<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(AMENDMENT NO. 2)
<TABLE>
<S> <C> <C>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
TO
</TABLE>
COMMISSION FILE NUMBER 0-11402
TELXON CORPORATION
---------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 74-1666060
------------------------------------ ----------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
<TABLE>
<S> <C>
1000 SUMMIT DRIVE, CINCINNATI, OHIO 45150
----------------------------------- ------------
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (330) 664-1000
<TABLE>
<CAPTION>
SECURITIES REGISTERED PURSUANT NAME OF EACH EXCHANGE
TO SECTION 12(B) OF THE ACT: ON WHICH REGISTERED:
------------------------------ ---------------------
<S> <C>
None None
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 Par Value
---------------------------------
(TITLE OF CLASS)
7 1/2% Convertible Subordinated Debentures Due 2012
---------------------------------------------------------
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of registrant's Common Stock held by non-affiliates
as of May 31, 2000, based on the last reported sales price of the Common Stock
as reported on the Nasdaq National Market for such date, was $259,377,871.
At May 31, 2000, there were 17,511,472 outstanding shares of the registrant's
Common Stock.
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<PAGE> 2
This Amendment No. 2 on Form 10-K/A supplements the registrant's Form 10-K
with respect to its fiscal year ended March 31, 2000 ("Fiscal 2000"), as
previously amended, to add the information required by Part III.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTOR AND EXECUTIVE OFFICER BIOGRAPHICAL INFORMATION
For certain information relating to the Company's executive officers, see
Item X included in Part I of the Form 10-K as originally filed, which
information is incorporated in this Item 10 by this reference.
Included among the executive officers about whom information is included in
Part I, Item X is John W. Paxton, Sr., who also serves as a director of the
Company; the information there set forth about him is incorporated in this Item
10 by this reference. The remaining directors of the Company and corresponding
information about them are as follows:
John H. Cribb, age 67, retired from active employment with the Company
as Chairman, Telxon International in December 1996, as which he had served
since January 1995. From January 1993 to January 1995 he served the Company
as President, International, and from January 1990 to January 1993, as
Senior Vice President, International Operations. Mr. Cribb was a Vice
President of the Company and Managing Director of Telxon Limited, the
Company's United Kingdom subsidiary, from 1982 to 1990. He has been a
director and Vice Chairman of the Board of the Company since January 1995,
his current term expires at the 2001 Annual Meeting of stockholders.
J. James Gallagher, age 61, is Chief Executive Officer and a member
of the Board of Directors of Columbia Banking Systems, Inc. Prior to
becoming Columbia Banking Systems' Chief Executive Officer in January
2000, he served as its Vice Chairman from July 1998. Mr. Gallagher was a
principal of Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, PLLC,
a Tacoma and Seattle, Washington law firm from January 1994 until June
1998. He has been a director of the Company since May 2000, and his
current term expires at the 2000 Annual Meeting of stockholders.
R. Dave Garwood, age 58, is President and founder of R.D. Garwood,
Inc., a business education and consulting company formed in 1974. Mr.
Garwood has been a director of the Company since September 1999, and his
current term expires at the 2002 Annual Meeting of stockholders.
Robert A. Goodman, age 65, has been the Company's General Counsel
since 1979 and Secretary since 1983. He was senior partner of Goodman
Weiss Miller LLP, a Cleveland, Ohio law firm, since its founding in 1986
until assuming his present position as "of counsel" to that firm in January
2000. Mr. Goodman has been a director of the Company since October 1991.
His current term expires at the 2000 Annual Meeting of stockholders.
L. Michael Hone, age 50, has been the President and Chief Executive
Officer and a director of Centennial Technologies, Inc. since August 1997.
Until April 1997, he served PSC, Inc. as its President from December 1987,
as its Chief Executive Officer from April 1989 and also as its Chairman
from July 1992. Mr. Hone has been a director of the Company since
September 1999, and his current term expires at the 2002 Annual Meeting of
stockholders.
Dennis J. Lehr, age 68, is a business consultant advising
corporations on financing matters, principally international joint
ventures. In May 2000, Mr. Lehr retired from Hogan & Hartson, L.L.P., a
law firm based in Washington D.C., where he had practiced for thirty-three
years. He has been a director of the Company since May 2000, and his
current term expires at the 2001 Annual Meeting of stockholders. He is
also a director of Leapfrog Smart Products, Inc., a developer of software
applications for smart cards.
Raj Reddy, age 63, has been Dean of the School of Computer Science,
and Herbert A. Simon University Professor, at Carnegie Mellon University
since July 1992. Since 1984 he had held the rank of University Professor
and for eleven years prior to that time held the rank of Professor of
Computer Science. He has been the Director of The Robotics Institute at
Carnegie Mellon since 1980. He also serves as a consultant in the area of
computer science, robotics and related disciplines. Dr. Reddy has been a
director of
95
<PAGE> 3
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
the Company since April 1987 and served as Chairman of the Board of
Directors from February 1997 to March 1999. His current term expires at the
2000 Annual Meeting of stockholders.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers and directors with respect to Fiscal 2000 were complied with, except
that Peter Lomax was late in filing both his initial report of beneficial
ownership upon his becoming an executive officer and a transaction report for a
market sale of Company stock. The Company does not believe it had any greater
than ten percent beneficial owners at any time during Fiscal 2000 based on its
records and because it has not received copies of, and is not otherwise aware
of, any filings by any such beneficial owner with the SEC under Section 13 or
16(a) of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows all annual, long-term and other compensation for
services rendered to the Company in all capacities paid or awarded during each
of its three most recently completed fiscal years to the Company's chief
executive officer during any portion of Fiscal 2000, to the Company's four
other executive officers serving at fiscal year end who received the highest
combined salary and bonus compensation during Fiscal 2000 and to a former
executive officer of the Company who, but for the fact that he was not serving
as such at fiscal year end, would have been included among the four Company
executive officers other than the chief executive officer who received the
highest combined salary and bonus compensation during Fiscal 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------- ----------------------
OTHER RESTRICTED ALL
ANNUAL STOCK STOCK OTHER
NAME AND COMPEN- AWARDS OPTIONS COMPEN-
PRINCIPAL POSITION(1) YEAR SALARY BONUS SATION ($) (SHARES) SATION(2)
--------------------- ---- ------- ------- ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John W. Paxton, Sr........................ 2000 803,077 150,000 0 0 0 0
Chairman of the Board and 1999 27,692(3) 0 0 0 700,000!(4) 0
Chief Executive Officer
William J. Murphy......................... 2000 375,057 150,000 0 0 46,500! 5,494
Executive Vice President, Americas
David H. Biggs............................ 2000 301,875(5) 18,000 11,195(6) 301,875(5) 0 0
Vice President,
Chief Technical Officer
Kenneth A. Cassady........................ 2000 277,308 50,750 59,705(6) 0 350,000! 0
President and Chief Operating Officer
</TABLE>
96
<PAGE> 4
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------- ----------------------
OTHER RESTRICTED ALL
ANNUAL STOCK STOCK OTHER
NAME AND COMPEN- AWARDS OPTIONS COMPEN-
PRINCIPAL POSITION(1) YEAR SALARY BONUS SATION ($) (SHARES) SATION(2)
--------------------- ---- ------- ------- ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
James G. Cleveland........................ 2000 269,471 0 0 0 0 383,800(7)
Executive Vice President, Americas 1999 333,655 0 0 0 40,000* 5,000
from March 1999 to January 2000 1998 275,000 200,000 0 0 0 3,173
Peter Lomax............................... 1999 234,148 30,090 11,470(7) 0 15,000! 17,639(8)
Executive Vice President,
Europe/Middle East/Africa
</TABLE>
---------------
! Option for the purchase of the indicated number of shares of Telxon Common
Stock granted to the named executive officer pursuant to the Telxon
Corporation 1990 Stock Option Plan for employees (the "Employee Option
Plan"), except that 400,000 of the stock options to Mr. Paxton were granted
outside the Employee Option Plan as part of an inducement essential to his
entering into an employment agreement to join the Company as its new
President, Chairman of the Board and Chief Executive Officer.
* Option for the purchase of the indicated number of shares of common stock of
Aironet Wireless Communications, Inc. ("Aironet", a majority-owned
subsidiary of the Company until the initial public offering of Aironet
common stock on July 30, 1999; Aironet was subsequently acquired by Cisco
Systems, Inc. in March 2000 at an exercise price of $3.50 per share under
the Aironet 1996 Stock Option Plan for employees, directors and advisors (as
amended through March 31, 1998, the "Aironet Option Plan"), granted by
Aironet to the named executive officer as an advisor to Aironet.
(1) Except as otherwise indicated by limiting dates, each of the named
executive officers presently holds the position(s) indicated.
(2) Except as otherwise footnoted, the amounts shown are matching contributions
made by the Company under its Retirement and Uniform Matching Profit
Sharing (401(k)) Plan ("401(k) Matching Contribution").
(3) The amount shown is the portion of his annual salary which accrued during
the portion of Fiscal 1999 after he joined the Company on March 22, 1999.
(4) In addition to these stock options granted to Mr. Paxton, the Company
agreed to sell to Mr. Paxton, as part of an inducement essential to his
entering into an employment agreement to join the Company, and Mr. Paxton
agreed to purchase, 300,000 shares of Company Common Stock at a price of
$8.719 per share (equal to the closing sale price for the Common Stock as
reported on The Nasdaq Stock Market's National Market (the "Nasdaq NNM")
for the last trading day prior to his entering into the Company's employ);
Mr. Paxton completed that stock purchase on February 2, 2000.
97
<PAGE> 5
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
(5) Mr. Biggs' compensation as the Company's Chief Technical Officer under
his employment agreement consists of an award of 35,000 shares of
restricted stock that was approved by the Company's Board of Directors
on August 30, 1999. The amount shown represents the value of the shares
at the closing price per share for the Company's common stock as
reported on the Nasdaq NNM on the date of award. At March 31, 2000,
10,000 of those restricted shares remained unvested, subject to his
continued performance of his services under the employment agreeement;
based on the closing price for the Company's common stock as reported
on the Nasdaq NNM on March 30, 2000, the value of the unvested shares
on that date was $175,630.
(6) Reimbursement of relocation and/or temporary living expenses.
(7) In addition to a $4,297 401(k) Matching Contribution, includes a
$14,274 payment for accrued but unused vacation and payments of and
accruals for severance benefits aggregating $356,534 in respect of
salary continuation plus $8,147 in respect of medical insurance.
(8) Company contribution to personal retirement plan.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Mr. Paxton serves as Chairman of the Board of Directors and Chief
Executive Officer of the Company through March 31, 2002 at a base salary of
$800,000 per year. Mr. Paxton's employment agreement further provides for
annual bonus compensation of up to $600,000 per year if he meets or exceeds the
annual goals to be agreed upon between him and the Company's Board of Directors,
components of which shall include operating earnings, backlog, revenue,
inventory, quality control and cash flow. The employment agreement also
obligated the Company to pay his transitional living expenses (housing, ground
and air transportation), "grossed-up" for taxes, through March 31, 2000. The
Company also pays the premium (currently $7,835 per year) under a $1 million
term life insurance policy obtained by Mr. Paxton in April 2000, the benefits
of which are payable to such beneficiary(ies) as he may designate.
98
<PAGE> 6
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
If Mr. Paxton's employment is terminated by the Company for other than
"cause" (defined in his employment agreement as behavior of Employee which is
adverse to the Company's interests, including dishonesty, grossly negligent
misconduct, willful misconduct, disloyalty, acts of bad faith, neglect of duty
or material breach of the employment agreement or of any other Company agreement
with him or Company policy applicable to its employees generally), his
employment agreement obligates the Company to pay a severance benefit to him at
a rate equal to his base salary for the greater of 24 months or the remaining
term of the agreement, as well as his basic medical insurance premiums for 18
months. A resignation by Mr. Paxton following the Company's assignment of him to
serve in any capacity other than his current offices or to perform tasks
inconsistent with such positions will be deemed a termination by the Company
without "cause" entitling him to the foregoing severance and insurance. Mr.
Paxton is also entitled to the severance benefit if his employment agreement
expires without renewal or extension. If any of the foregoing employment
terminations occurs after a "change in control" of the Company of a nature which
the Company would be required to report in its filings with the SEC (including,
without limitation, (a) the acquisition by any person, entity or group of
beneficial ownership of 15% or more of the combined voting power of the
Company's securities in the election of directors, (b) liquidation of all or
substantially all of the Company's assets or a merger, consolidation or
reorganization in which neither the Company nor any entity in which the
Company's stockholders own at least 50% of the voting power is the surviving
entity, and (c) the current directors of the Company, or persons approved by
them to succeed them (such current and successor directors constituting
"Continuing Directors"), ceasing to constitute at least a majority of the
Board), the severance benefit payable to Mr. Paxton is increased to an amount
equal to 2.99 times his base salary and, to the extent that such payment and/or
any other payments which he has the right to receive from the Company would
constitute, alone or in the aggregate, an "excess parachute payment" under
Section 280G of the Internal Revenue Code, payment by the Company of any excise
tax imposed on such payments and any taxes due as the result of the Company's
payment of such excise tax and other taxes, as well as the acceleration of the
vesting of all then outstanding stock option grants and the ability to exercise
all of his stock options for their full original terms. In the event of a Change
in Control, Mr. Paxton has the right to elect to terminate his employment within
30 days of such event without regard to his reason therefor or within two years
of the Change in Control if he has "Good Reason" (defined to include a reduction
in his salary or benefits from pre-change in control levels or a requirement
that he relocate from, or be based anywhere other than, the metropolitan area
where his office is located prior to the change in control) to resign; upon any
such election, Mr. Paxton is entitled to receive the increased severance and
insurance benefits. If his employment is terminated by the Company within two
years after a Change in Control, Mr. Paxton is entitled, until replacement
benefits may be provided by a successor employer, to up to two years of
continued employee welfare benefits.
Mr. Murphy has an employment agreement with the Company for a term ending
March 31, 2003, at a base salary of $325,000 per year. His employment agreement
further provides for bonus compensation for each fiscal year during the term as
determined by the Board of Directors in its discretion based upon the
recommendation of the Chief Executive Officer or such other supervising officer
as the Chief Executive Officer shall designate (the "Supervising Officer"). The
agreement provides for a bonus potential for fiscal 2001 of up to $200,000. His
employment also provides for his receipt of a $450,000 promotion bonus, the
first $150,000 installment of which has been paid and the remaining two $150,000
installments are payable March 31, 2001 and March 31, 2002. Mr. Murphy or his
estate is entitled under the employment agreement to the same disability and
death benefits as are extended by the Company to its executive employees
generally, and he is also entitled to severance benefits of twelve months base
salary and, until replacement benefits may be provided by a successor employer,
up to twelve months of continued employee welfare benefits in the event that his
employment is terminated by the Company for other than "cause".
By letter agreement, Mr. Biggs' employment has been continued at a salary
of $250,000 per year, beginning August 7, 2000, with an annual bonus potential
of 35% of his salary. His current employment agreement, which expires on August
6, 2000, provides for his receipt of 35,000 shares of restricted stock in full
payment for his services thereunder. The restricted stock vests, subject to his
continued employment, in installments over the term of the original agreement.
Of the restricted shares, 10,000 shares remain unvested and subject to
forfeiture until he completes his original term of service, at which time the
shares will vest. His employment agreement also provides for the vesting of the
shares in the event (a) Mr. Biggs' employment is terminated other than (i) by
reason of his death or permanent disability or (ii) for cause, or (b) any of the
following events (each a "Change in Control Event") occurs: (i) Mr Paxton ceases
for any reason to be the Company's chief executive officer, (ii) the
consummation of a transaction requiring stockholder approval and involving the
sale of all or substantially all of the Company's assets or the merger or
consolidation of the Company with or into another corporation, or (iii) any
person, entity or group becoming the beneficial owner of Company securities
representing 50% or more of the combined voting power of the Company's then
outstanding securities. Vesting is also accelerated on a pro rata basis in the
event of Mr. Biggs' death or permanent disability. Under the letter agreement,
he is entitled to a one-year severance benefit in the event of a Change in
Control Event, a six months' severance if he leaves Telxon after August 7, 2001,
provided that he assists the Company is finding and training a qualified
replacement for him. The letter agreement also provides for the continuation of
the living expense allowance for housing, airfare and automobile expenses
provided for under his original employment agreement. Mr. Biggs or his estate is
entitled to the same disability and death benefits as are extended by the
Company to its executive employees generally.
Mr. Cassady has an employment agreement with the Company for a term
ending June 6, 2002, at a base salary of $350,000 per year. His employment
agreement further provides for bonus compensation for each fiscal year during
the term as determined by the Board of Directors in its discretion based upon
the recommendation of the Supervising Officer. Mr. Cassady or his estate is
entitled under the employment agreement to the same disability and death
benefits as are extended by the Company to its executive employees generally,
and he is also entitled to severance benefits of twelve months base salary and,
until replacement benefits may be provided by a successor employer, up to twelve
months of continued employee welfare benefits in the event that his employment
is terminated by the Company for other than "cause".
99
<PAGE> 7
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
The Company has also entered into letter agreements with Messrs. Cassady
and Murphy providing for certain severance benefits in the event such officer's
employment with the Company is terminated under certain circumstances within two
years after a "change in control" of the Company. If the officer's employment is
terminated by the Company or its successor other than for "cause", disability or
at retirement age or by the officer for "good reason", the officer is entitled
to a lump sum payment equal to two times his annual salary as in effect prior to
the change in control, continued benefits under all insured and self-insured
welfare benefit plans in effect prior to the employment termination date for a
period of two years or until such earlier date as the officer receives
equivalent benefits from a new employer or reaches retirement age (in which case
the terms of any retirement plan shall apply), and to the extent that such
payment and/or any other payments which he has the right to receive from the
Company would constitute, alone or in the aggregate, an "excess parachute
payment" under Section 280G of the Internal Revenue Code, payment by the Company
of any excise tax imposed on such payments and any taxes due as the result of
the Company's payment of such excise tax and other taxes. "Good reason" will
exist for an officer to terminate his own employment without losing his
entitlement to such benefits if, without the officer's prior written consent,
his job status, positions or responsibilities are reduced or otherwise
inconsistent with those prior to the change in control, his salary or benefits
are reduced from pre-change in control levels or he is required to relocate
from, or be based anywhere other than, the metropolitan area where his office is
located prior to the change in control. The events constituting a "change in
control" following which the letter agreement's severance provisions apply are
events of a nature which the Company would be required to report in its filings
with the SEC, including, without limitation, (a) the acquisition by any person,
entity or group of beneficial ownership of 15% or more of the combined voting
power of the Company's securities in the election of directors, (b) liquidation
of all or substantially all of the Company's assets or a merger, consolidation
or reorganization in which neither the Company nor any entity in which the
Company's stockholders own at least 50% of the voting power is the surviving
entity, and (c) the current directors of the Company, or persons approved by
them to succeed them, ceasing to constitute at least a majority of the Board;
provided that any of the foregoing events shall not constitute a "change in
control" if the officer or a group of which he is a part acquires, directly or
indirectly, 15% or more of the combined voting power of the Company's
securities.
Each of the Employee Option Plan and Restricted Stock Plan under which one
or more of the Company's executive officers have received grants or awards
provide for the cancellation or forfeiture of then unvested stock options or
restricted stock, and a limited, 30-day post-termination period for exercising
his then vested stock options (generally extended to three months in the case of
retirement, six months in the case of death and one year in the case of
disability), in the event the recipient ceases to be employed by or an advisor
to the granting or awarding entity, subject to the acceleration of vesting
and/or the extension of the post-termination exercise period by the
administering authority in its discretion. In the event of a "change in control"
of the issuing entity, each of the Plans provides that, except as otherwise
determined at the time by the board of directors of the issuing entity, all
grants and awards then outstanding thereunder shall become fully vested, and the
Employee Option Plan further provides that, except as otherwise determined at
the time by the applicable board of directors, a cash payment shall be made to
the holders of outstanding options equal to the amount by which (i) the highest
price paid or offered in any transaction related to the "change in control", or
at which the underlying stock has traded on any securities market, within the
preceding 60 days, as determined by the board, exceeds (ii) the exercise price.
The Employee Option Plan and the Restricted Stock Plan
100
<PAGE> 8
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
define "change in control" to mean (1) the acquisition by any person, entity or
group of beneficial ownership of 50% or more of the combined voting power of the
issuing entity's then outstanding securities, or (2) the consummation of a
transaction requiring stockholder approval and involving the sale of all or
substantially all of the assets, or a merger or consolidation, of the issuing
entity.
EMPLOYEE STOCK OPTIONS
The following tables provide information with respect to options granted
to, and exercises by, the persons indicated during Fiscal 2000 and the value of
unexercised options held by such persons at the end of Fiscal 2000.
OPTION GRANTS IN FISCAL 2000
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
PERCENT OF
TOTAL
OPTIONS
GRANTED
TO
EMPLOYEES GRANT
OPTIONS IN EXERCISE DATE
GRANTED FISCAL PRICE EXPIRATION PRESENT
NAME (SHARES)(1) 2000 (PER SHARE)(2) DATE VALUE
---- ---------- ---------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
John W. Paxton, Sr........... - - - - -
William J. Murphy............ 46,500 3% $22.156 03/03/08 $ 865,365(3)
5,000(4) 2% $15.063 03/07/05 $ 432,250(5)
David H. Biggs............... - - - - -
Kenneth A. Cassady........... 350,000 26% $ 9.821 06/07/07 $2,009,000(6)
James G. Cleveland........... - - - - -
Peter Lomax.................. 15,000 2% $ 7.97 09/22/07 $ 70,650(7)
</TABLE>
---------------
101
<PAGE> 9
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
(1) Except as otherwise footnoted, granted under the Employee Option Plan and
becoming exercisable as to one-third of the underlying shares on a
cumulative basis on each of the first three anniversaries of the grant date.
(2) In the case of options granted under the Employee Option Plan, the exercise
price shown is equal to the closing sale price for the Common Stock as
reported on the Nasdaq NNM for the last trading day prior to the grant date.
(3) Present value of the option as of the date of grant, calculated using the
Black-Scholes option valuation model under the following assumptions: (a)
based upon the Company's review of historical data concerning the exercise
by employees of options for Shares granted under the Company's stock option
plans and survey data concerning the experience of other companies, an
executive may typically be expected to hold an option with a stated term of
eight years for five years prior to exercise; (b) a stock price volatility
of 72.92% (based on the changes in the market price for Shares over the five
fiscal year period ended March 31, 2000, the length of which period
corresponds to the expected holding period assumed in (a) above); (c) a
risk-free interest rate of 6.66% (based on risk free rate is the rate on
U.S. zero coupon bonds with a life equal to that of the options.)
(4) Granted outside the Employee Option Plan at an exercise price per share
negotiated as part of the terms of Mr. Murphy's agreement to become the
Company's Executive Vice President, Americas, based on the market price for
the Company's common stock as of the time he assumed those duties. Fully
exercisable as of the date of grant.
(5) Present value of the option as of the date of grant, calculated using the
Black-Scholes option valuation model under the following assumptions: (a)
based upon the Company's review of historical data concerning the exercise
by employees of options for Shares granted under the Company's stock option
plans and survey data concerning the experience of other companies, an
executive may typically be expected to hold an option with a stated term of
five years for three years prior to exercise; (b) a stock price volatility
of 81.15% (based on the changes in the market price for Shares over the
three fiscal year period ended March 31, 2000, the length of which period
corresponds to the expected holding period assumed in (a) above); (c) a
risk-free interest rate of 6.64% (based on risk free rate is the rate on
U.S. zero coupon bonds with a life equal to that of the options.)
(6) Present value of the option as of the date of grant, calculated using the
Black-Scholes option valuation model under the following assumptions: (a)
based upon the Company's review of historical data concerning the exercise
by employees of options for Shares granted under the Company's stock option
plans and survey data concerning the experience of other companies, an
executive may typically be expected to hold an option with a stated term of
eight years for five years prior to exercise; (b) a stock price volatility
of 69.77% (based on the changes in the market price for Shares over the five
fiscal year period ended March 31, 2000, the length of which period
corresponds to the expected holding period assumed in (a) above); (c) a
risk-free interest rate of 5.86% (based on risk free rate is the rate on
U.S. zero coupon bonds with a life equal to that of the options.)
(7) Present value of the option as of the date of grant, calculated using the
Black-Scholes option valuation model under the following assumptions: (a)
based upon the Company's review of historical data concerning the exercise
by employees of options for Shares granted under the Company's stock option
plans and survey data concerning the experience of other companies, an
executive may typically be expected to hold an option with a stated term of
eight years for five years prior to exercise; (b) a stock price volatility
of 70.75% (based on the changes in the market price for Shares over the five
fiscal year period ended March 31, 2000, the length of which period
corresponds to the expected holding period assumed in (a) above); (c) a
risk-free interest rate of 5.93% (based on risk free rate is the rate on
U.S. zero coupon bonds with a life equal to that of the options.)
102
<PAGE> 10
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
AGGREGATED OPTION EXERCISES IN FISCAL 2000
AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
EXERCISES DURING
FISCAL 2000 FISCAL YEAR-END
-------------------- ------------------------------------------------------------
SHARES NUMBER OF VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(1)
ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Paxton, Sr..... -- -- 400,000! 300,000! $3,537,400 $2,653,050
William J. Murphy...... 70,000 $298,672 245,000! 46,500! $ 377,488 --
David H. Biggs......... -- -- -- -- -- --
Kenneth A. Cassady..... -- -- -- 350,000 -- $2,898,525
James G. Cleveland..... 129,998! $545,363 -- -- -- --
40,000* $2,695,000 -- -- -- --
Peter Lomax............ -- -- 14,999! 35,001! -- $ 143,888
</TABLE>
103
<PAGE> 11
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
---------------
! Options for the purchase of the indicated number of shares of Telxon Common
Stock granted to the named executive officer pursuant to the Employee Option
Plan except as otherwise explained in footnote (4) to the table of Fiscal
2000 Option Grants above with respect to 25,000 of the option shares
granted to Mr. Murphy.
* Option for the purchase of the indicated number of shares of common stock of
the Company's former Aironet subsidiary granted to the named executive
officer as an advisor to Aironet pursuant to Aironet's stock option plan.
(1) Aggregate fair market value, based, in the case of options for the purchase
of Telxon Common Stock, on the amount by which the closing sale price for
Telxon Common Stock as reported on the Nasdaq NNM for March 31, 2000
exceeded the exercise price of all unexercised "in-the-money" (fair market
value per share in excess of exercise price) Telxon stock options then held.
COMPENSATION OF DIRECTORS
CASH COMPENSATION
The Company's non-employee directors each receive an annual fee of $25,000
per year. The non-employee directors also receive $2,500 plus travel expenses
for each day of attendance at directors' meetings ($1,250 for a telephonic
meeting), and $2,500 for each Audit Committee or Compensation Committee meeting
attended (either as a member thereof or at the request of the Committee), unless
the committee and the full Board meet on the same day, in which event
compensation in the amount of $1,250 is paid for attendance at such committee
meeting.
Mr. Paxton, by reason of also being an employee of the Company, does not
receive any compensation from the Company for his services as a director (see
"COMPENSATION OF EXECUTIVE OFFICERS" above for the compensation payable to him
in his capacity as an executive officer of the Company).
STOCK OPTIONS
Directors who are not employees of the Company or a subsidiary are eligible
to receive options to purchase Shares under the Company's 1990 Stock Option Plan
for Non-Employee Directors (as amended the "Director Option Plan"). However, all
shares of Company Common Stock authorized for issuance under the Director Option
Plan have been fully utilized for the granting of options thereunder. The
Director Option Plan provides for each non-employee director to be automatically
granted an option to purchase 25,000 Shares upon first being elected to the
Board (an "Initial Grant") and to be automatically granted annually thereafter a
10,000 Share option (each a "Continuing Grant") on each anniversary of his last
election to the Board during his continued
104
<PAGE> 12
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
service on the Board. An Initial Grant becomes exercisable in equal thirds on
each of the first three anniversaries of the grant date, whereas each Continuing
Grant becomes exercisable in full on the third anniversary of its grant date.
The Director Option Plan also permits the Board to make discretionary option
grants under the Director Option Plan to any one or more of the Company's
non-employee directors from time to time in addition to the foregoing automatic
grants. Each option granted under the Director Option Plan has a seven-year
term, which may be extended up to ten (10) years, and an option price per Share
equal to the closing sales price of the Common Stock as reported on the Nasdaq
for the trading day immediately preceding the date of grant. The options
terminate three months following the optionee no longer being a director of the
Company, six months following death and one year following disability. Options
granted under the Director Option Plan are subject to the same "change in
control" provisions as apply under the Employee Option Plan described under
"EXECUTIVE COMPENSATION -- Employment Agreements and Termination of Employment
Arrangements" above.
OTHER ARRANGEMENTS
Prior to his election to the Company's Board of Directors, the Company
engaged R. Dave Garwood to provide employee training and consulting services to
the Company valued at $154,000 relating to the adoption and implementation of
its MRP-II material resource planning process. Mr. Garwood agreed to accept
20,197 shares of Company common stock as payment for his services. The shares
vested in two approximately equal installments at the midpoint of the
engagement and upon its completion in June 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As part of its five-year plan, "Telxon 2000," announced in August 1995,
the Company established a program providing key Telxon employees with a
long-term incentive opportunity to purchase stock in its technology
subsidiaries, thereby encouraging them to support the development of the
subsidiaries and their businesses with the same effort and dedication as in
their service to Telxon so as to more closely align their objectives with the
long-term goals of the Company as a whole. During the fiscal year ended March
31, 1996 ("Fiscal 1996"), the Company sold shares of common stock in its
Metanetics Corporation subsidiary ("Metanetics") under the program at a price
per share equal to that paid in a contemporaneous sale negotiated at arm's
length with a third party investor. John H. Cribb, then an officer of the
Company and now a member of its Board of Directors and its Compensation
Committee, purchased 30,000 Metanetics Shares. In February 2000, the Company
repurchased all of the outstanding minority stockholdings in Metanetics,
including Mr. Cribb's shares, at a price of $6.73 per share. As a result, Mr.
Cribb received a cash payment of $201,900 from the Company for his Metanetics
shares, representing an approximately 0.6% interest in Metanetics at the time
of the repurchase.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Based on the copies of the Schedule 13Gs received by the Company since the
beginning of Fiscal 2000, and updated based upon the most recently available
CDA/Spectrum Filing Report to which the Company subscribes, the following table
sets forth certain information concerning the persons known to be beneficial
owners of more than five percent of the outstanding shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS ---------------------------
OF BENEFICIAL OWNER NUMBER PERCENTAGE(1)
------------------- ------ -------------
<S> <C> <C>
Putnam Investment Management, Inc.(2) 1,220,531 7.0%
One Post Office Square
Boston Massachusetts 02109
ICM Asset Management Inc. (3) 1,092,850 6.3%
601 W. Main Avenue
Suite 600
Spokane, Washington 99201
</TABLE>
----------------
(1) Computed based upon 17,511,472 Shares outstanding as of June 30, 2000.
(2) An investment advisor registered under section 203 of the Investment
Advisors Act of 1940. An investment advisor registered under Section 203 of
the Investment Advisors Act of 1940. Putnam Investment Management, Inc.'s
clients have granted it shared dispositive power, and in some instances
shared voting power, any and all of which authority may be revoked in whole
or in part at any time.
(3) An investment advisor registered under Section 203 of the Investment
Advisors Act of 1940. ICM Asset Management, Inc.'s clients have granted it
discretionary dispositive power, and in some instances voting power, any
and all of which discretionary authority may be revoked in whole or in part
at any time.
COMMON STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the outstanding Shares, as of June 30, 2000, by all
directors of the Company, by the executive officers of the Company named in the
Summary Compensation Table, and by the directors, the named executive officers
and all other current executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS(1) --------------------------
OF BENEFICIAL OWNER NUMBER PERCENTAGE(2)
------------------- --------- -------------
<S> <C> <C>
David H. Biggs.............................................. 35,000(3) *
Kenneth A. Cassady.......................................... 127,166(4) *
James G. Cleveland.......................................... 600
John H. Cribb............................................... 54,113(5) *
J. James Gallagher.......................................... -- --
R. David Garwood............................................ 50,197 *
Robert A. Goodman........................................... 131,503(6) *
L. Michael Hone............................................. 800 *
Dennis J. Lehr.............................................. 1,000 *
Peter Lomax................................................. 23,332(7) *
William J. Murphy........................................... 288,000(8) 1.6%
John W. Paxton, Sr.......................................... 700,000(9) 3.9%
Raj Reddy................................................... 94,914(10) *
All directors and executive officers as a group
(15 persons).............................................. 1,531,625(11) 8.3%
</TABLE>
---------------
* less than 1 percent
(1) The address for the named individuals is 1000 Summit Drive, Cincinnati,
Ohio 45150.
105
<PAGE> 13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT (CONTINUED)
(2) Computed based upon the 17,511,472 Shares outstanding as of June 30, 2000,
as adjusted with respect to the Shares which may be acquired within 60 days
(measured from June 30, 2000) by exercise of options by the person(s) whose
percentage ownership is being computed.
(3) Includes 10,000 Shares awarded under the Restricted Stock Plan which will
vest on August 6, 2000.
(4) Includes 116,666 Shares which he may acquire within 60 days by exercise of
options.
(5) Includes 7,800 Shares owned by Mr. Cribb's wife, as to which Shares Mr.
Cribb disclaims beneficial ownership, and 37,313 Shares which he may
acquire within 60 days by exercise of options.
(6) Includes 10,900 Shares owned by Mr. Goodman's wife, as to which Shares Mr.
Goodman disclaims beneficial ownership, and 107,313 Shares which he may
acquire within 60 days by exercise of options.
(7) Includes 23,332 Shares which he may acquire within 60 days by exercise of
options.
(8) Includes 245,000 Shares which he may acquire within 60 days by exercise of
options.
(9) Includes 400,000 Shares which he may acquire within 60 days by exercise of
options.
(10) Includes 72,314 Shares which he may acquire within 60 days by exercise of
options.
(11) Includes 25,000 Shares which may be acquired within 60 days by
exercise of options.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
During Fiscal 2000, the Company made personal loans to John W. Paxton,
Sr., the Company's Chairman of the Board and Chief Executive Officer,
consisting of advances of $300,000 on August 31, 1999 and an additional $300,000
on September 23, 1999. These advances bear interest at prime plus 1-1/2% and are
due and payable in full on September 22, 2000. The full $600,000 principal and
$32,283 in accrued interest were owing under these advances at March 31, 2000.
Subsequent to the end of Fiscal 2000, the Company on April 26, 2000 loaned Mr.
Paxton $3,100,000 for his use in refinancing a loan he had obtained from a
financial institution to fund his February 2, 2000 purchase of the 300,000
shares of Company common stock he had agreed to purchase under the terms of his
employment agreement. This loan also bears interest at prime plus 1-1/2% and is
due and payable in full after the shares are registered under the Securities
Act of 1933 so as to facilitate his obtaining of financing from a financial
institution to repay this loan from the Company.
As part of Telxon 2000, the Company during Fiscal 1996 sold shares of
common stock in Metanetics under the program at a price per share equal to that
paid in a contemporaneous sale negotiated at arm's length with a third party
investor. Certain of those program purchases, including 10,000 Metanetics
shares purchased by James G. Cleveland, the Company's former Executive Vice
President, Americas, and 100,000 Metanetics shares purchased by William J.
Murphy, the Company's current Executive Vice President, Americas, were made
with loans approved by the Telxon Board of Directors, bearing interest at
eight percent per annum and secured by the stock purchased with the loan
proceeds. In connection with the Company's February 2000 repurchase of all the
outstanding minority stockholdings in Metanetics, including the shares of
Messrs. Cleveland and Murphy, at a price of $6.73 per share, Mr. Cleveland
received a cash payment of $56,458 from the Company for his Metanetics shares,
representing an approximately 0.2% interest in Metanetics at the time of the
repurchase, and Mr. Murphy received a cash payment of $651,521 from the Company
for his Metanetics shares, representing an approximately 2.1% interest in
Metanetics at the time of the repurchase. The foregoing cash payments reflect
the deduction from the gross repurchase price otherwise payable to them of the
stock purchase loan balances of $10,842 and $21,479 owed by Messrs. Cleveland
and Murphy, respectively.
106
<PAGE> 14
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS (CONTINUED)
During Fiscal 2000, the Company paid to the law firm of Goodman Weiss
Miller LLP, of which Robert A. Goodman, a director and Secretary of the
Company, was senior partner until becoming "of counsel" to that firm effective
January 1, 2000, $2,102,678 for legal services and $212,777 in reimbursement of
expenses. In January 1998, the Company, in order to assure itself of the
continued availability to it of Mr. Goodman's legal services, entered into a
letter agreement with Mr. Goodman in which he has agreed to provide advice to
the Company on a non-exclusive basis regarding legal matters relating to the
Company's business after he ceases full-time practice with his law firm. By
its terms, the consulting engagement took effect when Mr. Goodman became "of
counsel" to the law firm on January 1, 2000 and will expire on January 1, 2010,
unless sooner terminated in accordance with the consulting agreement. Consulting
fees of $150,000 per annum (the "Consulting Payments") will be paid by the
Company over the term of the agreement, along with reimbursement of reasonable
expenses incurred by Mr. Goodman. Earlier termination may occur (1) by
Mr. Goodman for "Good Reason", defined as a material breach of the agreement by
the Company which is not cured within ten (10) business days of receipt by the
Company of written notice, (2) by the Company for "Cause", defined as a material
breach of the agreement by Mr. Goodman which is not cured within ten (10)
business days of receipt by Mr. Goodman of written notice, (3) by death or
disability of Mr. Goodman or (4) by a "Change in Control" of the Company. For
purposes of the consulting agreement, the occurrence of any of the following
shall constitute a "Change in Control": (i) the acquisition, directly or
indirectly, of at least 30% of the outstanding common stock of, or voting power
in, the Company calculated on a fully diluted basis; (ii) a merger or
consolidation of the Company with any company other than one in which the
Company then owns at least a majority of the outstanding common stock or voting
power; (iii) a sale (whether in one or a series of transactions) of all or
substantially all of the assets of the Company; (iv) any recapitalization,
restructuring or liquidation of the Company; or (v) events during any period of
two consecutive years as a result of which individuals who at the beginning of
any such period constitute the directors of the Company cease for any reason to
constitute at least a majority thereof, provided, however, that for purposes of
this clause (v), each director who is first appointed or elected by the Board or
whose nomination for election by the Company's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors on the date of the consulting agreement or
whose appointment, election or nomination was previously so approved or
recommended will be deemed to have been a Director of the Company at the
beginning of such period. In the event of a termination by Mr. Goodman for Good
Reason or termination because of death, disability or the occurrence of a
Change in Control, Mr. Goodman is entitled to a lump sum cash payment of the
unpaid balance of the Consulting Payments, payable within 10 days of such
termination. If the Company terminates the consulting agreement for Cause, Mr.
Goodman is entitled to no further compensation under the consulting agreement.
107
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 2 on Form 10-K/A to be signed on
its behalf by the undersigned, thereunto duly authorized.
TELXON CORPORATION
Date: July 28, 2000 By: /s/ WOODY M. MCGEE
-------------------------------
Woody M. McGee, Vice President
and Chief Financial Officer
118
