notices of seizure and (b) the benefit of any and all
exemption, valuation, appraisement, marshalling, stay and extension rights now
or hereafter in force.
23. NO WAIVER. No failure to exercise, and no delay in
exercising, and no course of dealing with respect to, any power, remedy or right
under this Deed of Trust, the Credit Agreement or any of the other Loan
Documents by the Beneficiary shall operate as a waiver thereof, nor shall any
single or partial exercise by the Beneficiary of any power, remedy or right
under this Deed of Trust, the Credit Agreement or any of the other Loan
Documents preclude any other or further exercise thereof or the exercise of any
other power, remedy or right. Each of the
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remedies provided herein are cumulative and not exclusive of any remedies
provided by (a) law or (b) the Credit Agreement or (c) any of the other Loan
Documents.
24. POWERS OF THE BENEFICIARY. The Beneficiary shall have the
right, at any time and from time to time, to renew or to extend this Deed of
Trust, or to alter or modify the same in any way, or to waive any of the terms,
covenants or conditions hereof in whole or in part and shall have the right to
release any portion of the Mortgaged Property or any other security, and to
grant such extensions or indulgences in relation to the Obligations as the
Beneficiary may determine without the consent of any junior lienor and without
any obligation to give notice of any kind thereto and without in any manner
affecting the priority or the lien hereof on any portion of the Mortgaged
Property.
25. SUCCESSOR TRUSTEE; TRUSTEE'S POWERS; RECONVEYANCE BY
TRUSTEE.
(a) The Trustee may resign in writing addressed to the
Beneficiary or be removed at any time with or without cause by an instrument in
writing duly executed by the Beneficiary. In case of the death, resignation or
removal of the Trustee, a successor to the Trustee may be appointed by the
Beneficiary without formality other than an appointment and designation in
writing unless otherwise required by applicable law. Such appointment and
designation will be full evidence of the right and authority to make the same
and of all facts therein recited, and upon the making of any such appointment
and designation, this Deed of Trust will vest in the named successor trustee all
the right, title and interest of the Trustee in all of the Mortgaged Property,
and said successor will thereupon succeed to all the rights, powers, privileges,
immunities and duties hereby conferred upon the Trustee.
(b) At any time, or from time to time without liability
therefor and without notice, upon written request of the Beneficiary and
presentation of this Deed of Trust, and without affecting the personal liability
of any person for payment of the indebtedness secured hereby or the effect of
this Deed of Trust upon the remainder of the Mortgaged Property, the Trustee may
(a) reconvey any part of the Mortgaged Property, (b) consent in writing to the
making of any map or plat thereof, (c) join in granting any easement thereon, or
(d) join in any extension agreement or any agreement subordinating the lien or
charge hereof.
(c) Upon written request of the Beneficiary stating that all
sums secured hereby have been paid, and upon surrender of this Deed of Trust to
the Trustee for cancellation and retention and upon payment by the Borrower of
the Trustee's fees, the Trustee shall reconvey to the Borrower, or to the person
or persons legally entitled thereto, without warranty, any portion of the Real
Property Collateral then held hereunder. The recitals in such reconveyance of
any matters or facts shall be conclusive proof of the truthfulness thereof. The
grantee in any reconveyance may be described as "the person or persons legally
entitled thereto."
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26. NOTICES. All notices, demands, consents, statements,
requests, approvals and other communications hereunder (collectively, "NOTICES")
shall be in writing. All notices shall be given in the manner provided in the
Credit Agreement.
27. AMENDMENTS; ETC. This Deed of Trust cannot be terminated,
cancelled, modified, amended, supplemented, waived or discharged except by an
instrument in writing, duly acknowledged in form for recording, signed by the
party against whom enforcement of such modification, charge or discharge is
sought.
28. SECURITY AGREEMENT; FIXTURE FILING. This Deed of Trust
shall be a security agreement and "fixture filing" under Article 9 of the
Uniform Commercial Code as adopted by the State of Texas, as amended and/or
supplemented from time to time. The Borrower irrevocably authorizes the
Beneficiary to execute, in the Borrower's name, and to file any financing
statement or continuation statement which the Deed of Trust deems necessary or
advisable to preserve or maintain the priority of the lien hereof or to extend
the effectiveness thereof, and the Borrower shall pay to the Beneficiary,
pursuant to PARAGRAPH 13, any costs from time to time incurred by the
Beneficiary for filing any such statement under such Code or under any other
laws. After an event of Default occurs, Beneficiary may require Borrower to
assemble the Personal Property Collateral and make it available to Beneficiary
at a reasonably convenient place Beneficiary designates. Borrower authorizes
each obligor on any Personal Property Collateral to make payment and performance
to Beneficiary upon Beneficiary's demand, and payment or performance to
Beneficiary will discharge the obligor's duty as if it had been rendered to
Borrower, even if Borrower notifies the obligor that payment or performance
should not be made to Beneficiary. Except for the safe custody of any Personal
Property Collateral in its possession and accounting for money actually received
by it, Beneficiary has no duty as to any Personal Property Collateral, including
the duty to preserve rights against prior parties. Written notice to Borrower
mailed 10 days prior to public or private sale is reasonable notice.
29. SUCCESSORS AND ASSIGNS. The provisions of this Deed of
Trust (including, without limitation, the indemnities set forth in PARAGRAPH 10)
shall run with the Land and shall bind the Borrower, its successors and assigns,
and all subsequent encumbrances, tenants and subtenants of the Mortgaged
Property (or any portion thereof), and shall inure to the benefit of the
Beneficiary, its successors and assigns, and (notwithstanding anything to the
contrary contained in any of the other Loan Documents) such indemnities shall
survive the foreclosure of this Deed of Trust and repayment in full of the
Obligations.
30. SEVERABILITY/CAPTIONS. If any provision of this Deed of
Trust or the application thereof to any Person or circumstance shall, to any
extent, be illegal, invalid and/or unenforceable, the remainder of this Deed of
Trust or the application of such provision to Persons or circumstances other
than those as to which it is illegal, invalid and/or unenforceable, as the case
may be, shall not be affected, and each provision of this Deed of Trust shall be
legal, valid and enforceable to the extent permitted by law. The illegality,
invalidity and/or unenforceability of any provision of this Deed of Trust in any
jurisdiction shall not affect the
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<PAGE> 22
legality, validity and/or enforceability thereof in any other jurisdiction. The
captions or headings at the beginning of each paragraph hereof are for the
convenience of the parties and are not part of this Deed of Trust.
31. INVALIDITY OF CERTAIN PROVISIONS. If the lien or estate of
this Deed of Trust is invalid or unenforceable as to any part of the
Obligations, the unsecured or partially secured portion of such indebtedness
shall be paid completely prior to the payment of the remaining and secured or
partially secured portion thereof, and all payments made on such indebtedness,
whether voluntary or under foreclosure or other enforcement action or procedure,
shall be considered to have been paid on and applied first to the full payment
of that portion thereof that is not secured or fully secured by the lien or
estate of this Deed of Trust.
32. MERGER / CONFLICTS. This Deed of Trust, the Credit
Agreement and the other Loan Documents constitute the entire understanding
between the Borrower and the Beneficiary with respect to the transactions
contemplated by this Deed of Trust, and any and all other agreements,
understandings and statements (oral or written) between the Borrower and the
Beneficiary in connection therewith are merged into this Deed of Trust and the
other Loan Documents. In case of any conflict or inconsistency between any
provision of this Deed of Trust, the Credit Agreement or any other Loan
Document, the provision which is more protective or more favorable to the
Beneficiary shall control.
33. FAIR MARKET VALUE FOR CALCULATING DEFICIENCIES. If
Beneficiary sues Borrower, any other party obligated on the Debt or any
guarantor of any Debt to collect any deficiency owing after foreclosure of the
Mortgaged Property, "fair market value" of the Mortgaged Property under Sections
51.003, 51.004 and 51.005 of the Texas Property Code (as amended from time to
time) (the "Deficiency Statutes") will be determined as follows:
(a) Any valuation of the Mortgaged Property will be based on
"as is" condition on the foreclosure date, without any assumption or expectation
that the Mortgaged Property will be repaired or improved in any manner before a
resale of the Mortgaged Property after foreclosure.
(b) Any valuation will assume that the foreclosure purchaser
desires resale of the Mortgaged Property for cash promptly (but no later than
twelve months) following the foreclosure sale.
(c) All reasonable closing costs customarily borne by the
seller in a commercial real estate transaction, including brokerage commissions,
title insurance, a survey of the Mortgaged Property, tax prorations, attorney's
fees, and marketing costs, will be deducted from the gross fair market value of
the Mortgaged Property.
(d) Any valuation will further discount the gross fair market
value of the Mortgaged Property to account for any estimated holding costs
associated with maintaining the
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Mortgaged Property pending sale, including utilities expenses, property
management fees, taxes and assessments, and other maintenance expenses.
(e) Any expert opinion testimony given or considered in
connection with a determination of the fair market value of the Mortgaged
Property must be given by persons who have at least five years experience in
appraising property similar to the Mortgaged Property and who have conducted and
prepared a complete written appraisal of the Mortgaged Property taking into
consideration the factors set forth above.
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IN WITNESS WHEREOF, the Borrower has duly executed and delivered this
Deed of Trust as of the day and year first above written.
TELXON CORPORATION
By: /s/ GERALD J. GABRIEL
------------------------
Name: Gerald J. Gabriel
-----------------------
Title: Senior Vice President
-----------------------
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ACKNOWLEDGMENT
State of Ohio
County of Summit
This instrument was acknowledged before me on the 26 day of March, 1999 by
GERALD J. GABRIEL , SENIOR VICE PRESIDENT of Telxon Corporation, a DELAWARE
corporation on behalf of said corporation.
/S/ ELIZABETH A. STAPLES
-------------------------------
Notary Public, State of OHIO
ELIZABETH A. STAPLES, Attorney
NOTARY PUBLIC - STATE OF OHIO
My Commission Has No Expiration Date
Name and Mailing Address Name and Mailing Address
of Trustee: of Beneficiary:
First American Title Insurance Company The Bank of New York
1500 Dairy Ashford One Wall Street
Houston, TX 77077 New York, New York 10286
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<PAGE> 1
EXHIBIT 10.3.1.i
----------------
PATENT AND TRADEMARK SECURITY AGREEMENT
PATENT AND TRADEMARK SECURITY AGREEMENT, dated as of March 26, 1999,
made by TELXON CORPORATION ("TELXON" or the "BORROWER") the Persons listed on
the signature pages under the caption "Grantors" (the "GRANTORS") and the
Additional Grantors (as defined in Section 13(b)) to THE BANK OF NEW YORK, with
an office at One Wall Street, New York, New York 10286, as agent (the "AGENT")
for the benefit of the Issuer, The Swing Line Lender and the Lenders (as such
terms are defined in the Credit Agreement referred to below)(the "SECURED
PARTIES").
W I T N E S S E T H :
WHEREAS, Telxon, the Lenders from time-to-time party to the Credit
Agreement, the Issuer, the Swing Line Lender and the Agent, on behalf of the
Lenders, the Issuer and the Swing Line Lender, entered into that certain Credit
Agreement dated as of March 8, 1996, as amended by that certain Amendment No. 1
to the Credit Agreement dated as of August 6, 1996, Amendment No. 2 to the
Credit Agreement dated as of December 16, 1996 and Amendment No. 3 to the Credit
Agreement dated as of December 12, 1997 (as further amended, amended and
restated, modified or supplemented from time to time, the "CREDIT AGREEMENT");
WHEREAS, Telxon, the Agent, the Issuer, the Swing Line Lender and the
Lenders have heretofore entered into a Waiver and Agreement, dated as of
December 29, 1998 (the "ORIGINAL WAIVER") and a Waiver Extension and Agreement,
dated as of February 12, 1999 (the "ORIGINAL WAIVER EXTENSION"), with respect to
certain matters relating to the compliance by Telxon with certain provisions of
the Agreement;
WHEREAS, Telxon has requested that the Agent, the Issuer, the Swing
Line Lender and the Lenders agree to a further waiver of compliance by Telxon
with certain provision of the Credit Agreement, including an extension of the
waiver granted in the Original Waiver as extended by the Original Waiver
Extension and to amend certain other provisions of the Credit Agreement;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Agent, the Issuer, the Swing Line Lender, the Lenders and Telxon
are entering into that certain Second Waiver Extension Agreement and Amendment
No. 4 to the Credit Agreement dated as of the date hereof (the "SECOND WAIVER");
WHEREAS, unless otherwise defined herein, terms defined in the Credit
Agreement are used herein as therein defined;
WHEREAS, it is a condition precedent to the effectiveness of the Second
Waiver, and the continuance of the making of Loans and the issuance of Letters
of Credit under the Credit Agreement, that the Grantors shall have granted to
the Agent, for the ratable benefit of the Lenders,
<PAGE> 2
the Issuer and the Swing Line Lender, a security interest, pledge and lien upon
the Grantors' assets and property contemplated by this Agreement;
NOW, THEREFORE, in consideration of the premises, the covenants and
conditions set forth herein and in the Second Waiver, and for other good and
valuable consideration, the receipt and sufficiency are hereby acknowledged,
each of the Grantors hereby agrees with the Agent as follows:
SECTION 1. GRANT OF SECURITY. Each Grantor hereby assigns and pledges
to the Agent for its benefit and for the ratable benefit of the Lenders, the
Issuer and the Swing Line Lender, and hereby grants to the Agent for its benefit
and for the ratable benefit of the Lenders, the Issuer and the Swing Line
Lender, a lien on and security interest in (except to the extent such
assignment, pledge or grant would violate the terms of any license agreement
with any other person in connection with any of the Patents and Trademarks, as
defined below, whether such Grantor is a licensee or licensor under any such
license agreement), the entire right, title and interest of such Grantor in and
to the following, whether now owned or hereafter acquired (the "PATENT AND
TRADEMARK COLLATERAL"):
(a) All trademarks, service marks, trade names and trade dress
and all trademark and service mark registrations and applications for
trademark or service mark registration in the United States (except for
"intent to use" applications for trademark or service mark
registrations filed pursuant to Section l(b) of the Lanham Act, unless
and until an Amendment to Allege Use or a Statement of Use under
Sections l(c) and l(d) of said Act has been filed) and throughout the
world (including, without limitation, each trademark and service mark
registration and application for trademark and service mark
registration identified on Schedule I attached hereto and made a part
hereof), and (i) all renewals thereof, (ii) all income, royalties,
damages and payments now and hereafter due and/or payable with respect
thereto (including, without limitation, payments under all licenses
entered into in connection therewith, and damages and payments for past
or future infringements thereof), (iii) the right to sue or otherwise
recover for all past, present and future infringements thereof, and
(iv) all rights corresponding thereto throughout the world (but only
such rights as now exist or may come to exist under applicable local
law), together, in each case, with the goodwill of the business
connected with the use of, and symbolized by each such trademark,
service mark, trade name and trade dress (all of the foregoing and
other rights being, collectively, the "TRADEMARKS");
(b) All letters patent of the United States or any other
country, and all registrations and recordings thereof, including,
without limitation, applications, registrations and recordings in the
United States Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof or any other country or
any political subdivision thereof, all whether now owned or hereafter
acquired by the Company, including, but not limited to, those described
in Schedule I annexed hereto and made a part hereof, and all reissues,
continuations, continuations-in-part or extensions thereof and all
licenses thereof (all of the foregoing being herein referred to as the
"PATENTS"); and
2
<PAGE> 3
(c) All license agreements with any other Person in connection
with any of the Patents and Trademarks or such other Person's names or
marks, whether such Grantor is a licensor or licensee under any such
license agreement (subject, in each case, to the terms of such license
agreements), and the right to prepare for sale, sell and advertise for
sale, all inventory (as defined in the Uniform Commercial Code in
effect in the State of New York (the "NYUCC"), to the extent now or
hereafter owned by each Grantor and now or hereafter covered by such
licenses (the "LICENSES").
SECTION 2. SECURITY FOR OBLIGATIONS. The assignment and pledge of and
grant of a security interest in the Patent and Trademark Collateral by each
Grantor pursuant to this Agreement (collectively, the "SECURITY INTERESTS")
secures the payment of all obligations of such Grantor to the Agent, the
Lenders, the Issuer and the Swing Line Lender now or hereafter existing (and any
other documents in respect of such obligations) under the Loan Documents (as the
same may be amended, amended and restated, modified or supplemented from
time-to-time), whether for principal, interest, fees, expenses or otherwise (all
such obligations being the "SECURED OBLIGATIONS").
The Security Interests granted by this Agreement are granted in
conjunction with the security interests granted to the Agent in other assets of
the Grantors, as set forth in the Credit Agreement and the other Loan Documents.
SECTION 3. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and
warrants on the date hereof and on each date that representations and warranties
are deemed made by any Grantor or the Borrower under the Credit Agreement as
follows:
(a) Such Grantor is the sole, legal and beneficial
owner of the entire right, title and interest in and to the federal
registrations and applications for registration of the Patents and
Trademarks listed on Schedules I and II hereto and the Licenses free
and clear of any lien, security interest, option, charge, pledge,
registered user agreement, assignment (whether conditional or not), or
covenant, or any other encumbrance, except for the Security Interests
and Liens created or permitted by this Agreement or the Credit
Agreement, and except for any such encumbrances which do not have a
material adverse impact on the economic value of any of the federal
registrations and applications for registration of the Patents and
Trademarks listed on Schedules I and II hereto, and except as permitted
by Section 5 of this Agreement. No effective financing statement or
other instrument similar in effect covering all or any part of the
federal registrations and applications for registration of the Patents
and Trademarks listed on Schedules I and II hereto or the Licenses
purported to be granted by such Grantor hereunder is on file in any
recording office, including, without limitation, the United States
Patent and Trademark Office, except such as may have been filed in
favor of the Agent relating to this Agreement. No Grantor owns any
material copyrights of the United States, or any country (including,
without limitation, applications or registrations) which have been
recorded or registered (or are currently the subject of a pending
application) in the United States Copyright Office or in any similar
office or agency of the United States, any State thereof, or any
country or political subdivision thereof.
3
<PAGE> 4
(b) Set forth on Schedules I and II below the name
of such Grantor is a complete and accurate list of all of the federal
registrations and applications for federal registration of the Patents
and Trademarks owned by such Grantor.
(c) Each federal patent and trademark and service mark
registration and application for registration of such Grantor
identified on Schedules I and II is subsisting and, to the best of such
Grantor's knowledge, has not been adjudged invalid, unregistrable or
unenforceable, in whole or in part, and is, to the best of such
Grantor's knowledge, valid, registrable and enforceable. Each License
of such Grantor, to the best of such Grantor's knowledge, is subsisting
and has not been adjudged invalid or unenforceable, in whole or in
part, and is, to the best of such Grantor's knowledge, valid and
enforceable. Such Grantor has notified the Agent in writing of all
prior uses of any federal registrations and applications for
registration of the Patents and Trademarks listed on Schedules I and II
hereto of which such Grantor is aware, which would in the reasonable
judgment of such Grantor lead to such Patents and Trademarks becoming
invalid or unenforceable, including prior unauthorized uses by third
parties and uses which were not supported by the goodwill of the
business connected with such item.
(d) Such Grantor has not granted any license,
release, covenant not to sue, or non-assertion assurance to any third
person with respect to any part of the federal registrations and
applications for registration of the Patents and Trademarks listed on
Schedules I and II hereto which would materially interfere with its
business as currently carried on under any such registrations or
applications for registrations.
(e) Such Grantor has used reasonable and proper statutory
notice in connection with its use of each registered patent and
trademark and service mark listed on Schedules I and II, except
inadvertent omissions thereof.
(f) Such Grantor has the unqualified right to
enter into this Agreement and to perform its terms.
(g) Except for (i) the appropriate filings with the United
States Patent and Trademark Office, and (ii) the appropriate filings
under Article 9 of the Uniform Commercial Code, no consent of any other
Person (other than licensors of any License to which any Grantor is a
licensee), no authorization, consent, approval or other action by, and
no notice to or filing or recording with, any governmental,
administrative or judicial authority or regulatory body is required in
the United States either (x) for the granting by such Grantor of the
Security Interests granted hereby or for the execution, delivery or
performance of this Agreement by such Grantor, or (y) for the
perfection of or the exercise by the Agent of its rights and remedies
hereunder, except where the failure to obtain, take, give or make such
authorizations, consents, approvals, actions, notices or filings would
not, and would not be reasonably likely to, have a material adverse
effect on the financial condition, operations, business, properties or
assets of the Grantors taken as a whole.
4
<PAGE> 5
(h) The consummation of actions contemplated under or in
connection with the Loan Documents to be performed by such Grantor,
will not impair the legal right of such Grantor to use any of the
federal registrations and applications for registration of the Patents
and Trademarks listed on Schedules I and II hereto.
(i) Such Grantor has no knowledge of the existence of any
patent, trademark, service mark, trade name or trade dress, or license
agreement held or claimed by any other Person that, if upheld, would
preclude such Grantor from distributing, marketing, selling or
providing any product or service currently distributed, marketed, sold
or provided by it, as the case may be, under or in connection with any
of the federal registrations and applications for registration of the
Patents and Trademarks listed on Schedules I and II hereto (except, in
each case, to the extent that such Grantor has granted an exclusive
license to another person), and that would have a material adverse
effect on the financial condition, operations, business, properties or
assets of the Grantors taken as a whole, and such Grantor has no
knowledge of any claim that is likely to be made that if upheld would
have a material adverse effect on the financial condition, operations,
business, properties or assets of the Grantors taken as a whole.
(j) No material claim in any court or in the United States
Patent and Trademark Office has been made (and, as to any trademark,
service mark, trade name, or trade dress with respect to which such
Grantor is a licensee, to the best knowledge of such Grantor, no
material claim has been made against the third party licensor), and
such Grantor has no knowledge of any material claim that has been made
or is likely to be made, that the use by such Grantor of any Patent and
Trademark Collateral does or may violate the rights of any Person.
(k) Such Grantor, to the best of its knowledge, has used
consistent standards of quality in manufacturing, distribution and
marketing of each product sold and provision of each service provided
under or in connection with any Patent and Trademark Collateral, and
has taken whatever steps necessary to ensure that all licensed users of
any Patent and Trademark Collateral use such consistent standards of
quality.
SECTION 4. FURTHER ASSURANCES.
(a) Each Grantor agrees that from time to time, at the expense
of such Grantor, such Grantor will promptly execute and deliver all
further instruments and documents, and take all further action, that
may be necessary or desirable, or that the Agent may reasonably
request, in order to (i) continue, perfect and protect any Security
Interest granted or purported to be granted hereby, or (ii) enable the
Agent to exercise and enforce its rights and remedies hereunder with
respect to any part of the Patent and Trademark Collateral. Without
limiting the generality of the foregoing, each Grantor will execute and
file such financing or continuation statements, or amendments thereto,
and such other instruments or notices, as
5
<PAGE> 6
may be necessary or desirable, or as the Agent may reasonably request,
in order to perfect and preserve the Security Interests granted or
purported to be granted hereby.
(b) Each Grantor hereby authorizes the Agent to
file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Patent and Trademark
Collateral without the signature of such Grantor where permitted by
law. A carbon, photographic or other reproduction of this Agreement or
any financing statement covering the Patent and Trademark Collateral or
any part thereof shall be sufficient as a financing statement where
permitted by law.
(c) Each Grantor will furnish to the Agent from
time to time statements and schedules further identifying and
describing the Patent and Trademark Collateral and such other reports
in connection with the Patent and Trademark Collateral as the Agent may
reasonably request, all in reasonable detail.
(d) Each Grantor agrees that, if, before the
Secured Obligations have been satisfied in full, it (i) obtains an
ownership interest in any new patent, trademark, service mark, trade
name and trade dress, or patent, trademark or service mark registration
or application for patent, trademark or service mark registration which
is not now identified on Schedules I and II, (ii) enters into any new
license agreement, subject, in each case, to the terms of the license
agreements, or (iii) becomes entitled to the benefit of any patent,
trademark, service mark, trade name and trade dress (which is
materially important to the business of such Grantor), patent,
trademark or service mark registration, application for patent,
trademark or service mark registration, license agreement or license
agreement renewal, (x) the provisions of Section 1 shall automatically
apply thereto, and (y) any such patent, trademark, mark, registration,
application, or license agreement, together with the goodwill of the
business connected with the use of the mark or symbolized by it, shall
automatically become part of the Patent and Trademark Collateral. Each
Grantor shall give prompt written notice to the Agent of each new
patent, trademark or service mark registration or application for
registration. Each Grantor authorizes the Agent to modify this
Agreement by amending Schedules I and II to include any such new
patent, trademark or service mark registration, or application for
patent, trademark or service mark registration which becomes part of
the Patent and Trademark Collateral under this Section, or which, in
the reasonable business judgment of each such Grantor, is a material
patent, trademark or service mark registration or application for
patent, trademark or service mark registration. Each Grantor shall,
where consistent with prudent business practices, use best efforts to
negotiate new license agreements subject to the grant of the security
interest created by this Agreement. Each Grantor agrees that, if,
before the Secured Obligations have been satisfied in full, it obtains
an ownership interest in any recorded copyright or pending copyright
application before the United States Copyright Office or in any similar
office or agency of the United States, any State thereof, or any other
country or political subdivision thereof ("COPYRIGHTS"), then the
provisions of this subsection shall be equally applicable to such
copyrights and each
6
<PAGE> 7
Grantor authorizes the Agent to modify this Agreement by, among other
things, adding a new Schedule III to include any such Copyrights under
this Agreement.
(e) Each Grantor agrees (i) to prosecute diligently any
patent, trademark or service mark application that is part of Schedules
I and II, (ii) to file applications for registration of any patent,
trademark or service mark which is or becomes material to its business,
(iii) to take all necessary steps in any proceeding before the United
States Patent and Trademark Office or in any court, to maintain and
protect each material patent, trademark, service mark, trade name,
trade dress and patent, trademark or service mark registration, and
each license agreement, and (iv) to participate in opposition,
cancellation and infringement proceedings in each case, such actions
under clauses (i) through (iv) above, to be taken as and to the extent
Grantor, in the exercise of its reasonable commercial judgment, deems
necessary or desirable. Any expenses incurred in connection with such
activities shall be borne by such Grantor. If any Grantor fails to
comply with any of the foregoing duties, the Agent shall have the
right, but not the obligation, to effect compliance in the name of the
Grantor to the extent permitted by law, at the Grantor's expense.
(f) Except as may be permitted by the Credit Agreement, no
Grantor shall (i) abandon any patent, trademark or service mark
registration or application for patent, trademark or service mark
registration, or any patent, trademark, service mark or trade name,
without the written consent of the Agent, which consent shall not be
unreasonably withheld, except where such abandonment would not be
reasonably likely to have a material adverse effect on the financial
condition, operations, business, properties or assets of the Grantors
taken as a whole, or (ii) take any action, or permit any action to be
taken by any other Persons to the extent such Persons are subject to
its control, or fail to take any action, which would materially and
adversely affect the validity, perfection, priority or enforcement of
the rights transferred herein to the Agent under this Agreement, and
any such action or agreement if it shall be entered into or taken,
shall be null and void and of no effect whatsoever. Each Grantor agrees
to notify the Agent immediately and in writing if such Grantor learns
(i) that any material item of the Patent and Trademark Collateral may
become abandoned, or (ii) of any adverse determination or any
development (including, without limitation, the institution of any
proceeding in the United States Patent and Trademark Office or any
court) regarding any material part of the Patent and Trademark
Collateral.
(g) In the event that any material item of the Patent and
Trademark Collateral is infringed or misappropriated by a third party,
any Grantor having any right, title or interest in such Patent and
Trademark Collateral shall promptly notify the Agent and shall, unless
such Grantor shall reasonably determine that such Patent and Trademark
Collateral is of immaterial economic value to such Grantor, take all
reasonable steps and actions to defend against and enjoin the
infringement or misappropriation, and shall take such other actions as
such Grantor shall reasonably deem appropriate under the circumstances
to protect and enforce such Patent and Trademark Collateral. Any
expense incurred in connection with such activities shall be borne by
such Grantor.
7
<PAGE> 8
(h) Each Grantor shall continue to use reasonable and proper
statutory notice in connection with its use of each registered patent,
trademark or service mark.
(i) Each Grantor agrees (i) to maintain the quality of any and
all products or services of such Grantor used or provided in connection
with the Patent and Trademark Collateral, consistent with the quality
of said products and services as of the date hereof and (ii) to take
all reasonable steps to ensure that all licensees of any Patent and
Trademark Collateral maintain consistent standards of quality,
consistent with the standards in effect on the date hereof.
SECTION 5. TRANSFERS AND OTHER LIENS. Each Grantor shall not, except as
otherwise permitted under the Credit Agreement:
(a) sell, assign (by operation of law or otherwise) or
otherwise dispose of any of, or grant any option with respect to, the
Patent and Trademark Collateral, except that any Grantor may license
the Patent and Trademark Collateral (i) in the ordinary course of such
Grantor's business, provided that such Grantor, in the exercise of its
reasonable commercial judgment, determines that such license is
necessary or desirable in the conduct of such Grantor's business, or
(ii) in connection with a sale or transfer of assets as provided in the
Credit Agreement, PROVIDED that such license shall be on terms
reasonably expected to maximize the gain to such Grantor resulting from
the granting of such license,
(b) create or suffer to exist any Lien upon or with respect to
any of the Patent and Trademark Collateral except for the Security
Interests created by this Agreement or permitted by the Credit
Agreement, or
(c) take any other action in connection with any of the Patent
and Trademark Collateral that would impair the value of the interest or
rights thereunder of such Grantor or that would impair the interest or
rights of the Agent or the Lenders, the Issuer and the Swing Line
Lender.
Nothing in this Section 5 will prevent licenses by any Grantor to another
Grantor.
SECTION 6. AGENT APPOINTED ATTORNEY-IN-FACT. Each Grantor hereby
irrevocably appoints the Agent such Grantor's attorney-in-fact, with full
authority in the place and stead of such Grantor and in the name of such Grantor
or otherwise, from time to time in the Agent's discretion upon the occurrence
and during the continuance of an Event of Default, to take any action and to
execute any instrument that the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Patent and Trademark Collateral,
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<PAGE> 9
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause (a)
above, and
(c) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the
collection of any payments relating to the Patent and Trademark
Collateral or otherwise to enforce the rights of the Agent with respect
to any of the Patent and Trademark Collateral.
SECTION 7. AGENT MAY PERFORM.
(a) If any Grantor fails to perform any agreement contained
herein, the Agent may itself perform, or cause performance of, such
agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by such Grantor under Section 10(b).
(b) The Agent or its designated representatives shall have the
right, at any reasonable time during normal business hours and from
time to time, upon reasonable notice, and without undue interruption to
the business of such Grantor, to inspect the premises of any Grantor
and to examine the books, records and operations of any Grantor
(including, without limitation, any Grantor's quality control
processes) relating to the Patent and Trademark Collateral.
SECTION 8. THE AGENT'S DUTIES. The powers conferred on the Agent
hereunder are solely to protect its interest in the Patent and Trademark
Collateral and shall not impose any duty upon it to exercise any such powers.
SECTION 9. REMEDIES. If any Event of Default shall have occurred and be
continuing:
(a) The Agent may exercise in respect of the Patent and
Trademark Collateral, in addition to other rights and remedies provided
for herein or otherwise available to the Agent, all the rights and
remedies of The Lenders, the Issuer and the Swing Line Lender in
default under the NYUCC (whether or not the NYUCC applies to the
affected Patent and Trademark Collateral) and also may (i) exercise any
and all rights and remedies of any Grantor under or otherwise in
respect of the Patent and Trademark Collateral, (ii) require any
Grantor to, and each Grantor hereby agrees that it will at its expense
and upon request of the Agent forthwith, assemble all or any part of
the documents embodying the Patent and Trademark Collateral as directed
by the Agent and make such documents available to the Agent at a place
to be designated by the Agent which is reasonably convenient to both
the Agent and such Grantor, (iii) occupy, for a reasonable period and
without obligation to such Grantor in respect of such occupation, any
premises owned or leased by any Grantor where documents embodying the
Patent and Trademark Collateral or any part thereof are assembled in
order to effectuate the Agent's rights and remedies hereunder or under
law, and (iv) without notice except as specified below, sell the Patent
and Trademark Collateral or any part thereof in one or more parcels at
public or private sale, at any of the Agent's offices or
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<PAGE> 10
elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Agent may deem commercially reasonable. In the event
of any sale, assignment, or other disposition of any of the Patent and
Trademark Collateral by any Grantor, the goodwill of the business
connected with and symbolized by any Patent and Trademark Collateral
subject to such disposition shall be included, and such Grantor shall
supply to the Agent or its designee such Grantor's know-how and
expertise relating to the manufacture and sale of products or the
provision of services relating to any Patent and Trademark Collateral
subject to such disposition, and its customer lists and other records
relating to such Patent and Trademark Collateral and to the
distribution of such products and services. Each Grantor agrees that,
to the extent notice of sale shall be required by law, at least ten
days' notice to such Grantor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. The Agent shall not be obligated to make any
sale of Patent and Trademark Collateral regardless of notice of sale
having been given. The Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor,
and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
(b) All payments received by any Grantor under or in
connection with any of the Patent and Trademark Collateral shall be
received in trust for the benefit of the Agent, shall be segregated
from other funds of such Grantor and shall be forthwith paid over to
the Agent in the same form as so received (with any necessary
endorsement).
(c) All payments made under or in connection with or otherwise
in respect of the Patent and Trademark Collateral and all cash proceeds
received by the Agent in respect of any sale of, collection from, or
other realization upon all or any part of the Patent and Trademark
Collateral may, in the discretion of the Agent, be held by the Agent as
collateral for, and/or then or at any time thereafter applied (after
payment of any amounts payable to the Agent pursuant to Section 10) in
whole or in part by the Agent for the ratable benefit of the Lenders,
the Issuer and the Swing Line Lender against, all or any part of the
Secured Obligations, in such order as the Agent shall elect. Any
surplus of such cash or cash proceeds held by the Agent and remaining
after payment in full of all the Secured Obligations shall be paid over
to the respective Grantors or to whomsoever may be lawfully entitled to
receive such surplus.
SECTION 10. INDEMNITY AND EXPENSES. Without duplicating any amounts
payable under Sections 10.7, 11.5 and 11.10 of the Credit Agreement:
(a) Each Grantor agrees to indemnify the Agent from and
against any and all claims, losses and liabilities arising out of, or
in connection with or resulting from this Agreement or the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims, losses or liabilities
result from the Agent's gross negligence or willful misconduct as
determined by a final judgment of a court of competent jurisdiction.
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<PAGE> 11
(b) Each Grantor will upon demand pay to the Agent the amount
of any and all reasonable expenses, including, without limitation, the
reasonable fees and costs of its counsel and of any experts and agents,
that the Agent may incur in connection with (i) the administration of
this Agreement, (ii) the custody, preservation, use or operation of, or
the sale of, collection from, or other realization upon, any of the
Patent and Trademark Collateral, (iii) the exercise or enforcement of
any of the rights of the Agent or the Lenders hereunder or (iv) the
failure by any Grantor to perform or observe any of the provisions
hereof.
SECTION 11. SECURITY INTEREST ABSOLUTE. All rights of the Agent and
Security Interests granted hereunder, and each of the Grantor's Obligations,
shall, to the extent permitted by law, be absolute and unconditional
irrespective of:
(i) any lack of validity or enforceability of the Credit
Agreement or any other Loan Document, or any
agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment
of, or in any other term of, all or any of the
Secured Obligations, or any other amendment or waiver
of or any consent to departure from, the Credit
Agreement or any other Loan Document (other than this
Agreement), including, without limitation, any
increase in the Secured Obligations resulting from
the extension of additional credit to the Borrower or
otherwise;
(iii) any taking and holding of Patent and Trademark
Collateral or guarantees for all or any of the
Secured Obligations; or any amendment, alteration,
exchange, substitution, transfer, enforcement,
waiver, subordination, termination or release of any
Patent and Trademark Collateral or such guarantees,
or any nonperfection of any Patent and Trademark
Collateral, or any consent to departure from any such
guaranty;
(iv) any manner of application of Patent and Trademark
Collateral, or proceeds thereof, to all or any of the
Secured Obligations, or the manner of sale or other
disposition of any Patent and Trademark Collateral;
(v) any consent by any Lender, the Issuer, the Swing Line
Lender or the Agent to the change, restructuring or
termination of the corporate structure or existence
of any Grantor and any corresponding restructure of
the Secured Obligations, or any other restructure or
refinancing of the Secured Obligations or any portion
thereof;
(vi) any modification, compromise, settlement or release
by the Agent or any Lender, the Issuer or the Swing
Line Lender, by operation of law or otherwise (except
any of the foregoing with respect to this Agreement),
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<PAGE> 12
collection or other liquidation of the Secured
Obligations or the liability of any Grantor, or of
the Patent and Trademark Collateral, in whole or in
part, and any refusal of payment by the Agent or any
Lender, the Issuer or the Swing Line Lender, in whole
or in part, from any obligor, any Grantor in
connection with any of the Secured Obligations,
whether or not with notice to, or further assent by,
or any reservation of rights against, any Grantor; or
(vii) any other circumstance (other than by operation of
law) that might otherwise constitute a defense
available to, or a discharge of, the Grantor.
The granting of a Security Interest in the Patent and Trademark Collateral shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any payment of any of the Secured Obligations is rescinded or must
otherwise be returned by the Agent or any Lender, the Issuer or the Swing Line
Lender upon the insolvency, bankruptcy or reorganization of any Grantor or
otherwise, all as though such payment had not been made.
SECTION 12. WAIVER. Each Grantor hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Secured
Obligations (as that term is defined in this Agreement) and this Agreement and
any requirement that the Agent or any Lender, the Issuer or the Swing Line
Lender protect, secure, perfect or insure any Security Interest or any property
subject thereto or exhaust any right or take any action against any Grantor or
any other Person or any collateral.
SECTION 13. AMENDMENTS, ETC.
(a) Except as provided in subsection (b) to this Section 13,
no amendment or waiver of any provision of this Agreement, and no
consent to any departure by any Grantor herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Agent,
and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No failure to
exercise nor any delay in exercising, on the part of the Agent, any of
the Lenders, the Issuer or the Swing Line Lender, any right, power or
privilege under this Agreement shall operate as a waiver thereof;
further, no single or partial exercise of any right, power or privilege
under this Agreement shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
(b) Any patent and trademark security agreement supplement
hereto shall be in substantially the form of Exhibit A hereto (each a
"PATENT AND TRADEMARK SECURITY AGREEMENT SUPPLEMENT"), and upon the
execution and delivery thereof by any Person (i) such Person shall be
referred to as an "ADDITIONAL GRANTOR" and shall be and become a
Grantor and each reference in this Agreement to "GRANTOR" shall also
mean and be a reference to such Additional Grantor, and (ii) the
supplements attached to each Patent and Trademark Security Agreement
Supplement shall be incorporated into and become a part of and
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<PAGE> 13
supplement Schedules I and II hereto, and the Agent may attach such
supplements to such Schedule as supplemented pursuant hereto.
SECTION 14. ADDRESSES FOR NOTICES. All notices and other communications
to any party provided for hereunder shall be in writing (including telegraphic,
telecopy, telex or cable communication) and mailed, telegraphed, telecopied,
telexed, cabled or delivered, addressed to such party, in the case of any
Telxon, at its address referred to in Section 11.2 of the Credit Agreement, in
the case of a Grantor other than Telxon, at its address referred to on Schedule
I to the Subsidiary Guaranty or next to its signature in any Supplement to the
Subsidiary Guaranty, in the case of the Agent, at the address of the Agent
referred to in Section 11.2 of the Credit Agreement, or as to any party at such
other address as shall be designated by such party in a written notice to each
other party complying as to delivery with the terms of this Section. All such
notices and other communications shall be effective (a) when received, if mailed
or delivered, or (b) when delivered to the telegraph company, transmitted by
telecopier, confirmed by telex answerback or delivered to the cable company,
respectively, addressed as aforesaid.
SECTION 15. CONTINUING SECURITY INTEREST; RELEASE AND REASSIGNMENT OF
COLLATERAL.
(a) This Agreement shall create a continuing Security Interest
in the Patent and Trademark Collateral and shall (i) remain in full
force and effect until the cash payment in full of the Secured
Obligations, the repayment of all Loans, the expiration or cancellation
of all Letters of Credit and the termination of the Revolving
Commitments, (ii) be binding upon each Grantor, its successors and
assigns, and (iii) inure, together with the rights and remedies of the
Agent hereunder, to the benefit of the Agent, the Lenders, the Issuer,
and the Swing Line Lender and each of their respective successors,
transferees and assigns, including, but not limited to, those provided
in the Credit Agreement. Upon the payment in full of the Secured
Obligations, the repayment of all Loans, the expiration or cancellation
of all Letters of Credit and the termination of the Revolving
Commitments, this Agreement and the Liens granted to the Agent
hereunder, shall terminate. Without limiting the generality of the
foregoing clause (iii), any Lender may assign or otherwise transfer all
or any portion of its rights and obligations under the Credit Agreement
(in accordance with the terms of the Credit Agreement) to any other
Person, and such other Person shall thereupon become vested with all
the benefits in respect thereof granted to such Lender, Issuer or Swing
Line Lender herein or otherwise, in each case subject to and as
provided for in Section 11.7 of the Credit Agreement.
(b) In the case of any Patent and Trademark Collateral pledged
or assigned, or in which a security interest is granted hereunder by
any Grantor, upon any sale, lease, transfer or other disposition of any
item of Patent and Trademark Collateral in accordance with the terms of
the Credit Agreement (other than sales of Inventory in the ordinary
course of business), the Agent will, at such Grantor's expense, execute
and deliver to any Grantor, any such documents as such Grantor shall
reasonably request to evidence the release of such item of Patent and
Trademark Collateral from the assignment and security interest granted
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<PAGE> 14
hereby; provided, however, as to clause (a)(ii) above, that (x) at the
time of such request and such release no Event of Default (or event or
condition which upon notice or lapse of time or both would constitute
an Event of Default) shall have occurred and be continuing, (y) such
Grantor shall have delivered to the Agent, at least 10 Business Days
prior to the date of the proposed release, or such shorter period
acceptable to the Agent under this Agreement, a written request for
release describing the item of Patent and Trademark Collateral and the
terms of the sale, lease, transfer or other disposition in reasonable
detail, including the price thereof and any expenses in connection
therewith, together with a form of release for execution by the Agent
and a certification by such Grantor to the effect that the transaction
is in compliance with the Credit Agreement and as to such other matters
as the Agent may request, and (z) any proceeds of any such sale, lease,
transfer or other disposition required to be applied to the prepayment
of Loans or reduction in Revolving Commitments in accordance with the
Credit Agreement shall be so applied.
(c) Upon the cash payment in full of the Secured Obligations,
the Security Interests granted hereby shall terminate and all rights to
the Patent and Trademark Collateral shall revert and be reassigned to
the respective Grantors. Upon any such termination, the Agent will, at
such Grantor's expense, execute and deliver to each Grantor such
documents as such Grantor shall reasonably request to evidence such
termination and reassignment.
SECTION 16. TRANSACTIONS PERMITTED UNDER THE CREDIT AGREEMENT. Nothing
contained in this Agreement shall in any manner prohibit or restrict any Grantor
or any of its Subsidiaries from consummating any transaction, entering into any
agreement or otherwise taking any action expressly permitted under the Credit
Agreement.
SECTION 17. SEVERABILITY. If any term or provision of this Agreement is
or shall become illegal, invalid or unenforceable in any jurisdiction, all other
terms and provisions of this Agreement shall remain legal, valid and enforceable
in such jurisdiction and such illegal, invalid or unenforceable provision shall
be legal, valid and enforceable in any other jurisdiction.
SECTION 18. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts each of which when so executed shall be deemed to
be an original and all of which when taken together shall constitute one and the
same agreement.
SECTION 19. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO
THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER,
OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PATENT AND TRADEMARK
COLLATERAL ARE GOVERNED BY THE LAWS OF THE UNITED STATES OR ANY OTHER
JURISDICTION OTHER THAN THE STATE OF NEW YORK. UNLESS OTHERWISE DEFINED HEREIN
OR IN THE CREDIT AGREEMENT, TERMS USED IN ARTICLE 8 OR 9 OF THE UCC ARE USED
HEREIN AS THEREIN DEFINED.
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<PAGE> 15
SECTION 20. WAIVER OF TRIAL BY JURY. EACH GRANTOR HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES TO THE EXTENT PERMITTED BY LAW ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT, THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREBY.
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<PAGE> 16
IN WITNESS WHEREOF, each Grantor has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
GRANTORS:
TELXON CORPORATION
By: /s/ GERALD J. GABRIEL
--------------------------------
Name: Gerald J. Gabriel
------------------------------
Title: Senior Vice President
-----------------------------
TELETRANSACTION, INC.
By: /s/ GERALD J. GABRIEL
--------------------------------
Name: Gerald J. Gabriel
Title: Senior Vice President
PENRIGHT! CORPORATION
By: /s/ GERALD J. GABRIEL
--------------------------------
Name: Gerald J. Gabriel
Title: Senior Vice President
META HOLDING CORPORATION
By: /s/ GERALD J. GABRIEL
------------------------------
Name: Gerald J. Gabriel
Title: Senior Vice President
AGENT:
THE BANK OF NEW YORK
By: /s/ ROBERT J. JOYCE
--------------------------------
Name:
Title:
16
<PAGE> 1
EXHIBIT 10.3.1.j
PLEDGE AGREEMENT
PLEDGE AGREEMENT (the "AGREEMENT"), dated as of March 26, 1999,
made by TELXON CORPORATION ("TELXON"), a Delaware corporation (the "PLEDGOR"),
to THE BANK OF NEW YORK, with an office at One Wall Street, New York, New York
10286, as agent (the "AGENT") for the benefit of the Lenders, the Issuer and the
Swing Line Lender (each as defined in the Credit Agreement referred to below).
W I T N E S S E T H :
WHEREAS, Telxon, the Lenders from time-to-time party to the Credit
Agreement, the Issuer, the Swing Line Lender and the Agent, on behalf of the
Lenders, the Issuer, the Swing Line Lender, entered into that certain Credit
Agreement dated as of March 8, 1996, as amended by that certain Amendment No. 1
to the Credit Agreement dated as of August 6, 1996, Amendment No. 2 to the
Credit Agreement dated as of December 16, 1996 and Amendment No. 3 to the Credit
Agreement dated as of December 12, 1997 (as further amended, amended and
restated, modified or supplemented from time to time, the "CREDIT AGREEMENT");
WHEREAS, Telxon, the Agent, the Issuer, the Swing Line Lender
and the Lenders have heretofore entered into a Waiver and Agreement, dated as of
December 29, 1998 (the "ORIGINAL WAIVER") and a Waiver Extension and Agreement,
dated as of February 12, 1999 (the "ORIGINAL WAIVER EXTENSION"), with respect to
certain matters relating to the compliance by Telxon with certain provisions of
the Agreement;
WHEREAS, Telxon has requested that the Agent, the Issuer, the
Swing Line Lender and the Lenders agree to a further waiver of compliance by
Telxon with certain provision of the Credit Agreement, including an extension of
the waiver granted in the Original Waiver as extended by the Original Waiver
Extension and to amend certain other provisions of the Credit Agreement;
WHEREAS, contemporaneously with the execution and delivery of
this Agreement, the Agent, the Issuer, the Swing Line Lender, the Lenders and
Telxon are entering into that certain Second Waiver Extension Agreement and
Amendment No. 4 to the Credit Agreement dated as of the date hereof (the "SECOND
WAIVER");
WHEREAS, unless otherwise defined herein, terms defined in the
Credit Agreement are used herein as therein defined;
<PAGE> 2
WHEREAS, it is a condition precedent to the effectiveness of the
Second Waiver, and the continuance of the making of Loans and the issuance of
Letters of Credit under the Credit Agreement, that the Pledgor shall have
granted to the Agent, for the ratable benefit of the Lenders, the Issuer and the
Swing Line Lender, a security interest, pledge and lien upon the Pledgor's
assets and property contemplated by this Agreement;
NOW, THEREFORE, in consideration of the premises, the covenants
and conditions set forth herein and in the Second Waiver, and for other good and
valuable consideration, the receipt and sufficiency are hereby acknowledged, the
Pledgor hereby agrees with the Agent as follows:
SECTION 1. PLEDGE. The Pledgor hereby transfers, grants, bargains,
conveys, hypothecates, pledges and sets over unto the Agent, and grants to the
Agent, for its benefit and for the ratable benefit of the Lenders, the Issuer
and the Swing Line Lender, a security interest, in (a) all the shares of capital
stock owned by it listed on Schedule I hereto of the issuer listed thereon (the
"ISSUER") and all shares of capital stock of any Subsidiary obtained in the
future by the Pledgor and the certificates representing or evidencing all such
shares (the "PLEDGED STOCK"), (b) all other property which may be delivered to
and held by the Agent pursuant to the terms hereof, (c) subject to Section 6
below, all dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed, in respect of, in exchange for or
upon the conversion of the securities referred to in clauses (a) and (b) above,
(d) subject to Section 6 below, all rights and privileges of the Pledgor with
respect to the securities and other property referred to in clauses (a), (b) and
(c) above, and (e) all proceeds of any of the foregoing (the items referred to
in clauses (a) through (e) being collectively called the "PLEDGED COLLATERAL").
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement and the
Pledged Collateral secure the payment and performance of all obligations of the
Pledgor to the Agent, the Lenders, the Issuer and the Swing Line Lender now or
hereafter existing under the Credit Agreement, the Notes, the Letter of Credit
and the other Loan Documents, as the same may be amended, modified or
supplemented, whether for principal, interest, fees, expenses or otherwise, and
all obligations of the Pledgor now or hereafter existing under or in respect of
this Agreement under the Credit Agreement or the Loan Documents (all such
obligations of the Pledgor being herein called the "OBLIGATIONS").
SECTION 3. DELIVERY OF PLEDGED COLLATERAL; OTHER ACTION. All
certificates or instruments representing or evidencing the Pledged Collateral
shall be delivered to and held by the Agent, on behalf of the Lenders, the
Issuer and the Swing Line Lender, and shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form
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<PAGE> 3
and substance acceptable to the Agent. Upon the occurrence and during the
continuance of any Event of Default (as hereinafter defined in Section 11), the
Agent shall have the right, at any time in its discretion and without notice to
the Pledgor, to transfer to or to register in the name of the Agent or any of
its nominees any or all of the Pledged Collateral.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
warrants as follows:
(a) the shares of Pledged Stock have been duly
authorized and validly issued and are fully paid and non-assessable;
(b) the Pledgor is the legal and beneficial owner of
the Pledged Collateral described on Schedule I free and clear of any
lien, security interest, option or other charge, pledge or encumbrance
except for the security interest created by this Agreement or except as
permitted by the Credit Agreement;
(c) no authorization, approval, or other action by,
and no notice to or filing with, any governmental authority or
regulatory body is required for the pledge by the Pledgor of the
Pledged Collateral pursuant to this Agreement or for the execution,
delivery or performance of this Agreement by the Pledgor; and
(d) except as set forth on Schedule I, (i) the
Pledged Stock described in Section 1 hereof constitutes all of the
issued and outstanding shares of stock of the Issuer and (ii) the
Issuer is not under any contractual obligation to issue any additional
shares of stock or any other securities, rights or indebtedness.
SECTION 5. FURTHER ASSURANCES. The Pledgor agrees that at any time
and from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or reasonably desirable, or that the Agent may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Agent to exercise and
enforce its rights and remedies hereunder with respect to any Pledged
Collateral.
SECTION 6. VOTING RIGHTS; DIVIDENDS; ETC. (a) So long as no Event
of Default (as defined in Section 11 herein) shall have occurred and be
continuing, and except as provided in the Credit Agreement:
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<PAGE> 4
(i) the Pledgor shall be entitled to exercise any and
all voting and other consensual rights pertaining to the Pledged
Collateral or any part thereof for any purpose not inconsistent with
the terms of this Agreement;
(ii) notwithstanding the provisions of Section 1
hereof, the Pledgor shall be entitled to receive and retain any and all
dividends paid in respect of the Pledged Collateral of the Pledgor;
PROVIDED, that any and all
(A) dividends paid or payable other than in
cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of,
or in exchange for, any Pledged Collateral, and
(B) dividends and other distributions paid
or payable in cash in respect of any Pledged Collateral in
connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital, capital surplus
or paid-in-surplus,
shall be, and shall be forthwith delivered to the Agent to hold as, Pledged
Collateral and shall, if received by the Pledgor, be received in trust for the
benefit of the Agent be segregated from the other property or funds of the
Pledgor, and be forthwith delivered to the Agent as Pledged Collateral in the
same form as so received (with any necessary indorsement); and
(iii) the Agent shall execute and deliver (or cause to be executed
and delivered) to the Pledgor all such proxies and other instruments as the
Pledgor may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and other rights which it is entitled to exercise pursuant
to paragraph (i) above and to receive the dividends which it is authorized to
receive and retain pursuant to paragraph (ii) above;
(b) Upon the occurrence and during the continuance of an
Event of Default:
(i) upon written notice from the Agent to the Pledgor
to such effect, all rights of the Pledgor to exercise the voting and
other consensual rights which it would otherwise be entitled to
exercise pursuant to Section 6(a)(i) and to receive the dividends which
it would otherwise be authorized to receive and retain pursuant to
Section 6(a)(ii) shall cease, and all such rights shall thereupon
become vested in the Agent, who shall thereupon have the sole right to
exercise such voting and other consensual rights and to receive and
hold as Pledged Collateral any such dividends; and
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<PAGE> 5
(ii) after notice from the Agent, all dividends which
are received by the Pledgor contrary to the provisions of paragraph (i)
of this Section 6(b) shall be received in trust for the benefit of the
Agent, shall be segregated from other funds of the Pledgor and shall be
forthwith paid over to the Agent as Pledged Collateral in the same form
as so received (with any necessary indorsement).
SECTION 7. TRANSFERS AND OTHER LIENS; ADDITIONAL SHARES. Except as
otherwise provided in the Credit Agreement:
(a) The Pledgor agrees that it will not (i) sell or otherwise
dispose of, or grant any option with respect to, any of the Pledged Collateral
of the Pledgor, or (ii) create or permit to exist any lien, security interest,
or other charge or encumbrance upon or with respect to any of the Pledged
Collateral of the Pledgor, except for the security interest under this
Agreement.
(b) The Pledgor agrees that it will (i) cause the Issuer not
to issue any stock or other securities in addition to or substitution for the
Pledged Stock issued by the Issuer and any subsequently formed or acquired
Subsidiary, except to the Pledgor and (ii) pledge hereunder, immediately upon
its acquisition (directly or indirectly) thereof, any and all such additional
shares of stock or other securities of the Issuer and any subsequently formed or
acquired Subsidiary.
SECTION 8. AGENT APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby
appoints the Agent the Pledgor's attorney-in-fact, with full authority in the
place and stead of the Pledgor and in the name of the Pledgor or otherwise, from
time to time, upon and during the continuance of an Event of Default, in the
Agent's discretion to take any action and to execute any instrument which the
Agent may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, to receive, indorse and collect all
instruments made payable to the Pledgor representing any dividend or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same.
SECTION 9. AGENT MAY PERFORM. If the Pledgor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgor under Section 12 hereof.
SECTION 10. REASONABLE CARE. The Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession
5
<PAGE> 6
if the Pledged Collateral is accorded treatment substantially equal to that
which the Agent accords to its own property, it being understood that the Agent
shall not have responsibility for (i) ascertaining or taking action with respect
to calls, conversions, exchanges, maturities, tenders or other matters relative
to any Pledged Collateral, whether or not the Agent has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral.
SECTION 11. EVENTS OF DEFAULT; REMEDIES. Upon the occurrence of
any of the following specified Events of Default (each an "EVENT OF DEFAULT"):
(a) the occurrence of a Default as defined in the
Credit Agreement;
(b) the Pledgor shall or shall attempt to (i)
encumber, subject to any further pledge or security interest, sell,
transfer or otherwise dispose of any of the Pledged Collateral or any
interest therein (except to the extent permitted by the Credit
Agreement), or (ii) use or allow the use of any of the Pledged
Collateral in connection with any undertaking prohibited by law;
(c) any of the Pledged Collateral shall be attached
or levied upon or seized in any legal proceeding, or if the Pledgor
shall fail to pay when due and payable all taxes and assessments upon
any of the Pledged Collateral (unless in good faith contested by
appropriate proceedings promptly initiated and diligently conducted);
or
(d) the Pledgor shall fail to pledge or deliver any
securities or property as required by this Agreement;
then, and in any such event, the Agent may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Uniform Commercial Code and (subject to applicable securities
laws) the Agent, may also, without notice except as specified below, sell the
Pledged Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange or at any of the Agent's offices or elsewhere, for
cash, on credit or for future delivery, and at such price or prices and upon
such other terms as the Agent, may deem commercially reasonable. The Pledgor
agrees that, to the extent notice of sale shall be required by law, at least ten
days' prior notice to the Pledgor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. The Agent shall not be obligated to make any sale of Pledged
Collateral regardless of notice of sale having been given. The Agent may adjourn
any public
6
<PAGE> 7
or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
All cash proceeds received by the Agent in respect of any sale
of, collection from, or other realization upon all or any part of the Pledged
Collateral shall be held by the Agent, on behalf of the Lenders, the Issuer and
the Swing Line Lender, as collateral for, and then applied in whole or in part
by the Agent against, all or any part of the Obligations in such order as the
Agent shall elect. Any surplus of such cash or cash proceeds held by the Agent
and remaining after payment in full of all the Obligations shall be paid over to
the Pledgor or to whomsoever may be lawfully entitled to receive such surplus.
Should the net proceeds of any sale of the whole or any part
of the Pledged Collateral be insufficient to pay the Obligations in full, the
Pledgor shall remain liable to the full extent of the deficiency.
If at any time when the Agent shall determine to exercise its
right to sell all or any part of the Pledged Collateral pursuant to this Section
11, such Pledged Collateral or the part thereof to be sold shall not be
effectively registered under the Securities Act of 1933, as amended, and as from
time to time in effect, and the rules and regulations thereunder (the
"SECURITIES ACT"), the Agent is hereby expressly authorized to sell such Pledged
Collateral or such part thereof by private sale in such manner and under such
circumstances as the Agent may deem necessary or advisable in order that such
sale may legally be effected without such registration. Without limiting the
generality of the foregoing, in any such event the Agent (a) may proceed to make
such private sale notwithstanding that a registration statement for the purpose
of registering such Pledged Collateral or such part thereof shall have been
filed under such Securities Act, (b) may approach and negotiate with a
restricted number of potential purchasers to effect such sale and (c) may
restrict such sale to purchasers as to their number, nature of business and
investment intention including without limitation to purchasers each of whom
will represent and agree to the satisfaction of the Agent 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 part thereof, it being
understood that the Agent may cause or require the Pledgor, and the Pledgor
hereby agrees upon the written request of the Agent, to cause (i) a legend or
legends to be placed on the certificates to be delivered to such purchasers to
the effect that the Pledged Collateral represented thereby have not been
registered under the Securities Act and setting forth or referring to
restrictions on the transferability of such securities; and (ii) the issuance of
stop transfer instructions to the Issuer's transfer agent, if any, with respect
to the Pledged Collateral, or, if the Issuer transfers its own securities, a
notation in the appropriate records of the Issuer. In the event
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<PAGE> 8
of any such sale, the Pledgor does hereby consent and agree that the Agent shall
incur no responsibility or liability for selling all or any part of the Pledged
Collateral at a price which the Agent may deem reasonable under the
circumstances, notwithstanding the possibility that a substantially higher price
might be realized if the sale were public and deferred until after registration
as aforesaid.
SECTION 12. EXPENSES; INDEMNITY. Without duplicating any amounts
payable under Sections 10.7, 11.5 and 11.10 of the Credit Agreement, the Pledgor
will upon demand pay to the Agent the amount of any and all reasonable expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, which the Agent may incur in connection with (i) the administration of
this Agreement, (ii) the custody or preservation of, or the sale of, collection
for, or other realization upon, any of the Pledged Collateral, (iii) the
exercise or enforcement of any of the rights of the Agent hereunder or (iv) the
failure by the Pledgor to perform or observe any of the provisions hereof. The
Pledgor agrees to indemnify and hold harmless the Agent from and against any and
all claims, demands, losses, judgments and liabilities (including liabilities
for penalties) of whatsoever kind or nature, growing out of or resulting from
this Agreement or the exercise by the Agent of any right or remedy granted to it
hereunder or under the other Loan Documents, except as such may have resulted
from the Agent's gross negligence or willful misconduct. In no event shall the
Agent be liable, in the absence of gross negligence or willful misconduct on its
part, for any matter or thing in connection with this Agreement other than to
account for moneys or property actually received by it in accordance with the
terms thereof. If and to the extent that the obligations of the Pledgor under
this Section 12 are unenforceable for any reason, the Pledgor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
SECTION 13. SECURITY INTEREST ABSOLUTE. All rights of the Agent
and security interests hereunder, and all obligations of the Pledgor hereunder,
shall be absolute and unconditional irrespective of any circumstance which might
constitute a defense available to, or a discharge of, any of the Pledgor in
respect of the Obligations or any of the Pledgor in respect of this Agreement
other than payment in full of the Obligations.
SECTION 14. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Agreement, nor consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the party against whom enforcement is sought, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
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SECTION 15. ADMINISTRATION BY AGENT. The Agent will hold in
accordance with this Agreement all items of the Pledged Collateral at any time
received by it under this Agreement. It is expressly understood and agreed that
the obligations of the Agent as holder of the Pledged Collateral and interests
therein and with respect to the disposition thereof, and otherwise under this
Agreement, are only those expressly set forth in this Agreement.
SECTION 16. ADDRESSES FOR NOTICES. All notices, requests, demands
and other communications provided for hereunder shall be in writing (including
telecopier communication) and, if to Telxon, mailed or delivered to it addressed
to it at the address specified in the Credit Agreement, if to the Pledgor,
mailed or delivered to it, addressed to it at the address specified below its
signature at the end of this Agreement, if to the Agent, mailed or delivered to
it, addressed to it at the address specified in the Credit Agreement, or as to
each party at such other address as shall be designated by such party in a
written notice to each other party complying as to delivery with the terms of
this Section 16. All such notices, requests, demands and other communications
shall, when mailed, be effective when deposited in the mails or upon delivery,
addressed as aforesaid.
SECTION 17. CONTINUING SECURITY INTEREST. This Agreement shall
create a continuing security interest in the Pledged Collateral and shall (i)
remain in full force and effect until payment in full of the Obligations, the
repayment of all Loans, the expiration or cancellation of all Letters of Credit
and the termination of the Revolving Commitments, (ii) be binding upon the
Pledgor, its successors and assigns, and (iii) inure to the benefit of the
Agent, the Lenders, the Issuer and the Swing Line Lender and each of their
respective successors, transferees and assigns. Upon the payment in full of the
Obligations, the repayment of all Loans, the expiration or cancellation of all
Letters of Credit and the termination of the Revolving Commitments, this
Agreement shall terminate and the Pledgor shall be entitled to the return, upon
its request and at its expense, of such of the Pledged Collateral as shall not
have been sold or otherwise applied pursuant to the terms hereof, subject to any
existing liens, security interests or encumbrances on such Pledged Collateral,
but free and clear of any liens in favor of the Agent. Without limiting the
generality of the foregoing clause (iii), any Lender may assign or otherwise
transfer all or any portion of its rights and obligations under the Credit
Agreement (in accordance with the terms of the Credit Agreement) to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Lender, Issuer or Swing Line Lender
herein or otherwise, in each case subject to and as provided for in Section 11.7
of the Credit Agreement.
SECTION 18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF
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THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW YORK AND BY FEDERAL LAW (INCLUDING, WITHOUT LIMITATION, THE BANKRUPTCY CODE)
TO THE EXTENT THE SAME HAS PRE-EMPTED THE LAW OF THE STATE OF NEW YORK OR SUCH
OTHER JURISDICTION.
SECTION 19. WAIVER OF TRIAL BY JURY. THE PLEDGOR HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVES TO THE EXTENT PERMITTED BY LAW, ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 20. HEADINGS. Section headings in this Agreement are
included herein for the convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
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IN WITNESS WHEREOF, the Pledgor and the Agent have caused this
Agreement to be duly executed and delivered as of the date first above-written.
PLEDGOR:
TELXON CORPORATION
By: /s/ GERALD J. GABRIEL
--------------------------------
Name: Gerald J. Gabriel
Title: Senior Vice President
AGENT:
THE BANK OF NEW YORK
By: /s/ ROBERT J. JOYCE
------------------------
Title: Vice President
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EXHIBIT 10.3.2.d
AMENDED AND RESTATED SECURITY AGREEMENT
AMENDED AND RESTATED SECURITY AGREEMENT, dated as of March 26, 1999, by
and among TELXON CORPORATION, a Delaware corporation (the "Borrower"), and BANK
ONE, NA successor by merger to BANK ONE AKRON, NA ("Bank One") (as the same may
be amended, amended and restated, supplemented or otherwise modified from time
to time, this Agreement
RECITALS
1. The Borrower, the Lenders, including Bank One, from time-to-time
party to the Credit Agreement, the Issuer, the Swing Line Lender and Bank of New
York ("BNY"), as the Agent (the "Agent"), on behalf of the Lenders, the Issuer
and the Swing Line Lender entered into that certain Credit Agreement dated as of
March 8, 1996, as amended by that certain Amendment No. 1 to the Credit
Agreement dated as of August 6, 1996 ("Amendment No.1"), Amendment No. 2 to the
Credit Agreement dated as of December 16, 1996 and Amendment No. 3 to the Credit
Agreement dated as of December 12, 1997 (as further amended, modified or
supplemented from time to time, the "Credit Agreement").
2. Pursuant to Amendment No. 1 and the Intercreditor Agreement dated as
of August 6, 1996, by and between Bank One and the Agent , as acknowledged by
the Borrower (as the same may be amended, supplemented or otherwise modified
from time to time, the "Intercreditor Agreement"), Bank One extended to Borrower
a certain Twenty Million Dollar ($20,000,000.00) revolving line of credit (as
the same may be amended, supplemented or otherwise modified from time to time,
the "Swing Line") which is evidenced by a certain Business Purpose Revolving
Promissory Note dated August 4, 1998 and executed by Borrower (as the same may
be amended, supplemented or otherwise modified from time to time, the "Swing
Line Note") and a Standby Letter of Credit No. 047769 dated April 25, 1996 in
the amount of $75,608.33 ("Bank One Letter of Credit"). The Borrower granted
Bank One a security interest in certain collateral pursuant to the Bank One
Security Agreement dated as of August 6, 1996 ("Original Security Agreement").
3. The Borrower and Bank One have heretofore entered into a Waiver and
Agreement, dated as of December 29, 1998 (the "Original Waiver") and a Waiver
Extension and Agreement, dated as of February 12, 1999 (the "Original Waiver
Extension"), with respect to certain matters relating to the compliance by the
Borrower with certain provisions of the Credit Agreement.
4. The Borrower has requested that Bank One agree to a further waiver
of compliance by the Borrower with certain provisions of the Credit Agreement,
including an extension of the waiver granted in the Original Waiver as extended
by the Original Waiver Extension and to amend certain other provisions of the
Credit Agreement.
<PAGE> 2
5. Contemporaneously with the execution and delivery of this Agreement,
Bank One and the Borrower are entering into that certain Further Consent and
Agreement by and between Bank One and the Borrower dated as of the date hereof
(the "Second Bank One Waiver").
6. It is a condition to the effectiveness of the Second Bank One Waiver
and the continued extension of credit under the Swing Line that the Borrower
shall have granted to Bank One, the security interests and liens upon the
Borrower's assets and property contemplated by this Agreement.
NOW, THEREFORE, in consideration of the recitals, the covenants and
conditions set forth herein and in the Second Bank One Waiver and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower hereby agrees with Bank One as follows:
1. DEFINED TERMS
(a) Capitalized terms used herein which are not otherwise defined
herein shall have the respective meanings ascribed thereto in the Credit
Agreement.
(b) When used in this Agreement, the following capitalized terms shall
have the respective meanings ascribed thereto as follows:
"Collateral": as defined in Section 2.
"Event of Default": as defined in Section 9 hereof.
"Financing Statements": UCC financing statements.
"OUCC or Code": the UCC as in effect in the State of Ohio on the date
hereof.
"Office Location": as defined in Section 4(a) hereof.
"Secured Obligations": as defined in Section 3 hereof.
"UCC": with respect to any jurisdiction, Articles 1, 8 and 9 of the
Uniform Commercial Code as from time to time in effect in such jurisdiction.
(c) When used in this Agreement, the following capitalized terms shall
have the respective meanings ascribed thereto in the OUCC: "PROCEEDS" and
"SECURITY INTEREST".
2. GRANT OF SECURITY INTEREST
To secure the prompt and complete payment, observance and performance
of the Secured Obligations, the Borrower grants to Bank One a perfected Security
Interest in and to all of the
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Borrower's right, title and interest in and to the following (collectively, the
"Collateral") which Security Interest shall be subordinate in all respects to
the Security Interest and Liens granted by the Borrower and certain of its
Subsidiaries to the Agent on behalf of the Lender, Issuer and Swing Line Lender
as security for the obligations of the Borrower and certain of its Subsidiaries
under the Credit Agreement and Loan Documents:
(a) all present and future accounts, accounts receivable and other
rights of the Borrower to payment for goods sold or leased or for services
rendered, whether now existing or hereafter arising and wherever arising, and
whether or not they have been earned by performance (collectively, the
"ACCOUNTS");
(b) all goods and merchandise now owned or hereafter acquired by the
Borrower (wherever located, whether in the possession of the Borrower or of a
bailee or other person for sale, storage, transit, processing, use or otherwise
consisting of whole goods, components, supplies, materials, returned or
repossessed goods or goods consigned by the Borrower to a third party) which are
held for sale or lease or to be furnished (or have been furnished) under any
contract of service or which are raw materials, work-in-process, finished goods
or materials used or consumed in the business of the Borrower or processed by or
on behalf of the Borrower, but expressly excluding inventory consigned to the
Borrower by third parties (collectively, the "INVENTORY");
(c) all machinery, all manufacturing, distribution, selling, data
processing and office equipment, all furniture, furnishings, appliances,
fixtures (other than Fixtures as hereinafter defined) and trade fixtures, tools,
tooling, molds, dies, vessels, aircraft and all other goods of every type and
description (other than Inventory) which are used or bought for use primarily in
business, in each instance whether now owned or hereafter acquired by the
Borrower and wherever located (collectively, the "EQUIPMENT");
(d) all contracts and contract rights of the Borrower, including,
without limitation, all customer and supplier contracts, firm sale orders,
rights under license and franchise agreements; all interest rate swap, cap or
other interest rate protection arrangements, as the same may from time to time
be amended, amended and restated, supplemented or otherwise modified (except any
such contracts, whether oral or written, (x) between the Borrower and any of its
officers, directors and employees, and (y) which individually are either in
amounts less than $50,000 in value or otherwise not material to the business
operations of the Borrower), as to which (i) the Borrower is to receive moneys
due and/or to become due to it thereunder or in connection therewith, (ii) the
Borrower is entitled to damages arising out of, or for, breach or default in
respect thereof or (iii) the Borrower is entitled to perform and to exercise all
remedies thereunder, but excluding any contract, agreement or license which
prohibits the assignment or encumbrance by the Borrower of such contract,
agreement or license (or of its rights thereunder), except to the extent that
such prohibition would be ineffective pursuant to Section 9-318 (O.R.C. 1309.37)
of the Code as from time to time in effect (collectively, the "CONTRACTS");
(e) all rights, interests, choses in action, causes of action, claims
and all other
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intangible property of the Borrower of every kind and nature (other than
Accounts, as defined herein), in each instance whether now owned or hereafter
acquired by the Borrower, including, without limitation, all general
intangibles; all corporate and other business records; all loans, royalties, and
other obligations receivable; all inventions, designs, patents, computer
programs, software, source codes, object codes, printouts and other computer
materials, goodwill, registrations, copyrights, trademarks, trade names, service
marks, trade secrets, licenses, franchises, customer lists, credit files,
correspondence, and advertising materials; all interests in partnerships and
joint ventures; all tax refunds and tax refund claims; all right, title and
interest under leases, subleases, licenses and concessions and other agreements
relating to real or personal property; all payments due or made to the Borrower
in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any property by any Governmental Authority or other Person; all
deposit accounts (general or special) with any bank or other financial
institution; all credits with and other claims against carriers and shippers;
all rights to indemnification; all reversionary interests in pension and profit
sharing plans and all reversionary, beneficial and residual interests in trusts
or in which the Borrower otherwise has an interest; all proceeds of insurance of
which the Borrower is beneficiary; and all letters of credit, guaranties, Liens,
security interests and other security held by or granted to the Borrower; and
all other intangible property, whether or not similar to the foregoing; in each
instance, however and wherever arising, but excluding any contract, agreement or
license which prohibits the assignment or encumbrance by the Borrower of such
contract, agreement or license (or of its rights thereunder), except to the
extent that such prohibition would be ineffective pursuant to Section 9-318 of
the Code as from time to time in effect (collectively, the "GENERAL
INTANGIBLES");
(f) all goods which have become so related to particular real estate
that an interest in them arises under real estate law (the "FIXTURES");
(g) all property or interests in property now or hereafter acquired by
the Borrower which may be owned or hereafter may come into the possession,
custody or control of Bank One or any agent or affiliate of Bank One in any way
or for any purpose (whether for safekeeping, deposit, custody, pledge,
transmission, collection or otherwise), and all rights and interests of the
Borrower, whether now existing or hereafter arising and however and wherever
arising, in respect of any and all (i) notes, drafts, letters of credit, stocks,
bonds, and debt and equity securities, whether or not certificated, and
warrants, options, puts and calls and other rights to acquire or otherwise
relating to the same (but excluding any of the above such items which the
Borrower is prohibited from assigning or otherwise encumbering) as well as any
portion of equity interests in foreign entities whose pledge would cause the
Borrower to incur a material charge); (ii) money; (iii) proceeds of loans,
including, without limitation, loans made under the Swing Line; and (iv)
insurance proceeds and books and records relating to any of the property covered
by this Agreement; together, in each instance, with all accessions and additions
thereto, substitutions therefor, and replacements, proceeds and products
thereof;
(h) all books, records, ledger cards, computer tapes and diskettes and
other property at any time evidencing or relating to the Accounts, Inventory,
Equipment, Contracts, General Intangibles, Fixtures or any other Collateral;
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(i) all other personal property of the Borrower, whether tangible or
intangible, and whether now owned or hereafter acquired; and
(j) all proceeds and products of any of the foregoing, in any form,
including, without limitation, any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
3. SECURITY FOR SECURED OBLIGATIONS.
This Agreement and the Collateral secure the prompt and complete
payment and performance when due of all Obligations of the Borrower, now or
hereafter existing, under, or arising out of or in connection with Amendment No.
1, the Swing Line Note or the Bank One Letter of Credit, and any other document
made, delivered or given in connection therewith or herewith, in each case,
whether for principal, interest, fees, expenses or otherwise, including (without
limitation) all obligations of the Borrower now or hereafter existing under or
in respect of this Agreement, including, but not limited to, (a) the due and
punctual payment of principal of and interest on the Swing Line and the
reimbursement of all amounts drawn under the Bank One Letter of Credit
(including, without limitation, all interest accruing or payable at the then
applicable rate after the maturity of the Swing Line Note and interest accruing
or payable at the then applicable rate provided in the Credit Agreement or other
applicable agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Borrower), and (b) the due and punctual payment of the fees, indemnities,
costs, expenses and all other present and future, fixed or contingent, direct or
indirect, monetary obligations, including, without limitation, Bank One's
reasonable attorney's and consultant's fees, investigation and laboratory fees,
response costs, court costs and litigation expenses that are required to be paid
by the Borrower to or on behalf of Bank One under this Agreement or under the
Loan Documents (as the same may be amended, amended and restated, modified or
supplemented from time to time) (all such obligations of the Borrower being
herein called the "SECURED OBLIGATIONS").
4. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to Bank One as follows:
(a) LOCATIONS OF INVENTORY AND EQUIPMENT; CHIEF EXECUTIVE OFFICE;
LOCATIONS OF ACCOUNTS; TRADENAMES. (i) As of the date hereof, (A) the Borrower's
place of business or, if the Borrower has more than one place of business, its
chief executive office, is, and has been continuously for the immediately
preceding 5 month period, located (the "Office Location") at (x) the address set
forth for notices to the Borrower contained in the Credit Agreement, or (y) such
other location in respect of which (1) the Borrower shall have provided Bank One
with at least 30 days prior written notice thereof, and (2) UCC financing
statements (or amendments thereto), in form and substance reasonably
satisfactory to Bank One, shall have been filed within
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two months after such change, (B) the Borrower has not changed its legal name
during the last 6 years, (C) all of the Inventory and/or Equipment is located at
the places specified in Schedule 1 hereto, (D) the chief places of business and
chief executive offices of the Borrower and the offices where the Borrower keeps
its records concerning any Accounts and all originals of all chattel paper which
evidence any Account are located at the places specified in Schedule 2 hereto
and (E) all trade names under which the Borrower has sold Inventory during the
last 2 years, and will sell Inventory in the future, are listed on Schedule 5
hereto.
(b) NO CONSENT. Except for the filings referred to in Section 4(c)
below, no authorization, approval or other action by, and no notice to or filing
with, any Governmental Authority is required for the grant by the Borrower of
the security interests granted hereby or for the execution, delivery or
performance of this Agreement by the Borrower.
(c) PERFECTED PRIORITY LIENS. Subject to the terms of the Intercreditor
Agreement, except with respect to any money not held by a Secured Party and any
Accounts owing from Governmental Authorities in which a security interest cannot
be perfected under the Code and to the extent perfection can be accomplished by
the filing of Financing Statements, upon the filing in the proper locations of
appropriate financing statements under the UCC and the filing of notices of lien
or other documents, the Liens granted pursuant to this Agreement (i) constitute
perfected Liens on the Collateral in favor of Bank One, which are prior to all
other Liens on the Collateral (except for any Liens granted by the Borrower and
certain of its Subsidiaries to the Agent on behalf of the Lender, Issuer and
Swing Line Lender as security for the obligations of the Borrower and certain of
its Subsidiaries under the Credit Agreement and Loan Documents, permitted by
Section 8.2 of the Credit Agreement and Liens which may be entitled to priority
by operation of law) created or allowed by the Borrower and in existence on the
date hereof and (ii) are enforceable as prior perfected Liens against all
creditors of and purchasers from the Borrower (other than purchasers of
Inventory sold in the ordinary course of the Borrower's business) and against
any owner or purchaser of the real property where any of the Inventory or
Equipment is located and any present or future creditor of the Borrower, or such
owner or purchaser, obtaining a Lien on the Collateral.
(d) ACCOUNTS. Any amount which is at any time represented by the
Borrower to Bank One, as owing by each account debtor in respect of any Account
constituting part of the Collateral will at such time be the correct amount
actually owing by such account debtor thereunder. All records concerning any
Account constituting Collateral are located at the Office Location and no such
Account (other than with respect to one or more Accounts which are over 90 days
past due and which, in the aggregate, are not in excess of $500,000), is
evidenced by a promissory note or other instrument.
(e) EQUIPMENT AND INVENTORY. The Borrower has exclusive possession and
control of all Equipment and Inventory constituting the Collateral, all of which
is and has been continuously for the last 5 month period, located at (i) one or
more of the places listed on Schedule 1 hereto, or (ii) such other places
located within the United States in respect of which (A) the Borrower shall have
provided Bank One with at least 10 days prior written notice, and
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(B) UCC financing statements (or amendments thereto), in form and substance
satisfactory to Bank One, shall have been filed within two months after such
change.
(f) CONTRACTS. No consent of any party (other than the Borrower) to any
Contract is required, or purports to be required, in connection with the
execution, delivery and performance of this Agreement. To the best of the
Borrower's knowledge after due inquiry, each Contract is in full force and
effect and constitutes a valid and legally enforceable obligation of the parties
thereto, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditor's rights generally, and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law). No consent or
authorization of, filing with or other act by or in respect of any Governmental
Authority or, to the best of the Borrower's knowledge after due inquiry, any
other party to such Contract is required in connection with the execution,
delivery, performance, validity or enforceability of any of the Contracts by the
Borrower, other than those which have been duly obtained, made or performed, are
in full force and effect and do not subject the scope of any such Contract to
any material adverse limitation, either specific or general in nature. Neither
the Borrower nor (to the best of the Borrower's knowledge after due inquiry) any
other party to any Contract is in default or is likely to become in default in
the performance or observance of any of the terms thereof. The Borrower has
performed in all material respects all its obligations to date under each
Contract. The right, title and interest of the Borrower in, to and under each
Contract are not, to the best of the Borrower's knowledge after due inquiry,
subject to any defense, offset, counterclaim or claim which would materially
adversely affect the value of all such Contracts as Collateral taken as a whole,
nor have any of the foregoing been asserted or alleged against the Borrower as
to any Contract.
(g) BANK ACCOUNTS. Schedule 4 sets forth the location of each cash
concentration account and all significant operating accounts and demand deposit
accounts used for paying and receiving purposes in the ordinary course of the
Borrower's business.
(h) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties made in this Section 4 shall survive the
execution and delivery hereof and the expiration or termination of the Swing
Line regardless of any investigation made by or on behalf of Bank One and shall
be deemed to be repeated and confirmed on the date of the making of any
subsequent loan under the Swing Line and each time any additional Collateral
becomes subject to pledge hereunder.
5. COVENANTS.
The Borrower hereby covenants with Bank One as follows:
(a) GENERALLY.
(i) The Borrower shall maintain its place of business, or if
it has more than one place of business, its chief executive office, at the
Office Location.
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(ii) It shall, at its own expense, promptly after each request
by Bank One, (A) cause to be provided to Bank One, UCC, federal tax, judgment
and other lien search reports with respect to each applicable public office
where Liens are or may be filed disclosing that there are no Liens of record in
such official's office covering any Collateral or showing the Borrower as debtor
thereunder (other than Liens referenced in the Credit Agreement and Section 8.2
of the Credit Agreement), and (B) promptly execute and deliver all certificates,
documents, instruments (other than instruments which represent Accounts which
are over 90 days past due and which, in the aggregate, are not in excess of
$500,000), financing and continuation statements and amendments thereto, notices
and other agreements.
(b) COMPLIANCE WITH REQUIREMENTS OF LAW. The Borrower will comply in
all material respects with all laws applicable to the Collateral or any part
thereof or to the operation of the Borrowers business except where the necessity
of compliance therewith is contested in good faith by appropriate proceedings;
provided, that the Borrower must comply with any applicable law if the failure
to do so would adversely affect Bank One's rights in the Collateral or the
priority of its Liens on the Collateral.
(c) FINANCING STATEMENTS. The Borrower agrees that from time to time,
at the expense of the Borrower, it will promptly execute and deliver all further
instruments and documents, and take all further action that Bank One may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable Bank One to exercise and
enforce any of its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Borrower will execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments or notices as Bank One may reasonably request, in order to
perfect and preserve the security interests granted or purported to be granted
hereby. A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement for filing in any jurisdiction. The Borrower
will not change its name (or any name under which it does business), identity or
corporate structure to such an extent that any financing statement filed by Bank
One in connection with this Agreement would become seriously misleading and will
not move any of the Collateral to a location which would cause Bank One's Lien
thereon to be adversely affected unless all necessary filings have been timely
made to avoid such result. The Borrower hereby authorizes Bank One to file one
or more financing or continuation statements and amendments thereto, relative to
all or any part of the Collateral without signature of the Borrower where
permitted by law.
(d) INSTRUMENTS AND CHATTEL PAPER. In the event that the Intercreditor
Agreement is no longer in effect and the Obligations of the Borrower under the
Credit Agreement are satisfied in full, if any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
instrument or chattel paper, such instrument or chattel paper shall be
immediately delivered to Bank One, duly endorsed in a manner satisfactory to
Bank One, to be held as Collateral pursuant to this Agreement.
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(e) MAINTENANCE OF RECORDS; IDENTIFICATION OF COLLATERAL. The Borrower
will keep and maintain at its own cost and expense and complete records with
respect to the Collateral, including, without limitation, a record of all
payments received and all credits granted with respect to the Accounts. The
Borrower will furnish to Bank One from time to time statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as Bank One may reasonably request, all in
reasonable detail.
(f) ACCESS TO BOOKS AND RECORDS; RIGHT OF INSPECTION. Bank One shall at
all times upon reasonable prior notice have full and free access during normal
business hours to all the books, correspondence and records of the Borrower, and
Bank One and its representatives may examine the same, take extracts therefrom
and make photocopies thereof, and the Borrower agrees to render to Bank One at
the Borrower's cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto. Bank One and its representatives shall
at all times upon reasonable prior notice also have the right to enter into and
upon any premises during normal business hours and without causing undue
disruption of the Borrower's business operations where any of the Equipment or
the Inventory or any other Collateral is located for the purpose of inspecting
the same, observing its use or otherwise protecting their interests therein.
(g) PAYMENT OF OBLIGATIONS. Except as set forth in the Credit
Agreement, the Borrower will pay promptly when due all taxes, assessments and
governmental charges or levies imposed upon the Collateral or in respect of its
income or profits therefrom, as well as all claims of any kind (including,
without limitation, claims for labor, materials and supplies) against or with
respect to the Collateral, except that no such charge need be paid if the
Borrower is permitted not to do so pursuant to the Credit Agreement.
(h) NOTICES. The Borrower will advise Bank One promptly, in reasonable
detail, at Bank One's address set forth in the Credit Agreement, (i) of any Lien
(other than Liens created hereby or Liens permitted by Section 8.2 of the Credit
Agreement) on, or claim asserted against, any of the Collateral and (ii) of the
occurrence of any other event which could reasonably be expected to have an
adverse effect on the value of any material portion of the Collateral or on the
Liens created hereunder.
(i) AS TO EQUIPMENT AND INVENTORY.
(i) LOCATIONS. The Borrower shall keep the Equipment and
Inventory (other than Inventory which has been sold in the ordinary
course of business) at the places specified therefor in Schedule 1
hereto or, upon 30 days prior written notice to Bank One, at other
places in jurisdictions where all action required by Section 5(c) shall
have been taken to assure the continuation of the perfection of the
security interest of Bank One with respect to the Equipment and
Inventory.
(ii) MAINTENANCE. The Borrower shall maintain or cause to be
maintained in good repair, working order and condition, excepting
ordinary wear and tear and damage
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due to casualty, all of the Equipment and, to the extent such Equipment
is not obsolete, make or cause to be made all appropriate repairs,
renewals and replacements thereof consistent with the past practice of
the Borrower, as quickly as practicable after the occurrence of any
loss or damage thereto. The Borrower shall promptly furnish to Bank One
a statement respecting any material loss or damage to any of the
Equipment or Inventory constituting the Collateral with an aggregate
fair market value exceeding $500,000 as a result of a single occurrence
except to the extent that such loss or damage shall be insured pursuant
to policies required to be maintained pursuant to the Credit Agreement.
(iii) RECORDS, PHYSICAL COUNT AND OTHER INVENTORY COVENANTS.
With respect to the Inventory: (A) the Borrower shall at all times
maintain records with respect to Inventory reasonably satisfactory to
Bank One, keeping correct and accurate records itemizing and describing
the kind, type, quality and quantity of Inventory, the Borrower's cost
therefor and daily withdrawals therefrom and additions thereto; (B) the
Borrower shall conduct a physical count of the Inventory as often as
the Borrower's auditors deem necessary in the performance of the
Borrower's annual audit, but at any time or times as Bank One may
request on or after an Event of Default occurs and is continuing, and
promptly following each such physical inventory shall supply Bank One
with a report in the form and with such specificity as may be
reasonably satisfactory to Bank One concerning such physical count; (C)
the Borrower shall not remove any Inventory from the locations set
forth or permitted herein, without the prior written consent of Bank
One, except for sales of Inventory and returns of Inventory to vendors,
in each case in the ordinary course of the Borrower's business and
except to move Inventory directly from one location set forth or
permitted herein to another such location; (D) the Borrower shall
produce, use, store and maintain the Inventory, with all reasonable
care and caution and in accordance with applicable standards of any
insurance and in conformity with all applicable law (including, but not
limited to, the requirements of the Federal Fair Labor Standards Act of
1938, as amended, and all rules, regulations and orders related
thereto); (E) the Borrower shall retain all of its responsibility and
liability arising from or relating to the production, use, sale or
other disposition of the Inventory; (F) the Borrower shall not sell
Inventory to any customer on approval, or any other basis which
entitles the customer to return or may obligate the Borrower to
repurchase such Inventory (other than in the ordinary course of
business consistent with past practices and policies of the Borrower or
then current market practice); and (G) the Borrower shall keep the
Inventory in good and marketable condition.
(j) AS TO ACCOUNTS AND CONTRACTS.
(i) LOCATIONS. The Borrower shall keep its chief place of
business and chief executive office and the office where it keeps its
records concerning the Accounts, and the offices where it keeps all
originals of all chattel paper which evidence Accounts, at the location
therefor specified in Section 4(a) or, upon 30 days prior written
notice to Bank One, at such other locations in a jurisdiction where all
actions required by Section
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<PAGE> 11
5(c) shall have been taken with respect to the Accounts.
(ii) AMENDMENTS; DILIGENCE AS TO RIGHTS; NOTICES. The Borrower
will not (A) amend, modify, terminate or waive any provision of any
Contract or any agreement giving rise to a material Account in any
manner which could reasonably be expected to affect adversely the value
of such Contract or material Account as Collateral, (B) fail to
exercise promptly and diligently each and every material substantive
right which it may have under each Contract or material Account (other
than any right of termination except in the exercise of its reasonable
business judgment) or (C) fail to deliver to Bank One a copy of each
substantive demand, notice or document received by it relating in any
way to any Contract or material Account.
(iii) COLLECTIONS. Except as otherwise provided in this
subsection (iii) and subject to the provisions of the Intercreditor
Agreement, the Borrower shall continue to collect in accordance with
its customary practice, at its own expense, all amounts due or to
become due to the Borrower under the Accounts and, prior to the
occurrence of an Event of Default, the Borrower shall have the right to
adjust, settle or compromise the amount or payment of any Account, or
to release wholly or partly any account debtor or obligor thereon, or
to allow any credit or discount thereon, all in accordance with its
customary practices. Other than in the ordinary course of business, the
Borrower will not grant any extension of the time of payment of any of
the Accounts, compromise or settle the same for less than the full
amount thereof, release, wholly or partially, any Person liable for the
payment thereof, or allow any credit or discount whatsoever thereon. In
connection with such collections, the Borrower may, upon the occurrence
and during the continuation of an Event of Default, take (and at the
direction of Bank One shall take) such action as the Borrower or Bank
One may reasonably deem necessary or advisable to enforce collection of
the Accounts; provided, that following the occurrence and during the
continuation of an Event of Default, (x) upon the request of Bank One,
the Borrower shall notify account debtors on the Accounts and the
parties to the Contracts or (y) upon written notice by Bank One to the
Borrower of its intention so to do, Bank One shall have the right to
notify the account debtors or obligors under any such Accounts or
Contracts, in each case, that the Accounts and Contracts have been
assigned to Bank One and to direct such account debtors or obligors to
make payment of all amounts due or to become due to the Borrower
thereunder directly to Bank One and, upon such notification and at the
expense of the Borrower, to enforce collection of any such Accounts or
Contracts, to take possession of and indorse and collect any checks,
drafts, notes, acceptances or other instruments for payment of moneys
due under any Account or Contract, to file any claim or take any other
action or proceeding in any court of law or equity otherwise deemed
appropriate by Bank One for the purpose of collecting any such money
and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as the Borrower might have done.
After receipt by the Borrower of the notice referred to in the PROVISO
to the preceding sentence, (1) all amounts and proceeds (including
instruments) received by the Borrower in respect of the Accounts or
Contracts shall be received in trust for the benefit of Bank One
hereunder, shall be segregated from other funds of the Borrower and
shall be forthwith paid over to Bank One in the same form as so
received (with any necessary endorsement) to be held as cash collateral
and either (A) released to the Borrower if such Event of Default shall
have been cured or waived or (B) if such Event of Default shall be
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<PAGE> 12
continuing, paid by Bank One to the BNY pursuant to the Intercreditor
Agreement or if the Intercreditor Agreement is no longer in effect and
the Obligations of the Borrower under the Credit Agreement have been
satisfied, paid to Bank One and applied to the Swing Line and (2) the
Borrower shall not adjust, settle or compromise the amount or payment
of any Account or under any Contract, or release wholly or partly any
account debtor or obligor thereon, or allow any credit or discount
thereon.
(iv) LIABILITY OF BORROWER. Anything herein to the contrary
notwithstanding, the Borrower shall remain liable under each of the
Accounts and Contracts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in
accordance with the terms of any agreement giving rise to each such
Account and in accordance with and pursuant to the terms and provisions
of each such Contract. Bank One shall have no obligation or liability
under any Account (or any agreement giving rise thereto) or under any
Contract by reason of or arising out of this Agreement or the receipt
by Bank One of any payment relating to such Account or Contract
pursuant hereto, nor shall Bank One be obligated in any manner to
perform any of the obligations of the Borrower under or pursuant to any
Account (or any agreement giving rise thereto) or under or pursuant to
any Contract, to make any payment, to make any inquiry as to the nature
or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Account (or any
agreement giving rise thereto) or under any Contract, to present or
file any claim, to take any action to enforce any performance or to
collect the payment of any amounts which may have been assigned to it
or to which it may be entitled at any time or times.
(v) COMPLIANCE WITH TERMS OF CONTRACTS, ETC. The Borrower will
perform and comply in all material respects with all its obligations
under the Contracts and all its other contractual obligations relating
to the Collateral.
(k) INSURANCE. The Borrower shall, at its own expense,
maintain insurance with respect to the Inventory, Equipment and any
other customarily insured Collateral in such amounts, against such
risks, in such form and with such insurers as provided for in the
Credit Agreement. Subject to the Intercreditor Agreement, upon the
occurrence and during the continuance of any Event of Default, all
insurance payments in respect of such Inventory and Equipment shall be
held, paid to Bank One.
6. DISPOSITIONS OF COLLATERAL; LIENS; OTHER AGREEMENTS..
(a) DISPOSITION OF COLLATERAL. The Borrower shall not sell,
transfer, lease, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except for dispositions otherwise
permitted by the Credit Agreement.
(b) LIENS. The Borrower shall not create, incur or suffer to
exist, will defend the Collateral against and will take such other
action as is necessary to remove, any Lien, or other claim upon or with
respect to any of the Collateral to secure any obligation of any Person
or entity, except for the security interest created by this Agreement
or by the Credit Agreement and
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<PAGE> 13
as otherwise permitted by the Credit Agreement, and will defend the
right, title and interest of Bank One in and to any of the Collateral
against the claims and demands of all Persons whomsoever.
(c) OTHER AGREEMENTS. The Borrower is not and will not become
a party to or otherwise be bound by any agreement, other than this
Agreement and the other Loan Documents, which restricts in any manner
the rights of any present or future holder of any of the Collateral.
7. BANK ONE'S APPOINTMENT AS ATTORNEY-IN-FACT. The Borrower hereby
irrevocably appoints Bank One and any officer or agent thereof with
full power of substitution, the Borrower's attorney-in-fact (which
appointment shall be irrevocable until the payment in full in cash and
the performance of all of the Secured Obligations and the expiration or
termination of the Swing Line), with full authority in the place and
stead of the Borrower and in the name of the Borrower or otherwise,
from time to time in Bank One's discretion, upon and during the
occurrence and continuation of an Event of Default, to take any action
and to execute any instrument which Bank One may deem necessary or
advisable to accomplish the purposes of this Agreement, including,
without limitation:
(i) to obtain and adjust insurance required to be paid to Bank
One pursuant to Section 5(l);
(ii) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys, claims
and other amounts due and to become due under or in respect of
any of the Collateral and to extend the time of payment of any
or all thereof and to make any allowance and other adjustments
with reference thereto;
(iii) to receive, endorse, and collect any checks, drafts,
notes, acceptances or other instruments, any invoices, freight
or express bills, bills of lading, storage, warehouse
receipts, assignments, verifications, notices or other
documents and chattel paper, in connection with clause (i) or
(ii) above;
(iv) to file any claims or take any action or institute or
defend any suit, action or proceeding at law or in equity
which Bank One may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce
the rights of Bank One with respect to any of the Collateral;
(v) to direct any party liable for any payment in respect of
or arising out of any of the Collateral to make payment of any
and all moneys due or to become due thereunder directly to
Bank One or as Bank One shall direct;
(vi) to settle, compromise or adjust any suit, action or
proceeding described in clause
(v) above and, in connection therewith, to give such
discharges or releases as Bank One may deem appropriate;
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<PAGE> 14
(vii) to set off or cause to be set off amounts in any account
maintained with Bank One or otherwise enforce rights against any of the
Collateral in the possession of Bank One;
(viii) to pay or discharge Taxes and Liens levied or placed on or
threatened against the Collateral (except where the Borrower is not
required to discharge such tax or Lien pursuant to the provisions of
this Agreement or the Credit Agreement), to effect any repairs or any
insurance called for by the terms of this Agreement or the Credit
Agreement, to adjust the same and to pay all or any part of the
premiums therefor and the costs thereof; and
(ix) generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though Bank One were the absolute owner thereof for all
purposes, and to do, at Bank One's option and the Borrower's expense,
at any time, or from time to time, all acts and things which Bank One
deems necessary to protect, preserve or realize upon the Collateral and
Bank One's Liens thereon and to effect the intent of this Agreement,
all as fully and effectively as the Borrower might do.
The Borrower hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof.
8. OTHER POWERS; BANK ONE MAY PERFORM.
(a) The Borrower also authorizes Bank One at any time and from time to
time to execute, in connection with any sale pursuant to Section 11 hereof, any
endorsements, assignments or other instruments of conveyance or any transfer
with respect to any Collateral.
(b) If the Borrower fails to perform any agreement contained herein,
Bank One may itself perform, or cause performance of, such agreement, and the
expenses of Bank One incurred in connection therewith shall be payable by the
Borrower under Section 12. If the Borrower fails to perform or comply with any
of its agreements contained herein and Bank One, as provided for by the terms of
this Agreement, the Credit Agreement, the Swing Line Note or the Bank One Letter
of Credit shall itself perform or comply, or otherwise cause performance or
compliance, with such agreement, the reasonable expenses of Bank One incurred in
connection with such performance or compliance, together with interest thereon
at a rate per annum 2% above the Alternate Base Rate at the time of such failure
to perform or comply, shall be payable by the Borrower to Bank One on demand and
shall constitute Secured Obligations secured hereby.
(c) PROCEEDS. Upon demand by Bank One, all Proceeds received by the
Borrower consisting of cash, checks and other near-cash items shall be held by
the Borrower in trust for Bank One and segregated from other funds of the
Borrower, and shall, forthwith upon receipt by the Borrower, be turned over to
Bank One in the exact form received by the Borrower (duly indorsed by the
Borrower to Bank One, if required). All cash or other Proceeds received by Bank
One in respect of any sale of, collection from, or other realization upon all or
any part of
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<PAGE> 15
the Collateral may, in the discretion of Bank One, be held by Bank One as
Collateral for, and then or at any time thereafter applied (after payment of any
amounts payable to Bank One pursuant to Section 12) in whole or in part against,
all or any part of the Secured Obligations. Any surplus of such cash or other
Proceeds held by Bank One and remaining after payment in full in cash and the
performance of all of the Secured Obligations, the expiration or termination of
the Bank One Letter of Credit and the expiration or termination of the Swing
Line shall be paid over to the Borrower or to whomsoever may be lawfully
entitled to receive such surplus.
(d) ADDITIONAL INVENTORY REMEDIES. Until the payment in full in cash
and the performance of all of the Secured Obligations, the expiration or
cancellation of the Bank One Letter of Credit and the expiration or termination
of the Swing Line, at any time when an Event of Default has occurred and is
continuing and subject to the Intercreditor Agreement: (i) the Borrower will
perform any and all reasonable actions requested by Bank One to enforce Bank
One's security interest in the Inventory and all of Bank One's rights hereunder,
such as leasing warehouses to Bank One or its designee, placing and maintaining
signs, appointing custodians, transferring Inventory to warehouses, and
delivering to Bank One, warehouse receipts, documents of title and such other
documentation as Bank One may reasonably request; (ii) if any Inventory is in
the possession or control of any of the Borrower's agents, contractors or
processors or any other third party, the Borrower will notify Bank One thereof
and will notify such agents, contractors or processors or third party of Bank
One's security interest therein and, upon request, instruct them to hold all
such Inventory for Bank One's and the Borrower's account, as their interests may
appear, and subject to Bank One's instructions; (iii) Bank One shall have the
right to hold all Inventory subject to the security interest granted hereunder;
and (iv) Bank One shall have the right to take possession of the Inventory or
any part thereof and to maintain such possession on the Borrower's premises or
to remove any or all of the Inventory to such other place or places as Bank One
desires in its sole discretion. If Bank One exercises its right to take
possession of the Inventory, the Borrower, upon Bank One's demand, will assemble
the Inventory and make it available to Bank One at the Borrower's premises at
which it is located.
9. EVENTS OF DEFAULT.
Each of the following shall constitute an "Event of Default":
(a) If the Borrower shall fail to observe or perform any term, covenant
or agreement contained in this Agreement;
(b) The occurrence and continuance of an Event of Default under, and as
such term is defined in, the Credit Agreement;
10. RELEASE.
(a) RELEASE. The Borrower releases Bank One, BANK ONE CORPORATION and
each of their respective directors, officers, employees, attorneys, agents,
advisors, attorneys-in-
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<PAGE> 16
fact, experts and Affiliates, from and against any and all penalties, fines,
expenses, losses, settlements, costs, claims, causes of action, debts, dues,
sums of money, accounts, accountings, reckonings, acts, omissions, demands,
liabilities, obligations, damages, actions, judgments, suits, proceedings or
disbursements of any kind or nature whatsoever, known or unknown, contingent or
otherwise which may be imposed on, incurred by or asserted against any of them
in any way relating to or arising out of or with respect to this Agreement, the
Collateral, and/or any actions taken or omitted to be taken by Bank One with
respect thereto (except to the extent that any of the foregoing arises solely
from the gross negligence or willful misconduct of the party which would be so
released as determined by a final order or judgment of a court of competent
jurisdiction), and the Borrower hereby agrees to hold Bank One, BANK ONE
CORPORATION and their respective directors, officers, employees, attorneys,
agents, advisors, attorneys-in-fact, experts and Affiliates harmless from and
against any and all penalties, fines, expenses, losses, settlements, costs,
claims, causes of action, debts, dues, sums of money, accounts, accountings,
reckonings, acts, omissions, demands, liabilities, obligations, damages,
actions, judgments, suits, proceedings or disbursements of any kind or nature
whatsoever, known or unknown, contingent or otherwise which may be imposed on,
incurred by or asserted against any of them (except to the extent that any of
the foregoing arises solely from the gross negligence or willful misconduct of
the party which would be so released as determined by a final order or judgment
of a court of competent jurisdiction).
(b) SURVIVAL OF AGREEMENTS. The agreements of the Borrower contained in
this Section shall survive the payment in full in cash and the performance of
all of the Secured Obligations, the expiration or cancellation of all of the
Bank One Letter of Credit, the expiration or termination of the Swing Line, the
repayment of the Swing Line Note and the termination of the security interests
granted hereby.
11. REMEDIES.
If any Event of Default shall have occurred and be continuing subject
to the Intercreditor Agreement, then:
(a) GENERAL. Bank One may exercise, in addition to all other rights and
remedies granted to it in this Agreement, the Credit Agreement and in any other
instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the Uniform
Commercial Code, as then in effect in the jurisdiction in which such rights are
exercised. Without limiting the generality of the foregoing, Bank One, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon the Borrower or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or Bank One's
office or elsewhere upon such terms and conditions as it may deem
16
<PAGE> 17
advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. In case of any sale of
all or any part of the Collateral on credit or for future delivery, the
Collateral so sold may be retained by Bank One until the selling price is paid
by the purchaser thereof, but Bank One shall not incur any liability in case of
the failure of such purchaser to take up and pay for the Collateral so sold and,
in case of any such failure, such Collateral may again be sold upon like notice.
To the extent permitted by applicable law, in no event shall the obligations of
the Borrower to Bank One be credited with any part of the proceeds of sale of
any Collateral until cash payment thereof has actually been received by Bank
One. Bank One shall not be obligated to make any such sale pursuant to any
notice thereof, but may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for the sale, and such sale may be made at any time
or place to which the same may be so adjourned. Bank One shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, and Bank One shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Collateral sold at such sale, to use and apply any of the Secured
Obligations owed to such Person as a credit on account of the purchase price
payable by such Person at such sale. Each purchaser at any such sale shall
acquire the property sold absolutely free from any claim or right on the part of
the Borrower, and the Borrower hereby waives (to the full extent permitted by
law) all rights of redemption, stay and/or appraisal which it now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Borrower further agrees, at Bank One's request, to
assemble the Collateral and make it available to Bank One at places which Bank
One shall reasonably select, whether at the Borrower's premises or elsewhere.
Bank One shall, at such time or times as it determines, apply the net proceeds
of any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred therein
or incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights Bank One hereunder, including, without
limitation, reasonable attorneys' or other agents' fees and disbursements, to
the payment in whole or in part of the Secured Obligations, and, only after the
payment by Bank One of any other amounts required by any provision of law to be
paid to third parties, including, without limitation, Section 9-504(1)(c) of the
Code, need Bank One account for the surplus, if any, to the Borrower. To the
extent permitted by applicable law, the Borrower waives all claims, damages and
demands it may acquire against Bank One arising out of the exercise of any
rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least 10 days before such sale or other disposition;
PROVIDED, that no demand, advertisement or notice, all of which are hereby
expressly waived, shall be required in connection with any sale or other
disposition of any part of the Collateral which threatens to decline speedily in
value or which is of a type customarily sold on a recognized market. The
Borrower shall remain liable for any deficiency if the proceeds of any sale or
other disposition of the Collateral are insufficient to satisfy the Secured
Obligations in full and the fees and disbursements of any attorneys or other
agents employed by Bank One to collect such deficiency.
(b) SUITS. Bank One, instead of exercising the power of sale herein
conferred upon it,
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<PAGE> 18
may proceed by a suit or suits at law or in equity to foreclose the security
interests granted hereby and sell the Collateral, or any portion thereof, under
one or more judgments or decrees of a court or courts of competent jurisdiction.
(c) PROCEEDS. Upon demand by Bank One, all Proceeds received by the
Borrower consisting of cash, checks and other near-cash items shall be held by
the Borrower in trust for Bank One and segregated from other funds of the
Borrower, and shall, forthwith upon receipt by the Borrower, be turned over to
Bank One in the exact form received by the Borrower (duly indorsed by the
Borrower to Bank One, if required). All cash or other Proceeds received by Bank
One in respect of any sale of, collection from, or other realization upon all or
any part of the Collateral may, in the discretion of Bank One, be held by Bank
One as Collateral for, and then or at any time thereafter applied (after payment
of any amounts payable to Bank One pursuant to Section 12) in whole or in part
against, all or any part of the Secured Obligations. Any surplus of such cash or
other Proceeds held by Bank One and remaining after payment in full in cash and
the performance of all of the Secured Obligations, shall be paid over to the
Borrower or to whomsoever may be lawfully entitled to receive such surplus.
(d) ADDITIONAL INVENTORY REMEDIES. Until the payment in full in cash
and the performance of all of the Secured Obligations, at any time when an Event
of Default has occurred and is continuing: (i) the Borrower will perform any and
all reasonable actions requested by Bank One to enforce Bank One's security
interest in the Inventory and all of Bank One' rights hereunder, such as leasing
warehouses to Bank One or its designee, placing and maintaining signs,
appointing custodians, transferring Inventory to warehouses, and delivering to
Bank One, warehouse receipts, documents of title and such other documentation as
Bank One may reasonably request; (ii) if any Inventory is in the possession or
control of any of the Borrower' agents, contractors or processors or any other
third party, the Borrower will notify Bank One thereof and will notify such
agents, contractors or processors or third party of Bank One' security interest
therein and, upon request, instruct them to hold all such Inventory for Bank
One' and the Borrower' account, as their interests may appear, and subject to
Bank One' instructions; (iii) Bank One shall have the right to hold all
Inventory subject to the security interest granted hereunder; and (iv) Bank One
shall have the right to take possession of the Inventory or any part thereof and
to maintain such possession on the Borrower' premises or to remove any or all of
the Inventory to such other place or places as Bank One desires in its sole
discretion. If Bank One exercises its right to take possession of the Inventory
or any part of it , the Borrower upon Bank One's demand, will assemble the
Inventory and make it available to Bank One at the Borrower's premises at which
it is located.
12. INDEMNITY AND EXPENSES. Without duplicating any amounts payable under
Sections 10.7, 11.5 and 11.10 of the Credit Agreement:
(1) The Borrower agrees on demand, to pay, and to save, indemnify and
keep Bank One and its respective directors, officers, employees, attorney,
agents, advisors, attorneys-in-fact, experts and Affiliates (each, an
"INDEMNIFIED PARTY") harmless from and against any and all penalties, fines,
expenses, losses, settlements, costs, claims, causes of action, debts, dues,
sums
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of money, accounts, accountings, reckonings, acts, omissions, demands,
liabilities, obligations, damages, actions, judgments, suits, proceeding or
disbursements of any kind or nature whatsoever, known or unknown, contingent or
otherwise, including, without limitation, attorneys' and consultants' fees,
investigation and laboratory fees, response costs, court costs and litigation
expenses (i) with respect to, or resulting from, any delay by the Borrower in
paying, any and all excise, sales or other Taxes which may be payable or
determined to be payable with respect to any of the Collateral, (ii) with
respect to, or resulting from, any delay by the Borrower in complying with any
Requirement of Law applicable to any of the Collateral or (iii) in connection
with any of the transactions contemplated by this Agreement, including the fees
and disbursements of counsel and of any other experts, which Bank One or its
respective directors, officers, employees, attorneys, consultants, experts or
agents may incur in connection with (w) the administration or enforcement of
this Agreement, including such expenses as are incurred to preserve the value of
the Collateral and the validity, perfection, rank and value of any Liens granted
hereunder, (x) the collection, sale or other disposition of any of the
Collateral, (y) the exercise by Bank One of any of the rights conferred upon it
hereunder or (z) any Default or Event of Default, but excluding any such
penalties, fines, expenses, losses, settlements, costs, claims, causes of
action, debts, dues, sums of money, accounts, accountings, reckonings, acts,
omissions, demands, liabilities, obligations, damages, actions, judgments,
suits, proceeding or disbursements of any kind or nature whatsoever, known or
unknown, contingent or otherwise, including, without limitation, attorneys' and
consultants' fees, investigation and laboratory fees, response costs, court
costs and litigation expenses incurred by reason of the gross negligence or
willful misconduct of the Indemnified Party as determined by a final order or
judgment of a court of competent jurisdiction.
(2) In any suit, proceeding or action brought by any Indemnified Party
under any Account or Contract for any sum owing thereunder, or to enforce any
provisions of any Account or Contract, the Borrower agrees to pay, and will
save, indemnify and keep such Indemnified Party harmless from and against any
and all penalties, fines, expenses, losses, settlements, costs, claims, causes
of action, debts, dues, sums of money, accounts, accountings, reckonings, acts,
omissions, demands, liabilities, obligations, damages, actions, judgments,
suits, proceeding or disbursements of any kind or nature whatsoever, known or
unknown, contingent or otherwise, including, without limitation, attorneys' and
consultants' fees, investigation and laboratory fees, response costs, court
costs and litigation expenses suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor or obligor thereunder, arising out of a breach by the Borrower of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Borrower or any of its Subsidiaries, but excluding any
such penalties, fines, expenses, losses, settlements, costs, claims, causes of
action, debts, dues, sums of money, accounts, accountings, reckonings, acts,
omissions, demands, liabilities, obligations, damages, actions, judgments,
suits, proceeding or disbursements of any kind or nature whatsoever, known or
unknown, contingent or otherwise, including, without limitation, attorneys' and
consultants' fees, investigation and laboratory fees, response costs, court
costs and litigation expenses incurred by reason of the gross negligence or
willful misconduct of the Indemnified Party as determined by a final order or
judgment of a court of competent
19
<PAGE> 20
jurisdiction.
(3) Any amount due hereunder which is not paid on demand shall bear
interest at a rate equal to the sum of 2% PLUS the Alternate Base Rate in effect
at such time.
(4) The agreements of the Borrower contained in this Section shall
survive the payment in full in cash and the performance of all of the Secured
Obligations. All of the Borrower's obligations to indemnify Bank One and its
directors, officers, employees, attorneys, consultants, experts and agents
hereunder shall (without duplication) be in addition to, and shall not limit in
any way, the Borrower's indemnification obligations contained in the Credit
Agreement.
13. NOTICES. All notices and other communications provided for or otherwise
required hereunder or in connection herewith shall be given in the manner and to
the addresses set forth in Section 11.2 of the Credit Agreement.
14. RELATIONSHIP TO ORIGINAL SECURITY AGREEMENT This Agreement amends and
restates the original Security Agreement.
15. SECURITY INTEREST ABSOLUTE. All rights of Bank One and security interests
hereunder, and all obligations of the Borrower hereunder, shall be absolute and
unconditional, irrespective of any circumstance which might constitute a defense
available to, or a discharge of, any guarantor or other obligor in respect of
the Secured Obligations.
16. RELATIONSHIP TO INTERCREDITOR AGREEMENT. The Borrower is contemporaneously
herewith entering into this Agreement, a Patent and Trademark Security Agreement
and Deed of Trust with Bank One (as the same may be amended, amended and
restated, supplemented or otherwise modified from time to time, the "Bank One
Collateral Documents") pursuant to which the Borrower shall grant to Bank One a
security interest in the Collateral (as defined in the Credit Agreement) in
order to secure all of the Borrower's obligations to Bank One in respect of the
Note and Bank One Letter of Credit (the "Bank One Obligations"). Notwithstanding
the date, manner, or order of attachment or perfection, the description of any
collateral or security interests, liens, claims or encumbrances covered or
granted by the Bank One Loan Documents (as defined in the Credit Agreement ) or
the Bank One Collateral Documents, or any provision of the Uniform Commercial
Code or other applicable law as in effect in any State, Bank One hereby agrees
that its rights under the Bank One Collateral Documents are and shall be
subordinate, to the extent and in the manner set forth in the Intercreditor
Agreement, to all rights of the Agent under the Loan Documents, and that the
Agent shall have at all times a Lien prior and superior to that of Bank One in
all Collateral securing the Obligations under the Credit Agreement until the
indefeasible payment in full, in cash, of all Obligations under the Credit
Agreement. Bank One hereby reaffirms and admits to the validity and
enforceability of the Intercreditor Agreement and its applicability to the Bank
One Collateral Documents.
17. CONTINUING SECURITY INTEREST. This Agreement shall create a continuing
security
20
<PAGE> 21
interest in the Collateral and shall (i) remain in full force and effect until
the payment in full in cash and the performance of all of the Secured
Obligations, the expiration or cancellation of the Letter of Credit and the
termination of the Swing Line, (ii) be binding upon the Borrower, its successors
and assigns and (iii) inure, together with the rights and remedies of Bank One
hereunder, and its respective successors, transferees and assigns. Upon the
payment in full in cash and the performance of the Secured Obligations, and the
expiration or termination of the Swing Line, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Borrower subject to any existing Liens, security interests or encumbrances on
such Collateral. Upon any such termination, Bank One will, at the Borrower's
expense, execute and deliver to the Borrower such documents as the Borrower
shall reasonably request to evidence such termination.
18. SEVERABILITY. If any provision of this Agreement is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of Bank One in order to
carry out the intentions of the parties hereto as nearly as may be possible; and
(ii) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
19. NO WAIVER; CUMULATIVE REMEDIES. Bank One shall not by any act (except by a
written instrument executed and delivered in accordance with Section 19 hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default or in
any breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of Bank One, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by Bank One of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which Bank One would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised alternatively, successively or concurrently and are
not exclusive of any rights or remedies provided by law or at equity.
20. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS. None of the terms or
provisions of this Agreement may be waived, amended, supplemented or otherwise
modified except by a written instrument executed by the Borrower and Bank One;
pROVIDED, that any provision of this Agreement may be waived by Bank One in
accordance with the Credit Agreement in a written letter or agreement executed
by Bank One or by facsimile transmission from Bank One. Any amendment,
modification or supplement of or to any provision of this Agreement, any
termination or waiver of any provision of this Agreement and any consent to any
departure by the Borrower from the terms of any provision of this Agreement
shall be effective only in the specific instance and for the specific purpose
for which made or given. No notice to or demand upon the Borrower in any
instance hereunder shall entitle the Borrower to any other or further notice or
demand in similar or other circumstances. This Agreement shall be binding upon
and shall inure to the benefit of the Borrower, and Bank One and their
respective successors,
21
<PAGE> 22
transferees and assigns; PROVIDED, that the Borrower may not assign its rights
and obligations hereunder without the prior written consent of Bank One.
21. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
22. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
23. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. THE BORROWER AND THE AGENT
HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS AGREEMENT OR THE COLLATERAL, OR THE VALIDITY, PROTECTION, INTERPRETATION,
COLLECTION OR ENFORCEMENT HEREOF OR THEREOF, OR ANY OTHER CLAIM OR DISPUTE
HOWSOEVER ARISING, BETWEEN THE BORROWER AND THE AGENT. THE BORROWER HEREBY
IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE
OF OHIO AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, OF ANY FEDERAL COURT, IN
EACH CASE LOCATED IN SUMMIT COUNTY AND ANY APPELLATE COURT THEREFROM, IN
CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY DOCUMENT OR INSTRUMENT DELIVERED PURSUANT TO THIS AGREEMENT OR
THE COLLATERAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH OHIO STATE COURT OR, TO THE
EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY
RIGHT THAT THE AGENT OR ANY OTHER SECURED PARTY MAY OTHERWISE HAVE TO BRING ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE COLLATERAL AGAINST THE
BORROWER IN THE COURTS OF ANY JURISDICTION. THE BORROWER HEREBY WAIVES THE
DEFENSES OF FORUM NON CONVENIENT AND IMPROPER VENUE.
24. COUNTERPARTS. This Agreement may be executed in any number of counterparts,
each of which counterparts, when so executed and delivered, shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
one and the same Agreement.
22
<PAGE> 23
IN EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Agreement to be
duly executed on its behalf.
TELXON CORPORATION
By: /s/ GERALD J. GABRIEL
--------------------------
Name: Gerald J. Gabriel
Title: Sr. Vice President,
Financial Operations
BANK ONE, NA
By: /s/ JOSEPH E. MANLEY
--------------------------
Name: Joseph E. Manley
Title: Vice President
23
<PAGE> 1
EXHIBIT 10.3.2.e
----------------
DEED OF TRUST, ASSIGNMENT OF LEASES AND
RENTS, SECURITY AGREEMENT,
FIXTURE FILING AND FINANCING STATEMENT
From
TELXON CORPORATION
a Delaware Corporation
whose address is
3330 West Market Street
Akron, Ohio 44333
to
FIRST AMERICAN TITLE INSURANCE COMPANY,
a California Corporation
whose address is
1500 Dairy Ashford
Houston, Texas 77077,
as Trustee for the benefit of
BANK ONE , a National Association,
whose address is:
100 E. Broad Street
Columbus OH 43271
Location of Premises:
6333 Rothway Street, Houston, Texas 77040-5040
14275 NW Freeway, Houston, Texas 77040-5051
Record and Return to:
Bank One NA
Law Department
100 E. Broad Street, 18th Floor
Columbus OH 43271-1058
Attention: Steven Alexsy, Esq.
<PAGE> 2
DEED OF TRUST, ASSIGNMENT OF LEASES AND
RENTS, SECURITY AGREEMENT,
FIXTURE FILING AND FINANCING STATEMENT
THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY
AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (this "DEED OF TRUST"), dated
as of April ___, 1999, is made by TELXON CORPORATION, a Delaware corporation,
having an address at 3330 West Market Street, Akron, Ohio, 44333 (the
"BORROWER") to FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation
(the "TRUSTEE"), for the benefit of BANK ONE, NA (the "BENEFICIARY").
RECITALS:
---------
1. A. The Borrower is justly indebted to the Beneficiary, pursuant to the terms
and conditions of Amendment No. 1, dated as of August 6, 1996 to that certain
Credit Agreement dated as of March 8, 1996 ("CREDIT AGREEMENT") by and among
Borrower and the lenders thereto and the Bank of New York, as Issuer, Swing Line
Lender and Agent (the "AGENT"), and the Intercreditor Agreement dated as of
August 6, 1996, by and between Bank One and the Agent , as acknowledged by the
Borrower (the "Intercreditor Agreement"), whereby Bank One extended to Borrower
a certain Twenty Million Dollar ($20,000,000.00) revolving line of credit (the
"Swing Line") which is evidenced by that certain Business Purpose Promissory
Note (Swing Line) dated August 4, 1998 (as amended, replaced or otherwise
modified, the "Note") and a Standby Letter of Credit No. 047769 dated April 25,
1996 in the amount of $75,608.33 ("Bank One Letter of Credit"). At the request
of the Borrower, Bank One has agreed to the Waiver and Agreement, dated as of
December 29, 1998, Waiver Extension and Agreement dated as of February 12, 1999,
Second Waiver Extension and Amendment No. 4 dated as of March 26, 1999 (the
"SECOND WAIVER AGREEMENT") and Second Further Consent and Agreement dated as of
march 26, 1999("SECOND BANK ONE CONSENT");
B. As a condition of the Beneficiary executing and delivering
the Second Bank One Consent, the Beneficiary has required that the Borrower
execute this Deed of Trust to secure the obligations of the Borrower under the
Note and Bank One Letter of Credit.
C. All of the property described under 1 through 4 below is
herein collectively called the "REAL PROPERTY COLLATERAL," which together with
all of the property described under 5 through 9 below (the "PERSONAL PROPERTY
COLLATERAL") is herein collectively called the "MORTGAGED PROPERTY."
(1) The lands and premises described in EXHIBIT A (and all
hereafter acquired estate, right, title and interest of the Borrower in and to
any and all other lands and premises), together with all and singular the
tenements, hereditaments, easements, rights
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<PAGE> 3
anywise appertaining and also all estate, right, title and interest of the
Borrower in and to the same and in and to the streets, ways, sidewalks, alleys
and areas now or hereafter adjacent of way and appurtenances now or hereafter
thereunto belonging or now or hereafter in thereto or now or hereafter used in
connection therewith (collectively, the "LAND");
(2) All buildings and other improvements now or hereafter
erected on the Land (collectively, the "IMPROVEMENTS");
(3) Any and all reversions and remainders of the Land and/or
the Improvements and all estate, right, title and interest now owned or
hereafter acquired by the Borrower in and to any and all present and
future leases, subleases, occupancy agreements and similar arrangements
(and all renewals, modifications, and extensions thereof) in connection
with the Land, the Improvements and/or the Personal Property
(collectively, the "SPACE LEASES") and all rents, revenues, issues,
income and profits payable thereunder or otherwise in connection with
the Land, the Improvements and/or the Personal Property;
(4) All mineral, water, oil and gas rights and privileges and
royalties pertaining to the Land.
(5) All estate, right, title and interest now owned or
hereafter acquired by the Borrower in and to all fixtures, fittings,
appliances, apparatus, equipment, goods, machinery, furnishings,
furniture and other personal property (whether tangible or intangible)
and any and all replacements thereof and additions thereto, now or
hereafter affixed or attached to, placed upon or used or usable in
connection with the Land and/or the Improvements (collectively, the
"PERSONAL PROPERTY");
(6) All estate, right, title and interest now owned or
hereafter acquired by the Borrower in and to all proceeds of the
insurance required to be maintained under PARAGRAPH 7 and all awards
heretofore or hereafter made with respect to the Land, the Improvements
and/or the Personal Property as the result of the exercise of the power
of eminent domain, including, without limitation, any awards for
changes of the grades of streets and/or as the result of any other
damage to the Land, the Improvements and/or the Personal Property for
which compensation shall be given by any governmental authority (a
"TAKING"), all of which are hereby assigned to the Beneficiary who is
hereby authorized to collect and receive the proceeds thereof and to
give proper receipts and acquittances therefor, and to apply the same
in accordance with this Deed of Trust;
(7) Any and all air rights, development rights, zoning rights
and other similar rights or interests which benefit or are appurtenant
to the Land and/or the Improvements and any and all proceeds arising
therefrom;
3
<PAGE> 4
(8) All estate, right, title and interest now owned
or hereafter acquired by the Borrower in and to any and all present and
future licenses, authorizations, consents, approvals, permits, grants
and franchises (including without limitation those set forth in EXHIBIT
B attached hereto) which are necessary or desirable in connection with
the use, occupancy, construction, maintenance, repair, replacement,
restoration, operation, management or ownership of the Land, the
Improvements and/or the Personal Property (collectively, the
"PERMITS"); and
(9) All estate, right, title and interest now owned or
hereafter acquired by the Borrower in and to any and all present and
future agreements, contracts, documents, guaranties, warranties,
instruments, certificates and indentures (including, without
limitation, those agreements, if any, set forth in EXHIBIT C attached
hereto) in connection with the use, occupancy, maintenance, repair,
replacement, restoration, operation, management or ownership of the
Land, the Improvements and/or the Personal Property (collectively, the
"OPERATING AGREEMENTS").
GRANTING CLAUSE
---------------
NOW, THEREFORE, in consideration of $10.00 and other good and
valuable consideration, the receipt whereof is hereby acknowledged, and in order
to secure the following (collectively, the "OBLIGATIONS"): (a) the payment of
all moneys payable pursuant to or in connection with the the Note or Bank One
Letter of Credit, (b) the payment of all other moneys required to be paid under
the Swing Line in the current aggregate principal sum of up to TWENTY MILLION
DOLLARS ($20,000,000.00) bearing interest as therein stipulated, and (c) the
performance and observance of the covenants and agreements contained in the
Credit Agreement, the Intercreditor Agreement, the Note and Bank One Letter of
Credit, the Borrower does hereby irrevocably:
A. Grant, bargain, sell, assign, transfer and convey the Real
Property Collateral, whether now owned or hereafter acquired, to the Trustee, IN
TRUST, WITH POWER OF SALE AND RIGHT OF ENTRY AND POSSESSION, pursuant to this
Deed of Trust and applicable law, for the benefit of the Beneficiary, subject to
the rights of the Beneficiary under the assignment made in PARAGRAPH B below;
TO HAVE AND TO HOLD the Real Property Collateral to the
Trustee and the Trustee=s successors and assigns forever, subject to all of the
terms, conditions, covenants and agreements herein set forth, for the security
and benefit of Beneficiary and its successors and assigns.
B. Assign and transfer to the Beneficiary all of the Rents (as
hereinafter defined); and
4
<PAGE> 5
C. Pledge, assign, transfer and grant to the Beneficiary, a
lien on and a security interest in, all of the Borrower's right, title and
interest, whether now owned or hereafter acquired, in, to and under the Personal
Property Collateral.
TO HAVE AND TO HOLD unto the Beneficiary forever.
PROVIDED ALWAYS, that if the Borrower shall pay in full the
Obligations according to the terms of this Deed of Trust, the Credit Agreement,
the Intercreditor Agreement, the Note, Bank One Letter of Credit and Second Bank
One Consent and abide by and comply with each and every covenant and agreement
set forth in this Deed of Trust, this Credit Agreement the Intercreditor
Agreement, the Note, Bank One Letter of Credit and Second Bank One Consent, then
this Deed of Trust and the estate hereby granted shall cease, terminate and
become void.
AND the Borrower hereby covenants with the Beneficiary as
follows:
1. PAYMENT OF THE OBLIGATIONS. The Borrower shall (a) pay the
Obligations according to the terms of this Deed of Trust, the Credit Agreement,
the Note, Bank One Letter of Credit and Second Bank One Consent and (b) abide by
and comply with each and every covenant and agreement set forth in this Deed of
Trust, the Credit Agreement, the Note, Bank One Letter of Credit and Second Bank
One Consent. The Borrower acknowledges that as of the date hereof it has no
offsets, defenses or counterclaims with respect to the Obligations.
2. TITLE. The Borrower shall forever warrant, maintain,
preserve and defend the title to the Mortgaged Property, the lien of and
security interest created by this Deed of Trust and the Beneficiary's lien on
and security interest in the Mortgaged Property against the claims and demands
of all Persons whomsoever.
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants as follows:
(a) the Borrower is lawfully seized and possessed of
good and marketable title to an indefeasible fee simple estate
in and to the Real Property Collateral, subject to no
mortgage, lien, charge, encumbrance, lease, sublease, other
matters of title or adverse item, except the Permitted
Encumbrances (as hereinafter defined); no improvements on
adjoining property encroach upon the Land and none of the
Improvements encroach upon adjoining property or easement
areas; and to the best of Borrower's knowledge there are no
existing violations of any easements, covenants or
restrictions encumbering the Real Property Collateral (or
events which with notice or the passage of time, or both,
would constitute a violation);
5
<PAGE> 6
(b) the Borrower has good title to the Mortgaged
Property (other than the Real Property Collateral), subject to
no lien, charge, encumbrance or other matter other than the
Permitted Encumbrances;
(c) upon the execution of this Deed of Trust, the
Beneficiary will have a valid and enforceable mortgage lien on
and/or a valid enforceable security interest in all of the
Borrower's rights, property and interests included in the
Mortgaged Property, subject only to the rights of the Agent
pursuant to the Intercreditor Agreement;
(d) the Mortgaged Property and the use, occupancy,
maintenance, repair, replacement, restoration, operation,
management and ownership thereof comply with all Legal
Requirements (as hereinafter defined) including without
limitation all zoning, building code, land use and similar
land regulation requirements and a validly issued permanent
certificates of occupancy for the existing Improvements dated
November 5, 1993 bearing certificate number 93048297 and dated
May 26, 1994 bearing certificate number 93065019 have been
issued and are in effect (a true and complete copy of which
Borrower has or shall cause to be delivered to the
Beneficiary);
(e) there has been no use, discharge, distribution,
generation, manufacture, refinement, transportation,
treatment, storage, handling, disposition, transfer,
production, processing, presence, release or threatened
release of any Hazardous Substance (as hereinafter defined)
on, over, under, from, at, in and/or about the Mortgaged
Property and the Borrower has not received any notice of a
violation of any Environmental Law (as hereinafter defined),
except as set forth in any Phase I environmental report
prepared on behalf of the Agent;
(f) there has been no use, occupancy, maintenance,
repair, replacement, restoration, operation, management or
ownership of the Mortgaged Property (or any portion thereof)
in violation of any Environmental Law;
(g) there is no (i) pending condemnation, labor
dispute or administrative agency investigation or litigation
concerning the Improvements and (ii) no material casualty,
structural defect or other adverse physical condition which
materially and adversely would affect the Improvements and the
business conducted in connection therewith and to the best of
Borrower's knowledge, no such condemnation, labor dispute or
administrative agency investigation or litigation, casualty,
structural defect or other adverse physical condition is
threatened or threatening;
(h) the Permits set forth in EXHIBIT B constitute the
only Permits necessary for the use, occupancy, maintenance,
repair, replacement, restoration, operation, management and
ownership of the Mortgaged Property; the Permits
6
<PAGE> 7
litigations, proceedings, claims or investigations pending,
contemplated or threatened with respect to any of the Permits;
(i) the Operating Agreements, if any, set forth in
EXHIBIT C constitute the only Operating Agreements (i)
affecting the Mortgaged Property and (ii) necessary for the
use, occupancy, maintenance, repair, replacement, restoration,
operation, management and ownership of the Mortgaged Property;
no event of default or event which with notice or the passage
of time or both would constitute such an event of default is
existing under any of the Permits or Operating Agreements;
(j) all roads and utilities (including, without
limitation, roadways, driveways, walkways, sidewalks, water,
oil, gas, telephone, sewer and electricity) which are
necessary or desirable for the use, occupancy, maintenance,
repair, replacement, restoration, operation, management and
ownership of the Mortgaged Property (and all portions thereof)
(i) have been connected and completed, (ii) are available for
use and (iii) enter the Land directly through adjoining public
streets and do not pass through private land;
(k) neither the Mortgaged Property nor any portion
thereof has been (i) taken by or transferred in lieu of
condemnation, eminent domain or similar proceedings and there
are no pending or threatened condemnation, eminent domain or
similar proceedings with respect to the Mortgaged Property or
(ii) damaged or destroyed by any casualty or other event;
(l) except for the Space Leases set forth in EXHIBIT
D, the Mortgaged Property is vacant of tenants and free of
Space Leases;
(m) the Borrower has not requested, applied for or
given its consent to, and has no knowledge of, any pending
zoning change or variance with respect to the Mortgaged
Property or any property adjoining the Land;
(n) the Land and the Improvements are assessed as a
separate tax lot and no part of the Land or the Improvements
is a part of any other tax lot;
(o) the Borrower does not owe any monies to any
contractor, supplier or materialman for labor or materials
performed, rendered or supplied in connection with the
Mortgaged Property for which such Person could claim a lien
against the Mortgaged Property;
(p) there are no incinerators, septic tanks,
underground storage tanks, PCB-containing equipment,
asbestos-containing material, formaldehyde insulators or
cesspools on, under, at, in and/or about the Mortgaged
Property, and all waste
7
<PAGE> 8
is discharged from the Mortgaged Property into a public
sanitary sewer system in accordance with all Legal
Requirements;
(q) the Mortgaged Property is an independent unit
which does not rely on any drainage, sewer, access or other
facilities located on any property not included in the
Mortgaged Property: (i) to fulfill any Legal Requirement, (ii)
for structural support, (iii) to furnish to the Mortgaged
Property any building systems or utilities or (iv) to fulfill
the requirements of any agreement affecting the Mortgaged
Property;
(r) no building or other improvement not included in
the Mortgaged Property relies on any part of the Mortgaged
Property: (i) to fulfill any Legal Requirement, (ii) for
structural support or (iii) for the furnishing to such
building or improvement of any building systems or utilities;
4. CERTAIN DEFINITIONS. The following terms shall have the
meanings herein specified: "PERMITTED ENCUMBRANCES" means the Deed of Trust
granted to the Agent, this Deed of Trust and those matters listed in EXHIBIT E
attached hereto. "PERSON" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, company,
trust, unincorporated organization, entity or government (or any authority,
agency or political subdivision thereof). Capitalized terms used herein and not
defined herein shall have the meanings given to such terms in the Credit
Agreement both before and after the termination of the Credit Agreement. Terms
defined herein shall apply equally in the singular and plural forms.
5. FURTHER ASSURANCES; PAYMENTS. (a) The Borrower shall
execute, acknowledge and deliver, from time to time within 10 days after demand
therefor, such further instruments as the Beneficiary may require to accomplish
the purposes of this Deed of Trust, the Credit Agreement, the Note, Bank One
Letter of Credit or Second Bank One Consent (or any portion thereof)
(collectively, the "FURTHER INSTRUMENTS"). If the Borrower shall fail to
execute, acknowledge or deliver any Further Instrument, the Beneficiary shall be
and is hereby irrevocably appointed the agent and attorney-in-fact of the
Borrower (which power is coupled with an interest) to execute, acknowledge and
deliver such Further Instrument.
(b) The Borrower immediately upon the execution,
acknowledgment and delivery of this Deed of Trust, and thereafter from time to
time within 10 days after demand therefor, shall cause this Deed of Trust and
each Further Instrument to be filed, registered and/or recorded, and refiled,
reregistered and/or re-recorded in such manner and in such places as may be
required by any present or future Legal Requirement in order to (i) publish
notice of and/or (ii) perfect the lien and estate of this Deed of Trust in and
to the Mortgaged Property. The Borrower shall pay to the Beneficiary all costs
and expenses (including, without limitation, filing, registration and recording
taxes, fees, charges, duties, stamps and imposts) related to such filing,
registration and/or recording.
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(c) The Borrower shall pay: (i) all filing, registration and
recording taxes, fees and charges, all refiling, reregistration and rerecording
taxes, fees and charges and all other costs and expenses in connection with: (1)
the execution, delivery, acknowledgment and/or recordation of this Deed of
Trust, any of the other Loan Documents and each Further Instrument and/or (2)
the transactions contemplated hereby (including, without limitation, title
insurance premiums, title examination charges and legal, consulting,
engineering, appraisal, survey and inspection fees, expenses and disbursements)
and (ii) all federal, state, county and municipal stamps, taxes, duties,
imposts, assessments and charges in connection with the execution, delivery,
acknowledgment and/or recordation of this Deed of Trust, any of the other Loan
Documents and each Further Instrument.
6. CREATION OF OTHER LIENS. The Borrower shall not create or
suffer to be created any pledges, mortgages, liens, charges, encumbrances,
condominium documentation or other matters of title upon the Mortgaged Property
prior to, on a parity with or subordinate to the lien of this Deed of Trust,
provided, that the Borrower has entered into a deed of trust with the Agent and
the Liens granted to the Agent are superior to the Liens grated to the
Beneficiary hereunder.
7. INSURANCE. (a) The Borrower shall cause the Improvements
and the Personal Property to be kept insured for the benefit of the Beneficiary
(i) against loss or damage under an "all risk" type of casualty insurance policy
(including, without limitation, loss or damage by fire, lightning, windstorm,
hail, explosion, aircraft, vehicles, vandalism and malicious mischief and
smoke), (ii) (if the Land or any portion thereof is located in an area
identified by the Secretary of Housing and Urban Development as an area having
special flood hazards and in which flood insurance has been made available under
the National Flood Insurance Act of 1968 or otherwise) against flood risks,
(iii) (as, when and to the extent required by the Beneficiary and within 10 days
after request therefor by the Beneficiary ) against any other risk insured
against from time to time under good insurance practices by Persons operating
and/or owning like properties in the locality of the Land, and (iv) against such
other risks as may be included in the broad form of extended coverage insurance
from time to time available. All such insurance shall be in an amount
satisfactory to the Beneficiary, and in any event not less than 100% of Full
Replacement Cost (as hereinafter defined). "FULL REPLACEMENT COST" means the
actual replacement cost of the Improvements and the Personal Property (excluding
foundations, footings and excavation costs) without deduction for physical
depreciation. Full Replacement Cost shall be determined at the request of the
Beneficiary (but not more frequently than once in any twelve month period). Such
determination shall be made by an architect, appraiser, appraisal company or one
of the insurers selected by the Beneficiary and the cost thereof shall be
promptly paid by the Borrower. Each insurance policy in effect pursuant to this
PARAGRAPH 7(a) shall contain a "replacement cost endorsement", and losses
thereunder shall be payable to the Beneficiary pursuant to a standard mortgagee
endorsement, without contribution, substantially equivalent to the standard
mortgagee endorsement (a "MORTGAGEE ENDORSEMENT") in the state where the Land is
located. The Borrower shall promptly notify the Beneficiary of any loss in
connection with the Improvements and/or the Personal Property. The Beneficiary
shall have the right to join the Borrower in adjusting any loss covered by any
insurance policy in effect
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pursuant to this PARAGRAPH 7(a) if such loss is in excess of $10,000. The
Borrower shall not take out separate insurance (and shall not permit the same to
be taken out) in connection with the Improvements and/or the Personal Property
concurrent in form or contributing in the event of loss with that required by
this Deed of Trust unless losses thereunder shall be payable to the Mortgagee
pursuant to a Mortgagee Endorsement.
(b) The Borrower shall maintain insurance against claims for
bodily injury and property damage occurring on, in and/or about the Land, the
Improvements and the adjoining streets under a policy of commercial general
liability insurance, with such limits as may be reasonably required by the
Beneficiary from time to time, and in any event not less than $3,000,000 per
occurrence for bodily injury and property damage combined. Each insurance policy
in effect pursuant to this PARAGRAPH 7(b) shall name the Beneficiary (and other
Persons designated by the Beneficiary) as an additional insured.
(c) If there exist any boilers at the Land and/or at the
Improvements, the Borrower shall maintain boiler insurance, with such limits as
may be required by the Beneficiary from time to time. Each insurance policy in
effect pursuant to this PARAGRAPH 7(c) shall contain a "replacement cost
endorsement", and losses thereunder shall be payable to the Beneficiary. The
Beneficiary shall have the right to join the Borrower in adjusting any loss
covered by such insurance policy if such loss in excess of $7,500.
(d) The Borrower shall maintain workmen's compensation
insurance, with such limits as may be required by the Legal Requirements from
time to time.
(e) Upon the execution and delivery of this Deed of Trust and
thereafter not less than 30 days prior to the expiration date of each insurance
policy then in effect pursuant to PARAGRAPH 7 (a), (b), (c) or (d), the Borrower
shall deliver to the Beneficiary an original of such insurance policy (or a
certificate thereof, such certificate shall be in form and substance acceptable
to the Beneficiary and shall be duly executed by the insurance company issuing
the relevant insurance policy) or a renewal insurance policy (or a certificate
thereof, such certificate shall be in form and substance acceptable to the
Beneficiary and shall be duly executed by the insurance company issuing the
relevant insurance policy), as the case may be, bearing a notation evidencing
payment of the premium therefor and accompanied by other proof of payment
satisfactory to the Beneficiary. Each such insurance policy shall (i) be written
by a company or companies having an A.M. Best rating of A or better in a
financial category of VII or better and be otherwise satisfactory to the
Beneficiary in form and substance and (ii) not be terminated, cancelled,
surrendered, modified, amended or supplemented without at least 30 days' prior
written notice thereof to the Beneficiary.
(f) Subject to the terms of the Intercreditor Agreement, the
Beneficiary shall retain and apply any net insurance proceeds received by it for
loss or damage under any insurance policy in effect pursuant to PARAGRAPH 7(a)
or 7(c) at the option of the Beneficiary, to the prepayment of the Obligations
(notwithstanding the fact that the same may not then be due and payable) or to
the reimbursement of the Borrower for the costs paid by the Borrower in
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connection with the repair, replacement or restoration of the Improvements and
the Personal Property, except that net insurance proceeds of less than $25,000
shall be applied by the Beneficiary to repair, replacement and/or restoration.
The Borrower hereby (i) grants, bargains, sells, conveys, warrants, assigns,
transfers, pledges, sets over and confirms unto the Beneficiary and (ii) grants
the Beneficiary a security interest in, such net insurance proceeds. Such net
insurance proceeds shall be (1) collateral security for the Obligations and (2)
subject to disbursement solely by the Beneficiary pursuant to this Deed of Trust
and the Intecreditor Agreement.
(g) If, pursuant to PARAGRAPH 7(f), the Beneficiary shall
elect to apply any net insurance proceeds received by it to the reimbursement of
the Borrower for the costs paid by the Borrower in connection with the repair,
replacement and restoration of the Improvements and the Personal Property, such
net insurance proceeds shall be retained by the Beneficiary and shall be
disbursed by the Beneficiary from time to time as such repair, replacement and
restoration progresses. Each such disbursement shall be made upon request by the
Borrower and upon compliance by the Borrower with any conditions the Beneficiary
shall reasonably require.
8. IMPOSITIONS. The Borrower shall (i) pay, before any fine,
penalty, interest or cost for non-payment attaches thereto, all taxes,
assessments, water and sewer rates and all other governmental charges and/or
levies now or hereafter assessed and/or levied against the Mortgaged Property
(or any portion thereof) or upon the lien or estate of this Deed of Trust
therein (collectively, the "IMPOSITIONS"), as well as all claims for labor,
materials and/or, supplies which, if unpaid, might by law become a lien thereon
and (ii) within 10 days after request therefor by the Beneficiary, exhibit
evidence reasonably satisfactory to the Beneficiary showing payment of the
Impositions. The Borrower shall not be entitled to any credit against interest
or any other amount payable in connection with this Deed of Trust by virtue of
the payment by the Borrower of the Impositions.
9. CONDITION OF THE MORTGAGED PROPERTY. The Borrower shall (a)
not permit the Mortgaged Property (or any portion thereof) to be removed,
demolished or altered, (b) maintain the Mortgaged Property in good repair,
working order and condition, (c), notwithstanding anything to the contrary
contained herein, repair, replace and restore the Improvements and the Personal
Property now or hereafter damaged or destroyed by any casualty or other event
(whether or not insured against and insurable) or affected by any Taking so
that, when repaired, replaced and restored, the same shall be (i) at least equal
in quality, usefulness and value as the Improvements and the Personal Property
which existed immediately prior to such casualty, event or Taking, as the case
may be and (ii) of the same type and character as the type and character of the
Improvements and the Personal Property existing on the date of this Deed of
Trust and (d) perform any and all construction, equipping, alteration, repair,
replacement and/or restoration in a good and workmanlike manner, free and clear
of all mortgages, liens, charges, encumbrances and other matters of title
(except for, in the case of the Improvements, the Permitted Encumbrances).
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10. COMPLIANCE WITH LEGAL REQUIREMENTS; HAZARDOUS SUBSTANCES.
(a) The Borrower shall comply with (i) all present and future statutes, laws,
ordinances, codes, orders, writs, injunctions, decrees, rules, regulations,
judgments, restrictions, licenses, authorizations, consents, approvals, permits,
grants and franchises of all foreign, federal, state, county and municipal
governments and the authorities, agencies, departments, commissions, boards,
courts and officers thereof (including, without limitation, all Environmental
Laws), (ii) the present and future requirements of the Board of Fire
Underwriters (or any other organization exercising similar functions), (iii) all
requirements of the insurance policies required to be maintained pursuant to
this Deed of Trust and (iv) all present and future covenants, conditions and
restrictions (including, without limitation, the Permitted Encumbrances)
(collectively, the "LEGAL REQUIREMENTS"). The Borrower shall indemnify, defend
and hold harmless the Beneficiary (and the affiliates, employees, agents,
contractors, officers and directors of the Beneficiary) from and against any and
all loss, cost, liability, expense, claim, suit, demand and judgment (including,
without limitation, attorneys' fees and disbursements) (1) in any way related to
any violation of and/or failure to comply with any Legal Requirement (including,
without limitation, CERCLA [as hereinafter defined], RCRA [as hereinafter
defined] and any other Environmental Law), (2) imposed upon the Borrower and/or
the Beneficiary by any Legal Requirement (including, without limitation, CERCLA,
RCRA and any other Environmental Law), (3) in any way related to the use,
discharge, distribution, generation, manufacture, refinement, transportation,
treatment, storage, handling, disposition, transfer, production, processing,
presence, release and/or threatened release on, over, under, from, at, in and/or
about the Mortgaged Property of any Hazardous Substance (whether caused by the
action, inaction and/or omission of the Borrower or of any other Person), (4) in
any way related to any personal injury (including, without limitation, wrongful
death) and/or property damage (real or personal) arising out of and/or in any
way related to such Hazardous Substance, (5) in any way related to any lawsuit
instituted or threatened, settlement reached and/or government order relating to
such Hazardous Substance and/or (6) in any way related to any violation of any
reasonable policies and/or requirements of the Beneficiary which are based upon
or in any way related to such Hazardous Substance. In case any action and/or
proceeding is brought against the Beneficiary in connection with any Legal
Requirement, the Borrower shall, upon notice from the Beneficiary, defend the
same by counsel satisfactory to the Beneficiary. The Borrower shall promptly pay
the cost of such defense. The foregoing indemnity shall survive the repayment in
full of the Obligations. "ENVIRONMENTAL LAWS" means all Legal Requirements in
connection with the environment, the use, discharge, distribution, generation,
manufacture, refinement, transportation, treatment, storage, handling,
disposition, transfer, production, processing, presence, release and/or
threatened release of any industrial, toxic, hazardous, dangerous and/or
environmental waste, contaminant, material, substance, pollutant and/or chemical
(including, without limitation, any Hazardous Substance), including, without
limitation, (A) the Comprehensive Environmental Response, Compensation and
Liability Act (as amended and/or supplemented from time to time, "CERCLA"), (B)
the Resource Conservation and Recovery Act (as amended and/or supplemented from
time to time, "RCRA"), (C) the Federal Clean Water Act (as amended and/or
supplemented from time to time, the "WATER Act") and (D) the Emergency Planning
and Community Right to Know Act, as amended and/or supplemented from time to
time. "HAZARDOUS SUBSTANCES" means (aa) the substances included within the
definitions of "hazardous
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substances", "hazardous materials", "toxic substances" and/or "solid waste" in
(y) CERCLA, RCRA and/or the Hazardous Materials Transportation Act, as amended
and/or supplemented from time to time and (z) the regulations promulgated
pursuant to any or all of the foregoing, (bb) the substances listed (y) in the
United States Department of Transportation Table (49 C.F.R. Sections 72.101 -
172.102), as amended and/or supplemented from time to time and/or (z) at any
time and from time to time by the Environmental Protection Agency (or any
successor thereto) as hazardous substances (40 C.F.R. Sections 302.1 - 302.7),
(cc) any waste, contaminant, material, substance, pollutant and/or chemical
which is or becomes regulated or defined as toxic, hazardous and/or dangerous
under any other Legal Requirement (including, without limitation, any other
Environmental Law) and (dd) any waste, contaminant, material, substance,
pollutant and/or chemical which is (s) radon, (t) petroleum, (u) asbestos, (iv)
polychlorinated biphenyls, (w) designated as a "hazardous substance" pursuant to
the Water Act, (x) listed pursuant to Section 307 of the Water Act, (y)
flammable and/or explosive and/or (z) radioactive.
(b) The Borrower shall keep or cause the Mortgaged Property to
be kept free of Hazardous Substances. Without limiting the generality of the
foregoing, the Borrower shall not cause or permit (whether by the action,
inaction or omission of the Borrower or of any other Person) the use, discharge,
distribution, generation, manufacture, refinement, transportation, treatment,
storage, handling, disposition, transfer, production, processing, presence,
release or threatened release of any Hazardous Substance on, over, under, from,
at, in and/or about the Mortgaged Property (or any portion thereof). In the
event that this Deed of Trust is foreclosed or the Borrower tenders a deed in
lieu of foreclosure, the Borrower shall deliver the Mortgaged Property free of
any and all Hazardous Substances.
11. LIMITATIONS OF USE. The Borrower shall not initiate, join
in or consent to any change in any private restrictive covenant, zoning
ordinance or other public or private restriction limiting the uses which may be
made of any portion of the Land and/or the Improvements.
12. ESTOPPEL CERTIFICATES. The Borrower shall, within 10 days
after request therefor, deliver to the Beneficiary a certificate, duly executed
and acknowledged by the Borrower, (a) setting forth the amount due on this Deed
of Trust, (b) stating whether any offsets, defenses and/or counterclaims exist
in connection with the Obligations and (c) addressing such other matters in
connection with the other Loan Documents as the Beneficiary may reasonably
request.
13. ACTIONS BY THE BENEFICIARY TO PROTECT THE MORTGAGED
PROPERTY; ETC. If the Borrower shall fail to (a) effect the insurance required
under PARAGRAPH 7, (b) make the payments required under PARAGRAPH 8, (c) make
any other payment required under the Credit Agreement, this Deed of Trust or any
other Loan Document or (d) comply with any other term or covenant of any Loan
Document, the Beneficiary may effect, pay or cure the same, as the case may be.
All sums, including, without limitation, attorneys' fees and disbursements, so
incurred by the Beneficiary or incurred by the Beneficiary (i) to sustain the
lien or estate of this Deed of Trust or its priority (including, without
limitation, the sums specified in PARAGRAPH 28), (ii) to protect or
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enforce any of the Beneficiary's rights under this Credit Agreement, this Deed
of Trust or any Loan Document, or (iii) to recover or collect the Obligations,
shall be a lien on the Mortgaged Property, shall be deemed secured by this Deed
of Trust and shall be paid to the Beneficiary by the Borrower within 10 days
after demand therefor (together with interest thereon at the Default Rate (as
defined in the Credit Agreement), from the date the same was incurred to the
date of the full payment thereof). In any action and/or proceeding to foreclose
this Deed of Trust and/or to recover and/or collect the Obligations (or any
portion thereof), the provisions of law respecting the recovery of costs,
disbursements and/or allowances shall prevail unaffected by this covenant.
14. ASSIGNMENT OF LEASES.
(a) Subject to the Intercreditor Agreement, pursuant to the
assignment made by the Borrower in PARAGRAPH B of the Granting Clause of this
Deed of Trust, Borrower hereby conveys, transfers and assigns to Beneficiary all
Space Leases and the rents, revenues, issues, income or profits therefrom
("RENTS"). This assignment shall continue in effect until the satisfaction in
full of the Obligations and this Deed of Trust is canceled or discharged of
record; however, so long as no Default exists, Borrower shall have a license to
collect, and may retain, use and enjoy the Rents as they become due, but not
prior to accrual. Such license granted to Borrower shall be immediately revoked
without further notice or demand upon the occurrence of a Default. The Borrower
irrevocably appoints the Beneficiary its true and lawful attorney-in-fact, at
any time and from time to time following the occurrence and during the
continuance of a Default, to demand, receive and enforce payment, to give
receipts, releases and satisfactions, and to sue, in the name of the Borrower or
otherwise, for the Rents and apply the same to the Obligations. The foregoing
assignment of Rents is intended to be an absolute assignment from the Borrower
to the beneficiary and not merely the passing of a security interest. The Rents
are assigned absolutely by the Borrower to the Beneficiary for the benefit of
the Beneficiary subject only to the terms of this Deed of Trust.
(b) The Borrower shall not execute or deliver or permit the
execution or delivery of any Space Lease without the prior consent of the
Beneficiary. The Borrower shall (a) perform and observe or cause to be performed
and observed all covenants and agreements required to be performed or observed
by the lessor under each Space Lease and (b) enforce the performance and
observance of all covenants and agreements required to be performed or observed
by the lessee under each Space Lease. The Borrower shall not (i) assign or
permit the assignment of any Space Lease or the Rents to any Person other than
to the Beneficiary, (ii) accept or permit the acceptance of a prepayment of rent
under any Space Lease in excess of rent for one month, (iii) terminate, cancel
or permit a surrender, termination or cancellation of any Space Lease, (iv)
permit the assignment of the lessee's interest under any Space Lease or permit
the subletting of the space demised by any Space Lease or (v) modify, amend or
supplement or permit the modification, amendment or supplement of any Space
Lease.
(c) To the extent permitted by law, upon the occurrence of any
Default, the Beneficiary, at any time without notice, either in person, by agent
or by a receiver appointed by a court, and without regard to the adequacy of any
security for the Obligations secured hereby,
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may enter upon and take possession of the Mortgaged Property, or any part
thereof, in its own name, sue for or otherwise collect the Rents including those
past due and unpaid, and apply the same, less costs and expenses of operation
and collection, (including attorney=s fees and disbursements), to the payment of
the Obligations secured hereby, and in such order as the Beneficiary may
determine. The collection of the Rents or the entering upon and taking
possession of the Mortgaged Property or any part thereof, or the application
thereof as aforesaid, shall not cure or waive any Default or notice thereof or
invalidate any act done in response to such Default or pursuant to notice
thereof. The Beneficiary is hereby absolved from all liability for failure to
enforce collection of any Rents, and from all other responsibility in connection
therewith.
(d) Nothing in this Deed of Trust shall be deemed to make the
Beneficiary a "mortgagee-in-possession" or otherwise be construed to create a
delegation to or assumption by the Beneficiary of the duties and obligations of
the Borrower under any agreement or contract relating to the Mortgaged Property
or any portion thereof, and all of the parties to any such contract shall
continue to look to the Borrower for performance of all covenants and other
obligations and the satisfaction of all representations and warranties of the
Borrower thereunder, notwithstanding the assignment of Rents herein made or the
exercise by the Beneficiary, prior to foreclosure, of any of its rights
hereunder or under applicable law.
15. DISPOSITION OF THE MORTGAGED PROPERTY; ETC. (a) The
Borrower shall not (whether voluntarily, involuntarily, by operation of law or
otherwise) sell, convey, transfer or otherwise dispose of or suffer any other
Person to sell, convey, transfer or otherwise dispose of all or any part of the
Mortgaged Property or any interest therein. A sale, conveyance, transfer or
other disposition of the Mortgaged Property shall include, without limitation
(i) any direct or indirect sale, conveyance, transfer or other disposition of
all or any part of the Mortgaged Property or any interest therein, (ii) the
execution of any lease for (a) the Mortgaged Property (or any portion
thereof)(other than the Improvements) and/or (b) space in the Improvements
covering space (in the aggregate) in excess of 2,000 square feet and (iii) any
assignment, encumbrance, pledge, grant of security interest, conditional sale or
title retention agreement in connection with the Personal Property.
(b) No interest (whether legal, beneficial or otherwise) in
the Borrower or in any Person (at any tier) directly or indirectly owning any
interest (whether legal, beneficial or otherwise) in the Borrower shall be
pledged, encumbered, sold, conveyed, transferred or otherwise disposed of
(whether voluntarily, involuntarily, by operation of law or otherwise). The
Borrower shall not, without the prior consent of the Beneficiary, issue any
additional stock or other equity interest.
(c) Notwithstanding anything to the contrary contained in
PARAGRAPH 15(a), the Borrower shall have the right, at any time and from time to
time, to remove and dispose of any of the Personal Property which is obsolete or
no longer useful in the use, occupancy, maintenance, repair, replacement,
restoration, operation, management and ownership of the Improvements, provided
that the Borrower promptly replaces the same with other Personal Property which
is (i)
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owned by the Borrower free of all mortgages, liens, charges, encumbrances and
other matters of title and (ii) at least equal in quality, usefulness and value
in connection with the use, occupancy, maintenance, repair, replacement,
restoration, operation, management and ownership of the Improvements as the
Personal Property that was removed and disposed of.
16. INTEREST AFTER A TAKING; AWARDS. The Beneficiary shall
have the right to join the Borrower in adjusting and compromising any and all
awards in connection with any Taking. All such awards shall be paid to the
Beneficiary and shall be applied by the Beneficiary to the payment of the
Obligations (notwithstanding the fact that the same may not then be due and
payable).
17. ADDITIONAL COVENANTS.
(a) The Borrower shall not assign or permit the assignment of
any of the Permits to any Person other than the Beneficiary.
(b) The Borrower shall not terminate, cancel or permit a
surrender, termination or cancellation of any of the Permits or Permitted
Encumbrances benefitting the Mortgaged Property.
(c) The Borrower shall not modify, amend or supplement or
permit the modification, amendment or supplement of any of the Permits or
Permitted Encumbrances benefitting the Mortgaged Property.
(d) The Borrower shall keep the Permits in full force and
effect.
(e) The Borrower shall promptly notify the Beneficiary of the
commencement and/or existence of any action, litigation, proceeding, claim
and/or investigation against any of the Borrower's property (including, without
limitation, the Mortgaged Property) or the Borrower.
(f) The Borrower shall deliver to the Beneficiary (a),
promptly after the Borrower knows or has reason to know that any Default (as
hereinafter defined) has occurred, a notice of such Default, describing the same
in reasonable detail and (b), promptly after the Borrower knows or has reason to
know that any event has occurred or failed to occur which with notice and/or the
lapse of time could became a Default, a notice of such events, describing the
same in reasonable detail.
18. DEFAULTS. If any one of the following defaults (a
"DEFAULT") shall occur and be continuing:
(a) The occurrence of any default under the Credit Agreement
or any other Loan Document or the breach of any of the terms or provisions of
the Credit Agreement or any Loan Document, which default or breach continues
beyond any period of grace, if any therein provided;
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(b) The breach by the Borrower of any of the terms or
provisions of this Deed of Trust; thereupon, the Beneficiary may declare the
Obligations to be immediately due and payable from the Borrower, whereupon the
same shall become immediately due and payable without presentment, demand,
notice of dishonor, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.
19. REMEDIES; ETC. (a) If a Default shall have occurred and be
continuing, the Beneficiary may exercise all remedies set forth in the Credit
Agreement and other Loan Documents, and the Beneficiary shall have all other
rights and remedies of a mortgagee of a mortgage or beneficiary of a deed of
trust (the power of sale permitted and provided by applicable statute including
without limitation Texas Property Code, Section 51.002, or any successor
statute, being hereby expressly granted by the Borrower to the Trustee and the
Beneficiary) with respect to any or all of the Mortgaged Property, and to the
extent permitted by law, personally or, to the extent permitted by law, by
agents, with or without entry, the Beneficiary shall have the right and power to
(or on its behalf, instruct the Trustee to):
(i) sell the Mortgaged Property (or any portion
thereof) to the highest bidder at public auction at a sale or
sales held at such place and time and upon such notice or
otherwise in such manner as may be required by law, or in the
absence of any such requirement, as the Beneficiary may deem
appropriate and from time to time adjourn such sale by
announcement at the time and place specified for such sale or
for such adjourned sale or sales without further notice,
except such as may be required by law;
(ii) proceed to protect and enforce its rights under
the Credit Agreement, the Note, Bank One Letter of Credit or
the Second Bank One Consent by suit for specific performance
of any covenant herein contained or contained in the Credit
Agreement, or in aid of the execution of any power herein
granted or granted in the Credit Agreement , or for the
foreclosure of this Deed of Trust and the sale of the
Mortgaged Property (or any portion thereof) under the judgment
or decree of a court of competent jurisdiction, or for the
enforcement of other right as the Beneficiary shall deem most
effectual for such purpose; and
(iii) enter upon and take immediate possession of the
real property included in the Mortgaged Property or any part
thereof, to exclude the Borrower therefrom, to hold, use,
operate, manage and control the real property included in the
Mortgaged Property, to make all such repairs, replacements,
alterations, additions and improvements to the Mortgaged
Property or any part thereof as the Beneficiary may deem
proper, and to demand, collect and retain the Rents as
provided in paragraph 14 hereof.
(b) In any action to foreclose this Deed of Trust,
the Beneficiary, to the extent permitted by law, shall be
entitled as a matter of right to the appointment of
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a receiver of the Mortgaged Property and/or of the rents, revenues,
issues, income and/or profits thereof, without notice or demand, and
without regard to the adequacy of the security for the Obligations or
the solvency of the Borrower.
(c) The Borrower, in the event of any Default, shall pay
monthly in advance to the Beneficiary or to any receiver appointed at
the request of the Beneficiary to collect the rents, revenues, issues,
income and/or profits of the Mortgaged Property, the fair and
reasonable rental value for the use and occupancy of the Mortgaged
Property or of such portion thereof as may be in the possession of the
Borrower. Upon default in the payment thereof, the Borrower shall
vacate and surrender possession of the Mortgaged Property or such
portion to the Beneficiary or to such receiver, and upon a failure so
to do may be evicted by summary proceedings.
(d) In any sale under any provision of this Deed of Trust or
pursuant to any judgment or decree of court, the Mortgaged Property, to
the extent permitted by law, may be sold in one or more parcels, or as
an entirety, and in such order as the Beneficiary may elect, without
regard to the right of the Borrower or any Person claiming under the
Borrower to the marshaling of assets. The purchaser at such sale shall
take title to the property so sold free and discharged of the estate of
the Borrower therein, the purchaser being hereby discharged from all
liability to see to the application of the purchase money. Any Person,
including, without limitation, the Beneficiary, may purchase at any
such sale.
(e) The Borrower shall indemnify, defend and hold harmless the
Beneficiary (and the affiliates, employees, agents, contractors,
officers and directors of the Beneficiary) from and against any and all
loss, cost, liability, expense, claim, suit, demand and judgment
(including, without limitation, attorneys' fees and disbursements) in
any way related to any action, litigation, proceeding, claim,
investigation, demand, defense or assertion based on, grounded upon or
resulting from any alleged or actual breach of any representation,
warranty or certification made by the Borrower in the Credit Agreement,
the Note, Bank One Letter of Credit or Second Bank One Consent, and in
case any action and/or proceeding is brought against the Beneficiary in
connection with any such breach, the Borrower shall, upon notice from
the Beneficiary, defend the same by counsel satisfactory to the
Beneficiary. The Borrower shall promptly pay the cost of such defense.
20 APPLICATION OF PROCEEDS. The proceeds of any sale made
either under the power of sale hereby given or under a judgment subject to the
Beneficiary's obligations under the Intercreditor Agreement, order or decree
made in any action to foreclose or to enforce this Deed of Trust shall be
applied:
(a) first to the payment of (i) all costs and
expenses of such sale, including, without limitation, attorneys' fees
and disbursements in the court of original jurisdiction and in any
appellate proceedings and (ii) all charges, expenses and
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advances incurred or paid by the Beneficiary in order to protect the
lien or estate of this Deed of Trust or the security afforded thereby;
(b) then to the payment of the Obligations (in such order and
priority as the Beneficiary shall determine); and
(c) any surplus remaining to be paid to the Borrower or to
whosoever may be lawfully entitled to receive the same.
21 NO JOINT VENTURE OR PARTNERSHIP. The relationship between
the Borrower and the Beneficiary created hereby is strictly of debtor/creditor
and nothing contained herein or in any other Loan Document shall be deemed or
construed to create a joint venture or partnership between the Borrower and the
Beneficiary.
22 WAIVERS BY THE BORROWER. The Borrower hereby waives, to the
fullest extent permitted by law, (a) any and all rights and equities of
redemption from sale under the power of sale created under this Deed of Trust
and from sale under any judgment, order or decree of foreclosure of this Deed of
Trust and all notice or notices of seizure and (b) the benefit of any and all
exemption, valuation, appraisement, marshalling, stay and extension rights now
or hereafter in force.
23 NO WAIVER. No failure to exercise, and no delay in
exercising, and no course of dealing with respect to, any power, remedy or right
under this Deed Waiver by the Beneficiary shall operate as a waiver thereof, nor
shall any single or partial exercise by the Beneficiary of any power, remedy or
right under this Deed of Trust, the Credit Agreement, the Note, Bank One Letter
of Credit , Second Bank One Waiver or any of the other Loan Documents preclude
any other or further exercise thereof or the exercise of any other power, remedy
or right. Each of the remedies provided herein are cumulative and not exclusive
of any remedies provided by (a) law or (b) the Credit Agreement or (c) any of
the other Loan Documents.
24 POWERS OF THE BENEFICIARY. Subject to the Intercreditor
Agreement, the Beneficiary shall have the right, at any time and from time to
time, to renew or to extend this Deed of Trust, or to alter or modify the same
in any way, or to waive any of the terms, covenants or conditions hereof in
whole or in part and shall have the right to release any portion of the
Mortgaged Property or any other security, and to grant such extensions or
indulgences in relation to the Obligations as the Beneficiary may determine
without the consent of any junior lienor and without any obligation to give
notice of any kind thereto and without in any manner affecting the priority or
the lien hereof on any portion of the Mortgaged Property.
25. SUCCESSOR TRUSTEE; TRUSTEE'S POWERS; RECONVEYANCE BY
TRUSTEE.
(a) The Trustee may resign in writing addressed to the
Beneficiary or be removed at any time with or without cause by an instrument in
writing duly executed by the
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Beneficiary. In case of the death, resignation or removal of the Trustee, a
successor to the Trustee may be appointed by the Beneficiary without formality
other than an appointment and designation in writing unless otherwise required
by applicable law. Such appointment and designation will be full evidence of the
right and authority to make the same and of all facts therein recited, and upon
the making of any such appointment and designation, this Deed of Trust will vest
in the named successor trustee all the right, title and interest of the Trustee
in all of the Mortgaged Property, and said successor will thereupon succeed to
all the rights, powers, privileges, immunities and duties hereby conferred upon
the Trustee.
(b) At any time, or from time to time without liability
therefor and without notice, upon written request of the Beneficiary and
presentation of this Deed of Trust, and without affecting the personal liability
of any person for payment of the indebtedness secured hereby or the effect of
this Deed of Trust upon the remainder of the Mortgaged Property, the Trustee may
(a) reconvey any part of the Mortgaged Property, (b) consent in writing to the
making of any map or plat thereof, (c) join in granting any easement thereon, or
(d) join in any extension agreement or any agreement subordinating the lien or
charge hereof.
(c) Upon written request of the Beneficiary stating that all
sums secured hereby have been paid, and upon surrender of this Deed of Trust to
the Trustee for cancellation and retention and upon payment by the Borrower of
the Trustee's fees, the Trustee shall reconvey to the Borrower, or to the person
or persons legally entitled thereto, without warranty, any portion of the Real
Property Collateral then held hereunder. The recitals in such reconveyance of
any matters or facts shall be conclusive proof of the truthfulness thereof. The
grantee in any reconveyance may be described as "the person or persons legally
entitled thereto."
26. RELATIONSHIP TO INTERCREDITOR AGREEMENT. The Borrower is
contemporaneously herewith entering into an Amended and Restated Security
Agreement, Patent and Trademark Security Agreement and this Deed of Trust with
Bank One (as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time, the "Bank One Collateral Documents")
pursuant to which the Borrower shall grant to Bank One a security interest in
the Collateral (as defined in the Credit Agreement) in order to secure all of
the Borrower's obligations to Bank One in respect of the Note and Bank One
Letter of Credit (the "Bank One Obligations"). Notwithstanding the date, manner,
or order of attachment or perfection, the description of any collateral or
security interests, liens, claims or encumbrances covered or granted by the Bank
One Loan Documents (as defined in the Credit Agreement ) or the Bank One
Collateral Documents, or any provision of the Uniform Commercial Code or other
applicable law as in effect in any State, Bank One hereby agrees that its rights
under the Bank One Collateral Documents are and shall be subordinate, to the
extent and in the manner set forth in the Intercreditor Agreement, to all rights
of the Agent under the Loan Documents, and that the Agent shall have at all
times a Lien prior and superior to that of Bank One in all Collateral securing
the Obligations under the Credit Agreement until the indefeasible payment in
full, in cash, of all Obligations under the Credit Agreement. Bank One hereby
reaffirms and admits to the validity and enforceability of the Intercreditor
Agreement and its applicability to the Bank One Collateral Documents.
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<PAGE> 21
27. NOTICES. All notices, demands, consents, statements,
requests, approvals and other communications hereunder (collectively, "NOTICES")
shall be in writing. All notices shall be given in the manner provided in the
Credit Agreement.
28. AMENDMENTS; ETC. This Deed of Trust cannot be terminated,
cancelled, modified, amended, supplemented, waived or discharged except by an
instrument in writing, duly acknowledged in form for recording, signed by the
party against whom enforcement of such modification, charge or discharge is
sought.
29. SECURITY AGREEMENT; FIXTURE FILING. This Deed of Trust
shall be a security agreement and "fixture filing" under Article 9 of the
Uniform Commercial Code as adopted by the State of Texas, as amended and/or
supplemented from time to time. The Borrower irrevocably authorizes the
Beneficiary to execute, in the Borrower's name, and to file any financing
statement or continuation statement which the Deed of Trust deems necessary or
advisable to preserve or maintain the priority of the lien hereof or to extend
the effectiveness thereof, and the Borrower shall pay to the Beneficiary,
pursuant to PARAGRAPH 13, any costs from time to time incurred by the
Beneficiary for filing any such statement under such Code or under any other
laws. After an event of Default occurs, Beneficiary may require Borrower to
assemble the Personal Property Collateral and make it available to Beneficiary
at a reasonably convenient place Beneficiary designates. Borrower authorizes
each obligor on any Personal Property Collateral to make payment and performance
to Beneficiary upon Beneficiary's demand, and payment or performance to
Beneficiary will discharge the obligor's duty as if it had been rendered to
Borrower, even if Borrower notifies the obligor that payment or performance
should not be made to Beneficiary. Except for the safe custody of any Personal
Property Collateral in its possession and accounting for money actually received
by it, Beneficiary has no duty as to any Personal Property Collateral, including
the duty to preserve rights against prior parties. Written notice to Borrower
mailed 10 days prior to public or private sale is reasonable notice.
30. SUCCESSORS AND ASSIGNS. The provisions of this Deed of
Trust (including, without limitation, the indemnities set forth in PARAGRAPH 10)
shall run with the Land and shall bind the Borrower, its successors and assigns,
and all subsequent encumbrances, tenants and subtenants of the Mortgaged
Property (or any portion thereof), and shall inure to the benefit of the
Beneficiary, its successors and assigns, and (notwithstanding anything to the
contrary contained in any of the other Loan Documents) such indemnities shall
survive the foreclosure of this Deed of Trust and repayment in full of the
Obligations.
31. SEVERABILITY/CAPTIONS. If any provision of this Deed of
Trust or the application thereof to any Person or circumstance shall, to any
extent, be illegal, invalid and/or unenforceable, the remainder of this Deed of
Trust or the application of such provision to Persons or circumstances other
than those as to which it is illegal, invalid and/or unenforceable, as the case
may be, shall not be affected, and each provision of this Deed of Trust shall be
legal, valid and enforceable to the extent permitted by law. The illegality,
invalidity and/or unenforceability of any provision of this Deed of Trust in any
jurisdiction shall not affect the
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<PAGE> 22
legality, validity and/or enforceability thereof in any other jurisdiction. The
captions or headings at the beginning of each paragraph hereof are for the
convenience of the parties and are not part of this Deed of Trust.
32. INVALIDITY OF CERTAIN PROVISIONS. If the lien or estate of
this Deed of Trust is invalid or unenforceable as to any part of the
Obligations, the unsecured or partially secured portion of such indebtedness
shall be paid completely prior to the payment of the remaining and secured or
partially secured portion thereof, and all payments made on such indebtedness,
whether voluntary or under foreclosure or other enforcement action or procedure,
shall be considered to have been paid on and applied first to the full payment
of that portion thereof that is not secured or fully secured by the lien or
estate of this Deed of Trust.
33. MERGER / CONFLICTS. This Deed of Trust, the Credit
Agreement, the Note, Bank One Letter of Credit, Second Bank One Waiver and the
other Loan Documents constitute the entire understanding between the Borrower
and the Beneficiary with respect to the transactions contemplated by this Deed
of Trust, and any and all other agreements, understandings and statements (oral
or written) between the Borrower and the Beneficiary in connection therewith are
merged into this Deed of Trust and the other Loan Documents. In case of any
conflict or inconsistency between any provision of this Deed of Trust, the
Credit Agreement, the Note, Bank One Letter of Credit, Second Bank One Waiver or
any other Loan Document, the provision which is more protective or more
favorable to the Beneficiary shall control.
34. FAIR MARKET VALUE FOR CALCULATING DEFICIENCIES. If
Beneficiary sues Borrower, any other party obligated on the Note or Bank One
Letter of Credit or any guarantor of the Note or Bank One Letter of Credit to
collect any deficiency owing after foreclosure of the Mortgaged Property, "fair
market value" of the Mortgaged Property under Sections 51.003, 51.004 and 51.005
of the Texas Property Code (as amended from time to time) (the "Deficiency
Statutes") will be determined as follows:
(a) Any valuation of the Mortgaged Property will be based on
"as is" condition on the foreclosure date, without any assumption or expectation
that the Mortgaged Property will be repaired or improved in any manner before a
resale of the Mortgaged Property after foreclosure.
(b) Any valuation will assume that the foreclosure purchaser
desires resale of the Mortgaged Property for cash promptly (but no later than
twelve months) following the foreclosure sale.
(c) All reasonable closing costs customarily borne by the
seller in a commercial real estate transaction, including brokerage commissions,
title insurance, a survey of the Mortgaged Property, tax prorations, attorney's
fees, and marketing costs, will be deducted from the gross fair market value of
the Mortgaged Property.
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<PAGE> 23
(d) Any valuation will further discount the gross fair market
value of the Mortgaged Property to account for any estimated holding costs
associated with maintaining the Mortgaged Property pending sale, including
utilities expenses, property management fees, taxes and assessments, and other
maintenance expenses.
(e) Any expert opinion testimony given or considered in
connection with a determination of the fair market value of the Mortgaged
Property must be given by persons who have at least five years experience in
appraising property similar to the Mortgaged Property and who have conducted and
prepared a complete written appraisal of the Mortgaged Property taking into
consideration the factors set forth above.
IN WITNESS WHEREOF, the Borrower has duly executed and delivered this
Deed of Trust as of the day and year first above written.
TELXON CORPORATION
By: /s/ Gerald J. Gabriel
------------------------------------
Name: Gerald J. Gabriel
----------------------------------
Title: Sr. V\.P., Financial Operations
---------------------------------
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<PAGE> 24
ACKNOWLEDGMENT
State of OHIO
County of SUMMIT
This instrument was acknowledged before me on the __ day of April, 1999 by
GERALD J. GABRIEL___________, SR. V.P. FINANCIAL OPERATIONS______ of Telxon
Corporation, a __DELAWARE________ corporation on behalf of said corporation.
/S/ ELIZABETH A. STAPLES___________
Notary Public, State of _OHIO_______
ELIZABETH A. STAPLES
NOTARY PUBLIC - STATE OF OHIO
My commission Has No Expiration Date
Section 147.03 R.C.
Name and Mailing Address Name and Mailing Address
of Trustee: of Beneficiary:
First American Title Insurance Company Bank One, NA
1500 Dairy Ashford 100 E. Broad Street
Houston, TX 77077 Columbus OH 43271
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<PAGE> 1
EXHIBIT 10.3.2.f
----------------
PATENT AND TRADEMARK SECURITY AGREEMENT
PATENT AND TRADEMARK SECURITY AGREEMENT, dated as of March 26 , 1999,
made by TELXON CORPORATION ("TELXON" or the "BORROWER") the Persons listed on
the signature pages under the caption "Grantors" (the "Grantors") and the
Additional Grantors (as defined in Section 13(b)) to BANK ONE, NA successor by
merger to BANK ONE AKRON, NA ("Bank One") (as the same may be amended, amended
and restated, supplemented or otherwise modified from time to time, this
"AGREEMENT").
RECITALS
WHEREAS, the Borrower, the Lenders, including Bank One, from
time-to-time party to the Credit Agreement, the Issuer, the Swing Line Lender
and Bank of New York ("BNY"), as the Agent (the "AGENT"), on behalf of the
Lenders, the Issuer and the Swing Line Lender entered into that certain Credit
Agreement dated as of March 8, 1996, as amended by that certain Amendment No. 1
to the Credit Agreement dated as of August 6, 1996 ("AMENDMENT NO.1"), Amendment
No. 2 to the Credit Agreement dated as of December 16, 1996 and Amendment No. 3
to the Credit Agreement dated as of December 12, 1997 (as further amended,
modified or supplemented from time to time, the "CREDIT AGREEMENT").
WHEREAS, pursuant to Amendment No. 1 and the Intercreditor Agreement
dated as of August 6, 1996, by and between Bank One and the Agent , as
acknowledged by the Borrower (as the same may be amended, supplemented or
otherwise modified from time to time, the "INTERCREDITOR AGREEMENT"), Bank One
extended to Borrower a certain Twenty Million Dollar ($20,000,000.00) revolving
line of credit (as the same may be amended, supplemented or otherwise modified
from time to time, the "SWING LINE") which is evidenced by a certain Business
Purpose Revolving promissory Note dated August 4, 1998 and executed by Borrower
(as the same may be amended, supplemented or otherwise modified from time to
time, the "SWING LINE NOTE") and a Standby Letter of Credit No. 047769 dated
April 25, 1996 in the amount of $75,608.33 ("BANK ONE LETTER OF CREDIT"). The
Borrower granted Bank One a security interest in certain collateral pursuant to
the Bank One Security Agreement dated as of August 6, 1996 and the Amended and
Restated Security Agreement dated as of the same date as the Agreement..
WHEREAS, the Borrower and Bank One have heretofore entered into a
Waiver and Agreement, dated as of December 29, 1998 (the "ORIGINAL WAIVER") and
a Waiver Extension and Agreement, dated as of February 12, 1999 (the "ORIGINAL
WAIVER EXTENSION), with respect to certain matters relating to the compliance by
the Borrower with certain provisions of the Credit Agreement.
WHEREAS, the Borrower has requested that Bank One agree to a further
waiver of compliance by the Borrower with certain provisions of the Credit
Agreement, including an
<PAGE> 2
extension of the waiver granted in the Original Waiver as extended by the
Original Waiver Extension and to amend certain other provisions of the Credit
Agreement.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Bank One and the Borrower are entering into that certain Second
Further Consent and Agreement by and between Bank One and the Borrower dated as
of the date hereof (the "SECOND BANK ONE WAIVER").
WHEREAS, unless otherwise defined herein, terms defined in the Credit
Agreement are used herein as therein defined;
WHEREAS, it is a condition precedent to the effectiveness of the Second
Bank One Waiver and the continued extension of credit under the Swing Line that
the Grantors shall have granted to Bank One, the security interests and liens
upon the Grantor's assets and property contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises, the covenants and
conditions set forth herein and in the Second Bank One Waiver, and for other
good and valuable consideration, the receipt and sufficiency are hereby
acknowledged, each of the Grantors hereby agrees with the Bank One as follows:
1. GRANT OF SECURITY. Each Grantor hereby assigns, pledges and grants to Bank
One a lien on and security interest in (except to the extent such assignment,
pledge or grant would violate the terms of any license agreement with any other
person in connection with any of the Patents and Trademarks, as defined below,
whether such Grantor is a licensee or licensor under any such license
agreement), the entire right, title and interest of such Grantor in and to the
following, whether now owned or hereafter acquired (the "PATENT AND TRADEMARK
COLLATERAL") which Security Interest shall be subordinate in all respects to the
Security Interest and Liens granted by the Borrower and certain of its
Subsidiaries to the Agent on behalf of the Lender, Issuer and Swing Line Lender
as security for the obligations of the Borrower and certain of its Subsidiaries
under the Credit Agreement and Loan Documents:
(a) All trademarks, service marks, trade names and trade dress and all
trademark and service mark registrations and applications for trademark or
service mark registration in the United States (except for "intent to use"
applications for trademark or service mark registrations filed pursuant to
Section l(b) of the Lanham Act, unless and until an Amendment to Allege Use or a
Statement of Use under Sections l(c) and l(d) of said Act has been filed) and
throughout the world (including, without limitation, each trademark and service
mark registration and application for trademark and service mark registration
identified on Schedule I attached hereto and made a part hereof), and (i) all
renewals thereof, (ii) all income, royalties, damages and payments now and
hereafter due and/or payable with respect thereto (including, without
limitation, payments under all licenses entered into in connection therewith,
and damages and payments for past or future infringements thereof), (iii) the
right to sue or otherwise recover for all past, present and future infringements
thereof, and (iv) all rights corresponding thereto throughout the world (but
only such rights as now exist or may come to exist under applicable
2
<PAGE> 3
local law), together, in each case, with the goodwill of the business connected
with the use of, and symbolized by each such trademark, service mark, trade name
and trade dress (all of the foregoing and other rights being, collectively, the
"TRADEMARKS");
(b) All letters patent of the United States or any other country, and
all registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof, all
whether now owned or hereafter acquired by the Company, including, but not
limited to, those described in Schedule I annexed hereto and made a part hereof,
and all reissues, continuations, continuations-in-part or extensions thereof and
all licenses thereof (all of the foregoing being herein referred to as the
"PATENTS"); and
(c) All license agreements with any other Person in connection with any
of the Patents and Trademarks or such other Person's names or marks, whether
such Grantor is a licensor or licensee under any such license agreement
(subject, in each case, to the terms of such license agreements), and the right
to prepare for sale, sell and advertise for sale, all inventory (as defined in
the Uniform Commercial Code in effect in the State of Ohio (the "OUCC"), to the
extent now or hereafter owned by each Grantor and now or hereafter covered by
such licenses (the "LICENSES").
2. SECURITY FOR OBLIGATIONS. The assignment and pledge of and grant of a
security interest in the Patent and Trademark Collateral by each Grantor
pursuant to this Agreement (collectively, the "SECURITY INTERESTS") secures the
payment of all obligations of the Borrower to Bank One now or hereafter existing
(and any other documents in respect of such obligations) under the Swing Line
(as the same may be amended, amended and restated, modified or supplemented from
time-to-time), whether for principal, interest, fees, expenses or otherwise (all
such obligations being the "SECURED OBLIGATIONS").
The Security Interests granted by this Agreement are granted in
conjunction with the security interests granted to Bank One in the Amended and
Restated Security Agreement between Borrower and Bank One executed
contemporaneously herewith..
3. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and warrants on the
date hereof and on each date that representations and warranties are deemed made
by any Grantor or the Borrower under the Credit Agreement as follows:
(a) Such Grantor is the sole, legal and beneficial owner of the entire
right, title and interest in and to the federal registrations and applications
for registration of the Patents and Trademarks listed on Schedules I and II
hereto and the Licenses free and clear of any lien, security interest, option,
charge, pledge, registered user agreement, assignment (whether conditional or
not), or covenant, or any other encumbrance, except for the Security Interests
created or permitted by this Agreement or the Credit Agreement, and except for
any such encumbrances which do not have a material adverse impact on the
economic value of any of the federal registrations and applications for
registration of the Patents and Trademarks listed on Schedules I and II hereto,
and except as permitted by Section 5 of this Agreement. No effective
3
<PAGE> 4
financing statement or other instrument similar in effect covering all or any
part of the federal registrations and applications for registration of the
Patents and Trademarks listed on Schedules I and II hereto or the Licenses
purported to be granted by such Grantor hereunder is on file in any recording
office, including, without limitation, the United States Patent and Trademark
Office, except such as may have been filed in favor of Bank One relating to this
Agreement. No Grantor owns any material copyrights of the United States, or any
country, including, without limitation, applications or registrations which have
been recorded or registered (or are currently the subject of a pending
application) in the United States Copyright Office or in any similar office or
agency of the United States, any State thereof, or any country or political
subdivision thereof.
(b) Set forth on Schedules I and II below the name of such Grantor is a
complete and accurate list of all of the federal registrations and applications
for federal registration of the Patents and Trademarks owned by such Grantor.
(c) Each federal patent and trademark and service mark registration and
application for registration of such Grantor identified on Schedules I and II is
subsisting and, to the best of such Grantor's knowledge, has not been adjudged
invalid, unregistrable or unenforceable, in whole or in part, and is, to the
best of such Grantor's knowledge, valid, registrable and enforceable. Each
License of such Grantor, to the best of such Grantor's knowledge, is subsisting
and has not been adjudged invalid or unenforceable, in whole or in part, and is,
to the best of such Grantor's knowledge, valid and enforceable. Such Grantor has
notified Bank One in writing of all prior uses of any federal registrations and
applications for registration of the Patents and Trademarks listed on Schedules
I and II hereto of which such Grantor is aware, which would in the reasonable
judgment of such Grantor lead to such Patents and Trademarks becoming invalid or
unenforceable, including prior unauthorized uses by third parties and uses which
were not supported by the goodwill of the business connected with such item.
(d) Such Grantor has not granted any license, release, covenant not to
sue, or non-assertion assurance to any third person with respect to any part of
the federal registrations and applications for registration of the Patents and
Trademarks listed on Schedules I and II hereto which would materially interfere
with its business as currently carried on under any such registrations or
applications for registrations.
(e) Such Grantor has used reasonable and proper statutory notice in
connection with its use of each registered patent and trademark and service mark
listed on Schedules I and II, except inadvertent omissions thereof.
(f) Such Grantor has the unqualified right to enter into this Agreement
and to perform its terms.
(g) Except for (i) the appropriate filings with the United States
Patent and Trademark Office, and (ii) the appropriate filings under Article 9 of
the Uniform Commercial Code, no consent of any other Person (other than
licensors of any License to which any Grantor is a licensee), no authorization,
consent, approval or other action by, and no notice to or filing or recording
with, any governmental, administrative or judicial authority or regulatory body
is
4
<PAGE> 5
required in the United States either (x) for the granting by such Grantor of the
Security Interests granted hereby or for the execution, delivery or performance
of this Agreement by such Grantor, or (y) for the perfection of or the exercise
by Bank One of its rights and remedies hereunder, except where the failure to
obtain, take, give or make such authorizations, consents, approvals, actions,
notices or filings would not, and would not be reasonably likely to, have a
material adverse effect on the financial condition, operations, business,
properties or assets of the Grantors taken as a whole.
(h) The consummation of actions contemplated under or in connection
with the Credit Agreement, Swing Line Note or Bank One Letter of Credit to be
performed by such Grantor, will not impair the legal right of such Grantor to
use any of the federal registrations and applications for registration of the
Patents and Trademarks listed on Schedules I and II hereto.
(i) Such Grantor has no knowledge of the existence of any patent,
trademark, service mark, trade name or trade dress, or license agreement held or
claimed by any other Person that, if upheld, would preclude such Grantor from
distributing, marketing, selling or providing any product or service currently
distributed, marketed, sold or provided by it, as the case may be, under or in
connection with any of the federal registrations and applications for
registration of the Patents and Trademarks listed on Schedules I and II hereto
(except, in each case, to the extent that such Grantor has granted an exclusive
license to another person), or that would have a material adverse effect on the
financial condition, operations, business, properties or assets of the Grantors
taken as a whole, and such Grantor has no knowledge of any claim that is likely
to be made that if upheld would have a material adverse effect on the financial
condition, operations, business, properties or assets of the Grantors taken as a
whole.
(j) No material claim in any court or in the United States Patent and
Trademark Office has been made (and, as to any trademark, service mark, trade
name, or trade dress with respect to which such Grantor is a licensee, to the
best knowledge of such Grantor, no material claim has been made against the
third party licensor), and such Grantor has no knowledge of any material claim
that has been made or is likely to be made, that the use by such Grantor of any
Patent and Trademark Collateral does or may violate the rights of any Person.
(k) Such Grantor, to the best of its knowledge, has used consistent
standards of quality in manufacturing, distribution and marketing of each
product sold and provision of each service provided under or in connection with
any Patent and Trademark Collateral, and has taken whatever steps necessary to
ensure that all licensed users of any Patent and Trademark Collateral use such
consistent standards of quality.
4 FURTHER ASSURANCES.
(a) Each Grantor agrees that from time to time, at the expense of such
Grantor, such Grantor will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or desirable,
or that Bank One may reasonably request, in order to (i) continue, perfect and
protect any Security Interest granted or purported to be granted hereby, or (ii)
enable Bank One to exercise and enforce its rights and remedies hereunder with
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<PAGE> 6
respect to any part of the Patent and Trademark Collateral. Without limiting the
generality of the foregoing, each Grantor will execute and file such financing
or continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as Bank One may reasonably
request, in order to perfect and preserve the Security Interests granted or
purported to be granted hereby.
(b) Each Grantor hereby authorizes Bank One to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Patent and Trademark Collateral without the signature of such
Grantor where permitted by law. A carbon, photographic or other reproduction of
this Agreement or any financing statement covering the Patent and Trademark
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) Each Grantor will furnish to Bank One from time to time statements
and schedules further identifying and describing the Patent and Trademark
Collateral and such other reports in connection with the Patent and Trademark
Collateral as Bank One may reasonably request, all in reasonable detail.
(d) Each Grantor agrees that, if, before the Secured Obligations have
been satisfied in full, it (i) obtains an ownership interest in any new patent,
trademark, service mark, trade name and trade dress, or patent, trademark or
service mark registration or application for patent, trademark or service mark
registration which is not now identified on Schedules I and II, (ii) enters into
any new license agreement, subject, in each case, to the terms of the license
agreements, or (iii) becomes entitled to the benefit of any patent, trademark,
service mark, trade name and trade dress (which is materially important to the
business of such Grantor), patent, trademark or service mark registration,
application for patent, trademark or service mark registration, license
agreement or license agreement renewal, (x) the provisions of Section 1 shall
automatically apply thereto, and (y) any such patent, trademark, mark,
registration, application, or license agreement, together with the goodwill of
the business connected with the use of the mark or symbolized by it, shall
automatically become part of the Patent and Trademark Collateral. Each Grantor
shall give prompt written notice to Bank One of each new patent, trademark or
service mark registration or application for registration. Each Grantor
authorizes Bank One to modify this Agreement by amending Schedules I and II to
include any such new patent, trademark or service mark registration, or
application for patent, trademark or service mark registration which becomes
part of the Patent and Trademark Collateral under this Section, or which, in the
reasonable business judgment of each such Grantor, is a material patent,
trademark or service mark registration or application for patent, trademark or
service mark registration. Each Grantor shall, where consistent with prudent
business practices, use best efforts to negotiate new license agreements subject
to the grant of the security interest created by this Agreement. Each Grantor
agrees that, if, before the Secured Obligations have been satisfied in full, it
obtains an ownership interest in any recorded copyright or pending copyright
application before the United States Copyright Office or in any similar office
or agency of the United States, any State thereof, or any other country or
political subdivision thereof ("COPYRIGHTS"), then the provisions of this
subsection shall be equally applicable to such
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<PAGE> 7
copyrights and each Grantor authorizes Bank One to modify this Agreement by,
among other things, adding a new Schedule III to include any such Copyrights
under this Agreement.
(e) Each Grantor agrees (i) to prosecute diligently any patent,
trademark or service mark application that is part of Schedules I and II, (ii)
to file applications for registration of any patent, trademark or service mark
which is or becomes material to its business, (iii) to take all necessary steps
in any proceeding before the United States Patent and Trademark Office or in any
court, to maintain and protect each material patent, trademark, service mark,
trade name, trade dress and patent, trademark or service mark registration, and
each license agreement, and (iv) to participate in opposition, cancellation and
infringement proceedings in each case, such actions under clauses (i) through
(iv) above, to be taken as and to the extent Grantor, in the exercise of its
reasonable commercial judgment, deems necessary or desirable. Any expenses
incurred in connection with such activities shall be borne by such Grantor. If
any Grantor fails to comply with any of the foregoing duties, Bank One shall
have the right, but not the obligation, to effect compliance in the name of the
Grantor to the extent permitted by law, at the Grantor's expense.
(f) Except as may be permitted by the Credit Agreement, no Grantor
shall (i) abandon any patent, trademark or service mark registration or
application for patent, trademark or service mark registration, or any patent,
trademark, service mark or trade name, without the written consent of Bank One,
which consent shall not be unreasonably withheld, except where such abandonment
would not be reasonably likely to have a material adverse effect on the
financial condition, operations, business, properties or assets of the Grantors
taken as a whole, or (ii) take any action, or permit any action to be taken by
any other Persons to the extent such Persons are subject to its control, or fail
to take any action, which would materially and adversely affect the validity,
perfection, priority or enforcement of the rights transferred herein to Bank One
under this Agreement, and any such action or agreement if it shall be entered
into or taken, shall be null and void and of no effect whatsoever. Each Grantor
agrees to notify Bank One immediately and in writing if such Grantor learns (i)
that any material item of the Patent and Trademark Collateral may become
abandoned, or (ii) of any adverse determination or any development (including,
without limitation, the institution of any proceeding in the United States
Patent and Trademark Office or any court) regarding any material part of the
Patent and Trademark Collateral.
(g) In the event that any material item of the Patent and Trademark
Collateral is infringed or misappropriated by a third party, any Grantor having
any right, title or interest in such Patent and Trademark Collateral shall
promptly notify Bank One and shall, unless such Grantor shall reasonably
determine that such Patent and Trademark Collateral is of immaterial economic
value to such Grantor, take all reasonable steps and actions to defend against
and enjoin the infringement or misappropriation, and shall take such other
actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect and enforce such Patent and Trademark Collateral. Any
expense incurred in connection with such activities shall be borne by such
Grantor.
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<PAGE> 8
(h) Each Grantor shall continue to use reasonable and proper statutory
notice in connection with its use of each registered patent, trademark or
service mark. Each Grantor agrees (i) to maintain the quality of any and all
products or services of such Grantor used or provided in connection with the
Patent and Trademark Collateral, consistent with the quality of said products
and services as of the date hereof and (ii) to take all reasonable steps to
ensure that all licensees of any Patent and Trademark Collateral maintain
consistent standards of quality, consistent with the standards in effect on the
date hereof.
5. TRANSFERS AND OTHER LIENS. Each Grantor shall not, except as otherwise
permitted under the Credit Agreement:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of, or grant any option with respect to, the Patent and Trademark
Collateral, except that any Grantor may license the Patent and Trademark
Collateral (i) in the ordinary course of such Grantor's business, provided that
such Grantor, in the exercise of its reasonable commercial judgment, determines
that such license is necessary or desirable in the conduct of such Grantor's
business, or (ii) in connection with a sale or transfer of assets as provided in
the Credit Agreement, PROVIDED that such license shall be on terms reasonably
expected to maximize the gain to such Grantor resulting from the granting of
such license,
(b) create or suffer to exist any Lien upon or with respect to any of
the Patent and Trademark Collateral except for the Security Interests created by
this Agreement or the Security Interests created or permitted by the Credit
Agreement, or
(c) take any other action in connection with any of the Patent and
Trademark Collateral that would impair the value of the interest or rights
thereunder of such Grantor or that would impair the interest or rights of Bank
One.
Nothing in this Section 5 will prevent licenses by any Grantor to another
Grantor.
6. BANK ONE APPOINTED ATTORNEY-IN-FACT. Each Grantor hereby irrevocably appoints
Bank One such Grantor's attorney-in-fact, with full authority in the place and
stead of such Grantor and in the name of such Grantor or otherwise, from time to
time in Bank One's discretion, subject to the Intercreditor Agreement, upon the
occurrence and during the continuance of an Event of Default, to take any action
and to execute any instrument that Bank One may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Patent and Trademark Collateral,
(b) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above, and
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<PAGE> 9
(c) to file any claims or take any action or institute any proceedings
which Bank One may deem necessary or desirable for the collection of any
payments relating to the Patent and Trademark Collateral or otherwise to enforce
the rights of Bank One with respect to any of the Patent and Trademark
Collateral.
7. BANK ONE MAY PERFORM. If any Grantor fails to perform any agreement contained
herein, Bank One may itself perform (subject to the Intercreditor Agreement), or
cause performance of, such agreement, and the expenses of Bank One incurred in
connection therewith shall be payable by such Grantor under Section 10(b). Bank
One or its designated representatives shall have the right, at any reasonable
time during normal business hours and from time to time, upon reasonable notice,
and without undue interruption to the business of such Grantor, to inspect the
premises of any Grantor and to examine the books, records and operations of any
Grantor (including, without limitation, any Grantor's quality control processes)
relating to the Patent and Trademark Collateral.
8. BANK ONE'S DUTIES. The powers conferred on Bank One hereunder are solely to
protect its interest in the Patent and Trademark Collateral and shall not impose
any duty upon it to exercise any such powers.
9. REMEDIES. If any Event of Default shall have occurred and be continuing and
subject to the Intercreditor Agreement:
(a) Bank One may exercise in respect of the Patent and Trademark
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to Bank One, in default under the OUCC (whether or not the
OUCC applies to the affected Patent and Trademark Collateral) and also may (i)
exercise any and all rights and remedies of any Grantor under or otherwise in
respect of the Patent and Trademark Collateral, (ii) require any Grantor to, and
each Grantor hereby agrees that it will at its expense and upon request of Bank
One forthwith, assemble all or any part of the documents embodying the Patent
and Trademark Collateral as directed by Bank One and make such documents
available to Bank One at a place to be designated by Bank One which is
reasonably convenient to both Bank One and such Grantor, (iii) occupy, for a
reasonable period and without obligation to such Grantor in respect of such
occupation, any premises owned or leased by any Grantor where documents
embodying the Patent and Trademark Collateral or any part thereof are assembled
in order to effectuate Bank One's rights and remedies hereunder or under law,
and (iv) without notice except as specified below, sell the Patent and Trademark
Collateral or any part thereof in one or more parcels at public or private sale,
at any of Bank One's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Bank One may deem commercially
reasonable. In the event of any sale, assignment, or other disposition of any of
the Patent and Trademark Collateral by any Grantor, the goodwill of the business
connected with and symbolized by any Patent and Trademark Collateral subject to
such disposition shall be included, and such Grantor shall supply to Bank One or
its designee such Grantor's know-how and expertise relating to the manufacture
and sale of products or the provision of services relating to any Patent and
Trademark Collateral subject to such disposition, and its customer lists and
other records relating to such Patent and Trademark Collateral and to the
distribution of such products and services. Each Grantor agrees
9
<PAGE> 10
that, to the extent notice of sale shall be required by law, at least ten days'
notice to such Grantor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. Bank One shall not be obligated to make any sale of Patent and
Trademark Collateral regardless of notice of sale having been given. Bank One
may adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
(b) All payments received by any Grantor under or in connection with
any of the Patent and Trademark Collateral shall be received in trust for the
benefit of Bank One, shall be segregated from other funds of such Grantor and
shall, subject to the terms of the Intercreditor Agreement, be forthwith paid
over to Bank One in the same form as so received (with any necessary
endorsement).
(c) All payments made under or in connection with or otherwise in
respect of the Patent and Trademark Collateral and all cash proceeds received by
Bank One in respect of any sale of, collection from, or other realization upon
all or any part of the Patent and Trademark Collateral may be held by Bank One
as collateral for, and/or then or at any time thereafter applied (after payment
of any amounts payable to Bank One pursuant to Section 10) pursuant to the
Intercreditor Agreement, in whole or in part by BNY, the Agent under the Credit
Agreement, for the ratable benefit of the Lenders, the Issuer and the Swing Line
Lender in accordance with the Credit Agreement, in such order as BNY or in the
event that the Inter-Credit Agreement is no longer in effect, Bank One may apply
the collateral to the Secured Obligations. Any surplus of such cash or cash
proceeds held by Bank One and remaining after payment in full of all the Secured
Obligations shall be paid over to the respective Grantors or to whomsoever may
be lawfully entitled to receive such surplus.
10. INDEMNITY AND EXPENSES. Without duplicating any amounts payable under
Sections 10.7, 11.5 and 11.10 of the Credit Agreement:
(a) Each Grantor agrees to indemnify Bank One from and against any and
all claims, losses and liabilities arising out of, or in connection with or
resulting from this Agreement or the transactions contemplated hereby
(including, without limitation, enforcement of this Agreement), except to the
extent such claims, losses or liabilities result from Bank One's gross
negligence or willful misconduct as determined by a final judgment of a court of
competent jurisdiction.
(b) Each Grantor will upon demand pay to Bank One the amount of any and
all reasonable expenses, including, without limitation, the reasonable fees and
costs of its counsel and of any experts and agents, that Bank One may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Patent and Trademark Collateral, (iii) the exercise
or enforcement of any of the rights of Bank One hereunder or (iv) the failure by
any Grantor to perform or observe any of the provisions hereof.
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<PAGE> 11
11. SECURITY INTEREST ABSOLUTE. All rights of Bank One and Security Interests
granted hereunder, and each of the Grantor's Obligations, shall, to the extent
permitted by law, be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Credit Agreement, the
Swing Line Note or Bank One Letter of Credit, or any agreement or instrument
relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other amendment or
waiver of or any consent to departure from, the Credit Agreement, Swing Line
Note or Bank One Letter of Credit, including, without limitation, any increase
in the Secured Obligations resulting from the extension of additional credit to
the Borrower or otherwise;
(c) any taking and holding of Patent and Trademark Collateral or
guarantees for all or any of the Secured Obligations; or any amendment,
alteration, exchange, substitution, transfer, enforcement, waiver,
subordination, termination or release of any Patent and Trademark Collateral or
such guarantees, or any nonperfection of any Patent and Trademark Collateral, or
any consent to departure from any such guaranty;
(d) any manner of application of Patent and Trademark Collateral, or
proceeds thereof, to all or any of the Secured Obligations, or the manner of
sale or other disposition of any Patent and Trademark Collateral;
(e) any consent by any Lender, the Issuer, the Swing Line Lender or the
Agent to the change, restructuring or termination of the corporate structure or
existence of any Grantor and any corresponding restructure of the Secured
Obligations, or any other restructure or refinancing of the Secured Obligations
or any portion thereof;
(f) any modification, compromise, settlement or release by the Agent or
any Lender, the Issuer or the Swing Line Lender, by operation of law or
otherwise (except any of the foregoing with respect to this Agreement),
collection or other liquidation of the Secured Obligations or the liability of
any Grantor, or of the Patent and Trademark Collateral, in whole or in part, and
any refusal of payment by the Agent or any Lender, the Issuer or the Swing Line
Lender, in whole or in part, from any obligor, any Grantor in connection with
any of the Secured Obligations, whether or not with notice to, or further assent
by, or any reservation of rights against, any Grantor; or
(g) any other circumstance (other than by operation of law) that might
otherwise constitute a defense available to, or a discharge of, the Grantor.
The granting of a Security Interest in the Patent and Trademark Collateral shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any payment of any of the Secured Obligations is rescinded or must
otherwise be returned by Bank One or any Lender, the Issuer or the Swing Line
Lender upon the insolvency, bankruptcy or reorganization of any Grantor or
otherwise, all as though such payment had not been made.
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12. WAIVER. Each Grantor hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the Secured Obligations
(as that term is defined in this Agreement) and this Agreement and any
requirement that Bank One protect, secure, perfect or insure any Security
Interest or any property subject thereto or exhaust any right or take any action
against any Grantor or any other Person or any collateral.
13. AMENDMENTS, ETC.
(a) Except as provided in subsection (b) to this Section 13, no
amendment or waiver of any provision of this Agreement, and no consent to any
departure by any Grantor herefrom, shall in any event be effective unless the
same shall be in writing and signed by Bank One, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given. No failure to exercise nor any delay in exercising, on the part
of Bank One, any right, power or privilege under this Agreement shall operate as
a waiver thereof; further, no single or partial exercise of any right, power or
privilege under this Agreement shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
(b) Any patent and trademark security agreement supplement hereto shall
be in substantially the form of Exhibit A hereto (each a "PATENT AND TRADEMARK
SECURITY AGREEMENT SUPPLEMENT"), and upon the execution and delivery thereof by
any Person (i) such Person shall be referred to as an "ADDITIONAL GRANTOR" and
shall be and become a Grantor and each reference in this Agreement to "GRANTOR"
shall also mean and be a reference to such Additional Grantor, and (ii) the
supplements attached to each Patent and Trademark Security Agreement Supplement
shall be incorporated into and become a part of and supplement Schedules I and
II hereto, and Bank One may attach such supplements to such Schedule as
supplemented pursuant hereto.
14. ADDRESSES FOR NOTICES. All notices and other communications to any party
provided for hereunder shall be in writing (including telegraphic, telecopy,
telex or cable communication) and mailed, telegraphed, telecopied, telexed,
cabled or delivered, addressed to such party, in the case of any Telxon, at its
address referred to in Section 11.2 of the Credit Agreement, in the case of a
Grantor other than Telxon, at its address referred to on Schedule I to the
Subsidiary Guaranty or next to its signature in any Supplement to the Subsidiary
Guaranty, in the case of Bank One, at the address of Bank One referred to in
Section 11.2 of the Credit Agreement, or as to any party at such other address
as shall be designated by such party in a written notice to each other party
complying as to delivery with the terms of this Section. All such notices and
other communications shall be effective (a) when received, if mailed or
delivered, or (b) when delivered to the telegraph company, transmitted by
telecopier, confirmed by telex answerback or delivered to the cable company,
respectively, addressed as aforesaid.
15. CONTINUING SECURITY INTEREST; RELEASE AND REASSIGNMENT OF COLLATERAL.
(a) This Agreement shall create a continuing Security Interest in the
Patent and Trademark Collateral and shall (i) remain in full force and effect
until the cash payment in full of
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<PAGE> 13
the Secured Obligations, the repayment of the Swing Line Note, the expiration or
cancellation of the Bank One Letter of Credit and the termination of the Swing
Line, (ii) be binding upon each Grantor, its successors and assigns, and (iii)
inure, together with the rights and remedies of Bank One hereunder, to the
benefit of Bank One and its successors, transferees and assigns, including, but
not limited to, those provided in the Credit Agreement. Upon the payment in full
of the Secured Obligations, the repayment of the Swing Line Note, the expiration
or cancellation of the Bank One Letter of Credit and the termination of the
Swing Line, this Agreement and the Liens granted to Bank One hereunder, shall
terminate. Without limiting the generality of the foregoing clause (iii) Bank
One may assign or otherwise transfer all or any portion of its rights and
obligations under the Credit Agreement (in accordance with the terms of the
Credit Agreement) to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to Bank One
herein or otherwise, in each case subject to and as provided for in Section 11.7
of the Credit Agreement.
(b) In the case of any Patent and Trademark Collateral pledged or
assigned, or in which a security interest is granted hereunder by any Grantor,
upon any sale, lease, transfer or other disposition of any item of Patent and
Trademark Collateral in accordance with the terms of the Credit Agreement (other
than sales of Inventory in the ordinary course of business), Bank One will, at
such Grantor's expense, execute and deliver to any Grantor, any such documents
as such Grantor shall reasonably request to evidence the release of such item of
Patent and Trademark Collateral from the assignment and security interest
granted hereby; provided, however, as to clause (a)(ii) above, that (x) at the
time of such request and such release no Event of Default (or event or condition
which upon notice or lapse of time or both would constitute an Event of Default)
shall have occurred and be continuing, (y) such Grantor shall have delivered to
Bank One, at least 10 Business Days prior to the date of the proposed release,
or such shorter period acceptable to Bank One under this Agreement, a written
request for release describing the item of Patent and Trademark Collateral and
the terms of the sale, lease, transfer or other disposition in reasonable
detail, including the price thereof and any expenses in connection therewith,
together with a form of release for execution by Bank One and a certification by
such Grantor to the effect that the transaction is in compliance with the Credit
Agreement and as to such other matters as Bank One may request, and (z) any
proceeds of any such sale, lease, transfer or other disposition required to be
applied to the prepayment of or reduction in the Swing Line in accordance with
the Intercreditor Agreement shall be so applied.
(c) Upon the cash payment in full of the Secured Obligations, the
Security Interests granted hereby shall terminate and all rights to the Patent
and Trademark Collateral shall revert and be reassigned to the respective
Grantors. Upon any such termination, Bank One will, at such Grantor's expense,
execute and deliver to each Grantor such documents as such Grantor shall
reasonably request to evidence such termination and reassignment.
16. TRANSACTIONS PERMITTED UNDER THE CREDIT AGREEMENT. Nothing contained in this
Agreement shall in any manner prohibit or restrict any Grantor or any of its
Subsidiaries from consummating any transaction, entering into any agreement or
otherwise taking any action expressly permitted under the Credit Agreement.
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<PAGE> 14
17. SEVERABILITY. If any term or provision of this Agreement is or shall become
illegal, invalid or unenforceable in any jurisdiction, all other terms and
provisions of this Agreement shall remain legal, valid and enforceable in such
jurisdiction and such illegal, invalid or unenforceable provision shall be
legal, valid and enforceable in any other jurisdiction.
18. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
19. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF OHIO, EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR PATENT AND TRADEMARK COLLATERAL ARE
GOVERNED BY THE LAWS OF THE UNITED STATES OR ANY OTHER JURISDICTION OTHER THAN
THE STATE OF OHIO. UNLESS OTHERWISE DEFINED HEREIN OR IN THE CREDIT AGREEMENT,
TERMS USED IN ARTICLE 8 OR 9 OF THE U.C.C. ARE USED HEREIN AS THEREIN DEFINED.
20. WAIVER OF TRIAL BY JURY. EACH GRANTOR HEREBY UNCONDITIONALLY AND IRREVOCABLY
WAIVES TO THE EXTENT PERMITTED BY LAW ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
(This space intentionally left blank)
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IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
GRANTOR:
TELXON CORPORATION
By: /s/ Gerald J. Gabriel
------------------------------------------
Name: Gerald J. Gabriel
Title: Sr. V.P., Financial Operations
BANK ONE:
BANK ONE, NA
By: /s/ Joseph E. Manley
------------------------------------------
Name: Joseph E. Manley
Title: Vice President
15
<PAGE> 1
Exhibit 10.5.1
FIRST AMENDMENT TO LICENSE, RIGHTS AND SUPPLY AGREEMENT
This First Amendment to License, Rights and Supply Agreement (this
"Amendment") is made March 30, 1999, by and between Telxon Corporation
("Telxon") and Aironet Wireless Communications, Inc. ("Aironet").
BACKGROUND
A. Telxon and Aironet are parties to a License, Rights and Supply
Agreement dated as of March 31, 1998 (together with all exhibits and schedules
thereto, the "Agreement"), pursuant to which Aironet has granted to Telxon
certain rights and licenses, and has agreed to supply Telxon with certain
products.
B. Aironet and Telxon each desires to amend the Agreement to modify
certain royalties payable by Telxon to Aironet under the Agreement, as set forth
in this Amendment.
AGREEMENT
Now, therefore, in consideration of the foregoing, the agreements made
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1 EFFECTIVE DATE. This Amendment is effective for royalties due for the
period beginning March 1, 1999 (the "Effective Date"), and each party shall take
all actions necessary to give this Amendment such effect.
2 INTEGRATION. This Amendment and the Agreement collectively set forth the
entire understanding and agreement between the parties with respect to the
subject matter hereof and thereof, and shall be read together as a single
integrated document. To the extent that the terms of the Agreement conflict with
the terms of this Amendment, the terms of this Amendment shall control.
3 DEFINITIONS. Any initially capitalized term which is not defined herein
shall have the meaning set forth in the Agreement.
4 ROYALTIES.
4.1 Notwithstanding any provision of the Agreement to the contrary and
subject to Section 6 of this Amendment, commencing on the Effective Date of this
Amendment Telxon shall pay to Aironet with respect to each month during the
periods set forth below, the following amounts as a fixed royalty for such month
under Article 5 of the Agreement, SCHEDULE 5 of the Agreement, Section 8.11.3.2
of the Agreement and Section 4 of SCHEDULE 8 of the Agreement (collectively the
"Per Unit Sections"):
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<PAGE> 2
Royalty Period Monthly Royalty
March 1, 1999 - March 31, 2000 $541,667
April 1, 2000 - March 31, 2001 $416,667
Beginning April 1, 2001 and every month thereafter $333,333
The foregoing fixed monthly royalties are payable for the same purposes and
in lieu of the per unit of hardware and per copy of software royalties payable
by Telxon under the Per Unit Sections in respect of any period commencing on or
after the Effective Date of this Amendment, and the payment thereof is due
within ten business days after the last day of the month with respect to which
it is payable.
4.2 Telxon shall have the right to elect, with respect to the royalties
accruing at any time on or after the earlier of (i) April 1, 2001, or (ii) a
Change in Control as provided for in Section 7.1 of Schedule 5 of the Agreement,
to terminate the fixed royalties payable under Section 4.1 of this Amendment
and, in lieu thereof, to pay to Aironet the per unit of hardware and per copy of
software royalties under the Per Unit Sections, as modified by Section 5 of this
Amendment and, subject to the provisions of Section 4.3 of this Amendment,
otherwise on the terms and under the conditions set forth in the Agreement. Any
such termination election shall be made by written notice given to Aironet and
shall be effective, in the case of notice given pursuant to clause (i) of the
preceding sentence, as of the first day of the calendar month commencing on or
after the date ninety (90) days after the date such notice is given, and in the
case of notice given pursuant to clause (ii) of the preceding sentence, as of
the later of the date such notice is given or the date on which the subject
Change in Control occurs. In the case of a termination of the fixed royalties in
connection with the Change in Control, the amount of the fixed royalty due with
respect to the month in which the Change in Control occurs shall be prorated on
a per diem basis (assuming a thirty (30) day month) based on the number of days
elapsed during such month prior to the date of such Change in Control.
4.3 Section 7.6 of Schedule 5 of the Agreement is hereby deleted and shall
be of no further force or effect.
5 ROYALTY REDUCTION. In consideration of the agreements made in
Section 4.1 of this Amendment and elsewhere, in the event that at or after
April 1, 2001 or a Change in Control (as provided in Section 7.1 of SCHEDULE 5
of the Agreement), Telxon elects to terminate the fixed royalty payable under
Section 4.2 of this Amendment and return to a per unit and per copy royalty,
then Sections 3 and 4 of SCHEDULE 5 of the Agreement shall be deleted in their
entirety and replaced with the following:
3. RADIOS. Telxon shall pay Aironet no royalty for any Radio
sold, or otherwise transferred or invoiced, by Telxon in or for use in
any access point, and 15% for each Radio sold, or otherwise transferred
or invoiced, by Telxon in or for use in
2
<PAGE> 3
any handheld client or other non-access point device. If a royalty is
due under Section 2 or 4 of this SCHEDULE 5, no royalty is due under
this Section 3.
4. PC CARDS. Telxon shall pay Aironet no royalty for any PC Card
sold, or otherwise transferred or invoiced, by Telxon in or for use in
any access point, and 15% for each PC Card sold by, or otherwise
transferred or invoiced by Telxon in or for use in any handheld client
or other non-access device. If a royalty is due under Section 3 of this
SCHEDULE 5, no royalty is due under this Section 4.
6 NEW SOFTWARE. Royalties for New Software shall remain on a per copy
basis in accordance with the terms of the Agreement.
7 GENERAL.
7.1 REPORTING. In addition to, but not in duplication of, any reporting
requirements in the Agreement, no later than the fifth business day of each
month, Telxon shall report to Aironet in writing, by model and unit volume, each
sale by Telxon for the previous month of any product purchased by Telxon under
the Agreement or upon which a royalty is payable by Telxon to Aironet under the
Agreement or this Amendment.
7.2 AMENDMENTS; WAIVER. The provisions of this Amendment may not be
amended or waived except pursuant to a written agreement executed by both
parties hereto. Section 17 of the Agreement provides that neither party shall
have the right to terminate the Agreement for any reason. Such provision applies
equally to this Amendment.
7.3 GOVERNING LAW; JURISDICTION. This Amendment shall be construed under
and governed by the laws of the State of Ohio, without regards to conflict or
choice of laws, statutes, regulations, rules or principles. Any action relating
to the execution or performance of this Amendment shall be brought in the
courts, state or federal, sitting in Cuyahoga or Summit County, Ohio, and each
party hereto consents to the jurisdiction and venue of such courts, and agrees
not to contest venue on the grounds of forum non conveniens or otherwise.
7.4 NOTICES. Any notice, request, demand or other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
given upon receipt, or if delivered or sent by facsimile transmission, upon
confirmation of transmission, or if sent by overnight courier, the second day
after deposit, to the addresses set forth in the Agreement.
7.5 ASSIGNABILITY. This Amendment may not be assigned, and no right or
obligation herein may be assigned or delegated, separate or apart from the
Agreement, subject to all restrictions on assignment and delegation applicable
thereto, and any purported assignment or
3
<PAGE> 4
delegation in violation thereof shall be void and of no effect. Subject to the
foregoing, this Amendment shall be binding upon and enforceable by, and shall
inure to the benefit of, the parties hereto and their respective permitted
successors and assigns.
7.6 CAPTIONS AND GENDER. The captions in this Amendment are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Amendment of the masculine, feminine
or neuter pronoun, shall include the others as the context may require.
7.7 EXECUTION IN COUNTERPARTS. This Amendment may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same document. An executed faxed
counterpart of this Amendment shall be binding on the parties, and for
evidentiary purposes shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first set forth above.
AIRONET WIRELESS COMMUNICATIONS, INC. TELXON CORPORATION
By: /s/ Roger J. Murphy By: /s/ Gerald J. Gabriel
-------------------------- --------------------------------
Roger J. Murphy, President Gerald J. Gabriel
Its: Senior Vice President,
-------------------------------
Financial Operations
4
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Telxon Corporation owns, directly or indirectly, 50% or more of the
capital stock or other equity interests in the following entities:
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
---- -----------------------------
<S> <C>
Meta Holding Corporation Delaware
Metanetics Corporation Delaware
N.V. Telxon Belgium S.A. Belgium
PenRight! Corporation Delaware
Productos y Sevicios de Telxon, S.A. de C.V. Mexico
PTC Airco, Inc. Delaware
Teletransaction, Inc. Delaware
Telxon Australia Pty., Ltd. Australia
Telxon Canada Corporation Ltd. Ontario, Canada
Telxon Corporation Systems Espana, S.A. Spain
Telxon Data Systems A.G. Switzerland
Telxon France S.A. France
Telxon Foreign Sales Corporation U.S. Virgin Islands
Telxon International Procurement Services, Inc. Delaware
Telxon Italia S.r.l. Italy
Telxon Japan Ltd. Japan
Telxon Limited United Kingdom
Telxon mde GMBH Germany
Telxon Products, Inc. Delaware
Telxon Trading Co., Inc. Delaware
The Retail Technology Group, Inc. Delaware
TLXITX Corporation Washington
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File Nos. 33-16939, 33-32600, 33-43314, 33-43318,
33-56205, 33-62957, 333-00449, 333-01189, 333-33177, 333-43121) of Telxon
Corporation and Subsidiaries of our report, dated August 6, 1999, relating to
the consolidated financial statements and financial statement schedule which
appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
August 6, 1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
TELXON CORPORATION
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors
of Telxon Corporation, a Delaware corporation (the "Company"), does hereby make,
constitute and appoint John W. Paxton, Sr., Kenneth A. Cassady and Woody M.
McGee his true and lawful attorneys-in-fact and agents, each with full power to
act alone without any other and of substitution and resubstitution, to prepare
or cause to be prepared, to execute for and on his behalf and in his name in his
capacity as a Director of the Company, and to deliver and file or cause to be
delivered and filed with the Securities and Exchange Commission (the
"Commission") the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1999, together with any amendments and any exhibits and other
documents in support thereof or supplemental thereto and any and all other
documents, reports and instruments which said attorneys-in-fact and agents, or
any of them, may deem necessary to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and the rules, regulations and
requirements of the Commission pursuant thereto, hereby granting to said
attorneys-in-fact and agents and each of them full power and authority to do and
perform each and every act and thing whatsoever as said attorneys-in-fact and
agents may deem necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in the capacity as
aforesaid, hereby ratifying and confirming all acts and things which said
attorneys-in-fact and agents may do or cause to be done by virtue of these
presents.
IN WITNESS WHEREOF, the undersigned have subscribed this instrument
effective as of July 9, 1999.
/s/ Richard J. Bogomolny /s/ John W. Paxton
--------------------------------- --------------------------------
Richard J. Bogomolny, Director John W. Paxton, Sr., Director
/s/ John H. Cribb /s/ Raj Reddy
--------------------------------- --------------------------------
John H. Cribb, Director Raj Reddy, Director
/s/ Robert A. Goodman /s/ Norton W. Rose
--------------------------------- --------------------------------
Robert A. Goodman, Director Norton W. Rose, Director
/s/ Jonathan R. Macey
---------------------------------
Jonathan R. Macey, Director
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<EPS-BASIC> (8.50)
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<PERIOD-END> MAR-31-1997
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<PERIOD-END> MAR-31-1996
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<RECEIVABLES> 141,114
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