<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 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 __________
COMMISSION FILE NUMBER 0-11402
TELXON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 74-1666060
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3330 WEST MARKET STREET, AKRON, OHIO 44333
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 664-1000
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]*. No [ ].
* All such filings were timely made except that the registrant was late
in filing its Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1998 and its Annual Report on Form 10-K for the
fiscal year ended March 31, 1999.
At December 31, 1999, there were 16,398,281 outstanding shares of the
registrant's Common Stock.
<PAGE> 2
TELXON CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: Page No.
--------
<S> <C>
Item 1: Consolidated Financial Statements
Balance Sheet 3
Statement of Operations 4
Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-20
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 21-42
Item 3: Quantitative and Qualitative Disclosure About Market Risk 43-44
PART II. OTHER INFORMATION:
Item 1: Legal Proceedings 45
Item 2: Changes in Securities and Use of Proceeds 45
Item 6: Exhibits and Reports on Form 8-K 45-56
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands except per share amounts)
December 31, March 31,
1999 1999
----------------- ----------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 9,794 $ 22,459
Accounts receivable, net of allowance for doubtful
accounts of $5,139 and $11,069 74,388 84,500
Notes and other accounts receivable 6,305 4,015
Inventories 85,509 129,049
Prepaid expenses and other 6,906 9,029
----------------- ----------------
Total current assets 182,902 249,052
Property and equipment, net 65,086 69,557
Intangibles and other assets, net 19,002 30,235
Investment in affiliate 21,645 -
----------------- ----------------
Total $ 288,635 $ 348,844
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 55,015 $ 68,567
Capital lease obligations due within one year 405 525
Accounts payable 42,711 64,966
Payable to affiliate 4,769 -
Income taxes payable 6,594 6,434
Accrued liabilities 50,450 74,285
----------------- ----------------
Total current liabilities 159,944 214,777
Capital lease obligations 1,143 1,435
Convertible subordinated notes and debentures 106,913 106,913
Long-term debt 11,083 -
Other long-term liabilities 6,394 5,446
----------------- ----------------
Total liabilities 285,477 328,571
Minority interest - 3,307
Stockholders' equity
Preferred stock, $1.00 par value per share; 500
shares authorized, none issued - -
Common stock, $.01 par value per share; 50,000 shares
authorized, 16,398 and 16,234 shares issued 164 162
Additional paid-in capital 88,140 87,029
Retained deficit (78,495) (61,977)
Accumulated other comprehensive income for foreign currency translation (5,087) (5,464)
Unearned compensation relating to restricted stock awards (179) (82)
Treasury stock; 2 and 78 shares of common stock at cost (106) (1,423)
Notes related to purchase of subsidiary stock (1,279) (1,279)
----------------- ----------------
Total stockholders' equity 3,158 16,966
----------------- ----------------
Commitments and contingencies - -
----------------- ----------------
Total $ 288,635 $ 348,844
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------------- --------------------------------
1999 1998 1999 1998
--------------- -------------- --------------- --------------
(as restated)
<S> <C> <C> <C> <C>
Revenues:
Product, net $ 74,943 $ 76,392 $ 219,479 $ 248,989
Customer service, net 21,291 20,016 60,875 62,222
--------------- -------------- --------------- --------------
Total net revenues 96,234 96,408 280,354 311,211
Cost of revenues:
Product 55,431 57,446 163,728 164,670
Customer service 12,971 14,047 37,260 40,374
--------------- -------------- --------------- --------------
Total cost of revenues 68,402 71,493 200,988 205,044
--------------- -------------- --------------- --------------
Gross profit:
Product 19,512 18,946 55,751 84,319
Customer service 8,320 5,969 23,615 21,848
--------------- -------------- --------------- --------------
Total gross profit 27,832 24,915 79,366 106,167
Operating expenses:
Selling expenses 18,361 22,829 55,202 67,700
Product development and engineering expenses 6,350 10,670 19,492 29,108
General & administrative expenses 13,860 13,612 41,216 33,541
Unconsummated business combination costs - 4,491 - 8,070
--------------- -------------- --------------- --------------
Total operating expenses 38,571 51,602 115,910 138,419
--------------- -------------- --------------- --------------
Loss from operations (10,739) (26,687) (36,544) (32,252)
Interest income 137 226 552 569
Interest expense (3,613) (2,499) (10,414) (6,828)
--------------- -------------- --------------- --------------
Loss before other non-operating income (expense)
and income taxes (14,215) (28,960) (46,406) (38,511)
Other non-operating income (expense) 64 (237) 32,530 1,025
--------------- -------------- --------------- --------------
Loss before income taxes (14,151) (29,197) (13,876) (37,486)
Provision for income taxes 621 16,659 2,637 14,784
-------------- ------------- -------------- --------------
Net loss $ (14,772) $ (45,856) $ (16,513) $ (52,270)
=============== ============== =============== ==============
Net loss per common share:
Basic $ (0.91) $ (2.86) $ (1.02) $ (3.25)
Diluted $ (0.91) $ (2.86) $ (1.02) $ (3.25)
Average number of common shares outstanding:
Basic 16,318 16,048 16,235 16,101
=============== ============== =============== ==============
Diluted 16,318 16,048 16,235 16,101
=============== ============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
December 31,
-------------------------------------
1999 1998
----------------- -----------------
Cash flows from operating activities: (as restated)
<S> <C> <C>
Net loss $ (16,513) $ (52,270)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 19,330 19,622
Amortization of restricted stock awards, net 332 201
Provision for doubtful accounts 2,091 5,249
Provision for inventory obsolescence 5,962 6,787
Gain on sale of subsidiary stock (32,167) -
Gain on sale of assets - (900)
Gain on sale of non-marketable investments (761) -
Equity in earnings of affiliate (1,039) -
Loss on disposal of property and equipment 207 255
Loss on carrying value of non-marketable investment 1,558 -
Impairment charge 381 -
Minority interest - 416
Changes in assets and liabilities:
Accounts and notes receivable (101) 13,110
Amounts due to and from affiliate 4,769 -
Inventories 26,730 (26,764)
Prepaid expense and other 1,768 3,372
Intangibles and other assets (92) 2,806
Accounts payable and accrued liabilities (32,431) 6,151
Other long-term liabilities 948 4,012
----------------- -----------------
Net cash used in operating activities (19,028) (17,953)
Cash flows from investing activities:
Additions to property and equipment (11,042) (26,538)
Software and other investments (2,827) (4,792)
Proceeds from the sale of subsidiary stock, net of cash given 17,211 -
Purchase of non-marketable investments - (1,950)
Proceeds from the sale of non-marketable securities 1,523 -
Proceeds from the sale of non-marketable equity investment 2,004
Payments from long-term notes receivable - 929
Additions to long-term notes receivable - (795)
----------------- -----------------
Net cash provided by (used in) investing activities 6,869 (33,146)
Cash flows from financing activities:
Extinguishment of former credit facility (48,888) -
(Repayments) borrowings on former credit facility, net (17,179) 53,526
Borrowings on current credit facility, net 30,082 -
Borrowings of bridge loan under current credit facility 20,000
Borrowings on long-term provisions of current credit facility 17,000 -
Principal payments on long-term debt (984) -
Debt issue costs paid (2,215) (302)
Proceeds from the sale of treasury stock 491
Proceeds from the exercise of stock options 1,950 1,793
Principal payments on capital leases (412) (589)
Purchase of treasury shares - (1,088)
----------------- -----------------
Net cash (used in) provided by financing activities (155) 53,340
Effect of foreign currency translation on cash (351) 316
----------------- -----------------
Net (decrease) increase in cash and cash equivalents (12,665) 2,557
Cash at beginning of period 22,459 27,500
----------------- -----------------
Cash at end of period $ 9,794 $ 30,057
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
TELXON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share amounts)
(Unaudited and As and Restated)
1. Management Representation
The consolidated financial statements of Telxon Corporation ("Telxon")
and its subsidiaries (collectively with Telxon, the "Company") have
been prepared without audit and in accordance with the instructions to
Form 10-Q. In the opinion of the Company, all adjustments, consisting
of normal recurring adjustments necessary for a fair statement of
results for the interim periods, have been made. The operating results
for the three and nine months ended December 31, 1999, are not
necessarily indicative of the results that may be achieved for the year
ending March 31, 2000. The statements, including the March 31, 1999
balance sheet, do not include all of the information and notes required
by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the audited
consolidated financial statements as contained in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999.
Comparative December 31, 1998 consolidated financial statements are
unaudited and, as restated, are discussed in Note 4 - Restatement.
2. Basis of Presentation
As discussed in Note 12, Subsidiary Stock Transactions and
Divestitures, during the three months ended September 30, 1999, the
Company and its former subsidiary, Aironet Wireless Communications,
Inc. ("Aironet"), sold shares of Aironet's voting common stock on the
Nasdaq National Market in an Initial Public Offering ("IPO"). As a
result of the IPO, the Company's percentage interest in the voting
common stock of Aironet is approximately 35%. As such, the Company has
ceased to consolidate the results of Aironet as of April 1, 1999, the
beginning of the Company's fiscal year. From that date forward, the
Company has accounted for the results of Aironet under the equity
method of accounting in accordance with the provisions of Accounting
Principles Board Opinion No. 18 "The Equity Method of Accounting for
Investments in Common Stock".
3. Financial Results and Liquidity
The Company incurred a net loss in fiscal 1999 of $136,982 with a
decrease in consolidated revenues of $74,862 as compared to fiscal
1998. Cash flows used in operating activities were $27,616 and cash
flows used in investing activities were $40,921 for fiscal 1999. The
primary source of cash flows for fiscal 1999 was net borrowings under
its former credit facilities (including product financing arrangements)
that aggregated $65,567. The Company's stockholders' equity and working
capital at March 31, 1999 were $16,966 and $34,275, respectively.
During the quarter and nine months ended December 31, 1999, the Company
incurred net losses of $14,772 and $16,513, respectively. The net
income for the quarter ended September 30, 1999 was primarily the
result of the non-operating gain recorded related to the sale of
Aironet voting common stock of $32,167. The Company incurred losses
from operations of $10,739 and $36,544 for the quarter and nine months
ended December 31, 1999, respectively. The Company's stockholders'
equity and working capital at December 31, 1999 were $3,158 and
$22,958, respectively. For the nine months ended December 31, 1999, the
Company used $19,028 of cash in operating activities.
The Company has pursued the generation of cash from sources such as
inventories and accounts receivable, and the management of vendor
payments and related operating expenditures. However, there can be no
assurance that the cash flows generated
6
<PAGE> 7
from such sources will be sufficient to support the Company's efforts
to manage the payment of the amounts presently owed to, or subsequently
incurred with, its suppliers. If cash flows are not sufficient there
could be disruption of the flows of necessary materials, components,
services or other cash requirements of the Company. In addition,
litigation, commitments and contingencies referenced in Note 10 -
Litigation and Contingencies could have a material adverse effect on
the Company's cash flows and, in turn, on the Company's results of
operations and financial condition.
On November 9, 1999, Cisco Systems, Inc. ("Cisco") announced that it
would purchase the Company's affiliate, and former subsidiary, Aironet
Wireless Communications Inc. ("Aironet"), for shares of Cisco common
stock. The holders of Aironet securities will receive .6373 shares of
Cisco common stock for each Aironet share, option or warrant owned.
Since that announcement, the Company believes that a significant
portion of the market value of the Aironet shares held by the Company
is attributable to the market value of Cisco common stock.
Based on the value of Cisco common stock on December 31, 1999, the
purchase of Aironet by Cisco will result in total proceeds of $969,801.
Based on this value, the total purchase price translates into $68.27
per each share of Aironet common stock on that date. As the company
continues to own 4,994,262 shares of Aironet stock, or 35% of total
outstandings, the fair value of the proceeds to the Company is
$340,962. Based on this fair value, the transaction will result in a
pre-tax gain, prior to related transaction costs, of $319,317 and the
Company carrying its resultant investment in Cisco shares on the fair
value method of accounting, in accordance with the requirements of SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities."
Based on the value of Cisco common stock on February 10, 2000, the
purchase of Aironet by Cisco will result in total proceeds of
$1,230,644. Based on this value, the total purchase price translates
into $86.63 per each share of Aironet owned by the Company, or
$432,669 in fair value.
4. Restatement
On July 14, 1999, the Company announced its results for the year ended
March 31, 1999. The year-end results reported contained a further
restatement adjustment of the results for the three months ended
September 30, 1998 in addition to the restatement originally announced
on February 23, 1999. The accompanying financial statements reflect the
further restatement. As a result of this adjustment, product revenues
of $6,984 and corresponding cost of product revenues of $4,719 related
to the sale of the Company's product under which the Company guaranteed
a customer's lease payments to a third party lessor, were deferred
subject to the customer's satisfaction of the lease payments.
A summary of the effects of the restatement on the Company's statement
of operations for the nine months ended December 31, 1998 is presented
below:
7
<PAGE> 8
<TABLE>
<CAPTION>
TELXON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
NINE MONTHS
-------------------------------------
ENDED DECEMBER 31, 1998
-------------------------------------
(AS PRESENTED) (AS RESTATED)
<S> <C> <C>
Revenues:
Product, net $ 255,975 $ 248,989
Customer service, net 62,222 62,222
----------------- ------------------
Total net revenues 318,197 311,211
Cost of revenues:
Product 169,388 164,670
Customer service 40,375 40,374
----------------- ------------------
Total cost of revenues 209,763 205,044
Gross profit:
Product 86,587 84,319
Customer service 21,847 21,848
----------------- ------------------
Total gross profit 108,434 106,167
Operating expenses:
Selling expenses 67,699 67,700
Product development and engineering expenses 29,107 29,108
General & administrative expenses 33,541 33,541
Unconsummated business
combination costs and other charges 8,070 8,070
----------------- ------------------
Total operating expenses 138,417 138,419
----------------- ------------------
Loss from operations (29,983) (32,252)
Interest income 569 569
Interest expense (6,829) (6,828)
----------------- ------------------
Loss before other non-operating
income and income taxes (36,243) (38,511)
Other non-operating income 1,025 1,025
----------------- ------------------
Loss before income taxes (35,218) (37,486)
Provision for income taxes 14,784 14,784
----------------- ------------------
Net loss $ (50,002) $ (52,270)
================= ==================
Net loss per share:
Basic $ (3.11) $ (3.25)
================= ==================
Diluted $ (3.11) $ (3.25)
================= ==================
Average number of common shares outstanding:
Basic 16,101 16,101
Diluted 16,101 16,101
</TABLE>
5. Earnings Per Share
8
<PAGE> 9
Computations of basic and diluted earnings per share of common stock
have been made in accordance with the Financial Accounting Standards
Board's (FASB) Statement of Financial Accounting Standards No. 128,
"Earnings Per Share". All securities having an anti-dilutive effect on
earnings per share have been excluded from such computations. Common
stock purchase rights outstanding under the Company's stockholder
rights plan, which potentially have a dilutive effect, have been
excluded from the weighted common shares computation as preconditions
to the exercisability of such rights were not satisfied.
Reconciliation of Numerators and Denominators
Of the Basic and Diluted EPS Computations
(In thousands except per share amounts)
In the following table, net loss represents the numerator, and the
shares represent the denominator, in the earnings per share
calculation.
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
December 31, 1999 December 31, 1998
-------------------------------------------------- ------------------------------------------------
Net Per Share Net Per Share
Loss Shares Amount Loss Shares Amount
-------------------- ------------ --------------- ------------------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net loss $ (14,772) $(45,856)
==================== ================
BASIC LOSS PER SHARE
Loss incurred by
common stockholders $ (14,772) 16,318 $(0.91) $(45,856) 16,048 $(2.86)
==================== =============== ================ ================
EFFECT OF DILUTIVE
SECURITIES
Options - -
------------ ---------------
DILUTED LOSS PER SHARE
Loss incurred by holders
of common stock and
common stock equivalents $ (14,772) 16,318 $(0.91) $(45,856) 16,048 $(2.86)
==================== ============ =============== =============================== ================
</TABLE>
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<TABLE>
<CAPTION>
For the Nine Months Ended For the Nine Months Ended
December 31, 1999 December 31, 1998
------------------------------------------------ -----------------------------------------------
Net Per Share Net Per Share
Loss Shares Amount Loss Shares Amount
----------------- -------------- --------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net loss $(16,513) $(52,270)
================= =================
BASIC LOSS PER SHARE
Loss incurred by
common stockholders $(16,513) 16,235 $ (1.02) $(52,270) 16,101 $(3.25)
================= =============== ================= ==============
EFFECT OF DILUTIVE
SECURITIES
Options - -
-------------- --------------
DILUTED LOSS PER SHARE
Loss incurred by holders of
common stock and common
stock equivalents $(16,513) 16,235 $ (1.02) $(52,270) 16,101 $(3.25)
================= ============== =============== ================= ============== ==============
</TABLE>
Options to purchase 3,765,385 shares of common stock at a weighted
average exercise price of $14.47 were outstanding at December 31, 1999,
but were not included in the computation of diluted earnings per share
for the three and nine months then ended because the options would have
an anti-dilutive effect on the net loss for the period.
Options to purchase 3,198,753 shares of common stock at a weighted
average exercise price of $17.94 per share were outstanding at December
31, 1998, but were not included in the computation of diluted earnings
per share for the three and nine months then ended because the options
would have had an anti-dilutive effect on the net loss for the periods
then ended.
The shares issuable upon conversion of Telxon's 5-3/4% Convertible
Subordinated Notes and 7-1/2% Convertible Subordinated Debentures were
omitted from the diluted earnings per share calculations because their
inclusion at December 31, 1999 and 1998 would have had an anti-dilutive
effect on earnings for the three and nine months then ended.
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<TABLE>
<CAPTION>
6. Comprehensive Loss
Three Months Ended
December 31, December 31,
1999 1998
--------------------- --------------------
(Restated)
<S> <C> <C>
Total comprehensive loss consisted of the following:
Net loss $ (14,772) $ (45,856)
Other comprehensive loss:
Foreign currency translation adjustment (524) (66)
--------------------- --------------------
Total comprehensive loss $ (15,296) $ (45,922)
===================== ====================
Nine Months Ended
December 31, December 31,
1999 1998
--------------------- --------------------
(Restated)
Net loss $ (16,513) $ (52,270)
Other comprehensive (loss) income:
Foreign currency translation adjustment (349) 569
--------------------- --------------------
Total comprehensive loss $ (16,862) $ (51,701)
===================== ====================
7. Inventories
December 31, March 31,
1999 1999
--------------------- --------------------
Inventories consisted of the following:
Purchased components $ 50,005 $ 51,112
Work-in-process 16,039 32,360
Finished goods 19,465 45,577
--------------------- --------------------
$ 85,509 $ 129,049
===================== ====================
8. Accrued Liabilities
December 31, March 31,
1999 1999
--------------------- --------------------
Accrued liabilities consisted of the following:
Deferred customer service revenues $ 10,694 $ 15,351
Deferred product revenues 6,499 14,168
Accrued discontinued product costs 5,682 12,422
Accrued payroll and other
employee compensation 6,429 11,649
Other accrued liabilities 21,146 20,695
--------------------- --------------------
$ 50,450 $ 74,285
===================== ====================
</TABLE>
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The Company's domestic accrual for severance costs decreased from a
balance of $3,429 at March 31, 1999 to a balance of $2,041 at December
31, 1999. This decrease was caused by severance charges of $1,247
during the first nine months of fiscal 2000 that were more than offset
by severance payments of $2,635 to terminated employees. A total of 35
employees were terminated during the first half of fiscal 2000. The
areas of the company affected were domestic sales operations, domestic
product development, manufacturing operations and corporate
administration. There have been no material changes to the amounts
accrued at either March 31, 1999 or December 31, 1999. In addition to
the domestic sales activity, 1 employee was terminated in the Company's
international sales operations during the second quarter of fiscal
2000. The severance recorded related to this employee was approximately
$1,100, and such amount was paid prior to September 30, 1999.
9. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Nine Months Ended
December 31, December 31,
1999 1998
--------------------- ---------------------
<S> <C> <C>
Cash paid during the period for:
Interest $8,877 $8,946
Income taxes $3,777 $5,506
</TABLE>
Capital lease additions of $276 during the nine months ended December
31, 1998 have been excluded from the accompanying consolidated
statement of cash flows as a non-cash transaction. There were no
capital lease additions during the nine months ended December 31, 1999.
The non-cash portion of the gain related to the sale of Aironet common
stock of $14,956 has been excluded from the accompanying consolidated
statement of cash flows as a non-cash transaction.
10. Litigation and Contingencies
On September 21, 1993, a derivative Complaint was filed in the Court of
Chancery of the State of Delaware, in and for Newcastle County, by an
alleged stockholder of the Company derivatively on behalf of Telxon.
The named defendants are the Company; Robert F. Meyerson, former
Chairman of the Board, Chief Executive Officer and director; Dan R.
Wipff, then President, Chief Operating Officer and Chief Financial
Officer and director; Robert A. Goodman, Corporate Secretary and
outside director; Norton W. Rose, then an 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.
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<PAGE> 13
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,
which should be completed in February 2000. The defendants filed a
Motion For Summary Judgment on November 15, 1999, and the plaintiff
filed a cross Motion for Summary Judgment on December 7, 1999. The
Motions were argued before the Court on February 4, 2000, and the
defendants are preparing a supplemental brief for filing February 14,
2000. No trial date has been set.
The defendants believe that the post-intervention claims lack merit,
and they intend to continue vigorously defending this action. While the
ultimate outcome of this action cannot presently be determined, the
Company does not anticipate that this matter will have a material
adverse effect on the Company's consolidated financial position,
results of operations or cash flows and accordingly has not made
provisions for any loss or related insurance recovery in its financial
statements.
On February 7, 1998, a complaint was filed against the Company in the
District Court of Harris County, Texas, by Southwest Business
Properties, the landlord of the Company's former Wynnwood Lane facility
in Houston, Texas, alleging counts for breach of contract and temporary
and permanent injunctive relief, all related to alleged environmental
contamination at the Wynnwood property, and seeking 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. The case was set for trial in December 1999 but was
settled by the parties; the $500 cost of the initial settlement, $275
of which has been covered by the Company's insurer, has been recorded
in the accompanying financial statements; additional amounts of up to
$100 are required to be paid as part of the settlement in the event
that the remediation described below is not timely completed.
While the litigation with the landlord was pending, Telxon and the
landlord filed on July 7, 1999 a joint application with the Texas
Natural Resource Conservation Commission for approval of a proposed
Response Action Work Plan for the property pursuant to the Commission's
Voluntary Cleanup Program. The plan, which was approved by the
Commission in August 1999, projects completion of remediation and
issuance of a closure certificate in 2002, for which the Company has
accrued the estimated costs of $250. If closure of the remediation is
not certified when contemplated by the plan, and the Company were
ultimately to become responsible for the alleged contamination, the
associated loss could have a material adverse effect on results of
operations for one or more quarters in which the associated charge(s)
would be taken.
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.
13
<PAGE> 14
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. On February 10, 2000, without having filed an Amended Complaint
or seeking any discovery, the plaintiffs filed a notice for the
dismissal of the action without prejudice, the approval of which by the
Court is pending. Should the Court not grant the dismissal, 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, alleging 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 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 were referred
to a single judge. On February 9, 1999, the plaintiffs filed a Motion
to Consolidate all of the actions, and the Court heard motions on
naming class representatives and lead class counsel on April 26, 1999.
On August 25, 1999, the Court appointed lead plaintiffs and their
counsel, ordered the filing of an Amended Complaint, and dismissed 26
of the 27 class action suits without prejudice and consolidated those
26 cases into the first filed action. The appointed lead plaintiffs
appointed by the Court filed an Amended Class Action Complaint on
September 30, 1999. The Amended Complaint alleges that the defendants
engaged in a scheme to defraud investors through improper revenue
recognition practices and concealment of material adverse conditions in
Telxon's business and finances. The Amended Complaint seeks
certification of the identified class, unspecified compensatory and
punitive damages, pre- and post-judgment interest, and attorneys' fees
and costs. Various appeals and writs challenging the District Court's
August 25, 1999 rulings have been filed by two of the unsuccessful
plaintiffs and continue to be pending; should the Court of Appeals take
jurisdiction of the challenges, further District Court proceedings
would be stayed pending the appellate court's disposition of the
challenges.
On November 8, 1999, the defendants jointly moved to dismiss the
Amended Complaint. The Court held a case management conference on
November 16, 1999 at which it set a conditional schedule. Briefing of
the defendants' motion to dismiss and the plaintiffs' opposition
thereto was completed January 18, 2000. The motion to dismiss remains
pending, and all discovery remains stayed pending the Court's ruling on
the motion. Also pending is plaintiffs' motion, filed November 16,
1999, to lift the discovery stay to allow the serving of discovery
requests on a non-party, which motion is opposed by the defendants. 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. 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 have been served
requiring the production of specified documents and testimony. The
Company has cooperated, and intends to continue cooperating fully with,
the Staff.
14
<PAGE> 15
The Company has received a number of letters from its customers
requesting Telxon to indemnify them with respect to their defense of
demands which have been made on them by the Lemelson Medical, Education
& Research Foundation Limited Partnership for the payment of a license
fee for the alleged infringement of the Foundation's so-called
"bar-code" patents by the customers' systems utilizing automatic
identification technology, portions of which have been supplied by the
Company. On October 27, 1999, the Foundation also sent a letter
directly to the Company similarly demanding that the Company purchase a
license with respect to "Telxon's use of machine vision and bar coding
technology." The Company believes that the patents so being asserted
against it and its customers are invalid, unenforceable and not
infringed. This position has also been taken by seven other companies
in the automatic identification industry, including the Company's
principal competitors, which in July 1999 jointly filed a federal court
action seeking a declaratory judgment to that effect against the
Foundation.
On December 30, 1999, 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; the then directors of the
Company, Richard J. Bogomolny, John H. Cribb, Robert A. Goodman, Raj
Reddy, Frank Brick and Norton Rose; Robert F. Meyerson, former
Chairman of the Board, Chief Executive Officer and director; and
Telantis Venture Partners V Inc., an affiliate of Robert F. Meyerson.
The Complaint alleges that Telxon's sale of stock in its then Aironet
Wireless Communications, Inc. subsidiary to Meyerson interests
constitutes a waste and gift of Telxon assets in breach of the
defendant directors' duties of care and to act in good faith. The
Complaint also alleges that the defendant directors' opposition of an
alleged offer by Symbol to acquire the Company in the Spring of 1998
violated their duties of loyalty, good faith and due care and wasted
the Company's assets. The Complaint seeks an order rescinding the
Aironet stock transactions (or in the event such relief cannot be
granted, rescissory damages), requiring the defendants other than the
Company to account for Telxon's losses in connection with the alleged
wrongs (including the funds spent resisting the alleged Symbol bid)
and awarding plaintiff its attorneys' fees and expenses. While the
Company is nominally a defendant in this derivative action, no
monetary relief is sought by the plaintiff from the Company. The
defendants have received an extension of time within which to file
their initial response to the Complaint.
The defendants believe that these derivative claims lack merit and
intend to vigorously defend 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.
Except as otherwise specified, in the event that any of the foregoing
litigation ultimately results in a money judgment against the Company
or is otherwise determined adversely to the Company by a court of
competent jurisdiction, such determination could, depending on the
particular circumstances, adversely affect the Company's conduct of its
business and the results and condition thereof. In the normal course of
its operations, the Company is subject to performance under contracts
and assertions that technologies it utilizes may infringe third party
intellectual properties, and is also subject to various pending legal
actions and contingencies, which may include matters involving
suppliers, customers, lessors of Company products to customers and
lessors of equipment to the Company.
11. Income Taxes
The Company's consolidated tax provision of $621 and $2,637 for the
third quarter and first nine months of fiscal 2000, respectively,
relate to foreign taxes on the Company's international subsidiaries. No
taxes have been provided for the gain related to the sale of Aironet
voting common stock, which occurred in the second quarter of fiscal
2000, as the Company has a sufficient current year operating loss to
offset a tax provision or liability. The Company has not recognized any
income tax benefits other than those utilized through the realization
of gains from the sale of Aironet voting common stock based on the
Company's assessment that it is more likely than not that the deferred
tax assets will not be utilized through future taxable income or
implementation of tax planning strategies.
12. Subsidiary Stock Transactions and Divestitures
During the second quarter of fiscal 2000, Aironet and the Company sold
6,919,434 shares of Aironet's voting common stock on the Nasdaq
National Market at an offering price of $11.00 per share. Of the total
number of shares offered, Aironet sold 4,637,196 shares, and the
Company sold 2,282,238 shares. The aggregate proceeds, net of
underwriting discounts and commissions, were $47,400 to Aironet and
$23,300 to Telxon. Subsequent to this transaction, the Company's
remaining interest in Aironet was approximately 35%. As a result of
this transaction, the Company recorded a non-operating gain of
approximately $32,200 net of additional transaction costs of $1,500.
Also as a result of this transaction, the Company ceased consolidation
of Aironet effective April 1, 1999 and is accounting for its
15
<PAGE> 16
investment under the equity method of accounting. Investment income of
$337 and $1,039 was recorded for the Company's interest in the earnings
of Aironet for the third quarter and first nine months of fiscal 2000.
During the three months ended June 30, 1999, the Company repurchased
60,000 shares of the voting common stock of Metanetics from former key
employees, at a price of $2.00 per share. Giving effect to the share
repurchase, the Company's interest in the voting common stock of
Metanetics was 61% at June, 30, 1999. Prior to the repurchase of these
shares, the Company's interest in the voting common stock of Metanetics
was 60%.
During the three months ended June 30, 1998, the Company entered into a
series of transactions with a business partner relating to Metanetics,
a development stage subsidiary that develops image processing
technology. The Company repurchased 400,000 voting common shares of
Metanetics for $1,950 or $4.875 per share. Simultaneously, the business
partner agreed to pay amounts due of $1,850 for previously purchased
manufacturing rights and software licenses. Additionally, the companies
mutually agreed to terminate such agreements and released each other
from any future liability related to the original agreements. The
Company had originally recorded the additional $1,950 investment in
Metanetics as an operating expense as of June 30, 1998, because of the
historical financial losses of the subsidiary and future funding
requirements for its operations. However, after further assessment as
part of the restatement discussed in Note 4 - Restatement above, and
based in part on an independent valuation of Metanetics, the Company
has capitalized this additional investment as goodwill to be amortized
over a useful life of three years. Giving effect to the share
repurchase, the Company's interest in the voting common stock of
Metanetics was 60% at June 30, 1998. Prior to the repurchase of these
shares, the company's interest in the voting common stock of Metanetics
was 52%.
During the three months ended June 30, 1998, the Company's Aironet
subsidiary sold 222,222 shares of its voting common stock to various
third party investors at a price of $3.50 per share. Proceeds from this
sale of stock were $778. The resulting pre-tax net gain of $340 was
recorded as non-operating income in the accompanying consolidated
statement of operations. In addition to the sale of the shares of
stock, 66,667 warrants at $3.50 per share for the purchase of Aironet
voting common stock were issued. A gain of $47 relating to these
warrants has been deferred until the warrants are exercised or lapse.
The Company's remaining interest in the issued voting common stock of
Aironet at June 30, 1998, was 76%. Prior to the sale of these shares,
the Company's interest in the voting common stock of Aironet was 78%.
Effective March 31, 1998, the Company sold the stock of its Virtual
Vision subsidiary to a third party in exchange for $500 in cash and
$4,500 in Series F Preferred Shares of FED Corporation at a value of
$6.00 per share or 750,000 shares. As all of the conditions of the sale
were not satisfied as of March 31, 1998, the related pre-tax gain of
$900 was deferred. During the three months ended June 30, 1998, all of
the conditions of the sale were satisfied, and the Company recorded a
pre-tax gain of $900 as non-operating income in the accompanying
consolidated statement of operations.
13. Senior Secured Credit Facility
On August 30, 1999, the Company entered into a loan and security
agreement whereby Telxon obtained a $100,000 senior secured credit
facility as a replacement for the Company's existing revolving credit
agreement and business purpose promissory note. The facility consists
of both term and revolving credit arrangements. On November 18, 1999,
the Company entered into an amendment of this security agreement
whereby additional borrowings of $20,000 were provided. The amendment
also extended to March 31, 2000 the maturity date of the $30,000 term
loan described below.
16
<PAGE> 17
Borrowings under the revolving loan provisions of such facility are
subject to availability on qualifying accounts receivable and
inventory, reduced by amounts borrowed and outstanding under the
facility's term loan features and letters of credit. The revolving
credit facility has a limit of $50,000 less the outstanding balance of
the term loans and until such time the bridge loans described below are
paid in full. At that time, the maximum amount available will increase
to $80,000 less the outstanding remaining term loan balances.
Availability under the agreement is $24,900 as of December 31, 1999.
The maturity date of the loan and security agreement is August 29,
2002. At the maturity date the agreement is automatically renewed for
successive one-year periods until the agreement is terminated.
The secured credit facility has four term loan features. The first term
loan of $6,000 is limited by a portion of the liquidation value of the
Company's machinery and equipment. The repayment terms for this term
loan are straight-line over a 10-year period. The second term loan of
$10,000 is limited, together with the $20,000 and $30,000 term loans
discussed below, by the market value of Aironet capital stock owned by
the Company. The repayment of this second term loan is straight-line
over a 3-year period. The third and fourth term loans of $20,000 and
$30,000, respectively, are limited by a specific percentage of the
market value of Aironet capital stock owned by the Company. The third
and fourth term loans mature on March 31, 2000 and are to be repaid
with proceeds resulting from the sale of a portion of the Company's
Aironet stock.
The interest rate charged on the revolving loan, the $6,000 term loan
and the $20,000 term loan is 0.5% above the financial institution's
prime lending rate. The $6,000 term loan and the revolving loan may be
converted to Euro-rate loans at the option of the Company; converted
loans would be charged a rate of 2.75% plus the Eurodollar rate. On
December 31, 1999, the prime lending rate and the Eurodollar rate were
8.50% and 6.00%, respectively. At December 31, 1999 the rate charged on
each of these loans was prime plus .50%, or 9.0%. To the extent that
the $30,000 and $20,000 term loans are not repaid upon any sale of
Aironet stock by the Company, the rate on these term loans will become
fixed at 12.5%. The interest rate on the $10,000 term loan and the
$30,000 term loan is also fixed at 12.5%. Interest is payable monthly.
The interest rate charged is subject to change based upon the Company's
financial results. The facility also provides for the payment of an
unused line fee of 0.375% per annum on a monthly basis, and a 1.25% per
annum fee for undrawn letters of credit.
The $100,000 credit facility is collateralized by essentially all of
the Company's assets including accounts receivable, machinery and
equipment, general intangibles, inventory, future proceeds and real
property.
The credit facility also requires the maintenance of various financial
and non-financial covenants. Significant financial covenants include
maintaining a minimum level of customer service revenue, ensuring that
the total outstanding balance of the credit facility does not exceed
collections from certain significant accounts, maintaining minimum
earnings before interest, taxes, depreciation and amortization (EBITDA)
and maintaining minimum tangible net worth requirements. On February
10, 2000, the Company's lenders modified certain of these debt
covenants. Due to this modification, the Company was in compliance with
all financial covenants as of December 31, 1999.
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<PAGE> 18
14. Business Segments
As of December 31, 1999 the Company's business consisted of three
geographic operating segments: a) sales and distribution of all its
product lines in the United States; b) sales and distribution of all
its product lines in Europe; and c)sales and distribution of all of its
product lines in international locations outside of Europe.
For fiscal 1999, the Company reported results for a fourth operating
segment--the Company's former Aironet subsidiary, which designs,
develops, markets, and services high speed standards-based wireless
local area networking (LAN) solutions, -- which is presented below for
the quarter-ended December 31, 1998. As described in Note 2 - Basis
of Presentation, the Company has ceased consolidating the results of
Aironet as of April 1, 1999. Aironet will no longer be presented as a
separate business segment prospectively, and is not presented as such
for the three and nine-month periods ended December 31, 1999. The gain
recognized from the sale of Aironet stock in Aironet's initial public
offering of $32,167 has been included within the U.S. operating segment
for the nine months ending December 31, 1999.
Summarized financial information concerning the Company's reportable
segments is displayed in the following tables.
<TABLE>
<CAPTION>
(in thousands) United Other Adj./
States Europe International Elims. Consolidated
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Three months ended
December 31, 1999
Revenue from
unaffiliated customers $ 67,970 $21,931 $ 6,333 $ - $96,234
Revenue from
intercompany sales 11,880 233 134 (12,247) -
---------------------------------------------------------------------
Total revenue $ 79,850 $22,164 $ 6,467 $ (12,247) $96,234
(Loss) income before
income tax $(15,089) $ 1,075 $ 280 $ (417) $ (14,151)
=====================================================================
U.S.
Other than Other Adj./
Aironet Aironet Europe International Elims. Consolidated
----------------------------------------------------------------------------------
Three months ended
December 31, 1998
Revenue from
unaffiliated customers $ 61,634 $ 8,367 $18,949 $ 7,458 $ - $96,407
Revenue from
intercompany sales 11,604 4,748 122 597 (17,071) -
----------------------------------------------------------------------------------
Total revenue $ 73,238 $13,115 $19,071 $ 8,055 $ (17,071) $96,407
(Loss) income before
income tax $(33,660) $ 1,129 $ 1,909 $ 1,316 $ 109 $ (29,197)
==================================================================================
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
United Other Adj./
States Europe International Elims. Consolidated
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nine months ended
December 31, 1999
Revenue from
unaffiliated customers $ 200,415 $ 61,590 $ 18,349 $ - $ 280,354
Revenue from
intercompany sales 34,022 561 2,121 (36,704) -
-------------------------------------------------------------------------------
Total revenue $ 234,437 $ 62,151 $ 20,470 $ (36,704) $ 280,354
(Loss) income before
income tax $ (17,070) $ 4,380 $ 2,213 $ (3,399) $ (13,876)
===============================================================================
U.S.
Other than Other Adj./
Aironet Aironet Europe International Elims. Consolidated
--------------------------------------------------------------------------------------------
Nine months ended
December 31, 1998
Revenue from
unaffiliated customers $ 215,360 $ 19,862 $ 55,346 $ 20,643 $ - $ 311,211
Revenue from
intercompany sales 31,563 12,434 438 1,709 (46,144) -
--------------------------------------------------------------------------------------------
Total revenue $ 246,923 $ 32,296 $ 55,784 $ 22,352 $ (46,144) $ 311,211
(Loss) income before
income tax $ (48,948) $ 1,908 $ 5,924 $ 3,244 $ 386 $ (37,486)
============================================================================================
</TABLE>
15. Subsequent Events
On February 2, 2000, the Company issued 300,000 shares of the Company's
common stock to John W. Paxton, Chairman and Chief Executive Officer of
the Company, for $2,616 or $8.72 per share. The terms of the issuance
of this common stock were pursuant to his employment contract dated
March 22, 1999. No compensation expense has been recorded related to
these common shares in accordance with the provisions of APB No.25.
On January 19, 2000, the Company entered into a stock purchase
agreement with affiliates of Robert F. Meyerson, former Chairman and
Chief Executive Officer of the Company, together constituting the
primary minority shareholder of its Metanetics subsidiary. The
agreement calls for the Company to purchase 1,370,930 common shares of
Metanetics for $6.73 per share, or $9,226. As part of the purchase, the
repayment of $1,557 in notes receivable from Meyerson's affiliates will
be offset against the purchase price. The purchase price will be paid
with 477,790 shares of Telxon common stock with an agreed value of
$16.05 per share, which approximated fair market value on that date.
The stock purchase agreement contemplates that the Company will also
contemporaneously purchase all of the remaining minority interest for
cash at the same price per share. The Company currently owns
approximately 61% of Metanetics. Additionally, the Company further
agreed that it will offer to purchase the remaining 475,000 Metanetics
shares held by minority shareholders for cash of $6.73 per share or an
aggregate of $3,197, effectively giving the Company's full ownership of
Metanetics to 100%.
19
<PAGE> 20
Additionally, the Company has agreed to pay named employees of
Metanetics an amount equal to the implied value of previously granted
stock options for 520,000 Metanetics shares at an exercise price of
$1.04 per share. These options had previously been rescinded. The
payments to these employees will total approximately $2,958.
The company has received an opinion from an independent financial
advisor that the $6.73 per share transaction price is fair, from a
financial point of view, to Telxon. The Company anticipates that the
amount of the purchase price of the Metanetics common stock will be
capitalized as goodwill and amortized over a useful life of three
years. The Company will continually assess the carrying value of this
investment for impairment in accordance with the requirements of SFAS
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The Company anticipates that cash
payments to the Metanetics employees will be expensed as compensation
expense during the fourth quarter of fiscal 2000.
In connection with the above agreement, Mr. Meyerson agreed to
surrender and forfeit to the Company 240,000 stock options for purchase
of Telxon common stock at a per share price of $20.13 per share he had
retained upon his retirement.
16. New Accounting Standards
On December 3, 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin 101 Revenue Recognition in Financial
Statements. This document expresses the views of the Securities and
Exchange Commission in applying generally accepted accounting
principals while recognizing revenue. The Company has abided by the
views expressed in this document.
On November 24, 1999 the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 100. This authoritative document
expresses the views of the staff regarding the accounting and
disclosure of certain expenses commonly reported in connection with
exit activities and business combinations. The Company has abided by
the guidance contained within this document in accounting for current
exit costs.
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.
17. Reclassifications
Certain items in the fiscal 1999 consolidated financial statements and
notes thereto have been reclassified to conform to the fiscal 2000
presentation.
20
<PAGE> 21
TELXON CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
IN ADDITION TO DISCUSSING AND ANALYZING THE COMPANY'S RECENT HISTORICAL
FINANCIAL RESULTS AND CONDITION, THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDES STATEMENTS
REGARDING CERTAIN TRENDS OR OTHER FORWARD-LOOKING INFORMATION CONCERNING THE
COMPANY'S ANTICIPATED REVENUES, COSTS, FINANCIAL RESOURCES OR OTHERWISE
AFFECTING OR RELATING TO THE COMPANY WHICH ARE INTENDED TO QUALIFY FOR THE
PROTECTIONS AFFORDED "FORWARD-LOOKING STATEMENTS" UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, PUBLIC LAW 104-67. THE FORWARD-LOOKING STATEMENTS
MADE HEREIN AND ELSEWHERE IN THIS FORM 10-Q ARE INHERENTLY SUBJECT TO RISKS AND
UNCERTAINTIES, WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS OR OTHER FUTURE
EVENTS PERTAINING TO THE COMPANY TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS. THE SUMMARY OF CERTAIN OF THE RISKS AND OTHER IMPORTANT FACTORS
WHICH MAY AFFECT THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL AND
OTHER CONDITION AND THE OCCURRENCE OF SUCH FUTURE EVENTS UNDER "FACTORS THAT MAY
AFFECT FUTURE RESULTS" BELOW SHOULD BE READ IN CONJUNCTION WITH THE MORE
COMPLETE DISCUSSION OF THOSE AND OTHER RISKS AND IMPORTANT FACTORS AFFECTING THE
BUSINESS, OPERATING RESULTS AND CONDITION OF THE COMPANY UNDER "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - FACTORS THAT MAY AFFECT FUTURE RESULTS", AND OTHER CAUTIONARY
STATEMENTS APPEARING UNDER "ITEM 1. BUSINESS" AND ELSEWHERE, IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K, FOR THE FISCAL YEAR ENDED MARCH 31, 1999.
On July 14, 1999, the Company announced its results for the year ended March 31,
1999. The year-end results contained a further restatement adjustment of the
results reported for the three months ended September 30, 1998 in addition to
the restatement originally announced on February 23, 1999. See Note 4 -
Restatement to the accompanying consolidated financial statements for further
detail concerning the restatement adjustment made. The financial information for
all periods included in the following discussion gives effect to the restatement
as so adjusted and should be read in conjunction with the restated information
presented in Note 4 - Restatement to the accompanying consolidated financial
statements.
Overview
The Company recorded a net loss of $14.8 million or $.91 per share (diluted) and
a net loss of $16.5 million or $1.02 per share (diluted) for the third quarter
and first nine months of fiscal 2000, respectively. Consolidated revenues
decreased $.2 million or .2% and $30.9 million or 10% for the third quarter and
first nine months of fiscal 2000 as compared to those same periods in fiscal
1999. The Company's consolidated gross margin percentages increased to 29% for
the third quarter of fiscal 2000 as compared to 26% for the same period in
fiscal 1999. The Company's consolidated gross margin percentages decreased to
28% for the first nine months of fiscal 2000 as compared to 34% for the same
period in fiscal 1999. Consolidated operating expenses decreased $13.0 million
and $22.5 million for the third quarter and first nine months of fiscal 2000 as
compared to fiscal 1999 levels. A major contributor to these decreases was the
absence of unconsummated business combination costs incurred in response to
takeover and proxy contest proposals in the third quarter and first nine months
of fiscal 1999 of $4.5 million and $8.1 million, respectively. As a result of
the Company's operations, the Company recorded losses of $10.7 million and $36.5
million for the third quarter and first nine months of fiscal 2000 as compared
to $26.7 million and $32.3 million for those same periods in fiscal 1999. The
results for the second quarter of fiscal 2000 included non-operating gains of
$32.7 million. Substantially all of this gain was related to the sale of common
stock of the Company's former subsidiary, Aironet Wireless Communications, Inc.
("Aironet"), in July, 1999. The results also include a tax provision of $.6
million and $2.6 million for the third quarter and first nine months of fiscal
2000 due to foreign
21
<PAGE> 22
taxes. No tax benefit has been recognized for the third quarter and first nine
months of fiscal 2000 based on the Company's current year operating losses and
current assessment regarding the utilization and realization of such tax assets.
Additionally, no provision has been recorded related to the gain discussed above
due to the utilization of current year operating losses.
The Company's results for fiscal 2000 do not include the results of its Aironet
subsidiary, which became a publicly traded company in July, 1999. The Company's
percentage ownership decreased to approximately 35% at that time, and the
Company can no longer exercise control over that entity. Accordingly, the
results for the first quarter of fiscal 2000 have been restated to reflect the
removal of Aironet's financial position, results of operations and cash flows
effective at the beginning of the fiscal year and reflect the results of Aironet
under the equity method of accounting.
The Company operates in a rapidly changing and dynamic market, and the Company's
strategies and plans are designed to adapt to changing market conditions where
and when possible. However, there can be no assurance that the Company's
management will identify the risks (especially those newly emerging from time to
time) affecting, and their impact on, the Company and its business, that the
Company's strategies and plans will take into account all market conditions and
changes thereto, or that such strategies and plans will be successfully
implemented. Accordingly, neither the historical results presented in the
Company's consolidated financial statements and discussed herein, nor any
forward-looking statements in this Form 10-Q 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 Company's business, operating results and financial and other condition may
be affected by a number of risks and other important factors, including, without
limitation, the following, some of which are inherently difficult to identify
and predict and/or are beyond the Company's control: general and
industry-specific economic conditions; the ability of the Company's senior
management to successfully implement its plan to relocate substantially all of
its Akron, Ohio headquarters operations and to identify and implement additional
appropriate cost reduction, efficiency and other operating improvement
strategies, and the amount of expenses actually incurred and saved as a result;
the continued adequacy of the Company's internal and external sources of working
capital; sales and manufacturing cycles from quarter to quarter and within each
quarter; serving markets characterized by increasingly rapid technological
change and associated changes in market demand, product obsolescence and price
erosion; intense competition; the Company's ability to gain and maintain market
acceptance of its products; the levels of customer demand for the Company's
products and customers' commitments of resources to information technology
investments; concentration of revenues in the retail industry and possible
decreases in their purchases from the Company in response to any downturn in
general economic prospects or conditions to the extent that reduced levels of
new store openings are not offset by their investment in the Company's systems
to improve the efficiency of existing stores; ability to penetrate and expand
revenues in new and existing markets; risks associated with foreign sales and
operations; timely and efficient enhancement of appropriate product offerings
through internal development and acquisition of, or investment in, new
businesses and technologies; dependence on, and freedom from infringement of,
technologies and other proprietary rights of, or by, third parties; government
regulation of radio and other products, and product health and safety concerns;
dependence on sole source, or a limited number of, suppliers; and attracting and
retaining qualified employees. In addition to being subject to the foregoing
factors and other cautionary statements elsewhere in this Form 10-Q, the
Company's conduct of its business, and the results and condition thereof, is
also subject to the possible adverse effects of
22
<PAGE> 23
certain pending litigation and other contingencies discussed in Note 10 -
Litigation and Contingencies to the accompanying consolidated financial
statements included in Item 1 above. The financial results of the Company
historically have not been materially adversely impacted as a result of
inflation. However, there can be no assurance that inflation will not have a
material adverse impact in the future.
Readiness for the Year 2000
THE INFORMATION SET FORTH UNDER THIS CAPTION IS HEREBY DESIGNATED TO BE A "YEAR
2000 READINESS DISCLOSURE" UNDER THE YEAR 2000 INFORMATION READINESS DISCLOSURE
ACT (THE "YEAR 2000 ACT"), PUBLIC LAW 105-271, AND THE STATEMENTS BELOW AND THE
REGISTRANT, AS THE MAKER THEREOF, SHALL BE ENTITLED TO THE PROTECTIONS PROVIDED
BY THE YEAR 2000 ACT.
As the end of the twentieth century neared, there was 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, the
potential existed for computer applications to treat year dates intended to
represent years in the twenty-first century instead as still being in the
twentieth century, which would in turn result 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 affected virtually
all companies and organizations.
Year 2000 issues affected 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 involved 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 have been funded from the Company's consolidated operating
cash flows and borrowings.
With respect to its products, the Company has not to date been notified by its
customers of, nor has it otherwise encountered, any material product failures or
malfunctions relating to Year 2000 issues. Though the turn of the century has
passed, it is still possible, although not expected, that Year 2000 issues may
arise given the varied range of applications and computations in which the
Company's products are utilized that may not as yet have been put through their
full range of use since January 1, 2000. The costs to date of upgrading the
Company's products to Year 2000 readiness have not been, and the Company does
not expect that any future costs that may be required in that regard would be,
material to the Company's financial position or results of operations.
The Company has purchased and worked with outside contractors to develop and
install new business corporate-wide domestic information systems in the
company's U.S. operations. Though the new systems were identified as a strategic
business initiative independent of Year 2000 considerations, they were also
designed to make the Company's Information Systems Year 2000 ready. The
Company's international subsidiaries remediated their own Year 2000 readiness
issues independent of the new domestic systems installation. The overall
implementation of the new corporate information systems was substantially
completed at the beginning of the Company's fiscal 2000 second quarter, subject
to normal ongoing post-implementation activities normally associated with
systems of this magnitude as well as upgrades and additions of enhanced
capabilities and applications.
23
<PAGE> 24
The total capital expenditures for the new systems installation were $33.8
million. In addition, the company also accelerated the replacement of
approximately $5.8 million of computer hardware in connection with the new
systems installation. As of December 31, 1999, the Company had purchased $.8
million of replacement computer hardware and leased an additional $5.0 million
of replacement computer hardware.
In addition to these capitalized expenditures, the Company had incurred $10.9
million of accumulated non-capitalizable expenses as of December 31, 1999,
related to the new systems installation. The non-capitalizable expenses for the
three months ended December 31, 1999 were approximately $1.9 million versus
approximately $3.7 million for the three months ended June 30, 1999. The
decreased expense reflects the reduction in post implementation activities.
These non-capitalized expenses exclude the one-time, after-tax charge of $1.0
million recorded during fiscal 1998 as a change in accounting principle in
accordance with the Financial Accounting Standards Board's Emerging Issues Task
Force consensus ruling "Accounting for Costs Incurred in Connection with a
Consulting Contract or an Internal Project That Combines Business Process
Reengineering and Information Technology Transformation." The Company may incur
additional non-capitalizable expenses in its efforts to complete the project to
meet management requirements. These expenses have not been quantified at this
time.
The Company believes that it has successfully addressed all mission critical
Year 2000 issues relating to its engineering, manufacturing, and customer
maintenance and service Process Management Systems and information technology
infrastructure. The costs of the Year 2000 readiness review and any related
remediation, which were not material in amount, were borne by the respective
functional areas. However, given the varied range of applications and
computations in which the Company's Process Management Systems are utilized and
which may not as yet have been put through their full range of use since January
1, 2000, it is possible, although not expected, that Year 2000 issues may still
be encountered.
The Company could also be 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.
Through its inquiries made of such third parties regarding their Year 2000
readiness, the Company identified a limited number of items which presented
potential Year 2000 issues; those items have been replaced or updated at nominal
cost. The Company has not to date encountered any material problems relating to
the Year 2000 readiness of such third parties, though it is possible, but not
expected, that such third parties may in the future experience Year 2000
difficulties which could affect the Company insofar as such third parties may
not as yet have put their Year 2000 sensitive systems through their full range
of use since January 1, 2000.
It is still possible that scenarios resulting from Year 2000 issues could arise
which, alone or in aggregate effect, could, depending on the particular
circumstances, materially adversely affect the Company's business and/or its
financial results or conditions. These scenarios could affect the Year 2000
readiness of the Company's own product or service offerings, disrupt its
business operations or negatively impact its operating results. The Company
could be adversely affected by the failure of one or more of its suppliers of
raw materials, components, peripherals, finished products or software or its
providers of facilities, equipment and services to achieve Year 2000 readiness
in their own operations or with respect to the items they supply or otherwise
provide to the Company. If such an event were to, or circumstances indicate that
one is likely to, occur, the Company would seek alternative sources of supply
(the Company periodically reviews its sourcing options as part of its general
operating procedures independent of Year 2000 concerns) or seek to develop or
obtain a software upgrade to make the affected item Year 2000 ready. As with all
businesses engaged in some facet of the computer industry, there is a risk that
the Company's customers may experience Year 2000 failures or other difficulties
in their use of computer systems comprised of or incorporating products or
services furnished by the Company and may commence legal action or seek other
compensation for their resulting losses; such legal actions, even if not
ultimately determined adverse to the Company, would likely involve significant
defense costs to the Company, particularly where the combination of products
and/or services of several different vendors in addition to the Company in the
subject customer system presents complex issues for isolating the cause of the
Year 2000 problem and determining the vendor responsible for that problem.
Disruptions in the economy generally, domestically and/or in foreign countries,
resulting from Year 2000 issues could also materially affect the Company. At
24
<PAGE> 25
this time, the Company does not believe that any of the above scenarios are
likely to, but there can be no assurance that they still may, occur, or what the
nature or extent of their possible adverse effects on the Company would be
should they occur. Though the Company currently does not have formal contingency
plans in place to address any particular possible Year 2000 scenario, the
Company would develop appropriate contingency plans if and when any significant
risks relating to Year 2000 issues are identified.
RESULTS OF OPERATIONS
The results of operations and financial position of the Company discussed below
contains the results of its former Aironet subsidiary for fiscal 1999 only.
<TABLE>
<CAPTION>
Revenues
(in thousands)
Three Months Ended (Decrease)
December 31, Increase
------------------------------------- ----------------------------------
1999 1998 Dollar Percentage
----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Product, net $ 74,943 $ 76,392 $ (1,449) -1.9%
Customer service, net 21,291 20,016 1,275 6.4%
----------------- ----------------- -----------------
Total net revenues $ 96,234 $ 96,408 $ (174) -0.2%
================= ================= =================
Nine Months Ended
December 31, Decrease
------------------------------------- ----------------------------------
1999 1998 Dollar Percentage
----------------- ----------------- ----------------- --------------
Product, net $219,479 $248,989 $(29,510) -11.9%
Customer service, net 60,875 62,222 (1,347) -2.2%
----------------- ----------------- -----------------
Total net revenues $280,354 $311,211 $(30,857) -9.9%
================= ================= =================
</TABLE>
Net product revenues include the sale of portable tele-transaction computers
("PTCs"), including rugged, wireless mobile computers and pen-based and
touch-screen workslates; hardware accessories; wireless data communication
products; custom application software, network management software and software
licenses; and a variety of professional services, including systems integration
and project management.
Consolidated product revenues decreased slightly as compared to prior year
levels and remained constant with the levels experienced in the second quarter
of fiscal 2000. Demand for the Company's products was lower as compared with
fiscal 1999, particularly in the Company's North American operations, where the
Company's legacy products continue to experience competitive pressures. The
Company's revenues for the third quarter and first nine months of fiscal 2000
contained a relatively high proportion of batch products. This product mix
reduced the average selling price of the Company's products. While the third
quarter of fiscal 2000 contains revenues from shipments of the Company's newly
introduced pen-based products, primarily the PTC 2134, revenues from the
Company's pen-based products remained a small percentage of total revenues.
Consolidated product revenues for the third quarter and first nine months of
fiscal 2000 included $4.2 million and $18.0 million, respectively, of revenue
related to transactions previously deferred pending customer acceptance of such
goods. Revenues from goods shipped totaling $1.1 million were deferred pending
such transactions meeting all revenue recognition criteria.
25
<PAGE> 26
Product revenues for the third quarter of fiscal 2000 included revenues of $12.7
million from the rollout of Company products to a large domestic retailer.
Revenues from this one customer accounted for 17% and 13% of the Company's
consolidated product revenues for the third quarter and first nine months of
fiscal 2000, respectively. Product revenues related to this customer were minor
during the same periods in fiscal 1999. Revenues related to this customer are
high volume-low margin business. Therefore, the relatively high volume of
business with this customer lowered the average selling price for the Company's
products overall.
The volume of revenues from the Company's Value-Added Distributor channel
decreased approximately $10.7 million and $51.3 million for the third quarter
and first nine months of fiscal 2000 as compared to the same periods in fiscal
1999. This decrease reflects new management's emphasis on the Company's
direct sales channel. Revenues related to Value-Added Distributors now represent
less than 10% of product revenues.
The Company anticipates that consolidated product revenues for the fourth
quarter of fiscal 2000 will be higher than the levels experienced during the
third quarter of fiscal 2000. However, the Company does not expect this increase
to be substantial.
Consolidated customer service revenues decreased $1.3 million or 2% for the
first nine months of fiscal 2000 as the result of start-up issues with the
Company's new information system. This also reflects the impact of decreased
product revenues over the past four quarters. Consolidated customer service
revenues increased $1.3 million or 6.4% for the third quarter of fiscal 2000 as
compared to the same period in fiscal 1999.
The Company anticipates that consolidated customer service revenues will remain
essentially unchanged for the fourth quarter of fiscal 2000 as compared to those
experienced during the third quarter of fiscal 2000.
Revenues from the Company's international operations (including Canada)
increased $1.8 million or 5% during the third quarter and decreased $1.8 million
or 2% during the first nine months of fiscal 2000 compared to the same periods
in fiscal 1999, respectively. The increase in the Company's international
revenues for the third quarter was primarily the result of increased revenues
from the Company's European subsidiaries of $3.5 million partially offset by
decreased revenues in the Company's Canadian subsidiary. The decrease in the
Company's international revenues for the nine-month period was primarily the
result of decreased revenues from shipments to the Company's international
distributors, particularly in Latin America, as well as the aforementioned
decreased revenues in the Company's Canadian subsidiary. These decreases were
partially offset by increased revenues of $6.5 million in the Company's European
subsidiaries. The decrease in international distributor revenues was $.2 million
and $5.2 million for the third quarter and first nine months of fiscal 2000 as
compared to those same periods in fiscal 1999. The decrease in the Company's
Canadian subsidiary revenues was $1.3 million and $3.0 million for the third
quarter and first nine months of fiscal 2000 as compared to those same periods
in fiscal 1999. The results of the Company's international operations were
negatively impacted by approximately $1.8 million due to changes in foreign
currency exchange rates (reflective of the strength of the U.S. dollar in
relation to the local currencies where the Company operates) during the first
nine months of fiscal 2000.
The Company's reserve for sales returns and allowances decreased from a balance
at March 31, 1999 of $15.0 million to $10.4 million at December 31, 1999. This
decrease was caused by fewer outstanding accounts receivable from the Company's
Value-Added Distributors and by improved rates of return and cash collections in
the Company's direct sales channel. These decreases to the reserve were
partially offset by increased reserves for known returns.
26
<PAGE> 27
The Company's consolidated revenues for the third quarter and first nine months
of fiscal 1999 included revenues of Aironet to outside customers of $8.4 million
and $19.9 million, respectively.
The decrease of 1% in the consolidated cost of product revenues as a
percentage of consolidated product revenues during the third quarter of fiscal
2000 was primarily the result of several offsetting factors as follows. There
were no unusual charges in the fiscal 2000 period such as the inventory and loss
provisions of $3.3 million as had occurred in the prior year. The cost
percentage was also favorably impacted by lower provisions for fulfillment fees
payable to the Company's Value-Added Distributors ("VADs") of $1.8 million due
to the lower volume of goods in that distribution channel. The cost percentage
for the quarter was decreased by a decrease in underabsorbed manufacturing
overhead costs of $1.1 million. This undersabsorption was caused by lower than
expected volumes and manufacturing inefficiencies, although at a lesser rate
than the prior year. Also contributing to the decreased cost percentage was a
decrease in the provisions for non-conformance costs and inventory losses
related to contract manufacturers of $1.1 million. Lower amounts of amortization
of capitalized software costs and decreased provisions for test equipment held
by customers of $.5 million and $.3 million also contributed to the decrease in
the cost percentage. These favorable items were offset by the following
increases to the cost percentage. The Company experienced negative purchase
price variance of $1.9 million as compared to the prior year due to changes in
standard costs. The Company also increased its provision for manufacturing
obsolescence by $.6 million as compared to the third quarter of fiscal 1999. The
increased provision for excess and obsolete manufacturing inventories was
primarily due to decreased revenue volumes and related inventory usage as
compared to on-hand inventory balances. For the third quarter of fiscal 2000,
increased fixed royalty costs related to a supply agreement with Aironet were
$.8 million. Due to the deconsolidation of the results of Aironet for fiscal
2000, intercompany profit benefit related to Aironet products used as components
of the Company's products was reduced for the third quarter of fiscal 2000 by
$2.7 million as compared to the same period in the prior year. In addition to
these items, the relatively high amount of revenue volume related to a high
volume-low margin customer caused an approximately 2% increase to the cost
percentage, or approximately $1.5 million in incremental costs to overall costs
of revenues.
<TABLE>
<CAPTION>
Cost of Revenues
(in thousands)
Three Months Ended
December 31, Decrease
---------------------------------- -------------------------------
Cost of Revenues: 1999 1998 Dollar Percentage
---------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Product $55,431 $57,446 $(2,015) -3.5%
Customer service 12,971 14,047 (1,076) -7.7%
---------------- ---------------- ----------------
Total cost of revenues $68,402 $71,493 $(3,091) -4.3%
================ ================ ================
Cost of product revenue as a
percentage of product revenue,
net 74.0% 75.2%
Cost of customer service revenue
as a percentage of customer
service revenue, net 60.9% 70.2%
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
Cost of Revenues
(in thousands)
Nine Months Ended
December 31, (Decrease)
----------------------------------------- ------------------------------------
Cost of Revenues: 1999 1998 Dollar Percentage
------------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Product $163,728 $164,670 $ (942) -0.6%
Customer service 37,260 40,374 (3,114) -7.7%
------------------- ------------------- ------------------
Total cost of revenues $200,988 $205,044 $ (4,056) -2.0%
=================== =================== ==================
Cost of product revenue as a
percentage of product revenue,
net 74.6% 66.1%
Cost of customer service revenue
as a percentage of customer
service revenue, net 61.2% 64.9%
</TABLE>
The increase of 9% in the consolidated cost of product revenues as a percentage
of consolidated product revenues during the first nine months of fiscal 2000 was
primarily the result of several offsetting factors as follows. The Company
experienced negative purchase price variance of $4.3 million as compared to the
prior year due to changes in standard costs. The cost percentage for the first
nine months of fiscal 2000 was increased by an increase in underabsorbed
manufacturing overhead costs of $3.6 million. This undersabsorption was caused
by lower than expected volumes and manufacturing inefficiencies, primarily in
the first two quarters of fiscal 2000. The Company also increased its provision
for manufacturing obsolescence by $2.6 million as compared to the first nine
months of fiscal 1999. The increased provision for excess and obsolete
manufacturing inventories was primarily due to decreased revenue volumes and
related inventory usage as compared to on-hand inventory balances. For the first
nine months of fiscal 2000, increased fixed royalty costs related to a supply
agreement with Aironet were $2.4 million. Due to the deconsolidation of the
results of Aironet for fiscal 2000, intercompany profit benefit related to
Aironet products used as components of the Company's products was reduced for
the first nine months of fiscal 2000 by $7.2 million as compared to the same
period in the prior year. In addition to these items, the relatively high amount
of revenue volume related to a high volume-low margin customer caused an
approximately .3% increase to the cost percentage, or approximately $.7 million
in incremental costs to overall costs of revenues. Finally, there was an
increase in operating expenses due to expediting costs of approximately $2.3
million.
These increases to the cost percentage were offset by the following decreases to
the cost percentage. There were no unusual charges in the fiscal 2000 period
such as the inventory and loss provisions of $3.3 million as had occurred in the
prior year. The cost percentage was also favorably impacted by lower provisions
for fulfillment fees payable to the VADs of $1.2 million, due to the lower
volume of goods in that distribution channel. Also contributing to the decreased
cost percentage was a decrease in provisions for non-conformance costs and
inventory losses related to contract manufacturers of $1.0 million. Lower
amounts of amortization of capitalized software costs and decreased provisions
for test equipment held by customers of $1.2 million and $.9 million also caused
a decrease in the cost percentage.
28
<PAGE> 29
The Company is subject to a high degree of technological change in market and
customer demands. The Company therefore continually monitors its inventories for
excess and obsolete items based upon a combination of historical usage and
forecasted usage of such inventories. Additionally, discrete provisions are made
when existing facts and circumstances indicate that the subject inventory will
not be utilized.
Management disposes of excess and obsolete inventory as necessary and as
manpower permits. During the first nine months of fiscal 2000, the Company
disposed of $20.4 million of excess and obsolete material. Of this amount $18.9
million related to manufacturing purchased components, $1.3 million related to
the Company's customer service inventories and $.2 million related to the
Company's international operations. There were no material recoveries related to
the disposal of this material.
Inventory allowance provisions for the first nine months of fiscal 2000 were
composed of manufacturing purchased components of $4.8 million, customer service
spare parts and used equipment of $.3 million and international finished goods
inventories of $.9 million. Inventory allowance accounts were further increased
by reclassification of accrued liabilities of $6.2 million related to purchase
commitments for obsolete purchased components and customer service spare parts.
At December 31, 1999, inventory allowance accounts aggregated $20.0 million and
were composed of manufacturing purchased components of $11.2 million, customer
service spare parts and used equipment of $6.2 million and international
finished goods inventories of $2.6 million. In addition to the inventory
allowance accounts, the Company has recorded accrued liabilities totaling $5.7
million for purchase commitments to outside contract manufacturers for
discontinued products.
At December 31, 1999, the Company had approximately $8.6 million of finished
goods inventory held at distributors and customers, and approximately $3.6
million of manufacturing purchased components at contract manufacturers. At
March 31, 1999, the Company had approximately $25.7 million of finished goods
inventory held at distributors and customers, and approximately $5.7 million of
manufacturing purchased components at contract manufacturers. The decrease in
the amount of finished goods held at distributors and customers was the result
of revenue recognized upon installation and customer acceptance of the Company's
products. Additionally, the inventory value of finished goods due back from
customers for product returns decreased in proportion to the decrease in the
reserve for sales returns and allowances.
The Company accrues fees due its VADs for the distribution services and
technical support provided to end users as well as cooperative advertising
costs. These fees are generally based upon the sales value of the goods to the
end user. During the third quarter and first nine months of fiscal 2000, the
Company incurred $.3 million and $1.3 million of these fees, respectively.
The Company's consolidated cost of revenues for the third quarter and first half
of fiscal 1999 included costs of revenues related to Aironet's outside customers
of $5.9 million and $13.4 million, respectively.
The decrease in the customer service cost of revenues as a percentage of
customer service revenues during the third quarter and first nine of fiscal 2000
resulted primarily from cost containment efforts and lower cost benefits derived
from the Company's service repair operations in Juarez, Mexico.
The Company expects continued consolidated product gross margin pressures for
the fourth quarter of fiscal 2000. While the Company does anticipate
improvements in the consolidated product gross margin percentage from that
experienced during the third
29
<PAGE> 30
quarter of fiscal 2000, the Company may still experience higher product costs
and related charges due to transactions with high volume-low margin
customers.
<TABLE>
<CAPTION>
Operating Expenses
(in thousands)
Three Months Ended (Decrease)
December 31, Increase
--------------------------------- -------------------------------
Operating expenses: 1999 1998 Dollar Percentage
--------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C>
Selling expenses $18,361 $22,829 $ (4,468) -19.6%
Product development and
engineering expenses 6,350 10,670 (4,320) -40.5%
General and administrative
expenses 13,860 13,612 248 1.8%
Unconsummated business
combination costs - 4,491 (4,491) N.M.
--------------- --------------- ----------------
Total operating expenses $38,571 $51,602 $(13,031) -25.3%
=============== =============== ================
Operating Expenses
(in thousands)
Nine Months Ended (Decrease)
December 31, Increase
------------------------------------- --------------------------------
Operating expenses: 1999 1998 Dollar Percentage
----------------- ----------------- ----------------- ------------
Selling expenses $ 55,202 $ 67,700 $(12,498) -18.5%
Product development and
engineering expenses 19,492 29,108 (9,616) -33.0%
General and administrative
expenses 41,216 33,541 7,675 22.9%
Unconsummated business
combination costs - 8,070 (8,070) N.M.
----------------- ----------------- -----------------
Total operating expenses $115,910 $138,419 $(22,509) -16.3%
================= ================= =================
</TABLE>
Consolidated selling expenses, as a percentage of revenues, decreased for the
third quarter of fiscal 2000 as compared to fiscal 1999 from 24% to 19%. For the
nine months ended December 31, 1999, consolidated selling expenses decreased as
a percentage of revenues from 22% to 20%. Contributing to the overall dollar
decrease in selling expenses was a decrease in U.S. commissions of $1.1 million
for the first nine months of fiscal 2000 due to the decreased revenue. U.S.
commissions for the third quarter of fiscal 2000 increased by $.8 million over
that experience in the same period of fiscal 1999. The provision for bad debts
also decreased for the third quarter and first nine months of fiscal 2000 by $.9
million and $3.2 million, respectively. This decrease is primarily the result of
lower provisions for doubtful accounts related to a foreign distributor during
the first nine months of fiscal 1999 of $1.2 million and $4.6 million,
respectively, due to the foreign distributor's improved payment history and
financial condition. Also contributing to the decrease in selling expenses were
cost containment efforts in the Company's North American sales operations, whose
expenses decreased $.8
30
<PAGE> 31
million and $2.6 million for the third quarter and first nine months of fiscal
2000 as compared to the same periods in fiscal 1999. These decreases were
composed primarily of lower salaries and wages and sales expediting costs offset
by increased computer hardware and software support costs. Additionally, selling
expense for the third quarter and first nine months of fiscal 2000 related to
the Company's international operations decreased by $1.0 million and $.5
million, respectively, as the result of reductions in sales administration
costs in the Company's Belgian international headquarters. Offsetting this
decease for the first nine months of fiscal 2000 were severance charges related
to the Company's international sales operations of $1.1 million.
Selling expenses related to Aironet were $1.7 million and $4.5 million during
the third quarter and first nine months of fiscal 1999.
The Company's allowance for doubtful accounts decreased from a balance of $11.1
million at March 31, 1999 to a balance of $5.1 million at December 31, 1999. The
Company provided for $2.1 million of bad debts, and bad debt write-offs totaled
$7.7 million. These bad debt write-offs were primarily related to accounts
receivable from the foreign distributor referenced above.
Consolidated product development and engineering expenses as a percentage of
revenues decreased to 7% for the third quarter of fiscal 2000 as compared to 11%
for the third quarter of fiscal 1999. Consolidated product development and
engineering expenses as a percentage of revenues for the first nine months of
fiscal 2000 decreased to 7% compared to 9% for the same period last year. The
overall dollar decreases in product development and engineering expenses were
due to current management efforts to perform more engineering tasks with Company
personnel rather than with more expensive contract engineering firms. These
actions have reduced expenses related to contract labor and outside engineering
services by $2.2 million and $3.1 million for the third quarter and first nine
months of fiscal 2000, respectively, as compared to the same periods in fiscal
1999. Additionally, increased management focus on engineering processes and job
completion has resulted in reduced parts usage, rework and travel costs.
Engineering expenses incurred in the U.S. related to these items for the third
quarter and first nine months of fiscal 2000 were reduced by $1.0 million and
$2.2 million, respectively, as compared to those same periods in fiscal 1999.
Employee relocation expenses also decreased by $.2 million and $.7 million for
those same periods, respectively. These decreases were offset by increased
salaries and wages of $.1 million and $.5 million and increased patent costs of
$.2 million and $.5 million for the third quarter and first nine months of
fiscal 2000 as compared to the same periods in fiscal 1999, respectively. The
Company also increased its spending on development activities at its technical
subsidiaries, Metanetics and PenRight! by $.1 million and $.7 million for the
third quarter and first nine months of fiscal 2000 as compared to the same
periods in fiscal 1999. The Company also incurred third party development
charges of $.2 million during the third quarter and nine months of fiscal 2000.
Additionally, the Company incurred severance charges of $.2 million during the
first nine months of fiscal 2000 related to personnel changes in its product
development and engineering operations.
Product development and engineering expenses related to Aironet were $1.6
million and $4.7 million during the third quarter and first nine months of
fiscal 1999.
During the first nine months of fiscal 2000, the Company capitalized software
development costs in accordance with the requirements of Statement of Financial
Accounting Standards No. 86 "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed" aggregating $2.8 million, offset by
amortization to cost of product revenues of $3.9 million on previously
unamortized software.
31
<PAGE> 32
Consolidated general and administrative expenses as a percentage of revenues
were 14% for the third quarters of fiscal 2000 and fiscal 1999. Consolidated
general and administrative expenses as a percentage of revenues were 15% and 11%
for the first nine months of fiscal 2000 as compared to the first nine months of
fiscal 1999. Although overall general and administrative expenses for the third
quarters of fiscal 2000 and fiscal 1999 remained relatively constant in
aggregate dollar amount, there were offsetting increases and decreases in
several expense categories as follows. The increase in general and
administrative expenses for the quarter was primarily due to a $1.8 million
increase in expenses related to the Company's corporate information systems
project, including amortization of costs related to installed modules as well as
other costs such as training and debugging which may not be capitalized.
Additionally, during the third quarter, the Company incurred greater bank fees
of $.8 million related to its credit facilities than in fiscal 1999. The Company
also incurred increased professional fees of $.3 million related to SEC and
litigation matters. These increases for the third quarter were offset by a
decrease in expenses related to the Company's sale of its corporate jet of $.4
million. Additionally, expenses were further decreased by the absence of the
$1.3 million charge related to start-up costs of a joint venture in the People's
Republic of China by the Company's Metanetics subsidiary incurred during the
third quarter of fiscal 1999. For the first nine months of fiscal 2000, general
and administrative expense increased $7.7 million as compared to the same period
in fiscal 1999. This increase was primarily caused by increased costs related to
the Company's corporate information systems project of $7.5 million.
Additionally, during the first nine months of fiscal 2000, the Company incurred
greater bank fees of $2.3 million related to its credit facilities than in
fiscal 1999. The Company also incurred increased professional fees of $.8
million related to SEC and litigation matters. During the first nine months of
fiscal 2000, the Company incurred $.4 million in asset impairment charges
related the cessation of the Company's corporate jet operations and severance
charges aggregating $.2 million. These increases for the third quarter were
offset by a decrease in operating expenses related to the Company's corporate
jet of $.7 million. Additionally, expenses were further decreased by the absence
of the $1.3 million charge related to start-up costs as noted above.
General and administrative expenses related to Aironet were $.8 million and $2.6
million during the third quarter and first nine months of fiscal 1999.
The Company's domestic accrual for severance costs decreased from a balance of
$3.4 million at March 31, 1999 to a balance of $2.0 million at December 31,
1999. This decrease was caused by severance charges of $1.2 million during the
first nine months of fiscal 2000, which were more than offset by severance
payments of $2.6 million to terminated employees. A total of 35 employees were
terminated during the first nine months of fiscal 2000. The areas of the Company
affected were domestic sales operations, domestic product development,
manufacturing operations and corporate administration. There have been no
material changes to the amounts accrued at either March 31, 1999 or December 31,
1999. In addition to the domestic severance activity, 1 employee was terminated
in the Company's international sales operations during the first nine months of
fiscal 2000. The severance recorded related to this employee was $1.1 million,
which has been paid.
Fiscal 2000 operating expenses were favorably impacted by the absence of costs
incurred in response to an unsolicited takeover proposal and to a proxy contest
for the third quarter and first nine months of fiscal 1999 of $4.5 million and
$8.1 million, respectively.
On November 10, 1999, the Company announced that it intends to relocate
approximately 170 employees currently located at its Akron, Ohio headquarters.
The Company anticipates that the relocation will entail moving 30 to 40
positions to a new facility in
32
<PAGE> 33
Cincinnati, Ohio and approximately 75 positions to its World Technology Center
in The Woodlands, Texas. Approximately 20 to 25 employees in the Company's
software development, advance consulting and project management groups will
relocate to a smaller, more cost effective facility in the Akron area. The
Company anticipates that the net costs of relocation will be approximately $4.0
million and will be incurred over the next twelve months. The Company's Board of
Directors approved the relocation plans for this action on November 1, 1999.
Although the Company did have plans to carryout the relocation and these plans
were approved by the appropriate level of management, the plans were not
sufficient under the requirements of Staff Accounting Bulletin No. 100
"Restructuring and Impairment Charges" ("SAB No. 100") to warrant the accrual of
these costs as of December 31, 1999. However, in connection with the Company's
plans to relocate employees and move facilities, the Company did reassess the
useful lives of leasehold improvements at its Akron, Ohio headquarters. The
Company therefore recorded increased depreciation expense of $.1 million on
those assets. The Company anticipates that it will continue to record this
increased depreciation over the next six months so that the leasehold
improvements will be fully depreciated by the completion of the relocation. In
addition, amounts payable under the Company's agreements with individual
employees for retention bonuses have been, and will continue to be, accrued as
they are earned over the transaction period. The amount accrued for the third
quarter of fiscal 2000 was not material.
The Company anticipates operating expenses, excluding charges related to the
Company's relocation of its corporate offices, for the fourth quarter of fiscal
2000 to increase from the levels experienced during the third quarter of fiscal
2000. However, the Company expects that operating expenses, excluding the
charges noted above, for the fourth quarter of fiscal 2000 to be less than those
experienced during the second quarter of fiscal 2000.
<TABLE>
<CAPTION>
Interest Expense and Other Non-operating Income (Expense), net
(in thousands)
Three Months Ended (Decrease)
December 31, Increase
----------------------------------- ------------------------------------
1999 1998 Dollar Percentage
--------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Interest income $ 137 $ 226 $ (89) -39.4%
Interest expense (3,613) (2,499) (1,114) 44.6%
Other non-operating income (expense) 64 (237) 301 N.M.
Total interest expense and other
non-operating income (expense),
--------------- ----------------- ---------------
net $(3,412) $ (2,510) $ (902) 35.9%
=============== ================= ===============
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
Nine Months Ended (Decrease)
December 31, Increase
--------------------------------- -----------------------------------
1999 1998 Dollar Percentage
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Interest income $ 552 $ 569 $ (17) -3.0%
Interest expense (10,414) (6,828) (3,586) 52.5%
Gain on sale of subsidiary stock 32,167 339 31,828 N.M.
Other non-operating income 363 686 (323) -47.1%
Total interest expense and other
--------------- --------------- ---------------
non-operating income, net $ 22,668 $(5,234) $27,902 N.M.
=============== =============== ===============
</TABLE>
Interest expense increased for the third quarter and first nine months of fiscal
2000 as compared to the same periods in fiscal 1999 due the increased borrowings
and interest charged under the Company's new credit facility. The weighted
average of the amounts borrowed under the Company's credit facilities increased
$1.9 million to $67.7 million in fiscal 2000. The weighted average interest rate
paid on these borrowings increased to 9.9% during fiscal 2000 as compared to
6.8% during fiscal 1999.
During the first quarter of fiscal 2000, the Company recorded $1.3 million of
non-operating expense related to the reduction in carrying value of an
investment in non-marketable securities. The Company's estimate of the reduction
was based upon the market value of subsequent equity transactions of the
investee with third parties. The investment consists of stock in the
development-stage technology company that purchased the Company's Virtual Vision
subsidiary.
During the first quarter of fiscal 2000, the Company sold an investment in
marketable securities of another development stage technology company for cash
proceeds of $1.5 million. As this investment was previously non-marketable, its
carrying value was based upon the cost basis, and was $.7 million. The Company
therefore recorded a pre-tax gain of $.8 million.
During the second quarter of fiscal 2000, the Company entered into a set of
transactions whereby the Company repurchased its corporate jet which was
previously sold and leased-back, and resold the corporate jet to a third party.
As a result of these transactions, the Company retained net cash proceeds of $.3
million. This was recorded as non-operating gain.
During the second quarter of fiscal 2000, Aironet and the Company sold 6,846,800
shares of Aironet's voting common stock in an initial public offering on the
Nasdaq National Market at an offering price of $11.00 per share. Of the total
number of shares offered, Aironet sold 4,564,562 shares, and the Company sold
2,282,238 shares. The aggregate proceeds, net of underwriting discounts and
commissions, were $47.4 million to Aironet and $23.3 million to Telxon.
Subsequent to this transaction, the Company's remaining interest in Aironet was
approximately 35%. As a result of this transaction, the Company recorded a
non-operating gain of approximately $32.2 million, net of transaction costs of
$1.5 million. Also as a result of this transaction, the Company ceased
consolidation of Aironet effective April 1, 1999. The Company will account for
its investment under the equity method of accounting. Investment income of $.3
million and $1.0 million was recorded for the Company's interest in the earnings
of Aironet for the third quarter and first nine months of fiscal 2000.
34
<PAGE> 35
During the third quarter of fiscal 2000, the Company reassessed the carrying
value of a note and an investment in two separate business partners based upon
current information regarding the financial viability of the underlying
entities. As a result, a charge of $.3 million was recorded to reduce the
carrying values of the note and investment to zero.
During the first quarter of fiscal 1999, a transaction to sell the stock of
Virtual Vision to a third party was consummated, resulting in the recording of a
$.9 million non-operating gain. Subsequent to the consummation of the
transaction, positive adjustments to such gain totaling $.2 million were
recorded. These adjustments related to the changes in purchase price based upon
key employee retention rates subsequent to the transaction.
During the first quarter of fiscal 1999, Aironet sold 222,222 shares of its
voting common stock to various third party investors at a price of $3.50 per
share. The resulting pre-tax gain of approximately $.3 million was recorded as
other non-operating income in the accompanying consolidated statement of
operations. In addition to the sale of shares of stock, 66,667 warrants at $3.50
per share for the purchase of Aironet voting common stock were issued. A gain of
approximately $.05 million relating to these warrants has been deferred until
the warrants are exercised or lapse. The Company's remaining interest in the
voting common stock of Aironet at June 30, 1998 was 76%.
<TABLE>
<CAPTION>
Income Taxes
(in thousands)
Three Months Ended
December 31, Decrease
------------------------------- ------------------------------------
1999 1998 Dollar Percentage
------------ --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Provision for income taxes $ 621 $16,659 $(16,038) -96.3%
Nine Months Ended
December 31, Decrease
--------------------------------- ----------------------------------
1999 1998 Dollar Percentage
------------- ---------------- ----------------- --------------
Provision for income taxes $2,637 $14,784 $(12,147) -82.2%
</TABLE>
The Company's consolidated tax provision of $.6 million and $2.6 million for the
third quarter and first nine months of fiscal 2000 relates to foreign taxes on
the Company's international subsidiaries. No taxes have been provided for the
gain related to the sale of Aironet voting common stock as the Company has
sufficient current year operating losses to offset a tax provision or liability.
The Company has not recognized any income tax benefits other than those utilized
through the realization of gains from the sale of
35
<PAGE> 36
Aironet voting common stock, in Aironet's initial public offering based on the
Company's assessment that it is more likely than not that the deferred tax
assets will not be utilized through future taxable income or implementation of
tax planning strategies.
<TABLE>
<CAPTION>
Liquidity
(in thousands, except ratios) Dollar
December 31, March 31, (Decrease)
1999 1999 Increase
----------------- -------------------- ---------------------
<S> <C> <C> <C>
Cash $ 9,794 $ 22,459 $ (12,665)
Accounts receivable 74,388 84,500 (10,112)
Notes and other receivables 6,305 4,015 2,290
Inventories 85,509 129,049 (43,540)
Other 6,906 9,029 (2,123)
----------------- -------------------- ---------------------
Total current assets $ 182,902 $ 249,052 $ (66,150)
================= ==================== =====================
Notes payable $ 55,015 $ 68,567 $ (13,552)
Capital lease obligations 405 525 (120)
Accounts payable 42,711 64,966 (22,255)
Payable to affiliate 4,769 - 4,769
Income taxes payable 6,594 6,434 160
Accrued liabilities 50,450 74,285 (23,835)
----------------- -------------------- ---------------------
Total current liabilities $ 159,944 $ 214,777 $ (54,833)
================= ==================== =====================
Working capital (current assets
less current liabilities) $ 22,958 $ 34,275 $ (11,317)
================= ==================== =====================
Current ratio (current assets
divided by current liabilities) 1.1 1.2
</TABLE>
The decrease in the Company's working capital at December 31, 1999, from March
31, 1999 was primarily due to decreases in cash, accounts receivable and
inventories. The reductions in working capital were generally offset by
reductions in notes payable, accounts payable and accrued liabilities. The
decrease in accounts receivable reflects improved cash collections in the
Company's domestic operations. Accordingly, consolidated sales outstanding
decreased from 98 days at March 31, 1999 to 71 days at December 31, 1999.
Additionally, the decrease in accounts receivable reflects the absence of
Aironet's
36
<PAGE> 37
accounts receivable from outside customers of $4.2 million that was present at
March 31, 1999. The Company's inventories decreased as a result of an increase
in the obsolescence reserve related to customer service spare parts of $3.2
million. Additionally, the Company's inventories related to finished goods held
at customers and distributors decreased by $16.8 million due to customer
acceptance of these goods after March 31, 1999. Inventories staged to rollout to
customer sites also decreased $5.9 million. Also causing the decrease in
inventories is the absence of Aironet's manufacturing inventories of $4.6
million. A net decrease in raw material and work-in-process inventory of $10.2
million resulted from management's efforts to decease inventory levels, as well
as, the strategic timing of raw material purchases. Additionally, decreased
inventory levels also reflect the Company providing for an additional $6.0
million in obsolescence reserves. As a result of the net decrease in inventories
offset by the relative decrease in cost of revenues between the fourth quarter
of fiscal 1999 and the third quarter of fiscal 2000, inventory turns have
increased from 2.3 to 2.7 at March 31, 1999 and December 31, 1999, respectively.
The decrease in the notes payable balance was primarily caused by repayments of
amounts borrowed with proceeds from the sale of Aironet voting common stock, and
the recharacterization of $13.1 million of borrowings as long-term. Accounts
payable decreased primarily due to increased payments to vendors with internally
generated funds, proceeds from the sale of Aironet shares and credit facility
borrowings. Accrued liabilities decreased primarily due to a $16.5 decrease in
deferred hardware revenue subsequent to acceptance of these deliveries by the
Company's customers. In the third quarter 2000, a settlement was reached with a
financial institution which reduced the Company's accrued liability related to
its guarantee of a customer's lease payments by $2.0 million. Due to payment
activity, the following also contributed significantly to the decrease in
accrued liabilities: a $1.4 million dollar decrease in accrued severance, a
$.8 million decrease in accrued unconsummated business combination costs, and
a $2.8 million dollar decrease in amounts accrued related to the purchase of
obsolete inventory from outside processors. A $3.0 million reclassification of
amounts accrued related to purchase commitments for obsolete purchased
components against inventory reserves also contributed to the decrease.
37
<PAGE> 38
<TABLE>
<CAPTION>
Cash Flows from Operating Activities Dollar
(in thousands) Increase
Nine Months Ended (Decrease)
December 31, in Cash Flow
-------------------------------------------- Impact
1999 1998
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Net loss $ (16,513) $ (52,270) $ 35,757
Depreciation and amortization 19,330 19,622 (292)
Amortization of restricted stock awards, net 332 201 131
Provision for doubtful accounts 2,091 5,249 (3,158)
Provision for inventory obsolescence 5,962 6,787 (825)
Gain on sale of subsidiary (32,167) - (32,167)
Gain on sale of assets - (900) 900
Gain on sale of non-marketable investment (761) - (761)
Equity in earnings of affiliate (1,039) - (1,039)
Minority interest - 416 (416)
Loss on disposal of property and equipment 207 255 (48)
Loss on carrying value of non-marketable
investments 1,558 - 1,558
Impairment charge 381 - 381
Changes in assets and liabilities:
Accounts and notes receivable (101) 13,110 (13,211)
Amounts due to and from affiliate 4,769 - 4,769
Inventories 26,730 (26,764) 53,494
Prepaid expenses and other 1,768 3,372 (1,604)
Intangible and other assets (92) 2,806 (2,898)
Accounts payable and accrued liabilities (32,431) 6,151 (38,582)
Other long term liabilities 948 4,012 (3,064)
-------------------- ------------------- --------------------
Net cash used in operating activities $ (19,028) $ (17,953) $ (1,075)
==================== =================== ====================
</TABLE>
The decrease in cash flows related to the Company's consolidated operating
activities for the third quarter of fiscal 2000 compared to fiscal 1999 levels
was primarily due to the negative cash flow impact of the Company's increased
operating loss by $4,292 for the nine months ended December 31, 1999.
Additionally, decreases in cash provided by accounts and notes receivable, and
increases in cash utilized for accounts payable and accrued liabilities also
contributed to the decrease. These negative cash flow impacts were partially
offset by positive cash flow impacts from inventories and from the decrease in
the net loss for the period. During fiscal 1999, the cash flow impact of
accounts and notes receivable was favorably impacted from the significant
decline in the accounts receivable balance at December 31, 1999. During the
current fiscal year, however, the accounts receivable balance has remained
fairly constant between March 31, 1999 and December 31, 1999. Accounts payable
and accrued liabilities utilized more cash during fiscal 2000 due to the
relatively high amount outstanding at March 31, 1999 and subsequent pay-down of
this amount resulting from the Company obtaining new financing during the second
quarter of fiscal 2000. The cash flow impact of inventories was favorably
impacted by a significant decline in inventories related to finished goods held
for pending installation at customer sites and from customer acceptance of these
goods. In the prior year, there was a build-up of manufacturing inventories held
at customer and distributor locations.
38
<PAGE> 39
<TABLE>
<CAPTION>
Cash Flows from Investing Activities Dollar
(in thousands) Increase
Nine Months Ended (Decrease)
December 31, in Cash Flow
------------------------------------- Impact
1999 1998
---------------- ----------------- -----------------
<S> <C> <C> <C>
Additions to property and equipment $(11,042) $ (26,538) $ 15,496
Software and other investments (2,827) (4,792) 1,965
Proceeds from the sale of subsidiary
stock, net of cash given 17,211 - 17,211
Purchase of non-marketable investments - (1,950) 1,950
Payments from long-term note receivable - 929 (929)
Additions to long-term note receivable - (795) 795
Proceeds from sale of non-marketable
securities 1,523 - 1,523
Proceeds from redemption of non-
marketable equity investment 2,004 - 2,004
Net cash provided by (used in)
---------------- ----------------- -----------------
investing activities $ 6,869 $ (33,146) $ 40,015
================ ================= =================
</TABLE>
The increase in cash flows from the Company's consolidated investing activities
was primarily due to the sale of Aironet stock in its initial public offering
for net proceeds of $17.2 million. Additionally, there was a reduction in the
amount of additions to property and equipment of approximately $15.5 million.
Costs related to the Company's corporate information systems project are no
longer capitalized due to the completion of the installation of the principal
modules of the systems. Cash flows from investing activities were also
positively impacted by the absence of the purchase of non-marketable
investments, and additions of long-term notes. Additionally, proceeds were
realized from the sale of non-marketable securities and the redemption of
non-marketable equity investments.
39
<PAGE> 40
<TABLE>
<CAPTION>
Cash Flows from Financing Activities
(in thousands) Dollar
(Decrease)
Nine Months Ended Increase
December 31, in Cash Flow
--------------------------------------- Impact
1999 1998
------------------ ---------------- --------------------
<S> <C> <C> <C>
Extinguishment of former credit facility $ (48,888) $ - $ (48,888)
(Repayments) borrowings on former
credit facility, net (17,179) 53,526 (70,705)
Borrowings on credit facility, net 30,082 - 30,082
Borrowings on bridge loan under current
credit facility 20,000 - 20,000
Borrowing under long term provisions of
current credit facility 17,000 - 17,000
Principal payments on long-term debt (984) - (984)
Debt issue costs paid (2,215) (302) (1,913)
Proceeds from the sale of treasury stock 491 - 491
Purchase of treasury stock - (1,088) 1,088
Proceeds from the exercise of stock options 1,950 1,793 157
Principal payments on capital leases (412) (589) 177
Net cash (used in) provided by
------------------ ---------------- --------------------
financing activities $ (155) $53,340 $(53,495)
================== ================ ====================
</TABLE>
The net cash flow impact from financing activities was neutral for the first
nine months of fiscal 2000. The net cash flow impact of financing activities was
primarily influenced by the extinguishment of the Company's former credit
facility with proceeds from the Company's new credit facility. The net cash flow
impact of these transactions was a positive $1.0 million. The net decrease in
cash flows provided by financing activities is the result of borrowings during
fiscal 1999 for the Company's financing of investments in inventory and accounts
receivable, as well as its operating losses. During fiscal 2000, the Company
decreased its investments in both inventory and accounts receivable and has
been able to fund its operating losses and working capital needs through means
other than financing activities.
On August 30, 1999, the Company entered into a loan and security agreement
whereby Telxon obtained a $100.0 million senior secured credit facility as a
replacement for the Company's existing revolving credit agreement and business
purpose promissory note. The facility consists of both term and revolving credit
arrangements. On November 18, 1999, the Company entered into an amendment of
this security agreement whereby, additional borrowings of $20.0 million were
provided for. The amendment also extended to March 31, 2000 the maturity date of
the $30.0 million term loan described below.
Borrowings under the revolving loan provisions of such facility are subject to
availability on qualifying accounts receivable and inventory, reduced by amounts
borrowed and outstanding under the facility's term loan features and letters of
credit. The revolving credit facility has a limit of $50.0 million less the
outstanding balance of the term loans and until such time the bridge loans
described below are paid in full. At that time the maximum amount available will
be increased to $80.0 million less the outstanding remaining term loan balances.
Availability under the agreement was approximately $24.9 million as of December
31, 1999. The maturity date of the loan and
40
<PAGE> 41
security agreement is August 29, 2002. At the maturity date the agreement is
automatically renewed for successive one-year periods until the agreement is
terminated.
The secured credit facility has four term loan features. The first term loan of
$6.0 million is limited by a portion of the liquidation value of the Company's
machinery and equipment. The repayment terms for this term loan are
straight-line over a 10-year period. The second term loan of $10.0 million is
limited, together with the $20.0 million and $30.0 million term loan discussed
below, by the market value of Aironet capital stock owned by the Company. The
repayment of this second term loan is straight-line over a 3-year period. The
third and fourth term loans of $20.0 million and $30.0 million respectively are
limited by a specific percentage of the market value of Aironet capital stock
owned by the Company. The third and fourth term loans mature on March 31, 2000
and are to be repaid with proceeds resulting from the sale of a portion of the
Company's holdings in the aforementioned Aironet capital stock.
The interest rate charged on the revolving loan, the $6.0 million term loan and
the $20.0 million term loan is 0.5% above the financial institution's prime
lending rate. The $6.0 million term loan and the revolving loan may be converted
to Euro-rate loans at the option of Telxon. Converted loans would be charged a
rate of 2.75% plus the Eurodollar rate. On December 31, 1999, the prime lending
rate and the Eurodollar rate were 8.50% and 6.00%, respectively. At December 31,
1999 the rate charged on each of these loans was prime plus .50%, or 9.0%. In
the event that the Aironet stock pledged on the $20.0 million and $30.0 million
term loan is sold the rate on these term loans will become fixed at 12.5%. The
interest rate on the $10.0 million term loan and the $30.0 million term loan is
also fixed at 12.5%. Interest is payable monthly. The interest rate charged is
subject to change based upon the Company's financial results. The facility also
provides for the payment of an unused line fee of 0.375% per annum on a monthly
basis, and a 1.25% per annum fee for undrawn letters of credit.
The $100.0 million credit facility is collateralized by essentially all of the
Company's assets including accounts receivable, machinery and equipment, general
intangibles, inventory, future proceeds and real property.
The credit facility also requires the maintenance of various financial and
non-financial covenants. Significant financial covenants include maintaining a
minimum level of customer service revenue, ensuring that the total outstanding
balance of the credit facility does not exceed collections from certain
significant accounts, maintaining minimum tangible net worth requirements. On
February 10, 2000, the Company's lenders modified certain of these debt
covenants. Due to this modification, the Company was in compliance with all
financial covenants as of December 31, 1999.
Subsequent Events
On February 2, 2000, the Company issued 300,000 shares of the Company's common
stock to John W. Paxton, Chairman and Chief Executive Officer of the Company,
for $2.6 million or $8.72 per share. The terms of the issuance of this common
stock were pursuant to his employment contract dated March 22, 1999. No
compensation expense has been recorded related to these common shares in
accordance with the provisions of APB No.25.
On January 19, 2000, the Company entered into a stock purchase agreement with
Robert F. Meyerson, former Chairman and Chief Executive Officer of the Company,
and the primary minority shareholder of its Metanetics subsidiary. The agreement
calls for the Company to purchase 1,370,930 common shares of Metanetics for
$6.73 per share, or $9.2 million. As part of the purchase, the repayment of $1.6
million in notes receivable from Meyerson
41
<PAGE> 42
will be offset against the purchase price. The purchase price will be paid with
477,790 shares of Telxon common stock with an agreed value of $16.05 per share,
which approximated fair market value on that date. The stock purchase agreement
contemplates that the Company will also contemporaneuosly purchase all of the
remaining minority interest for cash at the same price per share. The Company
currently owns approximately 61% of Metanetics. Additionally, the Company
further agreed that it will offer to purchase the remaining 475,000 Metanetics
shares held by minority shareholders for cash of $6.73 per share or an aggregate
of $3.2 million, effectively giving the Company full ownership of Metanetics.
Additionally, the Company has agreed to pay named employees of Metanetics an
amount equal to the implied value of 520,000 previously granted stock options
for Metanetics shares at an exercise price of $1.04 per share. These options had
previously been rescinded. The payments to these employees will total
approximately $3.00 million.
The Company has received an opinion from an independent financial advisor that
the $6.73 per share transaction price is fair, from a financial point of view,
to Telxon. The Company anticipates that the amount of the purchase price of the
Metanetics common stock will be capitalized as goodwill and amortized over a
useful life of three years. The Company will continually assess the carrying
value of this investment for impairment in accordance with the requirements of
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The Company anticipates that cash payments
to the Metanetics employees will be expensed as compensation expense during the
fourth quarter of fiscal 2000.
In connection with the above agreement, Mr. Meyerson agreed to surrender and
forfeit to the Company 240,000 stock options for purchase of Telxon common stock
at a per share price of $20.13 per share he had retained upon his retirement.
New Accounting Standards
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 Revenue Recognition in Financial Statements. This
document expresses the views of the Securities and Exchange Commission in
applying generally accepted accounting principals while recognizing revenue. The
Company has abided by the views expressed in this document.
On November 24, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 100. This authoritative document expresses the views of
the staff regarding the accounting and disclosure of certain expenses commonly
reported in connection with exit activities and business combinations. The
Company has abided by the guidance contained within this document in accounting
for current exit costs.
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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the ordinary course of business, the Company is subject to foreign currency
and interest rate risks. The risks primarily relate to the sale of the Company's
products to foreign customers through its foreign subsidiaries and changes in
interest rates on the Company's short-term financing and capital lease
obligations. Additionally, as the result of the Aironet IPO, the Company owns
approximately a 35% interest in a publicly traded company whose market value is
determined based upon market conditions. Although the Company currently carries
this investment on the equity method of accounting and recorded $21.6 million on
its consolidated balance sheet at December 31, 1999, the amount of cash proceeds
ultimately realized from this investment may be substantially different from the
current market value of the underlying shares owned. As discussed in Note 3
"Financial Results and Liquidity" to the consolidated financial statements, on
November 9, 1999, Cisco Systems, Inc. ("Cisco") announced that it would purchase
Aironet for common stock of Cisco. For each Aironet share, option or warrant,
the holders of these securities will receive .6373 shares of Cisco common stock.
Since the announcement on November 8, 1999, the Company believes that a
significant portion of the market value of the Aironet shares held by the
Company has been attributable to the change in market value of Cisco common
stock. The current market value of this investment is approximately $350.2
million.
Stock Market Risk
Due to the announced purchase of Aironet by Cisco, as noted above, and the
nature of the proceeds from that unconsummated transaction, the Company is
subject to substantial stock market risk. Although recorded under the equity
method on the Company's balance sheet, the Company's investment in Aironet is a
significant potential source of liquidity. Significant changes in the market
value of Aironet stock may have an impact on the Company's ability to finance
its operations and address its working capital needs.
Although the Company has not entered into any firm commitments concerning its
investment in Aironet, it is currently exploring various hedging strategies in
order to reduce its exposure to market fluctuations in the price of Aironet
stock.
Interest Rate Risk
The Company's debt facility, including revolving loans and term loans, carries
interest rate risk that is generally related to the financial institution's
prime lending rate or the Eurodollar rate. If these rates were to change while
the Company has borrowings under such facility, the related interest expense
would increase or decrease accordingly. As of December 31, 1999, the Company had
$54.7 million due currently and $11.1 million due long-term under revolving and
term loan provisions of its debt facility, respectively.
The Company's convertible subordinated debentures carry fixed rates of interest
and therefore do not pose interest rate risk to the Company. However, interest
rate changes would effect the fair market value of the debentures. At December
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 interest
rate hedging activities using derivative financial instruments.
Foreign Currency Risk
The financial results of the Company's foreign subsidiaries are measured in
their local currencies. Assets and liabilities are translated into U.S. Dollars
at the rate of exchange available at the end of each reporting period. Revenues
and expenses are also translated at average rates of exchange at the conclusion
of each reporting period. Resulting translation adjustments are reported as a
component of comprehensive income.
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<PAGE> 44
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 the Company's subsidiaries are located. The Company had
one forward currency exchange contract in place at December 31, 1999, in the
amount of $3.0 million, which expired in January 2000. The Company monitors its
foreign currency exposure and utilizes these derivative financial instruments to
mitigate foreign currency risk when considered appropriate.
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<PAGE> 45
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 10 to the consolidated financial statements included in Part I of this
Quarterly Report of Form 10-Q for a discussion of the material pending legal
proceedings to which the Company is a party, which footnote discussion is
incorporated in this Part II by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As of the end of the Company's third quarter of fiscal 200, the Company had
effected the following issuances of unregistered shares of its common stock:
Pursuant to an agreement made by the Company with R. Dave Garwood,
prior to his election as one of the Company's current Directors, for
his rendering of employee training and consulting services relating to
the Company's adoption and implementation of an MRP-II material
resource planning process, the Company has issued him an aggregate of
20,197 shares of common stock subject to vesting and forfeiture
conditions based on his completion of the subject services. As of
December 31, 1999, 10,098 of the subject have vested and are no longer
subject to forfeiture. The shares constitute Mr. Garwood's remuneration
for the subject services, and the issuance thereof did not otherwise
result in any proceeds to the Company.
Pursuant to an agreement made by the Company with a consulting firm,
not otherwise affiliated with the Company, for strategic product
consulting services, the Company has issued the consultant an aggregate
of 1,476 shares of common stock subject to vesting and forfeiture
conditions based on his completion of the subject services. As of
December 31, 1999, 984 of the subject shares have vested and are no
longer subject to forfeiture. As part (in addition to cash fees) of the
consultant's remuneration for the subject services, this issuance did
not otherwise result in any proceeds to the Company.
Pursuant to the Company's employment agreement with David H. Biggs, the
Company's Vice President and Chief Technology Officer, the Company has
issued him an aggregate of 35,000 shares of common stock (23,200 of
which were issued under the Company's Restricted Stock Plan, the shares
awarded under which are registered on Form S-8) subject to vesting and
forfeiture conditions based on his completion of the subject services
and to a deferred compensation election. As of December 31, 1999, none
of the subject shares had yet vested. The shares constitute Mr. Biggs'
remuneration for his services, and the issuance thereof did not
otherwise result in any proceeds to the Company.
Each of the above sales of securities was pursuant to a privately negotiated
transaction between the Company and the recipient of the subject shares deemed
to be exempt from registration under the Securities Act of 1933 in reliance on
Section 4(2) of such Act, as constituting transactions by an issuer not
involving a public offering. Each of the recipients of shares in these
transactions made written representations to the Company in connection with such
issuances confirming their intention to acquire the securities for investment
only and not with a view to, or for sale in connection with, any distribution
thereof, and appropriate legends were affixed to the share certificates issued
in such transactions. All of the recipients also confirmed that they had access
to their satisfaction, through the Company's public securities filings and their
respective relationships with the Company, to information concerning the Company
and its financial and business affairs.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
3.1 Restated Certificate of Incorporation of Registrant,
incorporated herein by reference to Exhibit No. 2(b)
to Registrant's Registration Statement on Form 8-A
with respect to its Common Stock filed pursuant to
Section 12(g) of the Securities Exchange Act, as
amended by Amendment No. 1 thereto filed under cover
of a Form 8 and Amendment No. 2 thereto filed on Form
8-A/A.
3.2 Amended and Restated By-Laws of Registrant,
incorporated herein by reference to Exhibit 3.2 to
Registrant's Form 10-K for the year ended March 31,
1999.
4.1 Portions of the Restated Certificate of Incorporation
of Registrant pertaining to the rights of holders of
Registrant's Common Stock, par value $.01 per share,
incorporated herein by reference to Exhibit No. 2(b)
to Registrant's Registration Statement on Form 8-A
with respect to its Common Stock filed pursuant to
Section 12(g) of the Securities Exchange Act, as
amended by Amendment No. 1 thereto filed under cover
of a Form 8 and Amendment No. 2 thereto filed on Form
8-A/A.
4.2 Text of form of Certificate for Registrant's Common
Stock, par value $.01 per share, and description of
graphic and image material appearing thereon,
incorporated herein by reference to Exhibit 4.2 to
Registrant's Form 10-Q for the quarter ended June 30,
1995.
4.3 Rights Agreement between Registrant and KeyBank
National Association, as Rights Agent, dated as of
August 25, 1987, as amended and restated as of July
31, 1996, incorporated herein by reference to Exhibit
4 to Registrant's Form 8-K dated August 5, 1996.
4.3.1 Form of Rights Certificate (included as
Exhibit A to the Rights Agreement included
as Exhibit 4.3 above). Until the
Distribution Date (as defined in the Rights
Agreement), the Rights Agreement provides
that the common stock purchase rights
created thereunder are evidenced by the
certificates for Registrant's Common Stock
(the text of which and description thereof
is included as Exhibit 4.2 above, which
stock certificates are deemed also to be
certificates for such common stock purchase
rights) and not by separate Rights
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<PAGE> 46
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, incorporated herein by reference
to Exhibit 10.1.1 to Registrant's Form 10-K
for the year ended March 31, 1999.
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<PAGE> 47
10.1.2 1990 Stock Option Plan for employees of
Registrant, as amended, filed herewith.
10.1.3 1990 Stock Option Plan for Non-Employee
Directors of Registrant, as amended, filed
herewith.
10.1.4 Non-Qualified Stock Option Agreement between
Registrant and Raj Reddy, dated as of
October 17, 1988, incorporated herein by
reference to Exhibit 10.1.4 to Registrant's
Form 10-Q for the year ended March 31, 1999.
10.1.4.a Description of amendments
extending the term of the
Agreement included as
Exhibit 10.1.4 above, filed
herewith.
10.1.5 1992 Restricted Stock Plan of Registrant, as
amended, incorporated herein by reference to
Exhibit 10.1.5 to Registrant's Form 10-Q for
the quarter ended December 31, 1998.
10.1.6 1995 Employee Stock Purchase Plan of
Registrant, as amended, incorporated herein
by reference to Exhibit 10.1.7 to
Registrant's Form 10-Q for the quarter ended
September 30, 1995.
10.1.7 1996 Stock Option Plan for employees,
directors and advisors of Aironet Wireless
Communications, Inc., a subsidiary of
Registrant, incorporated herein by reference
to Exhibit 10.1.7 to Registrant's Form 10-K
for the year ended March 31, 1997.
10.1.7.a Amended and Restated 1996
Stock Option Plan for employees,
directors and advisors of Aironet
Wireless Communications, Inc.,
incorporated herein by reference
to Exhibit 10.1.7.a to
Registrant's Form 10-K for the
year ended March 31, 1998.
10.1.7.b First Amendment to Amended and
Restated 1996 Stock Option Plan
for employees, directors and
advisors of Aironet Wireless
Communications, Inc. herein by
reference to Exhibit 10.1.7.b to
Registrant's Form 10-K for the
year ended March 31, 1999.
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<PAGE> 48
10.1.8 1999 Stock Option Plan for Non-Employee
Directors of Aironet Wireless
Communications, Inc., incorporated herein by
reference to Exhibit 10.1.8 to Registrant's
Form 10-Q for the quarter ended
September 30, 1999.
10.1.9 Non-Competition Agreement by and between
Registrant and Robert F. Meyerson, effective
February 27, 1997, incorporated herein by
reference to Exhibit 10.1.8 to Registrant's
Form 10-K for the year ended March 31, 1997.
10.1.10 Employment Agreement between Registrant and
John W. Paxton, Sr., effective as of March
22, 1999, incorporated herein by reference
to Exhibit 10.1.10 to Registrant's Form 10-K
for the year ended March 31, 1999.
10.1.11 Employment Agreement between Registrant and
Kenneth A. Cassady, effective as of June 7,
1999, incorporated herein by reference to
Exhibit 10.1.11 to Registrant's Form 10-K
for the year ended March 31, 1999.
10.1.12 Employment Agreement between Registrant and
Woody M. McGee, effective as of June 1,
1999, incorporated herein by reference to
Exhibit 10.1.12 to Registrant's Form 10-K
for the year ended March 31, 1999.
10.1.13 Employment Agreement between Registrant and
David M. Biggs, effective as of June 7,
1999, filed herewith.
10.1.14 Offer and acceptance of employment between
Registrant and Gene Harmegnies, effective
as of January 31, 2000, filed herewith.
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
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<PAGE> 49
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 James G. Cleveland, a former
executive officer, incorporated herein by
reference to Exhibit 10.1.10 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 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.
10.1.19 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.
10.1.20 Amended and Restated Employment Agreement,
effective as of April 1, 1997, between
Registrant and Danny R. Wipff, a former
executive officer, incorporated herein by
reference to Exhibit 10.1.14 to Registrant's
Form 10-K for the year ended March 31, 1998.
10.1.21 Letter agreement of Registrant with Robert
A. Goodman, dated as of December 29, 1997
and executed and delivered January 20, 1998,
for continued consulting services following
certain changes in his law practice,
incorporated herein by reference to Exhibit
10.1.17 to Registrant's Form 10-K for the
year ended March 31, 1998.
10.1.22 Letter agreement of Registrant with R. Dave
Garwood, dated August 30, 1999, for MRP-II
consulting services, incorporated herein by
reference to Exhibit 1.1.20 to Registrant's
Form 10-Q for the quarter ended September
30, 1999.
10.2 Material Leases of Registrant.
10.2.1 Lease between Registrant and 3330 W. Market
Properties, dated as of December 30, 1986,
for premises at 3330 West Market Street,
Akron, Ohio, incorporated herein by
reference to Exhibit 10.2.1 to Registrant's
Form 10-K for the year ended March 31, 1999.
10.2.2 Lease Agreement between The Woodlands
Commercial Properties Company, L.P. and
Registrant, made and entered into as of
January 16, 1998, including Rider No. 1
thereto, for premises at 8302 New Trails
Drive, The Woodlands, Texas, incorporated
herein by reference to Exhibit 10.2.2 to
Registrant's Form 10-K for the year ended
March 31, 1998.
10.2.3 Standard Office Lease (Modified Net Lease)
between Registrant and John D. Dellagnese
III, dated as of July 19, 1995, for premises
at 3875 Embassy Parkway, Bath, Ohio,
including an Addendum thereto, incorporated
herein by reference to Exhibit 10.2.4 to
Registrant's Form 10-K for the year ended
March 31, 1996.
10.2.3.a Second Addendum, dated as of
October 5, 1995, to the Lease
included as Exhibit 10.2.3 above,
incorporated herein by reference
to Exhibit 10.2.4.a to
Registrant's Form 10-K for the
year ended March 31, 1996.
10.2.3.b Third Addendum, dated as of
March 1, 1996, to the Lease
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<PAGE> 50
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,
incorporated herein by reference
to Exhibit 10.2.3.h to
Registrant's Form 10-K for the
year ended March 31, 1999.
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<PAGE> 51
10.2.3.i Renewal, dated June 16, 1999,
with respect to the Sublease
Agreement included as Exhibit
10.2.3.h above, incorporated
herein by reference to Exhibit
10.2.3.i to Registrant's Form
10-K for the year ended March 31,
1999.
10.2.4 Lease Contract between Desarrollos \
Inmobiliarios Paso del Norte, S.A. de C.V.
and Productos y Servicios de Telxon, S.A. de
C.V., a subsidiary of Registrant, for
premises in Ciudad Juarez, Chihuahua,
Mexico, made and entered into as of April
10, 1997, incorporated herein by reference
to Exhibit 10.2.4 to Registrant's Form 10-K
for the year ended March 31, 1998.
10.3 Credit Agreements of Registrant.
10.3.1 Credit Agreement by and among Registrant,
the lenders party thereto from time to time
and The Bank of New York, as letter of
credit issuer, swing line lender and agent
for the lenders, dated as of March 8, 1996
(refinanced, and replaced by the Loan and
Security Agreement included as Exhibit
10.3.3 below), incorporated herein by
reference to Exhibit 10.3.2 to Registrant's
Form 10-K for the year ended March 31, 1996.
10.3.1.a Amendment No. 1, dated as of
August 6, 1996, to the Agreement
included as Exhibit 10.3.1 above,
incorporated herein by reference
to Exhibit 10.3.2.a to
Registrant's Form 8-K dated
August 16, 1996.
10.3.1.b Amendment No. 2, dated as of
December 16, 1996, to the
Agreement included as Exhibit
10.3.1 above, incorporated herein
by reference to Exhibit 10.3.2.c
to Registrant's Form 8-K dated
December 16, 1996.
10.3.1.c Amendment No. 3, dated as of
December 12, 1997, to the
Agreement included as Exhibit
10.3.1 above, included herein by
reference to Exhibit 10.3.1.d to
Registrant's Form 10-K for the
year ended March 31, 1998.
10.3.1.d Waiver and Agreement, dated as of
December 29, 1998, with respect
to the Agreement included as
Exhibit 10.3.1 above,
incorporated herein by reference
to Exhibit 10.3.1.e to
Registrant's Form 10-Q for the
quarter ended December 31, 1998.
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<PAGE> 52
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
(terminated in connection with
the refinancing obtained pursuant
to the Loan and Security
Agreement included as Exhibit
10.3.3 below), incorporated
herein by reference to Exhibit
10.3.1.b to Registrant's Form 8-K
dated April 1, 1999.
10.3.1.h Deed of Trust, Assignment of
Leases and Rents, Security
Agreement, Fixture Filing and
Financing Statement, dated as of
March 26, 1999, by Registrant to
First American Title Insurance
Company as Trustee for the
benefit of The Bank of New York,
as Agent for the Lenders from
time to time party to the
Agreement included as Exhibit
10.3.1 above (terminated in
connection with the refinancing
obtained pursuant to the Loan and
Security Agreement included as
Exhibit 10.3.3 below),
incorporated herein by reference
to Exhibit 10.3.1.h to
Registrant's Form 10-K for the
year ended March 31, 1999.
10.3.1.i Patent and Trademark Security
Agreement, dated as of March 26,
1999, by Registrant and certain
of its subsidiaries to The Bank
of New York, as Agent for the
benefit of the Lenders from time
to time party to the Agreement
included as Exhibit 10.3.1
above, (terminated in connection
with the refinancing obtained
pursuant to the Loan and
Security Agreement included as
Exhibit 10.3.3 below),
incorporated herein by reference
to Exhibit 10.3.1 to
Registrant's Form 10-K for the
year ended March 31, 1999.
10.3.1.j Pledge Agreement, dated as of
March 26, 1999, by Registrant to
The Bank of New York, as Agent
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<PAGE> 53
for the benefit of the Lenders
from time to time party to the
Agreement included as Exhibit
10.3.1 above (terminated in
connection with the refinancing
obtained pursuant to the Loan and
Security Agreement included as
Exhibit 10.3.3 below),
incorporated herein by reference
to Exhibit 10.3.1.j to
Registrant's Form 10-K for the
year ended March 31, 1999.
10.3.1.k Third Waiver Extension Agreement
and Amendment No. 5, dated as of
June 29, 1999, with respect to
the Agreement included as Exhibit
10.3.1 above, incorporated herein
by reference to Exhibit 10.3.1.a
to Registrant's Form 8-K dated
July 1, 1999.
10.3.2 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of
Bank One, NA, dated August 4, 1998
(refinanced and replaced by the Loan and
Security Agreement included as Exhibit
10.3.3 below), incorporated herein by
reference to Exhibit 10.3.4 to Registrant's
Form 10-Q for the quarter ended June 30,
1998.
10.3.2.a Consent, dated as of December 29,
1998, with respect to the Note
included as Exhibit 10.3.2 above,
incorporated herein by reference
to Exhibit 10.3.4.a to
Registrant's Form 10-Q for the
quarter ended December 31, 1998.
10.3.2.b Further Consent, dated as of
February 12, 1999, with respect
to the Note included as Exhibit
10.3.2 above, incorporated herein
by reference to Exhibit 10.3.4.a
to Registrant's Form 10-Q for the
quarter ended December 31, 1998.
10.3.2.c Second Further Consent and
Agreement, dated as of March 26,
1999, with respect to the Note
included as Exhibit 10.3.2 above,
incorporated herein by reference
to Exhibit 10.3.4.c b to
Registrant's Form 8-K dated April
1, 1999.
10.3.2.d Amended and Restated Security
Agreement, dated as of March 26,
1999, by and among Registrant and
Bank One, NA with respect to the
Note included as Exhibit 10.3.2
above (terminated in connection
with the refinancing obtained
pursuant to the Loan and Security
Agreement included as Exhibit
10.3.3 below), incorporated
herein by reference to Exhibit
10.3.2.d to Registrant's Form
10-K for the year ended March 31,
1999.
53
<PAGE> 54
10.3.2.e Deed of Trust, Assignment of
Leases and Rents, Security
Agreement, Fixture Filing
and Financing Statement,
dated as of March 26, 1999,
by Registrant to First
American Title Insurance
Company as Trustee for the
benefit of Bank One, NA with
respect to the Note included
as Exhibit 10.3.2 above
(terminated in connection
with the refinancing
obtained pursuant to the
Loan and Security Agreement
included as Exhibit 10.3.3
below), incorporated herein
by reference to Exhibit
10.3.2.e to Registrant's
Form 10-K for the year ended
March 31, 1999.
10.3.2.f Patent and Trademark
Security Agreement, dated as
of March 26, 1999, by
Registrant and certain of
its subsidiaries to Bank
One, NA with respect to the
Note included as Exhibit
10.3.2 above (terminated in
connection with the
refinancing obtained
pursuant to the Loan and
Security Agreement included
as Exhibit 10.3.3 below),
incorporated herein by
reference to Exhibit
10.3.2.f to Registrant's
Form 10-K for the year ended
March 31, 1999.
10.3.2.g Third Further Consent and
Note Modification Agreement,
dated as of June 29, 1999,
with respect to the Note
included as Exhibit 10.3.2
above, incorporated herein
by reference to Exhibit
10.3.2.g b to Registrant's
Form 8-K dated July 1, 1999.
10.3.3 Loan and Security Agreement, dated as
of August 26, 1999, by and between the
Registrant, the Lenders party thereto,
and Foothill Capital Corporation, as
Agent, incorporated by reference to
Exhibit 10.3.3 to Registrant's Form 8-K
dated August 30, 1999.
10.3.3.a Pledge Agreement, dated as
of August 26, 1999, between
Foothill Capital
Corporation, as Agent for
the Lenders from time to
time party to the Loan and
Security Agreement included
as Exhibit 10.3.3 above,
pledging, among other
assets, the stock owned by
Registrant in Aironet
Wireless Communications,
Inc. and Registrant
subsidiaries to Agent as
collateral to secure
Registrant's obligations
under the Loan and Security
Agreement, incorporated
herein by reference to
Exhibit 10.3.3.a to
Registrant's Form 10-Q for
the quarter ended September
30, 1999.
10.3.3.b Real Property Deed of Trust
(Harris County, Texas), made
as of August 26, 1999 by
Registrant unto Joseph C.
Mathews as trustee for the
benefit of Foothill Capital
Corporation, as Agent for
the Lenders from time to
time party to the Loan and
Security Agreement included
as Exhibit 10.3.3 above,
incorporated herein by
reference to Exhibit
10.3.3.b to Registrant's
Form 10-Q for the quarter
ended September 30, 1999.
10.3.3.c Patent, Trademark, Copyright
and License Mortgage, made
as of August 26, 1999, by
Registrant in favor of
Foothill Capital
Corporation, as Agent for
the Lenders from time to
time party to the Loan and
Security Agreement included
as Exhibit 10.3.3 above,
incorporated herein by
reference to Exhibit
10.3.3.c to Registrant's
Form 10-Q for the quarter
ended September 30, 1999.
10.3.3.d First Amendment, dated as of
November 18, 1999, to the
Loan and Security Agreement
included as Exhibit 10.3.3
above, filed herewith.
10.3.3.e Second Amendment, dated as
of February 11, 2000, to the
Loan and Security Agreement
included as Exhibit 10.3.3
above, filed herewith.
10.4 Amended and Restated Agreement between Registrant and
Symbol Technologies, Inc., dated as of September 30,
1992, incorporated herein by reference to Exhibit
10.4 to Registrant's Form 10-K for the year ended
March 31, 1998.
10.5 License, Rights, and Supply Agreement between Aironet
Wireless Communications, Inc. and Registrant,
dated as of March 31, 1998, incorporated herein by
reference to Exhibit 10.5 to Registrant's Form 10-K
for the year ended March 31, 1998.
10.5.1 First Amendment, dated as of March 8,
1996, to the Agreement included as
Exhibit 10.5 above, incorporated
herein by reference to Exhibit 10.5.1
to Registrant's Form 10-K for the year
ended March 31, 1999.
10.5.2 Agreement, dated as of November 8,
1999, by and among Registrant, Cisco
Systems, Inc. and Aironet Wireless
Communications, Inc., incorporated
herein by reference to Exhibit 10.5.2
to Registrant's Form 10-Q for the
quarter ended September 30, 1999.
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
54
<PAGE> 55
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, dated as of January 19,
2000, between Registrant, Accipiter Corporation
and Accipiter II, Inc., filed herewith.
10.14 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.
55
<PAGE> 56
10.15 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.
10.15.1 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.
10.15.2 Stockholders Agreement by and among
Aironet Wireless Communications, Inc.
and its Stockholders party thereto,
including Registrant and the investors
party to the Subscription Agreement
included as Exhibit 10.14 above,
entered into as of March 31, 1998 in
connection with the transactions under
the Subscription Agreement,
incorporated herein by reference to
Exhibit 10.14.2 to Registrant's Form
10-K for the year ended March 31, 1998.
10.15.3 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.
10.16 Stockholder Agreement, made as of November 8, 1999
between Cisco Systems, Inc., Osprey Acquisition
Corporation and Registrant, and related Irrevocable
Proxy, executed by Registrant as a stockholder of
Aironet Wireless Communications, Inc. as an
inducement toward the entry by Cisco Systems, Inc.
and Osprey Acquisition Corporation into an Agreement
and Plan of Merger and Reorganization dated of even
date providing for the acquisition of Aironet by
Cisco, and Joinder thereto by, and related
Irrevocable Proxy of, The Retail Technology
Group, Inc., a wholly owned subsidiary of Registrant,
filed herewith.
10.17 DFS Vendor Agreement between Registrant and Deutsche
Financial Services Corporation, dated as of September
30, 1998, incorporated herein by reference to Exhibit
10.15 to Registrant's Form 10-Q for the quarter ended
December 31, 1998.
27. Financial Data Schedule as of December 31, 1999,
filed herewith.
56
<PAGE> 57
TELXON CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,the
registrant has duly caused this Form 10-Q to be signed and on its behalf by the
undersigned thereunto duly authorized.
Date: February 11, 2000
TELXON CORPORATION
(Registrant)
/s/ WOODY M. MCGEE
-----------------------
Woody M. McGee,
Vice President and Chief
Financial Officer
57
<PAGE> 58
TELXON CORPORATION
EXHIBITS
TO
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
<PAGE> 59
INDEX TO EXHIBITS
Where
Filed
- -----
* 3.1 Restated Certificate of Incorporation of Registrant,
incorporated herein by reference to Exhibit No. 2(b)
to Registrant's Registration Statement on Form 8-A
with respect to its Common Stock filed pursuant to
Section 12(g) of the Securities Exchange Act, as
amended by Amendment No. 1 thereto filed under cover
of a Form 8 and Amendment No. 2 thereto filed on Form
8-A/A.
* 3.2 Amended and Restated By-Laws of Registrant, as
amended, incorporated herein by reference to Exhibit
3.2 to Registrant's Form 10-K for the year ended
March 31, 1999.
* 4.1 Portions of the Restated Certificate of Incorporation
of Registrant pertaining to the rights of holders of
Registrant's Common Stock, par value $.01 per share,
incorporated herein by reference to Exhibit No. 2(b)
to Registrant's Registration Statement on Form 8-A
with respect to its Common Stock filed pursuant to
Section 12(g) of the Securities Exchange Act, as
amended by Amendment No. 1 thereto filed under cover
of a Form 8 and Amendment No. 2 thereto filed on Form
8-A/A.
* 4.2 Text of form of Certificate for Registrant's Common
Stock, par value $.01 per share, and description of
graphic and image material appearing thereon,
incorporated herein by reference to Exhibit 4.2 to
Registrant's Form 10-Q for the quarter ended June 30,
1995.
* 4.3 Rights Agreement between Registrant and KeyBank
National Association, as Rights Agent, dated as of
August 25, 1987, as amended and restated as of July
31, 1996, incorporated herein by reference to Exhibit
4 to Registrant's Form 8-K dated August 5, 1996.
* 4.3.1 Form of Rights Certificate (included as
Exhibit A to the Rights Agreement
included as Exhibit 4.3 above). Until the
Distribution Date (as defined in the
Rights Agreement), the Rights Agreement
provides that the common stock purchase
rights created thereunder are evidenced
by the certificates for Registrant's
Common Stock (the text of which and
description thereof is included as
Exhibit 4.2 above, which stock
certificates are deemed also to be
certificates for such common stock
purchase rights) and not by separate
Rights Certificates; as soon as
practicable after the Distribution Date,
Rights Certificates will be mailed to
each holder of Registrant's Common Stock
as of the close of business on the
Distribution Date.
* 4.3.2 Letter agreement among Registrant,
KeyBank National Association and Harris
Trust and
<PAGE> 60
Savings Bank, dated June 11, 1997, with
respect to the appointment of Harris
Trust and Savings Bank as successor
Rights Agent under the Rights Agreement
included as Exhibit 4.3 above,
incorporated herein by reference to
Exhibit 4.3.2 to Registrant's Form 10-K
for the year ended March 31, 1997.
* 4.4 Indenture by and between Registrant and AmeriTrust
Company National Association, as Trustee, dated as of
June 1, 1987, regarding Registrant's 7-1/2%
Convertible Subordinated Debentures Due 2012,
incorporated herein by reference to Exhibit 4.2 to
Registrant's Registration Statement on Form S-3,
Registration No. 33-14348, filed May 18, 1987.
* 4.4.1 Form of Registrant's 7-1/2% Convertible
Subordinated Debentures Due 2012 (set
forth in the Indenture included as
Exhibit 4.4 above).
* 4.5 Indenture by and between Registrant and Bank One
Trust Company, N.A., as Trustee, dated as of December
1, 1995, regarding Registrant's 5-3/4% Convertible
Subordinated Notes due 2003, incorporated herein by
reference to Exhibit 4.1 to Registrant's Registration
Statement on Form S-3, Registration No. 333-1189,
filed February 23, 1996.
* 4.5.1 Form of Registrant's 5-3/4% Convertible
Subordinated Notes due 2003 issued under
the Indenture included as Exhibit 4.5
above, incorporated herein by reference
to Exhibit 4.2 to Registrant's
Registration Statement on Form S-3,
Registration No. 333-1189, filed February
23, 1996.
* 4.5.2 Registration Rights Agreement by and
among Registrant and Hambrecht & Quist
LLC and Prudential Securities
Incorporated, as the Initial Purchasers
of Registrant's 5-3/4% Convertible
Subordinated Notes due 2003, with respect
to the registration of said Notes under
applicable securities laws, incorporated
herein by reference to Exhibit 4.3 to
Registrant's Registration Statement on
Form S-3, Registration No. 333-1189,
filed February 23, 1996.
10.1 Compensation and Benefits Plans of Registrant.
* 10.1.1 Amended and Restated Retirement and
Uniform Matching Profit-Sharing Plan of
Registrant, as amended, incorporated
herein by reference to Exhibit 10.1.1 to
Registrant's Form 10-K for the year ended
March 31, 1999.
** 10.1.2 1990 Stock Option Plan for employees of
Registrant, as amended, filed herewith.
<PAGE> 61
** 10.1.3 1990 Stock Option Plan for Non-Employee
Directors of Registrant, as amended,
filed herewith.
* 10.1.4 Non-Qualified Stock Option Agreement
between Registrant and Raj Reddy, dated
as of October 17, 1988, incorporated
herein by reference to Exhibit 10.1.4 to
Registrant's Form 10-K for the year ended
March 31, 1999.
** 10.1.4.a Description of amendments
extending the term of the
Agreement included as
Exhibit 10.1.4 above,
filed herewith.
* 10.1.5 1992 Restricted Stock Plan of Registrant,
as amended, incorporated herein by
reference to Exhibit 10.1.5 to
Registrant's Form 10-Q for the quarter
ended December 31, 1998.
* 10.1.6 1995 Employee Stock Purchase Plan of
Registrant, as amended, incorporated
herein by reference to Exhibit 10.1.7 to
Registrant's Form 10-Q for the quarter
ended September 30, 1995.
* 10.1.7 1996 Stock Option Plan for employees,
directors and advisors of Aironet
Wireless Communications, Inc., a
subsidiary of Registrant, incorporated
herein by reference to Exhibit 10.1.7 to
Registrant's Form 10-K for the year ended
March 31, 1997.
* 10.1.7.a Amended and Restated 1996
Stock Option Plan for
employees, directors and
advisors of Aironet Wireless
Communications, Inc.,
incorporated herein by
reference to Exhibit 10.1.7.a
to Registrant's Form 10-K for
the year ended March 31, 1998.
* 10.1.7.b First Amendment to Amended and
Restated 1996 Stock Option
Plan for employees, directors
and advisors of Aironet
Wireless Communications,
Inc., incorporated herein by
reference to Exhibit 10.1.7.b
to Registrant's Form 10-K for
the year ended March 31,
1999.
* 10.1.8 1999 Stock Option Plan for Non-Employee
Directors of Aironet Wireless
Communications, Inc., incorporated herein by
reference to Exhibit 10.1.8 to Registrant's
Form 10-Q for the quarter ended
September 30, 1999.
* 10.1.9 Non-Competition Agreement by and between
Registrant and Robert F. Meyerson, effective
<PAGE> 62
February 27, 1997, incorporated herein by
reference to Exhibit 10.1.8 to Registrant's
Form 10-K for the year ended March 31, 1997.
* 10.1.10 Employment Agreement between Registrant and
John W. Paxton, Sr., effective as of March
22, 1999, incorporated herein by reference
to Exhibit 10.1.10 to Registrant's Form 10-K
for the year ended March 31, 1999.
* 10.1.11 Employment Agreement between Registrant and
Kenneth A. Cassady, effective as of June 7,
1999, incorporated herein by reference to
Exhibit 10.1.11 to Registrant's Form 10-K
for the year ended March 31, 1999.
* 10.1.12 Employment Agreement between Registrant and
Woody M. McGee, effective as of June 1,
1999, incorporated herein by reference to
Exhibit 10.1.12 to Registrant's Form 10-K
for the year ended March 31, 1999.
** 10.1.13 Employment Agreement between Registrant and
David M. Biggs, effective as of June 7,
1999, filed herewith.
** 10.1.14 Offer and acceptance of employment between
Registrant and Gene Harmegnies, effective
as of January 31, 2000, filed herewith.
* 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 James G. Cleveland, a former
executive officer, incorporated herein by
reference to Exhibit 10.1.10 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 Kenneth W. Haver, a former
executive officer, incorporated herein by
reference to Exhibit 10.1.11 to Registrant's
Form 10-K for the year ended March 31, 1998.
<PAGE> 63
* 10.1.19 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.
* 10.1.20 Amended and Restated Employment Agreement,
effective as of April 1, 1997, between
Registrant and Danny R. Wipff, a former
executive officer, incorporated herein by
reference to Exhibit 10.1.14 to Registrant's
Form 10-K for the year ended March 31, 1998.
* 10.1.21 Letter agreement of Registrant with Robert
A. Goodman, dated as of December 29, 1997
and executed and delivered January 20, 1998,
for continued consulting services following
certain changes in his law practice,
incorporated herein by reference to Exhibit
10.1.17 to Registrant's Form 10-K for the
year ended March 31, 1998.
* 10.1.22 Letter agreement of Registrant with R. Dave
Garwood, dated August 30, 1999, for MRP-II
consulting services, incorporated herein by
reference to Exhibit 1.1.20 to Registrant's
Form 10-Q for the quarter ended September
30, 1999.
10.2 Material Leases of Registrant.
* 10.2.1 Lease between Registrant and 3330 W. Market
Properties, dated as of December 30, 1986,
for premises at 3330 West Market Street,
Akron, Ohio, incorporated herein by
reference to Exhibit 10.2.1 to Registrant's
Form 10-K for the year ended March 31, 1999.
* 10.2.2 Lease Agreement between The Woodlands
Commercial Properties Company, L.P. and
Registrant, made and entered into as of
January 16, 1998, including Rider No. 1
thereto, for premises at 8302 New Trails
Drive, The Woodlands, Texas, incorporated
herein by reference to Exhibit 10.2.2 to
Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.2.3 Standard Office Lease (Modified Net Lease)
between Registrant and John D. Dellagnese
III, dated as of July 19, 1995, for premises
at 3875 Embassy Parkway, Bath, Ohio,
including an Addendum thereto, incorporated
herein by reference to Exhibit 10.2.4 to
Registrant's Form 10-K for the year ended
March 31, 1996.
* 10.2.3.a Second Addendum, dated as of
October 5, 1995, to the Lease
included as Exhibit 10.2.3 above,
incorporated herein by reference
to Exhibit 10.2.4.a to
Registrant's Form 10-K for the
year ended March 31, 1996.
* 10.2.3.b Third Addendum, dated as of March
1, 1996, to the Lease included as
Exhibit 10.2.3 above,
incorporated herein by reference
to Exhibit 10.2.4.b to
Registrant's Form 10-K for the
year ended March 31, 1996.
* 10.2.3.c Fourth Addendum, dated as of
April 16, 1996, to the Lease
included as Exhibit 10.2.3 above,
incorporated herein by
<PAGE> 64
reference to Exhibit 10.2.2.c to
Registrant's Form 10-Q for the
quarter ended June 30, 1997.
* 10.2.3.d Fifth Addendum, dated as of June
24, 1997, to the Lease included
as Exhibit 10.2.3 above,
incorporated herein by reference
to Exhibit 10.2.2.d to
Registrant's Form 10-Q for the
quarter ended June 30, 1997.
* 10.2.3.e Sixth Addendum, dated as of
March, 1998, to the Lease
included as Exhibit 10.2.3 above,
incorporated herein by reference
to Exhibit 10.2.3.e to
Registrant's Form 10-Q for the
quarter ended September 30, 1998.
* 10.2.3.f Seventh Addendum, dated as of
July 20, 1998, to the Lease
included as Exhibit 10.2.3 above,
incorporated herein by reference
to Exhibit 10.2.3.f to
Registrant's Form 10-Q for the
quarter ended September 30, 1998.
* 10.2.3.g Eighth Addendum, dated as of
September 8, 1998, to the Lease
included as Exhibit 10.2.3 above,
incorporated herein by reference
to Exhibit 10.2.3.g to
Registrant's Form 10-Q for the
quarter ended September 30, 1998.
* 10.2.3.h Sublease Agreement, dated as of
September 1, 1998, between
Registrant and Aironet Wireless
Communications, Inc. for the
premises subject to the Lease
included as Exhibit 10.2.3 above,
as amended through the Eighth
Addendum thereto included as
Exhibit 10.2.3.g above,
incorporated herein by reference
to Exhibit 10.2.3.h to
Registrant's Form 10-K for the
year ended March 31, 1999.
* 10.2.3.i Renewal, dated June 16, 1999,
with respect to the Sublease
Agreement included as Exhibit
10.2.3.h above, incorporated
herein by reference to Exhibit
10.2.3.i to Registrant's Form
10-K for the year ended
March 31, 1999.
<PAGE> 65
* 10.2.4 Lease Contract between Desarrollos \
Inmobiliarios Paso del Norte, S.A. de C.V.
and Productos y Servicios de Telxon, S.A. de
C.V., a subsidiary of Registrant, for
premises in Ciudad Juarez, Chihuahua,
Mexico, made and entered into as of April
10, 1997, incorporated herein by reference
to Exhibit 10.2.4 to Registrant's Form 10-K
for the year ended March 31, 1998.
10.3 Credit Agreements of Registrant.
* 10.3.1 Credit Agreement by and among Registrant,
the lenders party thereto from time to time
and The Bank of New York, as letter of
credit issuer, swing line lender and agent
for the lenders, dated as of March 8, 1996
(refinanced, and replaced by the Loan and
Security Agreement included as Exhibit
10.3.3 below), incorporated herein by
reference to Exhibit 10.3.2 to Registrant's
Form 10-K for the year ended March 31, 1996.
* 10.3.1.a Amendment No. 1, dated as of
August 6, 1996, to the Agreement
included as Exhibit 10.3.1 above,
incorporated herein by reference
to Exhibit 10.3.2.a to
Registrant's Form 8-K dated
August 16, 1996.
* 10.3.1.b Amendment No. 2, dated as of
December 16, 1996, to the
Agreement included as Exhibit
10.3.1 above, incorporated herein
by reference to Exhibit 10.3.2.c
to Registrant's Form 8-K dated
December 16, 1996.
* 10.3.1.c Amendment No. 3, dated as of
December 12, 1997, to the
Agreement included as Exhibit
10.3.1 above, included herein by
reference to Exhibit 10.3.1.d to
Registrant's Form 10-K for the
year ended March 31, 1998.
* 10.3.1.d Waiver and Agreement, dated as of
December 29, 1998, with respect
to the Agreement included as
Exhibit 10.3.1 above,
incorporated herein by reference
to Exhibit 10.3.1.e to
Registrant's Form 10-Q for the
quarter ended December 31, 1998.
* 10.3.1.e Waiver Extension and Agreement,
dated as of February 12, 1999,
with respect to the Agreement
included as Exhibit 10.3.1 above,
incorporated herein by reference
to Exhibit 10.3.1.f to
Registrant's Form 10-Q for the
quarter ended December 31, 1998.
<PAGE> 66
* 10.3.1.f Second Waiver Extension Agreement
and Amendment No. 4, dated as of
March 26, 1999, with respect to
the Agreement included as Exhibit
10.3.1 above, incorporated herein
by reference to Exhibit 10.3.1.a
to Registrant's Form 8-K dated
April 1, 1999.
* 10.3.1.g Amended and Restated Security
Agreement, dated as of March 26,
1999, by and among Registrant and
The Bank of New York, as Agent
for the Lenders from time to time
party to the Agreement included
as Exhibit 10.3.1 above
(terminated in connection with
the refinancing obtained pursuant
to the Loan and Security
Agreement included as Exhibit
10.3.3 below), incorporated
herein by reference to Exhibit
10.3.1.b to Registrant's Form 8-K
dated April 1, 1999.
* 10.3.1.h Deed of Trust, Assignment of
Leases and Rents, Security
Agreement, Fixture Filing and
Financing Statement, dated as of
March 26, 1999, by Registrant to
First American Title Insurance
Company as Trustee for the
benefit of The Bank of New York,
as Agent for the Lenders from
time to time party to the
Agreement included as Exhibit
10.3.1 above (terminated in
connection with the refinancing
obtained pursuant to the Loan and
Security Agreement included as
Exhibit 10.3.3 below),
incorporated herein by reference
to Exhibit 10.3.1.h to
Registrant's Form 10-K for the
year ended March 31, 1999.
* 10.3.1.i Patent and Trademark Security
Agreement, dated as of March 26,
1999, by Registrant and certain
of its subsidiaries to The Bank
of New York, as Agent for the
benefit of the Lenders from time
to time party to the Agreement
included as Exhibit 10.3.1
above, (terminated in connection
with the refinancing obtained
pursuant to the Loan and
Security Agreement included as
Exhibit 10.3.3 below),
incorporated herein by reference
to Exhibit 10.3.1 to
Registrant's Form 10-K for the
year ended March 31, 1999.
10.3.1.j Pledge Agreement, dated as of
* March 26, 1999, by Registrant to
The Bank of New York, as Agent
for the benefit of the Lenders
from time to time party to the
Agreement included as Exhibit
10.3.1 above (terminated in
connection with the refinancing
obtained pursuant to the Loan and
Security Agreement included as
Exhibit 10.3.3 below),
incorporated herein by reference
to Exhibit 10.3.1.j to
Registrant's Form 10-K for the
year ended March 31, 1999.
<PAGE> 67
* 10.3.1.k Third Waiver Extension Agreement
and Amendment No. 5, dated as of
June 29, 1999, with respect to
the Agreement included as Exhibit
10.3.1 above, incorporated herein
by reference to Exhibit 10.3.1.a
to Registrant's Form 8-K dated
July 1, 1999.
* 10.3.2 Business Purpose Revolving Promissory Note
(Swing Line) made by Registrant in favor of
Bank One, NA, dated August 4, 1998
(refinanced and replaced by the Loan and
Security Agreement included as Exhibit
10.3.3 below), incorporated herein by
reference to Exhibit 10.3.4 to Registrant's
Form 10-Q for the quarter ended June 30,
1998.
* 10.3.2.a Consent, dated as of December 29,
1998, with respect to the Note
included as Exhibit 10.3.2 above,
incorporated herein by reference
to Exhibit 10.3.4.a to
Registrant's Form 10-Q for the
quarter ended December 31, 1998.
* 10.3.2.b Further Consent, dated as of
February 12, 1999, with respect
to the Note included as Exhibit
10.3.2 above, incorporated herein
by reference to Exhibit 10.3.4.a
to Registrant's Form 10-Q for the
quarter ended December 31, 1998.
* 10.3.2.c Second Further Consent and
Agreement, dated as of March 26,
1999, with respect to the Note
included as Exhibit 10.3.2 above,
incorporated herein by reference
to Exhibit 10.3.4.c b to
Registrant's Form 8-K dated April
1, 1999.
* 10.3.2.d Amended and Restated Security
Agreement, dated as of March 26,
1999, by and among Registrant and
Bank One, NA with respect to the
Note included as Exhibit 10.3.2
above (terminated in connection
with the refinancing obtained
pursuant to the Loan and Security
Agreement included as Exhibit
10.3.3 below), incorporated
herein by reference to Exhibit
10.3.2.d to Registrant's Form
10-K for the year ended March 31,
1999
* 10.3.2.e Deed of Trust, Assignment of
Leases and Rents, Security
Agreement, Fixture Filing
and Financing Statement,
dated as of March 26, 1999,
by Registrant to First
American Title Insurance
Company as Trustee for the
benefit of Bank One, NA with
respect to the Note included
as Exhibit 10.3.2 above
(terminated in connection
with the refinancing
obtained pursuant to the
Loan and Security Agreement
included as Exhibit 10.3.3
below), incorporated herein
by reference to Exhibit
10.3.2.e to Registrant's
Form 10-K for the year ended
March 31, 1999.
<PAGE> 68
* 10.3.2.f Patent and Trademark Security
Agreement, dated as of March 26,
1999, by Registrant and certain
of its subsidiaries to Bank One,
NA with respect to the Note
included as Exhibit 10.3.2 above
(terminated in connection with
the refinancing obtained pursuant
to the Loan and Security
Agreement included as Exhibit
10.3.3 below), incorporated
herein by reference to Exhibit
10.3.2.f to Registrant's Form
10-K for the year ended March 31,
1999.
* 10.3.2.g Third Further Consent and Note
Modification Agreement, dated as
of June 29, 1999, with respect to
the Note included as Exhibit
10.3.2 above, incorporated herein
by reference to Exhibit
10.3.2.g b to Registrant's Form
8-K dated July 1, 1999.
* 10.3.3 Loan and Security Agreement, dated as
of August 26, 1999, by and between the
Registrant, the Lenders party thereto,
and Foothill Capital Corporation, as
Agent, incorporated by reference to
Exhibit 10.3.3 to Registrant's Form 8-K
dated August 30, 1999.
* 10.3.3.a Pledge Agreement, dated as
of August 26, 1999, between
Foothill Capital
Corporation, as Agent for
the Lenders from time to
time party to the Loan and
Security Agreement included
as Exhibit 10.3.3 above,
pledging, among other
assets, the stock owned by
Registrant in Aironet
Wireless Communications,
Inc. and Registrant
subsidiaries to Agent as
collateral to secure
Registrant's obligations
under the Loan and Security
Agreement, incorporated
herein by reference to
Exhibit 10.3.3.a to
Registrant's Form 10-Q for
the quarter ended September
30, 1999.
* 10.3.3.b Real Property Deed of Trust
(Harris County, Texas), made
as of August 26, 1999 by
Registrant unto Joseph C.
Mathews as trustee for the
benefit of Foothill Capital
Corporation, as Agent for
the Lenders from time to
time party to the Loan and
Security Agreement included
as Exhibit 10.3.3 above,
incorporated herein by
reference to Exhibit
10.3.3.b to Registrant's
Form 10-Q for the quarter
ended September 30, 1999.
* 10.3.3.c Patent, Trademark, Copyright
and License Mortgage, made
as of August 26, 1999, by
Registrant in favor of
Foothill Capital
Corporation, as Agent for
the Lenders from time to
time party to the Loan and
Security Agreement included
as Exhibit 10.3.3 above,
incorporated herein by
reference to Exhibit
10.3.3.c to Registrant's
Form 10-Q for the quarter
ended September 30, 1999.
** 10.3.3.d First Amendment, dated as of
November 18, 1999, to the
Loan and Security Agreement
included as Exhibit 10.3.3
above, filed herewith.
** 10.3.3.e Second Amendment, dated as
of February 11, 2000, to the
Loan and Security Agreement
included as Exhibit 10.3.3
above, filed herewith.
* 10.4 Amended and Restated Agreement between Registrant and
Symbol Technologies, Inc., dated as of September 30,
1992, incorporated herein by reference to Exhibit
10.4 to Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.5 License, Rights, and Supply Agreement between Aironet
Wireless Communications, Inc., 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, incorporated herein by reference to
Exhibit 10.5.1 to Registrant's Form 10-K for
the year ended March 31, 1999.
* 10.5.2 Agreement, dated as of November 8, 1999, by
and among Registrant, Cisco Systems, Inc.
and Aironet Wireless Communications, Inc.,
incorporated herein by reference to Exhibit
10.5.2 to Registrant's Form 10-Q for the
quarter ended September 30, 1999.
* 10.6 Asset Purchase Agreement by and among Dynatech
Corporation, IAQ Corporation, Registrant and Itronix
Corporation, then a subsidiary of Registrant, dated
as of December 28, 1996, incorporated herein by
reference to Exhibit 2 to Registrant's Form 8-K dated
December 31, 1996.
* 10.7 Agreement of Purchase and Sale of Assets by and among
Vision Newco, Inc., a subsidiary of Registrant,
Virtual Vision, Inc., as debtor and debtor in
possession, and the Official Unsecured Creditors'
Committee, on behalf of the bankruptcy estate of
Virtual Vision, dated as of July 13, 1995,
incorporated herein by reference to Exhibit 10.8 to
Registrant's Form 10-Q for the quarter ended June 30,
1995.
* 10.8 Stock Purchase Agreement by and among Registrant and
FED Corporation, dated as of March 31, 1998, with
respect to FED Corporation's purchase of all of the
<PAGE> 69
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, dated as of January 19,
2000, between Registrant, Accipiter Corporation
and Accipiter II, Inc., filed herewith.
* 10.14 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.
* 10.15 Subscription Agreement by and among Aironet Wireless
Communications, Inc., a subsidiary of Registrant, and
the investors who executed the same, dated as of
March 31, 1998, incorporated herein by reference to
Exhibit 10.14 to Registrant's Form 10-K for the year
ended March 31, 1998.
<PAGE> 70
* 10.15.1 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.
* 10.15.2 Stockholders Agreement by and among
Aironet Wireless Communications, Inc. and
its Stockholders party thereto, including
Registrant and the investors party to the
Subscription Agreement included as
Exhibit 10.14 above, entered into as of
March 31, 1998 in connection with the
transactions under the Subscription
Agreement, incorporated herein by
reference to Exhibit 10.14.2 to
Registrant's Form 10-K for the year ended
March 31, 1998.
* 10.15.3 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.
** 10.16 Stockholder Agreement, made as of November 8, 1999
between Cisco Systems, Inc., Osprey Acquisition
Corporation and Registrant, and related Irrevocable
Proxy, executed by Registrant as a stockholder of
Aironet Wireless Communications, Inc. as an
inducement toward the entry by Cisco Systems, Inc.
and Osprey Acquisition Corporation into an Agreement
and Plan of Merger and Reorganization dated of even
date providing for the acquisition of Aironet by
Cisco, and Joinder thereto by, and related
Irrevocable Proxy of, The Retail Technology Group,
Inc., a wholly owned subsidiary of Registrant, filed
herewith.
* 10.17 DFS Vendor Agreement between Registrant and Deutsche
Financial Services Corporation, dated as of September
30, 1998, incorporated herein by reference to Exhibit
10.15 to Registrant's Form 10-Q for the quarter ended
December 31, 1998.
** 27. Financial Data Schedule as of December 31, 1999,
filed herewith.
- ---------------------------------
* Previously filed
** Filed herewith
<PAGE> 1
EXHIBIT 10.1.2
RESTATED
TELXON CORPORATION
1990 STOCK OPTION PLAN
AS AMENDED THROUGH AND EFFECTIVE
AS OF JANUARY 18, 2000
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 highly qualified personnel through rewarding valued employees
with the opportunity, pursuant to Options granted under the Plan, to acquire a
proprietary interest in the Company and thereby encourage them to put forth
their maximum efforts for the continued success and growth of the Company.
2. DEFINITIONS. In addition to such other capitalized terms as are
defined elsewhere in this Plan, the following terms shall when used in this Plan
have the respective meanings set forth below:
(a) "Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(b) "Authorized Shares" means the maximum aggregate number of
shares of Common Stock specified in Section 3(a) as being authorized
for issuance and sale under Options granted pursuant to the Plan,
subject to adjustment thereof in accordance with Section 12 of the
Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Commission" means the United States Securities and Exchange
Commission.
(f) "Committee" means the Committee appointed by the Board in
accordance with Paragraph (a) of Section 4 of the Plan, if a Committee
is appointed. If, with respect to any individual grant of Options
under this Plan, any member or members of the Committee would cause
such Committee not to satisfy the disinterested administration
requirement of Rule 16b-3, as then applicable to the Company under the
Act, or the "outside director" administration requirement of Code
Section 162(m)(4)(C) and the regulations thereunder, then in such
event the Committee shall be comprised of the
<PAGE> 2
Committee without such member or members. If no Committee has been
appointed, any reference to the "Committee" shall be deemed a
reference to the "Board".
(g) "Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
(h) "Company" means Telxon Corporation, a Delaware corporation.
(i) "Continuous Employment" means with respect to any Employee,
the continued employment of such Employee by the Company or any
Subsidiary without interruption or termination after the grant of an
Option to such Employee. Continuous Employment shall not be considered
interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Board (provided that such leave is
for a period of not more than ninety (90) days or re-employment upon
the expiration of such leave is mandated by contract or statute) or in
the case of transfers between locations of the Company or between the
Company, any Subsidiary or any of their respective successors.
(j) "Employee" means any person, including officers and directors
who are also officers, employed by the Company or any Subsidiary. The
payment of director's fees by the Company shall not be sufficient to
constitute a person as an "Employee" of the Company.
(k) "Family Member" means (i) the Optionee to whom an Option is
granted under the Plan, the spouse or any sibling of the Optionee or
any ancestor or lineal descendant (including, but not limited to,
adopted and step children) of the Optionee or his or her spouse or
sibling(s), (ii) a trust for the exclusive benefit of the Optionee
and/or person(s) described in clause (i) of this Section 2(k), or the
trustee of such a trust in his, her or its capacity as such, (iii) a
partnership, corporation, limited liability company or similar entity
the partners, stockholders or other owners of which include only the
Optionee and/or person(s) described in clause (i) of this Section
2(k).
(l) "Non-Profit Organization" means any organization which is
exempt from United States income taxes under Section 501(c)(3), (4),
(5), (6), (7), (8) or (10) of the Code.
(m) "Option" means a right granted to an Employee pursuant to the
Plan to purchase a specified number of shares of Common Stock at a
specified price during a specified period and on such other terms and
conditions as may be specified pursuant to the Plan. Options may be
granted as Tax Qualified Options or as Options which do not qualify as
Tax Qualified Options.
(o) "Option Agreement" means the written agreement evidencing an
Option by and between the Company and the Optionee as required by
Section 14.
(p) "Optioned Stock" means the Common Stock subject to an Option.
2
<PAGE> 3
(q) "Optionee" means an Employee who receives an Option.
(r) "Plan" means this 1990 Stock Option Plan, as amended from
time to time.
(s) "Predecessor Plan" means the Company's 1988 Stock Option
Plan, as amended.
(t) "Repricing Transaction" means any grant(s) of Option(s)
reasonably related to any prior or potential Option(s), whether by an
exchange of existing Options or Options with new terms or the grant of
new Options in tandem with previously granted Options that will
operate to cancel the previously granted Options upon exercise, which
adjusts or amends the exercise price of a previously granted Option,
or repricing of previously granted Options or any other grant which
would be required to be reported as a repricing under Item 402(i) of
Regulation S-K as then in effect under the Act; but excluding any
repricing occurring through the operation of the antidilution
provisions of Section 12 of the Plan.
(u) "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.
(v) "Section 16 Person" means an Employee who is subject to
Section 16 of the Act, as interpreted by the rules and regulations
promulgated by the Commission thereunder, as adopted and amended from
time to time, and by formal or informal opinions of, and releases
published or other interpretive advice provided by, the Staff of the
Commission.
(w) "Securities Law Requirements" means the Act and the rules and
regulations promulgated by the Commission thereunder, as adopted and
amended from time to time, including but not limited to Rule 16b-3,
and as interpreted by formal or informal opinions of, and releases
published or other interpretive advice provided by, the Staff of the
Commission, and the requirements of any stock exchange, automated
interdealer quotation system or other recognized securities market on
which the Common Stock is listed or traded or in which the Common
Stock is included, as adopted and amended from time to time and as
interpreted by formal or informal opinions of, and other interpretive
advice, provided by the representatives of such stock exchange,
quotation system or other securities market.
(x) "Shares" means the Common Stock as adjusted in accordance
with Section 12 of the Plan.
3
<PAGE> 4
(y) "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.
(z) "Successor" means the estate of an Optionee or a person who
succeeds by will or the laws of descent and distribution, or by a
transfer made pursuant to Section 11(a)(1)(B) or 11(a)(1)(C), to an
Optionee's right to exercise an Option, including but not limited to a
person succeeding by will or the laws of descent and distribution to a
prior Successor's right to exercise an Option.
(aa) "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. STOCK SUBJECT TO THE PLAN.
(a) Number of Shares Issuable. Subject to adjustment in
accordance with the provisions of Section 12 of the Plan, the maximum
aggregate number of Authorized Shares which may be issued and sold
under Options granted pursuant to the Plan is equal to the sum of the
following:
(i) Pre-1995 Authorized Shares. 2,500,000 shares of Common
Stock, plus such number of the 1,200,000 shares of Common Stock
authorized for issuance and sale under the Predecessor Plan which
(A) as of the October 18, 1990 date this Plan was originally
approved by the stockholders of the Company, were not subject to
grants (including conditional grants) of stock options then
outstanding under the Predecessor Plan (from and after
stockholder approval of this Plan, no further grants shall be
made under the Predecessor Plan, but any grants (including
conditional grants) of stock options outstanding under the
Predecessor Plan at the time of such approval shall continue in
full force and effect in accordance with their respective terms)
or (B) to the extent grants (including conditional grants)
outstanding under the Predecessor Plan as of the date of original
stockholder approval of this Plan are not exercised in full, are,
as of any subsequent date, (x) issued pursuant to the exercise of
a stock option granted under the Predecessor Plan in an amount
equal to the number of Shares already owned by the person
exercising such stock option which are delivered by such person
to the Company in payment of the exercise price and/or related
withholding taxes, (y) withheld by the Company, in payment of the
withholding taxes with respect to the exercise of a stock option
granted under the Predecessor Plan, from the total number of
shares with respect to which such option is exercised, or (z) no
longer subject to grants under the Predecessor Plan by reason of
such grants
4
<PAGE> 5
having expired or lapsed or having been canceled, surrendered,
forfeited or otherwise terminated; plus
(ii) 1995 Authorized Shares. 850,000 Shares of Common Stock
(the "1995 Authorized Shares"); and plus
(iii) 1997 Authorized Shares. 750,000 Shares of Common Stock
(the "1997 Authorized Shares").
The inclusion under this Plan of such shares reserved for issuance and
sale under the Predecessor Plan as hereinabove provided shall not be
affected by the expiration or other termination of the Predecessor
Plan. The Shares issued and sold upon the exercise of Options may be
treasury Shares, Shares of original issue or a combination thereof.
(b) Computation of Shares Available for Grant. For purposes of
computing the number of Authorized Shares available from time to time
under the Plan for the grant of Options, the number of Shares subject
to each Option granted pursuant to the Plan shall be provisionally
counted against the Authorized Shares from and after the grant of such
Option but only for so long as and to the extent that such Option
shall remain outstanding and unexercised. Upon the exercise, in whole
or in part, of an Option, the number of Shares issued upon such
exercise shall be permanently deducted from the Authorized Shares,
provided that no such permanent deduction shall be made, and the
provisional deduction against the Authorized Shares shall be reversed,
to the extent that the exercise price and/or the withholding taxes
with respect to such exercise are paid through the delivery to the
Company by the person exercising the Option of Shares already owned by
such person and/or through the withholding by the Company of Shares
from the total number of Shares with respect to which the Option is
exercised. The provisional deduction against the Authorized Shares
shall likewise be reversed to the extent of the unexercised portion of
an Option upon the expiration, lapse, cancellation, surrender,
forfeiture or other termination of such Option. The Shares covered by
any such reversal of a provisional deduction against the Authorized
Shares shall immediately become available for the granting of new
Options under the Plan with respect thereto; provided, however, that
any Shares covered by any such reversal which were 1995 Authorized
Shares or 1997 Authorized Shares shall be subject to the restrictions
set forth in Section 4(c) of the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure. The Plan shall be administered by the Board or
the Board may, in its discretion, appoint a Committee to administer
the Plan subject to such terms and conditions as the Board may
prescribe; provided that the terms upon which, including the time or
times at or within which, and the price or prices at which Shares may
be purchased upon the exercise of Options shall be approved or
ratified by such action of the Board or a committee duly designated by
the Board from its members as may be required by the Delaware General
Corporation Law, as amended from time to time. Once appointed, the
5
<PAGE> 6
Committee shall continue to serve until otherwise directed by the
Board. From time to time the Board may increase the size of the
Committee and may appoint additional members thereof, remove members
(with or without cause), fill vacancies however caused and remove all
members of the Committee and thereafter directly administer the Plan.
(b) Powers of the Committee. Subject to the provisions of this
Plan, the Committee shall have the authority, in its sole discretion:
(i) To determine, upon review of relevant information in
accordance with Section 7(b) of the Plan, the "Fair Market Value"
(as defined in said Section 7(b)) of the Shares;
(ii) To determine the Employees to whom, and the time or
times at which, Options shall be granted and the number of Shares
(up to a maximum of 500,000 Shares with respect to which Options
may be granted to any individual in any one fiscal year of the
Company) subject to purchase upon exercise of each Option (except
as expressly set forth above in this Section 4(b)(ii) and such
restrictions thereon as may be imposed by applicable tax laws
which will have to be observed if the Committee intends that a
particular Option qualify as a Tax Qualified Option, there is no
limit on the time following the adoption or approval of this Plan
within which Options may be granted under the Plan so long as it
remains in effect, on the number of Options which may be granted
to any one Employee or on the aggregate number of Shares subject
to purchase thereunder);
(iii) To determine the terms and provisions of each Option
(which terms and provisions need not be identical), including,
but not limited to, the following;
(A) The exercise price per Share, subject to the
provisions of Section 7 of the Plan; and
(B) Whether Options shall become exercisable over a
period of time and when they shall be fully exercisable;
(iv) To accelerate the time as of which any Option may be
exercised;
(v) To amend any outstanding Option, subject to the
provisions of Section 19 of the Plan;
(vi) To authorize any person to prepare and execute on
behalf of the Company any instrument deemed by the Committee to
be necessary or advisable to evidence or effectuate the Plan, any
Option granted thereunder or any amendment to the Plan or any
Option;
(vii) To interpret the Plan;
6
<PAGE> 7
(viii) To prescribe, amend and rescind, if deemed necessary
or appropriate, rules and regulations relating to the Plan, to
the extent not inconsistent with the Plan; and
(ix) To make all other determinations the Committee may deem
necessary or advisable in connection with the administration of
the Plan.
(c) Certain Limitations Applicable to Options Granted With
Respect to 1995 Authorized Shares and 1997 Authorized Shares.
Notwithstanding any other provision of the Plan, neither the Committee
nor the Board shall, with respect to any Option granted under the Plan
with respect to any 1995 Authorized Shares or 1997 Authorized Shares,
provide for an "Option Term" (as defined in Section 6 of the Plan) of
greater than eight (8) years from the date of grant thereof or approve
any Repricing Transaction.
(d) Effect of Board and Committee Decisions. All decisions,
determinations and actions of the Board and the Committee in
connection with the construction, interpretation, administration,
application, operation and implementation of the Plan shall be final,
conclusive and binding on the Company, its stockholders and
Subsidiaries, all Employees and Optionees and the respective legal
representatives, heirs, successors and assigns of all of the foregoing
and all other Successors or other persons claiming under or through
any of them.
(e) 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.
5. ELIGIBILITY. Options may be granted only to Employees who, in the
sole judgment of the Committee, have contributed or will contribute to the
success and growth of the Company. An Employee to whom the Company has
previously granted a stock option pursuant to this Plan or otherwise may, if he
is otherwise eligible, be granted additional Options.
The existence of this Plan shall not create in any Employee any right
to be granted an Option hereunder, and neither the existence of this Plan nor
the granting of any Options to any Employee hereunder shall confer upon such
Employee any right with respect to continuation of the employment of such
Employee by the Company or any Subsidiary or shall in any way interfere with or
limit the right which such Employee, the Company or any Subsidiary may otherwise
have to terminate such employment at any time with or without cause. Upon the
termination of any Employee's employment with the Company or any Subsidiary,
neither the Company nor any Subsidiary shall have any liability or obligation to
such Employee under this Plan or any Options granted to such Employee hereunder
except to issue the appropriate number of Shares to such
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<PAGE> 8
Employee upon the exercise of any Option granted to such Employee under this
Plan prior to such termination of employment, provided that such exercise is
duly and timely made in accordance with the provisions of this Plan and such
Option.
6. TERM OF OPTIONS. Except as may otherwise be specified by the
Committee in its sole discretion at the time of grant thereof and reflected in
the Option Agreement evidencing such Option, the term at the end of which each
Option shall expire (the "Option Term") shall be ten (10) years (eight (8) years
in the case of Options with respect to 1995 Authorized Shares or 1997 Authorized
Shares) from the date of grant thereof, provided that the Committee, if it
intends that a particular Option qualify as a Tax Qualified Option, will have to
observe such restrictions on the term of such Option as may be imposed by the
applicable tax laws in order for such Option so to qualify. Each Option shall
continue in effect in accordance with its terms notwithstanding that the Plan
may be terminated prior to the expiration of the term of such Option.
7. EXERCISE PRICE.
(a) Minimum Price Required. The per Share exercise price for the
Shares subject to an Option shall be such price as is determined by
the Committee at the time of grant of an Option and reflected in the
Option Agreement evidencing the same; provided that in no event shall
such exercise price per Share be less than the Fair Market Value per
Share as of the day prior to the date of grant of such Option.
(b) Definition of "Fair Market Value". For all purposes under
the Plan, "Fair Market Value" per Share shall be determined by the
Committee in its sole discretion; provided that if the Shares are
included in the NASDAQ National Market System or listed on a stock
exchange on the date as of which the same is to be determined, the
Fair Market Value per Share shall be the closing price on such
quotation system or exchange which is the principal trading market for
the Shares on the date of determination or, if no sale price was
reported for the Shares on the date of determination, the closing
price on such principal trading market for the last trading day prior
to the date of determination for which a sale price was reported;
provided further, however, that if the foregoing method of determining
Fair Market Value is inconsistent with the then existing tax law
requirements with respect to any Option which the Committee intends to
qualify as a Tax Qualified Option, then the Fair Market Value per
Share shall be determined by the Committee in such manner as is
required for such Tax Qualified Option to qualify as such.
8. WITHHOLDING TAXES. Before a stock certificate evidencing the
Shares being acquired through exercise of an Option will be issued to the
Optionee or a Successor making such exercise, the Optionee or Successor must
pay, or make arrangements acceptable to the Company for the payment of, any and
all federal, state and local withholding taxes, whether domestic or foreign,
required to be withheld in connection with the exercise of an Option.
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<PAGE> 9
9. FORM OF PAYMENT.
(a) Acceptable Forms of Consideration. Except as may otherwise be
specified by the Committee in its sole discretion at the time of grant
thereof and reflected in the Option Agreement evidencing such Option,
the following forms of consideration will be accepted in payment of
the exercise price for the Shares to be issued upon exercise of an
Option and of the taxes required to be withheld in connection with
such exercise: (i) cash, (ii) personal check, (iii) bank cashier's
check, (iv) already owned Shares (duly endorsed for transfer with
signature guaranteed), or (v) any combination of the foregoing. Except
as may otherwise be specified by the Committee in its sole discretion
at the time of grant thereof and reflected in the Option Agreement
evidencing such Option, Shares withheld from the Shares to be issued
upon exercise of the Option, either alone or in any combination with
any of the other acceptable forms of consideration recited in this
Paragraph (a), will also be an accepted form of consideration for
payment of the taxes required to be withheld in connection with the
exercise of an Option. In addition to the acceptable forms of
consideration hereinabove recited in this Paragraph (a), the Committee
may determine in its sole discretion at the time of grant of an
Option, and if the Committee so determines, shall provide in the
Option Agreement evidencing such Option, that one or both of the
following additional forms of consideration will be accepted, either
alone or in any combination with any of the other acceptable forms of
consideration recited in this Paragraph (a), in payment of the items
specified: (vi) in payment of the exercise price for the Shares to be
issued upon exercise of the Option, Shares withheld from the Shares to
be issued upon such exercise, and/or (vii) in payment of the exercise
price for the Shares to be issued upon exercise of an Option and the
taxes required to be withheld in connection with such exercise, a
commitment for the delivery to the Company of proceeds from the sale,
pursuant to a brokerage or similar arrangement approved in advance by
the Committee in its sole discretion, of Shares to be issued upon
exercise of the Option. The forms of consideration which will be
accepted in payment of the exercise price for an Option and related
withholding taxes shall be specified in the Option Agreement
evidencing such Option, the person or persons entitled to exercise the
Option shall be entitled to elect from those so specified the form(s)
to be used in effecting payment with respect to a particular exercise;
provided that any election by a Section 16 Person to use already owned
Shares or have Shares withheld from those issuable upon such exercise
shall be effective only if made in accordance with the applicable
requirements of Rule 16b-3; and provided further that a commitment for
the delivery to the Company of proceeds from the sale, pursuant to a
brokerage or similar arrangement, of Shares to be issued upon exercise
of an Option will not be accepted from a Section 16 Person if under
Securities Law Requirements such a sale would be matched with such
exercise to result in "short swing" profit liability under Section
16(b) of the Act on the part of such Section 16 Person with respect to
such transaction.
(b) Withholding Tax Loans. In addition to any one or more of the
acceptable forms of consideration recited in Paragraph (a) of this
Section 9 which the Committee may permit in the Option Agreement to be
used for the payment of withholding taxes, the Committee may determine
in its discretion at the time of grant of an Option to permit the
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<PAGE> 10
Optionee (but not any Successor) to, and if the Committee so
determines, shall provide in the Option Agreement evidencing such
Option that such Optionee may borrow from the Company an amount
sufficient to pay the taxes required to be withheld in connection with
the exercise of such Option by the Optionee, with each such borrowing
to be evidenced by a promissory note of the Optionee payable to the
order of the Company. Except as may otherwise be specified by the
Committee in its sole discretion at the time of grant thereof and
reflected in the Option Agreement evidencing an Option, each such loan
shall be for a term of five (5) years at a rate of interest equal to
the Company's then primary domestic commercial lender's prime or base
rate as in effect from time to time, with payments of interest on such
loan due quarterly and payments toward the principal of such loan due,
to the extent of the net proceeds therefrom, within fifteen (15) days
after any disposition by the Optionee of any Shares acquired upon
exercise of any stock option granted by the Company to the Optionee
pursuant to this Plan or otherwise (excluding any disposition of such
Shares by gift or to the Company in payment of the exercise price of a
stock option granted by the Company to the Optionee pursuant to this
Plan or otherwise and/or any related withholding taxes), provided that
the entire unpaid principal balance shall be due at the earlier of (i)
the expiration of the five (5) year term, or (ii) the termination of
the Optionee's Continuous Employment (other than by reason of
Optionee's "disability" (as defined in Section 10(d)) or "retirement"
(as defined in Section 10(e)).
(c) Company Withholding of Taxes. If, upon being notified by the
Company of the amount of the taxes required to be withheld in
connection with an exercise of an Option, the Optionee or a Successor
fails promptly to pay, or to make arrangements acceptable to the
Company for the payment of such taxes, the Company shall have the
right to elect (but shall be under no obligation) to cover such taxes
through:
(i) withholding Shares from those issuable upon such
exercise, provided that any such election so to withhold Shares
with respect to the exercise of an Option by a Section 16 Person
shall be effective only if made in accordance with the applicable
requirements of Rule 16b-3; and/or
(ii) deducting such taxes from any amounts payable in cash
to the Optionee or the Successor by the Company for any reason as
of the time of such exercise or any time thereafter.
(d) Valuation of Shares Delivered or Withheld. Where already
owned Shares, or Shares withheld from those issuable upon such
exercise, are used in payment of the exercise price and/or related
withholding taxes, such Shares shall be valued at Fair Market Value as
of the day immediately preceding the date of exercise and (ii) with
respect to the payment of withholding taxes, at Fair Market Value as
of the day immediately preceding the date tax withholding is required
to be made.
(e) Certification of Already Owned Shares. Already owned Shares
which were acquired through a previous exercise of a stock option
granted pursuant to this Plan or otherwise may be used in payment of
the exercise price of an Option and/or related
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<PAGE> 11
withholding taxes only if the previous exercise through which such
Shares were acquired was made as of a date not less than six (6)
months prior to the date of the exercise of the Option in connection
with which such Shares are being tendered as payment. A tender of
already owned Shares in payment of the exercise price of an Option
and/or related withholding taxes will not be accepted by the Company
unless accompanied by a written statement signed by the person or
persons entitled to exercise such Option certifying that either (i)
the Shares tendered in payment were acquired other than through the
exercise of a stock option granted by the Company or (ii) the Shares
tendered in payment were acquired through the exercise, on such
date(s) as shall be recited in such statement (which date(s) shall be
not less than six (6) months prior to the date of tender), of stock
option(s) granted by the Company.
(f) Delivery of Already Owned Shares. Where the person
exercising an Option elects to use already owned Shares in full or
partial payment of the exercise price and/or related withholding
taxes, the Committee may, in its sole discretion, accept, in lieu of
physical delivery of the stock certificates evidencing such Shares,
such constructive delivery of such Shares as may be satisfactory to
the Committee.
10. METHOD OF EXERCISE.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Committee and as permitted under the
Plan. An Option may not be exercised for a fraction of a Share. In
order to exercise an Option, the person or persons entitled to
exercise it shall deliver to the Company written notice of the number
of Shares with respect to which the Option is being exercised,
accompanied by payment in full of the aggregate price for the Shares
so to be acquired. To constitute an effective exercise of an Option,
such notice and payment shall be addressed to the attention of the
Treasurer of the Company and must be received at the principal
executive office of the Company (i) with respect to an Option that is
terminated for "Misconduct" (as defined below) pursuant to Paragraph
(b) of this Section 10 or for "Prohibited Conduct" (as defined in
Section 16(a)) pursuant to Section 16(a), prior to the time of the
occurrence of the event constituting such Misconduct or Prohibited
Conduct or (ii) with respect to any other Option, by 5:00 p.m., local
time, on the date of expiration or termination of the Option. Until
the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or
receive dividends nor any other rights as a stockholder shall exist
with respect to the Optioned Stock notwithstanding the exercise of the
Option. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is
issued, except as provided in Section 12.
Exercise of an Option shall result in a decrease in the number of
Shares which thereafter shall be available for sale under such Option
by the number of Shares as to which the Option is exercised, including
any Shares withheld from the Shares to be issued pursuant to such
exercise to cover the exercise price and/or related withholding taxes.
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<PAGE> 12
(b) Termination of Employment. Except as may otherwise be
specified by the Committee in its sole discretion at the time of grant
thereof and reflected in the Option Agreement evidencing such Option,
upon the termination of an Optionee's Continuous Employment (other
than by reason of the Optionee's death, disability or retirement), the
Optionee or any Successor entitled to exercise an Option may exercise
the Option (to the extent that the Option was entitled to be exercised
at the time of such termination of employment) until the earlier of
(i) the date thirty (30) days (or such longer period of time as is
determined by the Committee in its sole discretion at the time of such
termination of employment, provided that if the Committee intends that
a particular Option continue to qualify as a Tax Qualified Option, the
Committee will have to observe such restrictions as may be imposed by
applicable tax laws on the post-termination period within which a Tax
Qualified Option may be exercised if it wishes to ensure that any
post-termination exercise of such Option is made only within the
period permitted by such laws) after the effective date of the
termination of the Optionee's employment or (ii) the expiration date
of such Option, and the Option shall terminate on the earlier of such
dates; provided, however, that if the Optionee is terminated by the
Company for Misconduct, then such Option shall terminate effective as
of the time of the conduct constituting such Misconduct. As used in
this Plan, "Misconduct" means that the Optionee has engaged in
Prohibited Conduct, committed an act of embezzlement, fraud or theft
with respect to the property or business of the Company or a
Subsidiary or deliberately disregarded the rules of the Company or a
Subsidiary in such a manner as to cause material loss, damage or
injury to or otherwise endanger the property, reputation, employees or
business prospects of the Company or a Subsidiary. The Committee shall
determine whether an Optionee's employment was terminated by reason of
Misconduct. In making such determination, the Committee may, but shall
not be required to, give the Optionee an opportunity to be heard and
to present evidence on his behalf.
(c) 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:
(i) who is at the time of his death in the employ of the
Company or a Subsidiary and who shall have been in Continuous
Employment since the date of grant of the Option, the Option may
be exercised (to the extent the Option would have been entitled
to be exercised had the Optionee continued living and terminated
employment six (6) months after the date of death) by a Successor
until the earlier of (A) the date six (6) months (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) following the date of the
Optionee's death or (B) the expiration date of such Option, and
the Option shall terminate on the earlier of such dates; or
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<PAGE> 13
(ii) within one (1) month after the termination of
Continuous Employment other than termination by the Company or a
Subsidiary for Misconduct or due to disability, the Option may be
exercised (to the extent the Option was entitled to be exercised
at the date of termination of Continuous Employment) by a
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.
(d) 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 Agreement evidencing such Option, if an
Optionee's Continuous Employment terminates due to optionee having
become 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 Option was entitled to be exercised as of the effective
date of the termination of Optionee's employment by reason of such
disability) until the earlier of (i) the date one (1) year after the
effective date of such termination of employment or (ii) the
expiration date of such Option, and the Option shall terminate on the
earlier of such dates.
(e) Retirement 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, if an
Optionee's Continuous Employment terminates by reason of (A) his
retirement at any age entitling him to benefits under the provisions
of any retirement plan of the Company or any Subsidiary in which such
Optionee participates; or (B) retirement at any time after attaining
age 65 (whichever circumstance is applicable constituting
"retirement"), the Option may be exercised (to the extent the Option
shall be entitled to be exercised as of the effective date of the
termination of the Optionee's employment by reason of such retirement)
until the earlier of (i) the date three (3) months after the effective
date of the termination of his employment or (ii) the expiration date
of such Option, and the Option shall terminate on the earlier of such
dates.
11. LIMITED TRANSFERABILITY OF OPTIONS.
(a) Options granted under the Plan and any rights and privileges
appertaining thereto (1) may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner by the Optionee
other than (A) by will or the laws of descent and distribution, (B)
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 (C) with the consent of the Committee in the exercise
of its discretion, to (x) a Family Member, (y) a Non-Profit
Organization, or (z) a charitable trust, and (2) shall not be subject
to execution, attachment or similar process. Transfers pursuant to
clauses (1)(C)(x) may be approved by the Committee if made by gift or
other transfer without the payment of any cash or other economic
consideration by the transferee to the transferor or by sale or other
transfer for cash or other economic consideration or otherwise,
whereas transfers pursuant
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<PAGE> 14
to clauses (1)(C)(y) and (1)(C)(z) may be approved by the Committee
only if made without the payment of any cash or other economic
consideration by the transferee. A transfer of an Option pursuant to
one of the foregoing clauses (1)(A)-(C) 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.
(i) Written evidence of a transfer made pursuant to clauses
(1)(A) or (1)(B), accompanied by the transferring Optionee's
original copy of the Grant Agreement evidencing the transferred
Option, shall be promptly provided to the Company upon the entry
of the court order effecting, or other judicial authorization or
direction of, such transfer. Upon the Committee's receipt of the
foregoing, the Company shall cancel the original Option Agreement
and re-issue a replacement Option Agreement to the transferee for
the Option or portion thereof so transferred and to the
transferring Optionee for any balance of the Option he or she
retains without transfer.
(ii) Where an Optionee desires to make a transfer pursuant
to clause (1)(C), the Optionee shall, prior to making of such
transfer. provide written notice to the Committee of the proposed
transfer, which notice shall identify the proposed transferee by
name, demonstrate that the proposed transferee is within one of
the classes of transferees permitted by such clause, describe in
reasonable detail the terms of the proposed transfer and
demonstrate that the transfer will comply with the applicable
requirements of Section 15. Any transfer pursuant to clause
(1)(C) shall otherwise be in form and substance reasonably
acceptable to Committee; without limiting the generality of the
foregoing, the Committee may condition its approval of such a
transfer upon the transferor paying, or making other arrangements
satisfactory to the Committee for the payment of, all withholding
taxes, if any, which may required to be withheld in connection
with the transfer. Upon the Committee's receipt and approval of
the foregoing with respect to a proposed clause (1)(C) transfer,
the Committee shall notify the Optionee proposing such transfer
in writing of its approval of the transfer. Following receipt of
such Committee approval, the Optionee shall be entitled to
proceed with the transfer and shall provide the Company written
notice of the consummation thereof. Upon the receipt of such
consummation notice, the Company shall cancel the original Option
Agreement and re-issue a replacement Option Agreement to the
transferee for the Option or portion thereof so transferred and
to the transferring Optionee for any balance of the Option he or
she retains without transfer.
(b) Upon the transfer of an Option or portion thereof in
accordance with Section 11(a), the transferee shall succeed to, and be
entitled to exercise, all of the rights and privileges of the
transferring Optionee with respect to the Option or portion thereof so
transferred, provided that the transferred 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
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<PAGE> 15
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 and
the payment of, or the making of arrangements acceptable to the
Company for the payment of, any and all withholding taxes required to
be withheld in connection with the exercise of the Option, whether
such taxes are ultimately to be paid by the original Optionee (or in
the event of his or her death prior to exercise by the transferee, his
or her estate) or the transferee. Any transferee succeeding to an
Option, whether by direct transfer from the original Optionee or, as
permitted by Section 11(c), through further intervening transfers,
shall also be subject to such restrictions on the exercise thereof as
may be applicable to such transferee as a matter of law which would
have applied to the Option were it still held by the original
Optionee, such as, by way of example and not of limitation,
restrictions on the exercise of an Option following a hardship
withdrawal by the original Optionee from the Company's 401(k) plan.
(c) A Family Member succeeding to an Option pursuant to Section
11(a)(1)(A) or Section 11(a)(1)(C)(x) may make further transfers of
the Option or any portion thereof pursuant to Section 11(a)(1)(A) or,
provided that the eligibility of the further transferee to received
the transfer shall continue to be determined with reference to the
original Optionee, pursuant to Section 11(a)(1)(C). However, a
transferee of an Option pursuant to Section 11(a)(1)(A), 11(a)(1)(B),
11(a)(1)(C)(y) or 11(a)(1)(C)(z) shall not be entitled to make any
further transfer of the Option, except that the rights of a transferee
pursuant to Section 11(a)(1)(A) or 11(a)(1)(B) may be transferred, by
will or the laws of descent and distribution. The rights of any
further transferee permitted by this Section 11(c) shall, as in the
case of each prior transferee as provided in Section 11(b), 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 original Optionee.
(d) The restrictions on transferability set forth in Section
11(a) shall not be construed to limit the ability of an Optionee or
Successor to elect to pay all or any portion of the exercise price
using the form of consideration described with respect to clauses (vi)
and (vii) of Section 9(a).
(e) Notwithstanding anything in the foregoing provisions of this
Section 11 to contrary effect, no transferee succeeding to an Option
shall be entitled to exercise the transferred option unless there
shall be in effect a registration statement on an appropriate form or
other filing covering the shares to be acquired through such exercise
as required from time to time under applicable Securities Law
Requirements and any other applicable provisions of law, including
without limitation, state "blue sky" laws and foreign (national and
provincial) securities laws and the rules and regulations promulgated
under any of such laws, or such transferee establishes, to the
satisfaction of counsel for the Company, that there is an applicable
exemption from such Securities Law Requirements and other applicable
laws.
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<PAGE> 16
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) Adjustments, in general. Subject to the provisions of
Paragraph (b) of this Section 12 and to any required action by the
stockholders of the Company, the number of Shares covered by each
outstanding Option, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Options have
yet been granted or which due to the expiration, lapse, cancellation,
surrender, forfeiture or other termination of a stock option under
this Plan or the Predecessor 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 or a Successor the right to
exercise his Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise then be
exercisable.
Subject to the provisions of Paragraph (b) of this Section 12, in
the event of a sale of all or substantially all of the assets of the
Company, or the merger or consolidation of the Company with or into
another corporation, each outstanding Option shall be assumed or an
equivalent option shall be substituted by such successor corporation
or a parent or subsidiary of such successor corporation, unless the
Board, in the exercise of its sole discretion, determines that, in
lieu of such assumption or substitution, the Optionee or a Successor
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 or Successor entitled to exercise the Option that
the Option shall be fully exercisable for a
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<PAGE> 17
period of thirty (30) days from the date of such notice, and the
Option will terminate upon the expiration of such period.
(b) Special Adjustments upon Change in Control. In the event of
a "Change in Control" of the Company (as defined in Paragraph (c) of
this Section 12), unless otherwise determined by the Board in its sole
discretion prior to the occurrence of such Change in Control, the
following acceleration and valuation provisions shall apply:
(i) Any Options outstanding as of the date of such Change
in Control that are not yet fully vested on such date shall
become fully vested; and
(ii) The value of all outstanding Options, measured by the
excess of the "Change in Control Price" (as defined in Paragraph
(d) of this Section 12) over the exercise price, shall be cashed
out. The cash out proceeds shall be paid to the Optionee or the
Successor entitled to exercise the Option.
(c) Definition of "Change in Control". For purposes of this
Section 12, a "Change in Control" means the happening of any of the
following:
(i) When any "person," as such term is used in Sections
13(d) and 14(d) of the Act (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
(ii) The consummation of a transaction requiring stockholder
approval and involving the sale of all or substantially all of
the assets of the Company or the merger or consolidation of the
Company with or into another corporation.
(d) Definition of "Change in Control Price". For purposes of
this Section 12, "Change in Control Price" shall be, as determined by
the Board, (i) the highest closing sale price of a Share, as reported
by the NASDAQ National Market, any stock exchange on which the Shares
are listed or any other recognized securities market on which the
Shares are traded, at any time within the sixty (60) day period
immediately preceding the date of the Change in Control (the
"Sixty-Day Period"), or (ii) the highest price paid or offered, as
determined by the Board, in any bona fide transaction or bona fide
offer related to the Change in Control, at any time within the
Sixty-Day Period.
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<PAGE> 18
13. TIME OF GRANTING OPTIONS. The date of grant of an Option shall,
for all purposes, be the date on which the Committee makes the determination
granting such Option. Notice of such determination shall be given to each
Employee to whom an Option is so granted within a reasonable time after the date
of such grant.
14. OPTION AGREEMENTS. As a condition to the effectiveness of each
grant of an Option under 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 20(a), each such Option Agreement
shall contain such provisions as are required by the terms of this Plan and may
contain such additional provisions not inconsistent with the terms of this Plan
as the Committee in its sole discretion may from time to time authorize. Each
Option Agreement evidencing an Option granted to a Section 16 Person shall also
provide for such minimum waiting period from the date of grant before the Option
may be exercised, and such minimum holding period from the date of the
acquisition of Shares upon exercise of an Option for which such Shares must be
held before making any disposition of such Shares, as may be required by Rule
16b-3.
15. CONDITIONS UPON ISSUANCE OF SHARES AND TRANSFERS OF OPTIONS.
Notwithstanding anything express or implied to the contrary in the
Plan or any Option Agreement made hereunder:
(a) No Shares shall be issued with respect to an Option unless
the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto, nor shall the transfer of an Option be
effective under Section 11 unless the same, shall comply with all
applicable Securities Law Requirements and all other applicable
provisions of law, including without limitation, any applicable state
"blue sky" laws and foreign (national and provincial) securities laws
and the rules and regulations promulgated under any of such laws, and
shall be further subject to the approval of counsel for the Company
with respect to such compliance. As a condition to the exercise of an
Option or the issuance of Shares upon exercise of an Option, or to the
transfer of an Option under Section 11, the Company may require the
person exercising such Option to make such representations and
warranties to the Company as may be required, in the opinion of
counsel for the Company, by any of the aforementioned Securities Law
Requirements and other laws, which may include, without limitation,
representations and warranties that the Shares which are being or may
be purchased thereunder are being or will be acquired only for
investment and without any present intention to sell or distribute
such Shares.
(b) The Company shall not have any liability to any Optionee or
Successor 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
effect any registration or other qualification or obtain such other
approval or authority from any governmental authority (domestic or
foreign) or self-regulatory organization having jurisdiction
thereover, which registration, qualification, approval or authority is
deemed by the Company's counsel to be necessary to the lawful
18
<PAGE> 19
sale, issuance or transfer of such Shares or Option, as the case may
be, or in respect of 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 registration, qualification, approval or
authority.
(c) The Company may, in its discretion, but shall be under no
obligation to, effect or obtain any registration or other
qualification or approval of any Option granted or transferred
hereunder, or of any Shares issuable upon the exercise thereof, under
any applicable Securities Law Requirements or any other applicable
provisions of law, including without limitation, any applicable state
"blue sky" laws and foreign (national and provincial) securities laws
and the rules and regulations promulgated under any of such laws, and
in the event any such registration, qualification or approval is not
effected or obtained, such Option or Shares, as the case may be, shall
be subject to such transfer and/or other restrictions (including, if
so provided by such laws, rules and regulations, the prohibition of a
particular transaction) as may be imposed by such laws, rules and
regulations under such circumstances. By way of illustrating, but
without limiting the generality of, the foregoing provisions of this
Section 15(c), as of the time of the January 18, 2000 amendments to
the Plan, the Shares issuable upon the exercise of an Option by an
Employee 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(c)) with the Commission on
Form S-8 and would be freely tradable (subject to the filing of a Form
144 and other applicable requirement of Rule 144 as then promulgated
by the Commission to the extent applicable to the Employee at the time
of any trade) by the Employee, but until the Company were to file (as
of the date of such amendments, the Company has not yet filed and may
be delayed in doing so until it is eligible to file) with the
Commission a registration statement with respect thereto pursuant
recent amendments to Form S-8, or were to elect to register under
another available Form, the Shares issuable to the transferee of an
Option under Section 11 would not upon his or her exercise thereof be
able to dispose of such Shares on the public securities markets for
such period as may be required by Rule 144 in the absence of an
applicable Form S-8 or other registration statement. In the absence of
such an effective registration, the Company may condition the transfer
of an Option upon its receipt of a written acknowledgment from the
transferee that the Option and the Shares issuable thereunder are
subject to such transfer and/or other restrictions and require the
Option Agreement evidencing such Option and the Shares so issued, as
the case may be, shall bear such legends or include other appropriate
provisions referencing such restrictions as the Company may reasonably
require.
16. FOREFEITURE OF OPTIONS AND REALIZED BENEFITS.
(a) Loss of Unexercised Options. If an Optionee holding an
outstanding Option, without the written consent of the Company as
authorized by the Committee in its sole discretion, engages in any of
the following conduct (any such conduct being referred to as
"Prohibited Conduct") at any time during the period beginning on the
date the Optionee first entered the employ of the Company or a
Subsidiary and continuing for so
19
<PAGE> 20
long as any portion of such Option remains outstanding and unexercised
(the "Grant Period"):
(i) rendering services for any organization or engaging
directly or indirectly in any business which, in the sole
judgment of the Committee, is or becomes competitive with the
Company or a Subsidiary, or where such rendering of services or
engaging in business, in the sole judgment of the Committee, is
or becomes otherwise prejudicial to or in conflict with the
interests of the Company or a Subsidiary; provided that the
ownership of a not more than ten percent (10%) equity interest in
any organization or business whose equity is listed on a
recognized securities exchange or traded over-the-counter shall
not constitute Prohibited Conduct within the meaning of this
Subparagraph (i);
(ii) disclosing to anyone outside the Company or any
Subsidiary, or use in other than the business of the Company or
any Subsidiary, any confidential or proprietary information
relating to the business of the Company or any Subsidiary,
acquired by the Optionee either during or after employment with
the Company or a Subsidiary;
(iii) except as may otherwise be permitted by any agreement
otherwise made by the Company or a Subsidiary with the Optionee,
failing to disclose fully and promptly in writing and assign to
the Company or to the Subsidiary by which the Optionee is or was
employed all right, title and interest in any discovery,
invention, process, method, improvement or idea, whether or not
patentable or subject to copyright protection and whether or not
reduced to tangible form or reduced to practice, made or
conceived by such person during employment by the Company or such
Subsidiary, relating in any manner to the actual or contemplated
business, research or development work of the Company or such
Subsidiary or to do anything reasonably necessary to enable the
Company or such Subsidiary to secure a patent, copyright or
similar protection in the United States of America and/or in
foreign countries as the Company or such Subsidiary may elect; or
(iv) inducing or attempting to induce any customer or
supplier of the Company or a Subsidiary to breach any contract
with the Company or a Subsidiary or otherwise terminate its
relationship with the Company or a Subsidiary;
then the Committee shall have the right, upon determining that the
Optionee has engaged in any Prohibited Conduct at any time during the
Grant Period (in making such determination, the Committee may, but
shall not be required to, give the Optionee an opportunity to be heard
and to present evidence on his behalf), to declare the Option
forfeited and canceled effective as of the time of the conduct
constituting such Prohibited Conduct.
(b) Certification upon Exercise. Each time an Option is
exercised, the Optionee or Successor exercising the Option shall be
deemed to certify to the Company
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<PAGE> 21
that the Optionee did not, without the written consent of the Company
as authorized by the Committee in its sole discretion, engage in any
Prohibited Conduct at any time during the period beginning on the date
the Optionee first entered the employ of the Company or a Subsidiary
and ending on the date of such exercise (the "Pre-Exercise Period").
(c) Loss of Realized Benefits. In the event that the Committee
determines with respect to a particular exercise of an Option that the
Optionee engaged in any Prohibited Conduct at any time during the
Pre-Exercise Period or within one (1) year after such exercise (in
making such determination, the Committee may, but shall not be
required to, give the Optionee an opportunity to be heard and to
present evidence on his behalf), such Optionee shall be liable to the
Company (i) to the extent such Optionee or a Successor has, prior to
his receipt of the "Forfeiture Notice" (as defined below), disposed of
the Shares acquired through such exercise, for payment to the Company
of an amount in cash equal to the excess of (A) the net cash proceeds
from such disposition (or if such Shares were disposed of other than
for cash, the aggregate Fair Market Value of such Shares as of the
date of disposition) over (B) that portion of the sum of the cash and
the aggregate Fair Market Value as of the exercise date of any already
owned Shares used by the Optionee or Successor to pay the exercise
price for such Shares (such sum being referred to as the "Exercise
Payment") which is allocable to the Shares disposed of in the
proportion that such number of Shares bears to the total number of
Shares issued pursuant to such Option exercise and (ii) to the extent
such Optionee or Successor still owns at the time he receives the
Forfeiture Notice the Shares acquired through such exercise, at the
option of the Committee, either (A) for the return of such Shares to
the Company in exchange for a cash refund from the Company to such
Optionee or Successor in an amount equal to that portion of the
Exercise Payment which is allocable to the Shares still owned in the
proportion that such number of Shares bears to the total number of
Shares issued pursuant to such Option exercise (such portion being
referred to as the "Retained Shares Exercise Payment") or (B) for
payment to the Company of an amount in cash equal to the excess of the
aggregate Fair Market Value as of the exercise date of the Shares
still owned over the Retained Shares Exercise Payment. To enforce such
liability against an Optionee or Successor, the Committee shall notify
the Optionee or Successor thereof in writing within three (3) years of
the date of the affected Option exercise, which notice (the
"Forfeiture Notice") shall include a statement of the form of payment
which the Committee has elected to receive from the Optionee or
Successor with respect to Shares still owned by the Optionee or
Successor. Within ten (10) days after receiving the Forfeiture Notice,
the Optionee or Successor shall make full payment of such liability to
the Company in cash, or to the extent such Optionee or Successor still
owns Shares acquired through the affected exercise and the Committee
elects in the Forfeiture Notice to receive such Shares, stock
certificates evidencing such Shares still owned by the Optionee or
Successor(duly endorsed for transfer with signature guaranteed). In
the event that the Committee elects to receive, and the Optionee or
Successor returns, Shares, the Company shall make the refund payment
required to be made to the Optionee or Successor with respect to such
Shares upon the Company's receipt of such Shares as hereinabove
required.
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<PAGE> 22
(d) Cumulative Rights. The obligation of an Optionee under this
Section 16 to refrain from Prohibited Conduct is in addition to, and
does not in any way supersede or diminish, any other obligation of
such Optionee with respect to such matters which such Optionee may owe
to the Company, any Subsidiary or any other person under any
agreement, applicable law or otherwise (a "Similar Obligation"). Any
action taken by the Company or the Committee to enforce, compromise,
settle or waive the provisions of this Section 16 with respect to any
particular event constituting Prohibited Conduct shall not in any way
affect the rights of the Company, the Committee, any Subsidiary or any
person against an Optionee with respect to any other event
constituting Prohibited Conduct or any Similar Obligation, nor shall
any action taken or failed to be taken by the Company, any Subsidiary
or any other person against an Optionee to enforce, compromise, settle
or waive any Similar Obligation have any effect on the rights of the
Company and the Committee under this Section 16.
17. RESERVATION OF SHARES. 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.
18. EFFECTIVENESS OF PLAN. This Plan was adopted by the Board on, and
shall be effective as of, August 27, 1990, subject to the approval hereof by the
vote of the Company's stockholders required therefor by the Delaware General
Corporation Law and applicable Securities Law Requirements within one (1) year
of the date of adoption by the Board, which approval was obtained at the Annual
Meeting of such stockholders held October 18, 1990. The Board has subsequently
approved increases in the number of Authorized Shares and, with respect to the
increases by the 1995 Authorized Shares and the 1997 Authorized Shares, certain
related amendments to this Plan subject to and which received such required
approval of the Company's stockholders at the Annual Meetings thereof held
August 19, 1992, August 19, 1994, August 31, 1995 and September 10, 1997. On
January 18, 2000, the Plan was further amended by the Board as to matters not
requiring any stockholder action with respect thereto. The Plan shall continue
in full force and effect until (i) terminated by resolution of the Board or (ii)
both (A) all Options granted under the Plan have been exercised in full and (B)
no Authorized Shares remain available for the granting of additional Options.
The termination of the Plan shall not affect Options already granted, which
Options shall remain in full force and effect in accordance with their
respective terms as if this Plan had not been terminated.
19. AMENDMENT OF PLAN AND OUTSTANDING OPTIONS. The Board may, in its
sole discretion, amend the Plan from time to time, provided that any amendment
which Rule 16b-3 or any other Securities Law Requirement requires be approved by
the stockholders of the Company shall be made only with the approval of such
stockholders. Amendments to the Plan shall apply prospectively to all Options
then outstanding under the Plan, except in the case of any amendment which is
adverse to an Optionee or Successor, in which case the amendment shall apply
with respect to the outstanding Options held by the adversely affected Optionee
or Successor only upon the consent of such Optionee or Successor to such
amendment. In exercising its authority under Section 4(b)(v) to amend
outstanding Options, the Committee likewise may make an amendment which
adversely affects the Optionee or Successor entitled to exercise the Option only
upon
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<PAGE> 23
the consent of such Optionee or Successor to such amendment. Notwithstanding the
provisions of this Section 19, the consent of the Optionee or Successor shall
not be required with respect to an amendment to the Plan or to any outstanding
Option which is made in order to comply with Securities Law Requirements or
which causes a Tax Qualified Option no longer to qualify as such.
20. GENERAL PROVISIONS.
a. Grants to Foreign Employees. Notwithstanding any other
provision of 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 Employees
who are foreign nationals and/or employed outside the United States of
America, an Option granted to any such Employee may be on terms and
conditions different from those specified in this Plan in recognition
of the differences in the laws, tax policies and customs applicable to
such an Employee, without the necessity of the Plan being amended to
provide for such different terms and conditions.
b. Nature of Benefits. Benefits realized by an Optionee under
this Plan or any Option granted hereunder shall not be deemed a part
of such Optionee's regular, recurring compensation for purposes of the
termination, indemnity or severance pay law of any country and shall
not be included in, nor have any effect on, the determination of
benefits under any other employee benefit plan or similar arrangement
provided to such Optionee by the Company or a Subsidiary unless
expressly so provided by such other plan or arrangement, or except
where the Committee expressly determines in its sole discretion that
an Option or portion thereof should be so included in order accurately
to reflect competitive compensation practices or to recognize that an
Option has been granted in lieu of a portion of competitive annual
cash compensation.
(c) Determination of Deadlines. If any day on or before which
action under this Plan or any Option granted hereunder must be taken
falls on a Saturday, Sunday or Company-recognized holiday, such action
may be taken on the next succeeding day which is not a Saturday,
Sunday or Company-recognized holiday; provided, however, that the
provisions of this Paragraph (c) shall not apply to, and shall not
extend the time for exercise of, any Option which is terminated for
Misconduct pursuant to Section 10(b) or for Prohibited Conduct
pursuant to Section 16(a).
(d) Governing Law. To the extent that federal laws (such as the
Act or the Code) or the Delaware General Corporation 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.
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<PAGE> 24
(e) Gender and Number. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns
shall include the plural and vice versa.
(f) Captions. The captions contained in this Plan are for
convenience of reference only and do not affect the meaning of any
term or provision hereof.
24
<PAGE> 1
Exhibit 10.1.3
--------------
RESTATED
TELXON CORPORATION
1990 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(AS AMENDED THROUGH AND EFFECTIVE
AS OF JANUARY 18, 2000)
1. PURPOSE OF THE PLAN. The purpose of this Plan is to promote the best
interests of the Company and its stockholders by enabling the Company to attract
and retain the services of experienced and knowledgeable independent directors
by providing such directors the opportunity, pursuant to Options granted under
the Plan, to acquire a proprietary interest in the Company and thereby encourage
them to put forth their maximum efforts for the continued success and growth of
the Company.
2. DEFINITIONS. In addition to such other capitalized terms as
are defined elsewhere in this Plan, the following terms shall when used in this
Plan have the respective meanings set forth below:
(a) "Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(b) "Authorized Shares" means the maximum aggregate number of
shares of Common Stock specified in Section 4(a) as being authorized
for issuance and sale under Options granted pursuant to the Plan,
subject to adjustment thereof in accordance with Section 12.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Commission" means the United States Securities and
Exchange Commission.
(f) "Committee" means the Committee appointed by the Board in
accordance with Section 5(a), if a Committee is appointed. The members
of such Committee shall be members of the Board. If no Committee has
been appointed, any reference to the "Committee" shall be deemed a
reference to the "Board."
<PAGE> 2
(g) "Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
(h) "Company" means Telxon Corporation, a Delaware
corporation.
(i) "Director" means any person elected or duly appointed in
accordance with the certificate of incorporation or by-laws of the
Company, or applicable law, to serve on the Board.
(j) "Employee" means any person, including officers and
Directors who are also officers, employed by the Company or any
Subsidiary. The payment of director's fees by the Company shall not be
sufficient to constitute a person as an "Employee" of the Company.
(k) "Family Member" means (i) the Optionee to whom an Option
is granted under the Plan, the spouse or any sibling of the Optionee or
any ancestor or lineal descendant (including, but not limited to,
adopted and step children) of the Optionee or his or her spouse or
sibling(s), (ii) a trust for the exclusive benefit of the Optionee
and/or person(s) described in clause (i) of this Section 2(k), or the
trustee of such a trust in his, her or its capacity as such, (iii) a
partnership, corporation, limited liability company or similar entity
the partners, stockholders or other owners of which include only the
Optionee and/or person(s) described in clause (i) of this Section 2(k).
(l) "Non-Profit Organization" means any organization which is
exempt from United States income taxes under Section 501(c)(3), (4),
(5), (6), (7), (8) or (10) of the Code.
(m) "Option" means a right granted to a non-Employee Director
pursuant to the Plan to purchase a specified number of shares of Common
Stock at a specified price during a specified period and on such other
terms and conditions as may be specified pursuant to the Plan. Options
may be granted as Tax Qualified Options or as Options which do not
qualify as Tax Qualified Options.
(n) "Option Agreement" means the written agreement evidencing
an Option by and between the Company and the Optionee as required by
Section 14.
(o) "Optioned Stock" means the Common Stock subject to an
Option.
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<PAGE> 3
(p) "Optionee" means a non-Employee Director who receives an
Option.
(p) "Plan" means this Telxon Corporation 1990 Stock Option
Plan for Non-Employee Directors.
(q) "Rule 16b-3" means Rule 16b-3 promulgated by the
Commission under the Act or any similar successor regulation exempting
certain transactions involving stock-based compensation arrangements
from the liability provisions of Section 16 of the Act, as adopted and
amended from time to time and as interpreted by formal or informal
opinions of, and releases published or other interpretive advice
provided by, the Staff of the Commission.
(r) "Securities Law Requirements" means the Securities Act of
1933, as amended from time to time, and the Act and the rules and
regulations promulgated by the Commission under such laws, as such
rules and regulations are adopted and amended from time to time,
including but not limited to Rule 16b-3, and as all such laws, rules
and regulations are interpreted by formal or informal opinions of, and
releases published or other interpretive advice provided by, the Staff
of the Commission, and the requirements of any stock exchange,
automated inter-dealer quotation system or other recognized securities
market on which the Common Stock is listed or traded or in which the
Common Stock is included, as adopted and amended from time to time and
as interpreted by formal or informal opinions of, and other
interpretive advice provided by, the representatives of such stock
exchange, quotation system or other securities market.
(s) "Shares" means the Common Stock as adjusted in accordance
with Section 12.
(t) "Subsidiary" means a corporation of which not less than
fifty percent (50%) of the voting shares are owned by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(u) "Successor" means the estate of an Optionee or a person
who succeeds by will or the laws of descent and distribution, or by a
transfer made pursuant to Section 11(a)(1)(B) or 11(a)(1)(C), to an
Optionee's right to exercise an Option.
3
<PAGE> 4
(v) "Tax Qualified Option" means an Option which is intended
at the time of grant to qualify for special tax treatment under Section
422A or other particular provisions of the Code and the regulations,
rulings and procedures promulgated, published or otherwise provided
thereunder, as adopted and amended from time to time.
3. QUALIFICATION OF PLAN. The Plan is intended to qualify for an
exemption from the operation of Section 16(b) of the Act, pursuant to Rule
16b-3. Further, with respect to Options granted hereunder prior to November 1,
1996, the Plan is structured to comply with the requirements of Rule
16b-3(c)(2)(ii) as then in effect regarding disinterested administration and
formula awards to ensure that Directors then receiving grants under the Plan
continue to be "disinterested persons," as that term is defined in Rule
16b-3(c)(2)(i) as in effect prior to November 1, 1996, for the purpose of
administering the Company's employee stock option plans under such Rule. Insofar
as transactions under this Plan are thus intended to comply with all applicable
conditions of Rule 16b-3, to the extent that any provision of the Plan or action
by the Board or the Committee fails to so comply, such provision or action shall
be deemed null and void to the extent permitted by law and deemed advisable by
the Board or, but only with respect to actions taken by it, the Committee.
4. STOCK SUBJECT TO THE PLAN.
(a) NUMBER OF SHARES ISSUABLE. Subject to adjustment in
accordance with the provisions of Section 12, the maximum aggregate
number of Authorized Shares which may be issued and sold under Options
granted pursuant to the Plan is 400,000 shares of Common Stock. The
Shares issued and sold upon the exercise of Options may be treasury
Shares, Shares of original issue or a combination thereof.
(b) COMPUTATION OF SHARES AVAILABLE FOR GRANT. For purposes of
computing the number of Authorized Shares available from time to time
under the Plan for the grant of Options, the number of Shares subject
to each Option granted pursuant to the Plan shall be provisionally
counted against the Authorized Shares from and after the grant of such
Option but only for so long as and to the extent that such Option shall
remain outstanding and unexercised. Upon the exercise, in whole or in
part, of an Option, the number of Shares issued upon such exercise
shall be permanently deducted from the Authorized Shares, provided that
no such permanent deduction shall be made, and the provisional
deduction against the Authorized Shares shall be reversed, to the
extent that the exercise price is paid through the delivery to the
Company by the person exercising the option of Shares already owned by
such person and/or through the withholding by the
4
<PAGE> 5
Company of Shares from the total number of Shares with respect to which
the Option is exercised. The provisional deduction against the
Authorized Shares shall likewise be reversed to the extent of the
unexercised portion of an Option upon the expiration, lapse,
cancellation, surrender, forfeiture or other termination of such
Option. The Shares covered by any such reversal of a provisional
deduction against the Authorized Shares shall immediately become
available for the granting of new Options under the Plan with respect
thereto.
5. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board or
the Board may, in its discretion, appoint a Committee to administer the
Plan, subject to such terms and conditions as the Board may prescribe,
which Committee, once appointed, shall continue to serve until
otherwise directed by the Board; provided that the granting of Options
under Section 6(c) and any action under the Plan affecting the number
of Shares covered thereby, the exercise price payable thereunder or the
times at which the same may be exercised (including, but not limited
to, the acceleration of the vesting thereof or any extension of the
period (subject to the maximum term fixed by Section 7(a)) during which
such an Option may be exercised) shall not be taken by the Committee
but shall lie solely within the authority of the full Board, subject to
the abstention of the Optionee from any decision regarding any Option
held by him or her. Subject to the provisions of the Plan, the
Committee has authority to manage and control the operation of the
Plan, interpret the provisions of the Plan, and prescribe, amend and
rescind rules and regulations relating to the Plan. From time to time
the Board may increase the size of the Committee and may appoint
additional members thereof, remove members (with or without cause),
fill vacancies however caused and remove all members of the Committee
and thereafter directly administer the Plan.
(b) POWERS OF THE COMMITTEE. Subject to the provisions of this
Plan, the Committee shall have the authority, in its sole discretion:
(i) To determine, upon review of relevant information
in accordance with Section 8(b) of the Plan, the "Fair Market
Value" (as defined in said Section 8(b)) of the Shares;
(ii) To determine the terms and provisions of each
Option;
(iii) To amend any outstanding Option;
5
<PAGE> 6
(iv) To authorize any person to prepare and execute
on behalf of the Company any instrument deemed by the
Committee to be necessary or advisable to evidence or
effectuate the Plan, any Option granted thereunder or any
amendment to the Plan or any Option;
(v) To interpret the Plan;
(vi) To prescribe, amend and rescind, if deemed
necessary or appropriate, rules and regulations relating to
the Plan, to the extent not inconsistent with the Plan;
(vii) To make all other determinations the Committee
may deem necessary or advisable in connection with the
administration of the Plan; and
(viii) To accelerate the time as of which any Option
shall vest and may be exercised by the Optionee; provided,
however, that the Optionee shall not participate in any
decision regarding acceleration of vesting of any Option held
by him or her.
(c) EFFECT OF BOARD AND COMMITTEE DECISIONS. All decisions,
determinations and actions of the Board and the Committee in connection
with the construction, interpretation, administration, application,
operation and implementation of the Plan shall be final, conclusive and
binding on the Company, its stockholders and Subsidiaries, all
Directors and Optionees and the respective legal representatives,
heirs, successors and assigns of all of the foregoing and all other
Successors or other persons claiming under or through any of them.
(d) EXCULPATION AND INDEMNIFICATION. No member of the Board or
the Committee, and no Employee or other agent acting on behalf of the
Board or the Committee, shall be personally liable for any decision,
determination or action made or taken, or failed to be made or taken,
with respect to this Plan or any Option granted hereunder, and the
Company shall fully protect each such person in respect of any such
decision, determination or action and shall indemnify each such person
against any and all claims, losses, damages, expenses and liabilities
arising from or in connection with any such decision, determination or
action.
6. ELIGIBILITY; FORMULA GRANTS.
(a) ELIGIBILITY. Each Director who is not an Employee shall be
eligible to receive grants of Options under the Plan.
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(b) FORMULA GRANTS.
(i) INITIAL GRANTS. Each non-Employee Director who is
newly elected or appointed to the Board after May 19, 1992
shall automatically be granted an Option (the "Initial Grant")
to purchase 25,000 Shares of Common Stock (subject to
adjustment as provided in Section 12) on the day he or she
joins the Board.
(ii) CONTINUING GRANTS. Each non-Employee Director
shall automatically be granted an Option (the "Continuing
Grant") to purchase 10,000 Shares of Common Stock (subject to
adjustment as provided in Section 12) on each anniversary of
his or her election or last re-election to the Board so long
as such Director is serving on the Board on the date of such
anniversary.
(c) DISCRETIONARY GRANTS. In its sole discretion, the Board
may at any time and from time to time while the Plan is in effect grant
to any one or more of the non-Employee Directors Options to purchase
Shares on such terms and subject to such provisions as the Board may,
and the Board is hereby authorized to, determine (which terms and
provisions need not be identical), including but not limited to, (i)
the number of Shares subject to the Option, (ii) the exercise price per
Share (subject to the provisions of Section 8), and (iii) whether the
Option shall become exercisable over a period of time and when it shall
be fully exercisable. Any Options granted under this Section 6(c) shall
be in addition to those automatically granted to eligible Directors
under Section 6(b) above, and there shall be no limit on the number of
Options which may be granted to any one eligible Director or on the
aggregate number of Shares subject to purchase thereunder.
7. TERM OF OPTIONS; VESTING.
(a) TERM OF OPTIONS. The term of each Option shall be seven
(7) years from the date of grant thereof provided that the Committee,
if it intends that a particular Option qualify as a Tax-Qualified
Option, shall observe such restrictions on the term of such Option as
may be imposed by applicable tax laws in order for such Option so to
qualify. In the exercise of its authority under Section 5(b)(iii), the
Committee may extend the term of any Option outstanding under the Plan,
provided that the term of the Option, as so extended, shall expire no
later than ten (10) years after the date as of which the Option was
originally granted. Each Option shall continue in effect in accordance
with its terms notwithstanding that the Plan may be terminated prior to
the expiration of the term of such Option.
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(b) VESTING.
(i) INITIAL GRANTS. Each Option constituting an
Initial Grant shall be exercisable as to one-third of the
Shares subject to the Option after the first anniversary of
the grant date, exercisable as to two-thirds of the Shares
subject to the Option after the second anniversary of the
grant date, and exercisable as to all or any part of the
Shares subject to the Option after the third anniversary of
the grant date.
(ii) CONTINUING GRANTS. Each Option constituting a
Continuing Grant shall be exercisable as to all or any part of
the Shares subject to the Option after the third anniversary
of the grant date.
(iii) DISCRETIONARY GRANTS. Each Option granted
pursuant to Section 6(c) shall be exercisable at such times
and as to all or any part of the Shares subject to the Option
as determined by the Board at the time of grant and reflected
in the Option Agreement evidencing the same.
8. EXERCISE PRICE.
(a) MINIMUM PRICE REQUIRED. The per Share exercise price for
the Shares subject to an Option shall be (i) with respect to Options
granted under Section 6(b), the Fair Market Value per Share as of the
day prior to the date of grant of such Option, and (ii) with respect to
Options granted under Section 6(c), such price per Share as the Board
may determine at the time of grant and reflected in the Option
Agreement evidencing the same, but in no event less than the Fair
Market Value per Share as of the day prior to the date of grant.
(b) DEFINITION OF "FAIR MARKET VALUE". For all purposes under
the Plan, "Fair Market Value" per Share shall be determined by the
Committee in its sole discretion; provided that if the Shares are
included in the NASDAQ National Market or listed on a stock exchange on
the date as of which the same is to be determined, the Fair Market
Value per Share shall be the closing price on such quotation system or
exchange which is the principal trading market for the Shares on the
date of determination or, if no sale price was reported for the Shares
on the date of determination, the closing price on such principal
trading market for the last trading day prior to the date of
determination for which a sale price was reported; provided further,
however, that if the foregoing method of determining Fair Market Value
is inconsistent with the then existing tax law requirements with
respect to any Option which the Committee intends to qualify as a Tax
Qualified Option, then the Fair Market Value per Share shall be
determined by
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<PAGE> 9
the Committee in such manner as is required for such Tax Qualified
Option to qualify as such.
9. FORM OF PAYMENT.
(a) ACCEPTABLE FORMS OF CONSIDERATION. Except as may otherwise
be specified by the Committee in its sole discretion at the time of
grant thereof and reflected in the Option Agreement evidencing such
Option, the following forms of consideration will be accepted in
payment of the exercise price for the Shares to be issued upon exercise
of an Option: (i) cash, (ii) personal check, (iii) bank cashier's
check, (iv) already owned Shares (duly endorsed for transfer with
signature guaranteed), (v) Shares withheld from the Shares to be issued
upon such exercise, (vi) subject to compliance with applicable law, a
commitment for the delivery to the Company of proceeds from the sale,
pursuant to a brokerage or similar arrangement, of Shares to be issued
upon exercise of the Option, or (vii) any combination of the foregoing.
The person or persons entitled to exercise the Option shall be entitled
to elect from the foregoing forms of consideration the form(s) to be
used in effecting payment with respect to a particular exercise;
provided that any election by an Optionee or a Successor 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 or a
Successor 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 or the
Successor with respect to such transaction.
(b) VALUATION OF SHARES DELIVERED OR WITHHELD. Where already
owned Shares, or Shares withheld from those issuable upon such
exercise, are used in payment of the exercise price, such Shares shall
be valued at Fair Market Value as of the day immediately preceding the
date of exercise.
(c) DELIVERY OF ALREADY OWNED SHARES. The Company shall not be
obligated to accept from an Optionee or a Successor Shares he or she
already owns as full or partial payment of the exercise price of an
Option unless such tender is accompanied by a written statement of the
person entitled to exercise the Option certifying that either (i) the
Shares tendered in payment were acquired other than through the
exercise of a stock option granted by the Company, or (ii) the Shares
tendered in payment were acquired through the exercise, on such date(s)
as shall be recited in such
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<PAGE> 10
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. The Committee may, in its sole discretion,
accept, in lieu of physical delivery of the stock certificates
evidencing such Shares, such constructive delivery of such Shares as
may be satisfactory to the Committee.
10. METHOD OF EXERCISE.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any
Option granted hereunder shall be exercisable at such times and under
such conditions as determined by the Committee and as permitted under
the Plan. An Option may not be exercised for a fraction of a Share. In
order to exercise an Option, the person or persons entitled to exercise
it shall deliver to the Company written notice of the number of Shares
with respect to which the Option is being exercised, accompanied by
payment in full of the aggregate price for the Shares so to be
acquired. To constitute an effective exercise of an Option, such notice
and payment shall be addressed to the attention of the Treasurer of the
Company and must be received at the principal executive office of the
Company by 5:00 p.m., local time, on the date of expiration or
termination of the Option. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such
Shares, no right to vote or receive dividends nor any other rights as a
stockholder shall exist with respect to the Optioned Stock
notwithstanding the exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12.
Exercise of an Option shall result in a decrease in the number
of Shares which thereafter shall be available for sale under such
Option by the number of Shares as to which the Option is exercised,
including any Shares withheld from the Shares to be issued pursuant to
such exercise to cover the exercise price.
(b) TERMINATION OF SERVICE. Except as may otherwise be
specified by the Committee in its sole discretion, in the event that an
Optionee shall cease to be a Director (whether by reason of the
Optionee's death or disability or otherwise), the Optionee or his
Successor may exercise the Option (to the extent that the Option was
entitled to be exercised at the time the Optionee ceased to be a
Director) until the earlier of (i) the date three (3) years after the
date Optionee ceased to be a Director (or, if the Committee intends
that a particular Option qualify as a Tax Qualified Option, such lesser
period of time within which the
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<PAGE> 11
applicable tax laws may require that the Option be exercised in order
for such Option so to qualify) or (ii) the expiration date of such
Option, and the Option shall terminate on the earlier of such dates.
11. LIMITED TRANSFERABILITY OF OPTIONS.
(a) Options granted under the Plan and any rights and
privileges appertaining thereto (1) may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner by the Optionee
other than (A) by will or the laws of descent and distribution, (B)
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 (C) with the consent of the Committee in the exercise
of its discretion, to (x) a Family Member, (y) a Non-Profit
Organization, or (z) a charitable trust, and (2) shall not be subject
to execution, attachment or similar process. Transfers pursuant to
clauses (1)(C)(x) may be approved by the Committee if made by gift or
other transfer without the payment of any cash or other economic
consideration by the transferee to the transferor or by sale or other
transfer for cash or other economic consideration or otherwise, whereas
transfers pursuant to clauses (1)(C)(y) and (1)(C)(z) may be approved
by the Committee only if made without the payment of any cash or other
economic consideration by the transferee. A transfer of an Option
pursuant to one of the foregoing clauses (1)(A)-(C) 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.
(i) Written evidence of a transfer made pursuant to
clauses (1)(A) or (1)(B), accompanied by the transferring
Optionee's original copy of the Grant Agreement evidencing the
transferred Option, shall be promptly provided to the Company
upon the entry of the court order effecting, or other judicial
authorization or direction of, such transfer. Upon the
Committee's receipt of the foregoing, the Company shall cancel
the original Option Agreement and re-issue a replacement
Option Agreement to the transferee for the Option or portion
thereof so transferred and to the transferring Optionee for
any balance of the Option he or she retains without transfer.
(ii) Where an Optionee desires to make a transfer
pursuant to clause (1)(C), the Optionee shall, prior to making
of such transfer. provide written notice to the Committee of
the proposed transfer, which notice shall identify the
proposed transferee by name, demonstrate that the proposed
transferee is within one of the classes of transferees
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<PAGE> 12
permitted by such clause, describe in reasonable detail the
terms of the proposed transfer and demonstrate that the
transfer will comply with the applicable requirements of
Section 15. Any transfer pursuant to clause (1)(C) shall
otherwise be in form and substance reasonably acceptable to
Committee; without limiting the generality of the foregoing,
the Committee may condition its approval of such a transfer
upon the transferor paying, or making other arrangements
satisfactory to the Committee for the payment of, all
withholding taxes, if any, which may required to be withheld
in connection with the transfer. Upon the Committee's receipt
and approval of the foregoing with respect to a proposed
clause (1)(C) transfer, the Committee shall notify the
Optionee proposing such transfer in writing of its approval of
the transfer. Following receipt of such Committee approval,
the Optionee shall be entitled to proceed with the transfer
and shall provide the Company written notice of the
consummation thereof. Upon the receipt of such consummation
notice, the Company shall cancel the original Option Agreement
and re-issue a replacement Option Agreement to the transferee
for the Option or portion thereof so transferred and to the
transferring Optionee for any balance of the Option he or she
retains without transfer.
(b) Upon the transfer of an Option or portion thereof in
accordance with Section 11(a), the transferee shall succeed to, and be
entitled to exercise, all of the rights and privileges of the
transferring Optionee with respect to the Option or portion thereof so
transferred, provided that the transferred 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, board membership or
other status of the original Optionee. Any transferee succeeding to an
Option, whether by direct transfer from the original Optionee or, as
permitted by Section 11(c), through further intervening transfers, shall
also be subject to such restrictions on the exercise thereof as may be
applicable to such transferee as a matter of law which would have
applied to the Option were it still held by the original Optionee.
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<PAGE> 13
(c) A Family Member succeeding to an Option pursuant to
Section 11(a)(1)(A) or Section 11(a)(1)(C)(x) may make further
transfers of the Option or any portion thereof pursuant to Section
11(a)(1)(A) or, provided that the eligibility of the further transferee
to received the transfer shall continue to be determined with reference
to the original Optionee, pursuant to Section 11(a)(1)(C). However, a
transferee of an Option pursuant to Section 11(a)(1)(A), 11(a)(1)(B),
11(a)(1)(C)(y) or 11(a)(1)(C)(z) shall not be entitled to make any
further transfer of the Option, except that the rights of a transferee
pursuant to Section 11(a)(1)(A) or 11(a)(1)(B) may be transferred, by
will or the laws of descent and distribution. The rights of any further
transferee permitted by this Section 11(c) shall, as in the case of
each prior transferee as provided in Section 11(b), 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 original Optionee.
(d) The restrictions on transferability set forth in Section
11(a) shall not be construed to limit the ability of an Optionee or
Successor to elect to pay all or any portion of the exercise price
using the form of consideration described in clause (vi) of Section
9(a).
(e) Notwithstanding anything in the foregoing provisions of
this Section 11 to contrary effect, no transferee succeeding to an
Option shall be entitled to exercise the transferred option unless
there shall be in effect a registration statement on an appropriate
form or other filing covering the shares to be acquired through such
exercise as required from time to time under applicable Securities Law
Requirements and any other applicable provisions of law, including
without limitation, state "blue sky" laws and foreign (national and
provincial) securities laws and the rules and regulations promulgated
under any of such laws, or such transferee establishes, to the
satisfaction of counsel for the Company, that there is an applicable
exemption from such Securities Law Requirements and other applicable
laws.
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12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(c) ADJUSTMENTS, IN GENERAL. Subject to the provisions of
Paragraph (b) of this Section 12 and to any required action by the
stockholders of the Company, the number of Shares covered by each
outstanding Option, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Options have yet been
granted or which due to the expiration, lapse, cancellation, surrender,
forfeiture or other termination of an Option under this Plan are again
available for grant, as well as the price per Share covered by each
such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued and outstanding Shares
resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of Shares or any other increase or
decrease in the aggregate number of issued and outstanding Shares
effected without receipt of consideration by the Company; provided,
however, that the issuance of Shares pursuant to the conversion or
exchange of any securities of the Company convertible into or
exchangeable for Shares shall not be deemed to have been "effected
without receipt of consideration." Any fractional Shares which would
otherwise result from any such adjustments shall be eliminated either
by deleting all fractional Shares or by appropriate rounding to the
next higher (fractions of one-half or more) or lower (fractions of less
than one-half) whole Share. All such adjustments shall be made by the
Board in its sole discretion. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into or exchangeable for shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made to, the
number of or exercise price for Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, all outstanding Options will terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by
the Board. The Board may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date
fixed by the Board and give each Optionee or a Successor the right to
exercise his Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise then be
exercisable.
Subject to the provisions of Paragraph (b) of this Section 12,
in the event of a sale of all or substantially all of the assets of the
Company, or the merger or consolidation of the Company with or into
another corporation, each outstanding Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or
a parent or subsidiary of such successor corporation,
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<PAGE> 15
unless the Board, in the exercise of its sole discretion, determines
that, in lieu of such assumption or substitution, the Optionee or a
Successor 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 or Successor entitled to exercise the Option 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.
(d) SPECIAL ADJUSTMENTS UPON CHANGE IN CONTROL. In the event
of a "Change in Control" of the Company (as defined in Paragraph (c) of
this Section 12), unless otherwise determined by the Board in its sole
discretion prior to the occurrence of such Change in Control, the
following acceleration and valuation provisions shall apply:
(i) Any Options outstanding as of the date of such
Change in Control that are not yet fully vested on such date
shall become fully vested; and
(ii) The value of all outstanding Options, measured
by the excess of the "Change in Control Price" (as defined in
Paragraph (d) of this Section 12) over the exercise price,
shall be cashed out. The cash out proceeds shall be paid to
the Optionee or the Successor entitled to exercise the Option.
(e) DEFINITION OF "CHANGE IN CONTROL". For purposes of this
Section 12, a "Change in Control" means the happening of any of the
following:
(i) When any "person," as such term is used in
Sections 13(d) and 14(d) of the Act (other than the Company, a
Subsidiary or a Company or Subsidiary employee benefit plan,
including any trustee of such a plan acting as trustee)
becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated by the Commission under the Act, as adopted and
amended from time to time and as interpreted by formal or
informal opinions of, and releases published or other
interpretive advice provided by, the Staff of the Commission),
directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities; or
(i) The consummation of a transaction requiring
stockholder approval and involving the sale of all or
substantially all of the assets of
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the Company or the merger or consolidation of the Company with
or into another corporation.
(f) DEFINITION OF "CHANGE IN CONTROL PRICE". For purposes of
this Section 12, "Change in Control Price" shall be, as determined by
the Board, (i) the highest closing sale price of a Share, as reported
by the NASDAQ National Market, any stock exchange on which the Shares
are listed or any other recognized securities market on which the
Shares are traded, at any time within the sixty (60) day period
immediately preceding the date of the Change in Control (the "Sixty-Day
Period"), or (ii) the highest price paid or offered, as determined by
members of the Board other than the Optionees, in any bona fide
transaction or bona fide offer related to the Change in Control, at any
time within the Sixty-Day Period.
13. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be (i) with respect to Options granted under Section 6(b), the
dates for the automatic granting thereof as specified in said Section 6(b), and
(ii) with respect to Options granted under Section 6(c), the date on which the
Board makes the determination to grant such Options.
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(a), each such Option Agreement
shall contain such provisions as are required by the terms of this Plan and may
contain such additional provisions not inconsistent with the terms of this Plan
as the Committee in its sole discretion may from time to time authorize. Each
Option Agreement shall also provide for such minimum waiting period from the
date of grant before the Option may be exercised, and such minimum holding
period from the date of the acquisition of Shares upon exercise of an Option for
which such Shares must be held before making any disposition of such Shares, as
may be required by Rule 16b-3.
15. CONDITIONS UPON ISSUANCE OF SHARES AND TRANSFERS OF OPTIONS.
Notwithstanding anything express or implied to the contrary in the Plan or any
Option Agreement made hereunder:.
(a) No Shares shall be issued with respect to an Option unless
the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto, nor shall the transfer of an Option be
effective under Section 11 unless the same, shall comply with all
applicable Securities Law Requirements and all other applicable
provisions of law, including without limitation, any applicable
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<PAGE> 17
state "blue sky" laws and foreign (national and provincial) securities
laws and the rules and regulations promulgated under any of such laws,
and shall be further subject to the approval of counsel for the Company
with respect to such compliance. As a condition to the exercise of an
Option or the issuance of Shares upon exercise of an Option, or to the
transfer of an Option under Section 11, the Company may require the
person exercising such Option to make such representations and
warranties to the Company as may be required, in the opinion of counsel
for the Company, by any of the aforementioned Securities Law
Requirements and other laws, which may include, without limitation,
representations and warranties that the Shares which are being or may
be purchased thereunder are being or will be acquired only for
investment and without any present intention to sell or distribute such
Shares.
(b) The Company shall not have any liability to any Optionee
or Successor 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
effect any registration or other qualification or obtain such other
approval or authority from any governmental authority (domestic or
foreign) or self-regulatory organization having jurisdiction thereover,
which registration, qualification, approval or 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 in respect of
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
registration, qualification, approval or authority.
(c) The Company may, in its discretion, but shall be under no
obligation to, effect or obtain any registration or other qualification
or approval of any Option granted or transferred hereunder, or of any
Shares issuable upon the exercise thereof, under any applicable
Securities Law Requirements or any other applicable provisions of law,
including without limitation, any applicable state "blue sky" laws and
foreign (national and provincial) securities laws and the rules and
regulations promulgated under any of such laws, and in the event any
such registration, qualification or approval is not effected or
obtained, such Option or Shares, as the case may be, shall be subject
to such transfer and/or other restrictions (including, if so provided
by such laws, rules and regulations, the prohibition of a particular
transaction) as may be imposed by such laws, rules and regulations
under such circumstances. By way of illustrating, but without limiting
the generality of, the foregoing provisions of this Section 15(c), as
of the time of the January 18, 2000 amendments to the Plan, the Shares
issuable upon the exercise of an Option by a non-Employee director were
covered by an effective registration statement which the Company had
prior to that date elected to file
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(consistent with the discretion recognized in this Section 15(c)) with
the Commission on Form S-8 and would be freely tradable (subject to the
filing of a Form 144 and other applicable requirement of Rule 144 as
then promulgated by the Commission to the extent applicable to the
non-Employee director at the time of any trade) by the non-Employee
director, but until the Company were to file (as of the date of such
amendments, the Company has not yet filed and may be delayed in doing
so until it is eligible to file) with the Commission a registration
statement with respect thereto pursuant recent amendments to Form S-8,
or were to elect to register under another available Form, the Shares
issuable to the transferee of an Option under Section 11 would not upon
his or her exercise thereof be able to dispose of such Shares on the
public securities markets for such period as may be required by Rule
144 in the absence of an applicable Form S-8 or other registration
statement. In the absence of such an effective registration, the
Company may condition the transfer of an Option upon its receipt of a
written acknowledgment from the transferee that the Option and the
Shares issuable thereunder are subject to such transfer and/or other
restrictions and require the Option Agreement evidencing such Option
and the Shares so issued, as the case may be, shall bear such legends
or include other appropriate provisions 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, October 18, 1990; subject to the approval hereof by the vote of
the Company's stockholders required therefor by the Delaware General Corporation
Law and applicable Securities Law Requirements within one (1) year of such
adoption by the Board, which approval was obtained at the Annual Meeting of such
stockholders held September 5, 1991. Amendments to this Plan changing the
frequency and amount of automatic grants and as to certain other matters were
adopted by the Board subject to the, and which received such, required approval
of the Company's stockholders at the Annual Meeting thereof held August 19,
1992. The Board also approved an increase in the number of Authorized Shares and
certain other amendments to this Plan subject to and which received such
required approval of the Company's stockholders at the Annual Meeting thereof
held August 31, 1995. On September 10, 1997, September 14, 1998, September 22,
1999 and January 18, 2000, the Plan was further amended by the Board as to
matters not requiring any stockholder action with respect thereto. The Plan
shall continue in full force and effect until (i) terminated by resolution of
the Board or (ii) both (A) all Options granted under the Plan have been
exercised in full and (B) no Authorized Shares remain available for the granting
of additional Options. The termination of
18
<PAGE> 19
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. 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 or a Successor, in which case the amendment shall apply
with respect to the outstanding Options held by the adversely affected Optionee
or Successor only upon the consent of such Optionee or Successor to such
amendment. In exercising its authority under Section 5(b)(vii) to amend
outstanding Options, the Committee likewise may make an amendment which
adversely affects the Optionee or Successor entitled to exercise the Option only
upon the consent of such Optionee or Successor to such amendment.
Notwithstanding the provisions of this Section 18, the consent of the Optionee
or Successor 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.
(g) GRANTS TO FOREIGN DIRECTORS. Notwithstanding any other
provision of this Plan to the contrary but subject to applicable
Securities Law Requirements and tax laws, to the extent deemed
necessary or appropriate by the Committee in its sole discretion in
order to further the purposes of the Plan with respect to Directors who
are foreign nationals and/or employed outside the United States of
America, an Option granted to any such Director may be on terms and
conditions different from those specified in this Plan in recognition
of the differences in the laws, tax policies and customs applicable to
such a Director, without the necessity of the Plan being amended to
provide for such different terms and conditions.
(h) DETERMINATION OF DEADLINES. If any day on or before which
action under this Plan or any Option granted hereunder must be taken
falls on a Saturday, Sunday or Company-recognized holiday, such action
may be taken on the next succeeding day which is not a Saturday, Sunday
or Company-recognized holiday.
(i) GOVERNING LAW. To the extent that federal laws (such as
the Act or the Code) or the Delaware General Corporation Law do not
otherwise
19
<PAGE> 20
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.
(j) 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.
(k) 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.
20
<PAGE> 1
Exhibit 10.1.4.a
The Company's Non-Qualified Stock Option Agreement with Dr. Raj Reddy,
originally scheduled to expire October 17, 1993, was previously extended for an
additional five year term ending October 17, 1998 at the same $14.625 exercise
price per share at which the option was originally granted. On September 15,
1998, the option agreement was further extended to an expiration date of October
17, 2003 while continuing the original exercise price. On September 22, 1999,
the option agreement was further amended to permit the exercise of the option
for a period of three years from the date Dr. Reddy ceases to be a director of
the Company, without any distinction as to whether that occurs by reason of
death, disability or otherwise. On January 18, 2000, the option agreement was
further amended to permit the transfer of the option, in whole or any part, to
the same extent and on and subject to the same terms and conditions, and the
exercise of any transferred portion thereof by the transferee, as if the option
were one granted under the Company's 1990 Stock Option Plan for Non-Employee
Directors as in effect from time to time.
<PAGE> 1
EXHIBIT 10.1.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective 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 DAVID H. BIGGS ("Key Employee").
WITNESSETH:
WHEREAS, Key Employee agreed to enter into Employer's service as Vice
President and Chief Technology Officer based on the inducement provided him at
the assurance of Employer's management that his services would be compensated in
the form of 35,000 shares of Employer's Common Stock (the "Shares");
WHEREAS, Key Employee, as an accommodation to the needs of Employer with
respect to his services, began working for Employer pending the finalization of
the terms under which he would become entitled to the Shares and which would
otherwise govern his services.
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 August 6, 2000 (the "Ending Date"), subject to the earlier
termination of such employment by Employer or Key Employee
pursuant to Section 6 (the "Employment Period").
2. NATURE OF DUTIES.
a. Key Employee's duties and responsibilities shall be to serve
as Vice President and Chief Technology Officer of Employer (or
in such other 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"), may at any time and from time to
time in his 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
Section 2(a), devoting all of his time and attention during
normal business hours to Employer's business; provided that
Key Employee shall be free to honor his commitments for
speaking engagements extant as of the Effective Date and his
obligations to meet with and otherwise serve on the boards of
directors of which he was a member as of the Effective Date
("Prior Commitments").
<PAGE> 2
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. Compensation. As full compensation for Key Employee's
services, in lieu of any cash salary and bonus and of
participation in any of the preexisting stock-based
compensation plans in which Employer employees may have
opportunity to participate, Employer agrees to pay and issue
to Key Employee, and Key Employee agrees to accept from
Employer, the Shares (sometimes also referred to as the
"Compensation"), subject to the terms and conditions set forth
in this Agreement. In exchange for the performance of services
described in Section 2, such Compensation shall be earned
according to the schedule in Section 3(a)(i) below. Of the
total 35,000 Shares issuable to Key Employee, 23,200 Shares,
representing all of the shares currently available for grant
under Employer's 1992 Restricted Stock Plan, as amended (the
"Plan"), will, when earned, be issued to Key Employee pursuant
to that Plan, and the remaining 11,800 Shares will, when
earned, be issued to Key Employee outside the Plan (the
"Non-Plan Shares"). The Non-Plan Shares shall be subject to
the dividend and voting rights provisions of Plan Section
6.03, as the same may be implemented by the terms of the award
agreement between Employer and Employee with respect to the
Plan Shares, and the adjustment provisions of Plan Section 7
with the same force and effect as if such shares had been
awarded thereunder. Such voting provisions, but not the
dividend provisions, shall continue to apply to the Shares to
the extent that Key Employee elects under Section 4(a) below
to defer payment of the Compensation represented thereby and
for so long as the same continue to be subject to such
deferral. Employer and Key Employee acknowledge and agree that
the issuance of such Shares to Key Employee is an inducement
essential to Key Employee's entering into the employ of
Employer as provided in this Agreement and is subject to the
approval thereof by Employer's Board of Director or an
appropriate committee thereof.
i. Employer and Key Employee acknowledge and agree that
Compensation shall be earned and payable to the Key
Employee in accordance with the following schedule. Except
as otherwise provided below, in the event that Key
Employee's employment under this Agreement is terminated
and such termination becomes effective prior to the time
specified in section 3(a)(iii) on the applicable Vesting
Date indicated below, Key Employee will forfeit his rights
to any and all then nonvested Compensation. The period
during which the respective portions of the Shares are
subject to forfeiture shall constitute the "Restricted
Period" with respect to those Shares.
<TABLE>
<CAPTION>
NUMBER OF
VESTING DATE ISSUED UNDER SHARES
------------ ------------ ---------
<S> <C> <C> <C>
January 2, 2000 Non-Plan 11,800
Plan 5,700
March 31, 2000 Plan 7,500
August 6, 2000 Plan 10,000
</TABLE>
<PAGE> 3
ii. During the applicable Restricted Period, that portion of
the Shares may not be sold, assigned, exchanged,
transferred, pledged, hypothecated or otherwise disposed
of or encumbered.
iii. Provided that Key Employee's employment is not terminated
prior to 5:00 p.m. The Woodlands, Texas time on a Vesting
Date, the Key Employee shall vest in the Compensation in
accordance with the schedule set forth in Section 3(a)(i).
iv. Notwithstanding the vesting schedule set forth in Section
3(a)(i), in the event of a "Change in Control", as defined
in Section 4(c)(ii), Key Employee shall immediately become
fully vested in any nonvested Compensation.
v. Notwithstanding the vesting schedule set forth in Section
3(a)(i), in the event Key Employee's employment is
terminated by reason of death pursuant to Section 6(a) or
permanent disability pursuant to Section 6(b), Key
Employee shall become vested in the amount of Compensation
earned from the last Vesting Date, determined by
multiplying the Compensation scheduled to be paid on the
next Vesting Date by the ratio of the number of days
elapsed from the preceding Vesting Date (or in the absence
thereof, the Effective Date) through his date of
termination over the total number of days from the most
recent Vesting Date (or in the absence thereof, the
Effective Date) through the next following Vesting Date
(any fractional Share resulting from such multiplication
being rounded up to the next whole Share). Whether the Key
Employee's termination of employment is due to permanent
disability shall be determined by the Employer in good
faith.
vi. Notwithstanding the vesting schedule set forth in Section
3(a)(i), in the event Key Employee's employment is
terminated other than (1) by reason of death or permanent
disability or (2) by Employer for "cause" (as defined in
Section 6(c)), Key Employee shall become vested in any
nonvested Compensation in accordance with the Vesting
Dates set forth in Section 3(a)(i), provided such
nonvested Compensation has not been forfeited pursuant to
Section 8(b).
b. Expenses. 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.
c. Vacation. During the Employment Period, Key Employee shall
be entitled to four weeks vacation. Time required for
fulfilling Prior Commitments will not be counted toward such
vacation.
d. 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.
e. Living Expenses. To facilitate Employee's service to Employer
under this Agreement, Employer agrees, in respect of the
Employment Period, to pay directly, or reimburse
<PAGE> 4
Employee, or provide Employee with an agreed upon allowance
(subject to reconciliation and reasonable adjustment), for
the following (collectively, "Living Expenses"):
i. housing at 10600 Six Pines Drive, Apt. 1324, The
Woodlands, Texas or comparable accommodations in
reasonable proximity to Employer's World Technology
Center in The Woodlands, Texas (the "World Technology
Center"),
ii. fares for regularly scheduled airline transportation
between (1) Employer's World Technology Center and (2)
Employee's Gardnerville, Nevada family residence or
other extended family locations in contiguous States,
iii. a mutually acceptable leased or rental automobile for
Employee's use while working out of Employer's World
Technology Center,
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(e).
4. DEFERRED COMPENSATION PLAN.
a. Election. On or before December 10, 1999, Key Employee may
elect to defer the payment of all or any lesser number of
whole Shares of the Compensation otherwise payable under
Section 3(a). Once an election is made under this Subsection
(a), Key Employee may not amend or revoke such election. All
amounts which Key Employee so elects to defer shall continue
to be subject to the vesting and forfeiture provisions of
Section 3(a).
b. Deferred Compensation Account. The amount of Compensation
elected to be deferred under Section 4(a) shall constitute
Key Employee's "Deferred Compensation Account". Key
Employee's Deferred Compensation Account shall be adjusted
to reflect the payment of any distribution of any kind,
including but not limited to, a cash dividend, stock
dividend, stock split, combination of shares,
recapitalization or other change in the capital structure
with respect to the common stock of the Employer. Employer
shall maintain or cause to be maintained appropriate records
of the Deferred Compensation Account.
c. Events Triggering Distribution. Key Employee shall receive a
distribution(s) from his Deferred Compensation Account upon
the earliest to occur of any of the following "triggering
events":
i. Death or Disability. The death of Key Employee or the
termination of his employment by reason of permanent
disability. Whether Key Employee's termination of
employment is due to permanent disability shall be
determined by Employer in good faith.
ii. "Change in Control". A change in the control or
ownership of Employer, which shall mean (a) any
"person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") or any comparable successor provisions
(other than Employer, any business association in an
unbroken chain of such associations beginning with
Employer if each of the association other than the last
association in the unbroken chain owns equity interests
possessing fifty percent (50%)
<PAGE> 5
or more of the total combined voting power of all
classes of equity interests in one of the other
associations in such chain, or an employee benefit plan
of any of the foregoing, including any trustee of such a
plan acting as trustee) becomes the "beneficial owner"
(as defined in Rule 13d-3 promulgated under the Exchange
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 Securities and Exchange
Commission), directly or indirectly, of Employer
securities representing fifty percent (50%) or more of
the combined voting power of Employer's then outstanding
voting securities; (b) the consummation of a transaction
requiring stockholder approval and involving the sale of
all or substantially all of Employer's assets or the
merger or consolidation of Employer with or into another
corporation; or (c) John W. Paxton, Sr. ceasing for any
reason to be the chief executive officer of Employer.
iii. Significant Increase in Share Price. The attainment by
Employer's common stock of a closing sale price, as
reported on The Nasdaq National Market Tier of The
Nasdaq Stock Market (or other securities market or
exchange on which Employer's Common Stock is then
traded) for any trading day on or after the Vesting Date
for the particular portion of the Shares, equal to or
greater than the price per share specified in the
schedule below:
<TABLE>
<CAPTION>
SPECIFIED PRICE AMOUNT TO
VESTING DATE PER SHARE BE DISTRIBUTED
------------ --------------- --------------
<S> <C> <C> <C>
January 2, 2000 $20.00 Vested Deferred
Compensation Account
March 31, 2000 $20.00 Vested Deferred
Compensation Account
August 6, 2000 $25.00 Vested Deferred
Compensation Account
</TABLE>
For purposes of this Subsection (iii), "Vested Deferred
Compensation Account" shall mean the portion, and only
that portion, of the Deferred Compensation Account which
has vested as of the applicable Vesting Date as
determined in accordance with Section 3(a).
iv. Following Second Anniversary of Vesting Date. The second
(2nd) anniversary of each Vesting Date, but only with
respect to the portion of the Deferred Compensation
Account vesting on such Vesting Date.
d. Method of Distribution. Except as the application of other
provisions of this Agreement may otherwise permit or require,
upon the occurrence of a triggering event, a distribution
shall be made to Key Employee , payable as soon as
administratively feasible (but in all events within thirty
(30) days after the occurrence of the triggering event, of
all, and not less than all, of the Deferred Compensation
Account or portion thereof to which such triggering event
relates.
e. Contributions to "Rabbi" Trust. Employer may establish a trust
with respect to the Deferred Compensation Account which is
intended to be a grantor trust, within the meaning of Section
671 of the Internal Revenue Code, of which the Employer is the
<PAGE> 6
grantor (the "Trust"). Notwithstanding any other provision of
this Agreement, the funds of the Trust will remain the
property of the Employer and will be subject to the claims of
its creditors in the event of its bankruptcy or insolvency.
Neither Key Employee nor any person claiming through Key
Employee will have any priority claim on the funds of the
Trust, or any security interest or other right, superior to
the rights of a general creditor of Employer.
f. Designation of Beneficiary. Key Employee may designate a
beneficiary (or beneficiaries) who shall be entitled to
receive that portion of Key Employee's vested undistributed
Deferred Compensation Account. Key Employee may change or
revoke a beneficiary designation by notifying Employer in
writing. The consent of Key Employee's current beneficiary is
not required for a change of beneficiary, and no beneficiary
shall have any rights under this Agreement (or, if established
pursuant to Section 4(e), the Trust) except as are provided by
the terms hereof (or thereof). The rights of a beneficiary who
predeceases Key Employee immediately terminate, unless Key
Employee specifies to the contrary in writing. If Key Employee
fails to designate a beneficiary, Employer (or, if
established, the Trust) shall pay the vested undistributed
amount of the Deferred Compensation Account to Key Employee's
surviving spouse, or to Key Employee's estate in the absence
of a surviving spouse.
5. ISSUANCE OF SHARES.
a. Key Employee makes the following representations, warranties,
acknowledgements and agreements to Employer with respect to
the issuance of the Shares to him:
i. Key Employee understands that the Non-Plan Shares have
not been registered, and that Employer is under no
obligation to register, and has not made any assurances
to Employee regarding the registration of, the Non-Plan
Shares, under the Securities Act of 1933, as amended
(the "Securities Act"), or any state securities laws;
ii. The Shares are being offered and sold pursuant to
exemptions from registration contained in the Securities
Act and applicable state securities laws based in part
upon Key Employee's representations contained in this
Section 5(a);
iii. Key Employee has had the opportunity to his satisfaction
to ask question of and receive answers from Employer's
management regarding the business, assets, financial
condition, prospects and affairs of Employer;
iv. Key Employee is an "accredited investor" (as such term
is defined in Rule 501 under the Securities Act) and has
such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and
risks of his investment in the Shares and of protecting
his interests in connection with such investment;
v. Key Employee is not aware of the publication of any
advertisement in connection with the transactions
contemplated by Section 3(a)(i);
vi. Key Employee is acquiring the Shares for his own account
for investment only, and not with a view toward their
distribution, can bear a total loss of the investment
<PAGE> 7
without materially impairing his financial condition,
and can bear the economic risk of the investment
indefinitely; and
vii. Key Employee understands that he cannot resell the
Non-Plan Shares unless and until the Non-Plan Shares are
registered under the Securities Act and/or applicable
state securities laws or an exemption from such
registration is available and that the certificate
evidencing the Non-Plan 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 Key Employee to
transfer all or any portion of the Non-Plan Shares he
may subsequently desire to transfer.
b. By the initial Vesting Date, Employer will cause one or more
stock certificates to be issued in the name of Key Employee
(or if a Trust is established pursuant to Section 4(e), the
trustee thereunder (the "Trustee")) as registered owner. Each
such certificate shall bear legends in substantially the
following form (appropriately revised in the case of Shares
registered in the name of the Trustee):
i. Each certificate representing all of any portion of the
Non-Plan Shares shall bear the following legends:
"Transferability of this Certificate and the shares
of Common Stock represented hereby are subject to the
terms and conditions (including forfeiture) of an
employment agreement, effective as of June 7, 1999,
entered into by the registered owner with Telxon
Corporation. Copies of such agreement are on file at
the offices of Telxon Corporation, 3330 West Market
Street, Akron, Ohio 44333. The Restricted Period
during which these shares are subject to certain
vesting conditions and transfer restrictions under
such agreement expires January 2, 2000.
The Shares of Common Stock represented by this
Certificate have not been registered under the
Securities Act of 1933 and may not be sold, assigned,
transferred, pledged or hypothecated unless (A) the
same shall first have been registered or received
such other regulatory approval or been described in
any such regulatory filing as may be required under
applicable law or (B) the issuer shall have received
an opinion of counsel that an exemption from such
registration or other regulatory requirement is
available with respect to such transaction."
ii. Each certificate representing all or any portion of the
Plan Shares shall bear the following legends:
"Transferability of this Certificate and the shares
of Common Stock represented hereby are subject to the
terms and conditions (including forfeiture) of the
Telxon Corporation 1992 Restricted Stock Plan and of
a Restricted Stock Award Agreement, Grant Number 059,
entered into between the registered owner and Telxon
Corporation. Copies of such Plan and Agreement are on
file at the offices of Telxon Corporation, 3330 West
Market Street, Akron, Ohio 44333. The Restricted
Period during
<PAGE> 8
which these shares are subject to certain vesting
conditions and transfer restrictions under the Plan
and Award Agreement expires [INSERT APPLICABLE
VESTING DATE].
The Shares of Common Stock represented by this
Certificate have been registered under the Securities
Act of 1933 but, for so long as the registered owner
shall be an "affiliate" of the issuer within the
meaning of Rule 144 (or any successor provision)
promulgated under such Act, may not be sold,
assigned, transferred, pledged or hypothecated unless
(A) the same shall first have been registered or
received such other regulatory approval or been
described in any such regulatory filing as may be
required under applicable law or (B) the issuer shall
have received an opinion of counsel that an exemption
from such registration or other regulatory
requirement is available with respect to such
transaction."
iii. Each certificate evidencing the Shares registered in the
name of Key Employee shall, pending the occurrence of
the applicable Vesting Date, be deposited with Employer,
together with such stock powers in blank as may be
requested of Key Employee by Employer at any time prior
to the applicable Vesting Date (which Key Employee
agrees to execute and deliver upon such request). In the
event of any forfeiture of Shares due to the termination
of Key Employee's employment prior to the applicable
Vesting Date, and if required in order to effect the
cancellation of any such forfeited Shares, the stock
powers so delivered by Key Employee may be used in
processing the same. The Trust shall similarly provide
for the surrender of any forfeited Shares by the Trustee
to Employer for cancellation.
iv. Upon the vesting of the Shares evidenced by a stock
certificate, the restrictions imposed by Section
3(a)(ii) shall lapse with respect to those Shares, the
legends which are no longer applicable shall, upon Key
Employee's request, be removed from the certificate(s)
representing such Shares, and Employer shall deliver, or
shall cause its stock transfer agent to deliver, to Key
Employee (in the case of certificates issued to the
Trustee, upon receipt thereof by Employer or its stock
transfer agent from the Trustee) replacement
certificate(s) for such Shares, together with any stock
power relating to the replaced certificate(s) (unless
required to be used in processing the issuance of the
replacement certificate(s)).
c. Notwithstanding anything to the contrary in this Agreement or
any other agreement relating to the Deferred Compensation
Account, the Trust or otherwise to the subject matter hereof,
Key Employee shall not be entitled to receive delivery of any
particular of the Shares, and neither Employer nor, in the
case of any Shares deposited into the Trust, the Trustee, is
obligated to effect or cause the same, unless and until Key
Employee pays, or makes arrangements reasonably acceptable to
Employer for the payment of, all taxes which Employer may be
obligated to withhold with respect to such Shares
6. TERMINATION.
a. Key Employee's employment shall terminate automatically upon
Key Employee's death.
<PAGE> 9
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 in good
faith according to the same standards applicable to the
employees of Employer generally under the disability benefits
referred to in Section 3(d).
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 prior
written notice to Employer.
7. EFFECTS OF TERMINATION.
a. In the event of automatic termination of employment by reason
of Key Employee's death pursuant to Section 6(a), or by
Employer by reason of Key Employee's permanent disability
pursuant to Section 6(b), all of Employer's obligations under
this Agreement shall end except for any Compensation payable
under Section 3(a) subject to Section 4, Employer's
obligations to pay Key Employee's Living Expenses incurred to
the date of termination (for purposes of this Subsection (a),
the date of death or the expiration of the 30-day notice
period under Section 6(b), as applicable). 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 Section 3(d), if any.
b. In the event Key Employee voluntarily terminates his
employment, pursuant to Section 6(d) or otherwise, all of
Employer's obligations under this Agreement shall end except
for any Compensation payable under Section 3(a) subject to
Section 4, Employer's obligations to pay Key Employee's Living
Expenses incurred to the date of termination (which, for
purposes of this Subsection (b), shall be thirty (30) days
after the date on which notification is provided by Key
Employee to Employer pursuant to Section 6(d) (or if a lesser
period of advance notice is given by Key Employee, the date
his termination becomes effective)).
c. In the event Employer exercises its right of termination
without cause pursuant to Section 6(c)(ii), all of Employer's
obligations under this Agreement shall end, except that
Employer shall continue to be obligated to:
i. pay any Compensation payable under Section 3(a) subject
to Section 4,
ii. pay Key Employee's Living Expenses incurred to the date
of termination; and
iii. provide 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) the
Ending Date, (B) the commencement date
<PAGE> 10
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.
d. In the event Employer exercises its right of termination for
cause pursuant to Section 6(c)(i), all of Employer's
obligations under this Agreement shall end except for any
benefit payable under Section 3(a) subject to Section 4 and
Employer's obligations to pay Key Employee's Living Expenses
incurred to the date of such termination.
8. 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 Subsections
8(a)(i) through 8(a)(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 completion of the vesting of nonvested Compensation
pursuant to Section 3(a)(vi), 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 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 Employer's employee, officer,
agent or representative relationships.
b. Tolling; Relief of Obligations. In the event that Key Employee
breaches any provision of this Section 8, (i) such violation
shall toll the running of the twelve (12) month period set
forth in Section 6(a) from the date of commencement of such
violation until such violation
<PAGE> 11
ceases, and (ii) Key Employee shall immediately forfeit all
nonvested Compensation and the nonvested portion of his
Deferred Compensation Account.
c. "Blue Penciling" or Modification. If either the length of
time, geographic area or scope of restricted business activity
set forth in Section 8(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.
9. 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 and all copies thereof in any form which are in
any manner in his control or possession, as well as all other
Employer property.
10. 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
<PAGE> 12
other person or persons) may 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 or administrative
or other proceeding or controversy in connection therewith, all
expenses incident thereto be borne by Employer.
11. INDUCEMENT; REMEDIES INADEQUATE; AND SURVIVAL.
a. The covenants made by Key Employee in favor of Employer under
Sections 8, 9 and 10 and this Section 11 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 Compensation and
all other benefits and remuneration provided for herein) in
confirmation of the confidentiality, non-competition and
inventions obligations which Key Employee hereby acknowledges
and agrees have been terms and conditions of his service to
Employer since the commencement thereof on the Effective Date.
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 Sections 8, 9 and 10 and this Section 11, 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 Section 8, 9 or 10 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 Section 8, 9 or 10 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 Sections 8, 9 and 10, Key
Employee agrees that he will not raise in such proceedings any
defense that Employer has an
<PAGE> 13
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 Sections 8, 9 and
10 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 Section 8, 9
or 10 which may not be specifically enforceable shall
nevertheless, if breached, give rise to a cause of action for
monetary damages.
d. As used in Sections 8, 9 and 10 and in this Section 11, 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 Sections 8, 9 and 10 and this Section 11 shall
survive full payment by Employer 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 Sections 8, 9 and 10 and this
Section 11, and to the extent applicable thereto, Sections 15
through 22, 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.
f. Notwithstanding anything in Sections 8, 9 or 10 or this
Section 11 the application of which may otherwise have
contrary effect, the technology development efforts which were
being pursued by Key Employee prior to his commencement of
employment with Employer as described on the attached Schedule
A and, so long as the same are not during the term of his
employment hereunder actively pursued by Key Employee on
Employer time or premises or with the direct use of Employer
resources, the continuation thereof or any commercialization
or other exploitation thereof shall constitute a breach of any
of the covenants, restrictions and agreements to be performed
or observed by Key Employee under this Agreement, and Employer
shall not have any right, title or interest of any kind or
nature whatsoever to or in the whole or any part thereof.
12. 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.
13. 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.
14. 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
<PAGE> 14
shall not be required to deposit in escrow or otherwise set aside
any moneys in advance of the due date for payment thereof to Key
Employee.
15. 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.
Key Employee may also give notice to Employer by fax, to the
attention of its Chief Executive Officer, at (330) 664-2888 (or such
other number of which Employer may duly notify Key Employee), which
notice shall be deemed effective as of the time shown in the
telephonic confirmation of transmission; Key Employee shall send a
confirmation copy of any fax notice by first class mail, postage
prepaid, to Employer's Chief Executive Officer at Employer's
principal executive office.
16. 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.
17. 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, of
Employer with respect to Key Employee.
18. 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.
19. 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.
20. 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.
21. 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.
22. GOVERNING LAW. This Agreement shall be interpreted, construed, and
enforced in all respects in accordance with the laws of the State of
Ohio.
<PAGE> 15
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Effective Date.
TELXON CORPORATION KEY EMPLOYEE
BY: /S/ JOHN W. PAXTON, SR. DAVID H. BIGGS
------------------------ -----------------------------
JOHN W. PAXTON DAVID H. BIGGS
CHAIRMAN & CEO
<PAGE> 1
EXHIBIT 10.1.14
[TELXON LOGO]
REVISED OFFER LETTER
Margaret E. Pais
Vice President
Human Resources/Administration
January 24, 2000
Mr. Gene Harmegnies
16122 SE 171st Place
Renton, WA 98058
Dear Gene:
I am pleased to offer you the regular full-time exempt position of Vice
President, Consulting/Systems Integration for Telxon Corporation in our
Cincinnati, Ohio (Milford), office. The following are terms of the agreement
between you and Telxon:
1. Your bi-weekly starting rate will be $7,692.31, which equates to
$200,000.00 annualized.
2. You will report to John Paxton. Your tentative start date will be
January 31, 2000.
3. You are eligible for an incentive potential of $70,000.00 (gross) based on
the completion of mutually agreed upon goals between you and John Paxton.
4. You are eligible to receive a grant of 50,000 in options under the Telxon
Corporate Stock Options Plan, which options shall vest in equal amounts
over a three-year period, from the initial grant date. The options are
subject to the approval of the Chairman of the Board and the Compensation
Committee of The Board of Directors.
5. You are eligible to participate in Telxon's insurance plans, including
medical, dental, accident and life, upon hire. You are also eligible to
participate in Telxon's profit sharing 401(k) plan during the next open
enrollment period.
6. You have discussed this position with John and understand the duties and
responsibilities associated with it. It is Telxon's intention and
expectation that you will fulfill those duties and responsibilities without
violating any legal obligations you may have to your former employers.
7. I understand you will be relocating from the Seattle, Washington, area to
the Cincinnati, Ohio, area. Telxon will reimburse your relocation expenses
as outlined in the enclosed "Relocation and Moving Policy." However, as an
exception to the relocation policy, Telxon will provide you with a $5,000
resettlement allowance. Prosource Properties, Ltd. will assist you in
handling the details of your relocation. Please sign the enclosed
Relocation Agreement and return it to the Human Resources Department.
TELXON CORPORATION/3330 West Market Street/P.O. Box 5582/Akron, Ohio 44334-0582
330.664.2950/800.800.8001/Fax 330.664.2271/[email protected]
<PAGE> 2
Mr. Gene S. Harmegnies
Revised Offer Letter
Page 2
8. As a condition of employment, you will be required to complete a
Pre-Employment Drug Screen Examination. The laboratory for the examination
is located at Marketplace Chiropractic/Test Net; 2107 Elliott Avenue, Suite
203, Seattle, Washington 98121. The telephone number is (206) 441-0109.
Please bring the enclosed "Chain of Custody" form with you to the
examination. YOU WILL NEED TO COMPLETE THIS EXAMINATION PRIOR TO YOUR START
DATE. This offer will be contingent upon satisfactory completion of
background and reference reviews and successfully passing the
pre-employment drug examination. In the event you begin employment prior to
Telxon receiving your drug screening results, benefits packages outlined
previously will not be activated until successful results have been
received.
9. In addition, it is a condition of employment with Telxon Corporation that
you sign the ENCLOSED EMPLOYMENT AGREEMENT and STATEMENT OF CORPORATE
ETHICS to be received by the Human Resources Department no later than your
start date. Nothing in this letter supersedes or alters any of the
provisions named in the Employment Agreement and Statement of Corporate
Ethics, including but not limited to, the non-compete and at-will
relationship. The Employment Agreement, Statement of Corporate Ethics and
this letter constitute the entire terms and conditions of our agreement.
You acknowledge that there are no other verbal agreements or promises
regarding your employment. If you should have any questions concerning the
Employment Agreement or Statement of Corporate Ethics, please address this
with me as soon as possible.
Please complete all of the necessary new hire forms prior to your start date and
on your first day of employment, report to your local office administrator so
that she may assist you in sending the paperwork to Peggy Norris, Human
Resources Coordinator, in the Akron Human Resources Department.
This offer is valid until the close of business on Thursday, January 27, at 5:00
PM ET. If we do not hear from you on or before the specified date, please
consider the offer null and void.
We look forward to the prospect of your joining Telxon Corporation, Gene. Should
you have any questions or need additional information, please contact me at
(800) 800-8001, Extension 2950.
Sincerely,
/s/ Margaret E. Pais
Margaret E. Pais
Vice President
Human Resources/Administration
MEP/lkk
Enclosure
cc: Mr. John W. Paxton, Sr.
I accept the terms of this agreement and will start on 1/31/00
-------
Signature /s/GENE HARMEGNIES
------------------
TELXON CORPORATION/3330 West Market Street/P.O. Box 5582/Akron, Ohio 44334-0582
330.664.1000/800.800.8001/Fax 330.664.2220/www.telxon.com
<PAGE> 1
Exhibit 10.3.3.d
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") is entered into as of November
18, 1999 between TELXON CORPORATION, a Delaware corporation ("Borrower"), and
FOOTHILL CAPITAL CORPORATION, as Lender and as Agent for the Lenders.
WHEREAS, Borrower, certain financial institutions from time to time a
party thereto ("Lenders"), Foothill Capital Corporation, as agent for Lenders
("Agent") are parties to a Loan and Security Agreement dated as of August 26,
1999 (the "Loan Agreement");
WHEREAS, Borrower, Lenders and Agent have agreed to amend the Loan
Agreement (i) to provide for an additional bridge loan of $20,000,000 and (ii)
in certain other respects;
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. AMENDMENTS TO LOAN AGREEMENT. Subject to the satisfaction of the
conditions set forth in Section 4 hereof, the Loan Agreement is amended as
follows:
(a) The definition of "Bridge Loan" set forth in Section 1.1 of the
Loan Agreement is amended and restated in its entirety as follows:
"BRIDGE LOAN" means each of the First Bridge Loan and the
Second Bridge Loan.
(b) The definition of "Maximum Bridge Loan Amount" set forth in
Section 1.1 of the Loan Agreement is amended and restated in its entirety as
follows:
"MAXIMUM BRIDGE LOAN AMOUNT" means $50,000,000.
(c) The definition of "Maximum Revolving/Term Loan Amount" set forth
in Section 1.1 of the Loan Agreement is amended and restated in its entirety as
follows:
"MAXIMUM REVOLVING/TERM LOAN AMOUNT" means $50,000,000;
provided, that upon payment in full of the Bridge Loans, the Maximum
Revolving/Term Loan Amount shall be increased to $80,000,00.
<PAGE> 2
(d) The definition of "Pledged Stock" set forth in Section 1.1 of the
Loan Agreement is amended and restated in its entirety as follows:
"PLEDGED STOCK" means the Stock of Aironet owned by Borrower
or The Retail Technology Group, Inc. and pledged to Agent pursuant to
the Stock Pledge Agreement and any Stock of Cisco Systems Inc. received
by Borrower or the Retail Technology Group, Inc. in exchange for Stock
of Aironet pursuant to the terms of that Agreement and Plan of Merger
and Reorganization dated November 8, 1999 by and among Cisco Systems,
Inc., Osprey Acquisition Corporation and Aironet, but only so long as
such Stock of Cisco Systems, Inc. is pledged to Agent pursuant to the
Stock Pledge Agreement.
(e) The definition of "Pro Rata Share" set forth in Section 1.1 of
the Loan Agreement is amended and restated in its entirety as follows:
"PRO RATA SHARE" means, with respect to a Lender, a fraction
(expressed as a percentage), the numerator of which is the amount of
such Lender's Commitment and the denominator of which is the aggregate
amount of the Commitments; PROVIDED, that after all or any portion of
the Bridge Loans is repaid, the amount of such repayment shall be
excluded from the calculation thereof.
(f) The definition of "Term Loan" set forth in Section 1.1 of the
Loan Agreement is amended and restated in its entirety as follows:
"TERM LOAN" means each Term Loan No. 1, Term Loan No. 2 and
each Bridge Loan.
(g) The following definitions are added to Section 1.1 of the Loan
Agreement in appropriate alphabetical order:
"FIRST BRIDGE LOAN" has the meaning set forth in Section
2.3(c).
"SECOND BRIDGE LOAN" has the meaning set forth in Section
2.3(c).
(h) The fourth sentence of Section 2.3(b) of the Loan Agreement is
amended and restated in its entirety as follows:
In addition, if any portion of the Bridge Loans are outstanding
and the sum of the principal balance of Term Loan No. 2 and the Bridge
Loans exceeds 40% of the market value of the Pledged Stock (based on a
2 Business Day rolling average of the closing price of the Pledged
Stock as determined by Agent), Borrower will prepay Term Loan No. 2 in
an amount necessary to eliminate such excess within one Business Day.
-2-
<PAGE> 3
(i) Section 2.3(c) of the Loan Agreement is amended and restated in
its entirety as follows:
Subject to the terms and conditions of this Agreement, the
Bridge Lenders made a Term Loan (the "First Bridge Loan") to Borrower
in an aggregate principal amount of $30,000,000 on the Closing Date.
The First Bridge Loan shall be repaid in full on or before March 31,
2000. Subject to the terms and conditions of this Agreement, the Bridge
Lenders agree to make a Term Loan on November 18, 1999 (the "Second
Bridge Loan") to Borrower in an aggregate principal amount of
$20,000,000. The Second Bridge Loan shall be repaid in full on or
before March 31, 2000. In addition, if at any time the aggregate
outstanding principal balances of Term Loan No. 2 and the Bridge Loans
exceeds 40% of the market value of the Pledged Stock (based on a 2
Business Day rolling average of the closing price of the Pledged Stock
as determined by Agent), Borrower shall make a mandatory prepayment
within 1 Business Day in respect of the Bridge Loans in amount
necessary to eliminate such excess. The outstanding principal balance
and all accrued and unpaid interest under the Bridge Loans shall be due
and payable upon the termination of this Agreement, whether by its
terms, by prepayment, by acceleration, or otherwise. All amounts
outstanding under the Bridge Loans shall constitute Obligations.
(j) Section 2.4(b) of the Loan Agreement is amended and restated in
its entirety as follows:
APPORTIONMENT, APPLICATION, AND REVERSAL OF PAYMENTS. Except
as otherwise provided with respect to Defaulting Lenders, aggregate
principal and interest payments shall be apportioned ratably among the
Lenders (according to the unpaid principal balance of the Advances or
the Term Loans to which such payments relate held by each Lender) and
payments of the fees (other than fees designated for Agent's sole and
separate account) shall, as applicable, be apportioned ratably among
the Lenders. All payments shall be remitted to Agent and so long as no
Event of Default exists, all such payments not relating to principal or
interest of specific Advances or the Term Loans, or not constituting
payment of specific fees, and all proceeds of Accounts or other
Collateral received by Agent, shall be applied, FIRST, to pay any fees,
or expense reimbursements then due to Agent from Borrower; SECOND, to
pay any fees or expense reimbursements then due to the Lenders from
Borrower; THIRD, to pay interest due in respect of all Advances
(including Foothill Loans and Agent Advances) and the Term Loans;
FOURTH, to pay or prepay principal of Foothill Loans and Agent
Advances; FIFTH, ratably to pay principal of the Advances (other than
Foothill Loans and Agent Advances); SIXTH, ratably to repay the
principal of Term Loan No. 1 and Term Loan No. 2; SEVENTH, to be held
by
-3-
<PAGE> 4
Agent as cash collateral in accordance with SECTION 2.2(e) hereof with
respect to unreimbursed obligations in respect of Letters of Credit;
EIGHTH, ratably to repay the principal of Bridge Loans; and NINTH,
ratably to pay any other Obligations due to Agent or any Lender by
Borrower; PROVIDED, that notwithstanding the foregoing, proceeds of the
Pledged Stock and other Collateral (other than Accounts collected and
Inventory sold in the ordinary course of business) received by Agent
shall be applied, FIRST to pay any fees or expense reimbursements
related to the Bridge Loans and the Pledged Stock, SECOND, ratably to
pay principal of the Bridge Loans and, thereafter, in accordance with
the initial portion of this sentence; PROVIDED, FURTHER, that so long
as no Event of Default exists, any and all payments made by Telxon
Canada or Telxon U.K. constituting proceeds of Collateral on or in
respect of Obligations, including proceeds or collections of the
Collateral of Telxon Canada or Telxon U.K., shall be applied to pay or
prepay principal of the Foothill Loans and Agent Advances and then to
pay or prepay principal of the Advances other than Foothill Loans and
Agent Advances and to provide cash collateral in respect of outstanding
Letters of Credit or any unrepaid reimbursement obligations in respect
thereof, as applicable, and thereafter to pay interest due in respect
of Advances and Term Loans. Notwithstanding the foregoing, if an Event
of Default exists, all payments remitted to Agent shall be applied
FIRST, to pay any fees, or expense reimbursements then due to Agent
from Borrower; SECOND, to pay any fees or expense reimbursements then
due to the Lenders from Borrower; THIRD, to pay interest due in respect
of all Advances (including Foothill Loans and Agent Advances) and the
Term Loans; FOURTH, to pay or prepay principal of Foothill Loans and
Agent Advances; and FIFTH, to the remaining Obligations in such order
and manner as elected by the Required Revolving/Term Lenders (or if the
Revolving/Term Commitment has been terminated and the Revolving Loan,
Term Loan No. 1, Term Loan No. 2 and the Obligations with respect to
Letters of Credit have been satisfied in full, as elected by the
Required Bridge Lenders); PROVIDED, that until the Bridge Loans have
been repaid in full, regardless of whether an Event of Default exists,
proceeds of Pledged Stock shall be applied as provided in the
immediately preceding sentence.
(k) Section 2.6(a) of the Loan Agreement is amended and restated in
its entirety as follows:
INTEREST RATE. Except as provided in clause (c) below, (i) all
Obligations (except for Eurodollar Rate Loans, the Term Loans and
amounts undrawn under Letters of Credit) shall bear interest on the
Daily Balance at a per annum rate equal to the Reference Rate plus the
Applicable Revolving Margin, (ii) all Advances that are Eurodollar Rate
Loans shall bear interest at a per annum rate equal to the Adjusted
Eurodollar Rate for the applicable
-4-
<PAGE> 5
Interest Period plus the Applicable Revolving Margin, (iii) the portion
of Term Loan No. 1 or the First Bridge Loan that is a Reference Rate
Loan and the Second Bridge Loan shall bear interest at a per annum rate
equal to the Reference Rate plus 0.50%, (iv) the portion of Term Loan
No. 1 or the First Bridge Loan that is a Eurodollar Rate Loan shall
bear interest at a per annum rate equal to the Adjusted Eurodollar Rate
for the applicable Interest period plus 2.75%, and (v) Term Loan No. 2
shall bear interest at a fixed per annum rate of 12.5%; PROVIDED, that
notwithstanding the foregoing (x) at all times on or after the earlier
of December 26, 1999 and the date of any sale of the Pledged Stock, the
First Bridge Loan shall bear interest at a fixed per annum rate of
12.5%, and (y) at all times on or after the earlier of March 31, 2000
and the date of any sale of the Pledged Stock, the Second Bridge Loan
shall bear interest at a fixed rate per annum of 12.5%.
(l) Section 2.6(c) of the Loan Agreement is amended to replace the
phrase "Bridge Loan" with the phrase "Bridge Loans."
(m) Section 2.6(d) of the Loan Agreement is amended to replace the
phrase "Bridge Loan" with the phrase "Bridge Loans."
(n) The first sentence of Section 2.12(a) of the Loan Agreement is
amended and restated in its entirety as follows:
Borrower may from time to time, on or after the Closing Date,
request in a written or telephonic communication with Agent: (i) Loans
(other than Term Loan No. 2, the Second Bridge Loan or, at any time
after the earlier of December 26, 1999 and the date of any sale of the
Pledged Stock, the First Bridge Loan) to constitute Eurodollar Rate
Loans (pursuant to SECTION 2.12(c)); (ii) that Reference Rate Loans
(other than Term Loan No. 2 and the Second Bridge Loan) or, at any time
after the earlier of December 26, 1999 and the date of any sale of the
Pledged Stock, the First Bridge Loan) be converted into Eurodollar Rate
Loans; or (iii) that existing Eurodollar Rate Loans continue for an
additional Interest Period.
(o) Clause (vi) of Section 2.12(a) of the Loan Agreement is amended
and restated in its entirety as follows:
(vi) no portion of Term Loan No. 2 or the Second Bridge Loan shall be
a Eurodollar Rate Loan; and
(p) Section 3.6 of the Loan Agreement is amended to replace each
reference to the phrase "the Maximum Revolving/Term Loan Amount plus the
outstanding principal balance of the Bridge Loan" with the phrase "$70,000,000
(or if the Bridge Loans have been repaid in full, $80,000,000)."
-5-
<PAGE> 6
(q) Section 6.18 of the Loan Agreement is amended and restated in
its entirety as follows:
On or before March 31, 2000, Borrower shall cause all or a
portion of the Pledged Stock to be sold in a transaction consummated in
accordance with applicable law in which the net cash proceeds received
by Agent for such Pledged Stock are at least $50,000,000.
(r) Section 7.4 of the Loan Agreement is amended and restated in its
entirety as follows:
Sell, lease, assign, transfer, or otherwise dispose of any of
its properties or assets other than sales of Inventory to buyers in the
ordinary course of its business as currently conducted and sales of
fixed assets to the extent that the proceeds thereof exceed 120% of the
orderly liquidation value of such assets, the proceeds of such sale are
delivered to Agent to be applied to the Obligations in accordance with
Section 2.4(b) and the aggregate amount of such sales do not exceed
$100,000 during any fiscal year of Borrower.
(s) Section 7.17 of the Loan Agreement is amended to replace the
phrase "Bridge Loan" with the phrase "Bridge Loans."
(t) Section 7.20(b) of the Loan Agreement is amended to replace the
phrase "Bridge Loan" with the phrase "Bridge Loans."
(u) Section 9.1(b) of the Loan Agreement is amended to replace the
first reference to the phrase "the Bridge Loan" with the phrase "each of the
Bridge Loans" and to replace the second reference to the phrase "the Bridge
Loan" with the phrase "the Bridge Loans."
(v) Section 16.1 of the Loan Agreement is amended to replace the
phrase "Bridge Loan" with the phrase "Bridge Loans."
3. RATIFICATION. This Amendment No. 1 to Loan and Security Agreement
(the "Amendment"), subject to satisfaction of the conditions provided in SECTION
4 below, shall constitute amendments to the Loan Agreement and all of the Loan
Documents as appropriate to express the agreements contained herein. In all
other respects, the Loan Agreement and the Loan Documents shall remain unchanged
and in full force and effect in accordance with their original terms.
4. CONDITIONS TO EFFECTIVENESS. The amendments to the Loan Agreement
set forth in this Amendment shall become effective as of the date of this
Amendment and upon the satisfaction of the following conditions precedent in
form and substance satisfactory to Agent and Lenders:
-6-
<PAGE> 7
(a) Agent shall have received a Secretary's Certificate of Borrower,
an opinion of counsel to Borrower, a reaffirmation from each guarantor of the
Obligations and a fee letter relating to this Amendment (the "Amendment Fee
Letter");
(b) AMENDMENT FEE. Borrower shall pay to Lender the fees due under
the Amendment Fee Letter; and
(c) NO DEFAULT. No Event of Default or event which, with the giving
of notice or the passage of time, or both, would become an Event of Default,
shall have occurred and be continuing, and, after giving effect to the
amendments contained herein, no Event of Default or event which, with the giving
of notice or the passage of time, or both, would become an Event of Default,
shall have occurred and be continuing.
5. MISCELLANEOUS.
(a) WARRANTIES AND ABSENCE OF DEFAULTS. In order to induce Lenders to
enter into this Amendment, Borrower hereby warrants to Lenders, as of the date
hereof, that:
(i) The warranties of Borrower contained in the Loan
Agreement, as herein amended, are true and correct as of the date
hereof as if made on the date hereof.
(ii) All information, reports and other papers and data
heretofore furnished to Agent and Lenders by Borrower in connection
with this Amendment, the Loan Agreement and the other Loan Documents
are accurate and correct in all material respects and complete insofar
as may be necessary to give Agent and Lenders true and accurate
knowledge of the subject matter thereof. None of the information
furnished to Agent or Lenders by or on behalf of Borrower contained any
material misstatement of fact or omitted to state a material fact or
any fact necessary to make the statements contained herein or therein
not materially misleading.
(iii) No Event of Default or event which, with giving of
notice or the passage of time, or both would become an Event of
Default, exists as of the date hereof.
(b) EXPENSES. Borrower agrees to pay on demand all costs and expenses
of Agent (including the reasonable fees and expenses of outside counsel for
Agent) in connection with the preparation, negotiation, execution, delivery and
administration of this Amendment and all other instruments or documents provided
for herein or delivered or to be delivered hereunder or in connection herewith.
In addition, Borrower agrees to pay, and save Agent harmless from all liability
for, any stamp or other taxes which may be payable in connection with the
execution or delivery of this Amendment or the Loan Agreement, as amended
hereby, and the execution and delivery of any instruments or documents provided
for herein or delivered or to be delivered hereunder or in connection herewith.
All obligations provided in
-7-
<PAGE> 8
this Section 5(b) shall survive any termination of this Amendment and the Loan
Agreement as amended hereby.
(c) GOVERNING LAW. This Amendment shall be a contract made under and
governed by the internal laws of the State of Illinois.
(d) COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.
(e) REFERENCE TO LOAN AGREEMENT. On and after the effectiveness of
the amendment to the Loan Agreement accomplished hereby, each reference in the
Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of
like import, and each reference to the Loan Agreement in any Loan Documents, or
other agreements, documents or other instruments executed and delivered pursuant
to the Loan Agreement, shall mean and be a reference to the Loan Agreement, as
amended by this Amendment.
(f) SUCCESSORS. This Amendment shall be binding upon Borrower, Agent,
Lenders and their respective successors and assigns, and shall inure to the
benefit of Borrower, Agent, Lenders and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized and delivered as
of the date first above written.
TELXON CORPORATION
By /s/ Woody M. McGee
-------------------------------------------
Its Vice President and Chief Financial Officer
-------------------------------------------
FOOTHILL CAPITAL CORPORATION,
as Lender and as Agent
By /s/ Peter Droof
-------------------------------------------
Its Vice President
-------------------------------------------
-8-
<PAGE> 1
EXHIBIT 10.3.3.e
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT (this "Amendment") is entered into as of
February 11, 2000 between TELXON CORPORATION, a Delaware corporation
("Borrower"), and FOOTHILL CAPITAL CORPORATION, as Lender and as Agent for the
Lenders.
WHEREAS, Borrower, certain financial institutions from time to time a
party thereto ("Lenders"), Foothill Capital Corporation, as agent for Lenders
("Agent") are parties to a Loan and Security Agreement dated as of August 26,
1999 (as previously amended, the "Loan Agreement");
WHEREAS, Borrower, Lenders and Agent have agreed to amend Borrower's
minimum required EBITDA for December 31, 1999 with a retroactive effect December
31, 1999;
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. Amendments to Loan Agreement. Upon the receipt of executed
reaffirmations in the form attached hereto, effective as of December 31, 1999,
Section 7.20(c) of the Loan Agreement is amended by deleting the amount
"$4,030,000" set forth opposite the period ending December 31, 1999 and
inserting "$(21,000,000)" in its place.
3. Ratification. This Amendment, subject to satisfaction of the
conditions provided in Section 4 below, shall constitute amendments to the Loan
Agreement and all of the Loan Documents as appropriate to express the agreements
contained herein. In all other respects, the Loan Agreement and the Loan
Documents shall remain unchanged and in full force and effect in accordance with
their original terms.
4. Miscellaneous.
(a) Warranties and Absence of Defaults. In order to induce Lenders to
enter into this Amendment, Borrower hereby warrants to Lenders, as of the date
hereof, that:
(i) The warranties of Borrower contained in the Loan Agreement, as
herein amended, are true and correct as of the date hereof as if made
on the date hereof.
(ii) All information, reports and other papers and data heretofore
furnished to Agent and Lenders by Borrower in connection with this
<PAGE> 2
Amendment, the Loan Agreement and the other Loan Documents are accurate
and correct in all material respects and complete insofar as may be
necessary to give Agent and Lenders true and accurate knowledge of the
subject matter thereof. None of the information furnished to Agent or
Lenders by or on behalf of Borrower contained any material misstatement
of fact or omitted to state a material fact or any fact necessary to
make the statements contained herein or therein not materially
misleading.
(iii) No Event of Default or event which, with giving of notice or
the passage of time, or both would become an Event of Default, exists
as of the date hereof.
(b) Expenses. Borrower agrees to pay on demand all costs and expenses
of Agent (including the reasonable fees and expenses of outside counsel for
Agent) in connection with the preparation, negotiation, execution, delivery and
administration of this Amendment and all other instruments or documents provided
for herein or delivered or to be delivered hereunder or in connection herewith.
In addition, Borrower agrees to pay, and save Agent harmless from all liability
for, any stamp or other taxes which may be payable in connection with the
execution or delivery of this Amendment or the Loan Agreement, as amended
hereby, and the execution and delivery of any instruments or documents provided
for herein or delivered or to be delivered hereunder or in connection herewith.
All obligations provided in this Section 5(b) shall survive any termination of
this Amendment and the Loan Agreement as amended hereby.
(c) Governing Law. This Amendment shall be a contract made under and
governed by the internal laws of the State of Illinois.
(d) Counterparts. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.
(e) Reference to Loan Agreement. On and after the effectiveness of the
amendment to the Loan Agreement accomplished hereby, each reference in the Loan
Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like
import, and each reference to the Loan Agreement in any Loan Documents, or other
agreements, documents or other instruments executed and delivered pursuant to
the Loan Agreement, shall mean and be a reference to the Loan Agreement, as
amended by this Amendment.
(f) Successors. This Amendment shall be binding upon Borrower, Agent,
Lenders and their respective successors and assigns, and shall inure to the
benefit of Borrower, Agent, Lenders and their respective successors and assigns.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
and delivered as of the date first above written.
TELXON CORPORATION
By /s/ Woody M. McGee
------------------------------------------
Its Vice President and Chief Financial Officer
------------------------------------------
FOOTHILL CAPITAL CORPORATION,
as Lender and as Agent
By /s/ Peter Droof
------------------------------------------
Its Vice President
------------------------------------------
-3-
<PAGE> 1
EXHIBIT 10.13
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made, entered into and effective as of
January 19, 2000 (the "Effective Date"), by and between Telxon Corporation
("Telxon"), on the one hand, and Accipiter Corporation and Accipiter II, Inc.
(sometimes collectively referred to herein as "Accipiter"), on the other.
WHEREAS, Accipiter wishes to sell shares of common stock it owns in
Metanetics Corporation ("Metanetics") on the terms and conditions set forth
herein and Telxon wishes to buy those shares of Metanetics stock from Accipiter
upon those terms and conditions,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, the parties agree as follows:
1. At the Closing Date (as defined below), Telxon (or its wholly-owned
subsidiary Meta Holding Corporation or such other subsidiary as Telxon may
designate) will purchase from Accipiter 1,370,930 common shares of Metanetics
owned by Accipiter for the following consideration:
A. $6.73 per Metanetics share, or an aggregate purchase price of
$9,226,358.90, less the debt cancelled pursuant to section 1(B) hereof
(consisting of principal and accrued interest of $1,557,836.22), for a net
purchase price of $7,668,522.68, payable in 477,790 shares of Telxon common
stock, $.01 par value per share (the "Telxon Shares", representing an agreed
effective price of $16.05 per Telxon Share); and
B. cancellation of the debts evidenced by
(i) a Promissory Note dated March 30, 1996, from Accipiter
Corporation to Meta Holding Corporation in the face amount of
$349,984.00, and
<PAGE> 2
(ii) a Promissory Note dated September 30, 1996, from Accipiter II,
Inc. to Metanetics in the face amount of $449,254.73, and
(iii) a Promissory Note dated December 11, 1996 from Accipiter II,
Inc. to Telxon in the face amount of $500,000.00;
and the return to Accipiter of the cancelled originals of the three
Promissory Notes referenced above.
2. Telxon agrees that, on or before the Closing Date, it shall take
the following actions:
A. Telxon will restore, or will cause Metanetics to restore, on the
same terms or the equivalent, and at Telxon's cost, if any, to the Metanetics'
employees and Board members listed on Exhibit A hereto, the options to purchase
Metanetics shares originally granted to each of them in July 1998 and
subsequently cancelled in February 1999 (provided that Telxon may satisfy its
obligation to restore such options by providing to such employees and Board
members an equivalent economic arrangement acceptable to such employees and
Board members). Furthermore, Telxon will agree to repurchase those options, or
their equivalent, from each of the grantees at a price of $6.73 per share
covered by such option (less the aggregate exercise price of such option). The
parties hereto acknowledge that the terms of such options (or equivalent
economic arrangement) shall be substantially identical to the terms of the
options conditionally granted, with a deferred effective date, by the Metanetics
Board of Directors on January 18, 2000. Telxon agrees that the repurchase of
such options (or equivalent payment to the optionees in lieu of the granting and
repurchase of such options) will take place within 5 business
2
<PAGE> 3
days following the closing of the merger transaction between Cisco Systems, Inc.
and Aironet Wireless Communications, Inc. (the "Cisco/Aironet Merger"); and
B. Telxon will comply with the terms of its January 18, 2000 agreement
with Gregory J. Chambers to provide to him 20,000 shares of Metanetics stock and
will purchase those shares at $6.73 per share; and
C. Telxon will offer to Mr. Chambers and all of the other Metanetics
stockholders (other than Accipiter) prior to the Closing Date and subject to
customary representations and warranties at the closing thereof by the selling
stockholders of their good and unencumbered title to the subject shares and
appropriate waivers of the procedures required by the Shareholder Agreement, to
purchase all of their Metanetics shares for cash at the same price of $6.73 per
share as payable under this Agreement, payable within 5 business days following
the closing of the Cisco/Aironet Merger.
3. Telxon and Accipiter each represent and warrant to the other that
its execution and delivery of this Agreement and its consummation of the
transactions contemplated hereby have been duly authorized by all required
action of its Board of Directors and any and all other necessary corporate
action and that this Agreement has been duly executed and delivered for and on
its behalf by the duly authorized officer signing this Agreement for it below.
Accipiter further represents and warrants to Telxon that (except for the debt
arrangements owed Telxon or its affiliates to be cancelled as provided in
section 1(B) above and the procedures required by the Amended and Restated
Shareholder Agreement, dated as of March 28, 1996 by and among Metanetics and
its stockholders, as amended (the "Shareholder Agreement"), written waivers of
which procedures by all of the other Metanetics stockholders having rights under
such
3
<PAGE> 4
Shareholder Agreement with respect to the transactions contemplated by this
Agreement shall be delivered to Telxon as a condition of the closing under this
Agreement), it currently has, and will deliver to Telxon on the Closing Date,
full, valid and complete title to and ownership (beneficially and of record) of
the Metanetics shares being purchased pursuant to section 1 above, free and
clear of any lien or other encumbrance.
4. Accipiter makes the following representations, warranties,
acknowledgements and agreements to Telxon with respect to the issuance of the
Telxon Shares to it pursuant to section 1(A):
A. Accipiter understands that the Telxon Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
or any state securities laws;
B. The Telxon 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 Accipiter's representations contained in this
paragraph;
C. Accipiter has had the opportunity to its satisfaction to ask
questions of and receive answers from Telxon management regarding the business,
assets, financial condition, prospects and affairs of Telxon;
D. Each Accipiter entity is an "accredited investor" (as such term is
defined in Rule 501 under the Securities Act) and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of its investment in the Telxon Shares and of protecting
its interests in connection with such investment;
4
<PAGE> 5
E. Accipiter is not aware of the publication of any advertisement in
connection with the Telxon Shares to be issued pursuant to this Agreement;
F. Accipiter is acquiring the Telxon Shares for its own account for
investment only, and not with a view toward their distribution, can bear a total
loss of the investment without materially impairing its financial condition, and
can bear the economic risk of the investment indefinitely; and
G. Accipiter understands that it cannot resell the Telxon Shares
unless and until the Telxon Shares are registered under the Securities Act
and/or applicable state securities laws or an exemption from such registration
is available and that the certificate(s) evidencing the Telxon 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 Accipiter to transfer all or any portion
of the Telxon Shares it may subsequently desire to transfer when and in the
amounts desired to be transferred.
Telxon agrees to use its reasonable best efforts to (i) file a
registration statement on Form S-3 (or similar successor form) to register the
Telxon Shares for resale by the Accipiter entities as selling stockholders under
the Securities Act and (ii) to cause the same to be become effective, as soon as
reasonably practicable following Telxon becoming eligible to effect such a
registration, and in connection therewith Accipiter agrees to cooperate in the
effecting of, and to execute and deliver such representations, warranties and
indemnifications customarily required of selling stockholders with respect to,
such a registration as Telxon shall reasonably request.
5
<PAGE> 6
5. The consideration set forth in section 1 above, including the number
of Telxon shares, shall be fixed upon the Effective Date of this Agreement as
set forth in section 1 (A), and the parties each agree to bear their own risk of
any change in the market value of those shares between the Effective Date and
the Closing Date.
6. Telxon and Accipiter agree that both parties intend for the
acquisition of Metanetics stock contemplated hereby to be structured (to the
extent possible) as a tax-free reorganization pursuant to section 368 of the
Internal Revenue Code. Accordingly, both parties agree that they will reasonably
cooperate in structuring the transaction in a manner that satisfies the
requirements for such a tax-free reorganization and that such cooperation may
include one or more the following actions (among others): (i) the formation of a
subsidiary of Telxon to effect the acquisition ("Newco"), (ii) the merger of
Metanetics into Newco or the merger of Newco into Metanetics, (iii) the
acquisition of stock of Metanetics held by shareholders of Metanetics other than
Telxon and Accipiter, (iv) such other actions as may be necessary and
appropriate in order to accomplish such tax-free reorganization, and (v) such
revisions to this Stock Purchase Agreement as shall be necessary to accomplish
the foregoing. The parties agree that the definitive form of the transaction
shall be agreed upon by Telxon and Accipiter on or before January 31, 2000.
7. This transaction will close on or before February 18, 2000 (the
"Closing Date").
8. Each party shall bear their own expenses in connection with this
transaction; provided, however, that Telxon will reimburse Accipiter for legal
expenses incurred in connection with this Agreement, up to a maximum of
$15,000.00.
6
<PAGE> 7
9. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof, and no representations or promises
except those set forth herein have been made to induce any party to enter into
this Agreement.
10. This Agreement may be amended, modified or superseded and any of
its terms or covenants may be waived only by an instrument in writing signed by
each of the parties hereto or, in the case of a waiver, by or on behalf of the
party waiving compliance.
11. This Agreement shall be governed by and construed in accordance
with the laws of the state of Ohio, without regard to its conflict of laws
principles, except that the terms of this Agreement shall be interpreted
according to their plain meaning and not strictly for or against any party.
12. The parties will attempt in good faith to resolve any controversy
arising out of or relating to this Agreement. Any litigation relating to this
Agreement shall be brought by the parties in the courts, state or federal,
sitting in Summit County, Ohio, and in no other forum.
13. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
14. The provisions of this Agreement are intended for the benefit of
the parties hereto and no third party shall be entitled to enforce or rely upon
the provisions of this Agreement, provided however that the provisions of
Sections 2(A), 2(B), and 2(C) hereof shall be specifically enforceable against
Telxon by the third parties referred to therein.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TELXON CORPORATION
By: /s/ Woody M. McGee
-----------------------------------
Title: VP/CFO 1/26/00
--------------------------------
ACCIPITER CORPORATION
By: /s/ Richard W. Dyer
-----------------------------------
Title: Treasurer & CFO
--------------------------------
ACCIPITER II, INC.
By: /s/ Richard W. Dyer
-----------------------------------
Title: Treasurer & CFO
--------------------------------
8
<PAGE> 1
EXHIBIT 10.16
-------------
STOCKHOLDER AGREEMENT
(TELXON CORPORATION)
THIS STOCKHOLDER AGREEMENT (the "Agreement") is made and
entered into as of November 8, 1999, between Cisco Systems, Inc., a California
corporation ("Parent"), Osprey Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of Parent ("Merger Sub"), and Telxon Corporation
("Stockholder"), a stockholder of Aironet Wireless Communications, Inc., a
corporation existing under the laws of Delaware ("Company").
RECITALS:
WHEREAS, pursuant to an Agreement and Plan of Merger and
Reorganization dated as of November 8, 1999, by and among Parent, Merger Sub and
Company (such agreement as it may be amended or restated is hereinafter referred
to as the "Reorganization Agreement"), the parties agreed that on the signing of
the Reorganization Agreement, Parent, Merger Sub and Stockholder would execute
and deliver a Stockholder Agreement containing the terms and conditions set
forth in an Exhibit to the Reorganization Agreement together with such other
terms and conditions as may be agreed to by the parties to the Reorganization
Agreement acting reasonably;
WHEREAS, Parent has agreed to acquire the outstanding
securities of Company pursuant to a statutory merger of Merger Sub with and into
Company (the "Merger") effected in part through the conversion of each
outstanding share of capital stock of Company (the "Company Capital Stock"),
into shares of common stock of Parent (the "Parent Shares") at the rate set
forth in the Reorganization Agreement (the "Transaction");
WHEREAS, in order to induce Parent to enter into the
Transaction, Company has agreed to use its best efforts to solicit the proxy of
certain stockholders of Company on behalf of Parent, and to cause certain
stockholders of Company to execute and deliver Stockholder Agreements to Parent;
WHEREAS, Stockholder is the registered and beneficial owner of
such number of shares of the outstanding Company Capital Stock as is indicated
on the signature page of this Agreement (the "Shares"); and
WHEREAS, in order to induce Parent to enter into the
Transaction, certain stockholders of Company have agreed not to transfer or
otherwise dispose of any of the Shares, or any other shares of Company Capital
Stock acquired by such stockholder hereafter and prior to the Expiration Date
(as defined in Section 1.1 below), and have agreed to vote the Shares and any
other such shares of Company Capital Stock so as to facilitate consummation of
the Transaction.
<PAGE> 2
NOW, THEREFORE, the parties agree as follows:
1. SHARE OWNERSHIP AND AGREEMENT TO RETAIN SHARES.
1.1 TRANSFER AND ENCUMBRANCE.
(a) Stockholder is the beneficial owner of
that number of Shares of Company Capital Stock set forth on the signature page
hereto and, except as otherwise set forth on the signature page hereto, has held
such Company Capital Stock at all times since the date set forth on such
signature page. The Shares constitute the Stockholder's entire interest in the
outstanding Company Capital Stock. No other person or entity not a signatory to
this Agreement has a beneficial interest in or a right to acquire the Shares or
any portion of the Shares. The Shares are and will be at all times up until the
Expiration Date free and clear of any liens, claims, options, charges or other
encumbrances other than the existing pledge of the Shares in favor of Foothill
Capital Corporation.
(b) Stockholder agrees not to transfer
(except to a Permitted Assignee as provided in Section 9.2 below or as may be
specifically required by court order or by operation of law), sell, exchange,
pledge or otherwise dispose of or encumber the Shares or any New Shares (as
defined below), or to make any offer or agreement relating thereto, at any time
prior to the Expiration Date. As used herein, the term "Expiration Date" shall
mean the earlier to occur of (i) the Effective Time (as defined in the
Reorganization Agreement) of the Transaction, and (ii) the termination of the
Reorganization Agreement.
1.2 NEW SHARES. Stockholder agrees that any shares of
Company Capital Stock that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership after the date of this
Agreement and prior to the Expiration Date ("New Shares") shall be subject to
the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. AGREEMENT TO VOTE SHARES. Prior to the Expiration Date, at
every meeting of the stockholders of Company called with respect to any of the
following, and at every adjournment thereof, and on every action or approval by
written resolution of the stockholders of Company with respect to any of the
following, Stockholder shall vote the Shares and any New Shares (i) in favor of
approval of the Transaction and the other transactions contemplated by the
Reorganization Agreement and (ii) against any proposal for any recapitalization,
merger, sale of assets or other business combination (other than the
Transaction) between Company and any person or entity other than Parent and
Merger Sub (a "Competing Transaction").
3. IRREVOCABLE PROXY. Stockholder is hereby delivering to
Parent a duly executed proxy in the form attached hereto as EXHIBIT A (the
"Proxy") with respect to each meeting of stockholders of Company, such Proxy to
cover the total number of Shares and New Shares in respect of which Stockholder
is entitled to vote at any such meeting. Upon the execution of this Agreement by
the Stockholder, the Stockholder hereby revokes any and all prior proxies given
by the Stockholder with respect to the Shares and agrees not to grant any
subsequent proxies with respect to the Shares or any New Shares until after the
Expiration Date.
2
<PAGE> 3
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDER.
Stockholder hereby represents, warrants and covenants to Parent as follows:
(a) Until the Expiration Date, the Stockholder
will not (and will use such Stockholder's reasonable best efforts to cause
Company, its affiliates, officers, directors and employees and any investment
banker, attorney, accountant or other agent retained by such Stockholder or
them, not to): (i) initiate or solicit, directly or indirectly, any proposal,
plan of offer to acquire all or any substantial part of the business or
properties or Company Capital Stock, whether by merger, purchase of assets,
tender offer or otherwise, or to liquidate Company or otherwise distribute to
the Stockholders of Company all or any substantial part of the business,
properties or Company Capital Stock (each, an "Acquisition Proposal"); (ii)
initiate, directly or indirectly, any contact with any person in an effort to or
with a view towards soliciting any Acquisition Proposal; (iii) furnish
information concerning Company's business, properties or assets to any
corporation, partnership, person or other entity or group (other than Parent or
Merger Sub, or any associate, agent or representative of Parent or Merger Sub),
under any circumstances that would reasonably be expected to relate to an actual
or potential Acquisition Proposal; or (iv) negotiate or enter into discussions
or an agreement, directly or indirectly, with any entity or group with respect
of any potential Acquisition Proposal provided that, in the case of clauses
(iii) and (iv), the foregoing (A) shall not prevent Stockholder, in
Stockholder's capacity as a director or officer (as the case may be) of Company,
from taking any actions permitted under Section 4.3 of the Reorganization
Agreement and (B) shall not require Stockholder to use its reasonable best
efforts to cause the Company or its affiliates, officers, directors, or
employees or any investment banker, accountant, attorney or other agent to
refrain from taking any action permitted by Section 4.3 of the Reorganization
Agreement. In the event the Stockholder shall receive or become aware of any
Acquisition Proposal subsequent to the date hereof, such Stockholder shall
promptly inform Parent as to any such matter and the details thereof to the
extent possible without breaching any other agreement to which such Stockholder
is a party or violating its fiduciary duties.
(b) Stockholder has the corporate authority to
execute and deliver this Stockholder Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This
Stockholder Agreement has been duly and validly executed and delivered by
Stockholder and, assuming the due authorization, execution and delivery by
Parent, constitutes a legal, valid and binding obligation of Stockholder,
enforceable against Stockholder in accordance with its terms except that (i) the
enforceability thereof may be subject to applicable bankruptcy, insolvency or
other similar laws, now or hereinafter in effect affecting creditors' rights
generally and (ii) the availability of the remedy of specific performance or
injunctive or other forms of equitable relief may be subject to equitable
defenses and would be subject to the discretion of the court before which any
proceeding therefor may be brought.
(c) The execution and delivery of this
Stockholder Agreement by Stockholder does not, and the performance of this
Stockholder Agreement by Stockholder shall not result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance, on any of the Shares or New Shares pursuant to, any note, bond,
mortgage, indenture, contract,
3
<PAGE> 4
agreement, lease, license, permit, franchise or other instrument or obligation
to which Stockholder is a party or by which Stockholder or the Shares or New
Shares are or will be bound or affected.
5. ADDITIONAL DOCUMENTS. Stockholder hereby covenants and
agrees to execute and deliver any additional documents reasonably necessary, to
carry out the purpose and intent of this Agreement.
6. CONSENT AND WAIVER. Stockholder hereby gives any consents
or waivers that are reasonably required for the consummation of the Transaction
under the terms of any agreement to which Stockholder is a party or pursuant to
any rights Stockholder may have.
7. TERMINATION. This Agreement and the Proxy delivered in
connection herewith shall terminate and shall have no further force or effect as
of the Expiration Date.
8. CONFIDENTIALITY. Each of the parties hereto agrees (i) to
hold any information regarding this Agreement and the Transaction in strict
confidence, and (ii) not to divulge any such information to any third person,
until such time as the Transaction has been publicly disclosed by the parties.
9. MISCELLANEOUS.
9.1 SEVERABILITY. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
9.2 BINDING EFFECT AND ASSIGNMENT. This Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this Agreement
nor any of the rights, interests or obligations of the parties hereto may be
assigned by either of the parties without the prior written consent of the
other. No such prior consent shall be required with respect to any assignment of
the Shares to a wholly owned subsidiary of Stockholder, provided that the
assignee subsidiary agrees in writing to be bound by the terms of this Agreement
with the same force and effect as if it were Stockholder and executes and
delivers to Parent an irrevocable Proxy in substantially the same form as
executed by Stockholder pursuant to this Agreement. This Agreement is binding
upon Stockholder in Stockholder's capacity as a stockholder of Company (and not
in Stockholder's capacity as a director or officer, as the case may be, of
Company) and only with respect to the specific matters set forth herein.
9.3 AMENDMENT AND MODIFICATION. This Agreement may
not be modified, amended, altered or supplemented except by the execution and
delivery of a written agreement executed by the parties hereto.
9.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The
parties hereto acknowledge that Parent will be irreparably harmed and that there
will be no adequate remedy at law for a violation of any of the covenants or
agreements of Stockholder set forth herein.
4
<PAGE> 5
Therefore, it is agreed that, in addition to any other remedies that may be
available to Parent or Merger Sub upon any such violation, Parent and Merger Sub
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent or
Merger Sub at law or in equity and the Stockholder hereby waives any and all
defenses which could exist in its favor in connection with such enforcement and
waives any requirement for the security or posting of any bond in connection
with such enforcement.
9.5 NOTICES. All notices, requests, demands or other
communications that are required or may be given pursuant to the terms of this
Stockholder Agreement shall be in writing and shall be deemed to have been duly
given if delivered by hand or mailed by registered or certified mail, postage
prepaid, as follows:
(a) If to the Stockholder, at the
address set forth below the Stockholder's signature at the end hereof.
(b) if to Parent or Merger Sub, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134-1706
Attention: Senior Vice President, Legal and
Government Affairs
Facsimile No.: (408) 526-5925
Telephone No.: (408) 526-8252
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Therese A. Mrozek, Esq.
Facsimile No.: (650) 496-2885
Telephone No.: (650) 424-0160
(c) if to Company, to:
Aironet Wireless Communications, Inc.
3875 Embassy Parkway
Akron, OH 44333
Attention: Roger J. Murphy
Facsimile No.: (330) 664-7922
Telephone No.: (330) 664-7900
5
<PAGE> 6
with a copy to:
Day, Berry & Howard LLP
City Place I
Hartford, CT 06103
Attention: Frank Marco, Esq.
Facsimile No.: (860) 275-0343
Telephone No.: (860) 275-0100
and
Goodman Weiss Miller LLP
100 Erieview Plaza
27th Floor
Cleveland, OH 44114
Attention: Robert Goodman, Esq. and Jay R.
Faeges, Esq.
Facsimile No.: (216) 363-5835
Telephone No.: (216) 696-3366
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
9.6 GOVERNING LAW. This Amendment shall be
governed by, construed and enforced in accordance with the laws of the State of
Delaware.
9.7 ENTIRE AGREEMENT. This Agreement and the
Proxy contain the entire understanding of the parties in respect of the subject
matter hereof, and supersede all prior negotiations and understandings between
the parties with respect to such subject matter.
9.8 COUNTERPART. This Agreement may be executed
in several counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
9.9 EFFECT OF HEADINGS. The section headings
herein are for convenience only and shall not affect the construction or
interpretation of this Agreement.
[Signature page follows.]
6
<PAGE> 7
[SIGNATURE PAGE TO STOCKHOLDER AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this Stockholder Agreement
to be executed as of the date first above written.
CISCO SYSTEMS, INC. STOCKHOLDER:
------------
TELXON CORPORATION
By: /s/ Larry Carter By: /s/ JOHN W. PAXTON, SR.
------------------------------ --------------------------------
Name: Name: John W. Paxton, Sr.
----------------------------- Title Chairman and CEO
Title:
Address: 3300 W. Market Street
Akron, OH 44334
OSPREY ACQUISITION CORPORATION
By: /s/ Larry Carter
------------------------------
Name:
-----------------------------
Title:
----------------------------
Total Number of Shares of Company Capital Stock owned on the date hereof:
Common Stock:
---------------------
[SIGNATURE PAGE TO STOCKHOLDER AGREEMENT]
<PAGE> 8
IRREVOCABLE PROXY
TO VOTE STOCK OF
AIRONET WIRELESS COMMUNCIATIONS, INC.
The undersigned stockholder of Aironet Wireless
Communications, Inc., a Delaware corporation ("Company"), hereby irrevocably (to
the full extent permitted by the Delaware General Corporation Law) appoints the
members of the Board of Directors of Cisco Systems, Inc., a California
corporation ("Parent"), and each of them, or any other designee of Parent, as
the sole and exclusive attorneys and proxies of the undersigned, with full power
of substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of Company that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares") in accordance with the terms
of this Irrevocable Proxy. The Shares beneficially owned by the undersigned
stockholder of Company as of the date of this Irrevocable Proxy are listed on
the final page of this Irrevocable Proxy. Upon the undersigned's execution of
this Irrevocable Proxy, any and all prior proxies given by the undersigned with
respect to any Shares are hereby revoked and the undersigned agrees not to grant
any subsequent proxies with respect to the Shares until after the Expiration
Date (as defined below).
This Irrevocable Proxy is irrevocable (to the extent provided
in the Delaware Corporations Code), is coupled with an interest, including, but
not limited to, that certain Stockholder Agreement dated as of even date
herewith by and among Parent, Osprey Acquisition Corporation and the
undersigned, and is granted in consideration of Parent entering into that
certain Agreement and Plan of Merger and Reorganization between Company, Parent
and Merger Sub (the "Reorganization Agreement"), which agreement provides for
the merger of Merger Sub with and into Company (the "Merger"). As used herein,
the term "Expiration Date" shall mean the earlier to occur of (i) such date and
time as the Merger shall become effective in accordance with the terms and
provisions of the Reorganization Agreement, and (ii) the date of termination of
the Reorganization Agreement. This Irrevocable Proxy shall terminate on the
Expiration Date.
The attorneys and proxies named above, and each of them are
hereby authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting and other rights of the undersigned with
respect to the Shares (including, without limitation, the power to execute and
deliver written consents pursuant to the Delaware Corporations Code), at every
annual, special or adjourned meeting of the stockholders of Company and in every
written consent in lieu of such meeting as follows:
<PAGE> 9
|X| In favor of approval of the Merger and the
Reorganization Agreement, in favor of any matter that
could reasonably be expected to facilitate the Merger
and against any proposal for any recapitalization,
merger, sale of assets or other business combination
relating to the Company (other than the Merger) and
against any other action or agreement that would
result in a breach of any covenant, representation or
warranty or any other obligation or agreement of
Company under an acquisition agreement in respect of
the Merger or which would result in any of the
conditions to the completion of the Merger not being
fulfilled.
The attorneys and proxies named above may not exercise this
Irrevocable Proxy on any other matter except as provided above. The undersigned
stockholder may vote the Shares on all other matters.
All authority herein conferred shall survive the death or
incapacity of the undersigned and any obligation of the undersigned hereunder
shall be binding upon the heirs, personal representatives, successors and
assigns of the undersigned.
[Signature page follows.]
<PAGE> 10
This Irrevocable Proxy is coupled with an interest as
aforesaid and is irrevocable.
Dated: November 8, 1999
TELXON CORPORATION
By: /s/ John W. Paxton, Sr.
-----------------------------------
Name: John W. Paxton, Sr.
----------------------------------
Title: Chairman and CEO
---------------------------------
Shares beneficially owned:
4,994,262 shares of Company Common Stock
<PAGE> 11
JOINDER TO STOCKHOLDER AGREEMENT
(THE RETAIL TECHNOLOGY GROUP, INC.)
THIS JOINDER TO STOCKHOLDER AGREEMENT is made as of November 8, 1999,
by The Retail Technology Group, Inc. ("Assignee"), a wholly-owned subsidiary of
Telxon Corporation ("Assignor"), with respect to the Stockholder Agreement (the
"Stockholder Agreement"), dated as of November 8, 1999, between Cisco Systems,
Inc., a California corporation ("Parent"), Osprey Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of Parent ("Merger Sub"), and
Assignor.
RECITALS:
WHEREAS, pursuant to an Agreement and Plan of Merger and Reorganization
(such agreement, as it may be amended or restated, is hereinafter referred to as
the "Reorganization Agreement"), dated as of November 8, 1999, by and among
Parent, Merger Sub, and Aironet Wireless Communications, Inc., a corporation
existing under the laws of Delaware ("Company"), Parent has agreed to acquire
the outstanding securities of Company pursuant to a statutory merger of Merger
Sub with and into Company (the "Merger") effected in part through the conversion
of each outstanding share of capital stock of Company (the "Company Capital
Stock"), into shares of common stock of Parent (the "Parent Shares") at the rate
set forth in the Reorganization Agreement (the "Transaction");
WHEREAS, in order to induce Parent to enter into the Transaction,
Company has agreed to use its best efforts to solicit the proxy of certain
stockholders of Company on behalf of Parent, and to cause certain stockholders
of Company to execute and deliver Stockholder Agreements to Parent;
WHEREAS, as of the time of the entry of the parties into the
Reorganization Agreement, Assignor owned of record 4,994,262 shares of the
outstanding Company Capital Stock (the "Shares");
WHEREAS, in order to induce Parent to enter into the Transaction,
Assignor entered into the Stockholder Agreement, under which Assignor, among
other things, agreed not to transfer or otherwise dispose of any of the Shares,
or any other shares of Company Capital Stock acquired by such stockholder prior
to the Expiration Date (as defined in Section 1.1 of the Stockholder Agreement),
and also agreed to vote the Shares and any other such shares of Company Capital
Stock so as to facilitate consummation of the Transaction;
WHEREAS, Section 9.2 of the Stockholder Agreement permits Assignor to
assign the Shares to a wholly-owned subsidiary of Assignor without the necessity
of obtaining the consent generally required to be obtained under the terms of
said Section 9.2 from the other parties to the Stockholder Agreement, provided
that the assignee subsidiary agrees in writing to be bound by the terms of the
Stockholder Agreement with the same force and effect as if it were Assignor and
executes and delivers to Parent an Irrevocable Proxy in substantially the same
form as executed by Assignor pursuant to the Stockholder Agreement; and
<PAGE> 12
WHEREAS, Assignor desires to assign the Shares to Assignee as permitted
by Section 9.2 of the Stockholder Agreement.
NOW, THEREFORE, in satisfaction of the requirements of Section 9.2 of
the Stockholder Agreement in order to permit the transfer of the Shares to
Assignee without the necessity of obtaining the consent of the other parties to
the Stockholder Agreement to such transfer, Assignee agrees as follows:
1. Assignee shall be bound by the terms of the Stockholder Agreement
with the same force and effect as if it were Assignor.
2. Assignee agrees to execute and deliver, and contemporaneously is
delivering, a duly executed Irrevocable Proxy in substantially the same form as
executed by Assignor pursuant to the Stockholder Agreement.
IN WITNESS WHEREOF, the parties have caused this Joinder to Stockholder
Agreement to be executed as of the date first above written.
ASSIGNEE:
THE RETAIL TECHNOLOGY
GROUP, INC.
By: /s/ Woody M. McGee
-----------------------------
Woody M. McGee
Vice President and
Chief Financial Officer
Address: c/o Telxon Corporation
3300 W. Market Street
Akron, OH 44334
Total Number of Shares of Company Capital Stock owned by Assignee upon
consummation of the transfer:
Common Stock: 4,994,262 shares
<PAGE> 13
IRREVOCABLE PROXY
TO VOTE STOCK OF
AIRONET WIRELESS COMMUNCIATIONS, INC.
The undersigned stockholder of Aironet Wireless Communications, Inc., a
Delaware corporation ("Company"), hereby irrevocably (to the full extent
permitted by the Delaware General Corporation Law) appoints the members of the
Board of Directors of Cisco Systems, Inc., a California corporation ("Parent"),
and each of them, or any other designee of Parent, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of Company that now are or hereafter may be beneficially
owned by the undersigned, and any and all other shares or securities of Company
issued or issuable in respect thereof on or after the date hereof (collectively,
the "Shares") in accordance with the terms of this Irrevocable Proxy. The Shares
beneficially owned by the undersigned stockholder of Company as of the date of
this Irrevocable Proxy are listed on the final page of this Irrevocable Proxy.
Upon the undersigned's execution of this Irrevocable Proxy, any and all prior
proxies given by the undersigned with respect to any Shares are hereby revoked
and the undersigned agrees not to grant any subsequent proxies with respect to
the Shares until after the Expiration Date (as defined below).
This Irrevocable Proxy is irrevocable (to the extent provided in the
Delaware Corporations Code), is coupled with an interest, including, but not
limited to, that certain Stockholder Agreement dated as of even date herewith by
and among Parent, Osprey Acquisition Corporation and the undersigned, and is
granted in consideration of Parent entering into that certain Agreement and Plan
of Merger and Reorganization between Company, Parent and Merger Sub (the
"Reorganization Agreement"), which agreement provides for the merger of Merger
Sub with and into Company (the "Merger"). As used herein, the term "Expiration
Date" shall mean the earlier to occur of (i) such date and time as the Merger
shall become effective in accordance with the terms and provisions of the
Reorganization Agreement, and (ii) the date of termination of the Reorganization
Agreement. This Irrevocable Proxy shall terminate on the Expiration Date.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other rights of the undersigned with respect to the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the Delaware Corporations Code), at every annual, special
or adjourned meeting of the stockholders of Company and in every written consent
in lieu of such meeting as follows:
<PAGE> 14
|X| In favor of approval of the Merger and the Reorganization
Agreement, in favor of any matter that could reasonably be
expected to facilitate the Merger and against any proposal for
any recapitalization, merger, sale of assets or other business
combination relating to the Company (other than the Merger)
and against any other action or agreement that would result in
a breach of any covenant, representation or warranty or any
other obligation or agreement of Company under an acquisition
agreement in respect of the Merger or which would result in
any of the conditions to the completion of the Merger not
being fulfilled.
The attorneys and proxies named above may not exercise this Irrevocable
Proxy on any other matter except as provided above. The undersigned stockholder
may vote the Shares on all other matters.
All authority herein conferred shall survive the death or incapacity of
the undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
[Signature page follows.]
<PAGE> 15
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: November 8, 1999
THE RETAIL TECHNOLOGY
GROUP, INC.
By: /s/ Woody M. McGee
------------------------------------
Woody M. McGee
Vice President and
Chief Financial Officer
Shares beneficially owned:
4,994,262 shares of Company Common Stock
<TABLE> <S> <C>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,794
<SECURITIES> 0
<RECEIVABLES> 85,832
<ALLOWANCES> 5,139
<INVENTORY> 85,509
<CURRENT-ASSETS> 182,902
<PP&E> 173,471
<DEPRECIATION> 108,385
<TOTAL-ASSETS> 288,635
<CURRENT-LIABILITIES> 159,944
<BONDS> 119,139
0
0
<COMMON> 164
<OTHER-SE> 2,994
<TOTAL-LIABILITY-AND-EQUITY> 288,635
<SALES> 74,943
<TOTAL-REVENUES> 96,234
<CGS> 55,431
<TOTAL-COSTS> 68,402
<OTHER-EXPENSES> 38,571
<LOSS-PROVISION> 2,091
<INTEREST-EXPENSE> 3,613
<INCOME-PRETAX> (14,151)
<INCOME-TAX> 621
<INCOME-CONTINUING> (14,772)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,722)
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